Via the Wall Street Journal’s Notable & Quotable, here is columnist James Pethokoukis explaining why, contrary to Keynesian theory, President Obama wants much higher taxes.
It’s the great mystery of the debt ceiling debate: Why is President Barack Obama so darn adamant about raising taxes? “This may bring my presidency down, but I will not yield on this,” Obama told Republicans before dramatically exiting their budget meeting last week. . . . Wouldn’t standard Keynesian economics, much beloved in the White House, actually call for cutting taxes (or increasing spending) to boost aggregate demand? Doesn’t Obama know that even his former chief economist, Christina Romer, says tax increases “will tend to slow the recovery in the near term.” . . .
But Obama’s tax obsession becomes understandable when you realize the long game he’s playing: Big Taxes to fund Big Government. Decade after decade. . . . On everybody. And if we have a debt crisis, maybe those tax increases come sooner rather than later.
The paper Pethokoukis is talking about, written by Christina Romer and her husband David Romer, is here. And here is the NBER digest of the paper, if you don’t feel like reading the whole thing. A key sentence in the paper is the following:
Tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.