Gregory Asks Greenspan: Bad Idea to Let Bush Tax Cuts Expire?

A rather shocking thing happened on Sunday's "Meet the Press": host David Gregory asked Alan Greenspan and Henry Paulson if it would be a mistake to let the Bush tax cuts expire.

Chatting with the former Federal Reserve Chairman and former Treasury Secretary, Gregory referenced Tuesday's Wall Street Journal article about what the impact of allowing these tax cuts to expire would be on the budget and the economy.

Gregory first asked Paulson and then Greenspan, "Is that a bad idea?" (video embedded below the fold with transcript, relevant section at 6:48):

DAVID GREGORY, HOST: The--part of the fix here, according to the budget, is--has to do with the issue of taxes. Here's how The Wall Street Journal put it in a headline on Tuesday, and that is that the wealthy face a tax increase. Those Bush-era tax cuts are going to be allowed to expire by this administration.

Secretary Paulson, is that a bad idea?

HENRY PAULSON, FORMER TREASURY SECRETARY: Here's how I look at taxes. I believe what we need is broad-based tax reform, and the kind of tax reform where there--it doesn't discourage investments, savings or incentives for those. Right, right now we have a tax system that, that is biased toward consumption. It's--and we as, we, we as a people save too little, invest too little, borrow too much. So I, I, I would like to see wholesale, broad-based tax reform. And I, I think that's, that's clearly got to be one of...

MR. GREGORY: My question is whether the Bush tax cuts expiring is a bad idea.

MR. PAULSON: Well, I've got to say, anything right now that is going to, that is going to, in effect, be a, a, a tax increase has got to be--has got to be questioned. And an expiring tax cut is a tax increase. But I'm going beyond that, because I really do believe that we are going to need a--to take a different approach to a number of things--taxes being one of them, housing policies being another.

MR. GREGORY: Dr. Greenspan, the tax cuts?

ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: Well, I, you know, I, I agree with what Hank is saying. I think the thing that disturbed me most in the last week or two was when the discussion was involved in, I believe, in the Senate on the issue of forming a commission--a congressionally-authorized commission, as I read it, there was a 97-to-nothing vote to exclude Social Security from the deliberations of that commission. That said to me that we have gotten to the point in this country where spending is untouchable. I have no doubts that we have to raise taxes in order to close this huge deficit. But we cannot do it wholly on the tax side because that would significantly erode the rate of growth in the economy and the tax base, and the revenues that would be achieved would be far less than anybody'd expect. We have to recognize the fact that one of the things that we have to do, as tough as it's going to be, is that benefits are going to have to be paired in conjunction with tax increases to resolve this very serious long-term budget problem.

I think these answers weren't what Gregory was expecting. How 'bout you?