The Wall Street Journal-20080118-The Stimulus Debate- Bernanke Shows Agility on the Hill- Fed Chief Lauds Initiatives Of Democrats- Republicans- Avoids Political Minefields
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The Stimulus Debate: Bernanke Shows Agility on the Hill; Fed Chief Lauds Initiatives Of Democrats, Republicans, Avoids Political Minefields
WASHINGTON -- Two years into his tenure as Federal Reserve chairman, Ben Bernanke showed yesterday he has learned the secret to making friends in the nation's capital: Give a little of something to everyone.
In an appearance before the House Budget Committee, Mr. Bernanke pleased Democrats by stressing that the most effective stimulus for the flagging economy would be temporary and targeted toward lower- and middle-income Americans -- the ones most likely to spend. That gave Democrats ammunition to use against Republican lawmakers who want to extend President Bush's expiring tax cuts as part of any effort to boost the economy.
For Republicans, Mr. Bernanke -- a onetime economic adviser to Mr. Bush -- said the president's tax cuts in 2001 and 2003 bolstered an economy hit by recession. And he said that, in general, tax cuts can provide long-term benefits when coupled with government-spending reductions. He also noted that some measures promoted by Republicans, such as extending Bush tax breaks on dividends set to expire at the end of 2010, could help the economy today by boosting the stock market.
Rep. Paul Ryan of Wisconsin, the committee's ranking Republican, said Mr. Bernanke was wise to avoid "big political minefields. Everybody tried to draw him in. I don't think he took the bait."
Committee Chairman John Spratt, a South Carolina Democrat, meanwhile praised Mr. Bernanke's "very methodical and clear, unmistakable manner" for repeatedly distinguishing between short- and long-term problems that need to be addressed. "He made his point by persistence if nothing else," he said.
Testifying before Congress on questions of taxes and spending is among the most politically delicate tasks for any Fed chairman, and it tested the agility even of Washington veteran Alan Greenspan, Mr. Bernanke's predecessor at the Fed. In 1993, Chairman Greenspan disappointed congressional Republicans by effectively endorsing President Clinton's tax increases to lend support to the new president's resolve to reduce the deficit. And in 2001, with the government running a surplus, Mr. Greenspan lent support to President Bush's tax cuts, to the consternation of Democrats.
When Mr. Bernanke was nominated to be Fed chairman in 2005, he indicated he would be less vocal on economic matters outside of monetary policy than Mr. Greenspan had been, and yesterday he tried to stick to that goal.
"I'm going to try very hard today to avoid taking positions in favor of any specific tax or spending" proposals, he said early in the hearing, which ran almost three hours. He urged lawmakers to consider "a program that combined a number of elements" that "might in some sense address the problem from a number of different angles and be more effective than one that was only a single element."
Mr. Bernanke demonstrated a mastery of the art of commenting on proposals while appearing not to take a position. He was asked, for example, whether it would help jump-start the economy to make permanent the Bush tax cuts on income, dividends and capital gains, which are set to expire in 2010. He suggested there might be immediate benefits in making the dividend-tax cut permanent but stressed that to spur the economy in the short run, "measures that involve putting money in the hands of households and firms that will spend it in the near term will be more effective."
In that way, Mr. Bernanke's criteria for an effective stimulus package -- one that is "explicitly temporary" and designed to prop up spending in the coming year -- was a critical boost for Democratic efforts. But Mr. Bernanke, a former chairman of Mr. Bush's Council of Economic Advisers, also said that "low taxes tend to stimulate efficient economic behavior and stimulate growth" -- a common Republican refrain.
