The fiscal cliff: tax the rich, cut the deficit, and grow the economy

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By Barry Bluestone | Boston.com | November 16, 2012

As we approach the “fiscal cliff” President Obama is adamant about raising tax rates on high income families to help reduce the deficit. House Speaker John Boehner now says Republicans are willing to consider some form of higher tax revenue as part of the solution – but only “under the right conditions.” Lower tax rates for all families, both rich and poor, is one one of them. If the Republicans were to reconsider this position, the President and the Congress could pull off a pretty neat trick – simultaneously reducing the deficit and stimulating the economy.

How could this possibly work?

Right now, the main reason why economic growth is so sluggish is a lack of consumer spending. If we want to increase demand for goods and services, we need to put money in the hands of spenders, not savers. Savers are good for investment, but savings are not our current problem. Businesses are sitting on the sidelines with something like $2 trillion in cash which they could use for investment. They are not investing because in the current economy they fear there is not enough consumer demand to purchase the output this investment would produce.

Right now the nation needs consumers. So who consumes and who saves? This is well-known. In general, savers are rich people. A family in the top 1% of all earners (those with incomes in excess of $569,000) spends only about 49 cents out of every additional dollar while those in the top 5% spend 63 cents out of every dollar. The rest goes into savings accounts, the stock market, and hedge funds – which in the short run create virtually no jobs. Read More

Why people hate government

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By Barry Bluestone | Boston.com | October 7, 2012

In 1965, according to a national Gallup Poll, 35 percent of Americans considered “big government” to be the biggest threat to the country in the future. Slightly fewer (29%) named “big business” as the biggest threat while just 17 percent put this onus on “big labor.” This was the era of Lyndon Johnson and the federal government’s massive “War on Poverty.”

By 1983, fully 50 percent of those polled listed big government as the biggest threat with only 20 percent naming either business or labor. This was the era of Ronald Reagan and the mantra “Get the Government off my back.” By 2001, at the beginning of George W. Bush’s presidency and “compassionate conservatism,” the Gallup poll revealed that two-thirds (65%) of Americans were most worried about big government. By contrast, less than a quarter (24%) feared big business and only 8 percent now worried about big labor. Read More

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