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The U.S. economy stands a good chance of facing legislated tax increases and spending cuts if President Barack Obama is re-elected next month, Glenn Hubbard, a senior economic adviser to Mitt Romney, said today.
“There is a good chance, if the president wins, we go over the cliff,” said Hubbard, who serves as dean of Columbia Business School.
The so-called fiscal cliff in the U.S. includes $607 billion of tax increases and federal spending cuts set to kick in automatically at the end of the year unless Congress acts. Romney has called for reducing income tax rates by 20 percent, capping individual tax deductions at $17,000 and eliminating the estate tax and the alternative minimum tax.
Hubbard spoke at the Economist magazine’s Buttonwood Gathering in New York. He said that the current tax system does not support the size of government, especially at the rate the economy is growing.
“The fundamental choice about government is how big it is,” Hubbard said. “If we actually wanted the government the president has proposed, you would have to raise taxes to pay for it. The president has government 23 to 24 percent of GDP and rising, there’s no way you could pay for that with the tax system that we have.”
Gross domestic product grew at a 1.3 percent pace from April through June after a 2 percent rate in the first quarter. Economists predict the world’s largest economy will expand at a 1.8 percent rate in the third quarter and 1.9 percent in the fourth, according to the median of 82 estimates in a Bloomberg survey conducted Oct. 5-10.
Hubbard also defended Romney’s plans to overhaul entitlement programs, including Social Security and Medicare. He called Romney’s proposal to increase the retirement age and slowly reduce benefits on upper-income people as “progressive.”
“I don’t recall another major party candidate for the presidency ever to have been that specific,” he said. While the country “can afford a strong safety net” it can’t afford a “large welfare state for everyone,” he said.
Romney has said he would give future retirees the option of purchasing private health insurance using government vouchers to help pay for it.
Later during the conference, Martin Feldstein, an economics professor at Harvard University in Cambridge, Massachusetts, and Nobel Prize-winning economist Joseph Stiglitz discussed inequality in the U.S. Both economists called for changes to the education system to create a fair society.
“We are becoming more geographically segregated, socioeconomically,” said Stiglitz, a professor at Columbia University in New York. “Our communities are becoming much more homogeneous than they used to, and that’s spilling over into the nature of the educational opportunities. So there are things going on in our society that are having these adverse effects, but it’s not just the failed schools.”
Feldstein said teachers need to better prepare students with skills to help them get a job.
“For a lot of these kids, it would be much more useful at some point to say ‘You’re going to need to have a job and here are some of the kinds of skills that you would need to do that,’ ” said Feldstein. “But of course that’s not what teachers want to teach. They’re brought up to teach English literature, and so they’re going to teach English literature. But that’s not where the jobs are.”
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