Wednesday, December 1, 2010

Mitch McConnell – Keynesian?

Mark Thoma comments on yesterday’s Senate Republican letter to Harry Reid:

If they are so worried about the "a job-killing tax hike" discussed in their letter (a distinctly Keynesian perspective by the way), then use the money gained from allowing the tax cuts to expire for the wealthy to fund an extension of the Making Work Pay tax cuts in the stimulus package that went to middle and lower class households. The GOP is refusing to extend the Making Work Pay tax cuts, apparently the jobs lost when taxes go up for the non-wealthy don't count. Since these tax cuts are likely to result in more spending than tax cuts for the wealthy, this would increase rather than decrease jobs.

Mark is basically noting that the marginal propensity to consume for lower income groups is likely to be higher than the marginal propensity to consume for higher income groups. But as long as the marginal propensity to consume is less than one, increases in government purchases have a larger bang for the buck than do tax cuts. Yet – most Senate Republicans oppose any increase in government spending on the grounds that it might increase the deficit. It might be a refreshing change if McConnell actually adopted the perspective of a Keynesian economist – but to date, his tone seems to be one of a Machiavellian whose quest of power is motivated so that he and his ilk can shift more income towards the very rich.


wellbasically said...

This whole back and forth about stimulus, who will spend, who will save etc is done, gone. You're having an undead argument.

Here is how you make money: create goods or services that people want to buy, and sell them at a price people can afford. To do that you need investment up front.

The Democrats could certainly get away with raising income taxes. The investment tax increase has disappeared from the discussion but that's the one that really counts.

trucker said...

No matter what you "create", the people must afford to buy. Else the people will always suffer. You don't develop a prosperous middle class by awarding tax cuts to those whose incomes are from economic rent. Monopoly and scarcity create massive power in the hands of the few. These few will control the resources. They have no need to produce or create. Only to control by "allowing" some meager access to that which is controlled.

Wealth is the capacity to command or forgo labor or discomfort.

Andrew said...

I think you have his motives reversed. His quest to shift more income towards the very rich is motivated so that he can attain power.

The end result is the same in this case. More broadly, it suggests that the rich are winning the political class warfare.

trucker said...

The Texas oil man receives $35k per week in return for ALLOWING the oil company to suck oil from under his inherited ranch. This has nothing to do with producing goods or services that enrich the populous. The oil company does the producing and the oil man gets the money. The oil itself was not "produced" by anyone.

Economic rent is a natural result of technological advance and population growth. The individual recipient of the rent does not cause either of these phenomena. Hence, the taxation of economic rent does not alter the actual production of goods and services. Progressive income taxes capture economic rents for use in promoting the general welfare.

In order to change current law it is necessary to fully state the case in simple terms. Rent is not earned. It is merely taken. Once this concept is fully understood then it will have been impossible to defeat a tax on extreme unearned incomes. Such a tax is said to be "efficient" in that it does not change any productive activities. If the Texas oil man's income above one million is taxed at 80% he will not refuse to let the oil company produce the oil because all of the income is "free money". He simply gets less "free money".

Unlike an owner of some means of production or some natural resource, the income to celebrities is earned. Simply stated: If the celebrity does not perform, then the celebrity gets no pay. That is why earned income taxation was capped at 50% before the 1981 disaster while unearned income from T-Bills was as high as 70%. I do not know what the earned income cap was before the Kennedy tax cut for the rich.