Tags: Taylor | Ryan | budget | economy

Stanford’s Taylor, Cogan: Ryan’s Budget Would Be Boon for the Economy

By Dan Weil   |   Wednesday, 20 Mar 2013 08:46 AM

The House Republican budget, devised by Budget Committee Chairman Paul Ryan, R-Wisc., would prove to be a boon for the economy, freeing money for the private sector that otherwise would have gone to the government, say Stanford University professors John Taylor and John Cogan.

“The entire plan would raise gross domestic product by 1 percentage point in 2014, equivalent to about a $1,500 increase for each U.S. household,” they write in The Wall Street Journal.

“Ten years from now, at the end of the official budget horizon, we estimate that the entire plan would raise GDP by 3 percentage points, or more than $4,000 for each U.S. household.”

Editor's Note:
Economist Warns: 50% Unemployment, 100% Inflation Possible

Those calculations are based on a model “whose features include a recognition that the resources to finance government expenditures aren't free,” the professors says. “They withdraw resources from the private economy.”

Curbing government spending would lift the economy right away, Taylor and Cogan maintain. That’s because:

• “The lower level of future government spending avoids the necessity of sharply raising taxes.”

• “The expectation that tax rates won't need to rise provides incentives for higher investment and employment today.”

• “Since the expectation of lower future taxes has the effect of raising people's estimation of future disposable income, consumption increases today.”

• “The new budget's reduction in the growth of government spending is gradual.”

Surprisingly, the Ryan budget received an attack from Rep. Paul Broun, R-Ga., a member of the Tea Party caucus in Congress.

“It fails to seriously address runaway government spending, the most pressing problem facing our nation,” Broun writes in an op-ed piece for The New York Times.

“I cannot vote for something that would trick the American people into thinking that Congress is fixing Washington’s spending problem, when in actuality we’d just be allowing it to continue without end.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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