Bernanke’s Tax-Cut Flip-Flop
In testimony before the Senate Banking Committee on Thursday, the Federal Reserve Chairman argued that he had tried as much as possible to stay away from fiscal issues that are outside the purview of the central bank. Democratic Senator Jack Reed, of Rhode Island, asked Bernanke whether, like his predecessor Alan Greenspan, he thought former president George W. Bush’s tax cuts had been appropriate.
The chairman responded:
“I’ve done my best to leave that authority where it belongs, with the Congress.”
What Bernanke didn’t disclose is that back in 2005, while he served as chairman to the president’s Council of Economic Advisers, he was singing a very different tune. In fact, he went so far as to argue in a September 2005 testimony to Congress that the very underpinnings of U.S. economic growth might be compromised if Bush’s controversial tax cut program were not etched into law for good.
“Beginning with the President’s 2001 tax cuts, multiple rounds of tax relief increased disposable income for all taxpayers, supporting consumer confidence and spending while increasing incentives to work and save. Additional tax legislation passed in 2002 and 2003 provided incentives for businesses to expand their capital investments and reduced the cost of capital by lowering tax rates on dividends and capital gains.”
And later in his remarks:
“We must also continue the types of economic policies that have brought us through these shocks and that will ensure continued healthy growth. These policies include making tax relief permanent, reducing the deficit, strengthening retirement and health security, fostering a healthy and well-educated workforce, promoting fair and open trade, and enhancing energy security.”
In fairness, Bernanke was excercising two different functions, one as a presidential adviser, the other as a central banker. In his current role, Bernanke has been careful not too wander too far outside the sphere of Fed policy. But sometimes a broad discussion of fiscal matters is all but unavoidable. Indeed, it was a comment Bernanke made about the need to reduce the cost of Medicare that triggered Reed’s question in the first place.