Tags: Barack Obama | Economic- Crisis | Cato | Mitchell | tax | holiday | Obama

Cato Economist Mitchell: Tax Holiday Won't Provide Miraculous Economic Fix

Sunday, 11 Dec 2011 02:38 PM

By Paul Scicchitano and John Bachman

Even if President Barack Obama is successful in winning support for an extension of the so-called payroll tax holiday, it won’t provide a miraculous fix for the nation’s financial problems, economic expert Daniel Mitchell tells Newsmax.

“Don’t expect it to have any big, magical effects on the economy just like it didn’t really have a big effect last year,” Mitchell, a senior fellow and policy expert with the Cato Institute, said during an exclusive Newsmax.TV interview.

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Temporary fixes don’t produce long-term economic benefits despite claims by some experts that the payroll tax cut will boost economic growth by as much as 1.5 percentage points, said Mitchell, an expert on tax reform and supply-side economics who believes the payroll tax holiday ultimately will be extended.

“Because it is just a holiday, it’s a temporary tax cut,” he said. “Unless you tend to believe in the fairy tale of Keynesian economics, temporary tax cuts don’t help the economy in any significant way because businesses, entrepreneurs, investors, workers don’t make long-term decisions on the basis of temporary tax gimmicks.”

Without congressional action by Dec. 31, the payroll tax that workers pay will revert to 6.2 percent, up from the temporary 4.2 percent tax.

Mitchell warned that the country is at risk of losing confidence among financial investors until the United States approves a fiscally conservative budget, which he does not envision.

“Every year we delay is every year we get closer to our own Italian-, Spanish-, Portuguese-, Greek-moment where all of the sudden, investors decide we just don’t trust the U.S. government anymore so we’re not going to lend them money,” Mitchell insisted. “Do I think we’re going to get back to the right kind of policy in the next couple of years? I worry.”

Fiscal conservatives have not embraced the candidacy of former Massachusetts Gov. Mitt Romney largely on the basis of his message, Mitchell told Newsmax.

“I think it’s because Romney doesn’t give them a message that he genuinely wants to shrink government,” Mitchell said. “This could be completely unfair but he comes across as a technocratic manager. He wants to become president just so he can become president. They want a Republican who actually will be more like Reagan and not in that sort of Nixon/Bush big government Republican mold.”

Romney’s record as governor also is not one of fiscal conservatism. “Now if I was a Romney partisan, I would say he was dealing with an overwhelmingly Democratic state and an overwhelmingly Democratic state legislature and he did the best he could,” Mitchell said.

Although former House Speaker Newt Gingrich has endorsed various government expansions during his long political career, he has demonstrated a proven track record as a fiscal conservative, he said.

“Newt Gingrich had the 1994 period, the ‘Contract with America’ and ,for several years after that, government spending was fairly tightly constrained, which ultimately led to balanced budgets,” Mitchell said. “And we did get tax cuts in 1997 so unquestionably there was a good period during that time.”

Even so, Mitchell said, he would not be surprised to see a last-minute candidate enter the race.

“There does seem to be a lot of hunger among the average, small-government oriented Republican primary voter,” he said. “They flirted with Bachmann. They flirted with Perry. They flirted with Cain. Now they are flirting with Gingrich. None of them have really warmed up to Romney.”

To succeed, such a candidate would have to embrace the principles of fiscal conservatism embodied in the budget plan put forth by Wisconsin Rep. Paul Ryan, who chairs the House Budget Committee, Mitchell said. That plan would cut $6 trillion over 10 years with major overhauls of Medicare and Medicaid.

“Maybe that means I’m a Ryan partisan, but certainly [Florida Sen. Marco] Rubio has embraced those reforms,” said Mitchell, noting that New Jersey Gov. Chris Christie also would fit the bill.

Rubio has said he isn’t interested in a presidential run, and Christie considered running for the GOP nomination but recently announced he would not run.

“We desperately need those reforms to save America from becoming like Greece,” Mitchell said.

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