Fed Chairman Tells Congress "Pork Fat Rules"
By Gregory J. Rummo (03/08/04)
WHEN FED CHAIRMAN Alan Greenspan appeared before members of Congress on February 25, the main story that was reported in all the newspapers was that he had advocated cuts in Social Security.
But I thought the bigger story was what he had to say about President Bush’s tax cuts, their effect on economic growth and the need for lawmakers to exercise fiscal responsibility on the spending side.
“Tax reductions—some of which were intended specifically to provide stimulus to the economy—also contributed to the deterioration of the fiscal balance…[T]he fiscal stimulus associated with the larger deficits was helpful in shoring up a weak economy. During the next few years, these deficits will tend to narrow somewhat as the economic expansion proceeds and rising incomes generate increases in revenues.”
Greenspan cites the Bush tax cut as instrumental in shoring up the weakened economy.
I’ve made the point in this space on numerous occasions that a tax cut is an important catalyst in stimulating a lagging economy. But Democrat-spun urban legends such as tax cuts being only for “The Rich” and the government’s inability “to afford” a tax cut—as if it’s Washington’s money to begin with—are as persistent as that stain in Monica Lewinsky’s blue dress.
It all started when Democrats claimed that the deficits during the 1980s were the result of President Reagan’s tax cuts.
But this is simply not true.
When Ronald Reagan took office in 1980, the annual receipts to the Treasury were about $500 billion. When he left office eight years later, they had doubled. The reason?—Tax cuts.
Reductions in the rates taxpayers were paying created a snowball effect. Employed Americans now had more money in their take-home pay. And because America’s economy is driven by the engine of consumerism, they spent it on products and services. As they spent, demand was created which in turn created the need for supply. This translated into more manufacturing which resulted in hiring.
20 million jobs were added to America’s payrolls during the 1980s. And because these 20 million people were now paying taxes, even though they were paying lower tax rates, the total tax revenues to the Treasury increased.
The deficits of the 1980s were the result of increased spending, not a cut in taxes. It was as if the government had hit the lottery and couldn’t wait to spend the money.
We find ourselves in a similar situation now in 2004 although the government hasn’t hit the lottery yet because job growth is still somewhat lagging.
In his testimony, Greenspan explained that the turn-around in the economy has been “fueled by a sizable increase in household spending, a notable strengthening in business investment, and a sharp rebound in exports.” In other words, taxpayers are going out on shopping sprees, businesses are doing things like upgrading their networks, buying new computers and manufacturing is surging.
But Democrats are content to ignore all of this good news and instead, blaming the deficit on the Bush tax cuts. They are hoping a largely economics-challenged American electorate will keep their brains in neutral long enough to pull the lever under John Kerry’s name in November.
Mainstream journalists are doing very little to challenge the Dem’s spin. But the concept of tax cuts fueling the economy is so fundamentally simple to grasp I have to believe it is their ideology and not ignorance that causes the mental block.
Those contemplating reversing the president’s tax cuts should consider what Greenspan said about such a course of action: “Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. The exact magnitude of such risks is very difficult to estimate, but they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from the outlay side.”
In other words, Greenspan advises if we want to close the gap between revenues and outlays, instead of clamoring over tax cuts, we should reduce spending.
There is much more pork from which to trim fat on the spending side.
Bush’s tax cuts are a meager $350 billion compared to over $25 trillion in estimated outlays during the same time frame.
Emeril—that famous Food TV chef that made famous the expression, “Pork fat rules!” should consider doing a show from the floor of the House of Representatives. He could feature nothing but pork dishes.
Cutting spending is a difficult gambit, especially for politicians used to promising everything to everybody. And in an election year, offering handouts to voters will garner more votes than the exercise of fiscal restraint.
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