New York Times columnist Paul Krugman won a Nobel Prize in Economics in 2008 for his work on international trade. He ought to know a lot about economics. The strange thing is that either he doesn't or he chooses to be dishonest in order to make political points. That's clear in his latest column in which he extols the proposal by Democrat/Socialist Alexandria Ocasio Cortez to raise the top federal income tax rate to something above 70%. Krugman says that it is a great policy basically because the rich have so much that they won't miss the extra tax dollars they will have to pay. Krugman's argument is filled, however, with errors.
For example, Krugman says this of a high tax policy:
"[I]t’s a policy nobody has every implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history."
Krugman is wrong. During World War I, Congress raised the top tax rate to 77 percent. In the following year (1919) there was a recession with a weak recovery. In the next year, the country entered the depression of 1920-21. That was followed by a major tax cut in the 1920's which resulted in major economic expansion.
When the Great Depression began, one of the first moves by Congress was to raise the top bracket back to the mid 60% level. Over the eight years after that huge tax hike, the US economy stayed in depression; it did not recover. Only the onset of World War II brought the huge increase in demand for military equipment and other items that spurred the economy into growth again. Krugman just pretends that these very high tax periods never happened because they disprove his point.
Krugman is also wrong in ignoring all the other countries that tried high taxes. For example, in Britain, the highest income tax rate peaked at 99.25% during World War II and was kept at about 90% through the next 25 years. In the 1970s, the top rate was cut to 75% but there was a surcharge put on investment income that kept that rate at over 90%. When Margaret Thatcher took office around 1980, the maximum tax rate was cut to 60% and then 40%. That maximum tax rate was further reduce by following governments. Following World War II, the economy of the UK grew at first as war damage was repaired, but within a decade economic growth began to decline and then to stall. In the 1960s and 1970s, Britain's economy was the sick man of Europe. After the Thatcher government cut taxes, the UK economy rebounded and has grown more rapidly than the rest of Western Europe.
High taxes were also tried in Scandanavia and some other European countries. There's no way to tell for certain, but they may be the reason that those economies have never really rebounded from the big recession in 2008-9.
The truth is that other than periods following a major war, high tax countries have not displayed solid economic growth. Without the spurt in demand that the war causes, the economies of the high tax countries just meander between weak growth and recession.
And Krugman is also wrong when he claims that high tax rates don't matter to the wealthy. Just think for the moment of the number of seniors who move to Florida. Remember Florida has no state income tax and it also has no state estate tax. This has caused many wealthy individuals to move, for example, from my own state of Connecticut to Florida. The Connecticut income tax rate tops out at just below 7%. The state death tax tops out at 12.6%. Krugman argues that super wealthy people won't even care about paying 70% of the income in taxes, so these same people surely won't care about a measly 7% income tax or a 12.6% estate tax, right? The statistics, however, show otherwise. Big numbers of the wealthiest people in Connecticut have moved out of the state to avoid paying the higher CT taxes. The administration of Governor Malloy (who just left office) blamed the major shortfall in state revenues on the large amount of tax payments that the state lost as the wealthy moved away.
This makes sense. A super rich person may not care if the tax on his or her last $1000 in earnings is taxed at a high rate (as Krugman argues.) That same person, however, will certainly notice and likely care a lot if there is a very high tax on his or her last $10,000,000 in earnings. An increase in the top tax rates like the one Ocasio Cortez proposes and Krugman praises would mean an additional $3,500,000 in taxes for that person. It would be hard NOT to notice that.
So here are the real questions: how many of the super wealthy would put their investments into other countries in order to avoid US taxes? How many would take up residence in another country to avoid taxes? And most important, how many would see no point in making investments in new projects because almost all of the profits would be taken by the government? The wrong answer to any of these questions would SLOW the American economy.
I often criticize Paul Krugman when he gives an opinion on political matters for which he has no background knowledge but just spouts ideology. This is different. We are discussing economics here. I refuse to believe that Krugman could be that ignorant of the facts. Sadly, that leaves one with a single conclusion: Krugman is misstating this intentionally.
For example, Krugman says this of a high tax policy:
"[I]t’s a policy nobody has every implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history."
Krugman is wrong. During World War I, Congress raised the top tax rate to 77 percent. In the following year (1919) there was a recession with a weak recovery. In the next year, the country entered the depression of 1920-21. That was followed by a major tax cut in the 1920's which resulted in major economic expansion.
When the Great Depression began, one of the first moves by Congress was to raise the top bracket back to the mid 60% level. Over the eight years after that huge tax hike, the US economy stayed in depression; it did not recover. Only the onset of World War II brought the huge increase in demand for military equipment and other items that spurred the economy into growth again. Krugman just pretends that these very high tax periods never happened because they disprove his point.
Krugman is also wrong in ignoring all the other countries that tried high taxes. For example, in Britain, the highest income tax rate peaked at 99.25% during World War II and was kept at about 90% through the next 25 years. In the 1970s, the top rate was cut to 75% but there was a surcharge put on investment income that kept that rate at over 90%. When Margaret Thatcher took office around 1980, the maximum tax rate was cut to 60% and then 40%. That maximum tax rate was further reduce by following governments. Following World War II, the economy of the UK grew at first as war damage was repaired, but within a decade economic growth began to decline and then to stall. In the 1960s and 1970s, Britain's economy was the sick man of Europe. After the Thatcher government cut taxes, the UK economy rebounded and has grown more rapidly than the rest of Western Europe.
High taxes were also tried in Scandanavia and some other European countries. There's no way to tell for certain, but they may be the reason that those economies have never really rebounded from the big recession in 2008-9.
The truth is that other than periods following a major war, high tax countries have not displayed solid economic growth. Without the spurt in demand that the war causes, the economies of the high tax countries just meander between weak growth and recession.
And Krugman is also wrong when he claims that high tax rates don't matter to the wealthy. Just think for the moment of the number of seniors who move to Florida. Remember Florida has no state income tax and it also has no state estate tax. This has caused many wealthy individuals to move, for example, from my own state of Connecticut to Florida. The Connecticut income tax rate tops out at just below 7%. The state death tax tops out at 12.6%. Krugman argues that super wealthy people won't even care about paying 70% of the income in taxes, so these same people surely won't care about a measly 7% income tax or a 12.6% estate tax, right? The statistics, however, show otherwise. Big numbers of the wealthiest people in Connecticut have moved out of the state to avoid paying the higher CT taxes. The administration of Governor Malloy (who just left office) blamed the major shortfall in state revenues on the large amount of tax payments that the state lost as the wealthy moved away.
This makes sense. A super rich person may not care if the tax on his or her last $1000 in earnings is taxed at a high rate (as Krugman argues.) That same person, however, will certainly notice and likely care a lot if there is a very high tax on his or her last $10,000,000 in earnings. An increase in the top tax rates like the one Ocasio Cortez proposes and Krugman praises would mean an additional $3,500,000 in taxes for that person. It would be hard NOT to notice that.
So here are the real questions: how many of the super wealthy would put their investments into other countries in order to avoid US taxes? How many would take up residence in another country to avoid taxes? And most important, how many would see no point in making investments in new projects because almost all of the profits would be taken by the government? The wrong answer to any of these questions would SLOW the American economy.
I often criticize Paul Krugman when he gives an opinion on political matters for which he has no background knowledge but just spouts ideology. This is different. We are discussing economics here. I refuse to believe that Krugman could be that ignorant of the facts. Sadly, that leaves one with a single conclusion: Krugman is misstating this intentionally.
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