Greg Mankiw Gives McCain an Idea of How to Raise Taxes

Greg Mankiw finds a passage in what Irwin Stelzer wrote that actually makes sense (sort of):

McCain should spend ten minutes with his adviser Douglas Holtz-Eakin, who I would guess is still recovering from his embarrassment at McCain’s call for a cut in gasoline taxes, to discuss the opposite: a tax on oil products, especially gasoline and heating oil. This doesn’t mean abandoning his opposition to higher taxes. Indeed, the point is not to raise federal revenues. Every dollar that comes in should be rebated, perhaps by reducing the payroll taxes of everyone earning less than, say, $50,000 per year, the group Obama intends to benefit by raising taxes on those energetic small-business owners. The beneficiaries of the McCain shift in taxes from work to polluting, imported gasoline would see the reduction in taxes immediately–when they received their first salary check after the new regime was in place. But the main point is this: The money that the Saudis and other supporters of jihadists would otherwise get would be reducing the taxes of hard-pressed Middle America. Take that, Barack Obama. It’s called straight talk.

Note, however, that McCain wants to lower gasoline taxes while Obama has opposed this really bad idea. Mankiw and Stelzer are right on this one but we should also note that it has been those of us on the left – the type of economists that are likely to have Obama’s ear – who have been pushing exactly this kind of shift in how we raise taxes. So we should welcome Mr. Stelzer and Dr. Mankiw to our club. Or wait – we’re also joining Mankiw’s Pigou Club. Point taken.

But here is the part of Stelzer’s passage that makes no sense. Obama is not proposing to raise taxes on small business owners that earn $50,000 or less. As Paul Krugman noted – Obama’s proposed tax increase would apply only to those less than 0.5 million business owners making over $250,000 and not the remaining 21 million business owners who are not.