Federal Reserve chairman Alan Greenspan said President George Bush's plan to eliminate the double taxation of dividends would have a stimulative effect on the US economy. Ending the double taxation of dividends "does have some short-term stimulus," Greenspan told the House Financial Services Committee. "It probably will increase the levels of stock prices and the wealth effect accordingly, and there are some small income effects," Greenspan said at the start of his second day of testimony to Congress on the economy and monetary policy.
Yesterday, the dollar took a knock when the Fed chief warned of the need for policy caution in the face of swelling budget deficits. And although he appeared supportive of Bush's tax policy today, he also said such a measure should only be passed if other revenue could be found to replace the tax revenue lost in the USD674bn package proposed last month. In his comments today, he said Congress must take action to rein in spending or else it faces an " unsustainable" debt burden by 2010 when the baby boomers born in the post WWII years begin to retire. //www.fxcentre.com