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.
AAAGGGGGHHHHH! Higher taxes do not equal increased revenue. What does it take to understand that? This is the same guy that opposed 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.
The Wall Street Journal says: 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.
We suspect that Mr. Rubin's real game here is politics. The Citigroup Inc. executive is part of Hillary Rodham Clinton's braintrust, and he and she would like nothing better than to coax Mr. Bush into raising taxes in the next two years. That would take the tax issue off the table in 2008, while splintering Republicans the way President George H.W. Bush's tax-hike deal with George Mitchell did going into 1992.
Everyone should read this article to know what's really going on.
Wall Street Journal
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