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Wednesday, December 12, 2012

185 Economists Warn Congress: 'Fiscal Cliff' Tax Hikes Risk Economic Damage

By Susan Duclos

The non-partisan National Taxpayers Union has sent an open letter to Congress, signed by 185 economist, to date, urging them to vote against any tax hikes and warning that  "increasing taxes" as part of the fiscal cliff negotiations,  "would likely slow or reverse our nation's fragile economic recovery and undermine long-term growth."

Text of the letter and signatories will be posted below the post.

The NTU, who organized the letter, stresses that allowing tax rates to rise for anyone in a fiscal cliff deal “would have a significant, negative impact on the economy.”

“At this critical point for our nation’s financial future, the strong support from so many economists for a cautious approach to tax hikes and for meaningful spending restraint should serve as a clear warning to Congress,” said NTU Executive Vice President Pete Sepp. “Resorting to tax hikes, particularly without budget or entitlement reform, is not just a raw deal for taxpayers, it’s also a losing hand for the American economy.”

In their statement, the diverse group of 185 members of the economics community advised against allowing the 2001 and 2003 tax relief laws expire for “some or all taxpayers.” They further contended broad tax and budget reform offers a better route that would avoid the negative consequences, such as job losses, of short-term revenue grabs:

“Low taxes can have a constructive economic effect by keeping money in the private sector, where it is far more likely to be utilized for efficient purposes. By contrast, raising taxes would divert resources into the relatively inefficient public sector, thereby curbing potential job creation and economic growth. This effect would be even more pronounced during a persistent slump.
“In particular, Congress should avoid raising marginal tax rates on income and taxes on investment, such as capital gains and dividends taxes. These types of taxes most directly and meaningfully affect job creation.”

The signers included former Congressional Budget Office Director (and current American Action Forum President) Douglas Holtz-Eakin; former Office of Management and Budget Director Jim Miller; as well as scholars from a variety of academic entities, including the University of Michigan, University of Chicago, UCLA, University of Virginia, Emory University, Georgetown, Pomona College, and the Wharton School at University of Pennsylvania (affiliations on the letter were listed for identification purposes only). Signatories with other institutions included Donald Luskin of Trend Macrolytics, Richard W. Rahn of the Institute of Global Economic Growth, David J. Theroux of the Independent Institute, and David G. Tuerck of the Beacon Hill Institute at Suffolk University.

Sepp concluded, “Economists are becoming increasingly concerned that unless Washington stops gambling with other people’s money and gets the federal government’s own finances in order, the odds for a more prosperous year ahead will get much slimmer. Taxpayers would agree.”


Letter and signatories below:

Fiscal Cliff Tax Hikes Risk Economic Damage.
An open letter to Congress:

December 11, 2012

Dear Members of Congress:

As the nation approaches the so-called "fiscal cliff," we, the undersigned economists, urge Congress to carefully consider the relative merits of tax increases and spending restraint. Increasing taxes would likely slow or reverse our nation's fragile economic recovery and undermine long-term growth. Restraining the growth of expenditures, however, would help stabilize the government's fiscal imbalance and create a more conducive environment for robust expansion.

Some in Congress have advocated allowing the 2001 and 2003 taxpayer relief laws to expire for some or all taxpayers. Such an action would have a significant, negative impact on the economy. Low taxes can have a constructive economic effect by keeping money in the private sector, where it is far more likely to be utilized for efficient purposes. By contrast, raising taxes would divert resources into the relatively inefficient public sector, thereby curbing potential job creation and economic growth. This effect would be even more pronounced during a persistent slump.

In particular, Congress should avoid raising marginal tax rates on income and taxes on investment, such as capital gains and dividends taxes. These types of taxes most directly and meaningfully affect job creation.

Additionally, lawmakers must resist other destructive proposals that would boost effective tax burdens, such as curtailing itemized deductions for higher earners or imposing discriminatory taxes on energy or other industries. Such policies are merely revenue-raising ploys when executed outside the context of comprehensive tax reform that includes correspondingly lower marginal rates. And like other tax increases, they would serve as inadequate substitutes to much-needed spending restraint.

While some Members of Congress are concerned about the short-term impacts of slowing the growth of federal expenditures, they must uphold their commitment to the American people to address the alarming trajectory of U.S. spending and borrowing. There are more tangible benefits to consider as well: research has shown that spending restraint is superior to tax increases for both deficit reduction and long-term economic vitality. This has proven true in many other developed nations that have implemented fiscal adjustments.

To best foster a strong economy, Congress should ultimately create a simpler system of taxation with a broader base and low rates on income and investment. Simultaneously, it should prioritize government programs and pursue entitlement reforms that bring the budget to sustainable balance. Individuals and businesses are depending on -- and deserve -- greater certainty in policy making that affects their everyday financial decisions.

The Undersigned (affiliations listed for identification purposes only):
James C.W. Ahiakpor
California State University, East Bay

Donald L. Alexander
Western Michigan University

Howard Baetjer
Towson University

Charles W. Baird
California State University, East Bay

Stacie Beck
University of Delaware

James P. Beckwith
North Carolina Central University

Daniel K. Benjamin
Clemson University

Michael Bennett
Curry College

James T. Bennett
George Mason University

William Beranek
University of Georgia

M. Douglas Berg
Sam Houston State University

Richard E. Bernstein
Temple University

Sanjai Bhagat
University of Colorado at Boulder

Cecil Bohanon
Ball State University

Michael Bond
University of Arizona

Scott C. Bradford
Brigham Young University

Charles H. Breeden
Marquette University

David P. Brown
University of Wisconsin – Madison

Lawrence Brunner
Central Michigan University

Phillip J. Bryson
Brigham Young University

James L. Butkiewicz
University of Delaware

William N. Butos
Trinity College

Victor Canto
La Jolla Economics

Richard Cebula
Armstrong Atlantic State University

Dustin Chambers
Salisbury University

Don Chance
Louisiana State University

Kenneth W. Chilton
Lindenwood University

Lawrence R. Cima
John Carroll University

Kenneth W. Clarkson
University of Miami

John P. Cochran
Metropolitan State College of Denver

Michelle Connolly
Duke University

Michael Connolly
University of Miami

Mike Cosgrove
University of Dallas

Eleanor D. Craig
University of Delaware

Wayne Crews
Competitive Enterprise Institute

Ward S. Curran
Trinity College

Lawrence S. Davidson
Indiana University

Anthony Davies
Duquesne University

Ronnie H. Davis
Florida Institute of Technology

Clarence R. Deitsch
Ball State University

Stephen J. Dempsey
University of Vermont

Joseph S. DeSalvo
University of South Florida

Floyd H. Duncan
Virginia Military Institute

Frank Egan
Trinity College

John B. Egger
Towson University

Richard E. Ericson
East Carolina University

Paul Evans
Ohio State University

Frank Falero
California State University, Bakersfield

Eugene F. Fama
University of Chicago

Dorsey D. Farr
French, Wolf & Farr

W. Ken Farr
Georgia College & State University

Price V. Fishback
University of Arizona

John A. Flanders
Central Methodist University

Garry A. Fleming
Roanoke College

Harold D. Flint
Montclair State University

James Forcier
University of San Francisco

Bill Ford
Middle Tennessee State University

Michele Fratianni
Indiana University

B. Delworth Gardner
Brigham Young University

David E.R. Gay
University of Arkansas

Gregory Gelles
Missouri University of Science and Technology

Robert Genetski

Paul J. Gessing
Rio Grande Foundation President

Joseph A. Giacalone
St. John’s University

Adam Gifford, Jr.
California State University, Northridge

Otis W. Gilley
Louisiana Tech University

Micha Gisser
University of New Mexico

Stephan F. Gohmann
University of Louisville

Rodolfo A. Gonzalez
San Jose State University

Linda Gorman
Independence Institute

Richard Grant
Lipscomb University

Anthony J. Greco
Louisiana University

William B. Green
Sam Houston State University

Kenneth V. Greene
Binghamton University

John G. Greenhut
Texas A&M University – Commerce

Paul Gregory
University of Houston

Earl Grinols, III
Baylor University

Dennis Halcoussis
California State University, Northridge

David L. Hammes
University of Hawaii – Hilo

Stephen Happel
Arizona State University

Scott Harrington
Wharton School, University of Pennsylvania

Scott Hein
Texas Tech University

David R. Henderson
Hoover Institution, Stanford University

Douglas Holtz-Eakin
American Action Forum President

Charles L. Hooper
Hoover Institution, Stanford University

James L. Huffman
Lewis & Clark Law School

Austin Jaffe
Pennsylvania State University

D. Bruce Johnsen
George Mason University School of Law

Richard E. Just
University of Maryland

Alexander Katkov
Johnson & Wales University

Peter Kerr
Southeast Missouri State University

E. Han Kim
University of Michigan

Robert Krol
California State University, Northridge

Kishore G. Kulkarni
Metropolitan State College of Denver

Ben Kyer
Francis Marion University

Nicholas A. Lash
Loyola University Chicago

Don R. Leet
California State University, Fresno

Norman Lefton
Southern Illinois University, Edwardsville

Tom Lehman
Indiana Wesleyan University

Tony Lima
California State University

Jody W. Lipford
Presbyterian College

Hong Liu
Washington University, St. Louis

Edward J. Lopez
San Jose State University

Donald L. Luskin
Trend Macrolytics, LLC

R. Ashley Lyman
University of Idaho

Glenn MacDonald
Washington University, St. Louis

Keith Malone
University of North Alabama

Yuri N. Maltsev
Carthage College

Henry G. Manne
George Mason University

Richard D. Marcus
University of Wisconsin – Milwaukee

Michael L. Marlow
California Polytechnic State University

Deryl W. Martin
Tennessee Technological University

Timothy Mathews
Kennesaw State University

Roger E. Meiners
University of Texas – Arlington

Stephen Mennemeyer
University of Alabama, Birmingham

Harry Messenheimer
Rio Grande Foundation

Thomas Miller
University of Connecticut

Jim Miller
Former Office of Management and Budget (OMB) Director

David M. Mitchell
Missouri State University

James E. T. Moncur
University of Hawaii

Wilbur Monroe
U.S. Treasury Department, International Affairs (Ret.)

Adrian Moore
Reason Foundation

Michael Morrisey
University of Alabama

Andrew P. Morriss
University of Alabama Law School

Ronald M. Nate
Brigham Young University – Idaho

James F. Nieberding
Cleveland State University & North Coast Economics, LLC

James. B. O’Neill
University of Delaware

Lee E. Ohanian
University of California, Los Angeles

Lydia Ortega
San Jose State University

Donald J. Oswald
California State University, Bakersfield

H. Edwin Overcast
Black & Veatch

Richard A. Palfin
Economic Analysis

Penn R. Pfiffner
Construction Economics, LLC

G. Michael Phillips
California State University, Northridge

Ivan Pongracic
Hillsdale College

Barry W. Poulson
University of Colorado at Boulder (Ret.)

Richard W. Rahn
Institute of Global Economic Growth

R. David Ranson
H.C. Wainwright & Co. Economics Inc.

Farhad Rassekh
University of Hartford

Mark William Rider
Georgia State University

Christine P. Ries
Georgia Institute of Technology

Philip Romero
University of Oregon

Larry L. Ross
University of Alaska, Anchorage

Timothy P. Roth
University of Texas, El Paso

Charles K. Rowley
George Mason University

Paul H. Rubin
Emory University

John Ruggiero
University of Dayton

John Rutledge
Rutledge Capital, LLC

Robert Sauer
Royal Holloway, University of London

Robert Haney Scott
California State University, Chico

John J. Seater
North Carolina State University

Richard T. Selden
University of Virginia

Ann Sherman
DePaul University

Vlad Signorelli
Bretton Woods Research

Daniel Smith
Troy University

Chester Spatt
Carnegie Mellon University

Frank Spreng
McKendree College

Dean Stansel
Florida Gulf Coast University

Craig A. Stephenson
Babson College

Derek Stimel
Menlo College

Avanidhar Subrahmanyam
University of California, Los Angeles

John A. Tatom
Indiana State University

Jason E. Taylor
Central Michigan University

Rebecca Thacker
Ohio University

David J. Theroux
The Independent Institute

Wade L. Thomas
State University of New York at Oneota

Richard Timberlake
University of Chicago

Stephen A. Tolbert
Montgomery County Community College

David G. Tuerck
Suffolk University

Grace-Marie Turner
Galen Institute President

A. Sinan Unur
Cornell University Program on Freedom and Free Societies

Kamal P. Upadhyaya
University of New Haven

T. Norman Van Cott
Ball State University

Richard K. Vedder
Ohio University

George J. Viksnins
Georgetown University

John Volpe
Catholic University of America

Ralph Walkling
LeBow College, Drexel University

Alan Rufus Waters
California State University, Fresno

Paul W. Wilson
Clemson University

Michael K. Wohlgenant
North Carolina State University

Gary Wolfram
Hillsdale College

Frank Wykoff
Pomona College

Thomas L. Wyrick
Missouri State University

Joseph Zoric
Franciscan University of Steubenville

Robert Niehaus
President, Robert Niehaus, Inc. 
(signature consent received after date of letter's release)