Greenspan Says Congress Should Let Tax Cuts Expire

Alan Greenspan made several huge errors while chairman of the Federal Reserve. Failing to deal with the massive risk taking and fraud by the member banks of the Federal Reserve was one. And supporting tax cuts for a country that was hugely in debt (while current deficits were still huge was another. Yes anyone can claim (and he did) future surpluses, but there had yet to be a single year of surplus, and obviously we would have been in deficit even before the tax cuts put us much much further in debt, history has shown .
But Greenspan said government estimates project more than enough surplus funds to pay off the debt and reduce taxes too.
That is either amazingly bad economic forecasting or a lie. My guess is he knew this wasn’t true. Which would make it a lie. If he really was that out of touch with economic reality, we have to question why we ever thought he had insight into the economy.
Greenspan Says Congress Should Let Tax Cuts Expire
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.
Related: Estate Tax Repeal (2006) – Charge My Government to My Kids (2007) – USA Federal Debt Now $516,348 Per Household
Accepting that, I don’t agree with those that vilify his performance. He was Fed chairman from 1987-2006. He made some very bad decisions that cost people dearly. But it isn’t very surprising someone in such power for so long would make some very bad and costly decisions. My guess is he caved to pressure from political allies that reminded him how the current President Bush’s father blamed Greenspan’s decisions for his losing the Presidency. And so Greenspan was trying to do what he could to do what the then President Bush wanted. Not a very honorable explanation but people often do not make the most honorable choices.
In 2003 he publicly disagreed with the wisdom of additional cuts:
Alan Greenspan, the Federal Reserve chairman, today rebutted many of President Bush’s arguments in favor of big new tax cuts, saying that the economy probably does not need any short-term stimulus and warning that budget deficits could spiral out of control.
Politicians, eager to give favors, at the expense of the future, went ahead and passed more tax cuts – weakening the country for their (and their political allies) short term benefit.
Related: Estate Tax Repeal (2006) – Charge My Government to My Kids (2007) – USA Federal Debt Now $516,348 Per Household
Greenspan’s thoughts on the economy, from his July 16th 2010 interview:

WOODRUFF: So what do you think the GDP is going to be this year and next year?
GREENSPAN: Well, it is going to be slow. The second quarter, which looked to be in April fairly robust, now looks to be down to 2.5 percent growth rate. And we have not yet got all the figures for the month of June. We are estimating and guessing at certain of these numbers.
But there is no evidence that there is a big pick up coming, but there is also no evidence of an actual double dip. So, I think it is sluggish. We should be in the area maybe of 3 percent growth for the rest of this year, after we come out of this temporary slump.
WOODRUFF: And when do you — what do you think the jobless rate, which is now 9.5 percent, is going to be a year from now?
GREENSPAN: It will be lower, but not all that much lower. The strange fact about this is that what has kept the — part of the reason why the unemployment rate has stayed high, as the economy has come back, is there was an extraordinary amount of squeeze going on in the corporate sector having as is invariably the case a major expansion of output. They were not looking at their cost structure. They are now, and they squeezed it down to the point where probably it cannot go much lower.
The very ill advised tax shifting from those earning money in 2001 – 2011 to those earning money later should not be extended. Even calling them cuts is not true. You cut taxes by cutting spending. If you run a deficit all you do by “cutting taxes” is shift the tax from today to your kids. We shouldn’t do that.
Related: Greenspan Defends His Support of Tax Cuts (2005) – America Cannot Afford Tax Cuts (2001) – Greenspan has screwed up, and now he doesn’t know what to do