The well-to-do appear unusually sensitive to changes in their finances, probably because their nest eggs are significantly smaller with the drop in stock and housing prices. Only the top 3 percent of households would have to pay higher taxes if the president got his way, but this rarefied group currently accounts for a fourth of consumer spending. If they pull back, even a bit, the recovery could be derailed.
Successful small-business owners, who power the nation’s job-creation machinery, make up one-third of these high-income taxpayers. They have set up their businesses so that their profits are taxed at personal rates. Raising marginal tax rates, even a little, on those who have suffered during the past several years would be a mistake.
Zandi is no free-market conservative. In fact, he's open to the long-discredited idea of spurring economic growth by exploding government spending. But Zandi says this economic slowdown is like few others.
What does Keynesian Zandi prescribe?
Past experience with fiscal austerity at home and overseas strongly suggests that it is best for the economy’s long-run performance to restrain government spending rather than raise taxes, but taxes must also be part of our national debate.
In this recession, the government has necessarily made a string of momentous economic policy decisions. Some have worked well; others have been a disaster. We can’t afford any more mistakes.