Paul Krugman: Insanity Now Is Good Taxation Policy

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In 2004 at a session of the Southern Economic Association meetings in New Orleans, Paul Krugman was the speaker and in the Q&A (with Dr. Joe Salerno sitting next to me), I asked Krugman if he supported the 70 percent tax rates that existed before the tax cuts of 1981. “No!” he exclaimed, and added (these exact words), “Those rates were insane!”

Today, we can say that Krugman now has endorsed insanity with a recent blog post, as he lavishes praise on a paper that endorses…70 percent tax rates:

Now, this doesn’t imply a 100% tax rate, because there are going to be behavioral responses — high earners will generate at least somewhat less taxable income in the face of a high tax rate, either by actually working less or by pushing their earnings underground. Using parameters based on the literature, D&S suggest that the optimal tax rate on the highest earners is in the vicinity of 70%. (Emphasis mine)

In the next paragraphs, the guy who once called 70 percent an “insane” rate now attacks anyone who might say, well, what Krugman told me in 2004. Krugman goes on to make a textbook appeal for the 70 percent rates and excoriates anyone who might disagree. So, I guess Krugman was against those rates before he was for them, or maybe he just wants us to forget what he told a group of academic economists.

9:09 am on November 23, 2011