Paul Krugman: Why Raising Taxes Is Essential To Fixing Economy

New York Times:

The supercommittee was a superdud — and we should be glad. Nonetheless, at some point we’ll have to rein in budget deficits. And when we do, here’s a thought: How about making increased revenue an important part of the deal?

Read the whole story: New York Times

Comments

[brux]

04:26 AM on 11/29/2011

No kidding ... or the best interest of the country it seems like we need to raise a lot of taxes, and maybe inpose surcharge on wealth, otherwise the country, the people, the government will continue to be sold, ripped off, corrupted and abused. Nothing against rich people, most of them are good people, but many of them are scheming SOBs that have total contempt for regular Americans let alone the regular people of the world. What the world needs is to get rid of hugely rich people and make things more equal - then things will start to get back to normal, and even will start growing and getting happier, not this constant disappointment, let down, war, and corruption. We need an end to that.

[verycold]

12:23 AM on 11/29/2011

Regarding the 1 percent. Where do they live? 13 percent of mega earners live in NYC. The 1 percent in 1980 paid an avg fed tax rate of 34.47. In 2009, that tax rate was 24.01. Equally the tax rate on the bottom 50 percent in 1980 was 6.10 and in 2009 was 1.85. 9 neighborhoods in NYC pay the most federal taxes which was 16.5 B in 2008. So sticking with NYC one must include all other taxes on the rich which includes a state income tax of 6.85, a personal income tax in NYC of 7.7, a sales tax of 8.875, payroll taxes and of course property taxes. The rich as a percent of their income pay less payroll taxes, but still pay a certain percent. They buy more and thus pay a good share of the sales tax. They certainly pay considerable property taxes since they own much more expensive properties. Bloomberg says the top 1 percent in NYC pay 50 percent of the taxes. I believe that in NJ the top 1 percent pay 40 percent of the taxes. Since 1950 revenue from all sources avg about 18 percent of GDP no matter the marginal rates., Spending avg 20 percent of GDP. Currently it is 23.8 percent of GDP. In 2000 it was 18 percent, and in 2007 it was 19.5 percent.

[Nighthawk1]

11:45 PM on 11/28/2011

Mass production requires mass consumption. The global economy has increased production and consumption has not caught up. Emerging markets have relied on the Middle class of America and Europe to develop its economies and its wealth. After thirty years of one sided trade the Middle Class of America and Europe have been drained. The accumulation of wealth to the upper 10% in America and Europe has depleted the money supply adding to the problems of the Middle Class. As the inequality of wealth in society grows, it forces governments to play an ever increasing role in the economy to make up for what the Middle Class can no longer provide. The wealthy do not provide enough consumption to have any effect on consumer demand. The trade deficit and energy cost exacerbate the problem. Compounding the problem in America is the high cost of nation building in Afghanistan and Iraq resulting from failed Foreign Policy. The illusion of America sustaining itself on a service economy is just that, an illusion. What America needs is a mind and muscle economy.

[Hugebrass]

10:08 PM on 11/28/2011

The Super Committee is arguing over how to cut $1.2 Trillion over ten years, fooling people into thinking our $15 Trillion in debt would be $1.2 Trillion less if the super committee could only succeed.  What they're really dong is rearranging the deck chairs.  Shall we stay the course and add $9.2 trillion in debt over the next ten years, or get "serious" with a plan to add "only" $8 Trillion?

The best our Congress could come up with is a $23 Trillion debt by 2022 - and that's IF they can come up with the cuts.  They will, of course, defend that $23 Trillion when the day comes by comparing it to the size of GDP, whose number we already know is padded by government borrowing and spending of Trillions each year.

In other words, Paul Krugman is out to lunch.

There will never be a ballanced budget. When the credit markets eventualy refuse to continue funding this mess, we’ll inflate our currency and accelerate its certain demise.  In ten years, we’ll have nationalized the farms as we discover that our currency is valueless, and we'll be trading food for oil and other essentials.

All because of the folly of Keynesian economics. 

[verycold]

12:30 AM on 11/29/2011

I agree it is smoke a mirrors. Spending increases by about 8 percent a year and thus the cuts would need to far exceed that number to make any dent. The problem is there is no pain in borrowing at the moment. So those that love big government and could care less about gross debt because of the comparison to the GDP, believe we need to borrow that cheap money now to stimulate the economy. What is fascinating is that we had record revenues, low unemployment, high consumer confidence, a deficit of ONLY 166 billion in 2007 while we were waging two wars, and had the Bush tax cuts.

[sergal stew]

01:48 AM on 11/29/2011

The real deficit problem is the deficit run by republicans for the past 30 years. Republicans need to understand that government needs to pay for what it spends. Lower taxes is not equal to a smaller government. Republicans should reduce the size of government first then lower taxes. If they charge a tax rate that pays for what they spend maybe the american people will be more in favor of a smaller government once they understand the real cost. The deficits today are only needed because of republican fiscal mismanagement.

[Hugebrass]

10:08 PM on 11/28/2011

More excuses from a long list of failed Keyneians.  Once again, we have a perfect example why you can't take Krugman seriously.   

"As I’ve noted many times in the past, if we had only grown our total expenditures at the rate of inflation since 2007, we would have had a $413 billion deficit in the just-ended fiscal year 2011. This would be even lower in the current year given projections of $2.9 trillion in unified tax receipts."

So, government spending adds to GDP, but government borrowing doesn't.  

Really, Paul?  Really?  

[LagoDiComo]

09:13 PM on 11/28/2011

From Wikipedia

An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy.

A pundit is someone who offers to mass media his or her opinion or commentary on a particular subject area (most typically political analysis, the social sciences or sport) on which they are knowledgeable. The term has been increasingly applied to popular media personalities.

Which applies to Paul Krugman? At least he never has to deal with cognitive dissonance...

[realorpretend]

09:11 PM on 11/28/2011

Does Krugman basically desire a state driven capitalistic economy? Similar to China?

Doesn't he know that we'll still lose every battle because of their wage, corporate tax rates, and regulatory differences? Plus their inability to eat if they don't work pretty much puts our work ethic to shame…

If he doesn't want a state driven capitalistic economy, what does he desire exactly?

[Nighthawk1]

11:04 PM on 11/28/2011

Deng Xiaoping, the architect of the new Chinese economy, defined his creation as Corporate Socialism with Chinese characteristics. Chinese capitalism suppresses organized labor, prohibits human rights protest, eliminates competition, and protects its market from the rest of the world. However, it depends on the markets of the rest of the world for its prosperity.

[sergal stew]

01:54 AM on 11/29/2011

I think what he wants is to keep the economy growing and unemployment as low as possible. I suspect if a republican was in charge we would have a similarly bad fiscal problem. That's what happens when the world financial system collapses.

[Marx Twain]

09:07 PM on 11/28/2011

As usual, Krugman hits it out of the ballpark on this one, and proves it amply with solid, easy to understand evidence.

Which means, of course, that this post will be so quick to draw attack trolls that it will be like someone firebombed their lair. This typically happens every time Krugman publishes.

[nogimmicks]

08:42 PM on 11/28/2011

It is not a matter of advise, it is a matter of who has the actual power and influence to change laws and make budgets. We all know what to do IF we had power.

[econ1]

08:02 PM on 11/28/2011

If the government didn't waste so much money I would have less of a problem with providing it with more....and of course it is better if someone else provides it.

[beckjr2000]

05:41 PM on 11/28/2011

Krugman never say a Tax he didn't like!

[marcdostl]

04:51 PM on 11/28/2011

Ironically, to read Krugman's article, one had to scroll down and pass over all the articles about the EU implosion. Krugman's advice is nothing more than the same advice which has led Europe to ruin and near collapse.

[Butquestioning]

05:18 PM on 11/28/2011

The European approach has been to cut spending...using austerity to control costs and that is creating the declining economies in those countries hardest hit by the recession.

[marcdostl]

05:32 PM on 11/28/2011

* IE. Been to Italy lately? Taxes are so high that everybody wants to paid in cash. There is an entire economy unrealized by the Government. Small Biz deliberately stays closed because, in their opinion, they have reached their profit point of NO return. Don't know about the other countries in dire straits, but it isn't hard to imagine that their socialized lifestyles are much different

[Hugebrass]

10:26 PM on 11/28/2011

Snap-shot Alert! Austerity comes AFTER the social programs collapse under the weight of their unsustainable paths.

[AntoninK]

03:47 PM on 11/28/2011

I can't entirely agree with Krugman because it doesn't matter how much revenue we have when both parties spend like they're drunk. Tightening up their revenue is supposed to be a way to force congress to second guess spending. The super committee failed because neither side wanted to cut anything, but we should be cutting most everything they had on the table from Bush tax cuts to military budget down to various subsidies. When someone proposes major cuts (like say Congressman Paul's plan) the naysayers cry gloom and doom, but the reality is we only need to cut spending back to levels we had less than a decade ago! Things were fine then and it won't cause the country to collapse. Having said that, I have no problem with raising taxes on the criminal bankers who we can't seem to stick fraud charges on anyway, and everyone else who received bail out money, to help pay for the national debt.

[Butquestioning]

05:24 PM on 11/28/2011

If you look at history, the opposite is true. Look at the 90's and see that while taxes increased, spending decreased. And then look at the 8 years under Bush. We had lower taxes and increased spending.... the inverse to your argument.

We need to stimulate the economy and as you can clearly see, spending cuts have caused the the increased numbers of unemployed and they pay no taxes and create no demand. Cutting more spending will only do the same thing. Look at Europe and you can see what the austerity programs there have done as the entire continent is in trouble and more spending cuts are being initiated...

[achena]

08:07 PM on 11/28/2011

"The super committee failed because neither side wanted to cut anything"

That is only half true. Democrats were willing to accept cuts including Medicare/SS/etc.
Republicans refused to accept any meaningful tax increase. In fact, they wanted to make the Bush tax cuts permanent. Even worse, some republicans are talking about lowering tax rates for the ultra-rich and the corporations even lower than Bush rates.

"... back to levels we had less than a decade ago! Things were fine then and it won't cause the country to collapse."

Back then the economy was booming even with higher marginal tax rates. GWB lowered taxes, started two unfunded wars, passed an unfunded prescription drug benefit that was a giveaway to drug companies, bailed out banks with TARP -- all with borrowed money that we didn't have.

They have brought the country to its knees (to our foreign lenders), and
now they have the gall to want to reduce taxes again!

[AntoninK]

08:43 PM on 11/28/2011

While I agree the Republicans deserve their share of blame it is too dangerous to be partisan. Proposals from both sides were token at best. They weren't offering significant immediate cuts, mostly small amounts to be cut over a decade or so.
Just as a note, while I mostly agree with your assessment of the Bush era, not all of the War and Bailout money was borrowed-- The Federal Reserve has done a great job simply printing trillions of dollars to cover the costs (sending some $5 trillion to overseas banks, and debasing the value of our currency of course...). Cheers

[WaddaulookingAt]

03:21 PM on 11/28/2011

humm as always the disingenuous left continues to ignore the facts. Wanna raise taxes...no problem lets repeal the bush tax cuts in their entirety. No just for top 2 %. Clinto era was prosperous because if the top rate was 38% the middle rate was 28% as well. Lets not ignore the facts. Of course it's a luxurious thing to discuss taxes hikes on the top 2%...your taxes are not going up. I don't got a problem paying more taxes...are you the reader willing to pay more as well?
Secondly you think raising taxes does not hurt job creation ...walk down to any upscale restaurant in downtown Manhattan where those evil wall streeter's drop $200 for lunch and ask the waiters .."So how would you feel if your customers take 5 - 10%" of your tips and use that money to pay their taxes.

[Blueneck]

04:20 PM on 11/28/2011

False equivalencies and red herrings....

Oh, and let's not forget the straw-man argument.

[achena]

08:24 PM on 11/28/2011

What are you smoking lately?

Obama/democrats originally wanted to increase taxes only on those earning $250K/family and $200k/single. These are not top-2% or even 10%!

But republicans refused any tax increase at any level whatsoever. So the new proposal was to increase tax only those making $1mil per year - that is not top 2%. Republicans refused that also.

Personally, I and many progressives have no problem if the entire Bush tax cut disappears, and we revert back to Clinton level of taxation. Can you find a single republican in congress or among presidential candidates to agree to that? Very much doubt it.

Regarding your waiter example: During Clinton presidency of higher taxation, did the Wall Streeters tip any less? There is absolutely no evidence of it. On the contrary during the dot-com boom the wall streeters were making out like bandits.

[WaddaulookingAt]

09:03 PM on 11/28/2011

So let me try this again. I never said I agreed with the republicans. I think at this point in time increased taxes are a forgone conclusion.
I was commenting specifically on this article alone. My contention is with Krugs..He continues to hawk a falsehood that tax increases on top 1% , .5% or .25% will do the trick.
My point is taxes need to go up for every single person....maybe below 25K no.
You want Clinton era prosperity....we need Clinton era taxes. For every one.

[wsdave]

03:20 PM on 11/28/2011

Krugman is still stuck in a short-sighted bubble. Tax hikes won't solve the problem now any more than they have in the last 80 years. We need more REVENUE, not higher taxes.

TAXES don't pay down the debts, REVENUE does.

[helioszephyr]

03:23 PM on 11/28/2011

Taxes are "revenue", to pay the gov. debt/reduce deficit.

[wsdave]

03:42 PM on 11/28/2011

No, taxes are a DEMAND for revenue, usually levied against financial transactions. The money PAID to the government is revenue. Revenue also comes from tariffs, fines, and fees, none of which are taxes.

[wsdave]

04:32 PM on 11/28/2011

"The gov will never "bank" on a "revenue" system that doesn't guarantee a steady flow of revenue."

OF COURSE it will!

That's why revenues (primarily from income taxes) are currently at 14% of GDP, while under Bush 2 (with the same tax rates) they were about 18% of GDP.