Tags: greenspan | us | tax | cuts | deficit | economy

Greenspan: Deficit Fix More Important Than Tax Cuts

Sunday, 26 Sep 2010 02:40 PM

 

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It’s more important for the U.S. to cut its budget deficit than to extend tax cuts currently set to expire at the end of this year, former Federal Reserve Governor Alan Greenspan said in an interview on PBS.

“The budget deficit problem, I believe, is far more dangerous than most of us contemplate on a day-to-day basis,” Greenspan said in an interview to air on PBS television’s “Newshour.” While low interest rates have made it easy for the government to sell bonds, “assuredly they’re not going to stay here.”

Taxes and spending are dominating the congressional agenda with less than two months before elections that will determine control of the House and Senate. Democrats and Republicans’ main dispute is over who should be covered by an extension, with the former wanting to continue lower rates for individual income up to $200,000 and up to $250,000 for couples filing jointly, and the latter wanting to keep the tax rates for all brackets.

House Speaker Nancy Pelosi earlier today said the House may vote next week on extending the cuts, many of which were supported by Greenspan in 2001. Greenspan was Fed Chairman from 1987 to 2006. At the time the cuts were enacted, the federal government operated with a surplus, and Greenspan told Congress he didn’t think the cuts would lead to a deficit.

While eliminating the tax cuts now “will have a negative impact” on the economy, it will not have a “major” influence, he said. The choice between lower taxes and higher debt “is a tradeoff between bad and worse.”

If the U.S. makes a mistake by trying to reduce the deficit too quickly, “that’s a very reparable problem,” Greenspan said. The threat of expanding government debt beyond the country’s ability to borrow, opens “very dangerous possibilities,” he said.

© Copyright 2014 Bloomberg News. All rights reserved.

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