The economic evidence doesn’t support the anti-tax view. Both tax increases and spending cuts will tend to slow the recovery in the near term, but spending cuts will likely slow it more. Over the longer term, sensible tax increases will probably do less damage to economic growth and productivity than cuts in government investment.
Tax increases and spending cuts hurt the economy in the short run by reducing demand. Increase taxes, and Americans would have less money to spend. Reduce spending, and less government money would be pumped into the economy.
Professional forecasters estimate that a tax increase equivalent to 1 percent of the nation’s economic output usually reduces gross domestic product by about 1 percent after 18 months. A spending cut of that size, by contrast, reduces G.D.P. by about 1.5 percent — substantially more.
Some in Washington and in the news media have seized on a study I conducted with David Romer, my husband and colleague, that they say shows tax increases having a bigger short-term effect on the economy than spending cuts.
They are mistaken.
