Alan Greenspan, former Federal Reserve chairman, has gone on record saying that he thinks the Bush-era tax cuts should be allowed to expire.
“If we do not get Simpson-Bowles as a fallback position,” Greenspan told CNBC, “I stand with allowing the Bush tax cuts to expire.”
“This crisis is so imminent and so difficult that I think we have to allow the so-called Bush tax cuts all to expire. That is a very big number,” he said, referring to how much the U.S. government could save from letting income taxes go back up to levels last seen under former President Bill Clinton, reports the Wall Street Journal.
Greenspan believes it would be the only deficit-reducing option available should policymakers continue to disregard Simpson Bowles.
For those unfamiliar with Simpson Bowles, it is the National Commission on Fiscal Responsibility and Reform (named after Alan Simpson and Erskine Bowles) that was created in 2010 by President Barack Obama to identify, "…policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.”
The commission has been criticized as being overly-secretive and as being "stacked with people who want to target entitlement spending rather than any balanced proposal," reports David Dayen of FDL. Several prominent Democrats and Progressives have voiced their opposition to the commission and have dubbed it the “cat food commission.” (The theory goes that if the commission cuts Social Security and Medicare benefits, previous recipients of these entitlements will be so destitute that they will be forced to eat cat food. Cute.)
Greenspan himself has been a vocal supporter of the commission and has said that the committee's decision to eliminate most of tax expenditures (the $1 trillion in annual credits and deductions that are part of the tax code) was both "elegant" and "clever."
“You could do it gradually, whatever,” Greenspan said about ending the tax cuts. “But if we think we have this luxury of waiting for a couple of years with a little stimulus now and then later tightening up. I hope the bond markets are listening.”
Mr. Greenspan was talking about re-imposing the taxes for all Americans. The Treasury has estimated that a permanent extension of all the Bush tax cuts would cost $3.6 trillion over the next decade. Allowing taxes to increase on those in the top income brackets would take the cost to the government down to $2.9 trillion, according to White House estimates, reports the Wall Street Journal.
PBS Interview: Bush-Era Tax Cuts Should Lapse, Warns on Budget Deficit
But the ex-Fed chairman didn't comment on the budget deficit alone. He went on to claim that the financial catastrophe in the U.S. is being informed by the eurozone crisis.
“What’s driving the United States at the moment to a very large extent is Europe,” Greenspan told CNBC. “You can’t understand the United States at all, I think, unless you know what’s going on in Europe.”
“If we could somehow extract the goings on in Europe, I think we could see what we are seeing,” Greenspan told CNBC. “Namely, a sluggish economy but one that is continuously edging higher.