The relative emphasis to be placed on public and private needs involves value judgments on which people differ. I am among those who believe that meeting these urgent public needs should be given extremely high priority in allocating the projected surpluses. To me, it seems short-sighted and counterproductive to commit most of the projected surplus to tax cuts now and then find ourselves without the resources to invest in the quality of education, health care coverage and retirement security that Americans need and deserve. See additional Economic Studies research on Tax and Fiscal Policy. It is especially important that tax cuts not be enacted for inappropriate reasons.
Monetary policy is a much more flexible instrument for fighting recession than tax policy.
Tax cuts take time to work their way through Congress and are likely to come into effect about the time the recession is over. Since a tax reduction that over-stimulates the economy is almost impossible to reverse, the likely result will be that the Federal Reserve will have to raise interest rates. If we want to promote economic growth, we would be better off with lower interest rates and tighter fiscal policy than with the opposite combination. Another rationale for near-term tax cuts was offered in recent testimony before this Committee by Federal Reserve Chairman Alan Greenspan. The Chairman is concerned that the projected surpluses will reduce the debt held by the public to such a low level that the government will find itself having to invest in nonfederal securities.