Earlier today, I discussed the reactions to Senate Minority Leader Harry Reid referring to Fed Chairman Alan Greenspan as a “hack” and noted that many of us, on both the Left and the Right, think Greenspan acts as if he’s the guru of all things Econ. Here’s a classic example:
Fed Chairman suggests adoption of hybrid tax system (newratings.com)
Federal Reserve Chairman Alan Greenspan on Thursday called for an overhaul of the US tax system, while recommending the introduction of a consumption tax to boost economic growth. President Bush has made the overhaul of the federal tax system one of his top second-term goals, while setting up an advisory panel to explore various reform options.
“As you know, many economists believe that a consumption tax would be best from the perspective of promoting economic growth – particularly if one were designing a tax system from scratch – because a consumption tax is likely to encourage saving and capital formation,” Greenspan said, while speaking at a meeting with a panel appointed by President Bush to consider tax reforms. The US tax system is not a practical way of reducing the country’s current account deficit, Greenspan added. Pointing out that the switch from an income tax system to consumption tax would not be easy and may face huge opposition from the Democrats, Greenspan suggested that policymakers could try out a combination of an income tax and a consumption tax. “I would suspect that probably that may be the best route to go. In other words, don’t try for purity,” he said. Consumption tax can take the form of national retail sales tax or a value-added tax. Greenspan suggested that a consumption tax could skip such necessities as food and clothing to restrict its negative impact on the poor.
I tend to think Greenspan is right, for what that’s worth, but what has this to do with managing the Federal Reserve system?
