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Summers’ Tax Rate Comments A Substantial Revelation

Posted By J.D. Foster, Ph.D. On November 2, 2009 @ 2:10 pm In Economics | Comments Disabled

Lawrence Summers, the Director of the White House National Economic Commission recently committed an unpardonable sin – he revealed two unpleasant truths in a single sentence. Summers said [1], “I don’t find there to be much evidence that suggests that raising the top marginal rates from 35 to 39 percent that will be implicit in the repeal of the Bush tax rates will do substantial damage to the incentives in the economy”. [emphasis added]

The modifier “substantial” is the key to the first Summersian truth. Will raising the tax rates cause another recession? No. But as Summers indicates with his carefully chosen modifier, raising rates will weaken incentives in the economy. It will prolong the period of economic weakness, just as occurred when President Clinton raised the rates the first time [2]. The debate is only about the extent of the damage, and of course the extent would be greater than Summers admits.

The second Summersian truth is the revelation of a core liberal mindset that spans policies and endures decades – the willingness to forego jobs and wages for American workers to achieve other goals liberal policymakers deem more worthy. In the case of tax rates, Summers admits growth will be sacrificed at the alter of a soak-the-rich mentality married to the need to fund Obama’s spending surge.

Health care reform has become an excuse to expand the reach of government and levy even higher taxes. The new House health care bill has yet higher rates than Summers was talking about: another blow to jobs and wages.

Cap and trade, a.k.a. pack and move for what it would do to the nation’s manufacturing sector, is an explicit, enormous trade off of lower economic growth for environmental goals [3]. Recognizing the damage this policy would do to the economy, proponents anxiously argue that a few “green jobs” building subsidized windmills can compensate for the millions of real jobs destroyed if this legislation reaches the president.

Aside from the wrongness of the policies proposed to justify a loss of thousands of jobs, liberals consistently fail to grasp how these policies would compound, piling job losses on top of job losses. One such trade off is understandable, conceivably even defensible. But jobs and wages lose out every time in the liberal equation, and this is unpardonable.

Even more perplexing is Obama’s lack of any substantial policy proposal to encourage economic growth. Spending cuts? Pro-growth tax cuts? Reductions in the regulatory burden? No, no, and no. Where’s the growth Dr. Summers? Where’s the jobs Mr. President?


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URL to article: http://blog.heritage.org/2009/11/02/summers%e2%80%99-tax-rate-comments-a-substantial-revelation/

URLs in this post:

[1] said: http://blogs.reuters.com/james-pethokoukis/2009/11/02/larry-summers-tax-increases-wont-hurt-economy/

[2] just as occurred when President Clinton raised the rates the first time: http://www.heritage.org/Research/Taxes/bg2095.cfm

[3] enormous trade off of lower economic growth for environmental goals: http://www.heritage.org/Research/EnergyandEnvironment/wm2598.cfm

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