In my recent post on Krugman’s Kontradiction regarding “contractionary policy is contractionary,” I wrote this:
More generally, Paul Krugman (as well as a gaggle of lesser Keynesian analysts) simultaneously believe the following:
==> The sales tax hike in Japan was obviously a stupid thing to do in a weak economy; of course if you make retail items artificially more expensive, people will buy fewer of them. In any event, there was no need to bring in new revenue this year; any need for budget reform could have been postponed until the recovery had gotten more strength; a few years of additional government debt would be a drop in the bucket.
==> A sharp increase in income tax rates on the top earners is a good thing to do, even in the midst of a depressed economy. Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant.
(Note that for brevity’s sake I omitted the middle two examples in the quotation of myself, above. I just wanted to give a flavor of the rhetorical point I was making.)
So “Lord Keynes” (who often goes by “LK” here in the comments) called foul on that last bit. He wrote:
“Nice straw man. Where did Krugman say this? It might be that rich people might work less if the income is taxed at a higher rate, or maybe they won’t. You could hardly predict it with certainty. If they do, then most likely other people will do the work, possibly unemployed people.”
I stuck to my guns, asking if LK would apologize were I to produce a Krugman quote to that effect. LK came back with this:
And before you answer you might like to read this explicit evidence that Krugman doesn’t believe the straw man idea you ascribed to him:
“A note on taxes, benefits, and incentives … . There is no question that incentives matter, that other things equal, someone facing a high marginal tax rate will work less than he or she would otherwise. How much they matter is another issue; in fact, careful empirical study suggests that they matter far less than right-wing mythology would have it.”
Paul Krugman, “Whose Incentives?,” Conscience of a Liberal blog, July 10, 2012.http://krugman.blogs.nytimes.com/2012/07/10/whose-incentives/?_r=0
So, clearly, Krugman:
(1) thinks “incentives matter”,
(2) thinks ceteris paribus “someone facing a high marginal tax rate will work less than he or she would otherwise,” but
(3) disputes that the effect on the rich is economically significant and in fact thinks much more attention should be given to lower and middle income earners.
Now a serious question: are you going to admit that Krugman has repudiated the view you ascribe to him? And apologise for using a straw man argument?
Yikes! It looks like LK caught me being sloppy, doesn’t it? LK has produced a quotation from Krugman that sure seems to be the exact opposite of what I said. It doesn’t look good for our karaoke’ing hero, does it?
Well, in this post from 2010 Krugman wrote:
So the way I see it, even quite high marginal tax rates on high earners — even rates in, say, the 70 percent range that prevailed pre-Reagan — are unlikely to put us on the wrong side of the Laffer curve by discouraging effort. High earners won’t work much less; they might even work harder, because it takes more effort to make enough to buy that fourth home.
That doesn’t mean, however, that it’s OK to go back to Eisenhower-era 91 percent top marginal rates. The problem with super-high rates isn’t so much that they reduce incentives to work; it’s that they create huge incentives to avoid or evade.
OK so we’ve got Krugman saying that even 70 percent top income tax rates might yield more work from rich people. Krugman goes so far as to say that even 91 percent top rates aren’t bad because they reduce work incentives.
So at this point, I’ve got Krugman calmly stating the position that I attributed to him. But wait, technically I also said that he makes fun of people who disagree with Krugman on this, and think (say) that 91 percent top tax rates would reduce work incentives. Can I produce a quotation from Krugman where he goes so far as to mock people who think a 91 percent income tax rate might reduce work effort?
Yep, I sure can. In 2012 Krugman wrote:
Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”
Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.
Today, of course, the mansions, armies of servants and yachts are back, bigger than ever — and any hint of policies that might crimp plutocrats’ style is met with cries of “socialism.” Indeed, the whole Romney campaign was based on the premise that President Obama’s threat to modestly raise taxes on top incomes, plus his temerity in suggesting that some bankers had behaved badly, were crippling the economy. Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?
Actually, some people thought so at the time. Paul Ryan and many other modern conservatives are devotees of Ayn Rand. Well, the collapsing, moocher-infested nation she portrayed in “Atlas Shrugged,” published in 1957, was basically Dwight Eisenhower’s America.
Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents. On the contrary, if Fortune is to be believed, they were working harder than ever. And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973. [Bold added.]
Granted, I’m biased, but I’m going to award victory to myself on this one. A regular Krugman reader would feel perfectly justified in laughing at someone who thought that high income tax rates would discourage high-income earners from generating income on the margin.
Last point: Strictly speaking, there is no contradiction in any of the above, including LK’s quotation. In fact, it wouldn’t surprise me if LK responds in the comments here, claiming that he obviously won, and demanding that I apologize for my scurrilous remarks.
Specifically, Krugman can simultaneously say that rich people respond to the incentives of the tax code, and that a 91 percent marginal tax rate will make them earn more income, because of the distinction between the income and substitution effects.
Even so, my original point remains: In any given case, Krugman carefully picks his assumptions and emphases to trumpet the policy that progressives like for other reasons.