To parrot Matt Yglesias, I am actually glad that David Brooks decided to put the Congressional Progressive Caucus (CPC) budget in the limelight with his column today. However, as usual, he makes a mess of the facts in his op/ed, so I was hoping to address a couple of issues. First, Brooks builds up a fairly stereotypical straw man regarding Keynesian counter-cyclical fiscal policy as it relates to the current macroeconomic situation in the US:
Now, of course, liberals have always believed in Keynesian countercyclical deficit spending. But that was borrowing to brake against a downturn when certain conditions prevail: when the economy is shrinking; when debt levels are low; when there are plenty of shovel-ready projects waiting to be enacted; when there is a large and growing gap between the economy’s current output and what it is capable of producing…Today, House progressives are calling for a huge increase in government taxing and spending when none of those conditions apply.
Of course, the United States actually does have a large output gap; the economy hasn’t been shrinking for the last several years but it certainly never recovered from the downturn in ’08 (primarily as a result of premature austerity, championed by, among many others, David Brooks). Additionally, Keynes certainly had no hesitation about deficit spending in the face of high levels of debt; via Krugman, Keynes was advocating deficit spending to combat the Great Depression when UK debt levels in the 1930’s exceeded 150% of GDP.
Brooks then goes on to complain about the burden at which the CPC budget would tax the top earners in the country (49% top marginal rate–for those making 1 billion (yes, with a b) per year or more):
Now, of course, there have been times, like, say, the Eisenhower administration, when top tax rates were very high. But the total tax burden was lower since so few people paid the top rate and there were so many ways to avoid it. Government was smaller…Today, especially after the recent tax increases, the total tax burden is already at historic highs.
Yes, government was smaller back then–of course, we also didn’t have to pay for Medicaid or Medicare. Additionally, it’d be nice to get a little perspective on the historic high at which we are being taxed: via Bruce Bartlett, it turns out that from 2009-2011 our tax burden as a share of GDP was at its lowest level since 1950, or less than 15% of GDP (Historically we have averaged closer to 18.5% in the post-war era). Granted, that doesn’t take the ‘tax hikes’ from the fiscal cliff deal or the Affordable Care Act into consideration, but I find it highly implausible that taxing those w/ incomes in excess of $400,000 at Clinton-level rates (while locking in the Bush tax-rates for the rest of the country) will take us from our lowest tax burden in 60 years to an historic high. Perhaps what Brooks means is that the rich are shouldering an historically high share of the US tax burden–of course, that could also be a result of the top 1% taking 121% of the income gains in the ‘recovery’ from the Great Recession…
Brooks is also worried about the employment incentives of higher marginal tax rates on the rich–using Europe as an example where high tax rates have dampened the incentive to work. Luckily, Yglesias tackles that claim in the article linked to at the top–the European social welfare state contains many incentives to minimize working hours (better access to health care, more paid vacation, more generous parental leave policies, etc), so attributing a decline in hours worked solely to marginal tax rates seems a bit far-fetched. Additionally, while high marginal tax rates might create weird incentives in a number of cases at the margins (such as those that Brooks cites), there is really no evidence at all that marginal tax rates impact overall growth in a significant manner, either positively or negatively (especially in an economy with a significant output gap).