BUSINESS
01/29/2013 01:07 pm ET

Paul Krugman: Republicans Contradict Themselves With Latest Tax Proposal

Paul Krugman says a Republican proposal in Louisiana to combine ending the income tax with a sales tax hike contradicts GOP ideology.

Gov. Bobby Jindal (R) recently proposed eliminating Louisiana's income tax, a move that would have the most impact on wealthy residents. To make up the difference in lost revenue, Louisiana also is considering raising sales taxes, which would hit the poor most.

Krugman said on MSNBC's "Rachel Maddow Show" Monday that this proposal would raise marginal tax rates on the poor -- that is, it would tax every extra dollar of income they make more heavily -- and therefore goes against the Republican argument that high marginal tax rates discourage work.

"In our system, the highest marginal tax rates -- the biggest disincentives to work in our system -- are not for the rich. They are for lower-income workers who are in that range where if you earn a little bit more you start to lose benefits, you start to lose Medicaid, you lose housing subsidies," the Nobel Prize-winning economist said. "This is going to raise taxes precisely on the people who actually have the biggest disincentives to work. So it's actually, even from that old supply-side incentive thing, this is going in the wrong direction."

State and local governments already tax the poorest 20 percent at double the tax rate of the top 1 percent, according to a 2009 report by the Institute on Taxation and Economic Policy. That's largely because state sales taxes are regressive, hitting the poor more than the rich, according to the report.

A number of conservative commentators note that marginal tax rates on the poor already are high, due to the income cutoffs for welfare programs, and they argue these high tax rates discourage the poor from working because they have little to gain from making more money. For every extra $100 in income made by a single parent earning $5,000 to $20,000 a year, for example, he or she only gets $15 in extra disposable income on average, according to data from the Congressional Budget Office analyzed by the Heritage Foundation.

The Republican governors of Kansas, North Carolina and Oklahoma also have recently proposed cutting or eliminating their states' income taxes. As in Louisiana, doing so would make a sales tax hike more likely, since states have to balance their budgets each year and sales taxes amount to about one-third of state and local tax revenue.

Going further in his New York Times column on Monday, Krugman called these tax proposals "open, explicit reverse Robin Hoodism: taking from ordinary families and giving to the rich."

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