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October 13, 2008
Hundreds of Economists Sign Letter Opposing Obama's Tax Plan
Hundreds of economists (including Nobel Prize winners Gary Becker, James Buchanan, Robert Mundell, Edward Prescott, and Vernon Smith) have signed letters opposing Barack Obama's economic and tax plans (here, here, and here):
We are equally concerned with his proposals to increase tax rates on labor income and investment. His dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans. His proposals to increase income and payroll tax rates would discourage the formation and expansion of small businesses and reduce employment and take-home pay, as would his mandates on firms to provide expensive health insurance.
After hearing such economic criticism of his proposals, Barack Obama has apparently suggested to some people that he might postpone his tax increases, perhaps to 2010. But it is a mistake to think that postponing such tax increases would prevent their harmful effect on the economy today. The prospect of such tax rate increases in 2010 is already a drag on the economy. Businesses considering whether to hire workers today and expand their operations have time horizons longer than a year or two, so the prospect of higher taxes starting in 2009 or 2010 reduces hiring and investment in 2008.
(Hat Tip: Greg Mankiw.)
October 13, 2008 in Political News | Permalink
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Comments
I'm curious as to what these 100s of economists have to say about George W. Bush's tax cuts of 2001 and in particular what happens in 2010 with the Estate Tax. Is it perhaps that these economists have incomes exceeding $250,000? Are these 100s of economists thinking long range? If so, what do their records of long range forecasting, say, going back to 2001 look like?
Posted by: Shag from Brookline | Oct 13, 2008 7:22:15 AM
Actually, though the statement says it's signed by 100 economists, there are only 90 on the list.
http://thinkprogress.org/2008/10/10/mccain-90-economists/
Posted by: GK | Oct 13, 2008 7:32:55 AM
Shag from Brookline:
Look at the third link. There are hundreds.
Posted by: amadeus 48 | Oct 13, 2008 9:30:07 AM
Um actually if you read the other two links there are more then 100 signatories.
Posted by: Zaggs | Oct 13, 2008 9:33:36 AM
@ GK: If you follow the link, there are 320 listed. In the future, might be worthwhile to actually read before posting.
Posted by: Anon | Oct 13, 2008 9:35:14 AM
I count 90 from the first link, 320 from the second and 529 from the third link. It's probably a "living" list of signatours.
Posted by: CW Desiato | Oct 13, 2008 9:43:46 AM
Erm, Shag, are you talking about those tax cuts which actually INCREASED government revenues from those making more than $250K?
Of course, today we find out that The Nobel Prize in Economics is also officially meaningless, with Paul Krugman being the latest laureate of the moronic pro-socialist prize commitariat.
Posted by: Indeprof | Oct 13, 2008 9:57:52 AM
RE: Bush's tax cuts: I'm fairly certain that these economists would have approved Bush's tax cuts (and those of Reagan before him).
Keep in mind that the primary economic failing of the Bush administration lie in the dramatic expansion of new spending and the concomitant expansion of the federal deficit. Thus, it is not a reduction in federal revenue due to a lower tax burden but rather an inability to control spending that lies at the heart of the explosion in federal debt.
If you'd like to argue that the economic dislocation caused by the credit lock-up is the greater failing, you might want to reconsider for two reasons. First, you'd really be conflating a failure of the "Bush administration" with what is more plausibly a failure of Congressional oversight (or, more to the point, Congressional demands that oversight by regulators be relaxed).
Second, the budget deficit not only contributed to the current problem - that is, the risks inherent in the bailout are greatly exacerbated by the fact that we already have too much debt on the books - it may also play a significant role in a broad array of economic and social dislocations as the baby boomers enter their decline years.
Posted by: Wildmonk | Oct 13, 2008 10:02:11 AM
Well, Shag, as one of the signers of that statement I will tell you what nearly every professional economist would tell you about tax policy.
First, businesses are not the ultimate payers of taxes--the taxes collected from them come out of the pockets of actual people. The only interesting tax questions are, which people should pay taxes and on what basis should those taxes be assessed? Barack Obama thinks that owners of shares of stock--and ultimately all other savers--should pay more taxes regardless of whether those owners are very high-income earners or not. Economists who've studied this issue closely have concluded that this tax strategy serves in the long run mostly to reduce the amount of capital provided to workers, thereby reducing their wages. The general consensus is that it makes more sense to tax people on the basis of their consumption rather than their income; Bush's tax cuts were a step in that direction. Consumption taxes can be made to be progressive, and that would not be opposed by a huge majority of economists, but the more progressive those taxes are made to be the more incentives the well-to-do have to avoid those taxes.
This leads me to another principal criticism of Obama's tax plan: such a dramatic increase in the top marginal tax rates would certainly revive the tax-shelter industry. While this may be welcome news to the Tax Prof and his students, it is bad news for economic activity and the fairness of the tax code.
Finally, Obama's claim that he's going to reduce the taxes paid by 95% of Americans is preposterous on its face. About half of U.S. households pay no income taxes already. That's not even "fuzzy math," that's just plain lying.
Oh, and by the way, I--and most academic economists--earn far less than $250,000 per year. Is it so very difficult for you to comprehend the idea that we just might be speaking out on the basis of objective analysis? If so, that speaks volumes about the basis for your own views.
Posted by: One of Hundreds | Oct 13, 2008 10:05:54 AM
GK and Shag,
You probably need to doublecheck. It should have said 100's and the second link does show a much longer list. I stopped at 200 and there were many more to go.
I don't believe that the economist's wages are relavant here. When I look over the list, I notice a large number of university professors, people actively engaged in studying the subject with what I would hope is an academic and historical perspective. I bet they make less a year than Oprah, or other important celebrity figures.
I do think it is important to question authority, not to assume that because someone is an expert on a subject, that they are correct, nor that expertise in one subject area means someone is an expert in everything.
I have recognized the names of a few economists that I have admired in the past before this campaign started, and personally do have give their views more weight. I am also an avid reader and part time history buff. Many economists are coming to the conclusion that Roosevelt did not get us out of the Great Depression, but actually pursued some of Hoover's worse programs, like taxing the wealthy and Smoot Hawley. They make points worth thinking about.
To claim that these economists, who have credibility in this particular debate and are taking a professional risk by affixing their name to this statment, are somehow on an equal level with us anonymous posters is pretty delusional.
Posted by: Rebecca | Oct 13, 2008 10:12:35 AM
In the third link, there are 529 signatures.
Posted by: John | Oct 13, 2008 10:27:45 AM
I'm sure this compelling agrument against Obamahood will be featured on NBC, CBS, ABC, CNN, MSNBC, and all of the Left Media outlets, right???
Posted by: mark | Oct 13, 2008 10:28:08 AM
"Is it perhaps that these economists have incomes exceeding $250,000?"
I don't know, but I know accusing someone of advancing a self-serving argument isn't much of an argument or counterargument on the merits.
"Are these 100s of economists thinking long range?"
No, silly. Unlike politicans hoping to get elected and reelected, economists NEVER think "long-range".
Posted by: JB | Oct 13, 2008 10:29:45 AM
Hmmmmm.
"First, businesses are not the ultimate payers of taxes--the taxes collected from them come out of the pockets of actual people."
It amazes me how many times I've gotten into long running battles with liberals over this. This strange notion about increasing taxes on corporations will somehow benefit people has wormed it's way into the liberal mind and set there almost permanently.
You'd think it would be self-evident that corporations don't really pay taxes and that the ultimate source of corporate tax money are customers, but you'd be wrong.
Astonishing.
Posted by: memomachine | Oct 13, 2008 10:47:15 AM
"Is it perhaps that these economists have incomes exceeding $250,000? "
It's distinctly possible. Of course, they might also buy things from people and companies that make more than $250,000, in which case they would also be worried.
Posted by: hitnrun | Oct 13, 2008 10:57:21 AM
Leftists always appeal to experts to forward their agenda-- such as global warming. I'm sure this will convince them of the folly of the Messiah's tax plan. Ok, ok, for them we know it is liberalism uber alles.
Posted by: jeff | Oct 13, 2008 11:13:25 AM
The third link is to a statement different from the first two. The first two oppose Obama's, the third supports McCain. Many of the names are duplicative.
Posted by: PoorForm | Oct 13, 2008 11:21:37 AM
All this is exactly why I favor abolishing all federal taxes except personal income taxes, and that should be a flat-rate tax with no deductions except personal exemptions for dependents. I know it will never happen, but "if I'm a dreamer, I'm not the only one."
Posted by: Donald Sensing | Oct 13, 2008 11:53:49 AM
Keynesian economics promotes deficit spending.
Has anyone checked America's deficit lately?
Our economic house doesn't just have a few holes in the roof. The foundation is no good at all. You can't flip this house and make a profit no matter what you do.
Posted by: Warren Bonesteel | Oct 13, 2008 12:13:12 PM
I would suggest that the problem here is far more cultural than it is political. We have thrown out the notion of self-denial and sacrifice as being too repressive and here we are with record debt in all areas - Federal, State and personal. In this letter we have hundreds of economists telling us that we shouldn't have to pay for what we get from the government. Cutting taxes in the middle of a deficit is simply stealing from our children by burdening them with debt.
Yes, I know, Keynes said deficit spending in times of crisis was OK, but it's always a time of crisis for someone. Keynes saw Man as a rational animal, which he is not. He is a rationalizing animal and will excuse bad behavior which leads to immediate gratification if given any chance at all.
So here we are debating tax cuts while children in kindergarten are going to pick up a $10T+ tab for us.
Are you proud of yourselves?
(Sorry about that. That was an appeal to shame. Shame is only for moral prudes and repressive theocrats. I apologize. Please go back to watching your softcore porn on prime time TV.)
Posted by: K T Cat | Oct 13, 2008 12:14:09 PM
Where's Paul "Prize" Krugman?
Posted by: Minerva | Oct 13, 2008 12:33:18 PM
All Value judgements not empirical evidence.
Posted by: nick | Oct 13, 2008 12:36:31 PM
So according to Shag and other liberals, the only conceivable reason that someone would be opposed to raising taxes during a recession is because that person's own taxes would go up? Obviously the only reason 900 economists would support McCain's plan is due to their own economic self-interest (I never knew college professors were so well paid).
Conversely under the same logic, since everyone apparently automatically votes based on their own economic self-interest, I guess that means that everyone making more than $250k must support John McCain.
Yet one person making more than $250k a year is, of course, Barack Obama himself.
It must be shocking to plebes like Shag that highly educated people sometimes think beyond their own narrow economic self-interest.
Posted by: | Oct 13, 2008 12:52:13 PM
McCain should go after Obama on the 250k bracket increase...
most doctors out of residency are making 250k.
How does raising their taxes keep the doctors from simply requesting a commensurate pay increase?
net result? all americans will have to bear the burden of the tax increase in the form of insurance and medical costs.
McCain's problem is that he has let 250k become synonymous with businessmen at the heart of the banking failure. He needs to show that their are goods and services that we cannot do without, that will increase in cost, primarily from an increase in taxation.
a small irony is that the Paris Hilton's of the world, can simply divert their wealth into non taxable investments, and escape the 250k bracket. Those who actually rpovide goods and services will be the ones paying for Obama's income redistribution.
Posted by: mark l. | Oct 13, 2008 1:21:38 PM
K T Cat,
You are dead right. and pretty funny too. you could not possibly be a conservative and funny too ! Wait a minute, you must be PJ O Rourke :-)
Posted by: NS | Oct 13, 2008 1:23:34 PM
Where were these economists during the last 6 or 7 years? I don't recall an organized uprising collecting signatures for congress to reign in the banking industry. If they couldn't see that debacle for what it was then I have to question their motives for coming forward now with their great insight.
Posted by: Christopher H. | Oct 13, 2008 1:51:57 PM
Thanks for the comparison to PJ, NS. I love the guy and that's quite a compliment. My comment was a little rude, but there you have it. There's more at my blog, by the way (insert shameless self-promotion here).
Posted by: K T Cat | Oct 13, 2008 2:08:34 PM
90 or 100, whatever, but a lot of economists don't like Obama's plan to tax the hell out of everyone including most of the middle class, and lying about calling it a bunch of tax cuts.
Who cares if the economists make >250,000? What the HELL is wrong with people wanting to keep most of their money, OR donate it any way they damn well please besides having the Dems distribute it to anyone they please? But if you think this is all about self-interest of the economists, read what is above and read the rest of the article.
What these economists are saying is that the Obama tax cuts will be bad for the economy as a whole, and not just a small percentile of high wage earners, that less jobs will be available, that capital investment in businesses will go down (and that is what fuels, among other things, job growth).
You want to make this about class envy, which is just crap; Obama's tax lies will raise YOUR taxes too, unless you are at the bottom some where. Taxing the productive classes is not the way for a society to do better. It might raise up that very bottom, (though this will give them even less incentive to become productive tax payers vs takers..and yes, not everyone is a taker, but I work in an emergency room in an area with a lot of Medicaid..and there are a lot of parasites out there, able-bodied who could work but choose to never work and don't seem to give a damn).
Obama's plan is just plain bad. Niggling about 90 vs 100 or making a rather dumb assertion that maybe the economists are just trying to line their own pockets is ignorant, plain and simple.
Posted by: Maurice | Oct 13, 2008 2:09:25 PM
"Our economic house doesn't just have a few holes in the roof. The foundation is no good at all. You can't flip this house and make a profit no matter what you do."
- - -
I have no idea what you just said.
And so I believe that you've communicated your thesis quite well here.
Posted by: bobby b | Oct 13, 2008 2:22:08 PM
mark,
While you're correct that many physicians make more than $250K, there are many that do not. Also, physicians can "request" pretty much anything they want, but getting a pay increase is about as likely as Medicare dropping off a unicorn at the office. It took a Congressional override of a Presidential veto to keep us from getting a 10% pay cut, as it is we will get a 1.something% bump in professional fees this year from Medicare, which allowing for inflation only puts us slightly farther into the hole than last year.
Given that many commercial insurance contracts are indexed off of Medicare, it's not a good thing to see Medicare asking to cut our fees by 10%. We have the same recourse as any other government contractor -- go to our elected representatives in Congress and petition for relief. It worked this time, but it probably won't work forever, particularly if there is a single-payor system and what the government pays is determined by politics alone.
If that happens, I'm out. The American public that is so set on obtaining socialized medicine can put their healthcare into the hands of the people who heretofore were unable to be admitted to medical school, falling just short of the admission requirements. I can do something else, and I'm sure the second-string probably won't screw up too much.
I mean, it's just a liver transplant, how wrong can that go, really?
Posted by: Darren | Oct 13, 2008 2:56:51 PM
yep, economist also know how to avoid paying taxes and build their mountain of money at the country's expense. typical greedy, selfish, arrogant crony capitalists who can only think of 3 things: themselves, money, and money. of course, these same Capitalist heros don't mind running to uncle sam for a socialist handout. they don't mind socialism when the money is flowing toward them. typical Americans.
Posted by: Neo | Oct 13, 2008 3:05:55 PM
Actually, Obama's tax hikes would help fill the gaping hole in the budget that has widened since 2000. The only problem is that Obama, in pursuit of votes, lets those with income below $250k off the hook - we've all been responsible in electing irresponsible politicians who've spent while failing to tax, and all Americans should endure some of the burden of fixing the problem.
Posted by: fred vernon | Oct 13, 2008 3:25:39 PM
I think the tax plan is only the beginning. Obama actually meant it when he said that McCain didn’t know what he was up against. Socialism in its ugliest shape is coming to America if Obama gets elected.
- Jeff Tyler
Posted by: Jeff Tyler | Oct 13, 2008 3:30:15 PM
Seriously, after 8 yrs of the tax policies these guys advocate, you'd think rational people would stop listening to their dribble.
Posted by: seriously | Oct 13, 2008 3:31:39 PM
Why is everyone so focused on taxation? The problem is spending.
Posted by: Rich Thomas | Oct 13, 2008 3:35:29 PM
Trickle down economics are nothing but a bunch of bull. The rich get richer, the poor stay poor. I make $40k/yr, why the hell should I be paying 23% of my income in taxes?! They need to go after the corrupt CEO's who are getting insane amounts of money for running businesses into the ground. Your company got a bailout, well you get no compensation, your $70million pension is now entirely the governments.
Posted by: Ronnie | Oct 13, 2008 3:53:11 PM
GOP ECONOMICS!!!
1. Tell everyone free markets are a good thing but do not mention that if you sell your operations instead of just your products and services overseas you become a customer of a foreign country for that part of your business and they own a part of you! :(
2. Tell everyone poor people destroyed the housing boom! Then forget to tell them about the people that had good credit and money that purchased 7 homes and rented them out then dipped with the money because they also got equity loans on all of them.
3. Tell everyone that the democrats are socialists! Then forget to tell them that socialism is the government controlling industry which Bush had to do after 1 and 2
4. Tell everyone more taxes hurt jobs! Then forget to mention that the middle class are the consumers for businesses and if you don't help them then businesses cant sell products which hurts jobs and a 3 percent increase to give to 95% of families is a consumer generating investment!
5. Tell Everyone to drill drill drill, when Bio fuels are a reality and if you heavily invest and keep the technology in the US we become energy independent with something better to sell then fake mortgages to foreign Countries!
Posted by: Waynr | Oct 13, 2008 4:08:41 PM
This is good news. If by destroying all life as we know it, you mean, golden parachutes for CEO's that bankrupt their companies, a state that has no qualms about providing corporate welfare, but can't bring itself to fully fund education programs, or anything that would actually help the American people.
In short, given the sorry state of our financial house, and our overstretched armed forces, not to mention the morass that has been the Bush administration, this is a good thing...Headline should actually read: Hundreds of Economists agree, Obama to bring change
Posted by: lola | Oct 13, 2008 4:12:13 PM
I think the tax plan is only the beginning. Obama actually meant it when he said that McCain didn’t know what he was up against. Socialism in its ugliest shape is coming to America if Obama gets elected.
- Jeff Tyler
I can't believe ppl can say that with a straight face after a republican administration that not only increased the size of government the most since WWII, and has now pushed to acquire stakes in banks and other financial institutions, like Fannie Mae, Freddie Mac...in fact, this republican administration has been so socialist, that even Fidel Castro and Hugo Chavez are calling George W, Comrade Bush.
Posted by: Tom | Oct 13, 2008 4:14:48 PM
I wonder how long it will be until the Truth Squads have this removed from the intertubes??????????
Posted by: zen | Oct 13, 2008 4:26:10 PM
President Clintin in late 1990's and Pres. Bush in 2003 tried to reign in FNMA and FMac and were stymied by Senate & House Banking Committees - almost all Democrats. McCain introduced legislation in 2005 and 2007 to do same and got nowhere. Obama got over $150,000 after only 2 years in Senate to ... leave them alone and do nothing. Some people saw it coming - Democrats prevented doing anything about it because they were buying votes with liberal credit policies.
Posted by: John | Oct 13, 2008 4:29:08 PM
GOP ECONOMICS!!!
...as 'supervised' by a democratic house AND senate for the past two years.
Actually, the dems will have held both houses for four of the eight years of Bush.
what policy have they corrected since 06?
how 'hands on' were they with fannie and freddie for the past two years?
Posted by: mark l. | Oct 13, 2008 4:52:06 PM
If any one cares to take notice and do the research, the author of this article and dozens of the economists who signed on supported Bush and his tax cuts. Any economist worth his salt will admit that 90% of their predictions (ESPECIALLY when weighted towards business, as these predictions are) are not even as good as 50/50 percent accurate. They are just too many factors to include, not the least of which is the psychology of economics, a hardly studied part of the economics picture, yet proving to be highly indicative of how the masses react.
Posted by: skylep | Oct 13, 2008 4:56:14 PM
I want to stir the pot a little & get some ideas please:
Why should people who make, say $250k/yr get punished (for that point anyone that has worked hard & succeeded) by paying more tax... I mean tax is arbitrary. If a flat 8.5% fed sales tax was tacked on to all purchases (plus your local & state tax) would that not be a fair tax system? If you want to buy something you are taxed, if you choose not to buy you are not taxed... According to a few profs. I know the system would free up much more money in the long run for the govt... of course if you are a heavy spender you will pay more tax - this could just as easily be spread to the roads & other fed. excised projects... this is a subject we have been discussing for a long time & I would like some input please.
Posted by: the doctor | Oct 13, 2008 5:06:27 PM
IOLA,
WTF? seriously? really? are you honestly going to go with that paragraph? - & you talk about a steaight face - gimme a break - Rep. & Dems are all at fault, come on... no one is perfect, but socialism has been a thing of the dems for many many yrs - since Eugene V. Debs almost won the Presidency in the 20s (socialist party) - had the majority of the country (powerful, rich, and the KKK) backing Debs. Socialism has been here a long time, doesn't make it right & people need to account for their own lives, not ask the govt to constantly 'help' then complain about taxes when they receive said 'help' - blah blah blah, I'm over this already... seriously though (eyes rolling)
Posted by: the doctor | Oct 13, 2008 5:16:55 PM
A pox on both political parties. The reality is that by adding another trillion to our national debt that (the $700B bailout, Fannie Mae/Freddie Mac) to the unfunded liabiities we have promised (Social Security, Medicare, etc.) we are fast becoming a risky credit as a nation. So the Japanese, Chinese and other savers are going to be charging us far more for lending to us until we start saving more and spending less. Interest costs are going to skyrocket until something is done.
Posted by: Surfscoter | Oct 13, 2008 5:54:32 PM
Its amazing to me that people still think the Executive Branch of Government has the authority to enact any tax plan. Did all of you fall asleep in Government Class? The Legislative Branch has to approve any plan before it can be enacted. To blame ONLY Bush for the current situation and to think that either McCain's plan or Obama's plan can fix anything truly shows how little people know how government works. Government spending (Executive and Legislative), and corporate greed have caused our current situation along with everyone of us who accepted credit or a loan we knew we could not afford. You could put the Bugs Bunny in office, come up with any economic theory out there, and still nothing will change until WE THE PEOPLE take some responsibility for our own actions.
Posted by: Dan Hullen | Oct 13, 2008 6:58:02 PM
FROM above: bobby b | Oct 13, 2008 2:22:08 PM
LOVED your comment!
My take on this....ALL costs are pushed to the consumer!!!
ANY increase in taxes are passed to the CONSUMER!!!!!
WE ARE THE CONSUMERS !!!!!!!
Posted by: mike D | Oct 13, 2008 10:59:26 PM
Just checking in for any messages. By the way, what was it Harry Truman said about hiring a one-armed economist? And then there's Alan Greenspan. By the way, how come no responses regarding the forecasting of these thousands of astute economists since, say, 2001? Maybe I should sic Jim Grant on them. Apparently these hundreds of thousands of economists have been satisfied with the past 8 years. And both Lesley Graham and Phil Gramm are crackers. And speaking of Enron, ....
Posted by: Shag from Brookline | Oct 13, 2008 11:27:02 PM
I'm not extremely well versed in economics, but I have to agree that Tom's statement above is on the money. At least Obama might give people something back with his form of socialism. I am also extremely skeptical about the "economists" signing this statement. Where were they 3 years ago when the popular expert opinion was that the economy was going to be peachy? If anything this crisis should give us some ability to increase the SNR out there– only listen to the people who saw this crisis coming. I've heard from at least one or two of these economists,and they seem to think that something along the lines of increased taxation is probably necessary.
I have a fairly good background in biology, and lots of experience observing natural systems, and one of the patterns that jumps out again and again are the characteristics of stable equilibriums, and one of the most important concepts is 'diminishing returns'. I don't see how you can create a long-term stable economy/society if you allow the rich to get richer and the poor to get poorer. This kind of situation, without negative feedbacks, is almost the definition of an unstable equilibrium. It seems obvious to me that stability in the system requires that taxes increase at higher incomes. And the notion of only taxing consumption seems absurd. It's time for the reinstatement of the 90% tax bracket, you know the the one that saw us through WWII, and were the country still managed to experience fantastic industrial growth?
As per a previous commenter, I think taxes should be greatly simplified, but I wouldn't go so far as to suggest a flat tax rate, but rather one based on a simple exponential equation with two terms. One term would set the overall tax revenue, and the other would shift the tax burden across incomes, in effect setting a maximum amount any one entity could make before his taxes become 100%. Before you cry foul, this max could be anything you can imagine, for example, does one person really need to be able to make more than 3 billion a year?
Posted by: Craig | Oct 14, 2008 4:54:45 AM
