Thursday, November 15, 2012

PIMCO CEO: Obama should and will tax the rich

Mohamed El-Erian, CEO of investment firm PIMCO, makes a strong argument in favor of taxing the rich. Writing for Fortune Magazine, El-Erian is certain the administration's demands will prevail and Republicans will have no other alternative.

As he explains it:

"Higher tax rates for top earners are one of the many fiscal measures that would automatically go into effect in the New Year. The projected economic impact of this fiscal cliff is a direct fiscal contraction of some 4% of GDP. There would also be negative economic and financial multiplier effects as well as inefficiencies arising from the rather blunt composition of the fiscal measures."

El-Arian believes President Obama's re-election is an implicit indication of the voter's support for taxing the wealthy:

"Politically, the President just won a decisive election in which income distribution was a key issue, including the persistent relative decline in the wellbeing of middle- and low-income Americans. His national victory was supported by states such as California where, collectively, citizens directly voted for higher taxes on the rich in order to better fund education."

He adds that while Republicans may understand the administration's position, they refuse to budge. The fear is that those affected by tax hikes may be discouraged to invest in the economy's future growth. But as El-Arian sees it, when choosing between two evils, it's best to stick with the more fiscally rational one.

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