February 10, 2003
What Alan Greenspan Will Say This Week

The G-7 Group predicts:


Greenspan will do a two-step...

  1. He will say that he opposes the double taxation of dividends on principle, and that ending such policy represents good long-term tax policy.
  2. But he will also concede that eliminating dividends does little to stimulate the economy in the near term and does so at the risk of high deficits. This is what he told moderates behind closed doors and he will not be able to go soft on this point.
  3. He will likely warn against a return to long-term budget deficits while stressing the need to curb spending.
  4. Greenspan will try to avoid endorsing one party's stimulus package over the other's. But anyone paying attention will understand that he believes the Democrats? smaller package aimed at 2003-04 is better for the economy.

Posted by DeLong at February 10, 2003 06:39 AM | Trackback

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I wonder if Greenspan will really have the guts to say something against the policies of this administration. I suppose it depends on how well he can word the statement to not offend anyone. However, I think he will have a very tough time on this one going against the administration party line on economic stimulus. And if he is worth his weight in dog food he will have to say something about Bush's plan, doesn't he?

Posted by: X-patriot on February 10, 2003 08:53 AM

What's surprising to me is that the Administration has done so little to develop a constructive relationship to Greenspan. Clinton was a master at this, at the strategy of developing a policy team that clearly included the Federal Reserve, and which encouraged Chairman Greenspan to think of himself as having a stake in the success of the Administration's policies. Under Bush, Greenspan has operated at a distance, under apparent Administration blessing, and thus must feel free to allow a critical view of the Administration to creep into the public domain. Bush could yet fix all of this, but he'd better do so soon.

Posted by: Jim Harris on February 10, 2003 10:18 AM

Greenspan says every time he is asked that he doesn't comment on specific legislative proposals. That policy is reflected in the G7 Group's point 4. Lyle Gramly, former Fed Governor and pretty reliable Fed prognosticator, says Greenspan will say that there may be no need for any additional fiscal stimulus, that this is a time to wait and see. Of course, the closest thing on the table to "wait and see" is the Democrats' small stimulus, but Greenspan may allow his interrogators to come to that realization themselves.

Posted by: K Harris on February 10, 2003 10:55 AM

Blah, blah blah. Alan Greenspan made a terrible "mistake" by worrying about a supposed long term surplus that would gobble us up if it were not pared by tax cuts. Then, when there are deficits as far as can be seen, Alan Greenspan has urged that past tax cuts be made permanent.

Alan Greenspan spent a career warning Democrats about fiscal responsibility, for Republicans there have been no such warnings....

Paul Krugman -

In its first budget, the Bush administration projected a 2004 surplus of $262 billion. In its second budget, released a year ago, it projected a $14 billion deficit for the same year. Now it projects a deficit of $307 billion. That's a deterioration of $570 billion, just for next year matched by comparable deterioration in each following year. You know, $570 billion here and $570 billion there, and pretty soon you're talking real money.

Not my fault, says Mr. Bush. "A recession and a war we did not choose have led to a return of deficits," he declared. Really? Will the recession and war cost $570 billion per year, every year? Besides, Mr. Bush knew all about the recession a year ago, when his projections showed a return to surpluses by 2005. Now they show deficits forever even though they don't include the costs of an Iraq war.

But Mr. Bush proposes to make the problem worse. Contrary to all previous practice, he wants to cut taxes even further in the face of "wartime" deficits.

That $674 billion tax cut you've heard about literally isn't the half of it. Even according to its own lowball estimates, the administration wants $1.5 trillion in tax cuts over the next decade more than it pushed through in 2001. Another $575 billion or so will be needed to fix the alternative minimum tax something officials have said they'll do, but haven't put in the budget....

Posted by: anne on February 10, 2003 11:21 AM

Funny thing.... Alan Greenspan was surely no supply sider when arguing about the use of tax cuts to cut the "dread" surplus. We shall see if the "Maestro" turns supply sider now that we are all deficit.

Perhaps the Maestro can even figure out a way to cut back on free school lunches enough to pay for a stock dividend tax cut.

Posted by: anne on February 10, 2003 11:36 AM

Of course, there's always the "Atlas Shrugged" scenario - that Greenspan is a reactivated Randian "sleeper" agent, who, after overheating the engines, now stands back as the machinery of the State self-destructs...;-) Hmmm...Have you noticed how James Glassman has mysteriously disappeared recently...

Posted by: Daniel Barnes on February 10, 2003 12:09 PM

Wish James "Dow 36,000" Glassman had disappeared, but he is still being solicited for leading edge economic commentary by PBS and the networks. Guess whether Glassman supports every tittle of the Administration budget plan?

Posted by: dahl on February 10, 2003 12:52 PM

"...- that Greenspan is a reactivated Randian "sleeper" agent, who, after overheating the engines, now stands back as the machinery of the State self-destructs...;-)"

Greenspan "overheated the engines"? I'd say he's done a pretty spectacular job, in terms of inflation.

Posted by: Mark Bahner on February 10, 2003 03:15 PM

"But he will also concede that eliminating dividends does little to stimulate the economy..."

If eliminating the dividend tax would have little effect on the econnomy, that means that the dividend tax isn't bringing in all that much money to begin with. Which means that Washington won't miss it.

Principle is everything. Laws must regard means, not ends. The dividend tax is symptomatic of Washingtonian greed and the tax law's hypercomplexity, both of which need to be scaled back every chance we get.

Posted by: Alan K. Henderson on February 10, 2003 04:29 PM

Alan K. Henderson says "If eliminating the dividend tax would have little effect on the econnomy, that means that the dividend tax isn't bringing in all that much money to begin with. Which means that Washington won't miss it."


I say that's a perfect illustration of "it does not follow", aka non sequitur.

"If eliminating the dividend tax would have little effect on the econnomy" can not be logically followed with "that means that the dividend tax isn't bringing in all that much money to begin with" and surely can not be followed with "Which means that Washington won't miss it." You're turning in circles there Alan.

Ask yourself why elimination of taxes on dividends is not necessarily an effective economic stimulus. Start by looking at what class of people would reap the vast majority of the benefits of such a tax policy and follow that by asking whether or not this class of people is going to run out and buy more "stuff" with their new found untaxed income, especially since this class of people already largely has the income needed to buy most anything (within reason) that they want. You mght follow that by asking yourself what kind of effects the tax measures put in place to fight the huge deficits will have since they are almsot sure to be regressive forms of taxes that take money out of the pocksts of people who need and will spend every penny.

Bush's dividend tax proposal does nothing to recuce complexity. It increases complexity to a major degree. And Washington greed? Please. Since when is formulation of a progressive tax policy to pay for needed government the same as "greed"?

Posted by: Roman Berry on February 10, 2003 10:43 PM

Greenspan is going to say that a temporary rebate of the payroll tax will stimulate the economy? Or imply it?

Posted by: Jane Galt on February 11, 2003 04:56 AM

Several points:

I said IF eliminating the dividend tax would have little effect...My original point was that it seems absurd to waste a lot of resources implementing a tax that brings in such a piffly small amount of revenue.

That assumes that dividend tax revenues are insignificant. Common sense dictates that if government takes X amount of dollars, the economy will be impacted by a degree at least the size of X. I drew the "piffly small amount" conclusion based on this equation.

If the progressive taxation hawks insist that dividend tax revenues are significant but their economic impact is not, then they must entertain one of the following whackball theories: 1) the "rich" do not contribute to the economy as much as those in lower economic strata; 2) the sum of dividend tax revenues contributes more to the economy in the hands of the Feds than in the hands of stockholders.

Then there's the issue of whether or not the majority of dividend tax revenues comes from the "rich" - but that issue is irrelevant to the question of whether or not dividend tax relief stimulates the economy. Business growth is key to economic expansion. Many businesses are corporations. Stockholders invest in corporations. Some people refuse to invest in corporations because dividend taxes reduce the profiability of such investments. Therefore, it makes sense to provide relief to people who fuel business expansion.

Posted by: Alan K. Henderson on February 12, 2003 05:04 PM

Alan - as a progressive taxation hawk, I'm going to defend one of those "whackball theories" that you present as being not crazy at all.

"1) the 'rich' do not contribute to the economy as much as those in lower economic strata"
I don't know anyone who would really say this, but I know plenty who would say this:
"1) tax cuts for the 'rich' do not contribute to the economy as much as tax cuts for those in lower economic strata."

Dividend tax revenues are significant, but the economic impact will be minimal because of the following - 1) the "rich" don't spend like those who are in lower economic strata (poor people spend more of a percentage of their income), 2) the biggest problem in the economy is a lack of demand (exemplified by a lack of consumer confidence and spending), 3) those who are "rich" are less likely to be influenced in their spending behavior by an extra thousand bucks (while the poor are), therefore 4) the revenue would be better spent on those in the lower economic strata, as their spending behavior is more pliable to change.

And to counter your last few points, most dividend tax revenues come from those in higher economic brackets - if you don't have money to invest and save, you won't be able to invest in stocks and such that will get you dividends. That's just common sense.

As to whether a cut in dividend taxes is a good idea, I think it is - but that's a far different question about whether that same revenue couldn't be put to a better use by say, having a payroll tax holiday. If you want to give relief to people who fuel business expansion, you toughen the SEC by fully funding them and make sure that there's a revenue neutral dividend tax cut, making sure that deficits don't drive out private investment.

Posted by: Trickster Paean on April 17, 2003 09:50 AM

Alan - as a progressive taxation hawk, I'm going to defend one of those "whackball theories" that you present as being not crazy at all.

"1) the 'rich' do not contribute to the economy as much as those in lower economic strata"
I don't know anyone who would really say this, but I know plenty who would say this:
"1) tax cuts for the 'rich' do not contribute to the economy as much as tax cuts for those in lower economic strata."

Dividend tax revenues are significant, but the economic impact will be minimal because of the following - 1) the "rich" don't spend like those who are in lower economic strata (poor people spend more of a percentage of their income), 2) the biggest problem in the economy is a lack of demand (exemplified by a lack of consumer confidence and spending), 3) those who are "rich" are less likely to be influenced in their spending behavior by an extra thousand bucks (while the poor are), therefore 4) the revenue would be better spent on those in the lower economic strata, as their spending behavior is more pliable to change.

And to counter your last few points, most dividend tax revenues come from those in higher economic brackets - if you don't have money to invest and save, you won't be able to invest in stocks and such that will get you dividends. That's just common sense.

As to whether a cut in dividend taxes is a good idea, I think it is - but that's a far different question about whether that same revenue couldn't be put to a better use by say, having a payroll tax holiday. If you want to give relief to people who fuel business expansion, you toughen the SEC by fully funding them and make sure that there's a revenue neutral dividend tax cut, making sure that deficits don't drive out private investment.

Posted by: Trickster Paean on April 17, 2003 09:51 AM
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