At Arthur Laffer?s post-election conference in New York, a couple hundred supply-side optimists spontaneously decided to support Glenn Hubbard for the chairmanship of the Federal Reserve in the post-Greenspan period that begins in 2006. Bush administration insiders believe the choice will boil down to Hubbard or Martin Feldstein. Two smart guys with tremendous credentials.
However, many recall Feldstein?s mixed tenure as chairman of the Council of Economic Advisors under President Reagan. After writing many fine articles about the benefits of lower tax rates, and after pointing out flaws in the Social Security system and healthcare entitlements, Feldstein, upon taking office, started crusading for higher taxes in order to narrow the budget deficit.
Feldstein worked with OMB director David Stockman, White House big Richard Darman, and New York banker Pete Peterson to press for a tax-hike ?solution.? It was virtually a fifth column in 1982. Reagan refused to budge on tax rates, though he did allow some tax-loophole closers in return for spending cuts that never materialized. In 1986, however, he signed tax-reform legislation that designated only two tax brackets, at 15 and 28 percent. (That?s not a bad model for George W. Bush?s second-term tax-reform quest.)
As a Harvard economics professor and president of the prestigious National Bureau of Economic Research, Feldstein?s writings over the years have been terrific. Yet there is lingering suspicion that his work out-of-office is more reliable than in-office.
Nowadays, when Fed chairmen testify on Capitol Hill, they are forced to talk at length about fiscal policy, especially budget deficits. Seldom do House or Senate members provide much ammunition to restrain spending. The conversation is almost always about raising taxes.
Greenspan has generally done a good job in fending off tax-hike proposals that would curb economic growth and actually widen the deficit. As a rule this is poorly reported in the press. The maestro has also been a strong supporter of Bush?s lower marginal tax rates on personal income, capital gains, and dividends. No one doubts that Glenn Hubbard would similarly defend pro-growth tax reform as Fed chairman.