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Tuesday, Feb. 20
The Indiana Daily Student

Breakdown of District 9 candidates' economic policies with Professor Paul Graf

Indiana's 9th District

In an interview with the IDS, IU economics professor Paul Graf addressed each candidate’s economic policies in this fall’s election. He detailed the positives and negatives of each candidate’s economic platform and provided insight into their potential impacts.

BARON HILL, Democratic candidate for the U.S. House of Representatives District 9

Hill supports the Small Business Jobs Act of 2010 and publicly funded developments, which could offset each other based on the economic concept of “crowding out.” It is possible that employment by the government could reduce employment at a smaller institution, taking away revenue for those businesses.

GRAF  “On the simple surface of applying the basic economic model pertaining to crowding out, then this could be the potential. If this sort of policy takes away from the small businesses, then it crowds out.

The only way you could prove or disprove that is to look at similar legislation and its effects as measured by economists or elsewhere. But the potential is definitely there. The theory says that.

On the surface, without understanding basic economics or the basic fiscal policy of economics and the potential offsets, this sounds like a wonderful plan. The response to the incentives or the response by business to this new player of government coming into play — that’s what people fail to recognize.”

TODD YOUNG, Republican candidate for the U.S. House of Representatives District 9

Young supports cuts in government spending, reducing borrowing from foreign countries and cutting current tax rates. He claims such policy will reduce government debt. However, a quick change in policy could drastically alter the economy and produce a crippling shock on all fronts.

GRAF  “It’s like a big pendulum that swings. On the one hand, you want the government to be in the marketplace. You want the government — it is necessary. So a lot of times, we slide toward a little more government, and a little more government, and a little more government in the case of stimulus or jobs packages.

I think the feel today is that the pendulum has swung too far for people. So now you bring in a candidate like a Todd Young who says, ‘Okay, we’re going to go all the way back.’ And now the pendulum swings, and now it might be going too far the other way, towards all free markets, minimal government.

Most people, I think, somewhere fall in between the middle of the pendulum, if you will. They want government. They see it’s necessary. They just don’t know how much.
He is correct in that, if we get our deficit down, then we don’t necessarily have to borrow from others. But, again, that is such a wide swing. The path that we’ve been on, to completely cut cold turkey like that, is just too much of a shock to the economy.”

GREG KNOTT, Libertarian candidate for the U.S. House of Representatives District 9

Knott supports legislation known as FairTax. FairTax is a national sales tax that would replace the current tax system in the U.S., which is based on a national income tax. He argues FairTax would relieve the lower-class tax burden and enhance economic growth.

GRAF  “It’s extreme because you go from an income-based tax to a consumption tax.
So if I’m worried about paying taxes, I change my consumption behavior.

There is some good economic appeal to a consumption-based tax like a national sales tax because putting a tax on my spending habits may encourage me to save, and saving is another method of long-term economic growth. One of the knocks on the United States is that we don’t save enough.

The danger, once again, in doing what appears to be a very simplified solution — going from a progressive-based tax system, or federal income tax, to a consumption-based tax — is the implementation.

I think the easiest way to do it is to just make a national sales tax — literally. There, it’s easy to implement. People understand it. They can see it. They can make decisions based on it. It’s very straightforward.

If you start trying to bring a level of fairness into it ... you’re bringing that level of complexity you had with the income tax, and I would question that.”

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