Tuesday, April 19, 2011

A U.S. reckoning is a wake-up call for Canada

A former tax cutting supporter reverses himself in the face of U.S. debt woes. Greenspan says enough already:
Former Fed Chairman Alan Greenspan is stepping up his call for Congress to let the Bush-era tax cuts lapse.

In an appearance Sunday on NBC’s “Meet the Press,” Mr. Greenspan used his strongest words yet to urge lawmakers to let them expire. The risk of a U.S. debt crisis, he said, is just too big. Mr. Greenspan, who retired from the Federal Reserve in 2006, had endorsed the cuts back in 2001 championed by then-President George W. Bush.

“This crisis is so imminent and so difficult that I think we have to allow the so-called Bush tax cuts all to expire. That is a very big number,” he said, referring to how much the U.S. government could save from letting income taxes go back up to levels last seen under former President Bill Clinton.

Mr. Greenspan was talking about re-imposing the taxes for all Americans. The Treasury has estimated that a permanent extension of all the Bush tax cuts would cost $3.6 trillion over the next decade. Allowing taxes to increase on those in the top income brackets would take the cost to the government down to $2.9 trillion, according to White House estimates.

Ahead of meetings this weekend of world financial leaders, which included Treasury Secretary Timothy Geithner and current Fed Chairman Ben Bernanke, the IMF expressed concerns that a delay in slashing the U.S. budget deficit might cause the bond market to lose faith in the country’s ability to do so, which would push interest rates higher and possibly destabilize the global economy.
Stil, when it came to the tax cuts, he sounded more alarmed than he was in August, when he said in an interview on NBC’s “Meet the Press,” that he disagreed with conservatives who said tax cuts essentially pay for themselves by causing more economic activity.

“They do not,” Mr. Greenspan said at the time, adding that the U.S. has been funding spending programs and tax cuts with borrowed money. “And at the end of the day that proves disastrous. My view is I don’t think we can play subtle policy here.”
The latter two paragraphs on tax cuts not paying for themselves run contrary to what Flaherty and Baird and Harper et al. will tell you here. But the fact that we face a structural deficit at the federal level courtesy of the Harper Conservatives is more determinative of reality than what they say to us.

On the larger tax cut point from Greenspan, no such revisionism going on with our Conservatives, it's full speed ahead on the corporate tax cutting agenda, despite Canada's deficit situation and the expensive spending projects they have lined up (jets, prisons, etc.). And despite more reporting today that corporate tax cuts are just one of many factors businesses take into account when making various decisions on expansion, location, buying equipment, hiring, etc.

Tory times are tough times, it's a slogan for a reason. The reckoning for the policies that conservative types pursue is being witnessed in the U.S. right now. And we've got $11 billion in cuts coming our way from targets unknown.

Wakey, wakey, Canada.