WASHINGTON -- Federal Reserve Board Chairman Alan Greenspan acknowledged yesterday that the U.S. economy is at a standstill but urged Congress to be cautious about seeking any quick-fix tax cuts that would add to the federal budget deficit.

"Congress should approach with great caution any proposal that would expand the structural budget deficit," Mr. Greenspan told the House Ways and Means Committee.

Instead, he urged Congress to consider a cut in the capital gains tax or other measures to promote long-term savings and investment. Such measures "are likely to do as much, or more, for short-term economic expansion as a 'quick fix,'" he said.

In more than two hours of testimony and in his first congressional testimony since last July, Mr. Greenspan also conceded that the Fed was mistaken in its earlier assessment that the economy was recovering.

Instead, he said, the economy is continuing to struggle under high corporate and individual debt burdens and unusually low consumer confidence as people worry about the future.

"What we are looking at is a pause," he told the committee, and "a healing process" that will take more time to unfold.

At one point, Mr. Greenspan told Committee Chairman Dan Rostenknowski, D-Ill., that more cuts in short-term interest rates may be needed. "We are obviously looking at the situation exceptionally closely," he said.

But Mr. Greenspan spent much time dodging questions from the tax-writing committee about proposals offered in Congress and reportedly being considered in the Bush administration to offer one-time tax cuts to jump-start the economy. He also warned that proposals that are thought of as "revenue-neutral" may get a hostile reception in financial markets.

The Fed chairman's comments left some committee members frustrated that they were watching a classic maneuver by Mr. Greenspan to keep the central bank clear of the tough political choices surrounding the growing fray over tax policy.

Rep. Brian J. Donnelly, D-Mass., said Mr. Greenspan avoided saying whether Congress should enact a tax cut for the middle class.

"He dodged it," Mr. Donnelly, a member of the panel, said, adding that he was disappointed not to hear Mr. Greenspan's views. "Frankly, he should have an opinion on it."

Mr. Greenspan told the committee he was not there "to advocate a particular agenda, but rather to suggest some principles" Congress should follow, such as making sure any stimulus package does not add to the deficit. But he did say that if Congress enacts tax cuts to stimulate the economy, taxpayers might just save the money rather than spend it.

The only economic-stimulus proposal the Fed chairman clearly endorsed was the idea of cutting the tax rate on capital gains, a view he has held for years both as a private economist on Wall Street and as Fed chairman.

A lower capital gains tax rate "would buoy property values," which would in turn add to the value of the collateral on bank balance sheets. That in turn could help stimulate bank lending to ease the credit crunch, Mr. Greenspan suggested.

He gave a lukewarm endorsement to changing the so-called passive loss rules. Before 1986, taxpayers were able to take a loss on their taxes for various types of investments, but the Tax Reform Act of 1986 virtually eliminated that tax break. Now, some members of Congress say reinstituting the tax break for passive losses would stimulate the economy.

"I think you're flirting with poor tax policy in the name of, perhaps, good macroeconomic policy," Mr. Greenspan said. He suggested keeping the tax break narrow, applying it only to existing property. "The last thing we need at this moment is more vacant office space," he said.

When asked what Congress should do to promote savings, Mr. Greenspan said the best remedy for the low savings rate would be to eliminate the federal budget deficit. Failing that, there may be some merit in restoring the tax deduction for Individual Retirement Accounts, although it is still not clear whether the tax break stimulates new savings, he said.

"The evidence of the ability of IRAs to contribute to savings is mixed," Mr. Greenspan said. Nevertheless, "I would be willing to take chances in that direction."

Another idea gaining popularity on Capitol Hill is restoring the investment tax credit. Mr. Greenspan said that could create the types of incentives to stimulate growth lawmakers are trying to achieve, but he again said he did not favor anything that would add to the budget deficit.

Mr. Greenspan also cautioned that time is working against any efforts to use fiscal policy to move the economy.

"Much of what is going to happen over the next six months" is already set by fiscal and monetary policies, so "whatever action Congress takes is going to be long term whether you like it or not," he said in response to a question from Rep. James A. McDermott, D-Wash.

In other comments, Mr. Greenspan acknowledged that growth in the money supply has been slower than Fed policymakers would like and was one of the prime reasons for their moves to lower short-term rates in the last six months.

Both the M2 and M3 measures of money supply have been distorted by the loss of deposits closed down by the Resolution Trust Corp., he said, but M2 remains a good proxy for economic activity and is at the bottom of the Fed's targeted growth range of 2.5% to 6.5%.

Mr. Greenspan said there may be merit to proposals under consideration by Treasury to cut back on 30-year bond issues and to shift to greater use of shorter-term debt, where interest rates are lower.

"I think there that in recent years we've seen some evidence that supply does matter," he told the committee, particularly with the large volume in Treasury bill issues. But he declined to make any specific recommendations, saying the idea needs further study.

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