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A preview of the above article (There is more to the article both before and after the snapshot I post below, but I didn't want to copy the entire thing).
Quote:
...The controversy of the moment involves AOC’s advocacy of a tax rate of 70-80 percent on very high incomes, which is obviously crazy, right? I mean, who thinks that makes sense? Only ignorant people like … um, Peter Diamond, Nobel laureate in economics and arguably the world’s leading expert on public finance. (Although Republicans blocked him from an appointment to the Federal Reserve Board with claims that he was unqualified. Really.) And it’s a policy nobody has ever implemented, aside from … the United States, for 35 years after World War II — including the most successful period of economic growth in our history.
To be more specific, Diamond, in work with Emmanuel Saez — one of our leading experts on inequality — estimated the optimal top tax rate to be 73 percent. Some put it higher: Christina Romer, top macroeconomist and former head of President Obama’s Council of Economic Advisers, estimates it at more than 80 percent.
Where do these numbers come from? Underlying the Diamond-Saez analysis are two propositions: Diminishing marginal utility and competitive markets.
Diminishing marginal utility is the common-sense notion that an extra dollar is worth a lot less in satisfaction to people with very high incomes than to those with low incomes. Give a family with an annual income of $20,000 an extra $1,000 and it will make a big difference to their lives. Give a guy who makes $1 million an extra thousand and he’ll barely notice it.
What this implies for economic policy is that we shouldn’t care what a policy does to the incomes of the very rich. A policy that makes the rich a bit poorer will affect only a handful of people, and will barely affect their life satisfaction, since they will still be able to buy whatever they want.
So why not tax them at 100 percent? The answer is that this would eliminate any incentive to do whatever it is they do to earn that much money, which would hurt the economy. In other words, tax policy toward the rich should have nothing to do with the interests of the rich, per se, but should only be concerned with how incentive effects change the behavior of the rich, and how this affects the rest of the population.
But here’s where competitive markets come in. In a perfectly competitive economy, with no monopoly power or other distortions — which is the kind of economy conservatives want us to believe we have — everyone gets paid his or her marginal product. That is, if you get paid $1000 an hour, it’s because each extra hour you work adds $1000 worth to the economy’s output.
In that case, however, why do we care how hard the rich work? If a rich man works an extra hour, adding $1000 to the economy, but gets paid $1000 for his efforts, the combined income of everyone else doesn’t change, does it? Ah, but it does — because he pays taxes on that extra $1000. So the social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort — and conversely the cost of their working less is the reduction in the taxes they pay.
Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.
And that’s something we can estimate, given evidence on how responsive the pre-tax income of the wealthy actually is to tax rates. As I said, Diamond and Saez put the optimal rate at 73 percent, Romer at over 80 percent — which is consistent with what AOC said.
An aside: What if we take into account the reality that markets aren’t perfectly competitive, that there’s a lot of monopoly power out there? The answer is that this almost surely makes the case for even higher tax rates, since high-income people presumably get a lot of those monopoly rents.
So AOC, far from showing her craziness, is fully in line with serious economic research. (I hear that she’s been talking to some very good economists.) Her critics, on the other hand, do indeed have crazy policy ideas — and tax policy is at the heart of the crazy.
You see, Republicans almost universally advocate low taxes on the wealthy, based on the claim that tax cuts at the top will have huge beneficial effects on the economy. This claim rests on research by … well, nobody. There isn’t any body of serious work supporting G.O.P. tax ideas, because the evidence is overwhelmingly against those ideas...
What are people's thoughts on the above? As a general follow-up to that, for those of you who subscribe to libertarian economic philosophy, why is the Keynesian view on tax policy wrong? I've been hungering to see this kind of intellectual debate in action but it is truly hard to find.
Last edited by Valhallian; 01-07-2019 at 09:46 AM..
Tax rates used to be high like that but hardly anyone paid them due to deductions, credits, etc. Tax rates came down decades ago in part to simplify them. You’d simply see a repeat of the same thing. The rich threatening to work less when taxes go from something like 35% to 38% are just gripping. People really will do less if they double or more.
AOC proclaims her economic understanding but has repeatedly used blatantly false populist talking points that any self respecting person with a degree in economics knows are totally false. So I put her in the category of Bernie Sanders; great for grabbing attention but devoid of real solutions.
I think this country has a spending priority issue much more than a revenue issue (revenue levels could be higher, but what’s the point if they’re spent wrongly). I think the theft from the American people that is the healthcare system is a lot more of a pressing issue than trying to get the wealthy to pay for your dreamworld.
Tax rates used to be high like that but hardly anyone paid them due to deductions, credits, etc. Tax rates came down decades ago in part to simplify them. You’d simply see a repeat of the same thing. The rich threatening to work less when taxes go from something like 35% to 38% are just gripping. People really will do less if they double or more.
AOC proclaims her economic understanding but has repeatedly used blatantly false populist talking points that any self respecting person with a degree in economics knows are totally false. So I put her in the category of Bernie Sanders; great for grabbing attention but devoid of real solutions.
I think this country has a spending priority issue much more than a revenue issue (revenue levels could be higher, but what’s the point if they’re spent wrongly). I think the theft from the American people that is the healthcare system is a lot more of a pressing issue than trying to get the wealthy to pay for your dreamworld.
Thanks for the contribution. Although your comment that "any self respecting person with a degree in economics" knows her talking points are "totally false" is refuted by the very article I posted.
You did see the author of the article right? It's Paul Krugman - whether you agree or disagree with him, he is a Nobel Prize-winning economist and professor at Princeton University. He believes her proposal is quite reasonable. So, really, perhaps you mean to say "any person with a degree with economics who agrees with me" finds her arguments to be "totally false."
Thanks for the contribution. Although your comment that "any self respecting person with a degree in economics" knows her talking points are "totally false" is refuted by the very article I posted.
You did see the author of the article right? It's Paul Krugman - whether you agree or disagree with him, he is a Nobel Prize-winning economist and professor at Princeton University. He believes her proposal is quite reasonable. So, really, perhaps you mean to say "any person with a degree with economics who agrees with me" finds her arguments to be "totally false."
You’re missing the first paragraph of my response.
He’s not advocating for what she’s saying. He’s merely pointing out the link to two other economists theories (which are just that, untested theories). When it comes to AOC on economic statistics she lies just as much as trump does.
Economics in general exists in mostly lala land. All their theories don’t always take into account reality. Very often their theories assume humans are rational animals. We’re not.
Paul Krugman smoogman... nothing about him makes him right on everything. He operates in a world of theory, not facts.
Last edited by LordSquidworth; 01-07-2019 at 10:50 AM..
Krugman rarely ever acknowledges the simple facts that are easily verified on omb.gov. He's a political hack first, last and always. Let a Republican use Ocasio-Cortez' own words and suggest a 71% top marginal rate that a Democrat President disagrees with, and you'd see him crushing the very concept of highly progressive taxation, etc. He's famous for this and has a long history of advocating for what Democrats want, and totally opposing the EXACT same thing if a Republican advocates for it.
Also, the entire basis of your argument is a fallacy called Appeal to Authority. Because Krugman has a Nobel prize, we must assume whatever he says is correct, and by extension, his defense of Ocasio-Cortez makes her correct. That's logically invalid.
Here's the simple truth - no matter what I think, Krugman or Ocasio-Cortez think, or anyone else for that matter, the numbers simply DO NOT LIE. Whatever the top marginal rate happens to be, federal revenue will be ~17% of the GDP. 70+ years and counting, with top marginal rates that have been between 35-90%, and year after year, it's ~17%, +/- 2%. Don't take my word for it, go look at the historical tables at omb.gov for yourself.
Want to know what the problem is? The problem is when revenue is that predictable, we spend ~19.2% of the GDP in federal outlays, every year, year after year, no matter what. GDP and total revenue as a percentage of GDP are stupidly easy to predict to within a reliable degree of certainty, and the historical tables predict the percent that will be revenue. Knowing this, and knowing that spending for one year is planned the year before, you'd think spending within the limits of revenue, on average, would be stupidly simple as well. It is, but Congress doesn't want you to know how stupidly simple it is because you'd find out they are really, really bad at heir jobs because the American people demand them o be really really bad at their jobs.
We have a spending problem. Period. A top marginal rate of 70% will neither generate revenue as Ocasio -Cortez and Krugman predict, nor will increases revenue solve a cost overrun problem.
All I know is - we have to do something to prevent the further takeover of this country by the oligarchs and the corporations.
The 'free market' isn't going to do it. Wealth inequality continues to widen and it has since the days of Raygun.
Then why tax income?
If punishing people for having wealth is your goal, which you clearly imply that it is, then direct tax on owned/stored wealth is a far better solution. Think of it like a living estate tax that is levied annually. Let us say someone is worth $10 billion in assets/cash/stocks. OK, under the new living estate tax, we tax their entire net worth at oh, say 25%, which means that billionaire needs to cough up $2.5 billion to cover his punishment for being successful and wealthy. Hopefully, in 4-5 years, we bankrupt him, thus reducing wealth inequality. Basically, skin certain sheep instead of shearing them.
Now, I grant you that the combined worth of every millionaire and billionaire in America only funds the government for about 21 months, and we have a spending problem as I wrote earlier, and punishing the rich that much will discourage anyone from ever saving/earning more money ever again....but if punishing wealthy people is your goal, stop taxing that which they do not do, and start taxing that which they own/possess?
One thing that doesn’t seem to be taken into account is that the rich are a lot more mobile now . Punish the rich like Ocasio Cortez wants to do and we’ll see them moving themselves and businesses overseas at a much higher degree .
A big difference between now and the 35 years after world war 2 is that there wasn’t the internet in everyone’s home and pocket .
If you want to see the destruction of America as we know it support political hacks like Ocasio Cortez .
Krugman rarely ever acknowledges the simple facts that are easily verified on omb.gov. He's a political hack first, last and always. Let a Republican use Ocasio-Cortez' own words and suggest a 71% top marginal rate that a Democrat President disagrees with, and you'd see him crushing the very concept of highly progressive taxation, etc. He's famous for this and has a long history of advocating for what Democrats want, and totally opposing the EXACT same thing if a Republican advocates for it.
Also, the entire basis of your argument is a fallacy called Appeal to Authority. Because Krugman has a Nobel prize, we must assume whatever he says is correct, and by extension, his defense of Ocasio-Cortez makes her correct. That's logically invalid.
Here's the simple truth - no matter what I think, Krugman or Ocasio-Cortez think, or anyone else for that matter, the numbers simply DO NOT LIE. Whatever the top marginal rate happens to be, federal revenue will be ~17% of the GDP. 70+ years and counting, with top marginal rates that have been between 35-90%, and year after year, it's ~17%, +/- 2%. Don't take my word for it, go look at the historical tables at omb.gov for yourself.
Want to know what the problem is? The problem is when revenue is that predictable, we spend ~19.2% of the GDP in federal outlays, every year, year after year, no matter what. GDP and total revenue as a percentage of GDP are stupidly easy to predict to within a reliable degree of certainty, and the historical tables predict the percent that will be revenue. Knowing this, and knowing that spending for one year is planned the year before, you'd think spending within the limits of revenue, on average, would be stupidly simple as well. It is, but Congress doesn't want you to know how stupidly simple it is because you'd find out they are really, really bad at heir jobs because the American people demand them o be really really bad at their jobs.
We have a spending problem. Period. A top marginal rate of 70% will neither generate revenue as Ocasio -Cortez and Krugman predict, nor will increases revenue solve a cost overrun problem.
Thanks for your substantive contribution, as it's refreshing to see. I'll check your link later when I'm not working. However, you're misusing the appeal to authority fallacy. I'm not making an argument. I'm posting the words of Krugman and asking for people's input.
Quote:
Originally Posted by LordSquidworth
You’re missing the first paragraph of my response.
He’s not advocating for what she’s saying. He’s merely pointing out the link to two other economists theories (which are just that, untested theories). When it comes to AOC on economic statistics she lies just as much as trump does.
Economics in general exists in mostly lala land. All their theories don’t always take into account reality. Very often their theories assume humans are rational animals. We’re not.
Paul Krugman smoogman... nothing about him makes him right on everything. He operates in a world of theory, not facts.
When Pelosi starts talking the same points as Cortez -- I will debate this issue -- until then this is a non-issue for me. As you can see I'm a wee bit lazy and won't spend time over analyzing something that is being presented by one very junior House representative.
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