Summers’ Tax Rate Comments A Substantial Revelation

J.D. Foster / November 02, 2009

Lawrence Summers, the Director of the White House National Economic Commission recently committed an unpardonable sin – he revealed two unpleasant truths in a single sentence. Summers said, “I don’t find there to be much evidence that suggests that raising the top marginal rates from 35 to 39 percent that will be implicit in the repeal of the Bush tax rates will do substantial damage to the incentives in the economy”. [emphasis added]

The modifier “substantial” is the key to the first Summersian truth. Will raising the tax rates cause another recession? No. But as Summers indicates with his carefully chosen modifier, raising rates will weaken incentives in the economy. It will prolong the period of economic weakness, just as occurred when President Clinton raised the rates the first time. The debate is only about the extent of the damage, and of course the extent would be greater than Summers admits. (more…)