Greenspan, the man considered the chief mechanic of America's economic boom, told the Senate Budget Committee on Thursday that a bust is imminent and that a tax cut might help avert it.
"I was pleased to hear Mr. Greenspan's words. I thought they were measured and just right," Mr. Bush told reporters at the White House. "What Alan Greenspan was saying to the nation is that in order to make sure our economy grows, we've got to have good monetary policy and sound fiscal policy, a component of which is wise spending as well as tax relief."
Speaker of the House Dennis Hastert, R-Ill., said the Fed head's testimony "confirmed that the path advocated by President Bush and the Republican Congress is the right one. Fiscal discipline combined with tax relief will keep our economy growing."
However, Greenspan's words did not appear to sway Democrats, who feel the cut is too large, reports CBS News Chief White House Correspondent John Roberts.
Budget Committee member, Sen. Ernest Hollings, D-S.C., told Greenspan, "in all candor, you shock me with your statement" and Sen. Charles Schumer, D-N.Y., said, "I think the chairman, as much as I respect him, almost revere him, made a mistake...in what he said."
Greenspan's comments were a boon to Bush administration plans to propose sweeping tax cuts, as well as a possible hint that the Fed committee will cut interest rates when it meets next week, reports CBS News Business Correspondent Anthony Mason.
"As far as we can judge, we have had a very dramatic slowing down," Greenspan told the Senate Budget Committee of the current rate of economic growth. "We are probably very close to zero at this particular moment."
"The most recent data significantly raise the probability that sufficient resources will be available to undertake both debt reduction and surplus-lowering policy initiatives," Greenspan said. "Accordingly, the trade-off (between paying down the debt and other possibilities) faced earlier appears no longer an issue."
Greenspan refused in the question period to endorse a specific size for the tax cuts, saying that judgment was best left to Congress and the administration through the political process. Mr. Bush wants a $1.6 trillion cut over 10 years.
Nevertheless, Greenspan's apparent endorsement of cutting taxes represented a significant victory for the new administration.
"We are very heartened to see that Chairman Greenspan has weighed in on the importance of cutting taxes," White House spokesman Ari Fleischer said.
Supporters of the Bush plan contend that since richer taxpayers pay the bulk of America's income tax, they will receive the lion's share of the proposed reductions.
But Democrats, most of whom want more modest tax cuts, whipped out charts and graphs Thursday drawing battle lines over a tax plan they claim will bring back the bad old days of deficits. Senate Minority Leader Tom Daschle, D.-S.D., claimed Mr. Bush's tax cut would end up costing $2.2 trillion not $1.6 trillion.
Greenspan urged caution, suggesting that Congress consider some type of trigger to trim government spending or tax cuts if the budget surpluses aren't as large as currently estimated.
His comments on economic conditions were the first he has made since the Federal Reserve announced a surprise one-half-point cut in interest rates Jan. 3.
While he refused to answer a direct question over whether the Fed will cut rates again at its meeting next week, his comments about the sharp slowdown and the absence of inflation pressures sent a strong signal that further rate cuts will be forthcoming.
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