Modest Tax Increase Won't Hurt Economy, Former Fed Chief Tells Panel
Paul Volcker, adding his weighty prestige as a former Federal Reserve Board chairman to the forces favoring higher taxes, said yesterday that there isnÛªt "any credible caseÛ for believing that a modest tax increase would damage economic growth.</br></br>VolckerÛªs testimony, which was delivered before a blue-ribbon commission examining the federal budget deficit, contradicted the argument of President-elect George Bush that a tax increase would threaten the expansion.</br></br>Volcker said that the chief danger facing the economy is the deficit, and failure to shrink it would "maximize the riskÛ of a ÛÏsevere recessioij."</br></br>Volcker told the National Economic Commission that although spending cuts would be better for the economy than tax increases, spending cuts might clash with other national priorities such as education and the environment. And he said: ÛÏ1 donÛªt think you can argue that from an economic standpoint, you would do grave damage to the economy by raising any or all taxes by relatively modest amounts."</br></br>Volcker said that a gasoline tax increase would probably be least harmful because it would promote energy conservation, and he also said that excise taxes on tobacco, beer and liquor could be raised because those levies have declined in inflation-adjusted terms. The former Fed chiefÛªs testimony closeiv tracked that of the cur- rent chairman, Alan Greenspan, who told the commission two weeks ago that priority should be placed on reducing the deficit even if it meant raising taxes.