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Alan Greenspan thinks that a higher taxes is a Small Price to resolve US budget crisis

Allowing taxes to rise would be a small price to pay to get US lawmakers to accept spending cuts on entitlement programs, even if it leads to a “moderate recession,” former Federal Reserve Chairman Alan Greenspan said Friday during an interview at a panel discussion in Washington DC.

“Even if we have to pay the cost of a significant rise in taxes to get a significant slowing, and then decline, in social benefits that is a very cheap price,” Mr. Greenspan said in an interview Friday.

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“A large increase in taxes required to fund what is currently in the books is going to cause a recession,” he said. “If we can get away with that as the only cost to this whole problem, I think that’s a pretty good deal.”

Greenspan, 86 anni, earlier Friday joined Paul Volcker, also a former Fed chairman, for a discussion on fiscal policy sponsored by the nonpartisan Peter G. Peterson Foundation at the Newseum in Washington. They both said that if policy makers are unable to reach a compromise to address spending cuts and tax increases, markets will react negatively.

“This is a very dangerous situation,” Mr. Greenspan said at the event. “Markets may respond negatively before we even notice it, and that’s going to cause a huge problem.”

Mr. Greenspan said it would be a mistake to think that the US is going to fix its “unstoppable” spending “without pain.”

Expansion in the US faces headwinds from a slowing global economy and the risk Congress will not reach a deal to avoid the Fiscal Cliff, more than $600-B of tax increases and federal spending cuts scheduled to kick in automatically in January. The drop in spending and rise in taxes could push the country back into recession, according to the nonpartisan Congressional Budget Office.

GDP, the value of all goods and services produced in the US, rose at a 2% annual rate in Q-3 after climbing 1.3% in the prior 3 months, the Commerce Department said on 26 October.

Paul Volcker, 85 anni, said that the US tax system is “broken” and “it’s going to take some time” to reach a consensus among policy makers about how to redesign the system.

“It’s not going to be January 2013, it’s going to be 2014, 2015 before that gets put into place,” said Mr. Volcker during the discussion, which was moderated by Peter Peterson, chairman of the foundation.

Paul Volcker served as US Fed chairman from Ys 1979 to 1987 and Alan Greenspan served in the role from Ys 1987 until 2006.