Economy

Krugman vs Gingrich: Taxing the rich

A great debate.

As might be expected by a clash of polarized ideologies debating the question of taxing the rich, no resolution was found or maybe even seriously looked for. However arguments around the “burning question of our time” as Munk Debate moderator Rudyard Griffiths expressed it, was a chance to view champions on both sides of the economic trenches go at it hand to hand.

Nobel laureate and “scourge of billionaires everywhere” Paul Krugman, and former Prime Minister of Greece George Papandreou debated with former Republican presidential nominee Newt Gingrich and Arthur Laffer, a founding father of supply-side economics last night at semi-annual debates in Toronto.

The left seemed to be on home turf. In a poll of the audience taken as they trickled into Roy Thomson Hall, 58 per cent said they agreed that the rich should be taxed more. But 79 per cent also indicated their willingness to switch sides. While the debate was lively and heated—Krugman remarked to Gingrich, “I think we need to go outside and throw spreadsheets at each other,” —it was clearly centred on the problem of wealth in America, not Canada.

How much wealthy Americans contribute to their wonky economy, deeply shaken by the 2008-2009 financial crisis has become a salient topic in recent years, as failing banks, home foreclosures, and a shrinking middle class have dominated headlines while the super-rich get super richer.

Griffiths prefaced the debate by reminding us that four hundred of the top earners in America control more wealth than 150 million of their fellow citizens. It has promoted President Barack Obama to make taxing the rich a priority during his administration by passing the Taxpayer Relief Act in January and proposed “the Buffett rule” requiring the wealthy to pay no less than 30 per cent of income in taxes in his 2014 budget.

“If you look at the top 1 per cent in the United States, in 2011 they had a combined income of 1.4 trillion dollars… if you raised one-seventh of one per cent of their income in additional revenue, that would obviate those food stamp cuts we’re being told to make,” said Krugman of the House of Representatives’ recent proposal to slash funding for government nutrition programs.

“I want to raise a few extra points of income from the top, and use it for the things we need,” he later added.

Counter-punching, Laffer said, the wealthy are over-contributing already to the country’s financial health.

“From 1980 to 2007, in that period, revenues from the top 1 per cent of income earners went from 1.6 per cent of GDP, to 3.1 per cent of GDP, a huge surge of revenues from the highest income earners,” he said, crediting tax cuts with generating that wealth during those years.

“I’m here to tell you that raising taxes on the rich will not get you the money you expect.”

Krugman’s partner, Papandreou, now adjunct professor at Columbia’s School of International and Public Affairs, presented a philosophical standpoint.

“I believe in progressive taxation because it is the bloodline of a social contract, a basic bargain in our society,” he said.

Papandreou went on to argue that loopholes in the tax system for the wealthy violate the basic structure of a democratic society since not everyone is paying their share, an issue he dealt with specifically during his time as Greece’s PM. Progressive taxation, he said, leads to a more transparent government.

But even if we wanted to tax the rich more, would it do any good?

As Gingrich pointed out, the rich have been particularly skilled at avoiding taxes, no matter how high the rate, by hiring the best people to help them find ways around the regulations.

“Really rich people don’t earn incomes—they get money,” he stated.

Further to his own convictions, and ever the politician, Gingrich argued that higher taxes for the wealthy are a way of punishing the hard-working among us.

“The power to tax is the power to destroy, coerce,” Gingrich stated. “If you’re successful enough, we get to rip you off.”

Laffer argued several times that what’s really needed is total tax reform—taxing all income including unrealized capital gains at one flat rate instead of an ad hoc approach targeting certain sectors of the population.

“Raising tax rates and wishing it would do some good will only delay some fundamental tax reform right now,” he said.

In the end, the audience sided overwhelmingly with the “Pro” side. The Munk Debates website has announced that the “Pros” managed to add 12percentage points to their portion of the opinion pie, as 70 per cent of those polled after the debate last night decided that we should indeed, tax the rich (more).