Paul Krugman Says It’s OK for Governments to Steal

Paul Krugman, a regular commentator for The New York Times, wants to return to the good old days of high tax rates. He’s trying to make the case that high tax rates on the nation’s wealthiest income earners was good for the economy in the 1950s:

“[I]n the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.”

It’s too bad that conservatives don’t know how to argue their case for lower taxes. Krugman also misses the real reason why all people should be opposed to high or even medium taxes on anybody. By what authority do elected representatives have the right to tax some people at a higher rate than other people? Is it because a majority of people want to (1) punish high income earners because of envy or (2) is it because they want some of what prosperous people earn by way of wealth transfer? Either way, the rationale and practice are immoral.

It’s irrelevant what the tax rate was in the 1950s as compared to today. The more pressing question is the taxing power of the State. A few hundred people and a cadre of judges determine how much money you and I get to keep. This is not the system of government that our elected officials took an oath to uphold.

It’s staggering that anyone can argue, even in theory or for the sake of nostalgia, for taking 91 percent of someone’s income. Why would anyone work hard and long hours, risk capital over a long period of time, pay insurance, hire employees, struggle with competition, hire lawyers and accountants to satisfy increasing government regulations for nine percent of the profits?

In addition to the moral issue that almost no one wants to talk about, there are differences in the way taxes were calculated and expenses indexed for deductions in the 1950s. There were many more write offs for expenses. Coupled with inflation and income-tax bracket creep upward, there has been a steady devaluation and deduction creep downward. Consider the generational differences:

“The high income tax rates in the 1950s were paired with a corporate tax system that allowed companies much more generous deductions for things like business lunches, business-travel-with-spouse, and so forth. . . . Descriptions of 1960’s expense account procedures for even entry-level management are enough to make this journalist rather faint with envy.”

What’s also different is the exponential increase in entitlements that drive the call for higher taxes on the wealthy: school loan programs, subsidized mortgages, expansion of Social Security, Medicare, and Disability payouts, to name just five.

In 1955, there were 8.6 workers paying into Social Security for each beneficiary. Multiply this over all so-called entitlement programs. By 2005 the ratio dropped to about 2 to 1. When Social Security was first proposed, not everybody was in the program. Most government workers, including Congress, were exempt. The worker to beneficiary ratio was around 30 to 1.

There is no way to tax our way out of this fiscal crisis. “According to the figures in the president’s own budget, the debt will jump to a staggering 102 percent of GDP at the end of fiscal 2011. It will grow to 105 percent in the year following and remain at that level as long as the eye can see.”

None of the new revenue raised by taxing the rich at ever higher levels will be used to reduce any debt. It will be spent on more government programs because that’s how Democrats get elected.