Christina Romer: Obama's Secret Tax Cutter?
Obama's picks of Geithner and Summers were no surprise. (What no Goolsbee? Alas.) But the selection of Berkeley prof Christina Romer is interesting. Along with hubby, David, Romer wrote a fascinating paper on the wonderworking power of tax cuts. Their analysis found that "tax increases appear to have a very large, sustained, and highly significant negative impact on output ... [and] that tax cuts have very large and persistent positive output effects." The key, they found, is to also cut spending so you won't get lured into raising taxes down the road. Bottom line: Cutting taxes good. Raising taxes bad.
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Rubbish
"Bottom line: Cutting taxes good. Raising taxes bad."
Um, no. For those who want to read what the Romers wrote rather than the crude caricature presented by James Pethokoukis, the article is available here:
http://www.econ.berkeley.edu/~cromer/draft1108.pdf
It closes with the following caveat:
"A more promising route for extending the analysis is to investigate the importance of the characteristics of tax changes for their macroeconomic effects. There are strong reasons to expect the effects of a tax change on output to depend on such features of the change as how far in advance it is expected, its perceived permanence, its impact on marginal tax rates, and how it affects the tax treatment of investment. By systematically gathering information about these features of our exogenous tax changes, one could investigate whether the output consequences of tax changes depend not only on their size, but on their other characteristics as well."
Earlier in the paper they state that "[w]e also find suggestive evidence that tax increases to reduce an inherited budget deficit do not have the large output costs associated with other exogenous tax increases."
Republicans get half of it right
It I take your simplistic assessment of the Romers' research as fact, we see why the Bush administration as utterly failed to deliver economic prosperity over the last 8 years, and why McCain's economic plan condemned him to wear the label of Bush's Third Term. The Republican's traditionally talk a big game about tax cuts (always to the wrong people in the misguided belief that "trickle down" is realistic) but then fail to deliver on the other, critical half of this equation, which is to cut spending. It was famously said that Bush (almost) never saw a spending bill he didn't love and passed almost every one as he continues to do today. When Republicans reward the rich doubly with both tax cuts and economic gifts in the form of rich government programs, we see how they sow the seeds of widespread economic failure for the country as a whole.
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