David R. Henderson  

Tax Rates, 1990 to Now

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In a comment on my post, "From the Vault: My Review of Krugman," commenter David C writes:

I'd like to point out that on taxes at least, Krugman's position hasn't changed from 1990. He still thinks the tax rates we had in 1990 were about optimal. It's just now tax rates are lower than they were in 1990, so he's advocating increasing them rather than advocating maintaining them.

I have two responses:
1. I was discussing two ways in which the Krugman of 1990 differs from the Krugman of today. One was his clear analytic method for taking apart an issue. I wrote, "Krugman also notes that the rich families' gain in income was about 12 times as large as the poor families' loss, making it impossible for the rich to have grown richer solely at the expense of the poor." That's the kind of clear point you never see Krugman making any more.
2. David C is factually incorrect. When Krugman was writing, the federal marginal income tax rate on the highest-income people was 28 percent and the highest marginal tax rate was 31 percent. [This 31% rate was in the "phaseout region" over which people lost various exemptions in a linear fashion as their income increased.] Today, the top rate is 35 percent and Krugman advocates that it be increased.


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COMMENTS (4 to date)
D. Boon writes:

This conclusion just begs for comment: "making it impossible for the rich to have grown richer solely at the expense of the poor."

Well of course. After all, by definition, the poor don't have much savings (stock) or income (flow). Consequently, the very rich can only extract so much income from the poor. That means the very rich got much richer at the expense of the poor, the middle class, the upper middle class, and the merely rich, extracting income from each group according to their relative means. The middle class would be the most lucrative source of income since this group is the largest in number, has the necessary stock and flow of money-denominated wealth, and its interests are politically under-represented. QED. Not sure why or how Krugman missed this one.

Jim Glass writes:
"I'd like to point out that on taxes at least, Krugman's position hasn't changed from 1990. He still thinks the tax rates we had in 1990 were about optimal. It's just now tax rates are lower than they were in 1990..."
Krugman quoted in the Asia Times back in his Bush-bashing days...
what would he do to extricate the US from this mess? ... Tax increases: "We should be getting 28% of GDP in revenue. We are only collecting 17%."
You don't get 28% of GDP in revenue from 1990 tax rates.

When he said that, getting that extra 11 points of GDP in revenue would have required a 90% increase in income tax bracket rates across-the-board (arithmetically, assuming no revenue lost to the higher rates, e.g. new corporate rate hiked to 66%).

Really, I can't understand why he says such things to the press in Asia but not in his own column here in the US, where Nancy Pelosi and all the other Democratic party leaders he is trying to influence can read them. :-)

David C writes:

I stand corrected.

Dan Weber writes:

D. Boon:

The economy is not a zero-sum game. The rich can get richer by generating wealth. (There is a lot of rent collection going on, however.)


As for 1990, US spending was about 21% of GDP, so given a debt I could see why one would try to go over that to get this back in balance. 28% is vastly more than any time since WWII, though. (And I'm not even sure about WWII.)

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