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TAX and BUDGETARY POLICY
THE RISE AND FALL OF
ALAN GREENSPAN
Superhack
13/08/04
Mr.
Greenspan, at long last, reveals his inner self as he advocates gutting social security (and
presumably Medicare). As Paul
Krugman so appropriately
says:
The traditional
definition of chutzpah says it's when you murder your parents, then
plead for clemency because you're an orphan. Alan Greenspan has
chutzpah.
You can call it chutzpah, or you can call
it something else (Krugman is too kind). The fact is, as Greenspan kneels before Bush/Rove, he indulges in the fakery of his Masters to justify his position.
Never mind the delicious irony that, he advocates cutting Social
Security - which is based on a tax on earned income disproportionately
paid by the poor and middle class, and which has been in surplus for
quite some time! - to save large tax cuts for the super-rich, a lot of
which is on unearned income and has been the main cause of exploding
deficits. Tsk, tsk. Let's start
with Calpundit:
Alan Greenspan's comments a few days
ago about the necessity of cutting Social Security benefits struck me
as disingenuous, but
I didn't realize quite how disingenuous until a couple of things came
through my inbox today:
Does Alan Greenspan have amnesia?
More than 20 years ago he co-chaired a commission to ensure the
solvency of Social Security. That commission recommended stiff
increases in the payroll tax to create a surplus that would help
fund the retirement of baby boomers down the road. The higher
payroll taxes, which put a heavy burden on lower-to-middle income
taxpayers, were signed into law and remain in effect to this day.
But in 2001 Mr. Greenspan endorsed a fiscally irresponsible income
tax cut that effectively gives away the Social Security surplus he
created primarily to high-income taxpayers. Now he suggests that
those tax cuts be made permanent, while we reduce the enormous
deficits that they've created only through cuts in spending,
especially on Social Security.
I hadn't remembered that Greenspan
was part of the 1983 Social Security commission that raised payroll
taxes. (It's one of several Ronald Reagan tax increases that his fans
conveniently forget about when they're extolling the supposed virtues
of supply side economics.) Here's the Greenspan timeline:
-
1983: Recommended raising
payroll taxes far above the amount required to fund Social
Security. Since payroll taxes are capped (at $87,000 currently),
this was, by definition, an increase that primarily hit the poor
and middle class.
-
2001: Enthusiastically
endorsed a tax cut aimed primarily at people who earn over
$200,000.
-
2003: Ditto.
-
2004: Told Congress that
due to persistent deficits Social Security benefits need to be
cut.
So: raise payroll taxes on the
middle class to create a surplus, then cut taxes on the rich to wipe
out the surplus and create a deficit, and then sorrowfully announce
that the resulting deficits mean that the Social Security benefits already
paid for by the middle class need to be cut.
A normal person would at least be embarrassed by all this. But Alan
Greenspan has never been a mere mortal, has he?
Billmon
at Whiskey Bar reports on a David Kay Johnston interview by Lou
Dobbs (CNN) - and here's a snippet from Billmon's post that is revealing
enough:
DOBBS:
Let's put the graph up. We have a graphic of this from your book that
we want to show you maxing Social Security taxes per person doing
exactly what David suggested. This is a remarkable -- to look at the
income growth from 1970 to 2000, for the bottom, if you will, 99
percent of this country versus the top ... one percent, is staggering.
I follow these trends rather carefully but I had no idea of the
discrepancy there. (editor's note: ROFLOL)
JOHNSTON: If you chart, Lou, the increase in income for the
bottom 99 percent of Americans over that 30-year period, for each
dollar that each person got in increased income -- and the average was
$2,700, less than a hundred dollars a year -- you made it one inch
high. For the top one-one-hundredth of 1 percent, or 27,000 people, it
is 625 feet high. 625 feet to one inch.
DOBBS: And the solution is there, the fact that Alan Greenspan,
the Fed chairman would raise the issue, I think, is commendable. The
suggestion in my opinion that the first solution should be sought is
to cut the benefits of future retirees is reprehensible. What is your
reaction?
JOHNSTON: Well, we can choose in America, if you want, to have
a system in which the middle class and the upper middle class, people
making $30,000 to $500,000 a year subsidize people who make millions
of dollars. And if Americans want to vote for that they should do it.
I just don't think, Lou, that Americans would have gone for this if
they had known what is happening. And since it was Mr. Greenspan who
said pay your tax in advance and now he says, no, we're not going to
give you the benefits, but we can't raise taxes on the rich. That
seems to me morally troubling.
Also see Billmon
here.
Here is the Center
for American Progress:
The Class
Warrior
After
supporting tax cuts for the wealthy which have already blown a gaping
hole in the federal budget, Federal Reserve Chairman Alan Greenspan
told lawmakers that Congress should extend the cuts indefinitely –
at a cost of $1.5 trillion over the next ten years – and pay for it
by slashing
Social Security. Greenspan's comments were particularly surprising
because our current budget problems are completely unrelated to Social
Security. A recent Center on Budget and Policy Priorities study
reveals that, in the last three years, the nation's long-term budget
projection has gone from a $5 trillion surplus to a $4.3 trillion
deficit and tax
cuts were the single largest factor behind that decline. The large
role of tax cuts in the deficit has been confirmed by the President's own
budget analysis. Social Security, meanwhile, continues to run a
surplus. Greenspan's recommendation amounts to a huge transfer of
wealth from future retirees to the very rich. The President, for his
part, dodged a direct question yesterday about whether he believes, as
Greenspan does, we should scale back Social Security to deal with the
rising budget deficit, saying he needed to "see
exactly what [Greenspan] said."
GREENSPAN
FLASHBACK – WE NEED TAX CUTS TO REDUCE REVENUE:
Yesterday, Greenspan argued that the tax cuts should be extended
because allowing them to rise to their previous levels would "pose
significant risks to...the revenue base." But when he argued
in favor of Bush's first tax cut in January
2001, he made the opposite argument – that lowering tax rates
was necessary to reduce revenue. Greenspan was worried that the
government would quickly pay off the entire deficit and be awash in so
much money it wouldn't have anywhere productive to spend it. The WP
reported on 1/27/01 that Greenspan "justified his support of tax
cuts by focusing on a problem that may not even emerge until the end
of a possible second Bush term – the government being forced to buy
private assets because it had paid off all the national debt and still
had buckets of cash left over." Given the dramatic turnaround in
the nation's fiscal health – a
$9.3 trillion turnaround in just three years – Greenspan's
prediction was horribly wrong.
GREENSPAN
FLASHBACK – WE CAN AFFORD TAX CUTS AND SOCIAL SECURITY:
When he was aggressively pushing the President's massive tax cut in
2001, Greenspan was directly questioned about its effect on Social
Security. On 03/02/01, Rep. Carolyn McCarthy (D-NY) asked Greenspan,
"Do I want tax cuts?...this is my problem: there's such a
considerable measure of uncertainty in the projections over the course
of the baby boomers' retirement that how are we going to prepare for
this?" Greenspan responded that there was no reason for concern
because "despite the fact that there is a very dramatic
rise" in the retiring population from the Baby Boom, "the
effect of [the] acceleration in productivity" will mean that
revenues will be "more than adequate to meet that big surge
through a goodly part of the decade subsequent to 2010."
GREENSPAN
FLASHBACK – NOT EVERYONE WAS FOOLED:
While Greenspan claims that his recommendations are in response to
recent budget deficits, cutting Social Security was on his agenda long
before deficits emerged. The WSJ has complied a litany
of such comments dating back to November 1997. In 2001, when
Greenspan became a champion of the President's tax cuts for the
wealthy, Rep. Robert T. Matsui (D-CA) predicted Greenspan's desired
outcome. On 1/27/01, Matsui told the WP: "What [Greenspan's] done
is created a situation where we'll have benefit cuts in Social
Security. That's inevitable if you have a $2 trillion tax cut. And
maybe that was his ultimate goal."
GREENSPAN
TODAY – WHITEWASHING JOB LOSS:
Yesterday, Greenspan tried to whitewash the Administration's job
crisis, saying "progress
creating jobs has been limited." But since the Administration
has taken office, the economy has shed more than 2 million jobs and,
at the current pace of job creation, it would be May
2007 before the first net new private-sector job was created.
Meanwhile, the WP reports, "More
than 2,400 employers across the country reported laying off 50 or more
workers in January, the third-highest number of so-called mass
layoffs since the government began tracking them a decade ago."
The Administration attempted to eliminate the statistic in 2002, until
stopped by Congress.
Returning to Krugman:
Last week Mr. Greenspan warned of
the dangers posed by budget deficits. But even though the main cause
of deficits is plunging revenue — the federal government's tax take
is now at its lowest level as a share of the economy since 1950 — he
opposes any effort to restore recent revenue losses. Instead, he
supports the Bush administration's plan to make its tax cuts
permanent, and calls for cuts in Social Security benefits.
Yet three years ago Mr. Greenspan urged Congress to cut taxes, warning
that otherwise the federal government would run excessive surpluses.
He assured Congress that those tax cuts would not endanger future
Social Security benefits. And last year he declined to stand in the
way of another round of deficit-creating tax cuts.
But wait — it gets worse.
You see, although the rest of the government is running huge deficits
— and never did run much of a surplus — the Social Security system
is currently taking in much more money than it spends. Thanks to those
surpluses, the program is fully financed at least through 2042. The
cost of securing the program's future for many decades after that
would be modest — a small fraction of the revenue that will be lost
if the Bush tax cuts are made permanent.
And the reason Social Security is in fairly good shape is that during
the 1980's the Greenspan commission persuaded Congress to increase the
payroll tax, which supports the program.
The payroll tax is regressive: it falls much more heavily on middle-
and lower-income families than it does on the rich. In fact, according
to Congressional Budget Office estimates, families near the middle of
the income distribution pay almost twice as much in payroll taxes as
in income taxes. Yet people were willing to accept a regressive tax
increase to sustain Social Security.
Now the joke's on them. Mr. Greenspan pushed through an increase in
taxes on working Americans, generating a Social Security surplus. Then
he used that surplus to argue for tax cuts that deliver very little
relief to most people, but are worth a lot to those making more than
$300,000 a year. And now that those tax cuts have contributed to a
soaring deficit, he wants to cut Social Security benefits.
The point, of course, is that if anyone had tried to sell this package
honestly — "Let's raise taxes and cut benefits for working
families so we can give big tax cuts to the rich!" — voters
would have been outraged. So the class warriors of the right engaged
in bait-and-switch.
There are three lessons in this tale.
First, "starving the beast" is no longer a hypothetical
scenario — it's happening as we speak. For decades, conservatives
have sought tax cuts, not because they're affordable, but because they
aren't. Tax cuts lead to budget deficits, and deficits offer an excuse
to squeeze government spending.
Second, squeezing spending doesn't mean cutting back on wasteful
programs nobody wants. Social Security and Medicare are the targets
because that's where the money is. We might add that ideologues on the
right have never given up on their hope of doing away with Social
Security altogether. If Mr. Bush wins in November, we can be sure that
they will move forward on privatization — the creation of personal
retirement accounts. These will be sold as a way to "save"
Social Security (from a nonexistent crisis), but will, in fact,
undermine its finances. And that, of course, is the point.
Finally, the right-wing corruption of our government system — the
partisan takeover of institutions that are supposed to be nonpolitical
— continues, and even extends to the Federal Reserve.
The Bush White House has made it clear that it will destroy the
careers of scientists, budget experts, intelligence operatives and
even military officers who don't toe the line. But Mr. Greenspan
should have been immune to such pressures, and he should have
understood that the peculiarity of his position — as an unelected
official who wields immense power — carries with it an obligation to
stand above the fray. By using his office to promote a partisan
agenda, he has betrayed his institution, and the nation.
We can better understand the nadir that
Greenspan has reached, based on snippets from Paul O'Neill's recent
book, The Price of Loyalty. Economist Brad De Long has been publishing
some snippets of late on
his website. This one should suffice for now.
[1]
Alan
Greenspan Says That the 2001 Tax Cut Was a Mistake
People like
me who have enormous respect for the intelligence and judgment of Alan
Greenspan have long been puzzled at his approval of the Bush
administration's 2001 tax cut. It never fit our picture of who the man
was and what he thought. Now, thanks to Paul O'Neill's reports of his
discussions with Greenspan, we have a satisfactory answer:
Alan Greenspan said at the time that the 2001 tax cut was a mistake:
p. 162: May
22 [2001]... Greenspan arrived at the Treasury for breakfast with
O'Neill. Their secret trigger pact had come up one vote short....
"We did what we could on conditionality," O'Neill said
with momentary resignation.... "The first big battle is over,
really. I think we fought well, we made our points vigorously."
Greenspan said that wasn't enough. "Without the triggers, that
tax cut is irreponsible fiscal policy," he said in his deepest
funereal tone. "Eventually, I think that will be the consensus
view."
*Ron
Suskind (2003), The
Price of Loyalty: George W. Bush, the White House, and the Education
of Paul O'Neill (New York: Simon and Schuster:
0743255453).
I wonder if O'Neill is taking us for a ride or did
Greenspan take O'Neill for a ride?
BONUS: Of course, don't miss this
priceless economic/tax "policy" meeting at the WH. 
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