About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

49 IRET Op Ed 1 (1987)

handle is hein.taxfoundation/iretbyln0126 and id is 1 raw text is: E T            October 28, 1987
No. 49
Op Ed
Raise Taxes If You Want To
Drive The Market Down
The turmoil in the stock market appears to have
made President Reagan relent in his opposition to tax
increases. If he agrees to any tax increase as a part of a
deficit reduction package, he'll not only destroy the last
vestige of his program to lighten the heavy and damaging
hand of government on the U.S. economy, he'll also add
new  stumbling  blocks in the way of the     nation's
continuing economic progress.
What is there about the market's crash that the
President should see as giving added urgency to budget
deficit reduction, let alone tax increases? Surely neither
he nor the Congressional leadership believes the nonsense
that the Black Mondays were caused by the budget
deficit. Surely they don't think that investors woke up
Monday morning and, seeing no reduction in the budget
deficit, called in sell orders to their brokers. Surely no
one believes that computerized portfolio management
programs included instructions to sell if the budget
deficit weren't cut by  a  specific date. Surely the
President, his advisors, and the Congressional leadership
are aware of the fact that the budget deficit had come
way down in fiscal 1987. Surely they must disdain the
notion  that the  substantial decline  in the  market
averages since last August were caused by budget
developments that were, in any event, highly favorable.
Presumably it's not the market crash itself but the
fear that the severe market losses will precipitate a
recession that has impelled the President to moderate his
stance against tax increases. Even if he believes there is
some such connection, one must wonder what line of
economic reasoning could persuade him that raising taxes
will bolster the economy's defense against recession. In
the Keynesian view, tax hikes that aren't offset by
spending increases will reduce aggregate demand; this
will  depress  output  and  employment, saving  and

investment. Not only will the economy be injured, so
will the stock market. In the neoclassical (aka supply-
side)  view,  tax  hikes,  particularly  of  the  sort
contemplated in   the Ways and Means and Finance
Committee bills, will raise the cost of saving   and
capital,  curtail  capital  formation,  impair  labor
productivity, reduce employment, output, and income,
and further damage investor confidence. Monetarists
would agree with the neo-classicists and add that what
is really  needed  is  a  sufficiently rapid, but not
excessively fast, expansion of the money supply to
assure continued economic growth.
The real rationale for raising taxes, of couirse, is
to be able to finance higher levels of federal spending
than would otherwise be possible, given Gramm-Rudman-
Hollings and the embarrassment of being tagged a bi-
spending, budget   busting,  deficit  raiser.  President
Reagan must know this, and he must know that his
agreeing to any tax increase now will simply validate
more spending and renewed demands next year hor tiill
more tax hikes. le ilso must know thin no t;ix hike
will strengthen the economy and is far likelier to in ure
it. Even if a tax hike were to bolster the mariket, which
it wouldn't, its damage to the economy and to efiforts
to bring federal spending under control Would he too
high a price to pay.
Norman B. Ture
President
J.D. Foster
Economist

.ret institute
foresear  on me
econorrucs of
ivt taxation

1331 Pennsylvania Ave., N.W., Suite 515  Washington, D.C. 20004  (202) 347-9570
I, nI . oI

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Already a HeinOnline Subscriber?

profiles profiles most