Greenspan calls for repeal of Bush tax cuts

Warns of crisis if US coffers drained further

Alan Greenspan’s stance puts him at odds with conservative orthodoxy. Alan Greenspan’s stance puts him at odds with conservative orthodoxy.
By Sewell Chan
New York Times / August 7, 2010

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It was not enough, it seems, for Alan Greenspan, the former Federal Reserve chairman and a self-described lifelong Republican libertarian, to call for stringent government regulation of giant banks, as he did a few months ago.

Now Greenspan is wading into the most fierce economic policy debate in Washington — what to do with the tax cuts adopted, in large part because of his implicit backing, under President George W. Bush — with a position not only contrary to Republican orthodoxy, but decidedly to the left of President Obama.

Rather than keeping tax rates steady for all but the wealthiest Americans, as the White House wants, Greenspan is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery.

“I’m in favor of tax cuts, but not with borrowed money,’’ Greenspan, 84, said yesterday in a telephone interview. “Our choices right now are not between good and better; they’re between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.’’

Greenspan, who led the Fed for 18 years until he retired in 2006, warns that without drastic action to increase federal revenue and reduce the long-term growth in health care costs, bond investors could make a run on Treasury securities, driving up the nation’s borrowing costs and leading to another global economic crisis.

This is not the first time Greenspan has urged fiscal restraint; he warned in 2008 that the country could not afford the tax cuts proposed by Senator John McCain, the Republican presidential candidate. But his sweeping call for rescinding the Bush tax cuts has rankled former colleagues.

While Greenspan’s reputation has been tarnished — given the Fed’s failures to pop the real estate bubble and to rein in subprime mortgage lending — his opinion still carries considerable weight, and his views on the tax cuts will reverberate in the debate next month in Congress.

He said the country’s fiscal problems could not be solved by higher taxes alone.

“We are going to have to confront a major surge in medical entitlement spending. Irrespective of what you say should be done on the tax side, you still have to cut some benefits on the expenditure side,’’ Greenspan said.

Asked whether higher taxes in 2011 could choke off the nascent recovery, Greenspan replied: “It is risky, but the choice of not doing it is far riskier.’’