Greenspan Calls for Repeal of All the Bush Tax Cuts, 7 August 2010, New York Times.
At the beginning of the George W. Bush Presidency, then Federal Reserve Chairman Alan Greenspan implicitly endorsed tax cuts.
While Mr. Greenspan did not endorse a specific approach, his broad support for the tax cuts nearly a decade ago was pivotal in securing one of the Bush administration’s top domestic policy goals and in providing political cover for members of Congress.
Now, in response to accusations of political expediency, Mr. Greenspan says his approach has been consistent: supporting tax cuts when surpluses loomed, and endorsing revenue increases now that deficits are the leading worry. He also says his earlier endorsement of tax cuts was made with important caveats that were later ignored by policy makers and the public.
To begin with, he says he believed the tax cuts in 2001 were primarily needed to avoid the economic distortions caused by “surpluses as far as the eye could see,” as many economists at the time projected.
Greenspan seems to have feared that the projected surpluses would lead to the reduction of US Federal debt to zero.
That, in turn, caused the central bank to worry that one of its primary levers for the conduct of monetary policy — the purchase and sale of Treasury securities — would no longer be available.
“I was against deficits, but I was also equally against surpluses,” Mr. Greenspan said.
Mr. Greenspan is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery.
“I’m in favor of tax cuts, but not with borrowed money,” Mr. Greenspan, 84, said Friday in a telephone interview. “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.”
This appears to be quite a shift for the Republican libertarian Greenspan.
David Stockman–Bush Tax Cuts Will Make U.S. Bankrupt, 7 August 2010, NPR-All Thinks Considered. Stockman interview with Guy Raz.
The Stockman NPR interview aired on the same day that the above Greenspan article was published. Both men are trumpeting the same song.
RAZ: In the early 1980s, Stockman became a kind of Washington wunderkind, the vanguard of a new type of economic thinking, supply side, deregulation, low taxes to stimulate growth.
As the White House budget director, Stockman was an architect of what would come to be known as Reagonomics. But a few years into the job, he became disillusioned.
Mr. STOCKMAN: The military budget got out of control and the tax cuts went to special interests as much as they did to the broad public.
RAZ: And he noticed a problem. The government wasn’t collecting enough money to cover its costs and he started telling that to Reagan.
Mr. STOCKMAN: As time passed, he was less and less enthusiastic about what I had to say.
RAZ: So, in 1985, Stockman left. Now these days, he’s still a conservative and still a Republican, but he doesn’t think his party is taking a responsible position on taxes any longer. At the end of this year, the Bush era tax cuts are set to expire. Republicans want them renewed, Democrats want to keep the tax cuts for the middle class but not for the wealthiest 2 percent of Americans.
Now, Stockman says they’re both wrong and he says extending either of those cuts is tantamount to the government declaring bankruptcy.
Mr. STOCKMAN: We’ve had a rolling referendum on what we want in government and what we don’t ever since the first Reagan spending cut program, which I was part of in 1981. And it seems pretty clear to me that by 2010, we’ve decided a lot of things that caused (sic!) a lot of money, the American people won. I might not agree with that, but apparently they do.
So we’re spending $3.8 trillion in defense, non-defense, entitlements, everything else, and we’re taking in only 2.2 trillion. So we got a massive gap, you have to pay your bills. You can’t keep borrowing from the rest of the world at that magnitude year after year after year. So, in light of all of those facts, I say we can’t afford the Bush tax cuts.
Raz and Stockman make implicit reference to the so-called Laffer Curve.
[Bold typeface added by me.]
RAZ: You seem to suggest that many of our economic troubles are the result of Republican economic policies over the past few decades. You are a Republican. You are a conservative. Why do you think Republicans are largely to blame?
Mr. STOCKMAN: Because the Republicans abandoned their old-time fiscal religion in favor of two theories, which I think are now proving to be both wrong and highly counterproductive and damaging.
One was monetarism, which said let the dollar float on the international markets. Let 12 men and women at the Fed decide whether to raise or lower interest rates and use the Fed to try to run this massive economy. What they’ve done instead is run the printing press, they’ve flooded the world with dollars. The whole monetarist policy has been a mistake.
The second thing was the perversion of supply side. Yes, there was a good idea that in certain circumstances, lower tax rates will encourage economic activity and savings. But when you make it a religion, when you make it a catechism and you say you cut taxes no matter what the circumstance, what the season, what the condition, then I think the whole idea has been perverted.
By getting off track over the last 30 years, the Republican Party has basically given out (sic!) its historic view that the key thing was financial discipline, financial responsibility and that we had to live within our means. Today, we have two free lunch parties, and as a result, we’re borrowing ourselves into grave danger with each passing month and year.
RAZ: Now, Republicans, David Stockman, in the Senate led by, obviously, the Minority Leader Mitch McConnell, they say they’re simply following, you know, the Reagan philosophy of supply-side economics, a policy that you pushed. Do you think they’re being disingenuous?
Mr. STOCKMAN: Utterly disingenuous. I find it unconscionable that the Republican leadership faced with a 1.5 trillion deficit could possibly believe that good public policy is to maintain tax cuts for the top 2 percent of the population who, after all, have benefited enormously from this phony boom we’ve had over the last 10 years as a result of the casino on Wall Street.