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Partisan Economics

Posted By Barry Ritholtz On October 7, 2009 @ 2:30 pm In Politics,Really, really bad calls | Comments Disabled

David Leonhardt has a terrific piece in the Times [1] today on Bruce Bartlett — “the most persistent — and thought-provoking — conservative critic” of the GOP.

The discussion of tax cuts is fat too common sense to be seen in print very often:

“His conservatism starts with the idea that high taxes are no longer the problem, even if complaining about them still makes for good politics. This year, federal taxes are on pace to equal just 15 percent of gross domestic product. It is the lowest share since 1950.

As the economy recovers, taxes will naturally return to about 18 percent of G.D.P., and Mr. Obama’s proposed rate increase on the affluent would take the level closer to 20 percent. But some basic arithmetic — the Medicare budget, projected to soar in coming decades — suggests taxes need to rise further, and history suggests that’s O.K.

For one thing, past tax increases have not choked off economic growth. The 1980s boom didn’t immediately follow the 1981 Reagan tax cut; it followed his 1982 tax increase to reduce the deficit. The 1990s boom followed the 1993 Clinton tax increase. Tax rates matter, but they’re nowhere near the main force affecting growth.

And taxes are supposed to rise as a country grows richer. This is Wagner’s Law, named for the 19th-century economist Adolf Wagner, who coined it. As societies become more affluent, people demand more services that governments tend to provide, like health care, education and a strong military. A century ago, federal taxes equaled just a few percent of G.D.P. The country wasn’t better off than it is today.

Modern conservatism, Mr. Bartlett says, should therefore have two main economic principles. One, it should prevent government from getting too big. There is no better opportunity than health reform, given that the current bills don’t do nearly enough to slow spending growth. Instead of pushing the White House to do better, however, Congressional Republicans are criticizing any effort to slow spending as an attack on Grandma. They’re evidently in favor of big Medicare, just not the taxes to pay for it.”

Hard for me to disagree with what Mr. Barlett says . . .

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Source:
Partisan Economics in Action [1]
DAVID LEONHARDT
NYT, October 6, 2009

http://www.nytimes.com/2009/10/07/business/07leonhardt.html


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[1] Times: http://www.nytimes.com/2009/10/07/business/07leonhardt.html

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