-Repeating Story Initially Transmitted at 11:40 EST 02/12
--Senate Banking Committee Democrats are Poised to Pounce on Former
Treasury Secretary Rubin's Plea for a Cautious Fiscal Policy

By John Shaw
WASHINGTON (MktNews) - Congressional hearings are often quirky and untidy proceedings in which it is difficult to predict what will happen.
However, when Federal Reserve Chairman Alan Greenspan testifies Tuesday morning before the Senate Banking Committee two themes are certain to emerge.
First, while the hearing's purpose is to review the Fed's monetary policy, most of the hearing will focus on fiscal policy.
With the Fed aggressively cutting interest rates in the last month and a sketch of President Bush's $1.6 trillion tax cut plan before Congress, lawmakers are preoccupied with fiscal policy.
Second, Democrats on the Senate Banking panel are likely to be sharply critical of Greenspan for his recent support of deep tax cuts. They are likely to read to the Fed chairman long passages from recent opinion articles drafted by former Treasury secretary Robert Rubin and former Fed vice chair Alice Rivlin.
Rubin and Rivlin have recently offered sharply different views of fiscal policy than has Greenspan and Democrats are poised to embrace the strong record of these two respected economic policymakers in answering Greenspan.
Rubin broke his public silence on fiscal policy Sunday with an extensive, sharply worded essay in the New York Times.
Rubin said he was reluctant to enter the fiscal debate but felt compelled to do so.
"I feel so strongly that a tax cut of the magnitude proposed is a serious error in economic policy," he said.
Rubin argued that a tax cut of the size proposed by Bush "would substantially diminish the fiscal position of the federal government and would create a serious threat of deficits on the non-entitlement side of the federal budget. That, in turn, could increase interest rates and recreate the loss of consumer and business confidence associated with the deficits of the late 80s and early 90s."
The former Treasury secretary, whom many Democrats argue is as responsible for the prosperity of the late 1990s as was Greenspan, said fiscal policy should be cautious and conservative.
"It is wise to be prudent -- we should avoid committing ourselves to dramatic courses of action that are hard to reverse in the face of inherent uncertainties of any projections," he wrote.
"The fiscal discipline that was so central to the remarkable economic conditions of the past eight years is the best path for both our short-term and long-term economic well-being. ... We should continue with our hard-won fiscal discipline and not adopt a greatly outsized tax cut that seriously threatens the federal government's fiscal soundness," he added.
Rubin called for a "moderate tax cut, or even a special rebate" aimed at working people.
He said budget surpluses should be used for a balanced mix of tax cuts, debt reduction, and spending for health care and education.
While Rubin did not mention Greenspan in his essay, he took a few indirect swipes at the Fed chairman's policy views.
He dismissed Greenspan's concerns about the perils of "zero debt" world as premature. Rubin said a "moderate degree of prudence" argues for ensuring surpluses materialize before passing a large, multi-year tax cut. Rubin said there will be "plenty of time to deal with any concerns about the uses that might be made of the surplus after the debt is retired." Prior to Sunday, Rubin had been publicly silent about fiscal policy. Both he and former Treasury Secretary Larry Summers met privately with Democrats on the House Ways and Means Committee several weeks ago to discuss tax policy. Lawmakers said they urged Democrats to avoid a tax cutting bidding war. Greenspan is likely to get a frosty reaction Tuesday from Democrats on the Banking Committee. A number of Democrats argue that Greenspan's Jan. 25 testimony before the Senate Budget Committee has had the expected effect of igniting a tax cut bidding war. Sen. Paul Sarbanes, the ranking Democrat on the Banking panel, has been sharply critical of Greenspan's plunge into the fiscal policy debate. "There's not just a danger, but a pretty high probability that this thing will get out of hand. He's going to have to live with the consequences of what he's set off," Sarbanes told reporters several weeks ago.