Income Tax Policy and Economic Growth: A lecture by Andrew A. Samwick

By CHLOE FLEISCHER

Dartmouth Professor Dr. Andrew A. Samwick predicted a looming economic recession and proposed a four-pronged plan to correct our fiscal and tax policies in a lecture on Sept. 26th. Samwick also explained the decisions contributing to this current economic state to a packed conference room in the Robert A. Jones house,

As evidence of the coming economic downturn, Samwick pointed to the perpetual gap we have between costs and revenues as well as the lasting deficit of 4-5% coming in future years.

“We’ve never had a year where deficits are so low and so are unemployment rates,” Samwick said. “Projections are showing that our economy is headed even further in that direction with no signs of getting better, indicating that a recession is probably coming. In sum, we’re not collecting enough revenues to cover our expenditures.”

Samwick analyzed the flaws in three different plans to adjust economic activity and proposed a plan that he suggests could work. This plan is built on four planks.

First, Samwick suggested balancing the budget. He emphasized that the non-entitlement part of our budget should be in balance and that the ratio of debt to GDP should show no large drift over time.

Next, Samwick suggested entitlement solvency. He stated that long term entitlements should be projected to be sustainable in solvency. Samwick suggested that social security would be rather easy to change as it’s simply moving money around, but medicare involves more care since the program itself is built around care rather than simple money moving. As evidence to support his claim for entitlement solvency, Samwick argued that the baby boomer generation cannot be the only problem that has lead us to where we are, seeing as the problem will still exist longer term beyond the scope of impact of the baby boom generation.

In his third plank, Samwick called for capital budgeting to address the long term infrastructure needs of both remediation and building for the future. He said that our government would be far more productive with a prioritized list of projects rather than a full budget. With a list of projects including everything from small to large projects, every project will be ready for work when the next economic downturn hits.

Finally, Samwick suggested re-examining the tax composition. He said that corporate and personal income taxes have the most negative consequences for growth while consumption and property taxes are less harmful. According to Samwick, this suggests that a shift in 1 percent from corporation and personal income taxes to consumption and property taxes estimates around .25-1 percent growth of GDP per capita long term.

Samwick ended his lecture on a hopeful note that our generation will make positive changes to economic policy in the year to come.

The talk was attended by three economics classes as well as many people from the town.

Following the lecture, the organizing Professor Phani Wunnava hosted a dinner in honor of Dr. Samwick. Professor Wunnava stated that “Dr. Samwick was very engaging!”

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