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Greenspan: Let Bush-era tax cuts expire

Jeremy Hobson Sep 15, 2010

Greenspan: Let Bush-era tax cuts expire

Jeremy Hobson Sep 15, 2010


Kai Ryssdal: What you’re about to hear is what we in the radio business call “lousy tape,” but we’re gonna run it anyway, ’cause it’s pretty interesting.

Former Fed chairman Alan Greenspan speaking to the Council of Foreign Relations this morning.

Alan Greenspan: So I’m coming out in favor, in the first time in my memory, of raising taxes

That last word you couldn’t really hear — I don’t know if his tie brushed against the microphone or what — but it was Alan Greenspan saying that he is in favor, for the first time that he can remember, of raising taxes. His thoughts on taxes and the unsustainable deficit are sure to make waves in Washington, as Congress tries to figure out what to do about the expiring Bush tax cuts. The same ones, by the way, that Greenspan gave his tacit approval to a decade ago.

Raising taxes is probably the most unpopular thing governments do. But Marketplace’s Jeremy Hobson reports, Alan Greenspan is not the only one who’s in favor.

Jeremy Hobson: Even some conservative economists agree that taxes will need to be raised to deal with the deficit.

Alan Viard: Greenspan has a very valid point about the deficit.

Alan Viard is a resident scholar at the American Enterprise Institute. He says higher taxes wouldn’t be his first choice, but they’re not all bad.

Viard: There would be some harm in the form of disincentives due to higher marginal tax rates, but there would be a significant deficit reduction.

And deficit reduction is the first thing tax hike advocates point to when making their case. But University of Michigan economist Joel Slemrod says there’s a lot more to it than that.

Joel Slemrod: Paying down the deficit sounds so abstract. The real issue is that over the long run, the current path will make us less prosperous.

He says that’s because lower taxes are fooling us into thinking we have more money to spend than we actually do.

What about the argument that lower taxes spur growth? Well Alan Blinder, a former vice chairman of the Fed, says that makes sense in the short term…

Alan Blinder: But if you look out to a longer period of time, then you really start worrying about the implications of a large and growing national debt for interest rates. And higher interest rates are part of the formula for slower growth, not more rapid growth.

Still, Blinder says he would hold off on any broad tax hikes until the economy is in better shape. He says at this point, the market isn’t questioning the government’s ability to pay its debt, and neither is he.

In New York, I’m Jeremy Hobson for Marketplace.

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