Reply #39: No, It's Not (Says Paul Krugman) [View All]

[tsipple]

Clark (and Kerry) offer just three choices (in some combination):

1. Higher deficits.
2. Lower federal spending.
3. Less aid to states and localities.

If there's less federal revenue, you have only these three choices. (Really two, but I broke out #3 from #2 for clarity.)

How do states and localities tax? As regressively as you can possibly imagine. Sales taxes, tobacco taxes, liquor taxes, property taxes, gambling and lottery taxes, and a variety of fees such as parking tickets, licensing, driver and vehicle registration, etc. Many (most?) states have no income tax, and many of those have flat or even regressive income taxes. How do states spend? Disproportionately on the poor and middle class, with the exception of an odd sports stadium here and there. :-)

What do higher federal deficits mean? Higher future taxes, with interest. Interest goes to bond holders (the wealthy). Wealthy adults transfer money to their heirs, who then pay the higher taxes (thanks to their mommies and daddies) and collect the interest. Poor and middle class adults can't transfer money to their heirs, and their heirs get to pay higher taxes (out of their own meager pockets) and don't collect the bond interest.

What does lower federal spending mean? Well, less pay for soldiers and sailors, fewer contracts to military workers (mostly middle class), fewer student loans, cuts in Medicare or Medicaid, less (and lower quality) education, fewer small business loans, less environmental protection and cleanup, less enforcement of civil rights laws, etc., etc.

Paying your bills and eliminating the federal deficit sooner rather than later is the most progressive policy possible!