Despite President Obama’s continued push to increase taxes, prominent economic advisers to Democrats suggest higher taxes are bad for the economy.
In a study published with her husband, also a noted economist, Dr. Romer found that “tax changes have very large effects on output” and that “an exogenous tax increase of one percent of GDP lowers real GDP by almost three percent.”
In July of last year, when the economy was in much the same state as it is today, Moody’s economist Mark Zandi expressed his concern with tax increases. In an interview regarding the impending tax increases that were ultimately avoided with the December tax extenders package, he said, “I would not allow those tax increases to take hold on January 1st…I think economy’s still too fragile for that.”
With almost 14 million Americans still out of work and the unemployment rate at 9.0%, it’s hard to imagine a worse time to raise taxes. As Congress looks for a path to transform the tax code and create a system that encourages economic growth and job creation, it is clear that tax increases cannot be part of the solution.