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Commentary: Economists do support reasonable tax increases

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Gov. Tim Pawlenty was quoted recently in the West Central Tribune as saying that he didn't know of any economists who thought that raising taxes during a recession is a good idea.

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Our governor is normally careful and skillful with his words. And he's survived politically in large part because he's a master at messaging around the most conservative tax-and-budget policies Minnesota has seen in modern times. But with all due respect, this is a rather startling assertion and it creates a patently false implication -- that economists are monolithically anti-tax or even anti-government.

Anybody with a cursory knowledge of politics and economics knows that economists disagree dramatically -- left to center to right -- as much and perhaps more so than any other set of academics. And it defies credulity to even suggest that there are no "credible" economists who favor reasonable tax rate increases during recessions.

Pawlenty could be telling the truth. He did not say there are no economists who favor tax increases, just that he didn't know of any, which might be true. And it's also quite possible that he doesn't regard economists who disagree with him as credible.

However, it takes only a few minutes on the Internet to find plenty of credentialed and even celebrated economists who do favor raising taxes, especially in recessions following a decade of large tax cuts at the federal and state level.

One can also easily find long lists of economists who favored a presidential candidate who supports public investments and moderate tax increases on high-income households, who, by the way, have a larger share of income and wealth than since the Great Depression. President-elect Barack Obama has backed off his tax increase proposals, but it's a safe bet that we'll end up there eventually. And lots of economists accept that the taxes we pay for improvements in human capital and infrastructure are a good and necessary thing for long-term prosperity.

Conservative ideologues have been getting away with some form of this nonsense for a long time, suggesting that the only progressive economists are either dead, like John Maynard Keynes and John Kenneth Galbraith, or work for the New York Times, such as Paul Krugman, who recently won the Nobel Prize, by the way.

I'm guessing that there must be thousands of credentialed and fair-minded economists, especially on the international scene, who disagree with the late Milton Friedman and Ronald Reagan about government and taxes being almost entirely a problem and almost never the solution. Just for the record, here are some actual economists who have given blessings to reasonable state or federal tax increases, as our economy and many millions of families teeter on the brink of disaster:

- Joseph Stiglitz of Columbia University, a Nobel Prize winner and a giant in the field, and who wrote the textbook I was assigned when I studied public sector economics at Stanford University. He recently wrote an analysis, along with Congressional Budget Office Director Peter Orszag, asserting (italics added) "tax increases would not in general be more harmful to the economy than spending reductions... The conclusion is that, if anything, tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families."

- The newly appointed head of the National Economic Council, former Harvard President Larry Summers. He was given a somewhat favorable review by the neolithically conservative editorial page of the Wall Street Journal, even though Summers has said that he thinks federal income tax rates could rise to 50 percent without damaging risk-taking by investors. The WSJ editorialists sniffed that he was one of those Keynesian economists who believes in government's "multiplier" effect, but they liked the fact that Summers believes that "taxes matter at some point." Well, of course.

- Most of the economists in a Wall Street Journal news survey in 2007 favored higher taxes on fossil fuels as a primary mechanism for a national policy aimed at encouraging energy alternatives. From that article: "Forty of 47 economists who answered the question said the government should help champion alternative fuels. Economists generally are in favor of free-market solutions, but there are times when you need to intervene," said David Wyss at Standard & Poor's Corp. "We're already in the danger zone because of the outlook for oil supplies and concerns about climate change."

In Minnesota, the leading economists I've come to respect are logical, broad-minded people who see all sides of the great debate and have come around to a middle way and who value both free markets and public investments in our communities.

Our own official state economist, Tom Stinson, has spoken frequently and respectfully about how investments in public education, as well as private-sector investment in research and innovation, have made the big difference in our economic performance over many decades.

Art Rolnick, vice-president of the Federal Reserve, has become a tireless advocate for more public investment in early childhood education, a principle that Growth & Justice enthusiastically supports as part of a larger "Smart Investment" strategy, all along the birth to adulthood continuum, to increase our higher-education attainment rate.

Another voice of economic reason is Ed Lotterman, a St. Paul-based economist who writes frequently for the Pioneer Press and other national newspapers. He recently wrote: "Blanket no-new-taxes pledges reflect an inane political fetish that has harmed our nation's economy for 20 years. The economic problems we face right now are not some random event. Nor are they due solely to years of monetary laxness by the Federal Reserve." Lotterman dismissed "the belief, unsupported by any reputable economic theory, that low taxes somehow trump all other policy considerations."

Dane Smith is the president of Growth & Justice, a non-partisan advocate for fair taxation and smart public investment.

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