Alan Greenspan: Extending Bush Tax Cuts Without Paying For Them Could Be 'Disastrous'

Former Fed Chairman Alan Greenspan said that the push by congressional Republicans to extend the Bush tax cuts without offsetting the costs elsewhere could end up being "disastrous" for the economy.
In an interview on NBC's "Meet the Press," Greenspan expressed his disagreement with the conservative argument that tax cuts essentially pay for themselves by generating revenue and productivity among recipients.
"They do not," said Greenspan.
"I'm very much in favor of tax cuts but not with borrowed money and the problem that we have gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money," he said. "And at the end of the day that proves disastrous. My view is I don't think we can play subtle policy here."
The comments from the former Fed chief were an elaboration of a position he outlined in an interview earlier in the week. Speaking with PBS' Judy Woodruff, Greenspan expressed his opposition to passing legislation that would hold tax rates steady (under law the tax cuts Bush passed ten years ago are going to expire, thereby bringing rates back to Clinton-era levels). President Obama has pledged to continue the tax breaks for those individuals making under $200,000 and those families earning less than $250,000.
But Republicans want the entire package kept in place. Even so, they have declined to say how they would pay for it, saying, in part, that keeping the Bush tax cuts in place will pay for itself.
In addition to throwing cold water on that theory, Greenspan also weighed in on broader economic issues and trends. The former Fed Chairman relayed some sobering economic predictions, saying he expected the nation's unemployment rate to remain at its current level, mainly because there were few tools left to change it.

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"I see it [as] we just stay where we are," he said. "There is a gradual increase in employment but not enough to reduce the level of unemployment ...There is nothing out there that I can see which will alter the trend or the level of unemployment in this country.

Alan Greenspan: Let Bush Tax Cuts Die 16JUL10

I don't agree that the middle and lower income tax cuts should be eliminated, but do agree the bush tax cuts for the wealthy should expire. At least Alan Greenspan has the courage to admit he made a mistake supporting the bush tax cuts.

 

by Frank James

J. Scott Applewhite/AP Former Federal Reserve Chairman Alan Greenspan on Capitol Hill in  April 2010.

Former Federal Reserve Chair Alan Greenspan may no longer be the Maestro making all the economy's instruments play in harmony, if he ever could. But he still knows how to make a little news.
Greenspan is calling for Congress to let the Bush tax cuts die.
He hasn't all of a sudden become a liberal Democrat. Instead, according to Bloomberg News, Greenspan comes at his recommendation as a deficit hawk.
Greenspan, who as the nation's top central banker in 2001 and 2003, pushed for the Bush tax cuts, now says that was a mistake. He made the statement during the recording of a Bloomberg TV show that will run over the weekend.
My friend, Bloomberg reporter Mike Dorning, writes:

Former Federal Reserve Chairman Alan Greenspan, whose backing of George W. Bush’s 2001 tax cuts helped persuade Congress to pass them, said lawmakers should allow the reductions to expire at the end of this year.
“They should follow the law and let them lapse,” Greenspan said in an interview on Bloomberg Television’s “Conversations with Judy Woodruff,” citing a need for the tax revenue to reduce the federal budget deficit...
... Greenspan, in a telephone conversation after his Bloomberg TV interview was taped, said his position is that all the expiring Bush tax cuts should end, for middle-class and high- income families alike.
Ending the cuts “probably will” slow growth, Greenspan, 84, said in the TV interview. The risk posed by inaction on the deficit is greater, he said.
“Unless we start to come to grips with this long-term outlook, we are going to have major problems,” said Greenspan, who led the U.S. central bank from 1987 to 2006. “I think we misunderstand the momentum of this deficit going forward.”

How large an impact Greenspan's view on the Bush tax cuts will have is an open question. His political capital has fallen on Capitol Hill since he ended his 18-years plus tenure as Fed chair in 2006 and the start of the credit crunch the following year.
He has been faulted for contributing to the financial implosion through a blind faith in the self-correcting powers of capital markets, a faith he has since foresworn.
Still, if you want to end some if not all of the Bush tax cuts, as President Barack Obama says he does, Greenspan, a Republican, could prove a useful ally, providing  political cover for Democrats when Republicans accuse them of being tax and spend liberals.