Is Paul Krugman Serious? Sadly, Yes.
In response to the Op-Ed by the NY Times' resident (or head) socialist, Paul Krugman:
Where to start. First the gov't spending argument. How does government get the money Mr. Krugman wants to so merrily spend? Right, from either us or our employers. In the article he claims reduction in consumer spending is the cause of the current condition we are in. He even goes as far as to say that further reductions in it will cause even more pain as it further will reduce economic activity.
So, how then will the government get this money to spend? Increased taxes. But wait, Paul. Didn't you just say that U.S. consumers need to spend more in order to avoid further economic deterioration? How will taking more of our money in taxes accomplish that? What about our employers? How will taxing them at a higher rate cause them to hire more of us so we can then spend more?
Do you have a plan for the government to go to Sears (SHLD) to buy washers and dryers or Wal-Mart (WMT) for cleaning supplies?
Now, we all know that 2/3 of all economic activity involves you and me spending the money our employers pay us (or we make ourselves). If one wants to stimulate the economy, doesn't it make common sense to stimulate the largest portion of it?
Why would we want to stimulate the largest, slowest and most inefficient portion of the economy? If we want the largest effect from any effort, it doesn't seem like increasing taxes or increasing the deficit is the best way to go.
The problem here is that there is no easy, quick fix. If that is true, then let's do what we know works.
Capital gains taxes. The only tax action I am aware of that has a 100% effect is either the lowering or increasing of the capital gains tax. Lowering it has always led to increased tax revenue (more profits) and raising it has always led to a decrease (lower profits).
Even those sitting on large losses in stocks this year only get to write off $3k of those losses against gains. The result of this is as follows: if an investor who had a $10k gain earlier in the year but has lost $20k in the last couple months can only write off $3k against income, meaning $7k in income will still be taxed even though there was a loss in excess of it.
Let losses be losses and gains be gains...
Raise the write-off limit to $10k or more and let them lower their taxable income, increase the returns they get next spring. Lower the tax rate on them from 15% to 5% (and have both candidates ensure it stays there) and stop the slide in stocks that is happening as investors fear it will almost double next year.
Lower it and money floods back into stocks, raising values, 401K balances, IRA balances etc. A consumer that sees their retirement savings increasing will be less prone to hoard more money for it and far more prone to spend it.
Government cannot spend us out of this. Government spending is inherently wasteful and inefficient and comes at a cost to other, more efficient forms.
Do I agree that more stimulus checks are a waste? Yes. Government needs to just stop. This problem was years in the making and cannot, no matter what is attempted, be solved quickly...it just can't.
Now, Krugman does not specifically say a tax increase is needed. He is smart enough to stop short of saying that. But, if anyone can find me an example of when he embraced tax cuts, let me know because I have not seen it.
Just my two cents.......
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This article has 24 comments:
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CLH
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717 Comments
Nov 02 08:20 AM-
2houndz
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83 Comments
Nov 02 08:29 AMThey seem to understand very little, but they can hear pretty words and they can go to the polls.
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turleymuller
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92 Comments
My Website
Nov 02 10:10 AMI complete confidence that Congress would agree and not fight over which district the government should waste our money in. That's because those are the most selfless, in-touch with reality people alive. We're so lucky to have them as our leaders!
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Whidbey
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781 Comments
Nov 02 11:04 AMHow much tax relief will it take? Will 50% more or less of US citizens pay no federal taxes and the result has not been the "stimulus" Congress wanted (George wanted it too). Then came Low Income Tax credits (read redistribution). Still no significant change in the number of low income earners in society. It appears the tax holidays would have to be infinite,( unlimited and forever), if Paul intends to solve the problems of low earners v. low aggregate demand. Unions? education? tax the poor?
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OctoberFaith
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219 Comments
Nov 02 11:20 AMlower taxes so business can spurr.
make people with debts pay off their housing debts.
unless ofcourse they just file bankruptcy.
dont worry about the housing market.
worry about how much money you got in your account and if you can afford to buy another rental home. because the housing market is looking real good right now for those of us who have been doing what we should.
good thing I'm ready. Rental homes may be more work, but I know how to turn a wicked profit into an even better profit using leverage. if the interest rate drops I'll be able to afford to borrow even more. People will always find a home. one place or another.
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OctoberFaith
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219 Comments
Nov 02 11:26 AMoh wait you already did.
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2houndz
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83 Comments
Nov 02 12:49 PMI personally own 150 apartments in a location that is prime to take advantage of the current situation and I can tell you they are not cash flowing. They are not a problem asset for me either, but I'm spending more than ever before on collections, attorneys and fix up costs after the non-payers are gone. The bright side is that most of the good rent payers can't afford to move right now either, so at least they are sticking around.
Bottom line - if you like the asset class and don't need the cash flow, it's a good time to get in the biz, otherwise stay away. Cash is king right now, and trading equities and futures is more profitable, more liquid and a lot easier. My .02
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hilo
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15 Comments
Nov 02 01:30 PM-
hilo
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15 Comments
Nov 02 01:33 PM-
valinho
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7 Comments
Nov 02 02:47 PMKeep on calling names to those with solutions, and believe the same propaganda we have been fed since Reagan. There are many places to check who and why the deficits have been created and how they have affected our place in the world standings. It's just like spending money on toys and gadgets and complaining you don't have money for food and shelter. When you comlain about how someone as the wrong set of believes, you are doing so from your own, which of course will also be debatable.
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David in D
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27 Comments
Nov 02 03:42 PMAs for many of the other posts here who blindly continue (rank-and-file) to be in the "low-tax" and "screw capital gains tax" camps, have you not learned anything these past thirty years. Until the bottom crust(s) of America experience some serious wage improvements we will not move ahead economically.
Wage inequality is more at the root of our current crisis than capital gains taxes or "Krugman socialism" as some posters have suggested. Fix that, and you will go a long way toward fixing our fiscal mess.
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2houndz
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83 Comments
Nov 02 05:16 PM-
DougM
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108 Comments
Nov 02 07:14 PM-
Mr. Cynical
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15 Comments
Nov 02 11:29 PM-
AlanH
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1 Comment
Nov 02 11:49 PMWe have been handing generous tax breaks to the wealthy for decades and all it's done is produce gigantic deficits and third-world levels of economic inequality. Such "voodoo economics" clearly don't work as promised, but there is always someone claiming that we just have to provide even more breaks and everything will magically work out.
What you are offering is an ideology, not real world economics.
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CaptainJJack
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25 Comments
Nov 03 08:35 AMOf course, the answer you will give is to cut spending, but, like McCain, Defense, the wars, the veterans, Medicare and Social Security are taken off the table. When you add in the interest on the massive debt we have, you could ELIMINATE the rest of the budget, and STILL not balance it.
Make no mistake, taxes will go up regardless of tomorrow's winner. The markets will wait until the deficits get bad enough, and THEN discipline will be enforced with a vengeance, like the early 1990s when the markets finally reacted to the Reagan debt (Remember GHW Bush "read my lips", his tax increase and his lost election?)
What drives the nonsense that "deficits do not matter" is the "supply side" economics nonsense THAT EVEN LAFFER NOW DISOWNS.
Finally, the whole nonsense about capital gains. IF there was ever the effect you cite, it is not a factor now.
More than 80% of the stock and bond investments are in qualified plans and IRAs. The other big asset is in homeowner real estate, and even if that were a gain, it isn't taxed.
THERE ARE EFFECTIVELY NO TAXABLE CAPITAL GAINS.
From a budget standpoint, It doesn't make any difference what the capital gains tax rate is.
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John Preston
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46 Comments
Nov 03 08:37 AMFor those who read broadly on the subject of housing, you will have certainly read Mr. Shillers (he, Case & Quigley) entitled COMPARING WEALTH EFFECTS:
THE STOCK MARKET VS. THE HOUSING MARKET....
In it he correlated a 10% gain in housing to a 1% increase in consumer spending...the wealth effect...
So, a 3.1% DECREASE in spending = a 31% decline in housing......
Lets all cheer for housing to go down another 50%....and watch the economy really crumble.....jobs will go away....retirement accounts will evaporate....and we can all be safe in our predictions that housing has returned to the dark ages...and taken the economy with it....
Housing in a part of the DNA of the economy today...if housing is not stabilized, no amount of STIMULUS will help.....Krugman does not get it....and most do not get it....
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goldis4ever
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47 Comments
Nov 03 11:05 AMDid the author forget the concept of "stimulus checks" originated with the Repugs???? This BAD article is crammed full of bias. Using the printing presses to create money creates inflation, which is another form of TAXATION!!!!!! So don't be blaming Mr. Krugman. He was merely inspired by a SOCIALIST Repug administration.
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GRJ
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1 Comment
Nov 03 11:23 AMOn Nov 02 08:20 AM CLH wrote:
> Remember this fool (Krugman) just got the Nobel prize. This certainly
> says something about the importance of the Nobel prize. Remember
> al gore got the Nobel prize for his foolish religious tract on earth
> warming.
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NDandUSC
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2 Comments
Nov 03 11:57 AMThe portion about tax-loss selling appears to be inaccurate.
For the sake of simplicity, let's say the $10k gain and $20k loss are both the same type (i.e., both long-term or both short-term). The $20k loss would offset the $10k entirely, leaving you with a $10k net capital loss. Of that $10k, a maximum of $3k could be written off against ORDINARY INCOME (the remaining $7k loss would be carried over to future years). The investor would owe nothing in capital gains tax.
Mike
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User 290897
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1 Comment
Nov 03 03:38 PMOn Nov 02 03:42 PM David in D wrote:
> Todd, I suggest you reread Krugman's article. He did not say that
> "reduction in consumer spending is the cause of the current condition
> we are in..."; he did say that the reduction comes at an unfortunate
> time. In other words, your post is built around a straw-man argument
> in which you claim that Dr. Krugman said something he clearly did
> not.
>
> As for many of the other posts here who blindly continue (rank-and-file)
> to be in the "low-tax" and "screw capital gains tax" camps, have
> you not learned anything these past thirty years. Until the bottom
> crust(s) of America experience some serious wage improvements we
> will not move ahead economically.
>
> Wage inequality is more at the root of our current crisis than capital
> gains taxes or "Krugman socialism" as some posters have suggested.
> Fix that, and you will go a long way toward fixing our fiscal mess.
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xsuddensam
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242 Comments
Nov 03 03:45 PMI can certainly use another stimulus check. As long as we're footing the bill for the crooks in the banking and insurance industry, it would only be right that the rest of us get some of this dough.
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fmontyr
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4 Comments
Nov 05 11:21 AM-
Danmcl
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7 Comments
My Website
Dec 30 02:20 PMGet real.