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Blinder's Blunder

In a recent editorial (WSJ 7/19/10), Professor Alan Blinder supported extended unemployment benefits funded by taxes on the “rich”, illustrating the dangerous course we are taking, one that will condemn the economy to far weaker growth than we have experienced in the past and have an adverse impact on innovation and entrepreneurship (incentives matter).

Microsoft could not be invented in the world envisioned by those on the left, incentives are blunted, unions ossify labor markets and make starting new firms more difficult.

As is too often the case, Congress is urged to ignore its own “paygo” rules.

So why have the rule?

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CNBC.com

Congress continues to invent new programs that “can’t be cut because people will be hurt”, leaving borrowing the only alternative, and when that fails, higher taxes. There is no end to the list of “needy” people who some feel are “entitled” to benefit from “redirecting money” from the successful. Taxing “success” always reduces growth.

Blinder argues that there is more “bang per buck” from taking money from the “rich” and giving it to the “poor.”

I am suspect of this assertion, one time gifts may stimulate today, but impairing capital accumulation and investment through confiscatory taxes reduces income growth forever.

Dr. Zandi’s estimate of “five times as much bang per buck” seems unreasonably high. These simulations, like “jobs created and saved” depend critically on assumptions fed into the models, and these are almost always politically driven. And taxing the rich never produces the bonanza that tax supporters hope for. Taking all of Bill Gate’s $50 billion wealthand giving it to the 30 million poorest Americans gives them a one time $1,660 bump, twice that to 15 million unemployed. Not much and no change in their behavior.

If a business owner gets more sales from Prof. Blinders program, why would that necessarily create more jobs if the owner only expects higher taxes on his or her efforts (coupled with more mandated regulatory costs and the extra costs likely associated with having more than 25 employees from the health care bill)?

What about fear and uncertainty from the stunning deficits, the promise of a VAT, discussions of a wealth tax, cap and trade etc.? These impact of uncertainty arising from these factors was not likely included in the model simulations.

I think it is the right thing to do to share the costs of the business cycle with those directly bearing them.

Surely the cost could have been funded by cutting elsewhere in the $3 trillion of government expenditures rather than increasing the deficit. The view in Washington that our earnings are theirs to do with as they see fit, leaving our after-regulation, after-tax income as a residual in the political equation eviscerates the concept of private property, a growing tragedy in our society.

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William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.