Krugman Wrong on Taxes
Taxes on the rich are the lowest they have been in 80 years, says Paul Krugman. What? As I wrote in a previous post:
Over the past quarter century, our income tax system has become increasingly progressive — with the tax burden almost continuously shifting through time from the bottom half to the top half of the income distribution. (See the graph below.)
So what gives? During the Reagan years both Democrats and Republicans agreed on the objective of tax reform: eliminate the loopholes, bring down the rates and people will earn more, report more and realize more income. That’s win-win. Good for the government and good for the taxpayers. But if people respond in that way, their average taxes (total taxes divided by total income) will go down. That’s exactly what happened and that’s the basis for Krugman’s claim that taxes have gone down for the rich, even though they are shouldering a higher percent of the total tax burden than ever before.
Got to watch this guy!
Krugman consistently makes me cringe. He’s too busy worshipping at the Throne of Keynes to see the world around him, or any evidence that contradicts his beatific vision.
Krugman is very smart… as long as the topic being discussed is international trade and comparative advantage. However, when he deviates from the topics for which he won his Nobel prize (a prize several other academics rightfully should have shared but didn’t due to internal politics within the Swedish academy), he is just another liberal, arrogant, blowhard.
…Are you implying that tax reform has been successful?
Krugman’s fuzzy math at its best (or worst).
“taxes have gone down for the rich, even though they are shouldering a higher percent of the total tax burden than ever before.”
Krugman could still be right if the rich are earning a greater share of the total income than they ever have before. The tax rates could be lower than ever before, but because they are getting even richer (and the gap between rich and poor is widening), they could still pay an increasing share of the nation’s taxes. I’m not saying this definitively is the case because I don’t have the data in front of me, but it’s a plausible scenario.
Eric, it is just nonsense that the so-called rich, about a third of whom are actually flow-through businesses like Sub-S Corporations and are anything but rich because they use their supposed wealth to finance their small businesses, have been greedily amassing wealth under the punitative tax laws of the United States.
Here are some of the numbers from the IRS for 2006, 2007, 2008, 2009 (the latest publicly available) for people who filed a tax return. Note that the rich are not earning more. And I don’t know about you, but I don’t classify someone with an income of $31,000 a year as rich–that’s the first group that had a decrease in their average tax rate, finally, in 2009. Note that this does not include payroll taxes, Medicare taxes, sales taxes, etc.
Income tax share, top 1%: 39.89%, 40.42%, 38.02%, 36.73%
Adjusted Gross Income share, top 1%: 22.06%, 22.83%, 20%, 16.93%
Average tax rate: 22.79%, 22.45%, 23.27%, 24.01%
The income levels to get into top 1% were $192,860, $197,827, $176,662, $160,311.
Story is similar for the top 25%:
Income tax share: 86.27%, 86.59%, 86.34%, 87.30%
Adjusted Gross Income share: 68.16%, 68.71%, 67.38% 65.81$
Average tax rate: 15.95%, 15.98%, 15.68%, 14.68%
Income levels to get into top 25%: $32,094, $32,095, $31,249, $30,854.
Kruganomics.
Linda,
There was no judgement about “greed” on my part, just an observation that it was possible for Krugman and John to both be right here. And this phenomenon may have occurred on a longer time horizon than just from 2006-2009.