April 28, 2010 Former Fed Chief Dampens Talk of a Tax By JACKIE CALMES
WASHINGTON — Paul A. Volcker, the former Federal Reserve chairman who recently incited speculation that the Obama administration would propose a European-style consumption tax to reduce deficits, on Wednesday said the idea was too unpopular to be under consideration “now or for the indefinite future.”
But Mr. Volcker suggested that while the economy remained too fragile to raise taxes or cut spending right now to reduce projections of dangerously high national debt, “we can deal with the Social Security problem reasonably promptly” with changes that do not take effect for some years, such as phasing in a higher retirement age.
Mr. Volcker, an informal adviser to President Obama and chairman of his economic recovery advisory board, earlier this month suggested publicly that a value-added tax, or VAT, was a good option, along with an energy tax, for raising revenues.
The White House immediately denied that it was considering that, but Republicans looking for election-year issues have continued to suggest otherwise.
In a videotaped interview at a fiscal policy summit, Mr. Volcker stood by his own support for the idea. A VAT “is common in every other industrialized country,” he said, but it has “never been popular in the United States.”
He added, “I don’t think it’s on the political table now or for the indefinite future, but that’s the kind of thing you have to look at.”
Mr. Volcker was interviewed by Peter G. Peterson, the billionaire investor and commerce secretary in the Nixon administration. Mr. Peterson’s foundation hosted the fiscal summit, which also drew former President Bill Clinton and Mr. Obama’s budget director, Peter R. Orszag, along with economic authorities whose views range from liberal to conservative, though most were centrists.
Most agreed that Washington should enact a debt-reduction plan of both spending cuts and revenue increases as soon as the economy has recovered, though the timing and solutions proved divisive at times.
The discussion groups also included Alan Greenspan, the former Fed chairman, and former Treasury Secretary Robert E. Rubin, whose once-venerable reputations have suffered now that they have come in for some blame for the financial crisis.
Liberal groups assailed the event ahead of time, charging that Mr. Peterson and his foundation spread undue alarm about the nation’s debt to build support for cutting Social Security and Medicare.
Progressive activists have also complained this week of too-close ties between the Peter G. Peterson Foundation and the Obama administration, seeing as evidence the fact that Wednesday’s summit followed by a day the opening meeting of Mr. Obama’s bipartisan debt-reduction commission on Tuesday.
The commission’s co-chairmen — former Senator Alan K. Simpson, a Republican from Wyoming, and Erskine Bowles, a former chief of staff to Mr. Clinton — attended and spoke at the Peterson event. Mr. Simpson at one point complained that critics of a value-added tax were distorting the issue to undercut the commission before it even gets down to work.
Conservative critics of a VAT oppose any new tax, and liberals complain that it would be regressive, hitting low- and middle-income households hardest because they spend most of their money on consumables. But proponents of a VAT, which is levied on products at each stage of production and distribution, say it would raise needed revenues, encourage saving and allow for reduced income taxes.
Social Security was a frequent target for those proposing areas for future deficit reductions, given that the rising costs of entitlement programs as the population ages are the biggest reason for the size of deficit forecasts. Medicare is a bigger problem, but the new health insurance law envisions spending reductions, although Mr. Obama told members of his fiscal commission that the law — like everything else in the federal budget — was on the table for their consideration.
Those addressing Social Security included Mr. Volcker, whose comments, as the VAT controversy showed, take on added weight given his role as an economic elder statesman and mentor to the younger president.
He called fixing Social Security “the most manageable” issue, compared with Medicare and Medicaid, whose financial woes are entwined with the complexities and fast-rising costs in the health care system generally.
“There should be a bipartisan interest in it, of taking measures that are quite reasonable measures — would not require any significant increase in taxes — to stabilize the outlook for Social Security for the indefinite future,” Mr. Volcker said.
“There might not be any savings at all in the short run, but I think that psychologically, the fact that it would have a real impact over time is reassuring” to global markets and to foreign holders of American debt “that we can step up to this problem.”
He and other speakers expressed fear that without some action in the next year or two that reduces deficits for decades to come, interest rates could spike, the dollar could lose value or some other financial crisis would occur.
Mr. Rubin, a longtime investment banker, said the deficit ultimately is “not a Wall Street problem” but one for all Americans, since it would undercut job creation.
“I’m more worried about this than at any time in my lifetime,” he said.
But the talk of some future crisis was vexing to one of the few liberal participants.
“We’re in a crisis,” said Lawrence Mishel, president of the Economic Policy Institute, reflecting the frustration of many on the left that the increasing focus on deficit reduction ignores the need to keep spending to stimulate the economy.
“Our first thing to do is generate jobs,” Mr. Mishel said.