Tax Timing
It’s tiresome to repeat this, but just to echo Kevin Drum, Bryan Caplan is being ridiculous here. The tax increase he thinks it would be a mistake to implement “at a time like this” is in fact scheduled to be phased in starting in 2013.
Something they taught me back at Emerson Hall was that before you jump on a major philosopher for having committed an elementary mistake, you ought to consider the possibility that you are the one making the mistake. It seems to me that the same principle applies here. Caplan knows Paul Krugman is a good economist. And he knows that it would be odd for a Keynesian like Krugman to advocate for a tax increase amidst a recession. But instead of considering the possibility that it was he, Caplan, who’s not understanding the situation he assumes that Krugman is blundering.
On the merits, I’m not a huge fan of the employer mandate concept in general. Unfortunately, conservative economists and conservative politicians have been extremely effective at making the American political system extraordinarily tax averse. This has created huge incentives to finance things through de facto taxes rather than de jure ones (which is what’s happening here) or through tax expenditures rather than actual expenditures. The aggregate impact of this on American public policy has been quite bad, and its pernicious effects continue to be felt as we watch the health care and cap and trade debate unfold. Unfortunately, as far as I can tell only Bruce Bartlett is willing to come out and say that the conservative anathematization of taxes is now having this negative impact and that conservatives ought to change their view on the matter.
22 Responses to “Tax Timing”
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July 16th, 2009 at 9:28 am
Does this mean you think letting the tax increase (laspsing Bush cuts) in 2011 is a bad idea too? Aren’t all those people making less than $250,000 going to be surprised when they see their new tax liability? Heh.
July 16th, 2009 at 9:39 am
shooter242: The recession should probably be over by 2011, and not renewing the Bush tax cuts for the top brackets is a smaller tax than the employer mandate; although if the economy is still in the crapper it would be easy enough to extend the tax cuts by another year or two.
July 16th, 2009 at 9:42 am
Perhaps if you weren’t still so overweight, you might not go on about health care so much?
July 16th, 2009 at 9:49 am
Matt, all of your argument seems to presuppose that conservatives have at least some interest in placing policy over political optics. I don’t think that is in evidence, everything is considered for its potential psychological political impact. That is their first second and third consideration.
The Republicans are also arguing that expectations of future taxes drive current behavior. Again I think they do not ask whether there is any evidence that this effect is real -and if so how large it is. Rather they argue that it is true, because it suits their political purpose.
July 16th, 2009 at 9:50 am
HEY MATT! You called Sotomayor a “wide Latina” in yesterday’s “Endgame” post. Everybody made fun of you for it. You don’t seem to have noticed.
READ YOUR COMMENTS every once in a while!
July 16th, 2009 at 9:54 am
You make absolutely no argument here, just relying on the credentials of Big Bad Krugman. Pathetic, but characteristic of you, Yglesias.
July 16th, 2009 at 9:55 am
He didn’t say implement a tax increase. He said “legislate.” I don’t know if that substantially changes his argument, but that word seems carefully chosen, as though the effect were psychological.
July 16th, 2009 at 10:01 am
I’m not so sure ‘conservative economists…have been extremely effective at making the American political system extraordinarily tax averse.’ Tax expenditures and non-de jure but de facto taxes are even more unpopular with the conservative economists I know than de jure taxes. Indeed, the only paper I know that argues that a screwed up tax system like the one we have a is a good thing is a somewhat obscure Becker and Mulligan paper in the 1998 JLE.
Overall a good point though — so good most conservative economist would support it, at least in private.
July 16th, 2009 at 10:08 am
“Unfortunately, conservative economists and conservative politicians have been extremely effective at making the American political system extraordinarily tax averse.”
Yes. How in the WORLD did they manage to do that? A tax system with traditions like the Whiskey Rebellion and the Boston Tea Party suddenly becomes tax averse!
Come on. There are many strands in American politics. One of these is an occasional bout of communitarianism, which would argue for things like universal healthcare.
But I am not aware that there has ever been a strong, “We love taxes” bias in the system, and Newt Gingrich and Grover Norquist did a kabuki dance that somehow forced us to turn our backs on that tradition.
July 16th, 2009 at 10:15 am
Please, these are the same idiots who can’t tell the difference between a marginal tax rate and an overall tax rate.
If you make $500k a year, the tax proposal from the house will cost something like $1,500 of additional tax. A family making $1 million would have to contribute $9,000. Oh, and none of this hits until 2011.
I’m sorry, most people who make half a million dollars a year easily spend $1500 on a freaking sofa. Heck, they’ll spend that much on drapes or bedsheets. And you’re seriously telling me that someone making $1 million a year will face hardship because of $9 grand? I expect they spend that much on SHOES every year.
Seriously, I can’t believe that on the same day Goldman Sachs posts billions in quarterly profit after the most massive taxpayer bailout in history, we’re supposed to believe it’s a manifest injustice for our nation to lower costs for working middle-class families who can’t afford insurance or co-pays because little Janie has asthma.
It’s insane.
July 16th, 2009 at 10:19 am
A tax change that increased taxes on higher incomes and, at the same time, reduced taxes(or increased credits) on lower incomes would be a net stimulus.
July 16th, 2009 at 10:22 am
Bryan Caplan reveals way too much of his thought processes here:
http://www.gmu.edu/departments/economics/bcaplan/autobio.htm
And too much of his fundamental sensibility here:
http://www.gmu.edu/departments/economics/bcaplan/
This may be the most garish, jarring web page not designed by a 15 year old gamer on the entire WorldWideWeb. That it is the entry page for a tenured academic on a university site beggars the imagination.
Caplan is a man with a limitless self-regard. He quite literally defines ‘rationality’ (as in Myth of the Rational Voter) with ‘agrees with the conclusions of Bryan Caplan’. The casual contempt he displays for his academic discipline and all of his former colleagues at Princeton is jaw-dropping.
But the following is the most telling. Most of us have encountered the phenomenon of the “smartest sophomore on the dorm floor”, the kid that doesn’t move on to live in a frat or in an off-campus apartment but stays on to impress the new kids with his deep knowledge of objectivism or (in my day) post-structuralism. Caplan never left that mind-set, it is no wonder that he doesn’t have the self-awareness to ask the question “Why did Krugman say that?”
‘True’, ‘truistic’, ‘deep truths’ are constant tropes in Caplan’s Intellectual Auto-biography, he knows them on encounter and he pities the poor fools that don’t agree.
Altogether he sheds an unintended light on what I call Glibertarianism.
July 16th, 2009 at 10:40 am
The recession should probably be over by 2011
The problem is that I don’t think the recession will be over by 2011, or 2012, or 2013. The Great Depression lasted for ten years. I don’t think the economics of this thing are much better than they were in the Great Depression, except that we just live in times where there is quite a bit of reserve wealth built up so that people won’t be starving… probably.
July 16th, 2009 at 10:42 am
Or maybe the American political system is tax averse b/c liberal economists and liberal politicians spend so much time trying to narrow the tax base to only include people they consider distasteful.
I know there are plenty of people that will always try to cheat their way out of taxes, even if it’s only their fair share, but I think a lot of people would have fewer issues paying if they felt like everyone paid something clost to their fair share. Doesn’t have to be a flat tax, but more than 60% of the population should have to pay some income taxes.
July 16th, 2009 at 10:56 am
The problem is that I don’t think the recession will be over by 2011, or 2012, or 2013. The Great Depression lasted for ten years.
But there was a great deal of economic growth in the mid-1930s, and millions of jobs came back. They were just in such a big hole that it took ten years (and another deep recession in 1937) to get out of it. We are not in quite such a big hole, not yet at least.
July 16th, 2009 at 11:06 am
Bryan Caplan is being ridiculous
Stop the motherfucking presses. Or, what Bruce Webb said.
July 16th, 2009 at 11:06 am
You’re missing the argument. Lots of people think that what they earn with their own time and resources should be theirs, even if they want to do something that seems ridiculous to you or me, like spend 1500 on drapes or 9k on shoes. It’s not that it’s a hardship, it’s just an unfair burden. Everyone benefits from government and therefore everyone should pay for it.
Also, a lot of the people making $250k to $500k make that much in part by working ridiculously long hours. To them, you’re not taking their money, you’re taking their time. Most of them would probably be fine with paying taxes on the extra money they earn by working 65 hours/week instead of 40, but when you then say you’re going to take 50% of each hour they work instead of 30% just because they’re working longer hours, people understandly have a problem with it.
July 16th, 2009 at 11:14 am
It’s a good thing that’s not how marginal tax rates work, then, isn’t it? In fact, they work exactly like the situation you say most people would “probably be fine with.” They’re getting taxed, say, 33% on the first 40 hours they work, and then 35% on each extra hour they work. Not on all of them.
July 16th, 2009 at 11:52 am
This idiotic notion that progressives favor taxing the wealthy becuase they are “people [progressives] consider distasteful” is mindboggling.
Have you considered the notion that taxing the wealthy works best because they have the largest amount of discretionary income? That the marginal utility of a dollar to someone who has $5,000,000 of them is less than that of someone who has $5? Have you, perhaps, considered how much more freedom someone has when they have $5,000,000 over someone who has $5? And that, perhaps, that freedom is worth money?
Libertarians have to be the dumbest motherfuckers on the planet (excepting shooter – who is in a moron class all by himself)
July 16th, 2009 at 12:16 pm
The neocon commenters above remind me why I jumped ship on the GOP so many years ago. The whole party seems to be consumed by a race to the bottom to see who can display the most faux outrage, hold the most extremist views, and appear the most anti-intellectual. No wonder so many of them have come unhinged – it must be hard to maintain any level of self respect as a modern Republican.
July 16th, 2009 at 1:06 pm
Everyone benefits from government
And those who benefit more from government should pay more for it.
July 17th, 2009 at 10:58 am
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