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Author Topic: Christina Romer weighs in on taxes  (Read 1136 times)
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WhiskeyGirl
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« on: October 30, 2009, 03:46:03 PM »

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... a 2007 paper by economists Christina and David Romer, a husband-wife team at the University of California, Berkeley. Yep, that’s the same Christina Romer who is now chair of Obama’s Council of Economic Advisers. The Romers’ analysis of tax changes since World War II concluded that "tax changes have very large effects" on the economy. Specifically, they said their data suggested that a "tax increase of one percent of GDP [gross domestic product] lowers real GDP by about three percent" or lower, but at least by 2.2 percent...

http://www.factcheck.org/2009/02/stimulus-bill-bravado/

When I looked at that paper, I found all sorts of interesting things -

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…President Kennedy...stated explicitly that the tax cut was not for countercyclical reasons: .Let me emphasize, however, that I have not been talking about a different kind of tax cut, a quick, temporary tax cut, to prevent a new recession. (8/13/62, p. 5). This view was repeated in two speeches in January 1963 (Annual Message to the Congress on the State of the Union, 1/14/63, pp. 1-2; Special Message to the Congress on Tax Reduction and Reform, 1/24/63, p. 1). Likewise, the 1963 Economic Report stated: .We approach the issue of tax revision, not in an atmosphere of haste and panic brought on by recession or depression, but in a period of comparative calm. (p. xiii). The Economic Report mentioned the possible countercyclical benefits of the tax cut, but made it clear that they were a sidelight. It stated: .While the basic purpose of my tax program is to meet our longer run economic challenges, we should not forget its role in strengthening our defenses against recession. (p. xxi). A similar statement was made in the 1965 Economic Report (p. 8 ). If anything, the economy was even stronger by the time the act was passed. President Johnson, in his Annual Budget Message to the Congress, Fiscal Year 1965, cited statistics showing solid economic growth and emphasized: .This is a record of strong expansion. (1/21/64, p. 3).

Kennedy and Johnson both gave as the rationale for the tax cut the need to eliminate fiscal drag so the economy could grow faster. In his August 1962 address, President Kennedy said: .our present tax system is a drag on economic recovery and economic growth,. and .this administration intends to cut taxes in order to build the fundamental strength of our economy, to remove a serious barrier to long-term growth. (Radio and Television Report to the American People on the State of the National Economy, 8/13/62, p. 4). In his Special Message to the Congress on Tax Reduction and Reform, Kennedy stated: .the largest single barrier to full employment of our manpower and resources and to a higher rate of economic growth is the unrealistically heavy drag of Federal income taxes on private purchasing power, initiative, and incentive. (1/24/63, p. 1). Johnson reiterated this view (Annual Budget Message to the Congress, Fiscal Year 1965, 1/21/64, p. 1). Both administrations argued that the tax cut would stimulate economic growth. For example, the 1964 Economic Report stated: .The tax cut will give a sustained lift, year-in and year-out, to the American economy. (p. 8 ).

…Kennedy stated in his Annual Message to the Congress on the State of the Union: .America has enjoyed 22 months of uninterrupted economic recovery. But recovery is not enough. If we are to prevail in the long run, we must expand the long-run strength of our economy. We must move along the path to a higher rate of growth and full employment. (1/14/63, pp. 1-2). Johnson sounded a similar theme in January 1964. He stated: .despite the creation of 2 1/2 million new jobs in our economy, the unemployment rate now stands at 5 1/2 %. Our factories continue to produce below their optimum rate. As a nation we are producing at a rate at least $30 billion below our comfortable capacity. (Annual Budget Message to the Congress, Fiscal Year 1965, 1/21/64, p. 3).

The discussion of the reason for the tax cut given in Congressional documents parallels those in administration sources. The House report on the 1963 version of the bill stated: .The principal purpose of the revenue bill of 1963 is to remove from the private sector of the American economy its present high-tax straitjacket; that is, to lessen restraints which prevent the American free-enterprise system from itself generating necessary growth. A purpose of this bill also is to improve the equity of the tax laws. (88th Congress, 1st Session, House of Representatives Report No. 749, 9/13/63, p. 6). The Senate report also stressed the motivation of improving incentives and equity: .The bill will cut back on excessive tax rates which unnecessarily restrain individual and business incentives, it will provide the increased consumer and business purchasing power to assure continued expansion, and it will improve the equity of the tax system. (88th Congress, 2d Session, Senate Report No. 830,
1/28/64, p. 1).

Like the administration sources, both Congressional reports mention the need to reduce unemployment as an important motivation. However, it is clear that the desire is to reduce unemployment below its historical norm.  The Senate report stated: .Despite the fact that business conditions have been improving over the past 33 months, unemployment still is at the high rate of 5.5 percent. (Senate Report No. 830, p. 6). It also noted: .we have experienced a succession of disappointing recoveries in which the unemployment rate has remained disturbingly high; this rate, in fact, has not been below 5 percent since 1957. (p. 6). It concluded that .the growth rate of our economy must be increased if the requisite jobs are to be found for this expanding labor force. (p. 6). The House report was even more explicit that the motivation of the bill was to provide supranormal growth. It stated: .Maintaining the 3-percent rate of growth as the United States has done since 1956, not only will fail to eliminate the present excessive unemployment, but unemployment will continue to rise as the increasing numbers of children born during the war and early postwar years reach employment age. (House Report No. 749, p. 10).

http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf

How can the unemployment rate be lowered if the door remains open to illegal immigration and continued amnesty for millions of ‘undocumented’ workers?

How will weighing down the American people and businesses with increasing taxation result in economic growth?

Lots of good reading and good charts in this report.

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they'll end up in your family anyway...
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