Paul L. Caron

Tuesday, November 27, 2012

Mankiw: Tax Policy Inside Barack Obama's Mind

New York Times op-ed:  Slugging It Out, Inside Obama’s Mind, by N. Gregory Mankiw (Harvard University, Department of Economics):

Here is the dialogue, as I imagine it, between the two policy wonks — the Moderate Obama and the Liberal Obama — struggling for control of the president’s soul. ...

MOD: According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we’d raise $749 billion in tax revenue over 10 years. And 96.2 percent of the extra revenue would come from the top fifth of taxpayers, with 79.9 percent from the top 1 percent.

LIB: I have a couple of concerns about that.

MOD: What?

LIB: First, if you limit deductions, people in high-tax states will be hit particularly hard, because state and local taxes are deductible.

MOD: Isn’t that fair? I don’t see why states and towns that choose to have very high taxes should be subsidized by everyone else.

LIB: These states generally have liberal agendas, which I want to encourage, not penalize. And many of them, like New York and California, vote Democratic. After they helped us win such a great victory, I don’t think we should be asking our allies to bear a disproportionate share of the burden....

LIB: We can both broaden the base and raise the top tax rates. The economist Peter Diamond, whom we tried to appoint to the Federal Reserve, has calculations suggesting that the top tax rate should be 73 percent. That is close to the 75 percent rate that President Hollande of France is now pursuing.

MOD: Are you nuts? I don’t want to become France.

LIB: We don’t have to go that far, but we can go higher than where we are now. California just created a new tax rate for married couples earning more than $1 million a year and singles earning more than $500,000. Maybe the federal government should do the same thing.

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Good to have Mitt Romney's economics advisor remind us why we voted against the Governor.

Why is preserving the lowest possible capital gains rate sancrosanct? Mankiw just assumes for us that it should be a given.

Why stop at a $759 billion revenue raiser? $759 bill would be a good start on paying our two wars paid on credit cards. That still leaves the Bush tax cuts as an even bigger source of the hole in our budget. This is completely unaddressed by Professor Mankiw. How do we take care of the part of the deficit caused by the EGTERRA cuts? My guess is we repeal the cuts on the part of the populace that most benefitted and is most able to pay the tax. You know, Governor Romney's constituents.

Posted by: Jim Harper | Nov 27, 2012 6:44:35 PM