April 17, 2011

In Wake of Budget Fight, Professors Disagree Over Deficit Solutions

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In the wake of a budget dispute that nearly caused a government shutdown, as well as the budget Congress subsequently passed on Thursday, Cornell professors discussed recent budget proposals and approaches to addressing the national deficit.

“While federal deficits must, of course, be reined in down the road, the current economic recovery remains much too fragile, and productive capacity much too idle, for talk about large spending cuts to make sense,” Prof. Robert Hockett, law, said.

But Prof. Raymond Geddes, policy analysis and management, said he believed the way out of America’s current economic troubles is through cutting spending — not raising taxes. He said he rejects the notion of the “Keynesian Multiplier,”  an economic theory that the government gains greater economic stimulus growth than it spends.

“For every dollar of revenue you raise in taxes, you destroy about 33 cents of its economic value as a result of raising that money through our current tax system. The system could be reformed, making it more efficient, but we’re talking about the current system,” Geddes said.

Unlike Geddes, Prof. Theodore Lowi, government, said the biggest issue in the national tax structure is Bush-era tax cuts for the wealthiest Americans.

“All the money gained from income tax relief doesn’t go to expand the economy, it goes to the bank,” Lowi said. “They buy themselves immortality by giving money to Cornell and other places to put their names on a building.”

Lowi said the actions of the Republicans in Congress indicate they do not take history or class politics into consideration. He foresees tax cuts extending beyond economic implications, calling them an “invitation for class hatred.”

“[Republicans] create terms that Fox News gives them and talk about how Democrats deal in class struggle, when in fact they have no sense of what they’ve done,” Lowi said.

Geddes, however, said it is a “ridiculous political trick” to think the government will solve all economic problems by taxing the rich.

“[The wealthiest Americans] are people who are highly educated and hard working, so that is basically a tax on education and hard work, and those are the wrong things to be taxing,” Geddes said.

Prof. Richard Bensel, government, described a way to approach the other half of the economic problem: spending.

“The basic problem is the more people select items in the budget to be a sacred cow that can’t be eaten, the more difficult it is to address the deficit problem,” Bensel said.

Hockett echoed Bensel’s sentiments.

“If politicians judge that spending must nevertheless be trimmed sooner rather than later … they should look to the continued drain on American wealth in Afghanistan and Iraq,” Hockett said.

Prof. Mildred Sanders, government, discussed the the details of Sen. Paul Ryan’s proposal, a budget proposal often contrasted with Obama’s budget plans.

“What’s bad about the Ryan budget is that he not only doesn’t tackle that military side of the budget — which is almost half of all discretionary spending — he projects an increase of 16 percent in military budget. When you combine his military increases with his big tax cuts, his budget doesn’t decrease the deficit at all,” Sanders said.

On the other hand, Bensel praised Ryan’s proposal for addressing entitlement programs.

Bensel said that if the government were not going to raise taxes to pay for Medicare and Social Security, then the alternative would be to restrict eligibility to these programs.

Looking beyond the United States, Bensel expressed concern about the effects of the American budget deficit on its foreign policy.

“We are placing hundreds of billions in U.S. debt in someone’s hands — for a long time it’s been the Chinese, but it’s going to have to be someone. As they hold that money, their attitudes, specifically market attitudes toward the viability of the U.S., will change,” Bensel said.

Bensel cited Greece and Ireland as examples of countries whose national reputations suffered after economic instability.

“It’s not only that they get into economic difficulties, but they go down the tubes. Their national prestige, their ability to act in the national arena — all those things deteriorate rapidly,” he said.

Original Author: Christa Nianiatus