Dems’ Economic Guru Says Tax!

By November 14, 2006Economy

The Wall Street Journal’s opinion page, lead editorial, started our day off with a jolt bigger than a steaming cup of joe:

Rubin’s Tax Gambit
Raising taxes in a housing slump isn’t the smartest policy

That was fast. A mere two days after Democrats capture Congress claiming they wouldn’t raise taxes, former Treasury Secretary Robert Rubin tells them they should do so anyway.

“You cannot solve the nation’s fiscal problems without increased revenues,” declared Mr. Rubin, the Democratic Party’s leading economic spokesman, in a speech last Thursday. He also took a crack at economic forecasting by noting that “I think if you were to increase taxes right now, you would have probably about zero negative effect on the economy.” The economics and politics here are worth parsing.

We suppose it’s reassuring that Mr. Rubin now thinks the economy is strong enough to withstand a tax increase. That’s a switch from his opposition to the 2003 Bush tax cuts, which he predicted would bust the budget and do little for growth. The U.S. economy proceeded to grow by an average of nearly 4% a year for three years following mid-2003, until the recent slowdown due largely to the housing slump.

Everyone makes mistakes, but raising taxes amid a housing decline doesn’t sound like brilliant policy to us. Depending on inflation signals in the coming weeks, the Federal Reserve may not be done raising interest rates. The best hope for avoiding a recession next year and into 2008 is that strong corporate profits and the tight job market will lift business investment and consumer spending enough to offset the impact of tighter monetary policy. The last thing the economy needs now is a tax increase, too.

Join the discussion One Comment

  • Lisa says:

    An economy built on 0% down housing market is not a stable growth economy. The Gov’t could have warned the home buyers that are now defaulting. But they were too interested in looking good. Now we will reap the reward for those mortgages and the ARMs. Rubins’s objections were undoubtedly pointed to the “trickle down” theory of tax cuts for the wealthiest.