Raising taxes in a housing slump isn't the smartest policy

[travelinman]

Rubin's Tax Gambit
Raising taxes in a housing slump isn't the smartest policy.

Tuesday, November 14, 2006 12:01 a.m. EST

That was fast. A mere two days after Democrats capture Congress claiming they wouldn't raise taxes, former Treasury Secretary Robert Rubin tells them they should do so anyway.

"You cannot solve the nation's fiscal problems without increased revenues," declared Mr. Rubin, the Democratic Party's leading economic spokesman, in a speech last Thursday. He also took a crack at economic forecasting by noting that "I think if you were to increase taxes right now, you would have probably about zero negative effect on the economy." The economics and politics here are worth parsing.

We suppose it's reassuring that Mr. Rubin now thinks the economy is strong enough to withstand a tax increase. That's a switch from his opposition to the 2003 Bush tax cuts, which he predicted would bust the budget and do little for growth. The U.S. economy proceeded to grow by an average of nearly 4% a year for three years following mid-2003, until the recent slowdown due largely to the housing slump.

Everyone makes mistakes, but raising taxes amid a housing decline doesn't sound like brilliant policy to us. Depending on inflation signals in the coming weeks, the Federal Reserve may not be done raising interest rates. The best hope for avoiding a recession next year and into 2008 is that strong corporate profits and the tight job market will lift business investment and consumer spending enough to offset the impact of tighter monetary policy. The last thing the economy needs now is a tax increase, too.

source

[cincygreg]

Cant it at least wait until they ACTUALLY TAKE OFFICE!?!?!?!?!
SHEESH! [img]graemlins/sure.gif[/img]

The less you tax, the more money people will have to spend and keep the money flowing through the economy.
The more you tax, the less there is to spend and the more nervous people get about spending what they do have.

Simple economics.
No money going into the businesses that create the economic flow by keeping people working causes businesses to close or cut back and cost jobs therefore causing a slow down in economic growth.


Man goes to the store and buy a loaf of bread.
Store makes money
But so do...
The Maker of the bread, delivery person who brought the bread, people who made the packaging for the bread, the people who produced and delivered the ingrediants for the bread and so on.

One loaf of bread sliced up to feed many different people (so to speak)

<font color="#a62a2a" size="1">[ November 14, 2006 10:35 AM: Message edited by: cincygreg ]</font>

[reason]

Housing inventories are actually declining and the general consensus is that there are signs that the housing market is showing signs of stabilizing.

Even though sales of declined, keep in mind that the market was overheated to begin with and sales are about where they were 4 years ago.