71. Three articles on taxes in the US

1. by Paul Krugman, Nobel Prize winner, a columist at NYT and a leading progressive economist.

Krugman argues that we should not worry about the deficit at present. The economy is weak and austerity (increasing taxes and reducing spending) can wait until the economy improves.

He argues that people who have been warning about the perils of the current deficit in the US are exagerating. The US economy is no Greece. Even though deficits are very high, interest rates are at historical lows.

Question: Indeed, even though the deficit in the US is greater than in Greece (as percentage of GDP). What is the main difference between Greece and US causing it not to be a problem?

2. by Steven Rattner, an investment banker who led the auto bailout

The main problem in the "fiscal cliff issue" is what  to do with Bush tax cuts. In 2001-2003 the Bush administration cut the top tax rate from 39.6% to 35%. Republicans are against the return to old rates for anyone; Democrats want to increase tax rates on people making more than $250 000. Ratner looks at alternatives. These include limiting deductions, introducing minimum taxes on the rich etc.

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3. Warren Buffett wants to pay a higher tax rate than his secretary.

Warren Buffett, the most successful investor in the world, started a debate on tax fairness by pointing out that his secretary pays a higher tax rate than he does. He suggests that:
- taxes on dividends can be raised without causing disruption in the economy
- there should be a "Buffett tax": anyone making over $1 mln should pay at least 30% in federal tax.

The argument against raising taxes is that it would depress investment. The return on investment is the amount after tax; the higher is the tax rate, the lower is the benefit of investment.

Buffet argues that, for the rich, the effect does not apply. They work hard making money regardless of tax rates. Note the extraordinarily high tax rates in the past.