Alan Greenspan, the former Fed chairman, tells Judy Woodruff of Bloomberg that he would let all the Bush tax cuts expire at the end of this year. “They should follow the law and let them lapse,’’ Greenspan said. “Taxes would go up.”
This is certainly a blow to Republicans, who have vowed to vote against any and all tax increases and who whose mantra is to make all the Bush tax cuts permanent -- and not to pay for them.
After all, Greenspan famously supported the Bush tax cuts of 2001 on the argument that federal surpluses were so big that they presented a potential problem for the government.
But the former Fed chairman may also be throwing Democrats a curveball. Democrats won’t like his idea much more than Republicans, because Democrats want to make the tax cuts permanent for every family earning less than $250,000 a year – which is the vast bulk of the Bush tax cuts. Nor do Democrats propose to offset the cost with spending cuts or higher taxes in other areas.
It’s hard to shake the suspicion that Greenspan, whose reputation has been battered by the financial crisis, isn’t trying to resurrect his image as an economic wise man by proposing something that sounds bold but will never happen. To be sure, Greenspan hasn’t been on the same page as Republican party leaders or with former president George W. Bush for quite a few years now.
He argued for years, to the constant annoyance of the Bush White House, that Congress should pay for any extensions of Bush’s signature cuts. He also criticized Bush in his 2006 memoir for refusing to veto spending bills and declared that “Republicans in Congress lost their way.”
Still, Greenspan’s surprising new stance is at odds with what almost every economist, regardless of party affiliation, is recommending right now.
Though many economists say the Bush tax cuts are unaffordable and that taxes need to rise, most also argue that the economy is still so weak that it would be a mistake to let tax rates jump abruptly on January 1, as they will under current law.
Greenspan didn’t explain his economic rationale. He only said that people “misunderstand’’ the seriousness of the long-term fiscal problem.
Visit The Vault home page here.
