?I don?t like the value-added tax, but it?s the least worst way? to raise revenue, Greenspan said at forum sponsored by the Atlantic magazine and the Aspen Institute. He said introduction of a VAT, or national sales tax, could be paired with broader tax reform and cuts in federal spending.
Medicare, a federal health program for older Americans, is one source of budget strain, and Greenspan suggested significantly increasing co-payments for wealthier Medicare recipients as a way to curb federal spending.
Greenspan expressed concern about the ever-expanding owing borrowing by the U.S. government, predicting that if it isn?t checked, the value of the U.S. dollar, compared to gold and others currencies, will decline.
Greenspan doesn?t see inflationary signs yet, but cautioned that the Fed eventually will have to start unwinding massive financial aid to U.S. markets that has doubled the size of assets on its balance sheet.
While disinflationary effects of the recession are likely to linger until sometime next year, giving the Fed some leeway, Greenspan said the central bank can?t wait too long, ?because that will create a major increase in inflation? probably in 2012.
?There?s no doubt what has to be done and people at the Fed are very acutely aware of this,? he said.
Turning to the recent market meltdown, Greenspan said it demonstrated that capital standards for financial companies were too low and must be raised. But, he said regulators should not be expected to forecast or prevent future financial meltdowns, since ?what happens in a crisis cannot be anticipated? even by the best-informed regulators.
Greenspan defended the use of derivative instruments such as credit default swaps as an important hedging tool, while urging changes in the way they are traded and tracked. He also urged policy-makers to eliminate federal protections for financial firms deemed to be too large or too important to be allowed to fail, or failing that, to impose fees or taxes on such firms.