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Jobs and Growth, Not Austerity

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Teresa Ghilarducci

First, there is no evidence that tax cuts for the rich spurs job growth. ZERO. There isn’t even a reputable economics model that would predict that. Think about it. Corporate boards of directors and small business owners care most about markets, but who will buy their products or services?

Firms can sell more if their consumers have buying power. And if government spends — and pays for it by taxes from households who don’t spend — firms will have more sales and more incentive to invest.

So here we are facing a “fiscal cliff,” a perfect storm that forces a bundle of programs that put money in people’s pockets to expire at the end of the year if Congress and the president don’t act. If that happens and the scheduled tax increases and spending cuts take place the budget deficit would shrink to 58 percent of GDP in 2022, but the unemployment rate could double.

Unlike a cliff the expirations don’t exist in nature — the expirations are a manufactured crises — so let’s manufacture a plan with two key features: Put a down payment on the debt and maintain growth for all Americans.

There is a plan to avoid the cliff that contains four actions:

  • Extend Emergency Unemployment Insurance (EUI) for the long-term unemployed;
  • Gradually phase out the temporary payroll tax cut and increase the earned income tax credit so that lower middle class people will be paid for the increase in payroll taxes;
  • Allocate federal expenditures for infrastructure spending;
  • Raise top tax rates to about those in the 1990s in order to pay down the debt. Raising the tax rate on the top 4% will not reduce domestic consumption in any significant way (the rich spend money on foreign goods and luxuries and they save).
  • You can read the Economic Policy Institute’s entire plan at their website.

    Teresa Ghilarducci is the Bernard and Irene Schwartz Professor of Economic Policy Analysis at the New School for Social Research in New York City. She signed on to a letter from 350 economists released earlier this week supporting the “Jobs and Growth, Not Austerity” platform.

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