Economic Effects of 2011 Tax Hikes: Killing One Bird with Two Stones
Kathryn Nix /
Next January, tax rates will increase—even though the country remains in a recession—unless Congress takes action. The Obama Administration’s solution is to extend the 2001 and 2003 tax cuts except for families earning $250,000 and individuals earning $200,000.
But is this the right move from an economic perspective, and the right choice to promote deficit reduction? In both cases, the right answer is to extend the tax cuts for all Americans—including top earners.
In a recent article in The New York Times, Robert H. Frank claims that proponents of keeping current tax rates want to do so “because the economy needs additional stimulus.”
This conveniently, if sloppily, erects a neat straw man to knock down. Obviously, extending current tax rates won’t serve as additional stimulus. As economist Arthur Laffer explains, “As a result of higher tax rates on those people in the highest tax brackets, there will be less employment, output, sales, profits and capital gains—all leading to lower payrolls and lower total tax receipts. There will also be higher unemployment, poverty and lower incomes, all of which require more government spending. It’s a Catch-22.” (more…)