With the legislative calendar starting to dwindle, lawmakers are paying more and more attention to the scheduled expiration of the Bush tax cuts at the end of the year. Republicans across the board are advocating for the extension of all the cuts, and have explicitly said that extending the cuts for the richest 2 percent of Americans (which would cost $678 billion) does not have to be paid for.
President Obama has called for letting the cuts for the very richest expire, allowing the rates to reset to where they were under the Clinton administration. In an interview with Bloomberg News’ Judy Woodruff, former Federal Reserve Chairman Alan Greenspan went a step further, calling for all of the tax cuts to expire, essentially sending the tax code back to 2001:
WOODRUFF: On those tax cuts, they are due to expire at the end of this year. Should they be extended? What should Congress do?
GREENSPAN: I should say they should follow the law and let them lapse.
WOODRUFF: Meaning what happens?
GREENSPAN: Taxes go up. The problem is, unless we start to come to grips with this long-term outlook, we are going to have major problems. I think we misunderstand the momentum of this deficit going forward.
Greenspan’s right that addressing the long-term structural deficit is going to require raising some taxes, as getting the budget anywhere near balance entirely on the spending side would mean draconian cuts to popular programs that Americans support and rely on. But Greenspan was able to call for allowing the cuts while conveniently leaving out his role in getting them enacted in the first place.
As Matt Yglesias has pointed out, “in 2001 Alan Greenspan warned the country against the prospect of budget surpluses and debt reduction and argued that only large regressive tax cuts could save the country from this specter.” It is “far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases,” Greenspan said. Of course, the Bush tax cuts are now one of the biggest drivers of the country’s long term deficits, amounting to more than $3 trillion in deficits over the next ten years.
While Greenspan is now expressing concern that “we misunderstand the momentum” of the deficit, less than a decade ago, he was claiming that we misunderstand the momentum of the surplus. In fact, as the New York Times reported at the time, Greenspan said that “without a tax cut the surplus might be so big that it would force the government to begin buying stocks and bonds on Wall Street in as little as five years, a development he said would be harmful to the free enterprise system.”
In 2005, Greenspan said that “it turns out that we were all wrong” when it came to his 2001 support for the tax cuts (to which then Sen. Hillary Clinton shot back “just for the record, we were not all wrong, but many people were wrong”). He has also famously repented for his deregulatory zeal during the 1990’s, saying “those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”