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Taxes & Growth - Phillips Curve

 
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PostPosted: Sun Nov 30, 2014 3:58 am    Post subject: Taxes & Growth - Phillips Curve Reply with quote

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From Lost Decades: “Recessions hit hardest at poor and working-class families, who would benefit most from stimulative fiscal policy. But attempts to undertake these policies face opposition from upper income taxpayers who are less affected by the recession and more concerned about the impact on their future taxes.”

Why would upper income taxpayers be more concerned about the impact on their future taxes if stimulative fiscal policy creates jobs for the poor and working class families, unless the result is more progressive taxes – e.g. more workers receiving larger tax credits and more middle and upper class workers paying more taxes?

If expansionary fiscal policy fails to generate enough new taxpayers, then middle and upper income taxpayers will be responsible for the additional federal debt. There’s already a mountain of federal debt. If interest rates rise, the federal government will have to raise taxes and reduce spending, which will slow economic growth.

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If the rate of inflation is overstated and the unemployment rate is understated, then the output gap is larger.

It should be noted, many older workers are working longer, postponing retirement.

And, the adjustments in quality improvements of output may be smaller and slower.

So, the permanent destruction of potential output may be much less than many economists estimated.

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