Monday, May 23, 2005

Paul Krugman endorses a 129% income tax increase for us all.

Interviewed in the Asia Times, Paul Krugman endorses tax increases for the US:

"We should be getting 28% of GDP [gross domestic product] in revenue. We are only collecting 17%."
Let's put this in some perspective:

Total federal income taxes in 2004 were 8.5% of GDP, so Krugman is saying we should have a 129% income tax increase -- for individuals, businesses, everyone -- or the equivalent. Today, for starters.

But the deficit today is only 3.5% of GDP -- so a tax increase of 11% of GDP would produce a surplus of 7.5% of GDP.

What to do with the new huge surplus? Back to the trust funds!

We, ahem, "save" the surplus for future use by depositing trillions of dollars of new bonds in the resurgent Social Security and Medicare trust funds, with confidence in their brand new polished lock boxes -- since Congress would never, ever boost spending to consume a big inflow of new tax revenue, as both fiscal history from the Social Security Act of 1939 through the fate of the surplus of the 2000s and the scholarship of Kent Smetters (.pdf) assure us!

Then, think of how we'll later all be able to enjoy the the extra income taxes beyond the 129% increase that will be needed a generation from now to pay off the gazillions of trust fund bonds!

Hey, when a financing scheme for social programs proves itself a total abject failure once...

"... each dollar of Social Security surplus appears to have actually increased the debt held by the public in the past by $1.76." [Smetters]
... the lesson is -- let's multiply it!! We can't possibly do enough of it!!

And as an afterthought, hasn't Krugman been writing relentlessly for the last few years about the US's weak economic performance, the "return of stagflation", poor employment, and all that?

Yet he wants a 129% income tax hike and 7.5%-of-GDP surplus?

Has the term "fiscal drag" been deleted from the NeoKeynesian vocabulary?