Krugman: Spend More, Tax Less (Almost)

By Kate McCarthy

Sep 3, 2010 9:22am

With unemployment remaining above 9% for the 16th month in a row –  The New York Times columnist Paul Krugman said that we need a real stimulus, not a "half-hearted push" to get us out of this economic mess.

“The plan that [Obama] laid out at the beginning of last year, has worked. It was tried. But it was obvious from the beginning it was too small. He clearly needs more, the economy needs more,” Krugman told me on "GMA."

Krugman may want new spending – but the possibility of Congress pushing through a big stimulus bill is slim. So what should the president do? Propose it anyway, Krugman said. 

“At this point he’s got to lay out the issues, he’s got to put it down there, he’s got to get the American people to say, ‘Okay…am I going to support the people who are saying we mustn't do anything, we have to just go back to the policies of the last decade and try and reproduce that? Or are we really going to do something about the economy,’” Krugman said.

Obama’s economic team is floating the idea of business tax cuts including a temporary lapse of the pay-roll tax and making the research and development tax credit permanent, the Washington Post reported. Krugman supports these ideas – but only if they are significant. The columnist, echoing Christina Romer, wants to spend more and tax less – except when it comes to the extension of the tax break for households earning more than $250,000 because they are the “least likely to spend the tax cut that they think is not going to last.”
 
But Republicans say otherwise, arguing that small businesses are the ones that will suffer if the tax cuts expire.  Krugman called those claims “misleading” and said the GOP is “trying to string this out.”

“They are trying to make these tax cuts, which were never affordable, become part of the permanent structure of the population to the benefit of a tiny number…of very wealthy people,” Krugman said. “We cannot afford this.”

Watch my interview with Krugman here and then weigh in below and tell me what you think.

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George Stephanopoulos

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