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Alan Greenspan: Big tax cuts a 'mistake.' Fix the debt first
by Matt Egan @MattEganCNN
November 10, 2017: 12:18 PM ET
Alan Greenspan has a message for President Trump and Congress: Now is not
the time for big tax cuts.
Greenspan, the former Federal Reserve chief and Republican economic adviser,
is worried about how tax cuts will worsen America's mountain of debt.
"Economically, it's a mistake to deal with sharp reductions in taxes now,"
Greenspan told Fox Business on Thursday.
"We are premature on fiscal stimulus, whether it's tax cuts or expenditure
increases. We've got to get the debt stabilized before we can even think of
those terms," Greenspan said.
That stands in stark contrast to the urgent pleas for lower taxes by Trump,
who during the campaign dubbed himself the "king of debt." Trump argues the
American economy "desperately" needs "massive" tax cuts.
That's despite accelerating economic growth and the lowest unemployment rate
in 17 years. The White House has said tax cuts are needed to keep the
momentum going and improve wage growth, which remains disappointing.
Greenspan, who was appointed Fed chair by both Republican and Democratic
presidents, argues the United States is already at "full employment." He
predicted supply and demand for labor will cause wages to "accelerate" on
their own.
Rather than adding to the national debt, Greenspan says Congress needs to
put the country on a sustainable fiscal path.
"What we ought to be concerned about is the fact that the federal debt is
rising at a very rapid pace. There is nothing in this bill that will
essentially stop that from happening," Greenspan told Fox Business.
When he led the Fed, Greenspan's words were treated like gospel by
economists and investors alike, and the press dubbed him the Maestro. But
critics have since argued Greenspan's support for light regulation and low
interest rates contributed to the 2008 financial crisis.
Still, neutral observers agree that the House GOP tax bill would make the
national debt worse. The nonpartisan Congressional Budget Office estimates
the federal deficit would increase by $1.7 trillion over 10 years under the
plan, including the impact of higher borrowing costs.
Under the tax bill, the CBO expects debt held by the public would rise to 97
.1% of gross domestic product by 2027, compared with 91.2% under the
existing tax structure. Debt-to-GDP currently stands at about 75%.
The House GOP bill would permanently cut the corporate tax rate to 20% from
35%, consolidate income tax brackets for individuals from seven to four and
repeal or limit many deductions. The Senate tax bill would change the rate
on taxable income for some of the seven individual tax brackets. It would
also slash the corporate rate to 20%, but the cut wouldn't take effect until
2019.
The White House argues that these changes will speed up the economy enough
that they'll pay for themselves in the long run.
"We see the whole trickle-down through the economy, and that's good for the
economy," Gary Cohn, Trump's top economic adviser, told CNBC.
Greenspan generally supports the idea of a 20% corporate tax rate to make
the United States more competitive with lower-tax countries.
"It's probably wise to bring down the corporate rate," Greenspan said. "But
don't look to that as a major factor in expanding the economy."
--CNN's Jeanne Sahadi and Phil Mattingly contributed to this report.
by Matt Egan @MattEganCNN
November 10, 2017: 12:18 PM ET
Alan Greenspan has a message for President Trump and Congress: Now is not
the time for big tax cuts.
Greenspan, the former Federal Reserve chief and Republican economic adviser,
is worried about how tax cuts will worsen America's mountain of debt.
"Economically, it's a mistake to deal with sharp reductions in taxes now,"
Greenspan told Fox Business on Thursday.
"We are premature on fiscal stimulus, whether it's tax cuts or expenditure
increases. We've got to get the debt stabilized before we can even think of
those terms," Greenspan said.
That stands in stark contrast to the urgent pleas for lower taxes by Trump,
who during the campaign dubbed himself the "king of debt." Trump argues the
American economy "desperately" needs "massive" tax cuts.
That's despite accelerating economic growth and the lowest unemployment rate
in 17 years. The White House has said tax cuts are needed to keep the
momentum going and improve wage growth, which remains disappointing.
Greenspan, who was appointed Fed chair by both Republican and Democratic
presidents, argues the United States is already at "full employment." He
predicted supply and demand for labor will cause wages to "accelerate" on
their own.
Rather than adding to the national debt, Greenspan says Congress needs to
put the country on a sustainable fiscal path.
"What we ought to be concerned about is the fact that the federal debt is
rising at a very rapid pace. There is nothing in this bill that will
essentially stop that from happening," Greenspan told Fox Business.
When he led the Fed, Greenspan's words were treated like gospel by
economists and investors alike, and the press dubbed him the Maestro. But
critics have since argued Greenspan's support for light regulation and low
interest rates contributed to the 2008 financial crisis.
Still, neutral observers agree that the House GOP tax bill would make the
national debt worse. The nonpartisan Congressional Budget Office estimates
the federal deficit would increase by $1.7 trillion over 10 years under the
plan, including the impact of higher borrowing costs.
Under the tax bill, the CBO expects debt held by the public would rise to 97
.1% of gross domestic product by 2027, compared with 91.2% under the
existing tax structure. Debt-to-GDP currently stands at about 75%.
The House GOP bill would permanently cut the corporate tax rate to 20% from
35%, consolidate income tax brackets for individuals from seven to four and
repeal or limit many deductions. The Senate tax bill would change the rate
on taxable income for some of the seven individual tax brackets. It would
also slash the corporate rate to 20%, but the cut wouldn't take effect until
2019.
The White House argues that these changes will speed up the economy enough
that they'll pay for themselves in the long run.
"We see the whole trickle-down through the economy, and that's good for the
economy," Gary Cohn, Trump's top economic adviser, told CNBC.
Greenspan generally supports the idea of a 20% corporate tax rate to make
the United States more competitive with lower-tax countries.
"It's probably wise to bring down the corporate rate," Greenspan said. "But
don't look to that as a major factor in expanding the economy."
--CNN's Jeanne Sahadi and Phil Mattingly contributed to this report.