WASHINGTON, October 2, 2015 – Paul Krugman continued to show his delusion about economic policy in his Oct. 2 New York Times column. He claims that the Republican presidential candidates’ tax cut plans are “voodoo economics.” He then tries to convince us that tax increases on the wealthy, who are the greatest contributors to the economy, will actually increase economic growth. This is his most glaring delusion yet.
He claims that “tax-cut enthusiasts have a remarkable track record: They’ve been wrong about everything, year after year.” It is hard to imagine that he can make this completely unfounded statement with a straight face.
Krugman argues that in 1993 Bill Clinton raised the top two income tax brackets to 36 percent and 39.6 percent. Clinton also removed the income cap on the Medicare payroll tax, raised the corporate tax rate from 34 to 35 percent, increased the taxable portion of Social Security benefits and imposed a 4.3 cent per gallon increase in fuel taxes. Krugman claims this led to a sustained boom.
The reality is that the tax increases were so unpopular and counter-productive that the Democrats suffered historic losses and lost control of Congress in 1994. In 1995 President Clinton said, “I think I raised them (taxes) too much.”
Realizing the mistake, in 1995 Clinton flip-flopped. His actions led to his re-election and the economic boom that occurred during his second term. Clinton reformed welfare, which really led to a tax break for the poor. In 1996, he continued the phase-out of tariffs, import taxes and other barriers required under the North America Free Trade Agreement.
In 1997, he reduced the capital gain tax rate from 28 to 20 percent. He also increased the “death tax” exemption from $600,000 to $1,000,000. The growth rate in federal spending was reduced to less than 3 percent.
The result was that during Clinton’s first term in office, economic growth averaged a very good 3.2 percent. After the Clinton tax cuts and government spending reductions, economic growth averaged 4.2 percent during his second term.
Between 1996 and 2000, job growth averaged 2.1 million jobs per year, as the unemployment rate fell from 5.4 to 4.0 percent. The reduction in the capital gains tax rate led to an investment boom that “trickled down” to workers who saw wages, after discounting for inflation, increase by more than 6 percent during the four-year period.
Federal government tax revenue increased by an amazing 59 percent over the four year period, averaging a $143 billion per year increase. This, coupled with government spending restraints, produced a $198 billion budget surplus in 2000.
Indeed the Clinton tax cuts in his second term, coupled with the reduction in growth rate of government spending, led to shared prosperity. The stock market soared, helping millions of Americans to see an increase in their savings for retirement.
In his column Krugman goes on to say, “Republicans support big tax cuts for the wealthy because that’s what wealthy donors want.” The reality, of course, is that Republicans support fair taxes for all income earners. While everyone seems to agree that people who earn more income should pay more income taxes, the increase in tax payments should be proportionate to income.
The problem that delusionists like Krugman have is that most Americans believe higher income earners should pay proportionately more taxes, not disproportionately more taxes as Krugman advocates when he says high income earners should not only pay more tax dollars but they should be taxed at significantly higher rates. With some delusional argument he believes this will be better for the economy.
Krugman ended his column by saying, “But never forget that what it’s really about is top-down class warfare. That may sound simplistic, but it’s the way the world works.” It is difficult to comprehend that a person of Krugman’s intelligence can actually believe that. The current administration shares Krugman’s view, which has really escalated class warfare.
What Krugman really wants is to cure what he believes is a social injustice. He believes that the poor conditions of lower income earners is a result of higher income earners not paying enough taxes. He further believes that income equality can be fixed by pushing the top income earners down, rather than by pulling the bottom income earners up.
His bias and delusions are difficult to understand, especially from a person who has won a Nobel Prize in economics. It appears he has let his social injustice bias cloud his objectivity.