Tuesday, January 8, 2008

Krugman: Bush policies never change but the arguments do!

Yesterday I wrote that President Bush proposes the same medicine, upper income tax cuts, for any economic illness.

When we had a projected $5.2 trillion surplus, he proposed upper income tax cuts because the federal government didn't need all that money.

When the 2001 recession began, President Bush said upper income tax cuts (phased in over nine years to conceal their long term cost) was the solution.

When gas prices began to rise in May, 2001, he again said the answer was upper income tax cuts.

Now that the economy is sliding into a recession, he is again arguing that we need to make his high income tax cuts permanent.

No matter what the problem, upper income tax cuts are the only solution.

Paul Krugman makes the same point in his recent column :

"You see, for 30 years American politics has been dominated by a political movement practicing Robin-Hood-in-reverse, giving unto those that hath while taking from those who don’t. And one secret of that long domination has been a remarkable flexibility in economic debate. The policies never change — but the arguments for these policies turn on a dime.

The entire column is worth reading.






2 comments:

John P said...

Why do you always quote Paul Krugman? He just a liberal progressive economist. I could quote economists that are conservative that would contradict what Krugman says. I would be more impressed if you quoted from non-partisian economists about tax cuts and the state of the economy.

Do you think letting President Bush's tax cuts expire for people over $250,000 is enough? or should taxes be raised more? and if so, what should the tax brackets be?

Michael Rosen said...

John,

You have asked several questions over the past few weeks which I will answer as time permits.

Krugman is not simply a "liberal progressive" economist although there is nothing wrong with that.

He is one of the nation's most respected economists, the winner in 1991 of the prestigious John Bates Clark medal awarded biennially to that American economist under the age of forty who is adjudged to have made the most significant contribution to economic thought and knowledge. Award winners include conservatives like Milton Friedman and Martin S. Feldstein and liberals like Krugman and Joseph E. Stiglitz.

Until very recently Krugman was not considered a progressive. He was a strong supporter, for example, of free trade and free trade agreements. But he, unlike many economists who live in the world of abstract economic theory, actually measures economic theories against reality. If the theory fails the reality test, Krugman has demonstrated the capacity to challenge conventional wisdom. I believe that is an admirable trait.

I would support rolling back the tax cuts on incomes over $250,000 and restoring the rates that were in effect during the 1990s, 36%, a 39.6% and a millionaire surcharge.

I would also close the loophole that allows hedge fund and private equity managers to pay lower (unearned income) tax rates than those who work for a living and I would not eliminate the estate tax, which currently exempts estates under $2 million ($4 million for a couple) and only effects 1% of all estates.

Finally, I would roll back the capital gains and dividend tax cuts. There is no reason that investors should pay a lower tax rate than those who work for a living.

Supply side economic theory argues that cutting estate, capital gains, dividend and high marginal tax rates stimulates people to work harder, leading to investment, growth and job creation. But that has not been the case.

Even before the economy began to weaken in recent months, post Bush tax cut, net job growth had been disappointing. Job creation was actually 25 percent higher in the late ’90s than in early 2007.

Experience and reality should guide economic policy.