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Taxes and Recessions in the Fantasy-Based Community

Posted By Conn Carroll On January 23, 2008 @ 12:26 pm In Economics | Comments Disabled

As if the rumblings from Capitol Hill suggesting President Bush is “open” to a stimulus package larger than his $150 billion offer [1] weren’t bad enough, now Urban-Brookings Tax Policy Center director Len Burman is calling for a tax increase solution to our economic woes. This while even the two leading Democratic candidates are calling for tax rebates.

In today’s New York Times [2] Burman argues that raising taxes in 2009 will ward off recession now as investors cash out of their capital gains and workers work harder now to make sure more of their income is taxed at today’s lower rates. As George Mason economics professor Don Boudreaux [3] jokes:

If Mr. Burman’s economics are correct, his proposals are far too modest. Why not propose that Uncle Sam announce that in 2009 he will raise income-tax rates to 100 percent and confiscate all investment property? Think of the enormous outpouring of work that will result in 2008! And because looming confiscation in 2009 will cause the cashing out of ALL investments in 2008, the resulting economic stimulus would dwarf that which would follow from merely raising capital-gains taxes next year.

Boudreaux goes onto explain that economists fall into two camps on stimulus: Camp Classical believes taxes discourage investment and that long term investing is key for economic growth; Camp Keynes believes consumer spending drives economic progress and that getting more cash to the most needy will revive an economy.

Never mind that a study of the 2001 tax rebates [4] shows recipients only spent $8.36 billion of the $38 billion in rebate checks. What’s worse is that this economic sluggishness is largely due to consumer and homeowner debt. Isn’t it obvious that consumers are even more likely to save their rebates (i.e. pay down credit card and mortgage debt) then they were in 2001? If we really want to stimulate the economy we must reduce tax rates to increase incentives for work, savings, and investment [5] — the real engines of economic growth.


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URL to article: http://blog.heritage.org/2008/01/23/taxes-and-recessions-in-the-fantasy-based-community/

URLs in this post:

[1] suggesting President Bush is “open” to a stimulus package larger than his $150 billion offer: http://thehill.com/leading-the-news/lines-drawn-on-stimulus-2008-01-23.html

[2] New York Times: http://www.nytimes.com/2008/01/23/opinion/23burman.html?ref=todayspaper

[3] Don Boudreaux: http://cafehayek.typepad.com/hayek/2008/01/camp-keynes-and.html

[4] a study of the 2001 tax rebates: http://www.csmonitor.com/2008/0122/p01s02-usec.htm

[5] we must reduce tax rates to increase incentives for work, savings, and investment: http://www.heritage.org/Research/Economy/wm1776.cfm

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