Taxing and Spending: Taking a Closer Look at Fiscal Policymaking and Communication
The fiscal logjam in Washington brought vividly to mind the time Bill Dennis, my friend from Earlham College, asked me in early 2004 to address his class. He was teaching Washington interns, who were taking a semester with The Fund for American Studies, with the credits coming from Georgetown University. A student asked a very perceptive, skeptical question implying that the Bush tax cuts of 2001 and 2003 were ill-advised. Influenced by Keynesian orthodoxy but to my eternal shame, I responded that the first cut was appropriate under the prevailing recessionary conditions, but of course it would need to be rescinded during the ensuing phase of economic expansion. But instead another tax cut had been enacted in May 2003, despite Chairman Greenspan’s protestations. The second tax cut had happened even though the recession had ceased in November 2001 according to the National Bureau of Economic Research and four years of structural federal fiscal surpluses had ended in the same year according to the Congressional Budget Office.1 Prompted by Grover Norquest’s pledge of no additional tax revenue, a large segment of Republicans later became unwilling to approve counteracting hikes in tax revenue. My answer to Bill’s student has got to rank among the most nave utterances of all time. I abjectly apologize to that student, who I bet—based on the astuteness of his question—is reading this book!
KeywordsMonetary Policy Central Bank Real Interest Rate Government Debt Quantitative Ease
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