Economists speculate over Greenspan’s future

US FEDERAL Reserve chairman Alan Greenspan’s pointed criticism of the President Bush tax plan show that Greenspan often taken to task for being too murky in his economic pronouncements, can be crystal clear when he wants to be.

The Federal Reserve chairman warned that further tax cuts should be paid for, leading Democrats to proclaim that Greenspan had delivered the 'kiss of death' for President Bush's $1.3 trillion proposal.

GOP lawmakers fumed. Greenspan, himself a Republican, had stabbed them in the back.

The White House went into damage-control mode, pointing out that Greenspan had endorsed the plan's centrepiece, elimination of the tax on stock dividends.

Private economists saw the episode last week as remarkable given Greenspan's deft touch, after more than 15 years on the job, in avoiding political mine fields. They wondered if Greenspan's blunt words were a sign of a man no longer worried about his future.

"It appears as though Greenspan either does not want to be reappointed as Fed chairman next year or has learned that he will not be reappointed," said Paul Kasriel, chief economist at Northern Trust Co. in Chicago.

Presidential aides dismissed speculation that Greenspan's comments indicated a serious rift between the Fed and Bush, or that the administration had decided on a new successor.

"His term is not even expired until the middle of next year, so it's sort of silly to begin speculating about that," White House spokeswoman Claire Buchan said.

Greenspan's latest comments certainly differed from his remarks about Bush's first tax cut, a $1.35 trillion, 10-year reduction that Congress passed in 2001.

Greenspan came out in favour of a big tax cut that year and gave a major push to the new president. Greenspan reasoned that the 10-year projected surplus of $5.6 trillion gave Congress plenty of room to cut taxes and still accomplish his preferred goal: to reduce the national debt.

What was surprising about Greenspan's congressional testimony last week was not so much the warnings against further tax cuts, now that budget deficits have returned, but rather the extent of his criticism of the Bush program.

Greenspan said future tax cuts should be paid for, either by spending cuts or tax increases. Bush does not propose that. The Fed chairman also raised doubts about one of Bush's biggest selling points that the economy needs another round of government stimulus.