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Subject:  Re: The Fiscal Cliff-Solving the wrong problem Date:  11/14/2012  6:19 AM
Author:  MadCapitalist Number:  408433 of 485025

Your post is well taken but there is a caveat. Raising of the taxes on the wealthy will probably not affect their spending because their incomes will still be far more than they spend; however, a rise in the taxes on the middle class that spends nearly everything they earn will be lowered and hurt the economy.

Maybe investment and entrepreneurship, not spending, is the key. Maybe high marginal rates and highly progressive income taxes are destructive of economic growth. That is what numerous researchers have concluded. In fact, none of the studies that I found suggested that high taxes hurt economic growth because it reduces consumption. On the contrary, high taxes hurt economic growth because it reduces saving and investment (as well as the labor supply).

As Romer concluded:

"...investment falls sharply in response to exogenous tax increases. Indeed, the strong response of investment helps to explain why the output consequences of tax changes are so large."

Or Jens Arnold:

"There is also evidence of a negative