Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Saturday, September 09, 2006

Department of "Huh?"

Greg Mankiw, seeking to score rhetorical points off of Paul Krugman, writes:

Greg Mankiw's Blog: A Kept Promise: In 2000, candidate George W. Bush said: "On principle no one in America should have to pay more than a third of their income to the federal government." Today, in Paul Krugman's NY Times column, I learn: "the effective federal tax rate on the richest 0.01 percent has fallen from about 60 percent in 1980 to about 34 percent today."

Because this is the group with the highest average tax rate, I guess we should conclude that President Bush kept his promise.

Huh?

No.

No. No! No!! No!!! No!!!!

In no meaningful sense has George W. Bush reduced the tax burden. In no meaningful sense has he kept any promise. George W. Bush has kept his promise to cut taxes in the same way that a spouse who decides to "save money" by making only the minimum required payment on the VISA bill has kept a promise to reduce household spending.

As Milton Friedman puts it, to spend is to tax. Bush's spending increases--defense, Iraq, the Republican porkfest, the Medicare drug benefit--are still there, just as things you have charged to your VISA don't go away if you make only the minimum monthly payment.

What George W. Bush has done has been to shift taxes from the present to the future--and also made future taxes uncertain, random, and thus extra-costly from a standard public finance view.

The reality-based right-wing public-finance economists right now are not complimenting George W. Bush for keeping his promises to cut taxes. No, no, no, no, no.

The reality-based right-wing public-finance economists are saying something very different than "President Bush kept his promise to cut taxes."

Here's Andrew Samwick:

Vox Baby: First Things First: I don't disagree with Calculated Risk... [who] writes: "Everyone should agree that the most immediate fiscal problem is the structural General Fund deficit. Excluding future health care costs, the structural deficit is around 4% to 4.5% of GDP. This serious problem has been caused almost exclusively by Bush's policies. And imagine if the economy slows next year, as many people expect, adding a cyclical deficit on top of the huge Bush structural deficit."... As I have discussed... the appropriate target for the General Fund deficit is for it to average to zero over a business cycle. A corollary to that is that the General Fund should be in surplus during the non-recessionary parts of that business cycle...

Here's Tyler Cowen:

WSJ.com - Are Tax Reforms Sensible, Or Just a Cut for the Rich?: Commentators frequently refer to the Bush "tax cuts," but this is a misnomer. Government spending has risen sharply, including at the domestic level, so our taxes are going up in the future, especially once you consider the implicit liabilities from Social Security and Medicare. Bush has given us a "tax shift," combined with a long-run net tax increase; read Alex Tabarrok here. We simply haven't yet been told which taxes are going up and when...

Here's Alex Tabarrok:

What Tax Cut?: Newsroom: The Independent Institute: I favor a much smaller government but I do not favor the Bush tax cut. Or, to be more precise, I would support a tax cut if one had been proposed. But so far President Bush has neither proposed nor implemented a tax cut--only a tax shift. To grasp the difference between a tax cut and a tax shift, we must first understand that what ultimately drives taxes is spending. If spending increases, as it has under the current administration, then sooner or later taxes must increase (or inflation, a type of tax, will go up). Milton Friedman, the libertarian-leaning Nobel prize-winning economist, has long reminded us to be suspicious of any tax cut not matched by a spending cut. If spending isn't cut, then less taxes today means more taxes tomorrow. Thus, the Bush tax cut plan is really a plan for future tax increases...

Here's Bill Niskanen:

Bill Niskanen: For nearly 30 years, many Republicans have asserted that the best way to control federal spending is to “Starve the Beast” by reducing federal tax revenue.... There are at least three problems with this perspective:

  1. It is most implausible that reducing the tax burden of government spending on current voters would reduce the level of government spending that Congress would approve. In private markets, there is a consistent negative relation between the price of a good or service and the amount demanded.
  2. The “Starve the Beast” assertion is inconsistent with the facts, at least since 1980...
  3. An increased belief in the “Starve the Beast” assertion has substantially reduced the traditional Republican concern for fiscal responsibility – leading to a pattern of tax cuts, increased spending, and increased deficits. This pattern has been strongest during the current Bush administration...

All impeccably right wing. All reality-based. All well worth listening to. None would say that President Bush has "kept his promise" in any meaningful sense.

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