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Quotations du Jour

Today's quotes of the day are from Paul Krugman, and provided to us by James Taranto.  From Krugman's Economics:

"There's obviously a relationship between tax rates and revenue. That relationship is not, however, one-for-one. In general, doubling the excise tax rate on a good or service won't double the amount of revenue collected, because the tax increase will reduce the quantity of the good or service transacted. And the relationship between the level of the tax and the amount of revenue collected may not even be positive: in some cases raising the tax rate actually reduces the amount of revenue the government collects."

Contrast that with a recent Krugman column:

In Democrat-world, up is up and down is down. Raising taxes increases revenue. . . . But in Republican-world, down is up. The way to increase revenue is to cut taxes on corporations and the wealthy.

More evidence, as if any were necessary, that Krugman does not regard his column as an intellectually serious endeavor. His job as a columnist is to dish our red meat to the Lefty horde/ use his well deserves credentials in economics to suport his prefered policy presceiptions with whatever means he can find at hand.

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Discussions - 5 Comments

He may not regard his column as a serious endeavour, but he is speaking the truth in this particular instance. It has been a commonplace in Republican discourse for a generation that revenue collections are reduced by raising marginal income tax rates. The response was offered in 1985 by none other than Mr. Reagan's budget director, David Stockman: an inverse relation between rates and collections has a theoretical validity given rates above a certain threshhold, but it does not apply at any set of rates which have been in effect in the post-war period. You all need to stop drinking this Kool-Aid.

To be sure, there are some Republicans who take the position Krugman describes in his column, but most conservatives I know agree with the balanced statement he makes in his textbook. After all, the Laffer curve says roughly the same thing.

Dr. Laffer's signature contention was that the marginal rate for maximal revenue collection was lower than economists had previously guessed. Subsequent events strongly suggested he was wrong, which is to say that his posited effects did not apply when the maximal marginal rate was lowered from 70% to 50%. His suppositions are surely irrelevant in a world where the maximal rate is 35%.

Dr. Krugman's statement as quoted is not an observation exclusive to income taxes and could apply quite readily to excises on particular goods and services, most especially those which have ready substitutes.

It isn't me. I agree with Krugman here.

I don't think the top income tax rate needs to be raised, but the tax code has too many "loopholes" or more fairly exceptions that distinguish between long/short term capital gains income and regular income.

I think if you were to raise the capital gains tax rate, you would almost certainly get more revenue, and you would discourage certain "bad" decisions that only make good sense for tax purposes.

Also there isn't a contradiction in the first paragraph... "all" or a "strongly held" majority of economists, lawyers and most bureaucrats at the CBO agree that the relationship is less than 1 to 1. At the same time raising taxes increases revenue.

I would favor a raise in capital gains to around 28-30% with perhaps a raise in all income taxes rates across the board at a flat 2%.

Also get rid of the home morgage tax deduction, and instead let homeowners add this interest to basis, after all if you buy a $200k home with a 30 year mortgage you are going to pay around $500-600K. This is basis you should be able to have.

Also you could abolish the step up in basis, as this seems like unearned basis. When your property appreciates you should have to pay taxes on the difference between your basis and the sale or transfer FMV price.

That was my anti-deficit voice.

"The way to increase revenue is to cut taxes on corporations and the wealthy."

This is just a bad statement, but it has a pro-deficit truth to it, especially if you consider "revenue" for the federal government inconsequential. In this case cuting taxes on corporations and the wealthy increases the amount of revenue (income) that corporations and the wealthy get to keep.

Also keep in mind that all taxes destroy money. So lowering taxes and increasing spending will increase GDP. The Federal deficit must always equal net private savings. When the IRS gets your check, it destroys your credit and its debt.

So there is theoretically a point of uncontrolled deficit spending where the Laffer curve is true, and this bad statement is "true" again: "The way to increase revenue is to cut taxes on corporations and the wealthy."

If you grow the deficit big enough you can raise more revenue from the "rich" thru lower tax rates.

This is not an insight of any sort, but a pure accounting identity. If the federal government credited all american bank accounts with $500,000 it could cut tax rates and still raise more revenue.

So a main point working against the anti-deficit folk is that private savings denominated in dollars are equal to the federal deficit, and raising taxes always(and mechanically) destroys private savings as it lowers the federal deficit.

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