Friday, August 05, 2005

Glen Hubbard Can't Get a Real Answer Either

An e-mail correspondent directs our attention to this exchange of ideas in Harpers:

HUBBARD: solve our entitlements problem with tax increases, it would not just be a matter of restoring 1970s tax rates. It’s not just that top rates would have to go up. I am describing a tax increase of 50 percent. And I don’t mean for the rich. I mean every tax collected in America.
KRUGMAN: Every federal tax.

HUBBARD: You could not raise that amount of money on a soak-the-rich strategy.

PETERSON: A tax increase can’t provide the bulk of the solution.

KRUGMAN: I don’t see why not. Even if we raised it all through taxes—something I wouldn’t support, by the way—the total tax take in America would go from roughly 27 percent of GDP, including state and local, up to 35 percent. In many advanced countries, the take is close to 40 percent.

HUBBARD: That’s about a 50 percent increase in federal taxes. You ought to know that.

KRUGMAN: That’s what I just said. The federal government takes around 17 percent of GDP now; a hike that big would take it up to 25 percent.

HUBBARD: That wouldn’t strike you as a large departure in fiscal policy? The best estimates from the research suggest that tax increases of that size would reduce the economy’s potential growth by as much as a percentage point. That is a huge hit to future standards of living.

KRUGMAN: I would dispute that. Look, Sweden is actually doing pretty decently these days—their economy grew at 3 percent last year....

Funny he didn't mention France or Germany with their 10% unemployment rates.

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