Greenspan calls for simpler tax code
By William L. Watts, MarketWatch Last Update: 10:25 AM ET March 3, 2005
WASHINGTON (MarketWatch) - Federal Reserve Chairman Alan Greenspan told President Bush's tax reform panel Thursday that a simpler tax code would result in a "better use of resources," but warned that efforts to overhaul the system will inevitably create winners and losers.
In prepared testimony before the advisory panel, Greenspan offered no specific policy prescriptions, but noted that "many economists" believe that moving to some form of consumption tax "would be best from the perspective of promoting economic growth." Read his prepared remarks.
Greenspan noted that getting from the current tax system to a consumption tax base, however, would raise a challenging set of transition issues.
Under questioning from the panel members, Greenspan suggested that a hybrid system combining elements of consumption and income taxes "might be the best route to go" given the political difficulties.
Greenspan said the oncoming retirement of the Baby Boom generation underscores the need to examine the choice of a tax base and other elements of the tax code.
"I believe that as the Baby Boom generation begins to retire in a few years, it will become increasingly important for the nation to boost resources available in the future through greater national saving and enhanced incentives for participation in the labor force," Greenspan said.
The tax system can contribute to those goals, he said, adding that "at a minimum, tax reform should not hinder the achievement of those goals."
Greenspan said tax reform efforts will inevitably require tradeoffs among competing objectives that "will create both winners and losers." Accomplishing tax reform in the past has therefore required a bipartisan effort, Greenspan said, citing tax overhauls conducted in 1954, 1969 and 1986.
Greenspan made no comments on monetary policy in his prepared remarks.
Thursday's event was the tax panel's second public hearing. Bush earlier this year tapped former Sens. John Breaux, D-La., and Connie Mack, R-Fla., to head the tax panel. The panel is scheduled to report back to Treasury Secretary John Snow by July 31.
Bush has described overhauling the tax code as a key component of his domestic agenda, but it has paled in emphasis next to his top item: adding private investment accounts to Social Security.
The administration has insisted that any final tax proposal be "revenue-neutral," in other words, it must raise the same amount of revenue as the current tax system.
Greenspan said that "tax code drift" since an overhaul in 1986 has confronted taxpayers with substantial complexity.
Under questioning from the panel members, Greenspan suggested that a hybrid system combining elements of consumption and income taxes "might be the best route to go" given the political difficulties.
No more compromising integrity and honesty for politics, political agenda and parasitical politicians and bureaucrats.
Greenspan said tax reform efforts will inevitably require tradeoffs among competing objectives that "will create both winners and losers."
Only because congress and the IRS created artificial winners and losers. Not real winners and losers based on each individual's ability to make their way in the world. Which would occur with far fewer losers than the government artificially created.
Greenspan said that "tax code drift" since an overhaul in 1986 has confronted taxpayers with substantial complexity.
It's a quagmire.