Tags: krugman | obama | tax | cut

Krugman: Obama Should Scrap Tax Cut Idea

By    |   Tuesday, 20 Jan 2009 05:26 PM

Nobel Prize-winning economist Paul Krugman is increasingly skeptical of President Barack Obama's modified stimulus plan and reckons that the Democrat should scrap plans to cut business taxes and instead spend more money to relieve consumers.

"His proposal for $150 billion in business tax cuts ... would do little to help the economy," writes Krugman in his column in The New York Times.

"Ideally, he’d scrap the proposed $150 billion payroll tax cut as well, though I’m aware that it was a campaign promise."

Money not spent on tax cuts could be used to provide further relief to Americans in distress — enhanced unemployment benefits, expanded Medicaid and more, said Krugman.

"And why not get an early start on the insurance subsidies — probably running at $100 billion or more per year — that will be essential if we’re going to achieve universal health care?" said Krugman.

The Obama stimulus plan will have its maximum impact in the fourth quarter of 2010. Without the plan, the unemployment rate in that quarter would be a disastrous 8.8 percent. Yet even with the plan, unemployment would be 7 percent — roughly as high as today, Krugman calculates.

After 2010, the effects of the economic plan would rapidly disappear.

"The job of promoting full recovery would, however, remain undone: the unemployment rate would still be a painful 6.3 percent in the last quarter of 2011," said Krugman.

"So my advice to the Obama team is to scrap the business tax cuts, and, more important, to deal with the threat of doing too little by doing more. And the way to do more is to stop talking about jump-starts and look more broadly at the possibilities for government investment."

This contrarian approach does not have a lot of enthusiasts in the economics world, however.

Some economists think the massive spending plans are starting to verge on the New Deal as lampooned in Ayn Rand's acclaimed novel, "Atlas Shrugged," back in the 1950s.

"Many of us who know Rand's work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that ‘Atlas Shrugged’ parodied in 1957, when this 1,000-page novel was first published and became an instant hit," writes economist Stephen Moore in The Wall Street Journal.

"For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself.”

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Nobel Prize-winning economist Paul Krugman is increasingly skeptical of President Barack Obama's modified stimulus plan and reckons that the Democrat should scrap plans to cut business taxes and instead spend more money to relieve consumers. "His proposal for $150 billion...
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2009-26-20
Tuesday, 20 Jan 2009 05:26 PM
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