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Obama may act to increase inequality

Posted by Charles II on November 23, 2008

Reuters via CNBC:

U.S. President-elect Barack Obama may consider delaying a campaign promise to roll back tax cuts on high-income Americans as he works on a huge stimulus plan to counter the worst economic crisis the world has faced in decades.

Two Obama aides indicated when asked on Sunday TV talk shows that the tax cuts brought in under the current administration of Present George W. Bush may be allowed to run their course until the end of 2010, rather than being rescinded by legislation before then.

Business leaders and economists had expressed concern that raising taxes now would only exacerbate the economy’s woes.

While it’s true that raising taxes tends to slow an economy, if you balance tax cuts for the wealthy with spending and tax cuts for the middle class, that doesn’t happen. What does happen is that the deficit is not as gigantic as it otherwise might be. Granted, there might not be much in the way of capital gains to tax for a while. But this sounds like giving away the store before the negotiations start. At a time of unsteady credit markets, this seems like a very unwise idea to me. And politically, the optics are about as good as GM’s execs flying in on private jets.

And if it’s not what they plan to do, talking is even worse. We are a point of very low trust, and it shouldn’t be squandered on what are basically second-tier issues.

2 Responses to “Obama may act to increase inequality”

  1. Paul Krugman states that FDR’s decision to increase taxes while cutting back on government spending all but derailed his initial efforts to pull the country out of the Great Depression — and that only our entry into World War II (and the subsequent massive ramping-up of our economic output) finally broke the back of the depression for good.

    I expect this is what Obama’s advisers might be studying.

  2. Charles II said

    That was in 1936, when he pushed the upper marginal rate from 70% to 90%. Krugman also cites tax hikes and spending cuts. It’s unlikely that the tax hike on the upper marginal rate was responsible. The spending cuts are a more obvious culprit.

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