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September 20, 2011 9:30 AM When the right flubs tax policy details

By Steve Benen

About two years ago, President Obama argued, “The last thing you want to do is to raise taxes in the middle of a recession, because that would just … take more demand out of the economy and put businesses in a further hole.” It is, of course, a sort of Keynesian argument, which Republicans used to support: if the economy is lacking in demand, put more money in consumers’ pockets, and as they spend, the private sector will have more customers.

The GOP no longer buys into this sort of thinking — many Republicans are now quite eager to raise middle-class taxes, for example — but the right used to find this approach to tax policy compelling. They still voted against all of the many tax cuts Obama signed into law, of course, but they used to like the underlying point.

As it turns out, conservatives were quite excited about the president’s two-year-old line yesterday, arguing that it contradicts the White House’s new debt-reduction plan. If Obama said in 2009 tax increases are forbidden during a recession, why is Obama trying to raise taxes on the wealthy now?

If only the right paid closer attention to policy details.

For one thing, the economy isn’t contracting, so this “middle of a recession” argument is plainly wrong. For another, even in the event Obama’s proposed tax increases on the rich were to pass, they wouldn’t take effect until 2013. Ezra Klein had a good item setting the record straight.

[T]he question is whether you think the economy will be in recession in 2013. In the event that it is, I’m sure the Obama administration would agree that 2013 isn’t a very good time to raise taxes, and austerity should wait until the economy strengthens. Either way, it’s Obama’s 2013 tax hike proposal.

Right now, the Obama administration wants to cut taxes and increase spending on jobs programs. That’s what that whole American Jobs Act thing is about. So there’s nothing inconsistent in the Obama administration’s position — unless, that is, their plan passes, the economy falls into recession in 2013, and they don’t change course.

As for the Republicans who are happily latching onto Obama’s admonition that now is not the time to “take more demand out of the economy” but are simultaneously arguing for sharp spending cuts and resisting temporary tax cuts, well, they’ve got a bit more ‘splaining to do.

I’d note a couple of other things for context. First, raising taxes during economic downturns isn’t necessarily an automatic drag on the economy. Reagan raised taxes in 1982 when unemployment was much higher than it is now, and still saw a recovery in 1983. Clinton raised taxes in 1993, when the recovery was still pretty shaky, and the economy still boomed.

And second, conservatives should try not to embrace and reject Keynesian principles at the same time. If the right believes it would hurt a fragile economy to raise additional tax revenue, why does the right also believe it would help a fragile economy to impose austerity measures that weaken demand and cut spending? This may be too much policy depth for the typical Republican to appreciate, but it sounds like they’re saying boosting demand is both a good idea and a bad idea simultaneously.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

Comments

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  • c u n d gulag on September 20, 2011 9:41 AM:

    If it lines the pockets of the few at the expense of the many, than it's a Conservative idea.

    They are for tax cuts for the rich.

    They are for tax increases for everyone else.

    It aligns perfectly with their fundamental idea.

  • walt on September 20, 2011 9:48 AM:

    It's probably safe to assume nothing is going to be enacted give the increasing insanity of the right. But it is interesting that Republicans want to double down on Crazy anyway. What's the point here?

    I suspect they know something about America and their megaphone advantage. They can pretty much assert anything and be sure they'll get 1/3 of America automatically. So, even if something is obviously hurtful to people, go ahead and say it anyway. Then over time, the terrain starts to shift in your favor since the messaging is relentless: tax cuts for the rich create jobs! Social Security is a Ponzi scheme! Most Americans are "takers" who don't even pay income tax!

    Maybe we're at Peak Crazy but Republicans are pumping it like they've found the mother load. And if that's true, this nation is in deep trouble.

  • fever on September 20, 2011 9:53 AM:

    If there is one thing I hate about all politicians it’s the promise of future tax increases. If you’re going to do something do it and deal with the ramifications of that decision while you’re still in a position of power. Punting the ramifications of those decisions for future politicians is like wimpy saying “I’ll gladly pay you Tuesday for more Debt today”.

  • BetweenTheLines on September 20, 2011 10:01 AM:

    If the right believes it would hurt a fragile economy to raise additional tax revenue, .....

    Because Republicans believe the "fragile economy" can only be hurt if a "job creator" is taxed a couple thousand dollars. Then, he won't be able to hire that Filipino kid at his Asian factory or that Indian student at his Asian call center.

    ....why does the right also believe it would help a fragile economy to impose austerity measures that weaken demand and cut spending?

    Because the "job creators" feel put upon by that black man in that white house. No more free rides for Americans decimated by shifting our manufacturing base overseas. Cancel the soup kitchens and hold the table scraps because the job creators are done letting the lucky duckies mooch off their outsourced profit margins.

  • MImIkatz on September 20, 2011 10:20 AM:

    This is GOP nuance. Tax cuts for the rich are always and everywhere good, and the answer to all economic problems. Tax hikes for the poor or middle class are good at any time, because they enable more tax cuts for the rich. Tax cuts for the poor and middle class are needed only when necessary to sell tax cuts for the rich. It is really pretty simple.

  • Texas Aggie on September 20, 2011 11:16 AM:

    Another policy detail that needs to be mentioned is what money is being taxed. If money that otherwise would be spent fueling demand were taxed, then obviously it would be a bad idea to tax it when lack of demand is a problem. But if the money being taxed is under the moral equivalent of the mattress, like in a money market or off-shore account or maintenance of principal account, and isn't being used to satisfy demand, then taxing it has no effect on the economy in general.

    And since money is fungible, if some guy making millions with humongous amounts of money in one of those accounts is taxed on his annual income, then he can just transfer money from his off shore account into his credit card payment.

  • Doug on September 20, 2011 8:33 PM:

    fever, please begin immediately with your campaign to raise the tax rates on those earning more than $1 million per annum. The country certainly could use the extra income to balance the books after St. Ronnie and Bush the Lesser.
    I would suggest you start with Republicans in the Senate and House. You know, get the hard part over with first...

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