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Greenspan admits tax cut error
By Michael Gawenda
Washington
March 17, 2005
With a $4 trillion deficit and benefit cuts looming, the US Federal Reserve chief says cutting taxes was wrong.
US Federal Reserve chairman Alan Greenspan has admitted he made a mistake in 2001 when he defended President George Bush's controversial tax cuts.
The tax cuts led to the turnaround of a large budget surplus at the end of the Clinton presidency to a budget deficit this year of more than $US400 billion ($A506 billion).
Instead of a projected surplus of $US5.6 trillion by 2011, a deficit of $4 trillion is expected if Mr Bush gets his way and the tax cuts are made permanent. They are due to expire in 2008.
Mr Greenspan's defence of the tax cuts was always viewed as highly unusual for a Reserve chairman who is mandated to be non-political and whose major responsibility is to determine interest rates and help keep inflation in check.
Democrats have long seen him as a partisan figure.
Appearing before a Senate select committee on Tuesday, Mr Greenspan was forced to admit that his support for tax cuts had turned out to be mistaken.
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He had mounted the seemingly extraordinary argument in 2001 that the budget surpluses were too big and US foreign debt would be paid off too quickly.
Under vigorous questioning by Democrat Senator Hillary Clinton, Mr Greenspan, looking uncomfortable, said he had been mistaken in his view about ever-increasing surpluses.
"We were confronted at the time with an almost universal expectation amongst experts that we were dealing with a very large surplus for which there seemed to be no end," he said.
"I look back and I would say to you, if confronted with the same evidence we had back then, I would recommend exactly what I recommended then. Turns out we were all wrong".
"Not all of us," said Senator Clinton.
Mr Greenspan did not steer clear of partisan politics, saying that he supported Mr Bush's call for reform of social security, including partial privatisation.
He warned that surpluses in the social security trust fund would quickly evaporate once baby boomers started to retire. He argued for private investment accounts funded by diverting part of the tax paid by employees and employers into the social security trust.
He said there was an urgent need for a review of current commitments to ageing Americans, and the Government must give people time to prepare for the fact that they might have to work longer, save more and spend less.
Mr Greenspan said current projections showed that spending on social security and health care for ageing Americans would consume 13 per cent of US economic output by 2030.
"These projections make clear that the federal budget is on an unsustainable path in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years," he said.
Mr Greenspan's enthusiastic support for social security reform because of unsustainable budget deficits infuriated Democrats, who have not forgiven him for supporting the Bush tax cuts, which they had always argued would use up the Clinton surpluses.
Recent polls show support for Mr Bush's social security reforms is dwindling, with less than 40 per cent of Americans convinced he is on the right track.
By Michael Gawenda
Washington
March 17, 2005
With a $4 trillion deficit and benefit cuts looming, the US Federal Reserve chief says cutting taxes was wrong.
US Federal Reserve chairman Alan Greenspan has admitted he made a mistake in 2001 when he defended President George Bush's controversial tax cuts.
The tax cuts led to the turnaround of a large budget surplus at the end of the Clinton presidency to a budget deficit this year of more than $US400 billion ($A506 billion).
Instead of a projected surplus of $US5.6 trillion by 2011, a deficit of $4 trillion is expected if Mr Bush gets his way and the tax cuts are made permanent. They are due to expire in 2008.
Mr Greenspan's defence of the tax cuts was always viewed as highly unusual for a Reserve chairman who is mandated to be non-political and whose major responsibility is to determine interest rates and help keep inflation in check.
Democrats have long seen him as a partisan figure.
Appearing before a Senate select committee on Tuesday, Mr Greenspan was forced to admit that his support for tax cuts had turned out to be mistaken.
AdvertisementAdvertisement
He had mounted the seemingly extraordinary argument in 2001 that the budget surpluses were too big and US foreign debt would be paid off too quickly.
Under vigorous questioning by Democrat Senator Hillary Clinton, Mr Greenspan, looking uncomfortable, said he had been mistaken in his view about ever-increasing surpluses.
"We were confronted at the time with an almost universal expectation amongst experts that we were dealing with a very large surplus for which there seemed to be no end," he said.
"I look back and I would say to you, if confronted with the same evidence we had back then, I would recommend exactly what I recommended then. Turns out we were all wrong".
"Not all of us," said Senator Clinton.
Mr Greenspan did not steer clear of partisan politics, saying that he supported Mr Bush's call for reform of social security, including partial privatisation.
He warned that surpluses in the social security trust fund would quickly evaporate once baby boomers started to retire. He argued for private investment accounts funded by diverting part of the tax paid by employees and employers into the social security trust.
He said there was an urgent need for a review of current commitments to ageing Americans, and the Government must give people time to prepare for the fact that they might have to work longer, save more and spend less.
Mr Greenspan said current projections showed that spending on social security and health care for ageing Americans would consume 13 per cent of US economic output by 2030.
"These projections make clear that the federal budget is on an unsustainable path in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years," he said.
Mr Greenspan's enthusiastic support for social security reform because of unsustainable budget deficits infuriated Democrats, who have not forgiven him for supporting the Bush tax cuts, which they had always argued would use up the Clinton surpluses.
Recent polls show support for Mr Bush's social security reforms is dwindling, with less than 40 per cent of Americans convinced he is on the right track.
It's no surprise this isn't being reported in the mainstream American media. I saw this on the Bloomberg financial newsticker and googled to find the article. This is just further proof in the myth of the liberal media. A liberal media would made this a top story.
Well, this raises Greenspan's esteem a tad IMO... he's at least able to admit the mistake. It'd be better if he called for the repeal of the tax cuts for the top 1% however. But that might be too much wishful thinking on my part.
But I still
@ Greenspan... despite admitting he was wrong, he still is championing for SS privatization. But I suppose that is to be expected from him.Discuzz
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In fact when the great leader says something about taxes, he's always right.
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