When Paul Krugman spoke at the 2004 Southern Economic Association meetings, I attended his session and asked him specifically if he was endorsing going back to the 70 percent income tax rates that prevailed before 1981. Krugman’s response? “Those rates were insane.” (emphasis added)
Well, I guess that the recession and the failure of the Obama administration to perform its “Messiah” role for the economy have driven Krugman top endorse insanity. Yes, he says that 70 percent rates would be just fine.
That is in line with the current academic and political Left that wants to turn back the clock (to use their own term). Robert Reich seems to be leading the charge, but I found this piece by Krugman from nearly a year ago in which he says that 70 percent tax rates would not discourage people from producing.
Of course, Krugman does not point out that pre-1981, the 70-percent rates came with a lot of possible deductions and shelters, most of which have been eliminated in subsequent tax law changes. So, I guess Krugman believes that even if the federal government confiscates 70 percent (and it would be more than that, given the other government taxes out there) of marginal income, that people will work, save, and invest as they always have.
What is interesting is that we have been down that road before. In 1932, the Herbert Hoover administration drastically raised taxes at all levels, including the top income tax rate from 25 percent to 63 percent. We see how well THAT strategy worked, as by the following February, just before Franklin Roosevelt took office, the nation’s unemployment rate had risen to about 28 percent.
Yes, and sooner or later, the band in “Animal House” will manage to march through the wall.