Monday, November 13, 2006

Rubin Urges Tax Hikes

Robert Rubin wants Democrats to raise taxes.

(See Ex-Treasury Head Rubin Urges Democrats to Mull Tax Increase in this weekend’s WSJ.)

He says that it would have no negative economic impact.

"I think if you were to increase taxes right now you would have probably about zero negative effect on the economy," he told the Economic Club of Washington last Thursday night.

With respect, I beg to differ with the distinguished former Treasury man. We will not tax our way into prosperity.

Mr. Rubin has never believed that changing tax rates on work and investment affects economic behavior. But he is wrong.

Former Nobel Prize winner Edward Prescott argues that workers and investors are highly responsive to changing tax rates. Yale economist Robert Shiller has been arguing against tax hikes because the economy is slowing.

So whether you’re a Laffer curve supply-sider as I am, or a Keynesian as Mr. Schiller is, raising taxes is the wrong way to go.

Why not slow spending growth? (If there’s one thing the GOP should propose right now, it is a spending limitation pay-go.)

The top-heavy U.S budget needs to be curbed. And low tax rates are essential to continued economic expansion.