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Greenspan calls for Repeal of Bush Tax cuts

Discussion in 'BBS Hangout: Debate & Discussion' started by Sweet Lou 4 2, Aug 7, 2010.

  1. Sweet Lou 4 2

    Sweet Lou 4 2 Contributing Member
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    The Tax cuts he asked for originally - he now seeks to repeal. I guess the Teabaggers will now call Greenspan a socialist since he is now further to the left than Obama!

    http://www.nytimes.com/2010/08/07/business/economy/07greenspan.html?hp


    Greenspan Calls for Repeal of All the Bush Tax Cuts
    By SEWELL CHAN

    It was not enough, it seems, for Alan Greenspan, the former Federal Reserve chairman and a self-described lifelong Republican libertarian, to call for stringent government regulation of giant banks, as he did a few months ago.

    Now Mr. Greenspan is wading into the most fierce economic policy debate in Washington — what to do with the tax cuts adopted, in large part because of his implicit backing, under President George W. Bush — with a position not only contrary to Republican orthodoxy, but decidedly to the left of President Obama.

    Rather than keeping tax rates steady for all but the wealthiest Americans, as the White House wants, 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.”

    Mr. Greenspan, who led the Fed for 18 years until he retired in 2006, warns that without drastic action to increase federal revenue and reduce the long-term growth in health care costs, bond investors could make a run on Treasury securities, driving up the nation’s borrowing costs and leading to another global economic crisis. This is not the first time Mr. Greenspan has urged fiscal restraint; he warned in 2008 that the country could not afford the tax cuts proposed by Senator John McCain, the Republican presidential candidate. But his sweeping call for rescinding the Bush tax cuts, which he has articulated in a recent appearance on “Meet the Press” and an interview with The Financial Times, among other settings, has rankled former colleagues.

    “Such a large tax increase in the middle of a period of sluggish economic growth would be a very bad idea,” said R. Glenn Hubbard, who as chairman of the White House Council of Economic Advisers from 2001 to 2003 was an architect of the tax cuts.

    Mr. Hubbard, who teaches at Columbia Business School, said a debate over the proper size of government was needed, but would not occur until the 2010 or 2012 elections. “Calls for repealing the tax cuts are more about politics than economics,” he added.

    Even liberal economists who concur with the need for higher taxes have not been eager to embrace Mr. Greenspan. “His concern about the current deficit seems to ignore the state of the economy,” said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning organization. “It is hard not to believe that politics is playing some role in his positions.”

    While Mr. Greenspan did not endorse a specific approach, his broad support for the tax cuts nearly a decade ago were 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.

    The dot-com boom in the late ’90s led to a surge in tax revenue, less from capital-gains taxes than from the conversions of stock-option grants. While the temporary nature of those revenue increases was perceived, Mr. Greenspan says, the combination of soaring tax receipts and long-term productivity gains led economists at the Fed, at the Office of Management and Budget and at the Congressional Budget Office to believe that the surpluses were very real.

    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 also emphasizes that the tax cuts should have adhered to so-called pay-go rules, which require that tax cuts or new spending should not add to the federal deficit.

    Pay-go rules were adopted as part of the 1990 budget deal between President George Bush and the Democratic-controlled Congress, but were scrapped in 2002, when his son, George W. Bush, was president.

    “Unfortunately, the surplus disabled pay-go because pay-go implied the existence of a deficit,” Mr. Greenspan said. “When the deficit disappeared, the concept of pay-go became meaningless.”

    While Mr. Greenspan’s reputation has been tarnished — given the Fed’s failures to pop the real estate bubble and to rein in subprime mortgage lending — his perspective, born of decades of data-crunching, has made him a figure revered by many in the markets. His opinion still carries considerable weight and his views on the tax cuts will reverberate in the debate next month in Congress.

    “Unlike in World War II, when we knew that military spending and deficits would fall sharply, our current understanding of the future is extremely limited,” Mr. Greenspan said. “There’s an especially high level of uncertainty in forecasting Medicare.”

    He said the country’s fiscal problems could not be solved by higher taxes alone. “We are going to have to confront a major surge in medical entitlement spending. Irrespective of what you say should be done on the tax side, you still have to cut some benefits on the expenditure side.”

    Mr. Greenspan, who is known for his political skills and his connections in both parties, bemoaned the political gridlock in the capital.

    “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,” he said.

    Asked whether higher taxes in 2011 could choke off the nascent recovery, Mr. Greenspan replied: “It is risky, but the choice of not doing it is far riskier. It is the difference between bad and worse, but in neither case do I think the evidence suggests that it would be the tipping point for the economy.”

    Mr. Greenspan added that the relationship between taxation and growth was still not well understood. “I don’t think anybody can know exactly what the impact of these taxes is on G.D.P.,” he said, referring to gross domestic product, the broadest measure of output. “We put them through econometric models that have a very poor record forecasting recession. Conclusions based on such models must be suspect.”

    At the Group of 20 meeting in Toronto in June, leaders of the world’s biggest economies agreed to halve their governments’ deficits by 2013. But Mr. Greenspan noted that even after debt-stricken Greece enacted emergency austerity measures, the markets remained skeptical.

    “I thought that meeting was quite good, and very effective and important,” he said. “But it’s one thing to have a fiscal projection and quite another to have the markets believe it.”
     
  2. glynch

    glynch Contributing Member

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    After pushing for the trillion dollar Bush tax cuts to the rich (I know Repubs that a carefully designed and much publicized minor portion of it went to everyone else) he now repents.

    At least we have to give Greespan credit for essentially renouncing much of his libertarian views in light of actual reality, something we see a reluctance to do from Fox and some on the bbs.
     
    #2 glynch, Aug 7, 2010
    Last edited: Aug 7, 2010
  3. Deckard

    Deckard Blade Runner
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    A day late and a few trillion short, *******.
     
  4. Phillyrocket

    Phillyrocket Member

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    What Ayn Rand's ultimate sycophant coming to grips that tax cuts for the rich doesn't actually trickle down and that the continuation of this will do more harm than good?

    Is Laffer the only idiot left who still believes in supplyside/voodoo economics?
     
    2 people like this.
  5. Sweet Lou 4 2

    Sweet Lou 4 2 Contributing Member
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    It's worth keeping in mind that Greenspan only supported the tax cuts under certain conditions, all of which were ignored by Republicans.
     
  6. glynch

    glynch Contributing Member

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    I'm not quite sure this is the whole story and he is not trying to make himself look better in retrospect. I would have to see his comments at the time he was pushing for the Bush tax cuts to see that he actually opposed the cuts then due to the lack of the conditions he cites now.

    The tax cuts were resisted by most Dems and were controversial and I remember distinctly Greenspan weighing in and supporting them. Back then he was viewed as an economic God so his support was important.
     
  7. Classic

    Classic Member

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    Okay, that's fine. Let's increase taxes. But it doesn't matter if we don't cut back federal spending. How bout we start with those stupid wars and earmark filled bills and also support more tax cuts to small businesses. I can't believe there isn't more anti war sentiment out there at this point.
     
  8. Refman

    Refman Contributing Member

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    Of course if you repeal all of the Bush tax cuts that would violate Obama's campaign promise to not raise any taxes on those making less than $250,000 a year.
     
  9. Major

    Major Member

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    http://money.cnn.com/2001/01/25/economy/greenspan/

    He primarily argued for them because there was a surplus and he thought it was better to cut taxes than let Congress be tempted to spend the extra money. He also said that he didn't see tax cuts jumpstarting the economy - though this was all before the recession hit, and he didn't think there would be a recession either.


    Observers say Greenspan's comments mark a slight shift in his stance on tax cuts. The Fed chief had long been a proponent of using budget surpluses to pay down the national debt first, instead of using additional revenue to pay for tax reduction.

    But Greenspan said government estimates project more than enough surplus funds to pay off the debt and reduce taxes too.
    These projections have convinced him that it is sound to proceed with a tax cut now, said Douglas Lee, president of Economics from Washington, an economics consulting firm.

    "What he did change is his views on the timing of the issue," Lee said. "He made it very clear that the changes that have occurred over the past year have made it much more likely that we would pay off the national debt much sooner."

    But Greenspan made clear that he does not view tax cuts as a way to jumpstart the economy. He said monetary policy, which governs interest rates, is a more effective tool than fiscal policy in fighting recession, noting that fiscal moves take a long time to take hold and face hurdles, such as the timing of Congressional approval.

    "I would not perceive of employing tax cuts to, in the sense, get in front of weakening forces which could eventually lead to a recession because history tells us it doesn't work," he said.

    "We cannot expect tax cuts to do all that much because cycles in this country have usually been characterized by fairly long expansions and then sharp contractions
    -- contractions which, I might add, are very difficult to forecast," he said. "Monetary policy can work almost instantaneously."

    Greenspan said that if it became clear that politicians might be tempted to use the money for major spending initiatives, it would be better to cut taxes.

    "It is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases," the Fed chairman said.
     
  10. Major

    Major Member

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    I don't think Greenspan is concerned with Obama's pledge. He's simply stating what he thinks should be done. Obama and the Dem Congress have already said they plan to extend the tax cuts for those people.
     
  11. Refman

    Refman Contributing Member

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    Well, I guess we have to find a way to pay for this anyway...

    Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages—one in five—are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama's loan modification effort. HARP was just extended through June 30, 2011.

    The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.

    http://online.wsj.com/article/SB10001424052748703748904575411473926340494.html?mod=googlenews_wsj
     
  12. Lil Pun

    Lil Pun Contributing Member

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    Isn't it true that everybody's taxes will eventually need to be raised?
     
  13. Major

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    They've been talking about this on CNBC throughout this week. The source is a Republican consultant type - he initially reported it based on "inside sources" and all the subsequent stories are based on him, I believe. The admin has denied it, but really, that doesn't mean much. They would deny anything like this no matter what until it was official.

    That said, I find it hard to believe they'd do this. First off, from a political perspective, this pisses off many more people than it benefits, so it's not a winner there. On the economic side, this would cause a market panic, so it's not much of a winner there either. And it doesn't really affect enough people to have the huge economic impact that the cost would suggest.

    I've heard a couple of variations on the idea - one is that Fannie/Freddie forgive a few thousand dollars on everyone's outstanding loans. Still not particularly sound economically, but it might be more of a winner politically - as opposed to just helping those people who are underwater (basically, its like a rebate check for people with mortgages). Still would piss off non-home-owners at the very least.

    Another variation I heard was to simply allow everyone to refinance without regard to mortgage status. On one hard, this makes a mess of current contracts. On the other, if Freddie/Fannie owns the mortgages anyway, they can do whatever they want. And if they'd be a risk to default in the new mortgage, they'd be a risk to default now. But obviously this only works if the people holding the risk on the new mortgage are the same people holding the risk on the old mortgage.

    All in all, I can't see any of these happening - I don't think it's a political winner in a nation tired of bailouts, and I'm not sure any of the solutions really help things to the degree that it makes a real impact. We'll see though - at least we won't have to wait long.
     
  14. Refman

    Refman Contributing Member

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    Actually, it would impact everybody. Taxes would be apportioned to bail out Fannie and Freddie again. There is also the notion that this would merely delay the foreclosure (as redefault under HAMP and HARP has been large). This delays the bottoming of the housing market and the subsequent recovery.

    Not to mention that it would not cure most of the defaults on these mortgages, leaving the homeowner still facing foreclosure.

    I cannot see how this would be ok under the Contract Clause of the Constitution. If under normal circumstances, an entity would not refi, it is not legally ok for the government to force them into the contract.

    This is seldom the case, particularly in the age of asset backed securities and the like.

    All of these solutions are very costly and will be about as effective as putting a Wonder Woman Band-Aid on a bullet wound.
     

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