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185 Economists Warn Congress: “Fiscal Cliff” Tax Hikes Risk Economic Damage

December 12, 2012

(Alexandria, VA) – As Washington remains engaged in a war on words over the impending “Fiscal Cliff,” an open letter from 185 leading economists released today is calling for concrete action: oppose higher taxes, set budget priorities, and get to work on reforming America’s tax and entitlement programs. The 362,000-member National Taxpayers Union (NTU) organized the letter, which stressed that allowing tax rates to rise for anyone in a fiscal cliff deal “would have a significant, negative impact on the economy.”

“At this critical point for our nation’s financial future, the strong support from so many economists for a cautious approach to tax hikes and for meaningful spending restraint should serve as a clear warning to Congress,” said NTU Executive Vice President Pete Sepp. “Resorting to tax hikes, particularly without budget or entitlement reform, is not just a raw deal for taxpayers, it’s also a losing hand for the American economy.”

In their statement, the diverse group of 185 members of the economics community advised against allowing the 2001 and 2003 tax relief laws expire for “some or all taxpayers.” They further contended broad tax and budget reform offers a better route that would avoid the negative consequences, such as job losses, of short-term revenue grabs:

“Low taxes can have a constructive economic effect by keeping money in the private sector, where it is far more likely to be utilized for efficient purposes. By contrast, raising taxes would divert resources into the relatively inefficient public sector, thereby curbing potential job creation and economic growth. This effect would be even more pronounced during a persistent slump.

“In particular, Congress should avoid raising marginal tax rates on income and taxes on investment, such as capital gains and dividends taxes. These types of taxes most directly and meaningfully affect job creation.”

The signers included former Congressional Budget Office Director (and current American Action Forum President) Douglas Holtz-Eakin; former Office of Management and Budget Director Jim Miller; as well as scholars from a variety of academic entities, including the University of Michigan, University of Chicago, UCLA, University of Virginia, Emory University, Georgetown, Pomona College, and the Wharton School at University of Pennsylvania (affiliations on the letter were listed for identification purposes only). Signatories with other institutions included Donald Luskin of Trend Macrolytics, Richard W. Rahn of the Institute of Global Economic Growth, David J. Theroux of the Independent Institute, and David G. Tuerck of the Beacon Hill Institute at Suffolk University.

Sepp concluded, “Economists are becoming increasingly concerned that unless Washington stops gambling with other people’s money and gets the federal government’s own finances in order, the odds for a more prosperous year ahead will get much slimmer. Taxpayers would agree.”