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I always feel bad when I disagree with Paul Krugman, because he's one of the best spokesmen that the American left has right now.  But today I must do that.  He has the right conclusion- tax the rich- but he's arguing it for the wrong reasons, which unfortunately strengthen the conservative position.  I agree, let's tax the rich, but let's do so for the right reasons.


You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that's approximately 50-175 words without any html or formatting markup).

Paul Krugman's new column today is supported by a blog post where he writes that

   So, what we learn from IRS data is that in 2007, before the Great Recession depressed everyone’s income, the top 0.1% had around $1 trillion in taxable income...

    So let’s suppose that it was possible to collect an additional 10 percent of that super-elite’s income in taxes, to the tune of $100 billion a year.  

This is of course true- it's just arithmetic.   And it's also true that an extra $100 billion a year in revenue would shrink the government's deficit quite a bit.  But here's the problem- he's implicitly adopting the frame that the federal deficit is a problem, and that we need to do something to reduce it.  He's arguing for a liberal position (raising taxes on the super rich) but he's doing so in a way that implicitly strengthens the conservative position.

Let's look at how much deficit spending is actually costing the government right now.  Deficit Hawks look at sites like this and say: "oh my god look at that huge number!  We've spent $454,393,280,417.03 this year just on interest!  What a waste of money!"

Yes, it's true, debt has an interest payment.  But anyone with even a slight knowledge of economics can tell you that the real cost of a loan is its interest rate minus the rate of inflation.  In the same way, the real value of an investment its its yield, minus inflation.

Right now, the real yield of a 10 year treasury bond is negative 0.04%.  In other words, the value of what the government has to pay back later is LESS than the value of what they'll get right now, because inflation is higher than the interest rate.  They can actually turn a profit just by borrowing money!  So in real terms, the federal deficit costs the government absolutely nothing, and is actually a net profit for them right now.  Meanwhile, that deficit spending provides real money and real jobs to a stalled economy that is in desperate need of both right now.  I've written about this before- a federal deficit is absolutely necessary to maintain a capitalist economy, because without it there's no room for average citizens to earn a profit and save money.

Now, don't get me wrong- I'd love for the government to raise taxes on the rich.  In particular I'd like to see them raise the rate of capital gains taxes, since those are paid almost entirely by the super-rich, and some super-rich individuals (like Warren Buffett) are able to use capital gains to pay a relatively low overall rate of taxes.  It's absolutely ridiculous that there are people are earning over $1 million a year, and paying only 15% of it in taxes, when a normal person has to pay at least 20% in taxes.

But the real argument for a tax increase on the 1% is political, not economic.  The federal government does not actually need that extra money right now- what it needs is to increase its spending.  However, it's far too dangerous for a democracy to allow such massive wealth concentration.  When wealthy individuals like the Koch brothers have enough money to single-handedly finance a national political campaign, it really destroys the equality of our democracy. Yes, they still only get one vote- but through the power of advertising and lobbying, they can effectively buy themselves a million more votes.  Not only do they have more money than a million average citizens put together- they have a far greater amount of disposable money, since an average citizen can only afford to spend a very small amount of their money on political donations.

Our political process has become dominated by large donations from extremely wealthy individuals.  That's no longer a democracy- it's a plutocracy.  And yes, campaign finance reform (such as reversing the Citizen's United decision) would help a lot, but the most basic check against plutocracy is to simply prevent that massive wealth disparity in the first place.

So yes, we do need to raise taxes on the rich.  But let's make sure we do so for the right reasons, rather than implicitly buying into a conservative framework and letting their myths about the evils of deficit spending frame the discussion.  Let's tax the rich, but then spend every time of it on programs that will help the economy, instead of some mythical debt monster.

10:42 PM PT: Several commentors have objected that Paul Krugman usually makes it clear that the current deficit is not a problem.  I know that- I usually agree strongly with his articles.  I just took issue with the way this particular one was written, because I think it commits a flaw that a lot of liberals fall for.  In particular, every democrat in congress (including Bernie Sanders!) seems to have fallen for the lie that decreasing the deficit is a good thing, and that that's why we need to raise taxes.

Extended (Optional)

Originally posted to luddite314 on Fri Nov 25, 2011 at 01:20 PM PST.

Also republished by EconKos, The Royal Manticoran Rangers, and Community Spotlight.

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