Progressive versus Liberal
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The biggest problem the liberal faction of the Democratic Party generally has is getting heard at all, so I'm really glad that David Brooks dedicated a column to explaining his problems with the Congressional Progressive Caucus budget that was released last Thursday. In a way, I think Brooks' complaints make the case for the CPC budget more strongly than any of the praise I've read.
For starters, even though newspaper columnists are sharply space-constrained, Brooks dedicates relatively little space to criticizing the content of the CPC budget. Instead you get a lot of rhetoric about the CPC budget being written "by people hermetically sealed in the house of government" who "have had little contact with private-sector job creators"* who "believe that government is the horse, the source of growth, job creation and prosperity."
In policy terms, the critique is fairly limited. The CPC wants a top marginal income tax rate of 49 percent, which, combined with state income taxes, would push marginal tax rates nearly as high as they were in the Eisenhower years. Over to Brooks:Higher taxes will produce long-term changes in social norms, behavior and growth. Edward Prescott, a winner of the Nobel Memorial Prize in economics, found that, in the 1950s when their taxes were low, Europeans worked more hours per capita than Americans. Then their taxes went up, reducing the incentives to work and increasing the incentives to relax. Over the next decades, Europe saw a nearly 30 percent decline in work hours.
My view is that this particular Prescott line of research overstates the impact of tax rates on labor supply decisions. Most European countries have regulatory policies that are explicitly designed to reduce the number of hours that people work. France famously requires six weeks of paid vacation time per year. Most German jurisdictions place limits on retailers' ability to be open on Sundays. You may like more generous vacation and family leave mandates, or you may hate them, but obviously the impact of these laws is going to be that people work less. The more generous European welfare state also creates undeniable disemployment effects on the spending side. European higher education is much cheaper for the student than American higher education, for example, and this encourages students to spend more time studying and partying and less time working for money. So I'd view Prescott as pointing to something like an upper bound on the possible tax impact on labor supply. Brooks also neglects to mention that the CPC budget, via the Making Work Pay tax credit, would tend to increase work incentives for low-wage workers, while Ryan-style tax reform would increase the tax burden on many middle-class families.
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