WASHINGTON — Federal Reserve Chairman Alan Greenspan weighed into the debate over President Bush’s proposed tax cut Tuesday, voicing concern about the rising federal budget deficit and questioning the need for a new economic stimulus package.
He also surprised some analysts with a cautiously upbeat assessment of the U.S. economy’s prospects, though he said that fears of war with Iraq make it difficult to gauge the economy’s underlying health.
Greenspan’s testimony to the Senate Banking Committee is likely to bolster Democratic opposition to Bush’s proposal to reduce taxes to boost economic growth. Bush shocked many lawmakers and analysts last week when he unveiled a tax cut and budget proposal that his administration estimates will push up the annual deficit to $300 billion.
A budget deficit of $100 billion to $200 billion is manageable, Greenspan said, implying that anything larger risks a dangerous hike in the federal government’s debt.
“A rise in the debt increases the amount of interest payments, which in turn increases the debt still further, and there is an accelerating pattern after you reach a certain point of no return,” he said.

— Ken Moritsugu, Knight

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