Greenspan: End the Bush tax cuts
The former Federal Reserve chairman says the threat from an out-of-control deficit outweighs the short-term harm.
Now Greenspan has weighed in on whether to renew those cuts, which expire at the end of this year. His opinion: Let them expire next year. All of them.
"They should follow the law and let them lapse," Greenspan said in an interview on Bloomberg Television's "Conversations with Judy Woodruff." The government needs the revenue, he said, to reduce the federal budget deficit.
Greenspan's comments, to be broadcast today and over the weekend, place him in the middle of an election-year struggle over extending trillions of dollars in tax cuts enacted under President George W. Bush.
President Barack Obama campaigned for election in 2008 on a promise of extending the Bush tax reductions for families earning up to $250,000 while eliminating the cuts for higher- income Americans, a position also embraced by most congressional Democrats.
House Majority Leader Steny Hoyer, D-Md., stoked the debate with comments on June 22 that permanent extension of the middle-class tax cuts may no longer be affordable because of the growing U.S. debt burden.
Greenspan, in a telephone conversation after his Bloomberg TV interview was taped, said his position is that all the expiring Bush tax cuts should end, for middle-class and high- income families alike.
Ending the cuts "probably will" slow growth, Greenspan, 84, told Bloomberg. But, he said, the risk posed by inaction on the deficit is greater, he said.
"Unless we start to come to grips with this long-term outlook, we are going to have major problems," said Greenspan, who was Fed chairman from 1987 to 2006. "I think we misunderstand the momentum of this deficit going forward."
Greenspan said reducing the deficit is "going to be far more difficult than anybody imagines" after "a decade of major increases in federal spending and major tax cuts."
Greenspan's opinion sets up a volatile debate about tax policy up through the fall election. Republicans will argue that Franklin D. Roosevelt's decision in 1937 to boost taxes to rein in deficits prolonged the Great Depression.
The economy had rebounded quite a bit between 1933, when Roosevelt took office, and 1937. Gross domestic product rose nearly 63% in that period and was running at 89% of 1929 levels in 1937. Then, it slid 6.3% in 1938.
The economy contracted by about 46% between the end of 1929 and the end of 1933, according to the U.S. Statistical Abstract.
The Dow Jones industrials ($INDU), which had risen 234% from March 3, 1933, the day before Roosevelt took office, to the end of 1936, fell 45% between the end of 1936 and the market bottom in March 1938.
The Dow had fallen 89% between its 1929 peak and 1932 low.
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