Posted by
Always To The Right on Monday, December 29, 2008 8:44:14 PM
There are still plenty of terrible economic stimulus ideas coming
out of President-elect Barack Obama’s transition team, but there were
some encouraging admissions from Obama senior adviser David Axelrod
this Sunday on [1] Meet the Press. Asked by NBC’s David Gregory if Obama would break his promise to the American people to lower taxes, Axelrod said:
Look, we feel it’s important that, that middle-class
people get some relief now. He’s promised a middle-class tax cut. This
package will include a, a portion of that tax cut that will become part of the permanent tax cut
he’ll have in his, his upcoming budget. It’s, it’s, it’s vital people
are, are–need money in their pockets to, to spend. That’ll help get our
economy going again.
We hope that this statement by Axelrod signals the acceptance by the
Obama administration of a long held conservative belief, namely: [2] that
temporary tax cuts are ineffective at stimulating the economy while
permanent tax cuts are the best way to encourage both short and long
term economic growth. As former Treasury undersecretary John Taylor [3] recently explained:
According to the permanent-income theory of Milton
Friedman, or the life-cycle theory of Franco Modigliani, temporary
increases in income will not lead to significant increases in
consumption. However, if increases are longer-term, as in the case of
permanent tax cut, then consumption is increased, and by a significant
amount.
The Washington Post reports that the incoming Obama administration
has not yet determined what form these permanent tax cuts will take,
but to maximize effectiveness [4] the
cuts should be as broad as possible and not limited to narrow tax
loopholes restricted to only those families who engage in activities
that Washington decides are worthy.
As encouraging as Axelrod’s commitment to permanent middle-class tax
cuts was, his blind devotion to tax increases on the most productive
Americans was equally discouraging. Asked by Gregory if Obama still
planned to raise taxes Axelrod said:
Well, look, the question is on the Bush tax cuts for the
very wealthiest Americans, and it’s something that we plainly can’t
afford moving forward. And whether it, it, it expires or whether we
repeal it a little bit early we’ll determine later, but it’s going to
go. It has to go.
At a time when the Obama team is proposing $775 billion in new
spending, calling tax cuts “something that we plainly can’t afford” is
laughable. We hope that before Obama pursues this course he consults
with his Council of Economic Advisers chairman Christina Romer, who has
published economic studies concluding that: 1) [5] tax increases harm economic growth; 2)[6] tax cuts lead to greater economic activity; and 3) [7] government spending has at best a small effect on stimulating economic activity.
Furthermore, we hope that the President-elect’s team isn’t falling
back into their dangerous idea of “major” redistribution of wealth.
Axelrod went on to say:
In other words, when you add up the tax cuts and the
change–the expiration or the repeal of, of the tax cut for the wealthy,
it’ll amount to a net tax cut for the American people. It’ll just
restore some balance, David, which we badly need.
“Balance” can only mean redistribution, which will inevitably lead
to lower levels of entrepreneurial activity, reduced investment and
lower wages for all workers, especially those in lower-skilled jobs.
We hope that President-elect Obama recognizes the needs for permanent
tax cuts across the board, for all Americans.
Article printed from The Foundry: http://blog.heritage.org
URL to article: http://blog.heritage.org/2008/12/29/morning-bell-permanent-tax-cuts-only-please/
URLs in this post:
[1] Meet the Press: http://www.msnbc.msn.com/id/28408003/
[2]
that temporary tax cuts are ineffective at stimulating the economy
while permanent tax cuts are the best way to encourage both short and
long term economic growth.: http://www.heritage.org/Research/Taxes/wm2152.cfm
[3] recently explained: http://online.wsj.com/article/SB122757149157954723.html
[4]
the cuts should be as broad as possible and not limited to narrow tax
loopholes restricted to only those families who engage in activities
that Washington decides are worthy.: http://www.heritage.org/Research/Taxes/sr29.cfm
[5] tax increases harm economic growth: http://www.nber.org/papers/w13264
[6] tax cuts lead to greater economic activity: http://www.econ.berkeley.edu/%7Ecromer/draft507.pdf
[7] government spending has at best a small effect on stimulating economic activity: http://www.nber.org/papers/w4765