A University of Wisconsin economics professor played “If I were a dictator” Wednesday evening, presenting his take on the impending “fiscal cliff,” ultimately examining the unique economic opportunities such a national crisis could present.
John Karl Scholz, who previously served as an economic advisor and tax analyst under President George Bush Sr. and President Bill Clinton, respectively, lectured on his ideal economic agenda last night in an event hosted by the Bipartisan Issues Group.
BIG President Alex Holland, who introduced Scholz, said the widely publicized fiscal cliff issue embodies an issue that can only be solved through bipartisan work.
“It is surely an example of how we need bipartisan support for issues,” Holland said. “There is no way we can have increased revenues at the same time [that] we have cuts to spending. It has to be a bipartisan effort.”
Scholz said the term “fiscal cliff” was a bit of a misnomer, as the end of the Bush tax cuts at the end of the year would not have an immediate impact on the economy. He acknowledged, however, that the “current political system is not equipped for the long term problems” associated with such an economic shift.
The cliff, he said, is a “simple” fiscal imbalance, in that the country is spending more than it takes through taxes.
“Even when we are growing at a normal rate of GDP growth, we are spending more than we are taking in with taxes,” Scholz said.
Scholz questioned why lawmakers are “so reluctant” to raise taxes, emphasizing that, when compared to the world, the taxes this country takes in are “phenomenally low.”
Despite noting the fiscal cliff could result in another recession, Scholz said he is optimistic and “bullish” about the next four years, seeing the opportunities that could arise from this economic turning point.
According to Scholz, “driving over the cliff” is unlike anything he has experienced in his lifetime.
“The fiscal cliff gives an unusual opportunity to reform taxes and alter patterns of spending,” Scholz said. “Part of the solution to the fiscal deficit problem is to raise taxes.”
Scholz, who proceeded to share what he called “a lot better ideas that are completely politically infeasible,” spoke to the “holy grail” of taxes, which would broaden the tax base while lowering rates.
The dream tax reform agenda, according to Scholz, includes reforms to taxes on capital gains, health insurance, mortgage interest, retirement savings and charitable contributions.
Although Scholz admitted his “dream” reforms would receive critique from mainly Republicans as well as some Democrats, he said the tax raises would not hinder economic growth.
“The taxes at United States’ levels are very, very low on international standards,” Scholz said. “We are nowhere near the levels of taxes that one would consider being a major impediment to growth.”
Scholz, who said he believes his reform policies will never be seen in the real political economy, said taxes are “the art of plucking the goose with the least amount of squacking.”
Ultimately, Scholz said he remains optimistic about the fiscal cliff, as there are months remaining for policy makers to reach a compromise.