They Gave This Guy a Nobel Prize?
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"Time Warp" must be an earworm in Paul Krugman's head, because he's pushing for tax policies that died decades ago. His latest column on raising taxes wasn't "fake an alien invasion" bad, but it's a case of Krugman ignoring smart economics and history.
His argument for raising taxes on high-income earners amounts to "[T]hey have a lot of money, by gosh." It's not enough to let the income tax rates set during President George W. Bush's term expire. After jumping into his Tardis, Krugman wants to "raise taxes in earnest" back to where they were before 1980.
By his rough estimate returning tax rates to pre-1980s levels "could shave more than $1 trillion off the deficit" over the next 10 years.
Assuming that it could, that wouldn't even cover the new debt created this year, and I'm sure job creators would be raring to hire more people if Krugman has his way and marginal tax rates rose to 70%.
Along with raising income taxes, Krugman wants a tax on every financial transaction. Every stock trade; every bond trade; every move no matter if it's by a hedge fund manager or a school teacher adding to an IRA. He claims that tax would raise several hundred billion dollars over the next decade. Again, if that amount could be raised, it wouldn't fill the fiscal hole of our current budget deficit, let alone make a dent in projected budget deficits.
But Krugman also has an empirical problem. Sweden, a country Krugman recently praised, tried a financial transaction tax. A 2010 Chamber report, Examining the Main Street Benefits of our Modern Financial Markets (page 26), found that a 1% transaction tax begun in 1984 didn't pan out:
Swedish capital gains tax receipts actually fell by more than the amount of transaction tax collected. Thus, the transaction tax even failed to raise revenue....
The tax was repealed in 1991, but the stock trading in Swedish companies and the jobs that moved to London because of the tax never came back.
Higher taxes will not rev up the economy. Instead, comprehensive, globally-competitive tax reform along with spending restraint and entitlement reform will help businesses grow, invest, and create jobs.
[Photo via ssoosay.]