Questions from Krugman on Obama's Tax Policy

A reader wrote in asking me to comment on Krugman's questions regarding Obama's tax policy in today's column. Krugman's main point is that the Bush tax cuts have restricted the options available to the next president. When it comes to Obama, he says the following:

These tax cuts would mainly benefit lower- and-middle-income families, although this can’t be said of Mr. Obama’s plan to eliminate income taxes on seniors with incomes under $50,000: since most seniors already pay no income taxes, this would do nothing for those most in need. And one wonders why we should create the precedent of exempting particular demographic groups from taxes.

But the big question is, are these tax cuts, however appealing, a top priority? The most expensive proposal, under the title Making Work Pay, would give most workers $500 in tax credits, at a 10-year cost of more than $700 billion. Isn’t it more important that workers be assured of health care?
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One more thing: on Friday Mr. Obama declared that he would “extend the promise” of Social Security by imposing a payroll-tax surcharge on people making more than $250,000 a year. The Tax Policy Center estimates that this would raise an additional $629 billion over the next decade.

But if the revenue from this tax hike really would be reserved for the Social Security trust fund, it wouldn’t be available for current initiatives. Again, one wonders about priorities. Whatever would-be privatizers may say, Social Security isn’t in crisis: the Congressional Budget Office says that the trust fund is good until 2046, and a number of analysts think that even this estimate is overly pessimistic. So is adding to the trust fund the best use a progressive can find for scarce additional revenue?

I've put Krugman's "questions" in bold. I use the scare quotes because these aren't really queries, but rather are rhetorical questions he's using to express his own view. Translating to declarative sentences, Krugman thinks there's no reason to exempt income taxes for seniors making under $50,000, that a health care reform is more important than lowering taxes for most workers, and that while raising taxes on those earning more than $250K is a good idea, the money should go to something other than shoring up the Social Security Trust Fund.

As a whole, Obama's program would dramatically shift the tax burden to the wealthiest, particularly those in the top 1 percent, while reducing taxes. As this graph based on the Tax Policy Center analysis shows (stolen from Kevin Drum), taxpayers in the bottom four quintiles would see their after-tax income rise under Obama.
Krugman's column implies that the tax program he would favor would increase taxes on everyone, except maybe those in the bottom quintile, in order to be sure that there would be plenty of money for the Obama health care plan. Krugman would like Obama's message to be "Yes, taxes will have to go up on most Americans, in order to pay for an expanded health care program." Putting the merits aside (on which I don't have a firm opinion), I think it's clear that Obama's plan is more politically marketable than Krugman's. But this is exactly Krugman's point--the Bush tax cuts (and years of Republican anti-tax rhetoric) have made it fatal to propose tax increases on most people.

On Social Security, my view is that Krugman is right--we have bigger priorities right now than worrying about the possibility of a long-run shortfall in the Social Security Trust Fund. But he and I are in the minority among liberal-minded economic policy watchers. The same Tax Policy Center gurus that Krugman cites fault Obama for not doing enough to address Social Security.