GREENSPAN AND THE TRIGGERS….Why did Alan Greenspan support George Bush’s tax cuts back in 2001? He says two things in his own defense. First, he was afraid that continuing federal surpluses might eventually dry up the national debt and thus constrain monetary policy. Second, he did his best to argue for “triggers” in the tax bill that would eliminate the tax cuts if the budget went back into deficit.
Do these excuses hold water? Let’s turn over the floor to Ron Suskind, who wrote about Greenspan, Bush, Treasury Secretary Paul O’Neill, and the tax cuts in his book The Price of Loyalty:
We’re not going back into [deficit], Greenspan said. Paul nodded solemnly. For these two, it was a blood oath….But what happens to the big item, the tax cut, if the surpluses evaporate? he asked. “Triggers,” O’Neill said. “A good enough idea, if it can be sold.”….O’Neill smiled. “Think you could find a way to mention triggers in one of your upcoming pronouncements?” Greenspan smirked, “Why me?” “Because I thought of it,” O’Neill said with a friendly gloat. “That means you have to sell it.”
….[In congressional testimony in January, Greenspan] suggested that a future tax cut “could include provisions [that]…limit surplus-reducing actions if specified targets for the budget surplus and federal debt were not satisfied. Only if the probability was low that…initiatives would send the on-budget accounts into deficit, would unconditional initiatives appear prudent.”
….[Later] O’Neill made his case for triggers [to President Bush]….The conviviality had burned off. Bush looked at him with the flat, inexpressive stare to which O’Neill had become accustomed. “I won’t negotiate with myself,” Bush finally said. “It’s that simple. If someone comes to me with a plan for this, and they have a significant amount of political backing, I’ll sit down with them — talk it out. But until then, it’s a closed issue.”
….[In May] Greenspan arrived at the Treasury for breakfast with O’Neill. Their secret trigger pact had come up one vote short….”The first big battle is over, really. I think we fought well, we made our points vigorously.” Greenspan said that wasn’t enough. “Without the triggers, that tax cut is irreponsible fiscal policy,” he said in his deepest funereal tone. “Eventually, I think that will be the consensus view.”
Nobody wins every battle, and when Greenspan essentially argues that he didn’t realize at the time just how hackish the Bush administration was, it’s hard not to sympathize. Still, these passages tell us several things:
Greenspan and O’Neill, far from being genuinely concerned with the risible idea that the national debt might decline to zero, were troubled mostly by the possibility of the tax cuts forcing the budget back into deficit.
Greenspan agreed to publicly “sell” the trigger idea. In the end, and despite flat warnings that his testimony was almost certain to be misunderstood, he did so only in a single cryptic piece of testimony early in 2001.
When O’Neill tried to sell triggers to the president, Bush told him directly that he wouldn’t consider it unless there was outside pressure to do so.
Greenspan declined to apply any pressure via further public statements, despite his strong feeling that “Without the triggers, that tax cut is irreponsible fiscal policy.”
I report, you decide. Was Greenspan really the political naif he paints himself as? Or did he know perfectly well what was going on and simply made a decision to stay quiet about it?
UPDATE: Paul Krugman adds:
If anyone had doubts about Mr. Greenspan’s determination not to inconvenience the Bush administration, those doubts were resolved two years later, when the administration proposed another round of tax cuts, even though the budget was now deep in deficit. And guess what? The former high priest of fiscal responsibility did not object. And in 2004 he expressed support for making the Bush tax cuts permanent — remember, these are the tax cuts he now says he didn’t endorse — and argued that the budget should be balanced with cuts in entitlement spending, including Social Security benefits, instead. Of course, back in 2001 he specifically assured Congress that cutting taxes would not threaten Social Security.