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'Fiscal Clff' Tax Hikes Risk Economic Damage

While the mainstream media overflows with reports about the so-called "Fiscal Cliff," the news that an open letter from 185 leading economists hasn't gotten much attention. Released today, the letter was organized by the National Taxpayers Union. The letter calls for three concrete actions: "oppose higher taxes, set budget priorities, and get to work on reforming America’s tax and entitlement programs."

NTU's press release announcing the economists' "open letter," also said:

“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."

Separately, but also on the topic of taxes and economic damage, today's Wall Street Journal contains an op-ed by Edward Prescott and Lee Ohanian in which they argue that "taxes are much higher than you think." They begin the op-ed saying:

"President Obama argues that the election gave him a mandate to raise taxes on high earners, and the White House indicates that he won't compromise on this issue as the so-called fiscal cliff approaches.

"But tax rates are already high—much higher than is commonly understood—and increasing them will likely further depress the economy, especially by affecting the number of hours Americans work.

"Taking into account all taxes on earnings and consumer spending—including federal, state and local income taxes, Social Security and Medicare payroll taxes, excise taxes, and state and local sales taxes . . . the U.S. average marginal effective tax rate is around 40%. This means that if the average worker earns $100 from additional output, he will be able to consume only an additional $60."

HT to NTU's blog, Government Bytes for the alert about the economists' open letter. In her blog post, Manzanita McMahon points out, "Those seeking to raise taxes often cite the billowing debt to support their calls for new revenue. However, according to new numbers from the minority side of the Senate Budget Committee, 75% of the tax revenue in the President’s Fiscal Cliff proposal would go to new spending, not to pay down the debt." She also included the following chart, which is "from the Weekly Standard using CBO and OMB data:"

Will any of the wisdom of the 185 economists or that of Messrs. Prescott and Ohanian inform the debate and discussion of the 'Fiscal Cliff' between the President and the Speaker? For the sake of our country, let us hope and pray that it does.

Have you told President Obama and Speaker Boehner what you think they should do to resolve the 'Fiscal Cliff' issue? Use these links to obtain specific contact information.

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