American taxpayers are feeling a little nostalgic about former President Bush and his tax cuts. There’s no question that they were just what the doctor ordered after the 9/11 terror attacks. But NYT columnist Paul Krugman is opposed to extending the cuts because he sees them as a giveaway to rich. The alternative approach he suggests is quite costly in its own right…

Whatever voters may think of former President George W. Bush these days, they think very highly of their disposable income, cost of living and bank accounts. That’s why it’s smart politically for Republicans to call for an extension of the Bush tax cuts set to expire at the end of this year.

But it’s also makes good public policy, contrary to what New York Times columnist Paul Krugman has argued. With the U.S. still mired in recession, now would be a particularly bad time to further burden Americans with rate increases. Here’s what the expiration will mean for working families and average citizens.

• 35% bracket which will increase to 39.6%
• 33% bracket which will increase to 36%
• 28% bracket which will increase to 31%
• 25% bracket which will increase to 28%
• 10% and 15% will condense to 15%
• The capital gains tax will increase from 15% to 20%
• The tax on dividends will increase from 15% to 39.6%

In his latest column, Krugman predictably claims that only the richest Americans will benefit from an extension of the Bush tax cuts. But congressional Democrats and liberal columnists have  a very elastic view of the rich in America. Small business owners and two income families beset with high living costs are considered too rich from the vantage point of Capitol Hill.

“What’s at stake here?” Krugman asks. “According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years. For the sake of comparison, it took months of hard negotiations to get Congressional approval for a mere $26 billion in desperately needed aid to state and local governments. And where would this $680 billion go? Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent.”

In point of fact, the rich are absorbing more of the tax burden now than ever before. This is hard fact that Krugman and others repeatedly omit from their analysis. Higher income households saved more in actual dollars from the 2001 and 2003 tax cuts only because the poorer households paid very little taxes in the first place. The Heritage Foundation has just released a study that exposes and debunks ten of the top myths economically illiterate columnists continue to circulate.

“In 2000, the top 60 percent of taxpayers paid 100 percent of all income taxes. The bottom 40 percent collectively paid no income taxes,” the study explains. “Lawmakers writing the 2001 tax cuts faced quite a challenge in giving the bulk of the income tax savings to a population that was already paying no income taxes.”

“Rather than exclude these Americans, lawmakers used the tax code to subsidize them,” the report continues. “(Some economists would say this made that group’s collective tax burden negative.) First, lawmakers lowered the initial tax brackets from 15 percent to 10 percent and then expanded the refundable child tax credit, which, along with the refundable earned income tax credit (EITC), reduced the typical low-income tax burden to well below zero.”

Even when Krugman is forced to concede that certain tax cuts benefit the middle class, he views them as an  “expensive proposition.” But why is government spending left out of the equation? President Obama has just called for another $50 billion in “stimulus spending” that will supposedly jump start the economy. (this added on top of previous spending packages, to say nothing of runaway entitlements) As it turns out, allowing the political class to have a larger slice of taxpayer earnings is also an expensive proposition.

Another missing piece concerns the accelerated economic activity that followed from the Bush program. In retrospect, the tax cuts were just what the doctored order after the 9/11 terror attacks. But it’s important to understand why. Here again, the Heritage study is quite helpful and insightful.

“Government spending does not `pump new money into the economy’ because government must first tax or borrow that money out of the economy,” the report explains. “Claims that tax cuts benefit the economy by “putting money in people’s pockets” represent the flip side of the pump-priming fallacy. Instead, the right tax cuts help the economy by reducing government’s influence on economic decisions and allowing people to respond more to market mechanisms, thereby encouraging more productive behavior.”

Although Bush left office as an unpopular president, history is beginning to catch up with the wisdom of his tax policies. In fact, it could be argued that they may have been the most well timed tax cuts in history given the destruction in NYC. A new poll in the critical state of Ohio shows that a majority would prefer him back in office over the incumbent. Regardless of who is up or down in the current political cycle, there’s no escaping a key lesson evident in recent history.

Supply side tax cuts increase revenue and heighten economic activity every time they are tried.

Rep. Paul Ryan (R-Wis.) has offered  a comprehensive, highly detailed plan for financial and economic renewal that has inspired small government activists across the country. It has also earned positive media coverage from left leaning sources that are normally hostile toward free market concepts. But the New York Times is not part of this mix. Columnist Paul Krugman claims Ryan’s plan is an unrealistic giveaway to the rich. Meanwhile, entitlement spending is sustainable and responsible?

Columnist Paul Krugman is agitated, if not panicked.

An audacious proposal aimed at reforming collapsing entitlements, reducing debt and alleviating burdensome taxation has been on the receiving end of positive press coverage. It must therefore be taken down and discredited as an unrealistic sham replete with tax favors for the rich.  Even as The Washington Post and other left-leaning publications provide readers with a balanced and comprehensive critique, it is instructive to note that The New York Times feels a need to perpetuate entitlement illusions.

Democrats who have added a new financial liability on top of existing programs in the form of ObamaCare get a free pass, while Krugman zeros in on Rep. Paul Ryan (R-Wis.) for offering up a proposal that the Congressional Budget Office (CBO) says would make Medicare permanently solvent. Ryan has called for a voucher system that would allow seniors to shop for their own private insurance as part of his Roadmap for America’s Future. This is but one aspect of a highly detailed financial plan set up in stark contrast to the “government-centered ideology” that now holds sway in Washington D.C.

It is the ideology Krugman and the NYT are desperate to preserve.

“And we already know, from experience with the Medicare Advantage program, that a voucher system would have higher, not lower, costs than our current system,” he argues. “The only way the Ryan plan could save money would be by making those vouchers too small to pay for adequate coverage. Wealthy older Americans would be able to supplement their vouchers, and get the care they need; everyone else would be out in the cold. In practice, that probably wouldn’t happen: older Americans would be outraged — and they vote. But this means that the supposed budget savings from the Ryan plan are a sham.”

The correlation between consumer choice, greater market discipline and lower costs has been evident throughout human history. But this fundamental point is lost in the Krugman analysis. New studies show that HMO programs with private options reduce costs. They are not so dissimilar from what Ryan has proposed.

The whole point of Krugman’s piece is to close off debate. With demographics changing, more Americans are becoming open and receptive to the idea of large scale entitlement reform.  Big government advocates are concerned for the same reason Tea Party activists are emboldened.

With the 2010 mid-term elections approaching, time is running out for big spenders to force through new Keynesian measures and the New York Times is not pleased. A new report warns against the political fallout for Republicans who prioritize budget cuts over stimulus programs. There is limited value in the standard back and forth between competing lawmakers. Instead more economists should be permitted to debate the merits of new spending plans..

“Deficit Hawks” who are ambitious to roll back the Obama Administration’s spending binge could jeopardize job creation and further sink the economy, according to lawmakers, union officials and public policy analysts who have been quoted recently in The New York Times.

When Congress reconvenes, it will only have one month to pass additional spending programs before leaving for the August recess. Keynesian economists who believe government spending spurs economic activity are alarmed because legislative efforts typically stall during election seasons.

Although budget cutters now appear to have the upper hand politically, the reporting suggests that Republicans who obstruct new spending initiatives could delay economic recovery and antagonize voters.

“Somehow the politically correct position on the deficit has become cut, cut, cut, irrespective of the economic consequences,” Representative Carolyn B. Maloney, a New York Democrat is quoted as saying. “Most economists agree the economy is too fragile to sustain the kinds of spending cuts politicians are talking about now.”

Alan Krueger, the treasury department’s chief economist, favors tax increases over spending cuts as a way to alleviate rising deficits and to boost jobs. He offered congressional testimony in May that has been cited in the New York Times as a rejoinder to law makers who favor less spending.

“He testified that the tax cuts enacted in 2001 and 2003 `did not result in better performance in the labor market than was achieved in the 1990s, a period when government revenue increased, and the deficit was reduced and eventually eliminated,’ the Times reported.

“Whether that perspective will shape the policy debate will become clear in the coming months. In the meantime, some experts say that job creation and deficit reduction are not mutually exclusive.”

Other key sources here include Mark Zandi, chief economist at Moody’s Economy.Com, who has argued in favor of “additional temporary stimulus to the economy.”

There are sharp divisions here between those who favor additional government expenditures and those who see deficit reduction as the more paramount concern. The Times deserves credit  for providing prominent Republicans with an opportunity to voice their concerns and make the case for fiscal restraint. Rep. Kevin Brady (R-Texas) and Rep. Paul Ryan (R-Wis.) both make some pointed observations that bring balance to the reports.

However, there is an implication made here that the prevailing view among economists is in sympathy with plans to advance spending programs. This is most certainly not the case and future reports should include the perspective of free market scholars who have debunked Keynesian thinking.

Russell Roberts, an economist with George Mason University, offered testimony before the U.S. Senate that addresses the current economic climate and argues government intervention. Some of the following comments should find their way into future reports that also cite Keynesians.

“While politicians may not be good at creating confidence, they can be very good at creating increased uncertainty,” Roberts explained. “Right now, the government is either intervening in numerous parts of the economy or considering expanded intervention in major ways…In the areas where the government has already intervened, the timing and nature of the exit strategy is up in the air. In the areas where the government is considering major intervention, the timing and entrance strategy are equally uncertain. This uncertainty discourages the risk-taking needed to get the economy going.”

Another proponent of parsimonious government spending patterns that deserves notice and attention is Howard Rich, Chairman of Americans for Limited Government. In response to a New York Times column by Paul Krugman, one of the leading lights of Keynesian theory, Rich correctly notes that government was already growing “by leaps and bounds” before the severe recession took hold.

“This is not rocket science, it is common sense, he observed. “The more government grows, the more the economy suffocates. Conversely, the more government contracts, the freer we will be as a nation to prosper.”

A strong case can be made that the Republic will be much safer if Congress declines to take any further action. That’s not the view of progressive economists connected with the Center for American Progress (CAP) and with top labor leaders who are often quoted in the Times.

“It is a national disgrace that members of Congress are heading home to celebrate our nation’s birthday after having voted repeatedly not to create jobs or to extend unemployment aid,” Richard Trumka, president of the AFL-CIO said.

Given how well positioned Trumka is with the Obama White House it is certainly helpful for readers to have an understanding of his policy stance. But what are the economic arguments for and against expanded government benefits?

There’s another option open for subsequent reports that defer to Keynesian thinking. The International Monetary Fund (IMF) has issued a new report that also takes jaundiced view of so-called stimulus plans. The organization has been a consistent and revered source for The Times and should figure into policy debates. Although its language is measured, the IMF clearly favors frugality in America and Europe.

“Lower risk appetite could initially reduce capital flows to emerging and developing economies,” the report says. “But relatively more robust growth prospects and low public debt could eventually result in higher capital flows, as some emerging economies become more attractive investment destination than advanced economies… At a global level, policies should focus on implementing credible plans to lower fiscal deficits over the medium term…such plans…should emphasize policy measures that reform pension entitlements and public health systems, make permanent reductions in non-entitlement spending, improve tax structures and strengthen fiscal institutions.

One man’s obstructionist is another man’s freedom fighter.

U.S. Senate Republicans have been called out for supposedly blocking President Obama’s top domestic priorities throughout 2009. The Obama White House and liberal news organs have been quick to fix the “obstructionist” label on the opposition party in light of where the president’s legislative agenda currently sits.  And there’s history here.

Under Republican presidents, Democrats have been accused of using parliamentary procedures to frustrate initiatives that would otherwise have a majority of votes. The critical difference here being that Republicans did not have a sympathetic news media. The New York Times over the past several  months has given plenty of press to obstructionist charges directed against GOP leaders, especially in the Senate.  This has been most evident in the coverage following up on the State of the Union address.

Most of the articles accept the premise of White House arguments, while ignoring a key fact.

As Americans for Limited Government (ALG) points out, Senate Republicans “have sustained one single, solitary filibuster against his agenda. Just one out of nearly 3,000 Senate bills introduced since Obama took the oath of office.”

Instead of merely repeating the Democratic talking points,  should be asking how a party with a filibuster proof majority failed to advance its majority initiatives. There’s an opening here for a solid New York Times report that put a considerable amount of daylight between its news section and the ubiquitous editorial comments on Republican obstructionism.

Consider New York Times columnist Paul Krugman who had this to say on ABC’s “This Week” program:

“Because we have a system in which you cannot at this point get anything done without 60 points in the Senate. I mean, what I’ve been thinking about right now is at this point, the House of Representatives has passed a health care bill and has passed a strong financial reform bill. It has passed a strong climate change bill. In any other advanced democracy, that would mean that all of these things would have happened. But in the U.S. system, it takes 60 votes in the Senate to accomplish anything and because the Democrats nominated somebody in Massachusetts who didn’t know her Red Sox, that entire agenda has run aground — incredible.”

Later in the program George Will reminded Krugman that the Senate was deliberately set up as a distinct institution that would slow down and cool the passions of the lower chamber.

“Let me respond a bit to Paul’s disapproval of the 60-vote supermajority. The Republicans didn’t invent it. The Democrats have used it with great vigor, and will probably want to do so again when the Republicans control the Senate. Yes, the Senate is different from the House. The founders planned it that way. I know of nothing, Paul, that the American people have wanted intensely and protractedly that they didn’t eventually get. What the Senate does is slow things down, and we have more to fear from government haste than from government tardiness.”

There’s a legitimate debate about the merits of the filibuster, especially as it applies to judicial nominations. But in reality Republicans standing alone have not been in a position to stop anything.  The president himself made this very point in his SOU address, even as needle Republicans for non-existing obstructionism.

“To Democrats, I would remind you that we still have the largest majority in decades, and the people expect us to solve problems, not run for the hills. And if the Republican leadership is going to insist that 60 votes in the Senate are required to do any business at all in this town — a supermajority — then the responsibility to govern is now yours as well.   Just saying no to everything may be good short-term politics, but it’s not leadership.  We were sent here to serve our citizens, not our ambitions.  So let’s show the American people that we can do it together.”

Aside from the single sustained filibuster, Republicans have not stopped anything. The president’s own Senate Democrats have provided the critical margin of votes necessary to block major legislation on energy, health and labor law. That’s a story that still needs to be told.

From Don Boudreaux at Cafe Hayek:

Here’s a letter that I sent this morning to the New York Times:

Paul Krugman wants the House to pass the Senate’s current health-care bill because “the nation is waiting” (“Do the Right Thing,” Jan. 22).

Ummm…. no.  Polls show that health-care ‘reform’ of the sort the Senate passed is now overwhelmingly unpopular.  Indeed, as Scott Brown’s victory makes clear, it’s unpopular even in Massachusetts – perhaps the most ‘Progressive’ state in the union.  And the President and members of the House obviously believe these polls, otherwise they wouldn’t have so quickly run away from the Senate bill.

For Mr. Krugman nevertheless to insist that “the nation is waiting” for final legislative approval of this ‘reform’ reveals that Mr. Krugman’s arrogance has reached such Brobdingnagian proportions that he mistakes his own desires for those of the American public.

Sincerely,
Donald J. Boudreaux