Greenspan and Tax Cuts

I agree with Atrios and Krugman that Alan Greenspan's behavior relative to the 2001 Bush tax cuts was irresponsible and that his efforts at self-exculpation are unconvincing (BDL is too kind here). On the other hand, I don't think it makes a ton of sense to attribute vast causal powers to Greenspan's testimony on this regard.

The tax cuts passed because (a) the GOP was monomaniacally focused on reducing income tax rates for rich people, and (b) a shocking number of Democrats from red America seem to have felt that this, rather than some symbolic cultural issue, was a good topic on which to surrender. Obviously, if Greenspan had transformed himself into a technocracy-oriented social democrat and denounced the Bush economic agenda from the rooftops, that might have made a difference, but piping up more clearly as a small-government advocate of spending cuts and balanced budgets wasn't going to swing this thing around.

Comments

I agree with MY's hunch that the tax cuts were inevitable (it was essentially the only domestic issue that Bush talked about in the 2000 campaign), but the point is that Greenspan's hypocrisy should be highlighted again and again as he attempts his "do-over."

Posted by BrklynLibrul | September 17, 2007 11:54 AM

Yeah, well, getting The Maestro's blessing for the tax cuts surely didn't hurt that wildly misguided cause. Kind of like when the very liberal Middle East/Foreign Policy Expert Tom Friedman, writing in the very liberal New York Times endorsed the Iraq War. In both cases, the ultimate call was Cheney's to make, but aiding and abetting counts too.

Posted by ed | September 17, 2007 11:59 AM

As a rich guy from a blue state, I just love the idea that so many Senators and Representatives from poor(er) states and districts voted to cut my taxes.

The fact is that very few people from Wyoming (as an example) benefited from the tax cuts. However a bunch of Hollywood elites and trial lawyers DID benefit from the tax cuts.

I don't understand why a Democrat, like John Edwards - or any of the others, can't go to South Carolina and explain how few people in South Carolina got much from the tax cuts while the average person in San Francisco got so much more in tax cuts.

Just a thought????

Posted by neil wilson | September 17, 2007 12:00 PM

well, there was going to be a tax cut in 2001: even gore campaigned on one in 2000.

but the gore tax cut was smaller and more targetted and it was still a closely run thing as to what kind of tax cut would emerge, so greenspan's testimony wasn't unimportant (it was, shall we say, the petraeus "report" of its day).

Posted by howard | September 17, 2007 12:03 PM

Re Matthew's comment "but [Greenspan] piping up more clearly as a small-government advocate of spending cuts and balanced budgets wasn't going to swing this thing around. "
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True -- because the billionaire owners of the mainstream news media (NY Times, TV networks,etc) stood to profit hugely from Bush's tax cuts.

On the other Greenspan could have kept his mouth shut instead of supporting the tax cuts.

He could also have pointed out that the bulk of the tax cuts was going to create jobs in CHINA, not in the USA. (See federal economic data on US Foreign Direct Investment versus US business investment)

Greenspan could have pointed out that sending capital abroad to fund Chinese expansion and competition with US business was just as likely to depress US employment as to help it.

But Alan Greenspan has always been the George Will of monetary policy -- i.e has the view that the poor have many faults and need discipline whereas the rich have virtue.

As Thorstein Veblen pointed out, such a worldview -- and a talent for sophistry -- is very convenient if you live off the crumbs tossed to you by the rich.

Posted by Don Williams | September 17, 2007 12:11 PM

The biggest problem with the tax cuts is that they were passed separately from the spending cuts that they required. As a result, the tax cuts were passed, but the spending cuts never happened. We got our spoonful of sugar, but we never took the medicine. Greenspan should have seen through this and refused to support tax cuts until the spending cuts were already in place. Like everyone who ever trusted this administration, he got burned.

Posted by fostert | September 17, 2007 12:11 PM

His claim that he couldn't have known what the political use of his statement about the surplus is not credible.

Here is why: His other statements over a 20 year capital hill career are probably the most carefully vetted and worded public statements in history.

He is lying in an attempt to save his legacy.

Posted by mickslam | September 17, 2007 12:57 PM

It's not a complete self-exculpation--he does plead guilty, and say that he should have listened to Rubin.

Posted by Brad DeLong | September 17, 2007 2:10 PM

Every thinking person (ergo, excluding wingnuts) knew that Bush's tax cuts were unsustainable and unjustifiable. However, vast power is exactly what Greenspan wielded when he endorsed the tax cuts. His views held great weight, and his pronouncement of support provided unassailable cover to those who voted in favor of the cuts for base reasons.

Posted by Michael S. | September 17, 2007 3:49 PM

i like the fact that he cleared up the whole Iraqi war adventure: it turns out it really is about the oil, it's not about Israel at all...

Posted by scorpio | September 17, 2007 4:43 PM

To a good-government type, the "if" of the tax cut is one question, but a more important questions were "why", and "if this is the reason, what should be a good solution".

We may not remember that, and young people have a good excuse, the original "cause" for the tax cuts was the budget surpluss. Someone (was it Greenspan himself?) wrote a NYT op-ed that can be summarized "O my God! If we keep going like that, in 10 years there will be no Treasury bonds and bills left in circulation, and how the market will manage to have benchmark interest rates! People, do something about it!".

Some folks noticed that capital gain taxes were a big part of the revenue increase, and that dot-com boom generating those gains cannot go forever. Hence it was making sense to have tax cuts conditional on revenue satisfying the projections and Democratic leadership was pressing this point. Here comes Greenspan and more or less testifies: "not such a bad idea, but nothing particularly important."

In short, Greenspan was in the position to influence an important aspect of the cut which made good sense --- as he was admitting even then --- and which would make the cuts rather temporary. Basically, if his testimony were vigorous rather than tepid, it could well be that conservative Democrats would stick with the leadership on the conditionality clause.

What would happen is that Republicans would have to refight the tax cut all-over again, this time BECAUSE the economy stinks and revenue is down, and thus the tax-cutting machine would loose a political cycle and we would not have the capital gains cut etc.

By the way, those very conservative Democrats were massacred in 2002 (at least, Georgia and Missouri come to mind).

Posted by piotr | September 17, 2007 4:47 PM

piotr, although you're basically on track, the fact is, cap gains revenues were not a major factor in the late '90s. they spiked up for several years at about $60B higher than the norm, which, while not insignificant, was not major, either....

Posted by howard | September 17, 2007 5:16 PM

Paul Krugman's take-down of Greenspan in his latest NYT column (that MY is referring to here) is a masterpiece. Krugman just nails him. He's called Greenspan to the mat several times that I can think of over these past years, but this last one takes the cake. A classic Krugman polemic is a beautiful thing to behold. We're so accustomed to the intellectually insecure and deeply sycophantic nature of our intellectual commentariat including most pundits (when it comes to each-other), that such raw displays of intellectual bulldozing really stand out. It reminds me of reading the Letters section of the TLS when it's a hot, contentious issue.

Posted by Warren | September 18, 2007 1:16 AM

Ed's got it right. Greenspan's imprimatur made it much more difficult to oppose the tax cuts.

Doesn't excuse the Democrats for their craven capitulation.

Posted by Sean | September 18, 2007 2:54 AM

It is worth mentioning that Greenspan was up for renomination for a fifth term as chairman of the US Federal Reserve Board, and in April 2003 he accepted a fifth term. He may have been afraid that he would not be nominated again if he objected to the Bush tax cut (1.35 Trillion).

Posted by Gernot Walter | September 20, 2007 12:19 AM