Greenspan, in switch, now favors higher taxes

[sabra]

Source: Reuters

(Reuters) - Former Federal Reserve chief Alan Greenspan said on Wednesday all Bush-era tax cuts should be allowed to expire at the end of the year in order to rein in the budget deficit and stop it from crowding out private investment.

Reversing a long-standing aversion to tax increases, Greenspan warned of "very grave problems ahead" if the budget deficit, swollen to around $1 trillion by massive amounts of stimulus spending, is not tackled soon.

"I am in favor for the first time in my memory of raising taxes," Greenspan told an audience at the Council on Foreign Relations in New York.

"I would love to see taxes go down, and I would hope that what we would do is we allow the tax cuts, the so called Bush tax cuts, all to lapse as they will ... on December 31 and then gradually bring the level of expenditure down," he said.

The President Bush-era tax cuts, which were supported by Greenspan in 2001 and 2003, are set to expire at the end of this year. President Obama says he wants to cap taxes on middle and lower income households but allow income tax rates to revert to higher levels for the wealthy.

Read more: http://www.reuters.com/article/idUSN1515655820100915

[Wilms]

1. Oh. So now the brilliant economist suddenly realizes his calculator destroyed the nation's economy.

Hey Greenspam, retire now while you can still collect SS.


:eyes:

[Roland99]

2. I say we yank all of his federal benefits

[DoctorK]

7. his position is the same

he's in favor of a balanced budget.
When the forecast was for surpluses he wanted a tax cut to maintain the Treasury market that is the underpinning of the Federal Reserve system and the dollar.

Now, given the spending increases that have taken place, he is in favor of tax increases to balance the budget.

If you notice, he calls for spending cuts so that taxes can be cut later, but for now he favors tax increases to prevent a run on the dollar.

"We can guarantee cash payments from here on out, what we cannot guarantee is the purchasing power of that cash." -Alan Greenspan during remarks on Social Security, Feb 16, 2005

[Wilms]

8. Please. Record freakin' deficits during GWB reign of Terror.

I'll need a better explanation than what you offered.

Cost of the Bush era: $11.5 trillion

The outgoing administration has presided over 8 years of disasters and crises with some of the biggest price tags the nation has ever seen.
http://articles.moneycentral.msn.com/Investing/StockInvestingTrading/cost-of-the-bush-era-11-point-5-trillion.aspx

[DoctorK]

11. Greenspan explains it, not me

Go back and look at his testimony during the tax cuts.
He made his opinion clear, if the taxes weren't cut the CBO was scoring large surpluses (these didn't take into account the recession, CBO scores statically, and the depth of the recession wasn't reached yet).
The Federal Reserve manages the money supply as a multiplier of Treasury bonds. This isn't something I'm in favor of, it's just how they did it (now they're buying mortgages and god knows what).
Don't take my word for it, here's a link to his testimony:
http://www.federalreserve.gov/boarddocs/testimony/2001/20010302/default.htm

most relevant portion:

"The most recent projections from OMB and CBO indicate that, if current policies remain in place, the total unified surplus will reach about $800 billion in fiscal year 2010, including an on-budget surplus of almost $500 billion. Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs.

These most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach and, indeed, would occur well before the end of the decade under baseline assumptions. This is in marked contrast to the perception of a year ago, when the elimination of the debt did not appear likely until the next decade. But continuing to run surpluses beyond the point at which we reach zero or near-zero federal debt brings to center stage the critical longer-term fiscal policy issue of whether the federal government should accumulate large quantities of private (more technically, nonfederal) assets.

At zero debt, the continuing unified budget surpluses now projected under current law imply a major accumulation of private assets by the federal government. Such an accumulation would make the federal government a significant factor in our nation's capital markets and would risk significant distortion in the allocation of capital to its most productive uses. Such a distortion could be quite costly, as it is our extraordinarily effective allocation process that has enabled such impressive increases in productivity and standards of living despite a relatively low domestic saving rate."

[Wilms]

12. What you posted reflects the mindset necessary to have us in debt with crumbling infrastructure.

Besides, the economy has been in even worse shape long enough for him to have reached this point a while ago. He blah-blahs about the improved standard of living for the middle class. Really?

[DoctorK]

13. perpetual debt, yes, but not 'crumbling infrastructure'

if the money wasted on wars was better spent, that was a none issue. The wars certainly weren't on the horizon when the estimates were generated.

But Greenspan has been consistent. He expects the government to have some debt, because that is the basis for our Federal Reserve System. Again, this isn't something I support, but since 1913, and particularly since 1971, this is the system we have.
He has called for tax increases when the government was staring at seas of red ink (Greenspan Commission on Social Security in the early 80's), and tax cuts when the opposite was the case.

I've never seen him advocate a particular ratio of federal debt to GDP, but he's got some notion of too much or too little, and his policy recommendations change depending on which way the ratio is perceived to be going.

I'd prefer an end to legal tender laws, the definition of the dollar set once again as a measure of gold, and a balanced budget with no federal debt.
If banking institutions want to engage in fractional reserve banking, let them do so with disclosure (otherwise is naked fraud), and do not permit a suspension of specie payment.

[Wilms]

14. Why are you defending yourself?

I KNOW this post post is about Greenspan.

And I think he carries water for the top 1%.


Stop helping him with all the smoke you're blowing.

[DoctorK]

15. helping him?

I'm just explaining to you why his position appears to have changed.

His position is that he wants the government to have some debt, as that is the basis of our monetary system.

If Greenspan came out tomorrow and said, "I support a Federal debt equal to 40% +-5%" it would be easier for folks to understand.

If the debt was growing above that he would support tax increases and be consistent.
If the debt was shrinking below that he would support tax cuts and remain consistent.

He doesn't favor increasing government spending (he said in the linked article he'd like to eventually see spending reduced as a percentage of GDP and taxes then cut back accordingly).

His policy pronouncements have been consistent, when you understand the policy he's trying to advance - some, manageable, level of Federal debt to serve as the reserve instrument in our banking system.

Date - - - - - Treasuries outstanding - - - GDP - - - - ratio
09/29/2000 - 3,405,303,490,221.20 - - - 9951.5 billion - 34%
09/01/2010 - 8,924,442,908,309.90 - - - 14623.9 billion - 61%

I don't support or advocate his position, but I don't misunderstand it either.
Does this help you understand why his position on taxes has changed?

[Wilms]

16. You cited 2000 and 2010.

There are a few years in between. As I've said through-out, he's had plenty of time to face the ever-enlarging deficit.

[DoctorK]

18. I don't suggest

to know what level he considers too low, or too high. But the average since Nixon closed the gold window isn't a bad guess.
I used those dates because 2000 and 2010 are when the question was being posed and they were readily available. The situation (debt to GDP) is undeniably changed for the worse.
With government spending as a percentage of GDP well above trend, and tax collections well below trend, if his advocacy is for a particular range of federal debt to GDP his view on taxes must change (again, he has said he's in favor of lowering spending and then reducing taxes, but I think he sees the 'easiest' way forward politically is to let the tax rates increase).
The debt increased in nominal terms under Bush, but until the housing bust and trillion in new Federal debt in 'stimulus' the debt to GDP ratio was fairly static.



Note that when he advocated tax cuts the trend (and forecast) was going below the average since going off gold.
In the last two years the trend and forecast have turned nasty, so I'm not surprised his recommendation has changed.

I don't absolve him for fostering the housing bubble with the interest rate manipulations he managed, but the 'flip flop' on taxes makes sense when you realize what his goal is.

[Wilms]

19. Your graph clearly shows he could have spoken up 3 years ago.

Others will show the increase in money invested overseas since the tax cut was initiated. Like that helped the economy.

They are sucking the middle class drive. Do you not see that?

[UpInArms]

9. greenscum is absolutely one of the biggest fools and tools in the history of our country

Greenspan says ARMs might be better deal

Posted 2/23/2004

By Sue Kirchhoff and Barbara Hagenbaugh, USA TODAY
WASHINGTON — Federal Reserve Chairman Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.

In a standing-room-only speech to the Credit Union National Association meeting here, Greenspan also said U.S. household finances appeared generally sound, despite rising debt levels and bankruptcy filings. Low interest rates and surging home prices have given consumers flexibility to manage debt, he said.

"Overall, the household sector seems to be in good shape," Greenspan said.

Americans have been buying homes and refinancing mortgages at a record pace in the past several years, lured by low interest rates. Most mortgages are fixed rate, so consumers can prepay when rates go down but do not face higher costs if rates rise. Under adjustable-rate mortgages (ARMs), which made up about 28% of mortgages in January, borrowers usually have lower initial rates but face the risk of higher payments if rates in the broader economy rise.

While borrowers can refinance fixed-rate mortgages, Greenspan said homeowners were paying as much as 0.5 to 1.2 percentage points for that right and the protection against a potential rate rise, which could increase annual after-tax payments by several thousand dollars.

He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Greenspan said.

Joseph McKenzie, deputy chief economist at the Federal Housing Finance Board, says buyers like the stability of fixed-rate mortgages, but there is increasing flexibility in products. "There are lots of innovative programs, especially targeting low-income and first-time buyers," he says.

...more...

greenscum was the POS that Raygun appointed to overhaul Social Security. He has been destroying every piece of fiscal sanity from inception.

[Andy823]

3. Well...

I think it has to do with what party is in office at the time. It's always OK when democrats are in office, because the republicans usually get us into a mess, but they don't like to raise taxes, so when democrats get in charge, the blame will fall on them during an election for being the party that "RAISED" the taxes, even though it was republicans that got us into the mess where we may need to raise them!

As for Greenspan, well I have about as much respect for him as I do for Bush since he backed Bush's tax cuts during two wars! That was just plain insane!

[truthisfreedom]

4. "Flip a coin" Greenspan.

Oops, today it's raise taxes day!

[valerief]

5. Another jellybean-eater whose words have ruined America. nt

[Dogmudgeon]

6. Alan "Ayn Rand Is My Savior" Greenspan?

There will be a Frost Warning in Hell tonight.

--d!

[unkachuck]

10. "I am in favor for the first time in my memory of raising taxes..."

....repent sinner and redeem yourself....

....how's it going, Big Al....are you and the Mrs. ok?....are you working regular hours now or just part time?....I know, it's hard finding a decent, good paying, full time job with benefits since your meltdown....

"very grave problems ahead"....for me, if 'tackling' Social Security means reducing my benefits....

....but you're lucky, your wife is still working and has a good job....I see they had her in Iran today schmoozing with Ahmadinejad; she did a good interview....but then she always does good interviews just before an invasion....

[TomCADem]

17. Notably, The Corporate Media Refuses To Put Republicans On The Spot...

They all worship at the alter of Alan Greenspan and Ronald Reagan. The latter approved some of the largest tax increases, and the former is in favor of letting all of the Bush tax cuts expire.

Yet, Republicans will once again get a free pass.