Or just think like a politician, not an economist.  That's my advice to Harvard economist Greg Mankiw, who is puzzled by this:

Over at Intrade, you can bet on future tax rates.  Currently, the implied probability of a hike in the top income tax rate in 2009 is about two-thirds.

This surprises me.  Even assuming an Obama victory, I would put the probability much lower.   As an economic matter, raising anyone's taxes with the economy so weak seems ill-advised.  As a political matter, why not just let the Bush tax cuts expire at the end of 2010?  Obama could then claim in four years that he never signed a tax hike.  It seems neither economically nor politically sensible for the new President to push for an immediate tax increase, even if an eventual tax increase is his goal.

Mankiw then goes on to give three hypotheses, but misses the obvious explanation:  Many bettors think that Obama is lying.  And those bettors have history on their side; after all, Bill Clinton promised a middle-class tax cut in 1992 — and dropped that promise almost immediately after the election, instead backing tax increases that hit almost everyone, including the middle class.  (Washington state's governor, Christine Gregoire, promised no tax hikes in 2004, but switched almost immediately after taking office.)  The Clinton tax increases probably slowed the recovery, though Clinton supporters would claim that they were good for the economy in the long run.

The logic, from a politician's point of view, is simple.  If you are going to impose a tax increase, as I expect Obama to do, you should either wait until events appear to force you to impose that increase, or you should impose it immediately, to give voters time to forget before the next election.  Bill Clinton used the second tactic in 1993 (with some mix of the first) — and was re-elected in 1996.   Obama knows that.

Cross posted at Jim Miller on Politics.

(What kind of tax increase would Obama propose?  Probably a regressive energy tax, as well as increases in top rates.  He has made it clear that he favors higher energy taxes in order, as I like to say, to take power from the people.

Incidentally, I read Mankiw's site regularly, and often learn something there.  But I have no idea why he thinks that Obama's people are "savvy" about economics.  After all, to take just one example from many, Obama opposes the Colombia free trade agreement.  Some of the economists who are supporting Obama may be savvy, but there is no evidence that they have affected his thinking on issues.)

Tax series post 5