Responding to Dr. Krugman’s column on tax cuts for the rich

In his column yesterday, Dr. Paul Krugman argues for raising the top marginal income tax rates on January 1. His polemic is useful because it encapsulates most of the Left’s arguments.

Language trick #1: “We” (the government) should not “give money to the rich.”

But these [Republicans] are eager to cut checks averaging $3 million each to the richest 120,000 people in the country. … And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. … How can this kind of giveaway be justified …?

In this view of the world, revenues belong to the government and are allocated by policymakers as gifts to those who need or deserve them. When you hear that “we cannot afford to cut taxes” and “we should not give tax cuts to ______,” you are hearing this philosophy.

Like a family or a business, the government does not “pay for,” “finance,” or “afford,” its revenue stream or changes to it. You pay for your spending or you finance your spending. If your revenues are insufficient to meet your spending, then in all other contexts we say you cannot afford the amount you’re spending. The same should be true for the government.

Money doesn’t just magically appear in the government coffers. A private citizen or firm earns income and the government takes a portion of that income. The money initially belongs to he or she who earned it. Using “we” to refer to the government suggests the funds being spent by the government belong to the government. This matters because if the money belongs to the government, then elected officials should apply their moral principles to figure out who needs or deserves it most. If the money belongs first to he or she who earned it, then elected officials should apply their moral principles to figure out whether they should take it from the earner and spend it on something else or give it to someone else. Those are fundamentally different decisions. The first philosophy ignores the costs (moral and economic) of government taking something from someone who earned it.

While these may seem like small rhetorical differences, they represent two critical divides in the fiscal policy debate. You can learn a lot about how an elected official approaches spending, taxes, and deficits by listening to how he or she uses the pronoun “we” and whether he or she refers to “paying for government spending” or “paying for spending and tax cuts.”

Language trick #2: “Extending the Bush tax cuts” is bad.

There are two tricks here – talking about “extending tax cuts” and labeling them with the Bush name.

At some point a policy flips from “extending a tax cut” to “preventing a tax increase.” The top marginal income tax rate has been 35% for almost ten years. The top capital gains and dividend rates have been 15% for almost eight years. As a real-world policy matter if action is not taken, these tax rates will increase above where they have been for a long time. Most DC Democrats try to have it both ways – they talk about “preventing tax increases on the middle class” but oppose “extending tax cuts for the rich.” This rhetorical inconsistency masks a parallel situation in law and policy. Either they’re both extending tax cuts, or they’re both preventing tax increases.

Most of the policies scheduled to expire December 31 were enacted in the bipartisan 2001 tax law. The only significant expiring changes from the Republican-only 2003 tax law are the lower rates on capital gains and dividends. The marginal income tax rate cuts, the new 10% income tax bracket, the estate tax repeal, and the marriage penalty reliefwere part of the 2001 law supported by current Senate Finance Committee Chairman Baucus, sitting Democratic Senators Carnahan, Feinstein, Johnson, Kohl, Landrieu, Lincoln, and Ben Nelson, as well as twenty-eight House Democrats. You never hear anyone arguing against “extending the Baucus-Feinstein-Landrieu-Lincoln-Nelson tax cuts.”

Revise history #1:

Why the cutoff date? In part, it was used to disguise the fiscal irresponsibility of the tax cuts: lopping off that last year reduced the headline cost of the cuts, because such costs are normally calculated over a 10-year period. It also allowed the Bush administration to pass the tax cuts using reconciliation – yes, the same procedure that Republicans denounced when it was used to enact health reform – while sidestepping rules designed to prevent the use of that procedure to increase long-run budget deficits.

In 2001 I was Senate Majority Leader Trent Lott’s tax policy staffer and was deeply involved in the procedure and tactics of the 2010 sunset date. Dr. Krugman suggests that we Republicans “used” the 2010 sunset date “to disguise” their revenue effect. He has his facts wrong. We wanted the tax cuts to be permanent. Since we were using reconciliation with a 10-year budget window, had we extended the tax cuts even for “that last year [2011],” we would have given 41 Senate Democrats the ability to kill the bill on a Byrd Rule point of order. We ended the tax cuts after 2010 because we had to, not because we saw some rhetorical advantage to doing so.

There are two controversial uses of reconciliation: one is to cut taxes without offsets, since reconciliation had generally been used in the past to reduce deficits rather than to increase them. The other is to enact major non-budgetary policy changes outside of the Senate’s regular order. The debates about the appropriateness of reconciliation are therefore different between the 01/03 tax cuts and the 09/10 health care laws. It appears twelve Senate Democrats and 28 House Republicans thought it was appropriate to use reconciliation for the ’01 tax cuts, since they voted for the bill.

Revise history #2:

Obviously, the idea was to go back at a later date and make those tax cuts permanent. But things didn’t go according to plan. And now the witching hour is upon us.

Actually, this was the plan, to wait until 2010 and then press for making these policies permanent, not to try to do so earlier. We knew in 2001 that a looming unpopular tax increase would maximize pressure on the fence-sitters, and that by ending them in an even-numbered year we would maximize the chance that in-cycle Members of Congress would vote to prevent a tax increase. Tax-increasing DC Democrats knew this as well, and they could have scheduled this vote last year when they would have had a better chance of winning. Or had they enacted a budget resolution conference report this year, they could have created a reconciliation bill that would have allowed them to get their policy win with only 50 Senate votes + the VP. Because they failed to enact a budget resolution and create a reconciliation bill, they must now wrestle with an Senate minority that has significant leverage. Democrats gave Senate Republicans this leverage by failing a basic task of governance.

Ignore the biggest part of the deficit effect:

According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years.

I’m not sure why he quotes the TPC’s $680 B figure when the Administration’s $970 B figure is larger. He focuses on the deficit delta between the two sides while ignoring the deficit-increasing effect of the tax policies President Obama has proposed. Setting aside the President’s AMT policy for a moment, and using Dr. Krugman’s language with Treasury’s numbers, he also could have written that “the Obama proposal to extend the Bush tax cuts for everyone but the rich would cost the federal government $3.1 trillion over the next 10 years.” The $680/$970 B delta between the two sides of this debate is a lot of money and an important policy difference. At the same time, if you’re worried about budget deficits, you shouldn’t ignore the much larger $3.1 trillion deficit effect that is not in dispute between the parties.

Focus on the super-rich while pushing a policy that also taxes the sort-of-rich:

And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 per year. … the majority of the tax cuts would go to the richest one-tenth of 1 percent.

Yes, the super-rich make a lot more than the rich. This is a feature of pre-tax income, not of tax policy. Thanks to our progressive income tax structure, the post-tax distribution of income is more compressed than the pre-tax distribution. The 2001 and 2003 tax cuts increased this compression. The post-tax distribution is still wide. The super-rich are still that way even after the government takes a greater share of their income than it does from the non-rich.

Multiplication tells us that if you raise their marginal tax rate by the same number of percentage points, you’ll collect a lot more money from a super-rich person than from a sort-of-rich person. Dr. Krugman flips this on its head by saying policymakers are “giving” these people money, rather than “not taking it.” It’s different.

If this is a big concern to Dr. Krugman, he could propose a much higher marginal income tax rate on the super-rich. He instead proposes we also raise taxes on someone earning $260K per year. That’s still a lot more than most people make, but there’s a big difference between $260K of annual income and someone who earns millions per year.

Dismiss the small business argument:

[W]e’re told that it’s all about helping small business; but only a fraction of small-business owners would receive any tax break at all.

True, but those are also the successful small business owners who are (a) employing people and (b) the ones we need to hire more people.

Dismiss the macro argument:

Or we’re told that it’s about helping the economy recover. But it’s hard to think of a less cost-effective way to help the economy than giving money to people who already have plenty, and aren’t likely to spend a windfall.

Note that he does not reject the argument that tax increases will decrease economic activity. He instead argues it’s inefficient – that the macroeconomic bang for the deficit increase buck is small. He argues that increased government spending is more cost-effective. Even if you think he’s right, Congress is not going to enact another few hundred billion dollars of increased government spending as he proposes. The question is therefore not the one Dr. Krugman would like, which is “Do you prefer preventing tax increases or increasing government spending?” The question Members of Congress instead face is, “In isolation, do you want taxes to go up on anybody four months from now, including successful small business owners whom we hope will hire more workers?”

Demonize those who disagree with you

So what’s the choice now? The Obama administration wants to preserve those parts of the original tax cuts that mainly benefit the middle class – which is an expensive proposition in its own right – but to let those provisions benefiting only people with very high incomes expire on schedule. Republicans, with support from some conservative Democrats, want to keep the whole thing.

And there’s a real chance that Republicans will get what they want. That’s a demonstration, if anyone needed one, that our political culture has become not just dysfunctional but deeply corrupt.

Dr. Krugman concludes by declaring it an outrage to oppose raising taxes in a weak economy because certain people whom he thinks are undeserving will get to keep more of their income. He ends with his usual view that anyone who disagrees with him is stupid, evil, and corrupt.

86 thoughts on “Responding to Dr. Krugman’s column on tax cuts for the rich”

  1. It amazes me that anyone as bereft of character as this man is could even get attention in the economic world. He is nothing more than a partisan op-ed hack who has never himself created any productive value in his lifetime and is a prime example of how ethically bankrupt the liberal left is. None of the arguments are based on strict ROIC/common sense applications, simply some set of "fairness" norm that a certain group of elitists believe to be true. There is no acknowledgment of the relative payments already being made by this class of taxpayer just that they have more therefore they must give more. When many on the far left have earned their "credentials" through identity politics and government paychecks there is no wonder why they have such little respect for the hard earned productive dollar. They have never had to earn it. Pure and simply, we need someone to make the case that the active redistribution of wealth is not immoral in of itself.

    1. Neither has Keith worked other than politically. Is he also a "political hack?" Your argument is self defeating on this issue. Like all politics today all commentary is argumentative and without any gray area. One side is right and the other wrong….on everything and always.

    2. His partisanship aside, Krugman had a long and productive career in research before he became a pundit. His academic work makes an extremely strong case for free trade. It is not accurate to say he has never done anything useful in his life.

  2. A fundamental difference is that Republicans tend to assume all income is earned, while Dems do not. This is the crux of progressive taxation.

    The simplest case is the genetic lottery — If you are lucky enough to be born to a billionaire, you will out-earn all but the most improbably successful, simply by collecting riskless interest. Simply by waking up every morning, that income comes in — one view is that this income is earned, while another is that it is not necessarily so.

    Similar arguments can be seen in other high-income situations, i.e. CEO wages being used to signal company management valuation, various percentages taken by even unsuccessful fund managers, etc.

    Towards the low end of the income spectrum, wages tend to have a much more transparent relationship with earnings.. counters without clerks mean a lower volume of customers can be serviced, etc.

    1. Of course I understand the argument. It is pure garbage and provides little to no accountability to those who ascribe to it (how great would life be if I could simply excuse my failures based on outside randomness?). It is the pure definition of identity politics and drives rhetoric that ignores personal responsibility and perpetuates class warfare and victimization.

      How many people in the top 1% collect "riskless interest" born as billionaires? You do understand the threshold for the top 1% right? I am going to guess that household incomes in excess of $500k include far more successful self-made small business owners (on the low end) than they do naturally born billionaires. Besides, that wealth was indeed created at one point, and because it was from a previous generation should not provide the government with more of a claim to it.

      Why don't the Dems talk about taxing wealth? The "generational" money that you talk about is all but ignored (don't want to go after the domain of potential Dem donors) while income is taxed. There are many ways to avoid wealth taxation (see Buffett), not as many to avoid income. This line of argument is disingenuous at best and is only pandering to a voting base.

      1. Great comment about wealth taxing. I guess inherited wealth and the estate tax is a blind spot for democrats, and they don't want to make waves with their constituency.
        (there is an element of sarcasm above)

        (honestly) It's too bad you fixated on the inherited wealth aspect, since that was just an example of the broader point I was trying to make regarding money received versus money earned. Money is only loosely tied to the goods and services its exchange facilitates.

        For example, the government is within its right to print money if it chooses to, that money is not earned. If the government gives that money to people who teach 40 hours a week or work 12 hour days to build a road, it's possible those people _did_ earn the money (even though the government which paid them the money did not earn it). If those people save that money, and spend 3% of it on a financial advisor that advises and brokers a deal for them to sink all of it into a pre-bubble house,
        it's arguable whether the advisor really deserved it.

        Yes, you can't know who does or doesn't deserve or earn money. There's no perfect judge, certainly not the government.

        However, most skills are distributed normally, while money is distributed by a power law. Yes, authors and inventors and idea people deserve a power distribution of income, but the bulk of high wage earners do not fall into these lines of work. This is the simple signpost that points to income redistribution –> the distribution of talent and hard work is not the same as the distribution of money. Specifically, if you believe income should be the result of work and talent, then too much money goes to the higher income people, particularly the highest of the high. The federal income tax is far less graduated than would be suggested if the goal were to align work*talent with income.

        1. Money is not distributed by a power law. For most of the wealth scale, it is approximately Gaussian (a Bell curve), and only takes on a power law dependence around that top 1%. Neither is it clear that skills are distributed normally. As for power law income, I would argue that the majority of the super-rich are precisely that sort (Bill Gates, Steve Jobs, Larry Ellison. etc). The investment bankers and are not at that level of wealth(George Soros, probably the most famous of that group has a net wealth perhaps half of Ellison, who is half of Gates…).
          Money goes to those who earn it. While I may believe that some actor is vastly overpaid, their income derives from the value they produce as judged by the market (the collective votes of everyone who goes to movies in this case). Neither you nor I have a right to take money from someone else if they have earned it lawfully. Taxes are progressive b/c the wealthier have more disposable income (money left over after the basics are paid for). Few would argue with this idea. Many will take exception to the idea that taxes are to redistribute the wealth from those who earned it to those who did not.

  3. Keith, I had a similar response to Dr. Krugman's op-ed piece on Social Security reform last Monday. Here's a link to his piece:

    "Attacking Social Security" — New York Times, Sunday, August 15, 2010

    Essentially Dr. Krugman argues that conservatives are just making up those frightening stories about Social Security's fiscal solvency in the coming years, all to serve their own ideological purposes. He makes the very backwards argument that should the Trust Fund run out, Congress could step in and use tax revenues from other sources to make up for any shortfall and thereby pay for promised benefits (forgetting, of course, that we're having trouble with deficits already, and that the Trust Fund currently owns $2.3 trillion of those Treasury Securities which fund that very deficit). Furthermore, he points out, the program's own actuaries don't predict it to run out of money until 2037, and even that might not come true depending on your demographic/economic assumptions, so no big deal, right? Shame on those darn conservatives to try to make reforms now to avoid highly dramatic policy problems that present a clear danger in the future!!!

    I find his poor politicking (a.k.a. his New York Times column) to be a highly irresponsible use of the giant soap-box handed to him by the Nobel Committee back in 2008. Dr. Krugman is one of the worst contributors that people (unfortunately) regularly read.

    1. So, you think it's absurd on its face that Krugman or anyone would rather deal with taxation, medical spending and economic growth issues that substantially impact the deficit today, over the next 10 years, and beyond, rather than a projected 20% shortfall 37 years in the future, based on economic actuaries of all things? Which is not even projected to balloon…

      Today, 10, 20, 30 years from now, social security is funded and paid for. Today, state road maintenance, public transit, teachers, prisons, police officers are not just unpaid for, but unfunded and suffering from reduced services.

      State shortfalls are simply due to balanced budgets + reduced receipts due to the downturn. Even Republican state governors would rather these issues be addressed, but national republican senators are dominating the party line, and taxpayers suffer.

      Sorry, but I think you can come up with a better example of Krazy Krugmanomics than that one…

      1. "Today, 10, 20, 30 years from now, social security is funded and paid for."

        That is rich. I bet you had to close your eyes when you started writing that one.

      2. "So, you think it's absurd on its face that Krugman or anyone would rather deal with taxation, medical spending and economic growth issues that substantially impact the deficit today, over the next 10 years, and beyond, rather than a projected 20% shortfall 37 years in the future, based on economic actuaries of all things? Which is not even projected to balloon…"

        Guestly, your argument above is different from the one Dr. Krugman makes in his op-ed piece. Your argument is about priorities ("Sure, social security's fiscal future may be troubled, but right now we've got more important problems to deal with"). Dr. Krugman's is about denying the existence of a problem at all (direct quote from his article: "Social Security’s attackers claim that they’re concerned about the program’s financial future. But their math doesn’t add up, and their hostility isn’t really about dollars and cents. Instead, it’s about ideology and posturing"). If you re-read the article (posted in my original comment) nowhere does he even mention the priorities argument.

        So yes, I say it is "absurd on its face" that Dr. Krugman is denying that there's a problem at all. While I respectfully disagree with your argument about priorities, you're right, I don't think that's an "absurd" argument and it's certainly a debatable point. Just not one coming from Dr. Krugman…

  4. "Today, 10, 20, 30 years from now, social security is funded and paid for. Today, state road maintenance, public transit, teachers, prisons, police officers are not just unpaid for, but unfunded and suffering from reduced services."____

    Public sector employees receive on average TWICE the wages and benefits of private sector workers. Yet every cent of the former's wages and pensions comes from money earned by private sector taxpayers and from investments in the private economy.____

    So if public pensions are unfunded, cry me a river.____

    1. Public sector are also much more educated than the average worker. When you account for educational attainment, they are actually paid less. Look at teachers: many have masters degrees but are paid peanuts

    2. Where did you get the data to show that public sector employees receive TWICE the wages and benefits of private sector workers? Using data on total compensation and number of full-time equivalent workers, by industry, I found that private, non agricultural workers averaged $53,657 in wages and salaries and benefits for the period of 2000 through 2009. Federal civilian workers received $101,423 in wages and benefits during that period. State and local government workers received $59,374; all governemnt civilian workers received $63,867 in wages and benefits for 2000 through 2009. This is hardly TWICE the wages and benefits of private sector workers.

      Oh wait, I must be lying because I'm using government generated data from the Department of Commerce and not the true data from the fevered brain of some right wingnut.

  5. "Today, 10, 20, 30 years from now, social security is funded and paid for."

    How? Because the Govenment has written an IOU to Social Security you think Social Security is funded? What with? T Bills sitting in a lock box? Who do you think backs up the IOU?

    Try writting IOU's to yourself to fund future purchases and see how it works out for you.

  6. "Behind every great fortune is a crime." Honore Balzac in "Pere Goirot"

    All Treasury notes are IOUs. However, the Republicans and the Randites apparently believe that Treasury Notes primarily owned by working people should receive a a haircut to prevent their marginal tax rates from going to 39.5% from 35%. Somehow I still think they will be able afford their annual trip to Davos.

    1. So, you get that the more money we print the less each individual piece is worth… Right? Or are the republicans behind the growing move away from the USD as the global reserve currency? Because that would have a greatly positive effect on the relative value of those working people.

      I have an idea, how about we stop spending so much? Then you don't have to raise taxes OR print money – Amazing!

      Sometimes I think maybe democratic strategists aren't fundamentally wrong, but rather just incredibly short sighted in their viewpoint – It certainly seems like in isolation some of these programs might be fine, but when put on the enormous scale of a national program they just buckle under the weight of government inefficiency and beurocratic red tape.

      As they say, very much pre-occupied with "What can we do" when the focus needs to be on "what are we responsible for"

      1. You want to talk about short-sighted.

        You speak as if we can go back in time and change all the stupid things Bush did to our deficit. We are in a bad situation that must be dealt with if we like it or not.

        Most of all money that is in circulation will, sooner or later, lay in the bank accounts of some one who is wealthy. The rich aren't that way for giving away their money. Once that money is there it is now in savings – Remember it does not matter how rich you are you always want more. That money is not going to see circulation, most likely, in the traditional since again.

        New money MUST be created no matter what, because money, now in savings, must be replaced or there will be none for the average worker.

        And spending is the only way to get money in someone else hands. spending implies you get something or receive a service. No one is going to give away money. And if someone does its charity, therefore a tax right off.

        I do agree with your "…enormous scale..inefficiency and beurocratic red tape." comment
        but I will take red tape over be at the whim of a particular entity that is solely for its own benefit.
        Think if we were ran by insurance companies.

        1. Think if insurance companies hadn't been given free reign to monopolize individual markets because *gasp* the government won't allow cross-state competition. Huh. It's almost like the insurance companies, highly regulated by the government as they are, try to squeeze every red cent out of the consumer because that's the only way the gov has mandated they can make a profit.

          You talk about Bush like he's always been a favorite of conservatives, and that's just fundamentally not true – I voted for bush (the second time) because Kerry was terrifying in his associations and agendas. If the democrats would bother fielding decent candidates that might not happen but I'm not holding my breath. Hell, it's the same damn reason I voted for Obama – Because McCain compromised his position to try and appeal to a broader swath of America, but in the end just looked like a doddering old man struggling for relevancy.


          Now, the unfortunate thing here is you've obviously been reading too much Krugman and have forgotten the basic fundamentals of "wealth"

          Like Keith mentions above, we're not "giving" the rich anything, just taking less – The difference is that that money can than go to wherever it makes the most sense for the person who owned it.

          I'm sure to you this sounds like a terrible idea, but even the least productive means of savings (say, a bank) doesn't just have the money sittings there. It goes out and is used for investment, injecting fluidity and capital into the market making growth and innovation possible.

          But that's not unique to "Rich People" – that's all money in all forms of savings. Lets say you choose to buy some stock in a company. Congratulations! You've now invested some of your hard earned dollars into a piece of the financial pie which is in fact a capital investment and thus stimulates the economy.

          This effect gets even more obvious when you look at many of the "Wealthy" who are in reality small business owners. When extra money winds up in those rich bastards pockets they…. Use it to try and get more money! Yes that's right, even though they are "wealthy" somehow they still want more money, and thank god that happens because in their attempts to accumulate more wealth they expand their business which *gasp* employs people! Think of all the things that extra capital could buy, than think of the construction jobs generated naturally for a purpose that actually can sustain itself on paper rather than just having Caltrans re-pave the same 18 mile stretch of road 5 times. Think of the new machinery, and all of the jobs that have been "Created or Saved" at those companies who suddenly have more business and can think about expanding themselves. Think about the new employees needed, sometimes with training (which saves or creates additional jobs) sometimes without. If this is a distribution company (many small businesses are) there are a whole slew of support roles that require additional staffing.

          The reality is that wealth is the greatest creator of more wealth, BUT IT IS NOT A ZERO SUM GAME. Reagan once made an observation about liberals looking at a fat man standing besides a thin man and being able to comprehend no explanation for this discrepancy besides the fat man taking advantage of the thinner one. When wealth is created all steps of the process benefit, and while some benefit more directly than others, these are the relationships and realities that drive our economic system. And it's not a bad one! "Wealthy" individuals finance business, which allows that business to happen at all – When we move up as a nation, the whole nation moves up.

          You have to get out of this "Us vs. Them" class warfare mindset – It's just another way for progressive elements to try and divert the conversation from reality to the ever-popular "Hey that guy has more than I do, that's not fair!" rallying cry of progressive movements everywhere.

          Life isn't fair, but you're less likely to succeed if you spend all your time crying about it.

          1. Wow.. I'm very pleased my post solicited such a long response. You took me seriously. Thanks. Now to be nice and short. I agree with you fundamentally. Most everything you said is sound in it's reasoning, but not in its application.

            You make a statement about government controlling insurance companies which in turn affects the way they make money. Are you implying that the govn. is the reason they drop people from coverage when they make a claim? You miss the point of insurance companies. They "should" be in the business of helping people when they are sick. But who cares about the sick when you can manipulate them for profit.

            Bush may not be a favorite of conservatives but I couldn't tell from listening to them. Bush totally wrecked our economy with tax cuts 4 wealthy, 2 wars(at one point costing us over 10Bill. a month), and the biggest government expansion seen in our time.

            Oops sorry. Its Obamas fault. My bad.

            Come on. Can I get 1 conservative to admit he dragged our country through the dirt and he was the only one that came out clean?

            If the tax cuts are so good, than why the only effect it had is negative. Our deficit would be dramatically less if they were never enacted. And where is the trickle down effect. Hmmm. Oh here comes the trickle down now. "sniff-sniff" it smells like piss. That tax cut did nothing except what is was supposed to – make the rich richer and the poor poorer. That was the intent and it worked.

            With that said I do agree that the rich are the true wealth engine in our country. Bet you didn't think I would say that. The problem is now is the time we as Americans need them, their innovation, and their money more now then ever. But what are they doing. laying off people. where do you think the people in the unemployment lines come from. The public side? No, the private. Where is all that capital they now lay claim to because of the tax cuts? I will tell you – their pockets.

            And I can go on for days railing on you about class-warfare. This is just a taste.

            Conservatives say tax cuts for the rich are good. But tax cuts for the middle class is socialism.
            Keeping health care accessible for the rich is good, making health care affordable for everyone is socialism.

            You make the statement [ don't cry about it ]. normally I might agree with you, but that is the only way things are going to change. All the great movements of our time were achieved by people "crying" over what they believe in, be it civil rights, the right to vote, or gay marriage.

            I dont believe in "US vs THEM". We are all Americans. We are all equal. The problem is that conservatives believe some are more equal than others.

          2. Regarding insurance companies:

            I think that for-profit health insurance companies are some of the most fundamentally confused business models around, and it's because the very concept of "everyone should have health insurance" is very much at odds with the profit motive. Health insurance costs so much because healthcare costs so much – Insurance companies don't insure people they know they'll lose money on, and can you really fault them? They have a fiduciary responsiblity to their stockholders first, as they are the owners of the company and without such people the company would simply not exist so there you go. So you'd rather a world with no ability for anyone to have insurance as long as it means we're not specifically excluding people? I think your problem isn't with insurance companies at all, but rather with the exponentially rising cost of healthcare.

            If you really want to look at the root of the problem, look at the way the FDA has been infiltrated by owners and lobbyists of drug companies. Look at how much more we pay for medicine in the US than say, Canada. How come we didn't fix THAT healthcare problem and only focused on punishing the middle man in the transaction? Hell, this isn't even restricted to Healthcare, look at ANY government regulatory body and then look at how many people in its leadership have direct ties to the industry they govern. Look at how often those people rotate from government to private to government to private each time a conflict of interest each time ignored by the so called watchdogs.

            Re: Bush
            The funny part is, Obama has made many of us real conservatives realize how much worse bush could have been. You talk about dragging us through the mud but seriously? Have you seen Obama's "foreign policy?" Can you please point out one demonstrable success he's had in this arena? Because I can count a whole shitload of deteriorating relationships that were just peachy when Bush was strutting around the world. As far as the wars go, 1) Gore has said on multiple occasions that given the information they had and the circumstances he would have taken us into war as well. People seem to forget that we had genuine provocation, AND that even as islamic terrorism increases in frequency and intensity around the rest of the world somehow the US has been spared from further incidents – You think that's a coincidence? No, that's called fighting the war in the other guys back yard. It's not pretty and it's not fun but it is reality, and I'd like to hear you admit that.

            Now with regards to tax cuts for the wealthy, you can't have it both ways. Either you're saying "Yes, I acknowledge that the rich are the true wealth engine in our country" or you're saying "where is all the capital they now lay claim to because of the tax cuts? I will tell you their pockets". Both don't work.

            It's not even about how wealthy someone is, it's just about wealth. Wealth in itself creates opportunity for everyone, even sitting in a bank it's more than likely invested somewhere else in the form of loans, stock, etc. So there is no such thing as "money to line their pockets" unless it's literally taken out in cash form and used to line their pockets.

            That being said, I've pulled more than half of my savings into hard tradable assets and that is money actively non-productive. Why would I do this? Because the government has gone on such a regulation, rules, and taxing binge that I no longer have confidence my savings are safe in US currency, and I challenge you to look objectively at the situation without coming to the same conclusion. Krugman is a hack who may have done great work thirty years ago, but in the modern era has become an agenda driven joke, which is a perfect fit for the NYT these days. The greatest dis-service he could possibly do is to continue spreading this childish nonsense that revenue is the problem, not spending.

            @"tax cuts
            You're confused – Republicans say tax cuts for the rich are good and for the middle class are socialism. Conservatives say "Why are taxes so high? Why is government doing so much beyond its mandate?" which is again, not subject to the class warfare arguement. You're talking about tax cuts from a really simplistic point of view that ignores the fundamental reality that if people have more money to spend, they both spend & save more of it.

          3. That's a good thing! People spending money drives the economy – People saving money drives growth and investment. Trickle down, like everything else in the free market, works if you don't mess with it – it works because it's based on people making decisions based on financial reality.

            The company I work for had several major projects lined up (we're not in construction or anything) but it's just the economy. Everything slowed to a crawl, and while the conservatives of the world were screaming "JUST LET THEM FAIL SO WE CAN FIX THE PROBLEM AND MOVE ON WITH OUR LIVES" you got grandstanding from both sides of the aisle about how we desperately need to save these institutions or the whole system will collapse!!

            Well, maybe it should. Maybe the whole system is one big house of cards that our leaders have built for their bestest donor buddies (Because that's the true evil – The combination of very easily corruptable representation with a complete lack of transparency combined with an abject disdain for the limits of congressional and federal power combined with the ability for our "leaders" to re-write the tax code at a whim.

            Also, can you define "Rich" please? How much money must one make in order to be considered rich?

            So the wars, you talk about 10 billion a month – Want to pull out a calculator and see how much more than that we've spent on Krugman's "stimulus" so far per week? I bet the numbers bigger than 10 billion. Does that not count because this president is one you like? Should we only keep score until you start losing? Or are you one 2 out of 8 in america who feel like the stimulus has actually helped them?

            And finally, how can you say conservatives believe some are more equal than others – Have you been paying attention to the response to criticism for the white house recently? It's all about racism, it's all about class warfare, it's all about "Oh those people it's just unconscionable"

            How can you scream about fairness while at the same time advocating a redistributive strategy that takes money out of the pocket of one citizen to put in the pocket of another? Isn't the whole redistributive system the absolutely worst embodiment of that? How does the obama health care thing make healthcare affordable? Unless I've been reading the wrong document it seems like there ain't shit for cost reduction in here, but there are a WHOLE BUNCH of new bureaucracies. This reads to me like everything else coming out of washington does: a way to justify, perpetuate and expand their existence and influence.

            One problem that could be EASILY fixed and would have an ENORMOUS impact on the culture in washington is if we had something called a "Read & Understand" clause.

            Basically, whenever a lawmaker votes on an issue (either way) they must certify that they've read and understood the law they're about to vote on.

            So what does this simple thing do? I guarantee that bills would get a LOT simpler, and MUCH shorter. The reality is industry lobbyists are the ones writing these "reform" bills and it's one of the biggest crimes of our lifetimes. Nobody understands whats in these bills, so how can they even have a chance of being just? More than that, how can we even know??? The other thing it brings is accountability – How often do politicians justify past mistakes by saying the issue hadn't been properly explained to them or they just didn't have time to read the bill before it was called to vote. If you sign a document espousing understanding than either you know what you're talking about, or you've blatantly violated your congressional ethics (chuckle).

            Very simple.

            Will it ever happen? I don't know! It could if it became a non-partisan movement. What do you think?

            Incidentally, based on our talk I think you really might find something you like at -which is a non-partisan movement to a national sales tax (not the flat tax or VAT) which incorporates progressive elements that are actually really innovative and promising – It would replace the current income tax/withholdings system we've had in place for the last 80 years. Havn't really found anyone who once they actually read about it themselves (there is nonsense propaganda out there where people mis-represent it pretty badly by say, implying it would be added ON TOP of the current income tax system) I encourage you to take a look at it, because it taxes wealth rather than income (which is just about as regressive as you can get).

          4. Wow.. another tremendous response that with all those words, still proved nothing.

            About insurance companies. Its the fact that they are for profit that fundamentally contradicts what it does. It is HEALTH CARE not FOR-PROFIT CARE. That model is as worse as you can possibly get for the Health of our country.

            RE:RE: BUSH
            See I told you conservatives cant admit it.

            And as regards to tax cuts. You are right, you cant have it both ways. You proved my point exactly.

            As for your savings that seems a very sound decision. But you may have to educate me on the governmental tax binge. Since Obama took office, as of this minute, I know of no taxes he raised. Only tax breaks for the middle class.

            @@tax cuts.
            You are the one confused. Conservatives want to know why taxes are so high for the rich. And obviously you haven't seen our "Fuhrer" leader on conservative sign posts all over tv.

            You speak of the "true evil" the true evil are the corporate bastards that can care less about the economy their focus is on there pockets. The Enrons of the world. The greedy banks. The AIGs etc…

            My definition of Rich is based on net-worth. Individuals have different needs so this is an arbitrary number but $500,000.

            Yes I would like to pull out a calculator. And Krugman does not have a stimulus.
            100% of funds for the war went to the war. The stimulus went to the people. Before you rant about some of the extremely dumb places some of the stimulus money went. I am just as upset as you are.

            And about conservatives believing some are more equal than others……..There are conservatives on record stating if you give welfare to the poor they will take it to buy drugs. Oh how highly they think of the less fortunate. I guess the rich on their pure cocaine high doesn't matter.

            You say that I have a redistributive stance taking money from one person and giving it to another. Well I guess that our nation is founded on redistribution. What do you think taxes achieve.

            I agree 100% with your "READ and UNDERSTAND clause" I like it.

            And I will check out your web site. Honestly I am like you in the since that there is to much wrong with our country and there is not enough consensus to want to change it or make it work for every one. I am totally open to new ideas or different approaches that may have potential to achieve good things for our country.

            Man I really love this shit. You really are a worthy Jedi. Your light saber is long. But it is not the length of your saber, but how you use it.. (totally cracking up..)

  7. Well done Keith. Krugman has consistently shown himself to be a mouthpiece of Democratic policy makers. We need more well informed conservatives such as yourself to cut through Democratic propaganda and restore fiscal sanity on Capitol Hill.

  8. Precious metals are also fiat currency. The only reason gold and silver are considered to have any value at all is tradition; someone thousands of years ago decided we needed a universally accepted item to facilitate indirect trade, and decided to go with "pretty metal." That we have changed the item in question from gold/silver to paper and later to electronic data does not make the value of the item any more or less arbitrary. In all cases the value comes from the acceptance of the users.

  9. The big lie is that the $680 Billion would be spent by citizens, thereby creating economic growth. Trickle down is a trick. A devious, brilliant, underhanded, but effective trick. The only way to ensure that this capital enters the market, which by the way is the only argument for lower taxes on the rich, is for the Federal Government to acquire and spend it. Isn't there something like $2 Trillion in excess corporate earnings sitting on the sidelines right now? We should insist that this capital be deployed or taxed heavily.

    Higher taxes under Clinton created economic growth. I know it's not intuitive but it's the reality. Tax cuts for the richest Americans, whether Reagan, Bush, or Bush, have done little to advance the overall wealth of our nation. I'll admit I fell for the big lie; Trickle down my eye.

    Wages have been essentially flat for thirty years, millions of jobs have moved abroad while American corporations re-domicile offshore to avoid income taxes, while Fortune 500 pensions were dumped to pay ever increasing health insurance premiums.

    Your strategy has been flawless.

    Deflect the eyes of the masses with slightly lower taxes, start a few wars and deploy half a million troops, contractors, and other personnel (spending a TRILLION bucks in the process), get out the base with the lure of imminent anti-gay marriage legislation, and let the Federal government crumble under the weight of the disaster you built.

    I have to hand it to you, I think you're gonna pull it off. Congratulations.

    1. @Shadowguv:

      Disagree on a number of points.

      1. Investment, not just spending, can create economic growth. Citizens who have the government take less of their money are unlikely to do anything other than spend or invest that money. (This isn't the '30s, people aren't stuffing cash in their mattresses, they put it in the bank, where the bank holds it and makes investments with it.)

      2. Government spending has no guarantee of economic growth. The historical example of having the gov't paying someone to break windows and someone else to fix them destroys as much wealth as it creates. There is no real growth there. That's why the Stimulus failed. Too much of the money went to wealth-neutral or wealth-destructive pork projects.

      3. "Wages have been …. flat" is a deceitful partisan talking point. If my employer pays for my health insurance as a benefit, and insurance costs go up $1000/yr and they cut my salary $300, my total compensation still went up $700. Has *total compensation* been flat for 30 years?

  10. It doesn't particularly matter to me who voted for the 2001 tax cuts; they could have been passed with 100 votes in the Senate, and I would still think them a bad idea.

  11. When it comes to taxes, right wingers are just like petulant little children stamping their feet and squealing "but it's mine!". Look, it's only yours insofar as the law says it's yours. You don't own anything except what the law guarantees that you own. If the law says 39% of your income belongs to the government, then that's part of the same deal that says you get to possess the other 61% and protects that 61% against all comers. It isn't stealing, and you're not being oppressed. Get over it. Taxes are part of the system that makes and keeps you rich. The price, as Justice Holmes put it, of civilization.

  12. You may joke, but T Bills sitting in a lock box is exactly right… If I took out a loan from you due 15 years from now, and every year bought up t-bills that would pay that loan off, then put them in a lock box, how much confidence would you have that I find the funds to pay you off? Pretty confident — Even though those t-bills are an IOU backed up by the federal government.

    The difference from an IOU from me, and the federal government, is that an IOU from the federal government (a treasury bill) is a AAA+ rated asset, that is a worldwide benchmark for reliable assets, while an IOU from myself is junk.

    Would you be happier if the federal government had literally bought Treasury bills and placed them in a lockbox? Instead of just spending more money in the last 10 years on defense and medicare, it had spent that money on treasury bills, and then used the money from the sale of treasury bills to fund the expansions in defense spending or medicare?

    Social security is an actuarial program. If you want to pay off the retirement of baby boomers, you can only do it by collecting more money ahead of time, so that you'll have money to pay them off later. Social security ran a surplus for a long, long time, and I suppose your line of thinking simply would say that the old tax surpluses were overtaxation, and the existance of the baby boom generation meant the eventual doom of social security.

    1. "Even though those t-bills are an IOU backed up by the federal government."

      That is, simply a claim on future tax revenues. As for triple-A+ ratings today, they are exactly that: ratings based on prospects for payment TODAY, not 20-30 years in the future. You thus confuse obligations as equaling assets. They are not assets – they are simply obligations, due in the future, and an unpredictable future at that.

      "Social security is an actuarial program." True, but you are not supposed to mention this fact. It destroys the illusion that it is an annuity-type retirement program, in which benefits are paid in proportion to "contributions." But having broken the unspoken rule, you then compound your difficulties by stating:

      "If you want to pay off the retirement of baby boomers, you can only do it by collecting more money ahead of time, so that you'll have money to pay them off later."

      I can make a good case for this countervailing statement:

      "If you want to pay off the retirement of baby boomer, you can only do it by collecting LESS money ahead of time, and encouraging investment in productive capacity and infrastructure to the extent that society as a whole will be sufficiently more rich to allow taxation in the FUTURE to fully fund promised retirement benefits."

      "… and I suppose your line of thinking simply would say that the old tax surpluses were overtaxation, and the existance of the baby boom generation meant the eventual doom of social security."

      I don't know about him, but I would say, yes, the old tax surpluses were overtaxation since they were not actually invested in anything that would pay off real wealth when needed in the future, but instead has been squandered on pure consumption – welfare payments, military expenditures, etc. However the existence of any demographic fluctuations could have been easily accommodated by a system based on investment in real income-generating assets of long useful life in the now that would continue to produce income in the future. Think of power plants, bridges, highways, mines, harbor facilities, and so forth.

  13. You wrote:

    Language trick #1: “We” (the government) should not “give money to the rich.”

    But Dr. Krugman does not use "we" in this sense. All but one instance of the term refers to the citizenry of the U.S., and the last one is a bit ambiguous. He never uses the phrase "give money to the rich," so why are you putting this in quotes? Aren't you claiming that Dr. Krugman is using these tricks in his polemic? It looks like you're just making stuff up.


    You wrote:

    Language trick #2: “Extending the Bush tax cuts” is bad.

    Again, Dr. Krugman doesn't use any variation of the verb "extend." He says that making those cuts permanent is bad. There's a huge difference, and you're the one engaging in fuzzy language to obscure a crucial point.

    At this point — when the first two "tricks" turned out to be misdirections and fabrications — I must admit I stopped reading.

  14. Herschel:

    "When it comes to taxes, right wingers are just like petulant little children stamping their feet and squealing "but it's mine!". Look, it's only yours insofar as the law says it's yours. You don't own anything except what the law guarantees that you own."

    Guess what? The law says what we own is ours; that includes money. Take a look at the 5th Amendment some time. The 16th Amendment may give the government the power to tax my income, but that doesn't mean it was the government's money in the first place. We aren't serfs.


    "Aren't you claiming that Dr. Krugman is using these tricks in his polemic? It looks like you're just making stuff up. "

    Puh-lease. Look at what Hennessey quoted from Krugman. Hennessey is right; Krugman does want his readers to believe that the government not taking a higher percentage of wealthy people's incomes is the same as giving money to these same people. Not only is it wrong, it is very dishonest of Krugman.

    "Again, Dr. Krugman doesn't use any variation of the verb "extend." He says that making those cuts permanent is bad. There's a huge difference, and you're the one engaging in fuzzy language to obscure a crucial point."

    There isn't a huge difference, and you're just picking nits.

  15. “The money initially belongs to he or she who earned it.”
    “If the money belongs first to he or she who earned it”
    And then:
    “You can learn a lot about how an elected official approaches spending, taxes, and deficits by listening to how he or she uses the pronoun “we””

    It should read, “You can learn a lot about how an ignoramus pundit with a sloppy knowledge of English approaches spending, taxes, and deficits by listening to how he or she misuses the pronoun “he or she”.
    Are you listening to I?
    God almighty.

  16. If thats the case Stphan, and if the US Government truly is a government "OF THE PEOPLE" and seeing as how i am ONE OF THE PEOPLE, then i demand that you empty your bank account and GIVE ME ALL OF MY MONEY. see how stupid that sounds? Money has no value, you are correct. HOWEVER if we simply print print print, then the UDS becomes the Soviet RUBLE. WORTHLESS on the world stage as well and the breadlines form. ya moron

  17. If the previously higher level of taxation was acceptable prior to the last 10 years, it is just as acceptable now. Furthermore, since the taxcut was funded by debt rather than corresponding spending cuts, it was and remains unjustifiable. Top tax rates have been far higher before, so there is nothing special about allowing these lower rates to expire now.

    I don't think you can claim the taxcuts were bipartisan while claiming that they enacted a 10 year window because 41 votes were against it.

    The rest of the article is about semantics and psychology. Clearly, the money, pre-tax, belongs to the tax-payer, and to the government, post-tax. Our spending choices have to be funded, and they have to be funded from where, to paraphrase Willy Sutton, the money is. Don't rich people feel ANY moral obligation to the country that has nurtured them and allowed them to be successful in life? Or is it all just take, take, take?

    1. Because a prior policy was in existence, there is 'nothing special' about reverting to it? Based on your impeccable logic, let me be the first to demand that we bring back Smoot Hawley!

    2. "Don't rich people feel ANY moral obligation to the country that has nurtured them and allowed them to be successful in life? Or is it all just take, take, take? "

      Give me a freaking break. I would say that the top 1% of earners paying 40% of the federal income tax in this country COMPLETES any moral obligation they may have.

  18. IanG:

    "Don't rich people feel ANY moral obligation to the country that has nurtured them and allowed them to be successful in life? Or is it all just take, take, take?"

    Not too long ago, Warren Buffett, Bill Gates, and a bunch of billionaire Democrats decided they were going to donate a huge chunk of the wealth they had accumulated over the years and donate it to charity. While that is noble in and of itself, this has the effect of sheltering the donated cash from federal tax obligations. Since these extremely wealthy people are Democrats, maybe you should ask them why don't they give that money to the government to pay down the government's debt. Apparently, these wealthy Democrats don't "feel ANY moral obligation to the country that has nurtured them and allowed them to be successful in life".

    1. In fact, Erin Burnett of CNBC was interviewing one of the participants, Eli Broad, a longtime funder of Democrat candidates on just this very point a couple of weeks ago. He said it made sense since they, the billionaires, would make better use of the money than the government. It is, apparently, another issue entirely for the rest of us.

  19. Keith was clearly referring to money as "financial value," which paper money and other forms of currency are just tools used to transer that value. Your comments about fiat money and so forth–however well intentioned and not really so wrong–seem to be a strained effort at humor, but they fall a bit short. Government may create instruments of exchange, but government does not create and cannot create the value being exchanged. Human intellect and labor do that. And that intellect and labor belong to the individual, not the government. It is very presumptious–and smacking of slavery–for Krugman in effect to assert that government has first claim on that value.

  20. Let me try and make an (abbreviated) free market argument against extending the tax cuts. This is a bit of an experiment, so please let me know how convincing (or not) you find it.

    The government is in the business of providing a great many services that the private sector cannot, does not, or does not want to, provide. These services, such as transportation and other forms of infrastructure (electrical, sanitation, global positioning, and many others), national defense, health and welfare, basic research, and the rule of law, among many others, are consumed by the private sector. Importantly, the government also provides access to civil society – and anyone who doesn't think that is worth something should consider how much housing prices differ based on the neighborhood the house is located in. Individuals and businesses both benefit when, for example, individuals who commit crimes are punished, or when transportation is simple and fairly risk-free. While we may dispute the value of individual goods or services which the government provides, I feel that the notion that the government does provide certain valuable services which could not be practically obtained in another manner is beyond dispute.

    1. These services, which benefit the rich and poor alike, are not free – they must all be paid for. The government sets its price for providing these services to individuals based on a sliding scale according to the income of the individual. This makes sense – standard econ 101 teaches that a perfectly discriminating seller would charge exactly as much as an individual is willing to pay for its services, and no more, so long as that amount exceeds the marginal cost of production. The rich, presumably, are willing to pay more for the same services than the poor because each dollar spent on government services has less marginal utility to a rich individual than a similar dollar spent by a less well off individual.

      1. One might object that not all individuals wish to purchase all services, but are nonetheless forced to by the government. However, in private industry bundling items together for sale is common practice. For example, I am vegetarian – restaurants are perfectly happy to sell me the steak salad, but I have to pay full price even if I ask them to leave off the expensive meat. If I don't like it, I can go to a different restaurant with food more to my tastes. Similarly, the U.S. government offers a prixe fixe menue of services – if individuals don't like the mix of services in the United States, they are (well, subject to regulations by other countries) free to go to a country with a menu services more to their tastes. If there are no such countries, that is hardly the fault of the United States government. If they don't want to pay any taxes, they are free to move to a deserted island, and see how easy it is to make money without a government to provide basic services.

        1. To wrap this back around to the tax cuts – the government, as a provider of services, should be free to charge as much as people are willing to pay for its services. You never hear complaints that industry does not have the right to set whatever price for its goods or services that the market will bear – even if it spends that money on projects which you believe are worthless or unwise. Don't like the cable company's prices, or your credit card company's terms? You are free to switch. They all have nearly identical prices and terms? You are free to do without television and credit. Why should the government be obliged to charge less than a comparably placed private entity would?

          1. Your (rather long) argument falls apart in that:

            Unlike the cable company, I can't tell the government I'd rather "do without" their services and not pay them if they set prices higher than I think is fair.

            And, in fact, if you tell the government that, they send men, with guns, to come and put you in jail.

            Free markets aren't in play when there is only one option and you MUST take that option. Free markets require … well, the "free" part.

  21. I know a few millionaires, and each of them is a very decent person who worked very hard – and still does – to get where they are. My wife's former employer, a millionaire who started with nothing, arrived at work at 4:00 AM every morning. He employed about 12 individuals and took care of them. He was respected by, and gave back to, his community. Yeah, I can confidently say he would not cross the street to spit in anyone's face, but he would do so to lend a hand if they were in trouble.

    1. I know a few like that as well. And none of them are opposed to slight tax increases on their considerable wealth. They appreciate the services government renders, and acknowledge that the wealth they acquired was in large part due to the favorable economics environment fostered on them by an active government. The type that pretend to themselves that they owe nothing to anyone are the only type so obsessed over tax rates.

  22. Econ 101 –

    All actions involve opportunity costs. Extending tax cuts for the wealthy has an opportunity cost of 680bn over 10 years. This means one of two things MUST happen:
    1. Raise taxes on someone/something else (either now or down the road)
    2. Cut spending on something to the tune of 680bn (either now or down the road)

    While Mr. Hennessey would have us view this choice in abstract, moral terms as whether to take money from rich individuals, practically speaking, the choice is "who should we take something from?" If we cut taxes on the rich, who should we raise taxes on? If we aren't raising taxes, what spending are we cutting?

    The conservative answer has not been well articulated – tax cuts followed by unspecified "spending cuts." But whose spending gets cut in order to maintain these tax cuts? In a very real sense those people will be "paying" for the tax cuts.

    1. The reason the spending cuts are largely unspecified is because the problem is not specific. Any of the individual programs that have been implemented over the last 60 years may be sustainable in its own right, and when properly managed but the flat reality is that this is not how things have played out.

      The problem with talking about opportunity costs especially re: government is that government itself produces nothing, and so has no fundamental basis of comparison. The question is only how much will the government confiscate from the productive sector of the economy (the private sector) and what choices will they make once they have that cash in hand.

      The question is as follows: Do you believe that history has demonstrated they can do things better and more efficiently than the private sector.

      If you, like me, have taken a look and come to the conclusion that "No, Government appears to not be as efficient as the private sector for a variety of reasons" than the natural lead-in is "Ok, if we know the government is less efficient, than their role should be restricted to that which the private sector is unwilling or unable to do".

      And that's how you decide what to cut – You look at REALITY and you see if the private sector is already doing whatever it is, and if so you think really hard about whether the government needs to be in that particular business, what purpose it serves, what the goals are, and what the likelihood of success is. Then you decide what to cut.

      And regarding 680 billion in unpaid liabilities, how efficient do you think that trillion dollar stimulus has been? Funny you mention the one you don't like but not the one that we already did, and didn't do much besides let the government dodge public union layoffs.

      So the question to you is, given your knowledge of basic economics how can you honestly make the arguement that raising taxes on the productive sector is preferable to inefficient and politics driven "stimulus" in far greater amounts, that appears to not work. Especially given that we have historical examples of pro-business policy having a very positive effect.

      Can you show me any that support your side?

  23. My wife and I have a total income of just under two million a year — an immense amount in the eyes of most Americans. If and when the tax rates go up, this is what we will do: 1) Lay off six people who work for us part-time at one of our houses. Each of these people has several jobs. We now pay them between $5,000 and $15,000 a year. This is a substantial part of their income, which I suspect they do not declare to the government. In the current economy, they are unlikely to be able to make up this income elsewhere. 2) We will give away real property worth about $5 million to a charitable foundation, thereby removing it from the tax rolls of the local community, which is currently struggling to maintain its school budget, while producing a large tax write-off for ourselves.

    1. Your arrogance is deafening. $5,000 and $15,000. Not a livable wage.

      Why not give the property to the school? You surely could write it off all the same, and they can sell it and help their budget.

      This makes me hope for the Bush tax cuts to let expire. Look on the bright side. You can now call Bush a tax-and-spender. That should make you feel even better and more self-absorbed.

      1. Someone gets $5K for taking away the garbage once a week and hauling firewood once a month. Someone else gets $1K a month for spending a half day a week cleaning the house. Someone else gets $1K a month for mowing the yard when it needs it. Etc. None of this is meant to be a living wage. It's meant to be a considerably over-market payment for odd jobs to people who are already working several jobs. And it doesn't include Christmas gifts etc. (All my neighbors complain that I'm disrupting the local labor market.)

        My point, which you missed, is this:

        While our own lives will not be significantly affected by the expiration of the tax cuts, the lives of five working-class people will be severely affected directly, and the lives of several hundred school children will be affected indirectly. Federal and state income taxes will affected, too, by a charitable donation that will swamp the effect of the tax increase we incur for some years.

        I don't expect any sympathy at all here, because we don't deserve it. But I think people should be aware that raising taxes on "the rich" invariably has effects that the likes of Paul Krugman, whom I have known well for decades, refuse to contemplate.

        P.S. Personally, I think some kind of value added-tax is inevitable. It's the only way the numbers are ever going to work. As a conservative, I think the pound of flesh conservatives should demand in exchange for a tax that most conservative economists prefer to the income tax, is this: A Constitutional amendment that would limit the federal income tax to two rates — 10 and 15, or 15 and 20, or some other combination — but no higher. It has to be in the Constitution, because otherwise rates will be raised whenever the liberal left is in power. (Liberals like raising taxes from "the rich" for its own sake, not because that's the best way to raise money to pay for government services.)

        1. "P.S. Personally, I think some kind of value added-tax is inevitable. It's the only way the numbers are ever going to work. As a conservative, I think the pound of flesh conservatives should demand in exchange for a tax that most conservative economists prefer to the income tax."

          Well of course you like the VAT. A VAT is regressive. With this tax, the poor will pay more than the rich.

          Since Reagan, the incomes for the lower 3 quintuples have kept pace with neither the growth of GDP-per-capita or Productivity. Their piece of the pie has not kept pace with the growth of the pie. The rich's share has far outstripped the growth of the pie. Let us go back to Republican-era taxation. I Like Ike.

          1. "Well of course you like the VAT. A VAT is regressive. With this tax, the poor will pay more than the rich. "

            It depends on how it's structured — and who and what are exempted from it. In any event, isn't the point to efficiently raise all the funds the government needs? The present system can't do that. It's fallen and it can't get up. Several months ago, Jeff Sachs — a liberal — wrote that the left needed to concern itself more with the overall progressivity of government action and less with the details by which taxes are raised. I agree with that, (And if you still feel compelled to whack the rich more, increase sumptuary taxes on yachts, boats, planes, and jewelry, and further restrict the amount of money that can be conveyed to family members. Cut the value of the deduction for charitable giving. Increase the estate tax on estates above $100 million Etc…)

            But this strays from my principle point: If my taxes are raised, the effects will trickle-down to people I will no longer choose to employ. My life will hardly be affected; theirs will be damaged severely. By tradition, the Democratic party is supposed to care about such people. That they don't — that it's a pose and not a principle — ought to be easily apparent.

    2. I am uncomfortable with the accusatory tone of the other responder. And I appreciate the tone of your post as well as the follow-up responses. I think its indisputable that not extending the taxes will have a negative impact in some places. But then there isn't a piece of legislation or national initiative that doesn't. The question is not whether or not it will have a negative impact but how one trades off one alternative with another. I mean, we could solve our employment problem over the short run by employing every able and available person in this country if we chose to. If someone were to argue against this I could suggest that they are not grappling with the consequences of their policies — namely having people unemployed. The trouble is that employing everyone it could be argued would be mortgaging our future. In the same manner, not addressing the lack of revenues to fund our government (for mostly popular programs I might add, Hennessey and many posters here notwithstanding, since the health care initiative even if repealed won't make a dent in this problem — many would say that it will make it worse — but either way). As Krugman has argued (and Hennessey hasn't really rebutted, just quibbled ever so slightly with in spite of appearing to rebut), extending those cuts for the very wealthiest does very little for jobs. It does something but relatively speaking, if you're concern is employing people the money you spend would be much better employed elsewhere. And yes, your removing your property from the tax rolls is unfortunate for the public treasury. Not having the tax rate on business at 2% also means losing some business and jobs though how other businesses can operate without funds for the police force, the schools their employees children attend, and the infracture they depend on is hard for me to understand.

      And your example in some ways makes that point as the pay the other poster challenges are kinds of pay that people servicing the wealthiest can hope for but aren't jobs to sustain our current economy (as important as they are). Yeah, more money in the hands of the wealthiest may mean more personal services, more drivers, more maids, and more tutors. And if there was nothing to sacrifice to pay for that I don't know why anyone would have a quarrel with making it happen somehow. But for the jobs you identify there's a big price to be paid elsewhere. And if there isn't a price to paid elsewhere, why would anyone be even using the word "deficit" since it doesn't matter.

      I do think that one of the things that galls many is to hear about how reckless we've been in balancing our books, but on this issue, wait, let's focus on something else and go back to that argument when considering the interests of the less wealthy :). Cutting back on teachers everywhere you look affects jobs too.

      Thanks again for modulating your responses as I feel they've been responsible given the tenor of the comments.

  24. " If your revenues are insufficient to meet your spending, then in all other contexts we say you cannot afford the amount you’re spending. "

    In 2003 federal revenues were less then federal spending. Did Bush say he could not afford all of the federal spending? No. He signed into law passed an expensive new spending program and a big set of tax cuts.

    "If the money belongs first to he or she who earned it, then elected officials should apply their moral principles to figure out whether they should take it from the earner and spend it on something else or give it to someone else. Those are fundamentally different decisions. The first philosophy ignores the costs (moral and economic) of government taking something from someone who earned it."

    In 2003 the GOP decided they wanted an expensive program to get seniors votes in the next election. The GOP also decided to pass a big tax cut their high income supporters wanted. The drug program would be paid for by selling federal debt that young people would have to pay in the future. Please explain to me the moral principles the GOP used when they decided to spend money on drugs for seniors and send the bill to future generations. Is it better to take money from future earners then current earners?

  25. I guess the good news is that if this is the best argument one can make against that Krugman column it shouldn't be so hard not to extend those tax cuts. Hennessey almost completely ignores the content of the piece (his primary quibbling is with some of the wording). One can hardly be overly critical of Mr. Hennessey as he was part of the team that sustained the worst decade of growth in the modern era while leaving behind an additional $5 trillion in debt and obligations for vastly more. It is odd however, but perhaps Mr. Hennessey is a supporter of the health care legislation, that his defense of using reconciliation for the tax cuts was that if they didn't they wouldn't pass (never mind that unlike the tax cuts, the primary vehicle of the health legislation was the normal House and Senate procedure). That some Democrats supported it makes it somehow not a violation of not adding to the deficit which not even Mr. Hennessey argues is true is hard to understand. Yes its true that Krugman is comparing something that is not likely to pass with the tax extensions and their likely economic impact. But why does Hennessey avoid even addressing the likely amount of that impact which on the small business front is supposedly 2-3 percent. I wonder why here he doesn't use numbers to support his case. Oh yeah, now I know why. And finally, that the bill had 12 Democrats but needed reconciliation to pass may tell you something about how a number of Republicans themselves felt about this initiative. At least no major Republican player must have felt that way. Wait, didn't that fellow who was the Republican standard-bearer in 2008 vote against them? Mr. Krugman must be just being overly partisan in criticizing them :).

  26. "True, but those are also the successful small business owners who are (a) employing people and (b) the ones we need to hire more people."

    And why would a company with profits, not income, profits in the millions lay off workers because they got a tax increase in the tens of thousands?

    1. Erm.
      You want to show me a "small business" with "profits in the millions" in this economy?

      At my work at least my employer is looking at a multiple cost increases that will result in much worse healthcare for me (Yes, my employer is one of the few still providing health care to its employees, but it looks like that might go away thanks to Obamacare)

  27. " Even if you think he’s right, Congress is not going to enact another few hundred billion dollars of increased government spending as he proposes."

    Really, no chance whatsoever, no matter how conditions unfold in the next few months or years? Wouldn't that sort of conjecture-stated-as-fact be labelled a 'trick' if it had come from Krugman?

  28. With the constitution & bill of rights by my side I would start the long and laborious process of going through the next proposed budget line by line, determine which programs are constitutional (as in, the federal government has the right and duty to handle them), look for ways to increase efficiencies there based on real-world tangible evidence, discard programs that do not accomplish their goals.

    All programs that cannot find specific rationale for existence in our constitution & bill of rights would be phased out over time, which would include the myriad of federal institutions that serve no purpose beyond furthering the federal governments involvement, and paying off donor organizations. This does mean entitlements would go, but that's a reality that needs to be accepted.

    Entitlements are one of those things that once given are very difficult to take away because, frankly, people have been promised they would continue as the basis for their paying into it their whole working lives. This is unfortunate, but a direct result of unrealistic promises made by a government desperate for ways to further integrate themselves into the lives of citizens. These programs are fundamentally wrong as they are redistributive in focus and confiscative in practice. Great idea or not, it is not the responsibility of the federal government to do it. Welfare, like many many other government programs should be on a state-by-state basis, implemented by the states based on the needs and wants of their taxpayers.

    This has not been accomplishable because the proportion of people who now feel the government "owes" them a living is so great that it is politically untenable to push for any sort of reduction or elimination of these programs, because proponants of them play it up as "They're taking your money away!"

    Well, the reality is that it was never the governments money to give to begin with, and the sooner people start to associate "Government Money" with "Money taken out of your check" the whole equation gets a lot more fuzzy.

    Set an arbitrary date for the closure of Medicare & Social Security, people within say 10 years of retirement will continue paying into the system and will be able to collect full benefits – People more than 10 years away will stop paying payroll taxes and not be eligible for any benefits. This isn't fair to really anyone, but that's a choice made by politicians long ago by the decision to implement unsustainable and insufficient redistributive programs. At the end of the day though, the program would be done and suddenly there is a whole lot more money able to go into savings, investment – you know, productive ventures that have actual tangible value.

    Theres a whole lot more, and it's not just on the "liberal" side of the button – Our federal government has aggressively overstepped the authority given to it, and it's gotten away with it for this long because nobody was paying attention. The internet changes that, suddenly it's harder to hide the truth and the inefficiencies that were once obfuscated by layer upon layer of secrecy start to come to light. This is not a partisan issue, it is a "role of government" issue.

    My belief, and one that is shared by other self proclaimed members of the tea party (I've never attended a meeting or rally, never been in communication with a larger overarching activism group), is that government simply is trying to do too much. Regardless of the reasons, regardless of the politics, we didn't even have ANY income tax before the class warfare campaign 80 years ago to support the prohibition of alcohol (had to replace that liquor tax revenue somehow!). If it was that way before, it can be that way again. Governments of all shapes and sizes need to learn their role and their inherent inefficiencies, take a look at the nightmare that is my home of California for any and all necessary examples of that fiasco.

    Government is always less efficient than the private sector, and I challenge you to show me a single example within the last 30 years that demonstrates otherwise. If we as rational Americans know this, than it's no stretch to say "Governments role should be restricted to that which the private sector is unwilling or unable to undertake". Examples of this would be road creation (privately owned roads are almost always toll based which is not neccesarily bad if it was INSTEAD of the current gas-tax funded roads we have now, but in addition it is not great, and probably less efficient for the average consumer of roads than tax-subsidized government construction/maintenance).

  29. Defense, both pro-active (see: Afghanistan) and homeland security (see: US/Mexico Border) are important, and have their place. There are *ENORMOUS* inefficiencies in the military complex, and again I lay the blame at the feet of government. Our system could have been designed with a very specific bidding and distribution system, but the layers upon layer of buerocratic red tape make even trying to fill out the initial paperwork to even see the bid request a MONTHS long process for a company, much less to actually land one. Beyond that, the federal bidding programs place so much emphasis on buying from minority or women owned businesses that larger companies actually end up using those smaller minority firms to LAUNDER their products into government hands. Examples?

    The US Gov. won't buy stuff from countries not in trade compliance with us…… Unless it's coming from a woman/minority owned business. So what happens? A big importer brings in a shitload of china product (Either because it's substantially cheaper due to the currency imbalance allowed by the federal government, or because the anti-manufacturing environment have driven manufacturers out of business or the country), sells it at a slightly below retail but above wholesale pricing to the smaller redistributor, who has bothered to go to the months or years of effort to get on the GSA Schedule, and then (because they have preferential pricing status) they sell to the US gov at a higher price because the gov has enforced a middleman take their cut. Is that efficient????

    This is why I genuinely think that maybe you guys just think this is the same old game – That we're having a conversation about democrats and republicans, but that's not it at all and I just don't know how to make you see that.

    Politics as usual is not party specific, it's a systemic issue. Our system is not immune to change and now is when we desperately need it – Stop focusing on your pet project and look at the bigger picture, the US as we know it is in real trouble and as long as folks like you continue to push this idea that it's somehow a partisan issue, the less likely we are to right this ship before we're really screwed

  30. And so I return the question to you sir, now that I've told you what I would cut – Will you tell me who you would tax to pay for your government largesse?

  31. Some points that you share are hard to quarrel with. However do you believe there are any responsibilities that go along with those rights? Is it really "legalized theft" to ask people to pay for their fire department or their policemen? Or should we all have our private fire departments and security forces? Did whoever makes money make it all on their own without the help or effort of others — whether it be those who came before them and sacrificed (at least I thought) so much and those who will come later? Sorry to sound so tendentious but I don't understand how property is someone's alone (which would be hard to earn without our legal system, all the blood and treasure of our greatest generation and prior generations, and so on) but responsibility is completely optional. I also find myself befuddled at how this notion is "conservative" as I would think it would be anything but :). Thanks. Respectfully…

  32. The underlying argument for the tax cuts was that they would power the economy by freeing all those entrepreneurs to innovate and create wealth. Tax revenues, the argument went, would actually increase faster after the tax cuts then without them. Maybe it would have even worked out that way had the Bush administration shown any interest in fiscal discipline, but they didn't and it didn't work out.

    Now the budget, according to the same Republicans who spent like drunken sailors, is seriously unbalanced. Well, to fix the deficit you can do two different things: you can raise taxes or you can cut spending.

    Letting the Bush tax cuts expire is a step toward balancing the budget. It's not a big philosophical question. Republicans should be in favor of this step. It astonishes me that they are not. If they did support allowing the tax cuts to expire, it would be a sign they were waking up to how badly they mismanaged this country (with the Democrats help). Not extending the Bush tax cuts, would be a sign the Democrats were waking up as well.

    The party's over. You can't have your cake and eat it too. You can't have out of control spending and no revenue. It just doesn't work. It's time to gore some oxes.

  33. I call this pretzel logic. Krugman does not call for raising taxes. They are Bush tax cuts. They are temporary. They are temporary because the Republicans couldn’t manage the super majority that they now believe in so fervently. Most importantly, it makes no economic sense to extend them. But nice try at justifying the big income disparity in America.

  34. Stephan

    More than a little off the mark. Do you not know the difference between money and currency? Big difference, huge difference. You apparently don't know how and by who money is created. This is important and not all that hard.


  35. The federal government has been subsidizing its spending on everything outside of Social Security with payroll tax surpluses (real money).

    The "spending on everything outside of Social Security" is supposed to be paid for with federal income taxes that increase as taxable incomes increase.

    Payroll taxes are NOT progressive. The revenues collected from the payroll tax are derived mainly from those least able to afford ANOTHER income tax when the payroll tax surplus is used like an income tax.

    The payroll tax surplus has become an additional FLAT TAX income tax on people making less the gross income subject to the payroll tax. And anyone making more than the gross income subject to the payroll tax is really paying less in income taxes than they should if "spending on everything outside of Social Security" was paid for with income taxes.

  36. You don't actually address Krugman's main argument — that tax breaks for the rich will create fewer jobs than other fiscal policy options. That's proven fact. And however you want to ideologically dress up the point, it's also fact that the rich — "super" and otherwise — will benefit most.

    This post confirms for me that the right doesn't really have much to bring to the tax debate except "taxes are bad" platitudes.

  37. I'm with Krugman. Show me a coin. Whose face is on it? Our corporate leaders have become blatant social darwinists. Ebeneezer Scrooge- before. Shrewdness, rather than hard work, characterizes their means of enrichment. It is past time for an accounting, if this were a government for the people, by the people. But the greedy shrewdness of this crowd has extended itself into pouring millions into misleading political ads, and alas, the people, mesmerized and pacified by media images, without serious consideration, bought it, hook, line, and sinker. And so we get watered down financial regulations and proposed budget cuts affecting the people who can least afford it. Agricultural subsidies, are they on the table? Perhaps, but its Social Security which is front and center.

  38. Play your numbers games if you will, but our society and government should be about people, not about the propping up of a swollen, unsustainable economic system, which is what the Republican Party (Democrats, too, really) is- are- all about these days. This is not post- WWII when we ruled the world; we are going to have to adjust, hopefully, in a caring way- not patronizing- caring.
    I can hardly stand reading the newspaper these days, with those smug Republicans dictating everything. And I'm pro-life. There's nowhere to turn, except to God.

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