Megan McArdle has written an astute post on Paul Krugman’s latest column:
This is sort of impressive: Paul Krugman simultaneously castigates Republicans for the fiscal irresponsibility of wanting to extend tax cuts for the rich that cost about $700 billion–and for irresponsibly threatening the extension of tax cuts for the middle class which cost three times as much. Yet you could read the entire column and not realize that it’s the middle class tax cuts which are the really expensive, budget-busting bit.
I can construct a coherent argument about why you should extend one and not the other (though I favor letting both end), and Paul Krugman offers some of these as well, but the budget club happened to be available, so he grabbed that too. Unfortunately, it undercuts the rest of his argument. If you think the deficit’s a pressing problem, as I do, then all the tax cuts should be ended. If you don’t, then this argument is opportunistic, not serious.
In an update, Megan continues:
You could say “the benefit of the tax cuts is not worth the $700 billion we’ll lose”, but once you drag in the deficit, you’re talking about something subtly different–our need to get our long term spending and revenue in balance. At that point, I think you have to mention that the Obama plan increases the deficit by $2 trillion over ten years. Especially since that “much smaller” in the earlier paragraph might otherwise mislead people into believing that the actual cost–rather than the per-capita benefit–of the tax cuts for the middle class was smaller than that of the tax cuts on high earners.
But I’m actually glad that Krugman used the $700 billion number. Consider Annie Lowrey’s post on “Republicans’ Deficit Double-Talk“:
The same day, Sen. Mitch McConnell (R-Ky.) unveiled the Tax Hike Prevention Act, which extends the Bush tax cuts and adds something like $4 trillion to the deficit. To offset that cost, Republicans point to $300 billion from a spending freeze. They would look to the deficit commission to name cuts to make up the remaining $3.7 trillion.
Again, though the Congressional Budget Office has not yet scored the Tax Hike Prevention Act, Republicans are getting behind legislation that would putatively raise the debt by $4 trillion. But a Republican is holding up legislation that probably meets Senate paygo rules and costs about $280 million a year.
By citing the $700 billion number rather than the $4 trillion number, Krugman is essentially acknowledging that there is a bipartisan consensus — a wrong-headed bipartisan consensus, to be sure — around extending the bulk of the Bush tax cuts.
I definitely don’t think congressional Republicans are in the right. But it is important to keep these numbers in context. Recall that ARRA, much of which was widely recognized as poorly-targeted for purposes of short-term fiscal stimulus, cost $814 billion.
Why not phase out all of the Bush tax cuts except for the high-income rate reductions, which, Alan Viard argues, “provide greater incentives for economic activity, relative to revenue loss, than the middle-class tax cuts“? The obvious answer is this would be profoundly politically unpopular.