Krugman: Temporary Tax Cuts For The Rich? No.

[Kurt_and_Hunter]

September 17, 2010, 3:11 pm
Temporary Tax Cuts For The Rich? No.
Paul Krugman


Greg Sargent notes the growing number of Republicans suggesting a “compromise” in the form of temporary extension of high-end tax breaks, and urges Democrats not to take the bait. His argument is essentially political: Republicans are obviously aware that they’re in a fix, and Democrats shouldn’t help them out.

But there are reasons beyond partisan maneuvering to reject any deal here.

First, temporary tax breaks for the rich are stunningly bad economic policy. As I tried to explain, basic economic theory — Milton Friedman’s theory! — tells us that affluent taxpayers are likely to save the great bulk of a transitory tax break. And bear in mind that while a 2-year extension wouldn’t increase debt as much as a permanent extension, it would still be much more expensive than measures like aid to the unemployed and to small businesses that would do far more for the economy, yet spent months held up in Congress because of alleged concerns about the deficit.

Second, this is obviously — obviously — a setup. The whole point is to avoid a vote on the middle-class tax cuts while Democrats control the House; when and if Republicans regain control, they can refuse to let anything but a full extension reach the floor. So the goal is actually permanent extension; what they’re offering isn’t a compromise, it’s a trap.

So just say no.

http://krugman.blogs.nytimes.com/2010/09/17/temporary-tax-cuts-for-the-rich-no/

http://voices.washingtonpost.com/plum-line/2010/09/post.html

[spanone]

1. this whole tax cut is 'temporary'. the same shit would happen after this new 'temporary' period

end them N O W

[dkf]

2. Why is he pretending that this has the same impact as lowering taxes when it keeps the status quo?

It makes sense to me that a tax decrease for a year may not do much, but isn't it changing long term tax rates that creates changes in behavior? This will just change behavior in the middle of a recession and that doesn't seem like a good idea to me.

Is the new Keynesian economics that you can raise taxes in a recession if you do it just to the top end?

[Kurt_and_Hunter]

3. Reviewing the question from a Keynesian perspective...

The answer to your question is it depends what we do with the revenue gained by letting the cut expire

The lower (current) tax rate for the well-to-do has a small stimulative effect. It is equivalent to something like 10 billion more in food-stamps or 15 billion more in unemployment benefits at a cost of $70 billion in revenue hit.

That is a terrible dollar-for-dollar use of the federal deficit... $70 billion to achieve the stimulative effect of 10-15 billion.

If the tax cut over $250K was allowed to expire and all extra revenue gained thereby was applied to the deficit it would have the economic effect of cutting food-stamps or unemployment benefits by 10-15 billion.

So that would be bad policy, at this time.

If, however, the tax cut over $250K was allowed to expire and all extra revenue gained thereby was applied to more effective stimulus it would have the economic effect of increasing food-stamps or unemployment benefits or infrastructure spending or jobs programs by 70 billion.

In the abstract, raising taxes in a recession is a terrible idea. In the specific, however, allowing this particular rate to go up is correct, provide the money is NOT used to reduce the deficit.

[dkf]

7. Exactly what I was thinking. It needs to be compensated for in order to not have an adverse effect.

But I see no proposals to do this so it seems anti stimulative and does not make sense to me.

I understand a "tax the rich" sentiment on a visceral level, but unless it is part of a larger package that actually puts these funds to use I cannot think this will impact jobs in a positive way.

[girl gone mad]

8. Is that what they're planning, though?

It seems they are still wrongheadedly committed to deficit reduction, so the tax increase won't be used to stimulate the economy, it will simply be money destroyed. A bad move right in the middle of our debt deflation spiral.

[dkf]

9. So what is Krugman up to?

Shouldn't this be elementary for him?

[Kurt_and_Hunter]

10. He assumes it likely that it will not be used for deficit reduction, but will

at worst be used to "pay for" other spending and almost any government spending is more efficient stimulus than the cuts.

[Toots]

5. It isn't new at all and in fact it is exactly what Clinton did

After all the Republicans and some people like you said "You can't raise taxes in a recession"....Every single Republican said that and in fact voted lock-step against it..It passed and America went on to experience the "Greatest Economic Expansion in History">>>

[Hannah Bell]

6. fdr did it.

[Toots]

4. Vote for the Tax cuts...add to the Deficit/Debt.....Blame Obama/Democrats

Too basic I guess...