Saturday, April 7, 2012

Murphy Pounces on Krugman

Murphy writes:

I tell you, Dr. Paul Krugman is an absolute master of writing things that are incredibly misleading, but are technically not lies. The following actually took my breath away:
Just to be clear, you can, if you choose, make moral arguments to the effect that it’s wrong to seize the rightful earnings of the wealthy for other purposes; I would disagree, and argue that the real immorality is letting so many of our fellow citizens suffer. But that’s all a different kind of discourse. What the right is claiming is that there’s a straight economic, not moral, argument for low taxes on the rich, that going back to Herbert-Hoover-level taxes at the top makes everyone richer. [Bold added.]
That is truly impressive. Sure, Krugman doesn’t actually say it, but you certainly get the implication that Herbert Hoover was a right-wing laissez-faire guy, who tried slashing tax rates to jumpstart growth and then–oops–it plunged us into the Great Depression. Hey folks, we tried the free market, first under Hoover and then again under George W. Bush, and look what it got us!
Here’s what actually happened with the top marginal income tax rate. And note, I’m grabbing the chart from a left-leaning site that is trying to make fun of the right’s horror at Obama’s plan:

So the “Herbert-Hoover-level taxes at the top” were that way because of the massive Harding-Coolidge tax cuts (spearheaded by Treasury Secretary Andrew Mellon). (There was also a dinky Hoover tax cut after the stock market crash.) Yet it would have taken away from Krugman’s rhetorical punch to say, “Republicans want to give us the same tax rates that prevailed during the Roaring 20s, as if that will shower prosperity on us!”

Read the rest here.


  1. There are problems with this focus on tax rates:

    1. The entire tax code was dramatically different in the past. You think anyone actually earned only one stream of income from their salary and let the government take 90% of that? Har har. There were loopholes the size of Jupiter that could be utilized to avoid paying such exorbitant rates. But that's all changed now and the government can suck in a lot more revenue with far lower rates to boot.

    2. It's clear that overbearing regulation is far more costly to an economy than higher tax rates.

    3. Irrespective of what the tax rate has been they've always only been able to collect around 18% of GDP. This seems to be the pain threshold Americans are willing to bear before working less or finding ways to evade payment. Fiddling with rates is pointless if this threshold is reached.

    Focusing on tax rates is a red herring utilized for opportunistic demagoguery. It's a way to turn the victims of government looting against each other by having them argue over who should be getting fleeced the most.

    Remember: "The state is the great fiction by which everybody seeks to live at the expense of everybody else." - Bastiat

    Forget: Krugman's phony moralizing. Stealing for charity is like f&*$ing for virginity. Nobody should be calling for someone else to get robbed more. We all need to be robbed less. That is moral. Pretending that robbery is noble is demented.

  2. I am curious as to why so many economists in academia seem to only look at half the picture when it comes to income taxes. High tax rates mean absolutely nothing without understanding the tax code. Go look at the data at the CBO for average effective rate before and after the Reagan tax cuts. They are less then a point apart. Why you ask? Because the tax code was full of so many ways to shelter income, to make sure you never paid at those insane rates. The other element that is ignored is the massive amount of fraud that took place during those high tax rate years. Bring back those high tax rates above 50% and combine them with the current code and all the electronic reporting we have today and the economy will grind to a halt.

  3. "Go look at the data at the CBO for average effective rate before and after the Reagan tax cuts"

    Where do I find that? CBO?

  4. Wanniski, "The Crash of 1929",

    Most one-term Presidents only have time for one truly disastrous decision. Herbert Hoover squeezed in two. Having crimped international trade, he proceeded in 1932 to squeeze the domestic economy directly by pushing through Congress a measure to boost the income-tax rate back to 63% from 25% and piling on business taxes too. His aim was to reduce the budget deficit of the preceding 18 months, caused by the gathering slowdown. With ample help from the Democrats, Congress approved the tax increase. Under Roosevelt, economic management was only slightly improved, for even as he and his party chipped away at Smoot-Hawley, they again and again added to internal taxation during the following eight years, and the depression lengthened into war."

    Charles Wilson

  5. @mike, here is a link. Go to page 2 to "Effective Individual Income Tax rate". Note the top 1% in 1979 pre-Reagan's two tax acts and during the big bad 70% top bracket days. The effective tax rate on the top 1% was 21.8% and in 1987, the first year of TRA-86 it was 21.5%. Note that the lowest it ever reached was in the Bush I recession when it hit 19.9%. One would expect a massive drop if the tax code pre-Reagan was so onerous on the Rich.