First appointed by Ronald Reagan in 1987 as Chair of the Federal Reserve. Served under not one but three Republican presidents, including both Presidents Bush. Self-described “lifelong libertarian Republican.”
So you’d think that Alan Greenspan would be all about the current Republican agenda to extend the Bush tax cuts – the very tax cuts he heavily promoted in 2001.
Only he’s not. Greenspan is now calling for a complete repeal of the 2001 and 2003 tax cuts. He says, of the decision:
I’m in favor of tax cuts, but not with borrowed money. Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.
So, boom, there you go. There’s the “money shot.” Greenspan has done a complete 180. This pro-tax cut economist is saying “don’t cut taxes” which completely proves that the idea of tax cuts is a bad one. Case closed.
Or maybe not. Interestingly, this isn’t the dramatic departure from Greenspan’s traditional sense of economics that the media insists on playing up right now. What was more of a departure, really, was Greenspan’s rush to support the tax cuts in the first place. Greenspan had a history of supporting deficit reduction first when faced with a surplus; traditionally, he didn’t support tax cuts without offsets.
Greenspan’s rush to support Bush’s economic policies – including tax cuts – was actually questioned pretty heavily at the time. This wasn’t the Reagan-era Greenspan that many in Washington thought they knew. The Greenspan that rode through a wave of highs and lows – who was championed even by high-ranking Democrats – became the target of conspiracy theories and name-calling following his initial support of the Bush tax cuts. Sen. Harry Reid (D-NV) went so far as to call him “one of the biggest political hacks in Washington.” That’s saying a lot.
His “departure” now is really a throwback to his original position. Greenspan’s worry is the size of the deficit and its impact on the debt (for the difference between the two, see this post). When Greenspan was first in office, the debt level remained more or less at $4 trillion. When President George W. Bush took office, it was about $5.5 trillion. By the time that President Obama took office, it was nearly $11 trillion and growing. This isn’t a good direction.
Greenspan believes that continuing cuts in tax revenue (all while refusing to make cuts in spending) will make bond investors nervous. If borrowing costs climb – and goodness knows we’re doing all we can to make that happen – it could lead to another economic crisis. Crisis. I don’t know about you but I’m done with crisis for a while.
This is not to say that eliminating the tax cuts will necessarily lead to an economic recovery. That’s debatable. For all that policy-makers and Congressional officials wish they had a crystal ball, they don’t. While tax cuts and tax increases can significantly alter the economy at any given time, they don’t completely control our dollars. There are other outside forces at play: you can hardly chalk-up the .com boom, for example, to Clinton’s tax policies.
Who knows whether extending the cuts or repealing them is the best plan at this point. There are compelling arguments on both sides which suggest that we might land somewhere in the middle. That’s ironic considering, as a country, we’re not so fond of being in the middle anymore.
There is, however, one thing that everyone, including Greenspan, can agree on: the political nonsense over this issue has gone on long enough. Referring to the lack of movement on both sides, he said, “We have known that the tax cuts were going to expire at the end of 2010 for nearly a decade but nobody did anything to address the issue.” Exactly.
The answer is a simple one word response: SENILITY
“the political nonsense over this issue has gone on long enough.”
I think that both parties will wake up on Wed, Nov 3, and miraculously agree.