Writing in the New York Times last week, Robert Frank, Professor of Economics at Cornell University, has argued that “with stimulus spending running out, yet unemployment stubbornly near 10%” we need a drastic change in government policy". We at ATR certainly agree. So far so good. Then, however, he then decides that the solution is “a surtax on extremely high levels of consumption”.
Um. What? At a time of economic downturn, Professor Frank wants to impose a crippling tax on the economy. That will further hamper economic growth. That will cost jobs, that will hurt the economy, and so on. Riiight.
Professor Frank’s rational for this… ‘interesting’ … position is that that we need to boost our national level of savings.
Okay. So Professor Frank thinks we have too much consumption and not enough savings. And wants to use tax policy to change the mix. Fair enough. I can accept that. Our current tax system – a hybrid that taxes income and consumption  (through complex mechanisms of credits and the like) probably still doesn’t get the mix right. So we can agree on the fundamentals.
The problem is, Professor Frank, that your proposal would not only shift people’s spending patterns. It would also rip billions of dollars out of the productive economy, and feed them into the never-ending cesspool of government waste.
How about instead, we continue reforming our current tax system that it no longer peanalizes consumption. A good starting point would be to enacted the 5 easy pieces of tax reform, which include lowering marginal rates (including on capital gains). In fact, there are many tax reforms we can make to incentivize savings.And, unlike Professor’s Frank proposal, tax cuts wouldn’t mean job-killing tax hikes. It’s win-win!
So, what do you say, Professor Frank? Do you really want to stimulate the economy and drive up savings, or is this simply an excuse to hike taxes and increase the size of government? Because if you really want to boost savings and help the economy, then we will gladly work with you to reform our tax system in a way that will benefit all Americans.