Paul Krugman is Super-SMRT, And Other Observations: a Long-Promised Fisking

His Krugman-ness in the NYT:

Mark Thoma sends us to the new Journal of Economic Perspectives paper(pdf) on optimal taxes by Peter Diamond and Emmanuel Saez. It’s a tough read (I’m still working on it myself), but there’s one discussion that I think helps make a useful point about current political debate.

Useful to whom?

In the first part of the paper, D&S analyze the optimal tax rate on top earners. And they argue that this should be the rate that maximizes the revenue collected from these top earners — full stop. Why? Because if you’re trying to maximize any sort of aggregate welfare measure, it’s clear that a marginal dollar of income makes very little difference to the welfare of the wealthy, as compared with the difference it makes to the welfare of the poor and middle class. So to a first approximation policy should soak the rich for the maximum amount — not out of envy or a desire to punish, but simply to raise as much money as possible for other purposes.

I was going to say "optimal for whom?" but Paulie K. kindly spells it out: the "optimal tax rate" is the optimal tax rate for the government. It maximizes the revenue of the state, and it's ability to engage in "other purposes." That phrase, however, is not so clear: what are these "other purposes"? How well are they performed? How well is that performance even measured? If the people decide that the government no longer needs to perform them, can they get their money back?

More on Tax Uncertainty

House Ways and Means Chairman Dave Camp has some testimonials underneath his creepy politician smile.

Tax Rates are Not Lower. Tax Revenues are.

The new meme issuing from the White House is that tax rates are at historically low levels (E.J. Dionne burbled this in his last idiotic column). As the Washington Examiner points out, this is hogwash (h/t: Insty). What's low is tax revenues as a percentage of GDP.

And why?

But the AP went on to report that the recession and tax loopholes, not lower tax rates, were the cause of the revenue drop: “The poor economy is largely to blame, with corporate profits down and unemployment up. But so is a tax code that grows each year with new deductions, credits and exemptions.”

So the Democrats are using the current degraded state of the economy as justification for continued reckless, ineffective spending. And are now prepared to waste the nation's time in a fruitless game of whack-a-loophole instead of reforming the tax code.

Hope. Change.

Corrections and Other Failures of Prophecy -- My Self-Criticism Session

Anyone who presumes to pontificate on the subject of politics runs the risk of sending the Rake of Truth right into their lying face. So, going over what's been going on of late, I'm noticing these things that I have been dead smacking wrong about:

1. I probably overreacted to the news of Obama's quiet burial at sea. We don't want to have a known  burial spot after all. And the Islamic world seems perfectly willing to believe that we did what we said we did. I still think giving him full Muslim burial is excessive, but I'm not going to jump up and down about it.
2. The Bloom has been dusted off and put right back on the Rose. Apparently the Media Industrial Complex has only been looking for a reason to rediscover their fond adoration of Fearless Leader. Wacking Bin Laden seems to have given all the major talking heads in the Democratic Party a raging assassination boner profound appreciation of Obama's Leadership.
3. Donald Trump is not going to go away anytime soon. Going all High Noon on Obama has put him right in the spotlight, which is right where Trumpy likes to be. I'm pretty sure its not going to matter, electorally speaking, but that's a subject for a different blog post, wherein I shall denounce not merely Trump but Trumpism. Just as soon as I define it.
4. P.J. O'Rourke is not only not decrepit, he's lost none of his old Parliament of Whores rage at our mountebank aristocracy. Behold the opening paragraph of his latest philippic:

Wipe that smirk off your face, Mister President. “We cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society.” Is there some Sidwell Friends night school class liberal politicians take to perfect an expression of smug disdain? When Teddy Roosevelt was demagogue-in-chief he at least had the nerve to come right out and call the successful people he despised “malefactors of great wealth.” He didn’t simper and moue at his audience. Go ahead and say it, President Obama: Let’s steal from the rich and give to the poor. Never mind that we’re doing a pretty good job of it already. The top 5 percent of the nation’s earners are being soaked for almost 60 percent of America’s tax revenue.

Read the whole thing.

For the Children

Hat tip: Ace



Tax Reform now, indeed...

Taxing Less and More

I don't suppose I'd object to simplifying the tax code along the lines of this article in the Fiscal Times.

The beauty of tax reform is that it starts with a belief everyone shares: The current system is horrible. Monstrously complex, unfair and inefficient, the code has fewer friends in Washington than Mahmoud Ahmadinejab, and in principle, throwing it over for something simpler is a sure bipartisan crowd pleaser.

For starters, lowering the top bracket and corporate tax rates is long overdue, if only to bring us in line with other developed nations. And I don't have a problem with closing loopholes, which I see as essentially government manipulation of private behavior via the tax code. Anything to reduce the Byzantine nature of the tax code is a benefit to me.

But I suspect they won't go far enough; won't lower the rates enough, won't remove enough loopholes. Instead of a 60,000 - page tax code, we'll get a 30,000- page one. How long would it take for interest-group pressure and regulatory creep to return us to the same place we are now?

But I salute the effort.

Theorem: Chris Christie is the Greatest Politician in the History of the Universe.

Proof: (Hat Tip: Ace)

Gov Christie calls S-L columnist thin-skinned for inquiring about his 'confrontational tone'

Uncle Sugar Wants you to Spend your Money on Crap

Actually, that isn't true. The Government, like any good Mafia Don, just wants to put his hands in your pocket as often as he possibly can. It's just easier for him to do this by taxing saving and investment rather than consumption.

Bruce Bartlett: The Money Needs to Come From Somewhere

Bruce Bartlett, formerly of the Reagan administration and recent heretic on Supply Side Economics, makes a couple of serious points:

1. We've probably hit the bottom of the supply-side barrel, lowering taxes is probably not the wisest thing given our current public debt.
2. If the political will to truly reduce spending does not exist, then taxes must be raised to cover them. He suggests a VAT to pay for them.

I rather agree with the first point, and while I see the argument behind the second, I do not agree. Polticial will is not set in stone. In January of 2009 no one could possibly have seen the popularity of a bi-partisan anti-government movement, the election of a Republican to Ted Kennedy's seat. Just because no re-structuring of our public commitments has succeeded doesnt mean it is impossible.

Moreover, to raise taxes to meet public commitments is, in all bluntness, to reward bad behavior. For a century progressives have expanded the role of the state into as many aspects of private life as they could muster the votes for. At this writing, they show no sign of ever stopping that. To pay for a debt that should never have been incurred in the first place without making some effort at preventing this again is only marginally more responsible than endless deficit spending.

So, the dislocations of shutting down the government's massive role in our economy, or the slow starvation of that economy and any pretense of liberty for the sake of feeding the Progressive Leviathan. Place your bets.