Tuesday, June 17, 2008

Krugman laments: "Starve the Beast" really works. Friedman was right again.

The 90% income tax increase Krugman wants isn't coming from Obama, and here's why...
A poison pill, in corporate jargon, is a financial arrangement designed to protect current management by crippling the company if someone else takes over ... the tax cuts enacted by the Bush administration are, in effect, a fiscal poison pill aimed at future administrations...

Barack Obama’s tax plan would raise revenue by $700 billion over the next decade ... But while $700 billion may sound like a lot of money, it’s probably not enough to pay for universal health care, which was supposed to be the overriding progressive priority in this election. Why doesn’t Mr. Obama propose raising more money? Blame the Bush poison pill.

First of all, Mr. Obama ... isn’t willing to challenge the Bush tax cuts as a whole. He only proposes rolling back tax cuts for those making more than $250,000 a year. Second, Mr. Obama proposes giving back a substantial part of the revenue raised by this partial tax-cut rollback in the form of new tax cuts...

But the big question is, are these tax cuts, however appealing, a top priority? ... it’s remarkable and disheartening to see how effective President Bush’s fiscal poison pill has been in restricting the terms of debate.
Well, we know for sure that tax cuts aren't Krugman's priority.

Very much to the contrary, during an interview given to the Asia Times a little while back, one of the reasons he gave for calling the US "a banana republic" was...
"We should be getting 28% of GDP in revenue. We are only collecting 17%."
Since then, US government revenue has increased to 18% of GDP, still a good 10 percentage points less than he'd like. Total US income taxes were 11.2% of GDP in 2007.

So Krugman would like to see US income taxes increase by ... um, 11.2 / 10, uh, no, ah 10/11.2 = 89.3% ... for dramatic effect let's call it a round 90% ... right now! (Or perhaps he'd be happy with a revenue-raising equivalent, such as a new national sales tax.)

The funny thing is he said this out loud to an Asian newspaper, but in eight years he's never said anything of the sort in his own column in the New York Times.

Why isn't he advising Nancy Pelosi and Harry Reid out loud, urging the Times' editorial board, or at least his own readers, to embrace his belief in the need for a 90% across-the-board income tax increase right now?

Is Bush's poison pill choking him personally?

The anti-Krugman on taxes of course was Milton Friedman, who was "in favor of any tax cut, under any circumstances, in any way, in any form whatsoever."

During an interview conducted while the surplus was still coming in during 2001, he advised Bush to eliminate the surplus with tax cuts, and explained why.

In a nutshell: "because that’s the only way to keep down government spending" -- which was what Friedman viewed as the true evil ill of government, too much spending, not taxes. ("History shows that over a long period of time government will spend whatever the tax system raises plus as much more as it can get away with. That’s why we’ve had universal deficits.")

In other words: Starve the Beast!

And it's worked, Krugman agrees. Friedman was on the money again.

(Bonus interview excerpt:

Q. The economist Paul Krugman wrote in an article in the New York Times ... "If Milton Friedman weren’t still alive, he’d be spinning in his grave."

Friedman: He’s right.
They agreed on something else!)