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Not which candidate spends the money, but what the money is for

BY DI EDITORIAL BOARD | OCTOBER 15, 2012 6:30 AM

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As Election Day looms ever nearer and Iowans are pushed hard to rush to the polls and vote early, we face a stark choice between two tax proposals offered by President Obama and opponent Mitt Romney.

The candidates are begging Americans to decide if the private sector should spend money as it pleases rather than paying taxes or if the government should increase taxes.

However, what really matters is not who spends the money but rather, how that money is spent.

Beth Ingram, a University of Iowa professor of economics, said economists may disagree on what the answer is, but they agree on that question.

“For example, in scenario one, let’s say the government uses revenue to build a school,” Ingram said. “In scenario two, they let people keep their tax money and [those people] then spend it on going out to dinner — which scenario better encourages economic growth?”

Though voters hear arguments that either the wealthy should pay their share or that private individuals should be able to spend their money as they please, what politicians really need to tell us is how exactly this money could be spent.

Over the next four years, the United States needs to see a fiscal policy that spends money on those things that promote economic growth; like education and infrastructure.

The tax cuts proposed by the Republican candidate would cut taxes for each income-tax bracket by 20 percent.  

For example, the current tax rate for someone in a low income-tax bracket would decrease from 10 percent to 8 percent under the Romney plan.

That 2 percentage point difference may help some low-income families, but the cuts would far more significant for those in the highest income-tax bracket. For that group, the proposed cut would decrease tax rates from 35 percent to 28 percent, according to the American Enterprise Institute.

What Americans must now ask themselves is whether or not they think that money would be more likely spent on donating to public schools and roads, or not.

History suggests not.

These policies are very similar to policies popular during the Bush administration. During that time, the wealthiest 10 percent accounted for a full 100 percent of income growth while 90 percent of the United States actually had their income decrease on average, according to the Economic Policy Institute.

Economic inequality, however, is not a direct result of conservative tax policies but indeed, correlates with those policies. Another major factor contributing to the economic inequality in the United States is a lack of education and an abundance of low-skilled workers.

Americans must consider a tax policy that will promote economic growth by promoting greater strength in education and infrastructure. Since both of those things are largely funded by the public, the solutions offered by the Obama administration are much more likely to fulfill those ends.

These policies heavily focus on education and infrastructure. The policies also maintain current tax levels for many people, but these tax policies would increase taxes on high-income Americans to the levels that were in place prior to the Bush era cuts.

If voters want a tax policy that will strengthen the economy, then voters must stop wondering who should spend money and start asking how money will be spent.

The best spending would be on such items as schools and roads, not diamonds and caviar.


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