Of course it does. That is why the level of taxation is low. In you logic taxes as a proportion of gdp can never rise.

Of course it can. What can not (sustainably) rise above a certain level is the sovereign's surplus as a fraction of GDP. Because the sovereign's surplus is limited by the rate of real capital investment plus net foreign inflows.

And I did I say anything about raising taxes now?

Um, if you want to make plans for ten or twenty years down the road (depending on how soon we stop this Austerity bullshit and start printing money in unlimited amounts to fund countercyclical spending) when this depression is over, then OK, that's a fun game.

But then talking about taxes is playing it backwards: You'll want to talk about what you want the Irish sovereign to do, figure out how much purchasing power you need to drain from the private sector to do it without creating shortages, and then decide upon the distributional profile you would like.

Clinton, because you want to talk more about the example, did raise taxes in 1994. Conservatives  - and now you - predicted ruin. And?

Actually he cut them back again in 1995 (of course those were a different sort of taxes - no points for guessing the overall distributional effect of those two moves), which may be more relevant to the stock bubble.

But anyway, no. The sovereign surplus did not cause the bubble. The bubble caused the sovereign surplus. Taxing the bubble was a perfectly sensible thing to do, but believing that those surpluses were sustainable (or that they should be sustained)... not so much.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.