AlterPolitics

International Monetary Fund Photograph/Stephen Jaffe

The former Fed Chairman, Alan Greenspan, is now rebuking the popular GOP Supply-Side talking point (as trumpeted recently by Mitch McConnell) that tax cuts increase revenues, and therefore help reduce deficits:

“They should follow the law and let [Bush’s tax cuts] lapse,” Greenspan said in an interview on Bloomberg Television’s “Conversations with Judy Woodruff,” citing a need for the tax revenue to reduce the federal budget deficit. […]

Greenspan, in a telephone conversation after his Bloomberg TV interview was taped, said his position is that all the expiring Bush tax cuts should end, for middle-class and high- income families alike.

Ending the cuts “probably will” slow growth, Greenspan, 84, said in the TV interview. The risk posed by inaction on the deficit is greater, he said.

“Unless we start to come to grips with this long-term outlook, we are going to have major problems,” said Greenspan, who led the U.S. central bank from 1987 to 2006. “I think we misunderstand the momentum of this deficit going forward.”

Here, he more or less lays responsibility for the huge deficit problems we now face at the doorsteps of the Bush Administration:

Greenspan said reducing the deficit is “going to be far more difficult than anybody imagines” after “a decade of major increases in federal spending and major tax cuts.”

Ironic, this coming from the guy who foolhardily endorsed Bush’s 2001 tax cuts, thereby helping to lay the ground work for the massive deficit expansion.

Regardless, this will hopefully take some of the wind out of the GOP/Tea Party sails — these self-proclaimed ‘fiscal warriors’.  After all, they have championed two grotesquely incompatible positions:  debt reduction AND tax cuts.

Tax cuts have long been the cornerstone of the Republican platform due to their obvious political popularity.  But the GOP has recently made debt reduction their ‘call to action’.  After they bequeathed a tumultuous economic disaster to an incoming President Obama, the GOP knew he would be forced — as was called for by every credible economist in the world — to increase federal spending to keep the country from spiraling into a full blown depression.  It gave the GOP a quick recipe for attack: “Obama is just another big spending ‘socialist’ Democrat, intent on creating runaway deficits”.  They hoped to shift at least some of the blame for the staggering deficits they created onto him.  Disingenuous?–obviously, but they knew their low-information (propaganda devouring) base would swallow it, hook, line and sinker, and they did.

But a week ago their credibility as self-proclaimed ‘deficit hawks’ was called into question by none other than Chris Wallace (their own mascot) on The Fox News Channel (their home field).  And the ensuing fallout continues to reverberate across the main stream media and blogosphere.

The Washington Post recently posed the following question to the GOP:

The issue is whether the tax cuts for the wealthiest Americans should be extended, adding another $678 billion to the deficit over the next decade. The tax cuts, it’s worth remembering, passed originally in 2001 with the argument that the surplus was so large that rates could be cut with budgetary room to spare. Now that the fiscal picture has deteriorated so badly, the questions remains: How are you going to pay the $678 billion? And if you don’t, how are you going to justify the added damage to an already grim fiscal outlook?

If the GOP hopes to have any chance at recasting themselves as ‘deficit hawks’ to anyone left of their wing-nut base, they will have to address this glaring contradiction.  They cannot continue to defend tax cuts for the rich, and still claim they intend to be fiscally prudent next time around.

UPDATE:

According to the CBO (as reported by Financial Times):

The Joint Committee on Taxation confirms that extending George W. Bush’s tax cuts “would increase the federal budget deficit by cumulative $2.567 trillion between 2011 and 2020.”  It adds:

But that would also deepen a growing structural deficit caused by the cost of providing healthcare and social security to an ageing population.

The Congressional Budget Office projects that the national debt will balloon to 87 per cent of gross domestic product by 2020 and 185 per cent by 2035 if the tax cuts are extended and discretionary spending grows in line with the economy.

The Republicans want to extend all the cuts, while most Democrats support proposals by Barack Obama, president, to extend them only for households with incomes below $250,000, lowering the cost to $2.154 Trillion.

Democrats have accused the Republicans of hypocrisy when they block spending on economic stimulus in the name of cutting the deficit.

It’s obviously time to roll back ALL of Bush’s tax cuts.  President Obama, show some leadership on this!