Greg Mankiw explains it all

More

Excellent analysis of Clinton's tax plans:


1. The $52 billion estimate seems high to me. The CBO reports that each percentage-point increase in the top two income tax rates--singles making over about $150K, married taxpayers over about $180K--increases tax revenue by only $6.5 billion in 2009. Multiply that by 4.6 (the proposed rate increase), and you get $29 billion, not $52 billion. And even that $6.5 billion is an overestimate, because it includes the top two rates, not just the top rate. I would guess that the Clinton campaign included other tax increases in the $52 billion figure, such as increases in the taxes rates for dividends and capital gains.

2. Even taking the $52 billion estimate at face value, it shows how little revenue would come from increasing taxes on the rich. This is only about 1/3 of one percent of GDP.

3. The passage from Leonhardt makes clear that Senator Clinton wants to spend the extra revenue on other proposals, instead of using it to reduce the long-term fiscal gap.

4. The passage says that this revenue will "help pay" for her other proposals, instead of fully paying for them. The entire package seems to involve either an expanded deficit or other taxes increases (or spending cuts) to be named later.

I don't want to hear any more about how the Democrats are the party of fiscal responsibility; none of them are planning to close the current deficit, much less deal with the now-seriously-it-really-is-looming entitlement problem. Their tax code changes will claw back only a small fraction of the revenue lost in the Bush tax cut. If you are surprised, it is probably because the Democrats and the Republicans have a different definition of the tax cuts going "mostly to the rich". If you mean, "which individuals got the biggest benefit from the tax cuts?", rich people did, because they pay the most taxes; that is the definition Democrats use. But if you mean "which class of people got most of the money?", then the answer is "the middle class". There just aren't that many rich people; it costs a lot more to hand out a modest amount of cash to 200 million than to hand out a lot of cash to 500,000. So when Democrats repeal only the tax cuts on the top one or two brackets, this may be symbolically rewarding, but it will not actually generate that much revenue for the treasury.

Democrats are, of course, planning to spend every bit of the money from their tax increases on new spending, plus it looks like some more. You may now return to forgetting that you ever thought you cared about the budget deficit.

Jump to comments
Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

Get Today's Top Stories in Your Inbox (preview)

What's the Number One Thing We Could Do to Improve City Life?

A group of journalists, professors, and non-profit leaders predict the future of livable, walkable cities


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In