Krugman: It's time to go BIG... on taxes

The super committee is dead. Long live the substandard committees.

Just because the “big deal” didn’t happen as a result of the recent, marginally extra-constitutional shenanigans, that doesn’t mean that Congress doesn’t still have to come up with a plan. And the “go big” theme is far from dead among the chattering class. In fact, New York Times economist Paul Krugman has once again demonstrated the benefits of a classical education and come up with yet another path to prosperity. In this version, he seems to have abandoned the idea of going back to Clinton era tax rates for the wealthy. That won’t be able to fix the problem, as many conservatives have already noted.

The answer? We’ll just really tax the heck out of them!

The supercommittee was a superdud — and we should be glad. Nonetheless, at some point we’ll have to rein in budget deficits. And when we do, here’s a thought: How about making increased revenue an important part of the deal?

And I don’t just mean a return to Clinton-era tax rates. Why should 1990s taxes be considered the outer limit of revenue collection? Think about it: The long-run budget outlook has darkened, which means that some hard choices must be made. Why should those choices only involve spending cuts? Why not also push some taxes above their levels in the 1990s?

Strangely, Krugman goes a long way toward defeating his own argument a few paragraphs later, noting that under his staggeringly optimistic estimate, a truly massive marginal tax rate on those earning more than $2M per year could shave “as much as” $100B per year off of the deficit. I’m not saying that $100B is anything to sneeze at, but it’s still a relatively paltry fly swatter with which to attack the current deficit monster. And while I’m one of the unpopular people who admit that any sort of salable final deal will likely require some significant revenues in addition to bringing down spending dramatically, it’s hard to imagine picking a worse target for the federal government’s wrath.

But yet again, as Noel Sheppard notes, the bigger picture requires a focus on something different. Also known as… it’s the spending, stupid.

As I’ve noted many times in the past, if we had only grown our total expenditures at the rate of inflation since 2007, we would have had a $413 billion deficit in the just-ended fiscal year 2011. This would be even lower in the current year given projections of $2.9 trillion in unified tax receipts.

When you consider that total unified outlays in 2007 – before the Democrats took over Congress! – were $2.7 trillion, and that they rose to a staggering $3.8 trillion in just four years or 41 percent, it’s just absurd to blame our fiscal woes on revenues.

But we’ve grown accustomed to this in the past couple of years, especially from arithmetically-challenged Nobel laureates like Krugman.

Some lessons apparently take a very long time to learn. But with luck, we’re getting there.