Tags: Morici | Tax | Hikes | Depression

Morici: Tax Hikes on Rich Won't Solve Fiscal Woes, Depression Possible

Wednesday, 14 Nov 2012 12:10 PM

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The Obama administration's plans to hike taxes on the wealthiest 2 percent of the population will do little to solve the country's fiscal imbalances and do nothing to avoid economic depression that looms large for the economy, said Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland.

At the end of this year, a series of tax cuts are scheduled to expire at the same time cuts to government spending kick in, a one-two punch known as a fiscal cliff that could send the country falling into a recession next year if left unchecked by Congress.

One solution championed by congressional Democrats and the White House involves allowing tax cuts to expire for the wealthiest 2 percent of Americans to help narrow deficits.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

Republicans have criticized the proposal, arguing that doing so would hit small-business owners and force them to put off plans to expand and hire new workers, which the economy desperately needs.

Either way, taxing the rich won't work, Morici wrote in an OpEd appearing in The Washington Times.

Such a move won't bring in enough revenue to make lasting improvements to the economy, which would more likely come through increased drilling for hydrocarbons at home coupled with moves to pressure China to strengthen its currency and improve the U.S. trade balance.

"To avert calamity, President Obama and House Republicans likely will compromise to raise taxes on high-income Americans by $100 billion to $150 billion, curb spending an equal amount and renew the Bush tax cuts for families earning less than $250,000," Morici wrote.

"This will hardly be enough to right the nation’s shaky finances."

Failure to address deep-rooted fiscal imbalances could seriously damage the U.S. economy.

"A second Great Depression would grip the nation," Morici wrote.

The path to fiscal health lies in increased drilling for oil and natural gas at home and forcing China to strengthen its currency.

U.S. politicians have long complained China keeps its currency, the yuan, artificially cheap to give it an unfair advantage in the global trade arena.

Slapping tariffs or taxes on Chinese imports, raising the retirement age to reform Social Security and reining in healthcare costs must take priority.

"Without better trade and energy policies to boost growth, significantly cutting the budget deficit will instigate another recession," Morici wrote.

"Absent radical reforms in entitlement spending, Washington is headed for financial collapse by the end of the decade."

The Obama administration, meanwhile, insists that tax hikes on the rich must form part of a broader solution to restore the country to fiscal health, pointing out that closing loopholes but leaving low rates in place championed by Republicans won't drum up the revenue the government needs.

"When you take a cold hard look at the amount of resources you can raise from that top 2 percent of Americans from limiting deductions you will find yourself disappointed to the relative magnitude of the revenues we need," Treasury Secretary Timothy Geithner said, according to The Wall Street Journal.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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