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Monday, January 3, 2011

Mankiw: How President Obama Can Get Along With the GOP on Taxes

New York Times op-ed, How to Break Bread With the Republicans, by N. Gregory Mankiw (Harvard University, Department of Economics):

Dear President Obama:

Sorry to bother you. I know you are busy. But I have the sense that you could use a few words of advice. ... As a sometime adviser to Republicans, I’d like to offer a few guidelines to understanding their approach to economic policy. Follow these rules of thumb and your job will be a lot easier.

Think at the Margin.  Republicans worry about the adverse incentive effects of high marginal tax rates. A marginal tax rate is the additional tax that a person pays on an extra dollar of income. ... From the standpoint of incentives, a tax cut is worthy of its name only if it increases the reward for earning additional income.

Stop Trying to Spread the Wealth.  Ever since your famous exchange with Joe the Plumber, it has been clear that you believe that the redistribution of income is a crucial function of government. A long philosophical tradition supports your view. It includes John Rawls’s treatise A Theory of Justice, which concludes that the main goal of public policy should be to transfer resources to those at the bottom of the economic ladder.

Many Republicans, however, reject this view of the state. From their perspective, it is not the proper role of government to fix the income distribution in an attempt to achieve some utopian vision of fairness. They believe, instead, that in a free society, people make money when they produce goods and services that others value, and that, as a result, what they earn is rightfully theirs. This view also has a long intellectual tradition. The libertarian philosopher Robert Nozick has suggested revising the old leftist slogan “From each according to his ability, to each according to his needs” to “From each as they choose, to each as they are chosen.”

Spread Opportunity Instead.  Despite their rejection of spreading the wealth, Republicans recognize that times are hard for the less fortunate. Their solution is not to adjust the slices of the economic pie, as if they had been doled out by careless cutting, but to expand the pie by providing greater opportunity for all. Since the mid-1970s, the gap between rich and poor has grown considerably. One of best analyses of this long-term trend is by the Harvard economics professors Claudia Goldin and Lawrence Katz in their book, The Race Between Education and Technology. The authors conclude that widening inequality is largely a symptom of the educational system’s failure to provide enough skilled workers to keep up with the ever increasing demand.  Educational reform, therefore, should be a high priority.

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Comments

As a lifelong Republican, I am sad to say the primary interest of the current leadership is to use the government to guarantee that rich white people get richer.

As the southern plantation wing of the party has taken more control, and the dittoheads have gain the microphone, the result is a mess.

Posted by: save_the_rustbelt | Jan 3, 2011 11:53:06 AM

Since all Republicans are very religious people, how do they reconcile this stance with their Bible? I guess the Bible is telling " a rich man will have problems getting into heaven with an attitude like that"

Posted by: Sid | Jan 3, 2011 2:28:52 PM

I'm trying to think of one single tax that isn't redistributive. Maybe the airport security tax. Its used for a very discrete purpose, yet its not enough to pay for the service, so that just means that other taxes become more redistributive.

I haven't seen any great Republican concern for "marginality" if they did, they would support moving tax rates for the top 400 taxpayers from 16% to 20% that other million dollar per year earners pay. The well to do would have been excluded from the payroll tax holiday.

Not to be impolite, but I haven't seen any great Republican concern for the less fortunate either. A cost-free improvement in education is something we can all wish for anyway. Wishful thinking is definitely part of the Republican canon these days.

Posted by: jimharper | Jan 3, 2011 4:51:36 PM

Sid: "Since all Republicans are very religious people..."

Okay, and "all" Democrats are godless heathen atheists who, for the sake of their own power, preach class warfare by telling the masses that they have it bad and that they should envy successful people and covet their possessions. At least, that's what Reverend Wright taught Obama. The Democrats gave up getting to the Tenth Commandment after breaking the first nine.

Posted by: Woody | Jan 3, 2011 9:35:32 PM

Dear Professor Mankiw

Sorry to bother you, I am sure you are busy telling the President how to get along with people who do not want to get along with him but instead want to keep the fiction alive that it was him and the Democrats who led the country into fiscal disaster but a few observations on how you can stop looking silly.

First,give up the idea that a regressive tax, (i e the more income a person makes the less the tax the person should pay or what you call "marginal rates") is the way to solve our fiscal crisis. Shifting the tax burden to those making less of the money is not a wise or equitable solution.
Next, give up the idea that everything the Democrats do is based on some marxist ideology and that the Republicans are actually fighting to save us all from some tyrannical leveling state. Get out of your Ayn Rand novel and back into the real world. Those that make more can better afford to pay more. Simple as that. Not that sinister. Someone has to pay for the bombs, prisons, police and wiretappers that you like and the social safety net the rest of us want.
Next, give up the idea that tax cuts create jobs. Wrong. Demand creates jobs and cutting taxes for the wealthy does not create demand for the kinds of goods and services that employ people. Not a single shred of economic data has ever proved otherwise. While you are at it give up the junk "science" of supply side economics. Tax cuts have never, ever shrank the deficit. Much the opposite.

Finally, put your Republican money where you Tea Party mouth is: support cutting the deficit and fiscal responsiblity by not just cutting spending but by raising taxes till the budget gets balanced and the debt is under control. You busted it in the Bush years support mending it now. Across the board, everyone sharing the burden of living in a decade of fiscal irresponsiblity.

Posted by: George W | Jan 5, 2011 12:12:47 PM