Hundreds of Economists Sign Letter Opposing Barack Obama's Tax Plan

October 13, 2008 | Roger McEowen

Hundreds of economists (including Nobel Prize winners Gary Becker, James Buchanan, Robert Mundell, Edward Prescott, and Vernon Smith) have signed a statement pointing out the shortcomings of Democrat Presidential candidate Barack Obama’s tax plan.  The economists note their concerns with his proposals to increase tax rates on labor income and investment.  They also note that Obama’s proposed dividend and capital gains tax increases would reduce investment and cut into the savings of millions of Americans.  Likewise, the economists state their belief that 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.  Several economists from Iowa have signed the statement – William Albrecht, George Neumann, Gerry Suchanek, from the University of Iowa, and E. Kwan Choi from Iowa State University.

After hearing such economic criticism of his proposals, candidate Obama has apparently suggested that he might postpone his tax increases, perhaps to 2010. But, the economists note that it is a mistake to think that postponing such tax increases would prevent their harmful effect on the economy today.  They point out that 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.

Here is the statement of the economists:

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.

To view the signatues: Obamataxplan-signatures.pdf