Sunday, June 9, 2013

San Francisco Fed: Tax increases account for 90% of excess "fiscal drag"

There has been all sorts of argument over whether reductions in federal spending hurt the economy more or less than increases in taxes. Well, the Federal Reserve Bank of San Francisco has looked at the question and proposed a conclusion:

Surprisingly, despite all the attention federal spending cuts and sequestration have received, our calculations suggest they are not the main contributors to this projected drag. The excess fiscal drag on the horizon comes almost entirely from rising taxes. Specifically, we calculate that nine-tenths of that projected 1 percentage point excess fiscal drag comes from tax revenue rising faster than normal as a share of the economy.
We note with exactly no surprise that the mainstream media has yet to write a story that picks up this very interesting albeit anti-narrative report from the San Francisco Fed.

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