No less than 313 economists, including a Nobel Laureate, signed a letter to Congress yesterday saying that letting the Bush tax cuts expire "would constitute a profound and damaging anti-stimulus that would harm our prospects for expansion in the near future."
The letterwas co-signed by economists Wayne Angell, a former governor with the Federal Reserve; Nobel Laureate Vernon Smith of Chapman University; Allan Meltzer of Carnegie Mellon University; Warren Coats, formerly with the International Monetary Fund; Clark Johnson with the Defense Dept., and economic professors from Duke University, Princeton University, Stanford University and the University of Chicago.
The National Taxpayers Union(NTU) forwarded the letter on the economists' behalf. The 362,000-member NTU is a nonpartisan, nonprofit founded in 1969 to work for lower taxes and smaller government.
"The promise of a tax increase in January 2011 would create significant economic distortions as individuals and businesses conserve capital or stave off hiring," the economists wrote.
The 10% bracket would vanish, the three middle tax brackets would rise by three percentage points, "heaping heavier burdens on the working class and wealthy alike," and the top marginal rate would rise from 35% to 39.6%, "leading to higher tax bills not just for wealthy individuals but for many small businesses that file their taxes through the individual income tax system," the economists say.
Economic historians have repeatedly said that history shows that raising taxes during a recession would prolong and deepen an economic downturn.
The economists note that "capital gains and dividend taxes would rise from top rates of 15% each to 20% and 39.6%, respectively, penalizing entrepreneurship and potentially leading to a harmful sell-off of assets in December of this year. Americans would also see the return of the now-defunct estate tax at a top rate of 55%, jeopardizing the ability of family businesses to remain intact as they pass to the next generation."
And the economists wrote that letting these tax rates expire "threatens to increase the already staggering complexity of the code."
According to a National Taxpayers Union study, individual taxpayers alone will spend 2.43 billion hours complying with income tax laws this year.
Just confining tax hikes to wealthier individuals will have harmful ripple effects, the NTU says, "as households earning more than $210,000 account for one of every three dollars in consumer outlays."
And limiting tax hikes to wealthier individuals will still "have deleterious effects,” the 313 economists wrote, adding that “[i]f Congress allows heavier taxes on work and investment, we will undoubtedly see less of both at a time when they are needed most.”
And the economists added that "businesses directly impacted by upper-bracket tax increases would slow their activities, thereby diminishing economic opportunities for their subcontractors in lower brackets."
Peter Sepp, head of the NTU, says that: “The notion that we can borrow, tax, and spend our way to prosperity has fallen flat on its face, taking down hardworking American families with it. He adds: "But now, Congress has the opportunity to do something that will actually help families and businesses across the country get back on their feet."
Sepp contrasted the NTU-led economists’ letter with a statement last week from a progressive think tank (having fewer economist signatories, Sepp notes) arguing, among other things, that Congress should consider a raft of revenue-raising proposals; their examples add up to more than $5.5 trillion over a decade.
“If Congress fails to keep taxes at current levels, every taxpayer will start off the New Year on the wrong foot – one that is forced to walk down the path of economic uncertainty," Sepp says.