|Man Without Qualities|
Monday, February 10, 2003
Economists led by 10 Nobel laureates on Monday attacked President Bush's $695 million tax-cut proposal, arguing that the cuts fail to address the problems facing the U.S. economy and will add to long-term budget deficits. Their signed statement, [will] run this week as a full-page advertisement in the New York Times ....
Economic growth that is not sufficient to generate jobs, corporate scandals, business overcapacity and uncertainty continue to weigh on the U.S. economy, the statement said.
"The tax plan proposed by President Bush is not the answer to these problems. Regardless of how one views the specifics of the Bush plan, there is wide agreement that its purpose is a permanent change in the tax structure and not the creation of jobs and growth in the near term. The permanent dividend tax cut, in particular, is not credible as a short-term stimulus, said the statement, signed by more than 400 economists.
This seems an odd comment. It seems pretty clear that the permanent dividend tax cut is not a credible short-term stimulus. In fact, very good arguments are made often that fiscal policy is almost never a good short term stimulus. If the tax plan proposed by President Bush is not the answer to these problems, then what do these 400 worthies want Mr. Bush to do? Odd that the Reuters summary omits any constructive suggestions.
But the proposed tax cut is probably good long term structural reform directed at long term growth. So it is curious that the Reuters summary also omits any statement on that point. And one wonders what the evidence is that corporate scandals continue to weigh on the U.S. economy.
It will be interesting to see if the actual statement is as incoherent as the Reuters summary suggests. It is not auspicious that the Nobel laureates include Joseph Stiglitz (a Bill Clinton adviser) or that the statement is sponsored by the Economic Policy Institute, a liberal Washington think tank.
Here is the full text of the statement and here are the signers (Nobel Laureates come first). Not all Nobel Laureates are created equal. One should keep in mind that the Prize is handed out by a bunch of collectivist Scandanavians and reportedly further skewed by the influence of past Laureates - so the selection is seriously politically biased to the left. That's why Milton Friedman's Prize is worth vastly more than, say, Robert Solow's. The Laureates who signed this statement are not so interesting in this context - although, obviously, each of them is very talented in his own corner of economics - but most of those fields do not focus on taxes. It is actually more interesting to consider the Nobel Laureates and other prominent economists who apparently refused to sign. There is, for example, exactly one signature from a University of Chicago faculty member (Sidney Davidson - who does not appear to be a member of the Chicago Economics Department Faculty, although he is an emeritus professor of accounting of the Chicago Business School).
But perhaps the most curious aspect of the expressed opposition to the elimination of the "double tax" on dividends is this:
As tax reform, the dividend tax cut is misdirected in that it targets individuals rather than corporations, is overly complex, and could be, but is not, part of a revenue-neutral tax reform effort.
It would certainly be better, simpler and more tax efficient to eliminate the corporate income tax. The problem is that if that were proposed, the Democrats would go hog-wild accusing the cuts of targeting corporations rather than individuals. Congressional Democrats should seize on the insights reflected in this statement and themselves propose the repeal of the corporate income tax - even as part of a "revenue-neutral tax reform effort." Senator Kerry, for example, already wants to repeal "double taxation" of dividends - and this statement says he should do it by targeting corporations, not individuals.
The statement provides no support for this highly politicized assertion:
Passing these tax cuts will worsen the long-term budget outlook, adding to the nation’s projected chronic deficits. This fiscal deterioration will reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure, and basic research. Moreover, the proposed tax cuts will generate further inequalities in after-tax income.
In sum, my guess is that this silly statement will be having very little practical effect.
FURTHER UPDATE: Don Luskin has more.
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