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  • Greenspan’s Latest Mistake: Tax Hikes

    The recent global financial panic and recession had many authors. Millions of individuals and businesses made bad decisions about investing and debt. Scores of big shots like Dick Fuld, former CEO of now defunct Lehman Brothers, gambled big and lost bigger. And then there were those few who were in a class by themselves. Those whose actions cannot be said to have directly caused the meltdown but contributed to it far above all others.

    Chief among those few are former Federal Reserve Chairman Alan Greenspan, who presided over an overly lax monetary policy and somnambulant financial regulatory oversight to sow many of the seeds of the recent disaster. This is the same Alan Greenspan who now says we need to raise taxes. At least in bad judgment he’s consistent.

    No, he isn’t. As he said before a gathering at the Council of Foreign Relations, “I am in favor for the first time in my life of raising taxes.” To paraphrase a now-famous line from Senator John Kerry (D–MA), he was against the tax hikes before he was for them.

    At the same address Greenspan also remarked that the fiscal stimulus “was working far less than anyone anticipated.” Wrong again. We have said all along the stimulus would fail to stimulate because it is premised on the simple fact that in borrowing to finance its deficits, the government must reduce private demand just as much as it raises public demand.

    What has the deposed Maestro so in a tax-hike tizzy are the Obama budget deficits. Obama inherited a huge budget deficit and a weak economy, so he chose to embrace the deficit, making it much greater largely by jacking up spending even further. In 2009, federal spending hit almost a quarter of our economy. It’s projected to remain at about a quarter of the economy in 2010 and 2011 and will likely fall little in the years to follow under Obama’s policies. The historical norm for federal spending is about 20 percent.

    All this spending has left the deficit around 10 percent of our economy, which is simply unsustainable. Either taxes have to go way up or spending has to come way down. That is a budgetary fact, but which way we go is an economic and political choice. To Greenspan, “Our choice is not between good or bad; it is between terrible and worse.” Greenspan is right, but only if taxpayers can be bamboozled by Obama and friends and their big-name enablers to pay a lot more tax.

    There is a better alternative: push spending back down to normal levels. That’s the third choice that is neither terrible nor worse—except in the eyes of the big spenders in Washington. Can spending be cut that much? Of course it can, if there’s political will and political leadership.

    Rather than heed the advice of the perpetually errant, we should hearken unto sager voices like those of George Schultz, Michael Boskin, and John Taylor in today’s Wall Street Journal. They argue that all we need right now is to prevent the tax hikes, cut the spending, deal with entitlements, preserve sound money, and halt the federal regulatory onslaught.

    Will cutting spending be easy? Well, compared to what? Cutting spending will be easy compared to raising taxes, especially in the current environment, where raising taxes on a weak economy is preposterous and a national anti-Washington, anti-establishment wave is brushing aside all in its path, including (thankfully) the sad epilogue to a former Fed Chairman’s long and now inglorious career of persistent error.

    Posted in Economics [slideshow_deploy]

    10 Responses to Greenspan’s Latest Mistake: Tax Hikes

    1. Richard Allen Wilson says:

      Allowing the Bush Administration's tax cuts to expire will reduce consumer and business spending by an estimated $180 billion, thus costing us 2 million American jobs during a time when 15 million Americans can't find a job. You do the math. According to the BLS, around 16% of America's workforce is being "underutilized." The BLS "Alternative Measures of Labor Underutilization" includes Americans that would like to work full-time, but are stuck working part-time for economic reasons. Both the "official" and "alternative" measures on joblessness are the worst they've been since the Great-Depression of the 1930s, which, not surprisingly, was made that much worse by FDR's "Revenue Acts" during the 1930s. Those Revenue Acts, when combined, represented the largest tax increase ever recorded. Even for those that don't believe in supply-side economics, it should be remembered that John Maynard Keynes, the man credited with the economic ideas and solutions that ended the Great-Depression, believed that governments should reduce taxes during economic downturns as a means of stimulating aggregate demand and creating jobs. John Maynard Keynes would go crazy at the suggestion of raising taxes during an economic downturn such as the one we're experiencing. It should be remembered that the Bush Administration's tax cuts (2001, 2002, 2003) ended the recession of 2001 which could have been the worst recession in decades, as trillions of dollars worth of shareholder wealth had evaporated after the "dot.com" bubble burst. Those tax cuts stimulated the economy and allowed our economy to recover from the "dot.com crash," Enron, Tyco, 9/11, Worldcom, Argentina's financial crisis, California's energy crisis and another Brazilian financial crisis, just as the tax cuts of the Reagan Administration turned a "Great-Recession" into one of the longest economic expansions and bull markets on record. We went from 10% unemployment in 1982 to Time Magazine calling 1984 the "Year of the Yuppie" as millions of jobs were created and the stock market boomed. The Kennedy Administration's tax cuts in the 1960s led to the longest American economic expansion ever recorded. The massive tax cuts of the 1920s led to a decade of strong economic growth and innovation. Obama had no problem spending $800 billion on a failed stimulus spending program that built swimming pools in Mississippi and hasn't created jobs, but all of a sudden it wants to become "fiscally responsible" by allowing the Bush Administration's tax cuts to expire? Sounds like a double standard to me.

    2. Billie says:

      Mr. President, his followers, thrive on weakness and build upon it.

      More solutions, Mr. President. Will you continue to deny them? Or take credit for them?

    3. Jack E Lohman says:

      Hey guys, the poor are not going to get us out of this mess, only the rich can. And at least a temporary tax hike on the top 3% is in order. But long term we must get the cash bribes out of the political system, and only public funding of campaigns can do that.

      Politicians spend money because they are PAID to spend money by the Fat Cats that want in our pocket. We are at the mercy of corporations run for profits, enabled by a privatized congress that shares in those profits. Our problem is NOT government, and it is not R's or D's. It *IS* that government is owned by the special interests that want in the taxpayer's pockets.

      As a former CEO my company would not have survived if I had a board of directors who took money on the side and gave away company assets in return. Our country can't survive this corruption either.

      Nothing is going to change until we have public funding of campaigns. What is it about political bribes do we not understand? They BUY political spending, which leads to deficits and high taxes.

      If politicians are going to be beholden to their funders, those funders should be the taxpayers. And at $5 per taxpayer per year it would be a bargain. Even at 100 times that. We MUST lobby our senators and representative to co-sponsor the bill at: http://fairelectionsnow.org/about-bill

      Jack Lohman …
      http://MoneyedPoliticians.net

    4. Jeanne Stotler, Wood says:

      I am the head of a household and pay the bills. common sense tells you that you cannot spend more than you make and not go into debt. Continue to spend more deepens debt and the only way to be free is to cut expenses and pay off debt. This administration seems to ignore this fact, it keeps spending, borrowing and then wants our money so it can spend more, never paying on the debt. We are heading for a big disaster if things don't change and change fast. The only way we can do this is to vote for the changes and while you are going to the polls Nov.2, take someone along who may not have a ride.

    5. Tim Az says:

      Jack my friend. The fat cats you speak of are the politicians who have a never ending hunger for power and money. Like it or not you will benefit from lower taxes after the 2012 elections. You always have the option of contributing more to the IRS if you really believe that it is necessary to feed the beast. Who knows how much money can be saved once the Federal Government is shut down for the next two years. I think you may want to invest in a barrel of Maalox to get you through the coming years. As far as public funding. There hasn't been any evidence that massive amounts of money has been able to secure Liberals an easy election this year. Try to pay more attention to what is happening around you.

    6. TJS, FL says:

      We must put our morbidly obese government on a crash diet so the rest of us can get healthy. According to Americans for Tax Reform, government is now 63% of GDP – 43% in direct spending, and 20% more in the cost of all their regulations. (That's federal, state and local.)

      Get the ATR report at
      http://www.fiscalaccountability.org/userfiles/COG

      If we cut government in half, it would effectively double the income for the rest of us. And if we don't, we will continue with our Europe-like economy, with high unemployment, slow growth, and a dependent population.

    7. Leon Lundquist, Dura says:

      If Liberals really want to Redistribute the Wealth, then they should redistribute the Federal Reserve. May I point out that Zero Percent "Loans" from the Fed are de facto Unfair Competition, and that is true for everyone who gets them and competes in the Marketplace with people who borrowed at interest. Free money was used by Obama's friends to steal American Real Estate at twenty cents on the dollar with AIG. Don't you see? They bought your house for Fifty Grand and now they will sell it back to you for $250,000.

      You can't Impeach the Fed Chairman, they are a shadow government, and if indeed they are U.S. Citizens then their activities are Treason. Please realize, they had only one duty, to preserve the value of the American Dollar. Since the Dollar is worth about two cents, take your pick for their Prosecution, Treason or Conversion By Market Manipulation. Their game of destroying our Markets by playing Markets against Markets is criminal, whoever they are! Malfeasance is the least of their perfidy. Don't forget to add Conspiracy! It is RICO Country for sure.

      Greenspan belongs in jail, but then so does Obama.

    8. Billie says:

      No force of government is ever necessary in the areas of FREEDOM! Some businesses made rational choices to move overseas due to government's over regulating, over reaching, discriminating, mandating. Everywhere there's a problem in this country you'll find government being the direct of indirect culprit, but it's ALL government ALL paid by friends, family, next door neighbors, (other peoples money!)

      Obama's government's purpose is no good for America. Either the people take the government over or the people AND AMERICA, WILL BE TAKEN OVER!

      All signs point that way!

    9. Billie says:

      it's paid by the payers forced obligation. FALSE REPRESENTATION AND NO FREEDOM OF CHOICE!

    10. Billie says:

      CORRECTION PLEASE!! PAID BY THE GOVERNMENT'S FORCED OBLIGATION!!!!!!

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