SYNOPSIS: Calls on Greenspan to admit that he was wrong on Bush's tax cut
On Sunday newspapers headlined George W. Bush's declaration that future tax cuts would be canceled "over my dead body." But the only news there was Mr. Bush's choice of words — words he hasn't repeated, probably because his aides realized that they didn't sound very presidential, and were in poor taste in light of recent events.
The interesting news story on economic policy, it seems to me, involves someone else — and it involves his silence, not his words. Whatever happened to Alan Greenspan, the high priest of fiscal responsibility?
About Mr. Bush: surely nobody expected him to give an inch, even though the surplus projections that were used to sell the tax cut have turned out to be nonsense. The Bush administration operates on the principle of "no enemies on the right"; it also operates on the principle that Mr. Bush is infallible. Whatever policies he may have proposed in the past, his aides always insist that they are perfectly suited to the present — indeed, were devised with the present situation in mind. It's actually quite funny, though nobody dares say so.
Last month, for example, Karl Rove explained that the tax cut, although originally proposed amid an economic boom, was designed to cope with the current recession. "All the signs were there in the second, if not the second, the third quarter of 2000," Mr. Rove said. When a questioner gently pointed out that Mr. Bush had laid out his tax plan way back in 1999, Mr. Rove brushed him aside.
And since Mr. Bush is infallible, why should he ever reconsider his decisions?
But back to Alan Greenspan. A year ago Mr. Greenspan gave the new Bush administration decisive aid in its push for a large tax cut. Worrying that the national debt would be paid off too quickly, he urged Congress to cut taxes in order to put the budget on a "glide path" of gradually declining surpluses.
Some glide path; more like a nosedive. In 2000 America ran a record surplus; now, analysts from both parties agree that the federal budget will be in deficit for at least the next several years. They still project surpluses for late in the decade — but if you believe those projections, I've got some Enron stock you might want to buy.
Mr. Greenspan ought to be upset. It's not just that during the Clinton years he became an icon of fiscal probity; the sudden plunge back into deficit undoes his own handiwork.
You see, back in the early 1980's, before he became Fed chairman, Mr. Greenspan headed a commission that was supposed to secure the future of Social Security. The main result of that commission was an increase in payroll taxes, even as Ronald Reagan was cutting income taxes. The purpose of this regressive tax increase — payroll taxes fall most heavily on low- and middle- income families — was to generate a surplus that would, in turn, make it easier for the federal government to pay benefits to an aging population.
But now, thanks to the disappearance of the budget surplus, the excess revenue collected by the payroll tax isn't being used to acquire assets, or even to pay down the federal debt; it's being used to cover deficits elsewhere in the budget. We're not talking small numbers here; only about 70 cents of each dollar in Social Security revenue is used to pay current benefits. In effect, the other 30 cents has now been expropriated for other uses — mainly tax cuts for the richest few percent of the population.
Was this what Mr. Greenspan intended — to raise taxes on the poor and the middle class, so that they could be cut for the rich? If not, why doesn't he say something? After all, a word from him could alter the landscape of economic debate, just as it did a year ago.
It's true that to give that word Mr. Greenspan would have to admit, at least tacitly, that he was wrong last year. But he's not a politician up for re-election — and if he's worried about his reputation, he should realize that if he continues to be silent history will not judge him kindly. Right now the provisional verdict is that he was a hypocrite: he sternly demanded fiscal responsibility while Democrats were in office, but had no complaints — indeed, acted as an enabler — as a Republican administration quickly squandered the fruits of all that austerity.
That verdict doesn't have to stand. All it would take would be a few carefully chosen remarks. I'm all ears.
Originally published in The New York Times, 1.8.02