Sunday, February 13, 2005
The Real Flip Flopper
The real Flip Flopper in Washington is not ex Presidential candidate Senator John Kerry, but rather Fed Head Alan Greenspan who took another about face on the budget deficit in a London speech on February 4, 2005. Greenspan said that; "the voice of fiscal restraint, barely audible a year ago, has at least partially regained volume". Wow!
This is the same Greenspan who preached fiscal conservatism to Democratic President Bill Clinton in the 1990's only to reverse course when Republican President Bush took office and blessed the most massive tax cut in the history of our country that sent the budget deep into the red.
Consider the words of Paul Krugman of the New York Times on March 2, 2004 in 'Maestro of Chutzpah:
"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. ."
As recently as November of 2004 (Euro in Wider Circles) Greenspan was talking about the evils of running deficits. So what has changed? --Politically that is? --Because the deficit has not improved, neither have the projections for the deficit.
Perhaps Greenspan's flip-flop has something to do with the upcoming Social Security debate. Again consider the words of Paul Krugman in 'Maestro of Chutzpah:
"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."
It will be interesting to monitor the Flip Flopper in the months ahead as the Social Security debate heats up.
This is the same Greenspan who preached fiscal conservatism to Democratic President Bill Clinton in the 1990's only to reverse course when Republican President Bush took office and blessed the most massive tax cut in the history of our country that sent the budget deep into the red.
Consider the words of Paul Krugman of the New York Times on March 2, 2004 in 'Maestro of Chutzpah:
"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. ."
As recently as November of 2004 (Euro in Wider Circles) Greenspan was talking about the evils of running deficits. So what has changed? --Politically that is? --Because the deficit has not improved, neither have the projections for the deficit.
Perhaps Greenspan's flip-flop has something to do with the upcoming Social Security debate. Again consider the words of Paul Krugman in 'Maestro of Chutzpah:
"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."
It will be interesting to monitor the Flip Flopper in the months ahead as the Social Security debate heats up.
