Economics Professors Debate Fiscal Cliff

By Neil Gonzales

Menlo College Economics Professors Debate Fiscal Cliff

Professor Derek Stimel (left) and professor Craig Medlen discuss fiscal cliff during the Annual Menlo College SBA Day.

December 4, 2012

With the nation literally on edge over the so-called fiscal cliff, two economics professors at Menlo College offered ways to head off a steep financial fall. In a spirited debate on campus recently, professor Craig Medlen advocated raising taxes for corporations while his colleague Derek Stimel called for creating jobs and staying competitive in the global marketplace.

Their debate mirrored the ongoing prickly battle between Democrats and Republicans in the federal government over how to avoid the fiscal cliff, or the potential consequences of mandated tax increases and spending cuts that are slated to kick in next year. Those budget slashes and tax hikes in the form of expiring Bush-era tax breaks would amount to an economic hit of an estimated $700 billion and could send the nation into another recession following the one in 2008.

Democrats want the tax relief extended for all but the wealthiest Americans. Republicans, however, are not willing to raise taxes on the wealthy to generate additional government revenue but are pushing for comprehensive tax reform.

In Medlen’s estimation, the government should look at the wealthy and corporations because they have not been putting in their fair share. “The rich indeed do pay taxes,” Medlen said, but over the decades, the very wealthy have accumulated “a lot more than ever” while the level of taxes that they pay has fallen.

The idea that corporations don’t have money in today’s tough business climate is “a bunch of bologna,” Medlen said. In the mid-1950s, he explained, corporations paid roughly 45 percent of their profits in taxes whereas now it’s less than 30 percent. So the country should bump the tax rate for corporations – which would generate more than $400 billion of additional revenue, he argued.

Stimel agreed that reforming the tax code needs to be looked at, but he described Medlen’s whole approach to the country’s economic struggles as unrealistic and blind to the rise of global competition. In the 1950s, Stimel said, the U.S. represented 50 percent of the world’s gross domestic product. “But today, we are less than a monopoly responsible for only 25 percent of the world GDP,” he said. “We face more competition. Our market power has gone down.”

The U.S. will not be able to remain competitive if it continues to do the “inefficient things we’ve done for decades,” Stimel said. “We dug ourselves in a giant, giant hole. We have to claw ourselves out.” Clawing out means ensuring strong job growth “so you have more taxpayers,” he explained. Stimel recommended that the government should also foster a business environment that keeps companies in the U.S.

The professors’ discussion was part of Menlo’s annual School of Business Administration Day, which featured other sessions on topics such as post-election realities for investors and building leadership skills.