Morning Edition, May 17, 2001: Interview with Paul Krugman


ALEX CHADWICK, host: The Senate opens debate today on a $ 1.3 1/2 trillion tax-cut bill. Republican leaders predict it will pass on Monday. The House already approved the full $ 1.6 trillion tax cut that President Bush wants. Critics say that plan favors the wealthy. The president responds that they do pay most of the taxes in the country and are entitled to a tax break. Paul Krugman is professor of economics at Princeton University and a columnist for The New York Times. He's also author of a new book, "Fuzzy Math: The Essential Guide to the Bush Tax Plan."

Professor PAUL KRUGMAN (Princeton University): The principle tax that most people pay is the payroll tax. That's the one that's a major burden on middle-class families but not a major burden on the rich. A funny thing--the payroll tax doesn't get touched. When it comes to the income tax, even though it's true that wealthy people pay a disproportionate share of the income tax, if you look at the way Bush wants to structure his tax cut, the tax breaks are much bigger for people in the top brackets. The tax cut is heavily titled towards upper income people in ways that are not necessary. You could certainly devise a tax cut even if you insisted on having this size tax cut in a way that was much, much more favorable to people who really need the money.

CHADWICK: The president also says this tax cut is good for our current economic situation, which looks worse than it did a year ago when he was running and first proposing this. What's wrong with that?

Prof. KRUGMAN: If you wanted to design a tax cut that would do nothing for the current economic situation, it would look a lot like the Bush plan. It phases in very slowly. Most of the big tax cuts come only in the second half of the decade and, therefore, does not put money in the hands of people now, which is when we might want them to spend more.

CHADWICK: Can you say what you expect to happen with the estate tax, what Mr. Bush and Republican campaigners call 'the death tax'?

Prof. KRUGMAN: If it is eventually eliminated, then it ends up being a big part. It ends up being about a quarter of the eventual tax break. And that's an extraordinary tilt towards the upper tier of the population. We've often heard only 2 percent of people pay any estate tax. And actually, that's misleading 'cause 1/10th of that number are the people who pay most of it. It's really the top 2/10ths of 1 percent who are going to get this. It's extraordinary. I have to say whoever decided to call it 'the death tax,' whoever did the packaging was brilliant because he's really managed to sell something in which the great majority, the overwhelming majority of Americans have no interest as if it was a populous thing, but it's not.

CHADWICK: Couldn't Mr. Bush say, 'Well, look, I'm consistent. I believe in this, and I've been consistent. And I described this plainly to the American people, and they elected me'?

Prof. KRUGMAN: Well, we could say a couple of things. First, gee, there was something a little bit funny--you couldn't exactly say that the American people voted for this, right? But the main thing is that the plan has been consistently described as what it's not. We keep on hearing that the typical family is going to get a $ 1,600 tax break. And it turns out that, actually, only about 1 in 10 families will get that large a tax break.

CHADWICK: Are you suggesting in your book that this tax cut will lead to the kinds of deficits that we experienced during the Reagan administration?

Prof. KRUGMAN: It will lead to a similar situation with different details. The United States is probably going to be running a budget surplus for the next five, six years even with this tax cut because we are in a situation where we start from a large surplus. However, that's misleading because we ought to running a large surplus. What's different now is that my generation is rapidly closing in on retirement age. This is a time when, unlike in 1980, we really should be running a very large surplus. Within two years at most, we're going to be looking back at this and saying, 'My God, what have we done?' And all of this feeling that there is plenty of money for tax cuts--'It's your money. We're going to return the money to the people'--is going to evaporate.

CHADWICK: What's wrong with giving people back the money?

Prof. KRUGMAN: Tax cuts are very difficult to reverse. We did not get from the deficits of the 1980s to the surplus of the late 1990s primarily through wisdom or responsibility. We got there because we had an economic boom in the late '90s that no one expected. And by accident, we were starting to behave like a responsible nation in the late 1990s. And now we're doing our best to stop.

CHADWICK: Mr. Krugman, thank you very much.

Prof. KRUGMAN: Thank you.

CHADWICK: Paul Krugman is author of the book "Fuzzy Math: The Essential Guide to the Bush Tax Plan." This is MORNING EDITION from NPR News. I'm Alex Chadwick.

Originally broadcast, 5.17.01