Arnold Kling

Ideas for Democrats, con't

Arnold Kling, Great Questions of Economics
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Robert Reich says that Democrats should favor expansionary fiscal policy to fight the recession.

Here's where the Democrats' message should be crystal clear. If monetary policy isn't up to the task, the federal government has to do its part to stimulate use of America's productive capacity, even if that means running deficits.

Reich is suggesting that instead of blaming the Bush Administration for the current deficit, Democrats should support larger deficits in the near term. His argument is straight out of Keynes.

Specifically, Reich proposes a two-year exemption for Social Security taxes on the first $15,000 to $20,000 of income. I think that this is a wonderful idea. However, on paper it would add to the future problems of the Social Security trust fund, so my guess is that it is a political non-starter.

Discussion Question. Reich's proposal would reduce the tax on labor. However, once the exemption starts to phase out at $15,000, the marginal tax rate on labor would rise. How would a supply-sider evaluate the proposal?

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