Quick Hits for Jan. 9, 2008

Fiscal stimulus, the Fair Tax, and income inequality.


1) Chris Edwards of the Cato Institute doesn’t think much of the calls for fiscal stimulus: “What Bush and Congress should consider are long-term, permanent changes to the tax code to make the economy more productive, such as a corporate tax rate cut or more favorable treatment for capital investment. If that helps in the short term, that’s good, but spurring long-term growth in the economy is far more important than worrying about temporary ups and downs.”

2) Economist blogger Arnold Kling points out that Mike Huckabee’s Fair Tax idea could mean a huge tax increase on the middle class:

Our current tax system takes its biggest bite out of people who earn much more than they consume. Because the Fair Tax (or any consumption tax) would abstain from tapping this rich vein of unspent earned income, it would take larger bites out of others to obtain the same revenue. Consumption taxes reduce tax rates drastically on people who earn more than they consume. To be revenue neutral, they have to increase taxes drastically on people who consume more of what they earn.

3) More evidence—via the Treasury Department—that high corporate taxes are leading to lower middle-class wages and higher income inequality. University of Michigan economics Prof. Mark Perry of the Carpe Diem blog offers this conclusion:

Corporations don't pay taxes, individuals pay taxes in their roles as shareholders, workers, and consumers. Higher corporate taxes translate to lower dividends for shareholders, lower wages for workers and/or higher prices for consumers. According to the empirical evidence presented in this paper, it appears that a substantial burden of increases in corporate taxes fall on the workers employed by corporations. Higher corporate taxes=lower wages.