links for 2007-10-14
A Riddle Inside a Mystery

Does Greg Mankiw Think the Long-run Budget Constraint is “Cute”?

PGL at Econospeak asks the question. He is shrill and irate at Greg Mankiw, who prints a who-pays-the-taxes graph that (a) omits state and local taxes, (b) omits non-income taxes, and (c) pretends that nobody pays for the federal deficit:

EconoSpeak: Does Greg Mankiw Think the Long-run Budget Constraint is “Cute”?: Greg Mankiw may have been the first to call this Angrybear cute. Why thank you! The point of Greg’s post is that the Federal income tax is quite progressive. My point is that talking about a subset of taxes is a bit disingenuous. Kevin Drum and the conservative Tax Foundation prefer to look at total taxes. My only complaint with their analyzes is that they did not factor in those deferred tax liability from George W. Bush’s fiscal irresponsibility. But then how could [they]? This Administration is not telling us who will pay these deferred taxes. In their view, no one will.

Update: Greg took his graph from Chris Edwards who claimed:

The Bush tax cuts substantially reduced tax rates for people in every income group. Indeed, those at the bottom had the largest relative reductions in their tax rates … I’m for lower taxes for everyone, but I wish people would look at the actual data first before carping about the rich supposedly being specially favored by recent tax cuts.

So much malarkey, so little time. Chris and Greg know the following two things are true: (1) the long-run government budget constraint holds; and (2) Federal spending rose even as a share of GDP since George W. Bush took office. The implications are clear: George W. Bush has raised – not lowered – the tax bite. But Greg pretended he did not get my “cute” point at first. I find this truly amazing. After all – economists have been talking about deferred taxation ever since the 2001 tax deferral was signed into law.

PGL is, of course, completely correct: nobody in the inform-the-public industry has any business producing or reprinting such a graph.