Saturday, October 13, 2007

Does Greg Mankiw Think the Long-run Budget Constraint is “Cute”?

In the comment box of this post, Greg Mankiw may have been the first to call this Angrybear cute. Why thank you! The point of Greg’s post is that the Federal income tax is quite progressive. My point is that talking about a subset of taxes is a bit disingenuous. Kevin Drum and the conservative Tax Foundation prefer to look at total taxes. My only complaint with their analyzes is that they did not factor in those deferred tax liability from George W. Bush’s fiscal irresponsibility. But then how could? This Administration is not telling us who will pay these deferred taxes. In their view, no one will.

Update: Greg took his graph from Chris Edwards who claimed:

The Bush tax cuts substantially reduced tax rates for people in every income group. Indeed, those at the bottom had the largest relative reductions in their tax rates … I’m for lower taxes for everyone, but I wish people would look at the actual data first before carping about the rich supposedly being specially favored by recent tax cuts.

So much malarkey, so little time. Chris and Greg know the following two things are true: (1) the long-run government budget constraint holds; and (2) Federal spending rose even as a share of GDP since George W. Bush took office. The implications are clear: George W. Bush has raised – not lowered – the tax bite. But Greg pretended he did not get my “cute” point at first. I find this truly amazing. After all – economists have been talking about deferred taxation ever since the 2001 tax deferral was signed into law.


Anonymous said...

In defense of that methodology, I would say that CBO and other organizations that measure tax burden only look at "time t" as well. Actually, if you look at the paper that is cited by Kevin Drum from the Tax Foundation, in their appendix, they provide an alternative look at the tax burden under the assumption that deficits are equivalent to current taxes. (i.e. the Ricardian equivalent assumption)

Shag from Brookline said...

I notice that Greg's Blog doesn't post comments or provide for them, at least as of this morning. Perhaps he can't stand the heat. And a current post of Greg's tries to take down Al Gore and his Nobel Peace Prize a notch. Could it be that Greg's Bush has been Gore-d? Greg sure is a loyal guy. After all, it did get Greg his Blog and celebrity status. Now all he needs is a personality transplant. Does he address this in his favorite economics textbook?

Anonymous said...

"In their view, no one will". None of the current gang, anyway, and that means nobody important enough to worry about. It's sort of like the Gold Rush - make your pile and get out.