Paul Krugman is a smart guy, and presumably he understands economics, having been a John Bates Clark Medal winner and a Nobel Prize winner. But he clearly lets his leftish political views shape his economic commentary.
The Economist has written the following: "... his past columns reveal[s] a growing tendency to attribute all the world's ills to George Bush ... Overall, the effect is to give lay readers the illusion that Mr. Krugman's ... personal political beliefs can somehow be derived empirically from economic theory."
If anything, this understates Krugman's bias. For shamelessly and dishonestly using his stature as a world-class economist to justify and promote his personal political beliefs, Krugman is, in my opinion, the most intellectually dishonest economic commentator alive today.
I have decided to shine some light on intellectually dishonest commentary from time to time by copying an idea that other bloggers have used, which is to offer an award dedicated to the most well-known offender.
The inaugural winner is Dorothy Brown, a professor of tax law at Emory University, for her op-ed in the NY Times today about the unfairness of the preferential tax rate on stock dividends and capital gains (p. A23 of Mar 9, 2009 print edition).
Dorothy writes nine paragraphs explaining that the tax rate on dividends and capital gains is only 15%, -- in contrast to the maximum rate of 35% on ordinary income -- and that this is some crazy aberration which benefits rich people and penalizes poor people. The reader is led to believe that there is simply no rational basis for a preferential capital gains tax rate and furthermore that there would be no negative consequences to equalizing the rate at the ordinary income tax rate.
Given that Dorothy is a professor of tax law, we can assume that she knows the real reason behind the preferential capital gains rate. To wit, the earnings on C corporations are already taxed at the corporate level (35% rate) before they are distributed. Until either the corporate level tax is repealed, a corporate tax deduction is allowed for dividends, or a tax credit (a.k.a franking credit) is passed along to stockholders, the United States will remain virtually the only country in the developed world that taxes stock investors twice. I figure the least our friendly, neighborhood tax collector can do is give a small discount when he comes around for the second time.
Ironically, the real aberration in our tax code was that stock dividends were taxed at a higher rate than capital gains, which fortunately the Bush administration remedied in 2003. The aberration was causing corporations to hoard excess cash, or at best use it for stock buybacks (which strikes me as rather inefficient and less than transparent) instead of paying it out to shareholders.
I am looking forward to Dorothy's next op-ed in which I expect she will decry the unfairness of municipal bonds. After all, the rich are paying zero tax on the interest! I'm sure that she can come up with a good solution, something along the lines of having an alternative minimum tax framework for people who have too much municipal bond interest income. Yeah, that's the ticket...