Economists against Obama’s Proposals

ARLINGTON, VA — Today, McCain-Palin 2008 released the following statement signed by 100 distinguished and experienced economists at major American universities and research organizations, including five Nobel Prize winners Gary Becker, James Buchanan, Robert Mundell, Edward Prescott, and Vernon Smith. The economists explain why Barack Obama’s proposals, including “misguided tax hikes,” would “decrease the number of jobs in America.” The prospects of such tax rate increases under Barack Obama are already harming the economy. The economists conclude that “Barack Obama’s economic proposals are wrong for the American economy.” The proposals “defy both economic reason and economic experience.”

The full economists’ statement on Barack Obama’s economic proposals and a complete list of economists who support it follows:

Barack Obama argues that his proposals to raise tax rates and halt international trade agreements would benefit the American economy. They would do nothing of the sort. Economic analysis and historical experience show that they would do the opposite. They would reduce economic growth and decrease the number of jobs in America. Moreover, with the credit crunch, the housing slump, and high energy prices weakening the U.S. economy, his proposals run a high risk of throwing the economy into a deep recession. It was exactly such misguided tax hikes and protectionism, enacted when the U.S. economy was weak in the early 1930s, that greatly increased the severity of the Great Depression.

We are very concerned with Barack Obama’s opposition to trade agreements such as the pending one with Colombia, the new one with Central America, or the established one with Canada and Mexico. Exports from the United States to other countries create jobs for Americans. Imports make goods available to Americans at lower prices and are a particular benefit to families and individuals with low incomes. International trade is also a powerful source of strength in a weak economy. In the second quarter of this year, for example, increased international trade did far more to stimulate the U.S. economy than the federal government’s “stimulus” package.

Ironically, rather than supporting international trade, Barack Obama is now proposing yet another so-called stimulus package, which would do very little to grow the economy. And his proposal to finance the package with higher taxes on oil would raise oil prices directly and by reducing exploration and production.

We are equally concerned with his proposals to increase tax rates on labor income and investment. His dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans. His proposals to increase income and payroll tax rates would discourage the formation and expansion of small businesses and reduce employment and take-home pay, as would his mandates on firms to provide expensive health insurance.

After hearing such economic criticism of his proposals, Barack Obama has apparently suggested to some people that he might postpone his tax increases, perhaps to 2010. But it is a mistake to think that postponing such tax increases would prevent their harmful effect on the economy today. The prospect of such tax rate increases in 2010 is already a drag on the economy. Businesses considering whether to hire workers today and expand their operations have time horizons longer than a year or two, so the prospect of higher taxes starting in 2009 or 2010 reduces hiring and investment in 2008.

In sum, Barack Obama’s economic proposals are wrong for the American economy. They defy both economic reason and economic experience.

Robert Barro, Harvard University

Gary Becker, University of Chicago

Sanjai Bhagat, University of Colorado

Michael Block, University of Arizona

Brock Blomberg, Claremont-McKenna University

Michael Bordo, Rutgers University

Michael Boskin, Stanford University

Ike Brannon, McCain-Palin 2008

James Buchanan, George Mason University

Todd Buchholtz, Two Oceans Fund

Charles Calomiris, Columbia University

Jim Carter, Vienna VA

Barry Chiswick, University of Illinois at Chicago

John Cogan, Hoover Institution

Kathleen Cooper, Southern Methodist University

Ted Covey, McLean VA

Dan Crippen, former CBO Director

Mario Crucini, Vanderbilt

Steve Davis, University of Chicago

Christopher DeMuth, American Enterprise Institute

William Dewald, Ohio State University

Frank Diebold, University of Pennsylvania

Isaac Ehrlich, State University of New York at Buffalo

Paul Evans, Ohio State University

Dan Feenberg, NBER

Martin Feldstein, Harvard University

Eric Fisher, California Polytechnic State University

Kristin Forbes, MIT

Timothy Fuerst, Bowling Green State University

Diana Furchtgott-Roth, Hudson Institute

Paul Gregory, University of Houston

Earl Grinols, Baylor University

Rik Hafer, Southern Illinois University Edwardsville

Gary Hansen, UCLA

Eric Hanushek, Hoover Institutions

Kevin Hassett, American Enterprise Institute

Arlene Holen, Technology Policy Institute

Douglas Holtz-Eakin, McCain-Palin 2008

Glenn Hubbard, Columbia University

Owen Irvine, Michigan State University

Mike Jensen, Harvard University

Steven Kaplan, University of Chicago

Robert King, Boston University

Meir Kohn, Dartmouth

Marvin Kosters, American Enterprise Institute

Anne Krueger, Johns Hopkins University

Phil Levy, American Enterprise Institute

Larry Lindsey, The Lindsey Group

Paul W. MacAvoy. Yale University

John Makin, American Enterprise Institute

Burton Malkiel, Princeton University

Bennett McCallum, Carnegie-Mellon University

Paul McCracken, University of Michigan

Will Melick, Kenyon College

Allan Meltzer, Carnegie-Mellon University

Enrique Mendoza, University of Maryland

Jim Miller, George Mason University

Michael Moore, George Washington University

Robert Mundell, Columbia University

Tim Muris, George Mason University

Kevin Murphy, University of Chicago

Richard Muth, Emory University

Charles Nelson, University of Washington

Bill Niskanen, Cato Institute

June O’Neill, Baruch College, CUNY

Lydia Ortega, San Jose State University

Steve Parente, University of Minnesota

William Poole, University of Delaware

Michael Porter, Harvard University

Barry Poulson, University of Colorado, Boulder

Edward Prescott, Arizona State University

Kenneth Rogoff, Harvard University

Richard Roll, UCLA

Harvey Rosen, Princeton University

Robert Rossana, Wayne State University

Mark Rush, University of Florida

Tom Saving, Texas A&M University

Anna Schwartz, NBER

George Shultz, Stanford University

Chester Spatt, Carnegie-Mellon University

David Spencer, Brigham Young University

Beryl Sprinkle, Former Chair Council of Economic Advisers

Houston Stokes, University of Illinois in Chicago

Robert Tamura, Clemson University

Jack Tatum, Indiana State University

John Taylor, Stanford University

Richard Vedder, Ohio University

William B. Walstad, University of Nebraska

Murray Weidenbaum, Washington University in St. Louis

Arnold Zellner, University of Chicago

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3 Responses to Economists against Obama’s Proposals

  1. goodtimepolitics says:

    Barack Obama’s economic proposals does not matter, I thinking more that they are voting for him because he’s black! I know that the truth hurts, but its best to tell the truth!

  2. Joe says:

    Somebody has to get to the McCain campaign and the Republican Party NOW and tell them to fight back aggressively on economics.

    The Democratic Party caused this severe financial crisis, as well as the high price of oil and other economic problems, but has been able to get away with blaming the Republican Party. The Republicans must tell the American people how much damage the Democrats have done to their economic lives and they must point out how much damage will be done in the future.

    I urge everyone reading this to contact the McCain campaign and the Republican Party and demand that they fight back or else lose the election.

    McCain: ideas@mccain08hq.com
    RNC: chairman@gop.com
    NRSC: info@nrsc.org
    NRCC: website@nrcc.org

  3. Thomas says:

    From IBD Editorials:

    Investors Flee From ‘Change’ Obama Hypes

    By JACK KEMP AND PETER FERRARA | Posted Monday, October 27, 2008 4:30 PM PT

    Are Barack Obama’s proposed tax increases adversely affecting our financial markets? We say yes, unambiguously. The senator has done a masterful job distracting attention from his tax increases with his $500-per-worker tax credit supposedly for 95% of Americans.

    Obama has also set forth more than half a dozen additional refundable income tax credits targeted to low- and moderate-income workers for child care, education, housing, welfare, retirement, health care and other social purposes.

    These tax credits are devised to phase-out based on income, which will ultimately increase marginal income tax rates for middle-class workers. In other words, as you earn more, you suffer a penalty in the phase-out of these credits, which has the exact effect of a marginal tax rate increase. That harms, rather than improves, the economy.

    With the bottom 40% of income earners not paying any federal income taxes, such tax credits would not reduce any tax liability for these workers. Instead, since they’re refundable, they would involve new checks from the federal government.

    These are not tax cuts as Obama is promising. They are new government spending programs buried in the tax code and estimated to cost $1.3 trillion over 10 years.

    Obama argues that while these workers do not pay income taxes, they do pay payroll taxes. True, but his planned credits do not involve cuts in payroll taxes. They are refundable income tax credits designed to redistribute income and “spread the wealth.”

    Meantime, Obama has proposed effective tax increases of 20% or more in the two top income-tax rates, phasing out the personal exemptions and all itemized deductions for top earners, as well as raising their tax rates.

    He wants a 33% increase in the tax rates on capital gains and dividends, an increase of 16% to 32% in the top payroll tax rate, reinstatement of the death tax with a 45% top rate, and a new payroll tax on employers estimated at 7% to help finance his health insurance plan. He’s also contending for higher tariffs under his protectionist policies.

    Finally, he would increase corporate taxes by 25%, though American businesses already face the second-highest marginal tax rates in the industrialized world, thus directly harming manufacturing and job creation while weakening demand for the dollar.

    Obama argues disingenuously that his tax increases would only affect higher-income workers and “corporate fat cats.” But it is precisely these top marginal tax rates that control incentives for savings, investment, entrepreneurship, business expansion, jobs and economic growth. While he wants to tax the rich, the burden will fall on the poor and the middle class.

    In their new book, “The End of Prosperity,” Art Laffer, Steve Moore and Peter Tanous argue that the threat of this tax tsunami is already destabilizing our financial markets and causing capital flight from America.

    They write, “Hot capital is escaping over the borders out of the United States and flowing into China, India, Europe, and even Japan. . . Starting in late 2007, foreigners started pulling their money out of the United States, and Americans started investing more abroad. Global investors are losing confidence in the U.S.”

    The American economy was in shambles when Reagan entered office in 1981. Inflation had soared by 25% over the prior two years, unemployment was heading toward 10%, the prime interest rate hit 21%, poverty was on a 33% upswing and real family income had decreased by almost 10% due to the stagflation of the late 1970s.

    Reagan cut the top income-tax rate from 70% to 50%, adopted an additional 25% across-the-board rate cut and sliced capital gains taxes in half. The 1986 tax reform left us with just two tax rates of 15% and 28%. Reagan slashed spending growth, lowered tariffs, reduced regulatory burdens and promoted anti-inflation monetary policies.

    The result, the authors explain, was actually a 25-year, noninflationary economic boom, with only two brief, mild recessions in 1990 and 2001. “We call this period, 1982-2007, the 25-year boom — the greatest period of wealth creation in the history of the planet,” they write. “Adjusting for inflation, more wealth was created in America in the 25-year boom than in the previous 200 years.”

    By 1989, the economy had grown by almost one-third, the equivalent of adding the entire economy of West Germany to our U.S. economy. In 1984 alone, real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created in the 1980s, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989.

    Spectacularly, inflation was slashed to 3.2% by 1983. The prime rate fell to 6.25% by 1992, even though opponents had argued that Reagan’s tax cuts would increase interest rates. Family income reversed its decline, poverty reversed its rise and tax revenues actually doubled.

    This is the “Change We Need” today.

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