Tax reform sentences to ponder

Income categories are paying almost exactly the same share of federal taxes as before. Millionaires actually pay a tiny bit larger share in the new bill.

That is from John Cochrane, drawing on Greg Mankiw, with the source being the Joint Committee on Taxation.  I would say that media coverage of this bill — which does have many objectionable features — has been somewhat less than ideal, most of all on the issue of redistribution.  Overall, claims about redistribution — from either side — are much more likely to be wrong or misleading than claims about most other topics.


It seems the primary redistribution is from higher tax (i.e. blue) states to lower tax (i.e. red) states. That's by design.

The second major redistribution is from young and future workers to those in their late working years and retirees. And if you want to point to the deficit increase in the Obama years, fine. The redistribution from younger to older generations for those expenses was the same. That assumes the hole in the deficit will have to filled with new revenue or dramatic cuts to entitlement programs eventually, which some do not believe is true.

As for redistribution by income group, Cochrane's statement above may be true, but there are other ways to look at it. You can see in Figure 1 that by far the largest gains in after tax income are for the top 5%. That's as a percent of their current income. Interestingly, the top 1% is the only group that continues to keep a lot of that money after many of the law's provisions go away in 2027.

In addition, the new law has special goodies that apply only to certain categories of often very rich people--such as those who have pass-through entities, with particular advantages for the kind of businesses that hold a lot of commercial real estate but don't employ many people. This includes Trump and Bob Corker.

Who here wants to see a conversations with Tyler invite Jordan Peterson?

i hope the reason you want him on is to see tyler reveal him to be a dunce.

peterson’s strategy is to wow with encyclopedic references and change the subject. kind of like dennis miller, there’s no “there” there. he seems (from what i’ve seen) fairly incapable of critical thought. on the fly, at least.

tl;dr the guy’s an intellectual poseur.

Obama inherited a deficit equal to almost 10% of GDP and left a deficit of about 3.5% of GDP. It is misleading to talk about the deficit increasing under Obama.

Meant total debt, not annual deficit, sorry. And I generally agree, but it is something always brought up by former deficit hawks when called out on their hypocrisy for support of this tax plan. Thought it was better to address upfront, since the intergenerational redistribution effect is the same.

That’s a slippery statement. He didn’t ‘inherit’ that 2009 deficit so much as help make it happen. He lobbied aggressively for TARP and then as president the supposedly one-off spending continued for years, adding $10 trillion in debt. In 2015, the deficit to GDP ratio started rising again and in his last year of office it was higher than in 2008.

Obama gets first major win with TARP
By DAVID ROGERS 01/15/2009 04:36 PM EST Updated 01/16/2009 08:17 AM EST
Not yet in the White House but working the phones as if he were, Barack Obama won a crucial Senate vote Thursday clearing the release of $350 billion more in bailout funds from the Treasury Department’s controversial financial rescue program.

TARP was a nice bipartisan achievement for the last few months of the Bush administration.

TARP was paid back with a little profit and TARP II was mostly paid back, I think. The stimulus was mostly just a fund to pay back those who fund raised for Obama, a complete waste. Cash for clunkers?

Actually, all the money went to Kenyan imams and communist community workers who were kidnapping children from Mexico to bring them across the border, steal White jobs and vote illegally for Obama in 2012.

I doubt it. Kenyan imams wouldn't funnel it right back to the DNC.

TARP was repaid by the banks. The “homeowner foreclosure assistance” was not repaid, was not designed to be repaid, and was a pure handout. Amazingly the media and our liberal friends in social media bashed the banks relentlessly about TARP (and still do) even though the only real handout was the “homeowner foreclosure assistance” which was designed and run my our friend Timmy and approved by his pal Obama.


Also Obama actually signed the stimulus budget. See they didn’t want to give bush credit. But now .....

Jan, states don't pay federal income tax. Phrasing the effect through that phantom filter obscures the real shift from higher-income taxpayers to lower-income ones.

Yeah right. Next you'll be telling us corporations are people too.

Cochrane, of course, takes the usual very narrow view of "Federal Taxes" in his delicate measurements of societal shares supporting government.

If the real question is who pays the actual costs of government and who receives actual net financial benefits (redistribution) from government -- it can not be answered by such a narrow focus on IRS Tax Schedules and the fleeting impulses of Congressional politicians. The total American tax burden upon the populace is apparently well beyond the awareness of most Americans, especially economists.

Enlighten us

Redistribution is another word for the only form of theft or extortion sanctioned by law. However wealth inequality does have its problems, therefore some thinking outside the box ought to come up with some solutions that do not involve brute force or something that in any other format is illegal, unethical and immoral.

The basic problem is that economics. It has evolved rather than being designed.

This article, which compares the economics of someone who decided to be a physician rather than a delivery driver, shows a flawed system. The only economic benefit of deciding to take a medical degree is that it enforces a form of saving in the early years of adulthood. The delivery driver is likely to spend his early earnings rather than save them. If he saved them whilst working the same hours as the medical student, he would end up in the same economic position.

Stock markets provide a source of capital for businesses that benefit civilisation. They are not without their flaws either, but someone who chooses to invest money in a stock market rather than go on a cruise is (depending on the company chosen) benefiting civilisation more, and the company can fail. The loss of money is exactly the same as if it had been taken by taxation. National Lotteries have been described as taxation of the gullible, and indeed there are extensive provisos to try and ensure that the funds raised are not in competition with tax systems. I suspect that this can be built upon.

Hopefully posting this to Marginal Revolution will produce some ideas that do not involve the force, violence, intimidation etc of the tax "industry". It creates no wealth. Indeed it can be regarded as a sort of "friction and windage" inefficiency in any economy. A legislature that taxes its citizen's capital (eg local authority rates, gains taxes, death taxes etc) is a bit like a profligate individual who inherits or otherwise has a windfall and spends it in a couple of years.

That link was interesting.


The comparisons were a “little” one sided.

The one grain of truth in the article is that being a GP is not a path to riches. It is, currently, a path to a decent lifestyle and high social status.


well, you are into very deep stuff about the fundamental concepts of government itself -- unlikely to be answered in the brief blog format here.

On the narrower tax issue and ideas/solutions for non-coercive methods of government revenue -- it seems rather simple. All those who constantly claim the government is under-funded, that it neglects the needy, and that taxes are too low -- are totally free to send large voluntary contributions to the U.S. Treasury, which gladly accepts such $$$. Most state and local governments also eagerly accept contributions.

Slight problem is that almost 100% of those who clamor for bigger government and higher taxes -- do not feel they personally are under-taxed. It's always those other "rich guys" who should be more heavily taxed.

When would you say "redistribution" was first practiced by humans?

I think it is pretty old, and the "surprise" some people feel at being asked to share is .. ahistorical at the very least.

Food sharing practices are most often observed among hunter-gatherers and small scale cultivators. Appendixes A and B of Sahlin’s “On the Sociology of Primitive Exchange”(1965, 1972), for example, suggest that we consider this topic. Sharing is more frequently practiced during periods of food shortage than in periods when food is abundant. Furthermore, in times of extreme scarcity, sharing ceases to be practiced by these groups. These ethnographic facts strongly indicate that food sharing is an important strategy for individual survival when they lack sufficient food. This further implies that food sharing is an adaptive mechanism among such groups (cf. Langdon and Worl 1981; Gould 1982; Wiessner 1982; Cashdan 1985; Winterhalder 1986a, 1986b; Smith 1988; Watanabe 1990; Levesque et al 2000). Moreover, anthropologists have also pointed out that food sharing practices reproduce social solidarity (Kent 1993) and/or political and economic equality (Woodburn 1982, 1998) among the hunter-gatherers and small scale cultivators. entirely miss the key distinction between voluntary sharing and involuntary redistribution

I don't think I do.

I think you guys are naive to think you are the first "sharers" to grumble in the last 50000 years.

Redistribution isn't from the bottom quintiles to the top quintile, but within the top quintile: the redistribution is from the lower end of the top quintile to the top of the top quintile. Mankiw merely shows a comparison of the share of income taxes paid by those with incomes below $1 million to the share of income taxes paid by those with incomes above $1 million, and concludes that over time the former goes up as a result of the tax bill. What Mankiw doesn't show (because it would be inconvenient) is (1) the redistribution of income within the top quintile (families with incomes from roughly $200,000 and up are in the top quintile, which is a heck of a range since "up" is way the heck up), or (2) the increase in the share of total income captured by those with incomes above $1 million. Don't get me wrong: Mankiw is a very likeable guy, as anyone who has seen him interviewed can confirm. Nor do I believe that Mankiw is attempting to mislead his readers: he most likely believes his comparison accurately reveals the "redistribution" resulting from the tax bill. It's just Mankiw being Mankiw.

Sorry, it's the share of taxes paid by those with incomes above $1 million that goes up.

I was concerned about the estate tax, which wasn't mentioned in the coverage I've seen on TV or in newpapers. Although not eliminated, the exemption was doubled. Good. My mother's estate will fit within the exemption. She might have fit under the old rules, because my late father and still living mother (just turned 90 on Christmas Day) should have qualified for the couples exemption. But now I can feel comfortable that there won't be any question.

It's not April 1.

You are not fooling me.

But, given that this economic miracle costs $1.5 Trillion, over ten years,

And, since there are 300 million persons in the US,

Uncle Santa is sending you

A bill for $5000 for each man, woman and child,

So they could put money in the Christmas stocking of the wealthy.

Don't ya just love it how Cochrane et al. conveniently ignore that this is deficit financed.

It's a Miracle!

See how easy it is to deceive, or become distracted, while Cochrane et al reaches into your pocket, takes your money,

And replaces it with an IOU.

And, we know how that IOU is going to be paid for. Ask Paul Ryan.

You are implicitly assuming the cost of services the extra debt will be paid via a head tax as opposed to being financed by the actual progressive tax system we have in place.

Oh, sure, we're just giving the rich a loan so we can raise their taxes later. If that's the case, they would be better off with a private banker, as they have adequate access to the banking system.

You know and I know that this is a deficit financed tax cut that aids the rich and will be borne by the middle and lower classes, either in terms of taxes or reduced services. But, not the military.

Actually my best guess is the democrats will regain power in 2020 and leave the increased standard deduction in place and raise the corporate tax rate and the rates on the higher income brackets.

So no I don’t think this debt will be financed by the middle and lower class

Eric, If your response is "I believe in Santa Claus" and this will not be financed by the middle and lower classes, I have some elves to sell you. The place to start is with good policy, and not remedies later.

Trump's (and Cochrane's?) adding $150 billion a year to the deficit is a catastrophe. Obama's adding $1,00 billion a year to deficits was an economic miracle.

"I see," said the blind man.

It takes a certain miracle of irresponsibility to increase deficits by $1.5 trillion while unemployment is low, the stock market is on the upswing and corporations are sitting on trillions of dollars.

Dick, Go take a macro econ course and look up economic stabilizers during a severe recession.

The recession ended in 2009.

I don't need no econ course to teach me that $!50 billion annual additional national debt is a YUGE problem; but $9,000 billion that the magic man, Obama, added to the national debt is, oh joy!, acceptable.

You are an idiot, Al. It is the recovery that matters, not the end of contraction.

Or were you really dancing in the streets in, 2009? Hanging out the "job done" banner?

"economic stabilizers during a severe recession."

"The recession ended in 2009" is the dumbest line on this page.

Use, or endorse, stuff like that only if you seek to destroy your on credibility.

No one with any knowledge whatsoever thinks automatic or explicit stabilizers halt on the NBER date.

To be a conservative is to have "economic cycle" surgically removed from your brain.

I'm good at poetry, don't you see.

No evidence necessary, to support my claims.

No rhymes either.

And, you have no substance either.

So, Anonymous, you couldn't respond to Cochrae's failure to include the $1.5 trillion deficit when he copied the JCT tables. I can borrow money to make any tax plan look like anything I want it to look like, but dont come back a year later asking for cuts that you were unable or unwilling to attach to your tax plan because such a choice would not have been acceptable. Cochrane's deception.

It's you who is being deceptive. If the government comes back in the future and makes the tax code or benefits less progressive, that would be the cause of the resulting additional burden on the less wealthy, not this tax change.

Who has the power. Remember that Paul Ryan was going to cut Medicaid, and wants to cut SS and Medicare.

I guess no one told you.

Create the deficit crisis so you can cut the benefits to the poor "because you had to" since you could never have passed a tax cut by tying it to revenue cuts.

That's the deception.

"Redistribution" is an odd word. It implies that wealth (or income) was consciously distributed by some agent in the first place. It's like "repossession" which is used, at least in Britain, when a bank takes possession of a house for which the payments on the mortgage loan have failed. But the bank had never possessed the house in the first place!

Sure. Our economy appeared out of thin air, like the universe in the big bang. People had nothing to do with devising the various rules which make the economy so any distribution of income is simply by force of nature.

It's weird how the right on one hand complains about government interference in "the market", picking "winners and losers". Yet on the other hand the distributing of income is had nothing to do with any conscious choices by human agents.

Free exchange vs. coercion.

Oh, so it's set the initial rules to advantage some more than others. But after that it's all "free exchange". Sounds totally reasonable.

I guess we're doing "no distribution!"

Uh hun. That was a completely unexpected reply.

You’ll need to enumerate all of these slanted rules. Try to make them appliciable to the modern economy.

I’ll be waiting for your list. I’m sure it will be great.

I like the sentence. Given the complexities of the changes/impacts and a hundred million-plus inputs, it is about as much as one can say.

Here is an approximation of the tax law's impact on me - married filing jointly, no children, itemizing, in the 25% pre-law marginal rate bracket.

We will lose approximately $8,000 (two) in the abolished personal exemption and approximately $5,000 in local tax deductions - over the $10,000 limit on deductibility. Effectively, all things being equal, that is a $13,000 increase in taxable income. The question: Do the reductions in tax rates (15% to 12%; and 25% to 22% in our case - the 28% goes to 24%) offset the increased taxable income? I don't see it, but it helps.

If we were using the standard deduction, the $12,000 (to $24,000) increase would be net $4,000 increase in deductibility as it is offset by the $8,000 we lose in the personal exemption abolition.

For families with children, the increased child tax credit may help.

The advantage of the standard deduction over the itemized deduction is that standard deductions may not involve the actual outlay of cash payments.

In conclusion, my federal income taxes will rise; but not by too much. You people would better appreciate the tax law if it raised everybody's taxes.

Trump 2020!

I would better appreciate the tax bill if it made a counter-cyclical reduction to the deficit.

No matter what economic "ism" you subscribe to, there is no other time.

One simply does not reduce a deficit in the next recession.

You are aware that Obama’s and boehner reduced spending during a recession or recovery and nothing bad happened in fact growth and jobs improved

Also I’ll be curious to know what you’d like to cut to reduce the deficit and if you’d stick to that regardless of who wins in 2018 for example

Are you asking me to take responsibility for NON-counter-cyclical policy by others? That would be dumb.

I should only endorse 2008-present policy to the degree it approximated a counter-cyclical response. Any yes I believe that should have meant more spending in the depth of the recession, and a tailing-off as recovery materialized, moving to higher taxes and debt reduction, probably about 2016.

So you don't even need to make it about me at all.

You can say what is counter-cyclical fiscal policy for 2018 based on the state of the business cycle in 2018.

I agree. What would you have liked to have seen cut?

I am open to any cut which sheds low ROI ventures. That might include wars, agricultural subsidies, inefficient education grants, and a few other social programs.

You have to do the math though, and show the low return.

Plug your numbers into one of the many good tax calculators out there.

Try :

With that calculator I pay $216 more. That's fine. I'm a Democrat so I expected it. I wish it was going to pay for something that would make everyone's life better.


I tried a “moderate” income (150k) in NYC with a moderate home (impossible for NYC, my guess is most people at that income level rent in NYC) and, indeed, there was about a $300 dollar increase in tax. Note you had to be single, if married then the tax rate goes down, also had to childless.

If I plunk in more “realistic” Home owner numbers into the calculator for NYC (350k, married, 1M mortgage, 1 kid) I get a decent savings. If I put in a 75k childless single person in NYC I get a decent sized savings.

It looks like to get an increase a person had to be truly “working” the tax code. Major deductions against a good but not great income.

It might be a thin slice, but we exist! High real estate taxes, expensive health insurance paid 100%, only income sources are capital gains and dividends outside of tax advantaged accounts. Not 59 1/2 yet so no income streams tapped. No state income tax.

Ah. The rate on dividends and capital gains wasn’t reduced, so indeed you would be hit.

I would have been entirely behind going back to 15% capital gains. Or a removal of the 3.8% ACA surcharge. However, the media would have gone insane.

One step at a time I suppose.

The Corp. tax rate cut will do just that.

Another questionably reported aspect is the whole SALT thing. I've found that a lot of the supposed victims of the plan were already in AMT, which means they weren't getting SALT deductions anyway!

I assume there are some blue state coastal elites reading here. Is anybody getting a big hit from the loss of SALT and other deductions that isn't more than made up for by the lower rates?

What's your experience? If you are getting a tax increase, what factors (e.g. large and unusual deductions) are causing it?

Great calculator here which I encourage everyone to try:

OK, trying Dick the Butcher's numbers in the WSJ calculator, I was able to get a small tax increase. The main factor is that he's currently below AMT, so the SALT loss does affect him. A smaller factor is having no children. If he had children, he'd be a marginal beneficiary of the law.

Here is another example. I am in medium-tax Pennsylvania. We earn about $260,000, have 2 kids in college and pay $17000 or so in SALT income and property taxes. We have no mortgage and donate about $12,000 a year to charity. With the cap on SALT, our itemization will be below $24,000, so we will now take the standard deduction, so we lose $5,000 there. Also, we lose 4 personal exemptions for about $16,000, but the child tax credit now only counts for kids who are 17 or younger, so we don't get that. In net, that means that we will have about $21,000 more in taxable income next year. With the lower rates, I estimate that we will pay about $500 more next year under the new tax plan. I would add, though, that the corporate tax decrease likely was responsible for a good part of this fall's bump in the stock market, and that has delivered me a extra hundred grand.

I put your data into the above calculator, which isn’t perfect of course, and got 2.7k reduction in taxes.

I had to make some assumptions that could be incorrect.

Not included, is that we currently route $36000 into pretax retirement and $5,000 into a tax deductible HSA. That might make the difference, but the big loss is the two kids personal exemptions that are lost.

Oh, and I also always sell recently purchased stock (exchanging to similar but different ETFs to avoid wash sales) during downdrafts, in order to gain the $3,000 capital loss adjustment to income. Plus some of my income was in qualified dividends taxed at the 15% rate, rather than 28%. The calculators would have that listed as ordinary income that is subject to marginal rate cuts.

Offbeat idea:

Maybe we should just convert to pure deficit financing? Each year the Fed will create enough cash to keep prices stable and buy Treasury bonds with them. The rest of Federal spending will be covered almost entirely by simply borrowing it. I would keep, for now, sin taxes and taxes, corporate taxes and a carbon tax (or cap-n-trade system). Payroll taxes for social security would be replaced by a requirement that workers buy and hold Treasury bonds for an amount equal to the tax, social security benefits would be paid as long as the person continues to hold the bonds, if they sell them the checks would be decreased by the amount of the proceeds.

Possible benefits:

1. End supply siders once and for all. With no tax there is no more endless debates about work and investment incentives would be at an end. However much the pie might expand due to taxes being no longer a barrier, the pie will expand.

2. It would dramatically reduce all costs associated trying to game the tax system.

3. It would reduce entitlement spending since you immediately raise take home incomes for anyone with a wage-based job.

Would the bond market crash and inflation rage? I suspect not.

1. Cash balances would increase, if you're the saving type your bank accounts would go up, if you're not the bank accounts of the businesses where you blow your paychecks would go up. At the end of the day, either you or banks are going to end up dropping that money into Treasury bonds.

2. Trillion on Iraq War, Trillion on Stimulus, now Trillion+ for President Orange Dementia, interest rates and inflation remain low. Have we hit the point this line that 'eventually deficits will hurt' is starting to seem frayed and missing some important dynamic?

3. There has never been a case of hyper-inflation in a country under normal politics. Never been a case of entitlements producing hyperinflation. The two cases that immediately spring to mind are Germany post-WWI and Zimbabwe. The first entailed a country trying to make unreasonable transfers *outside* of its economy and the second was an implosion of civil society inside. So why not simply dispense with taxes, which make economic analysis hopelessly confusing and subject to special interest lobbying and simply let inflation and the financial markets be the check on government spending? In other words with 100% deficits the bond market would actually reflect to what degree gov't spending is diverting resources from the private sector. Right now that measure is muddied, some resources are taxed from the private sector, some are returned to it, the act of taxing may or may not limit the size of the total potential pie, the act of spending may expand or contract the pie depending upon which economic theories are right. Given how complex the system is, it is easier to focus on fewer, not more variables. Use unemployment/GDP to see if gov't spending should increase, inflation/interest rates to see if it should decrease.

It's an interesting idea, for people familiar with economics. Selling it to the public and politicians would be impossible.

In theory the voters choose politicians who represent their preferences with regard to the tax - public services tradeoff.

Your suggestion replaces that with a Inflation - public services trade off.

The implications of this are thought provoking

It has been thought through before before. The main issue is that we don’t have sufficiently good models to predict with any confidence what would happen.

So there are still taxes.

Under your plan you have turned an overly complicated and rent seeking shitty tax system into a seigniorage tax system.

Under this system the following would be true:

A) inflation risk would rise dramatically

B) saving is disincentivized, immediate consumption is incentivized. We have one of the lowest savings rates in the world for developed countries. So ugh.

C) the risk of the dollar losing its world reserve currency status rises substantially, causing uncertainty of value and increases the risk of holding dollars. This erodes wealth of everyone holding dollar denominated assets. This is a shitty cycle financial economics wise. There are multiple equilibria and we would go nowhere good.

D) the Euro would gain in value vis a vis the dollar

E) US political leverage would crater, as most financial institutions would move to the RMB. No reason to cave to the US if there’s a financial sytem that is stable and backed by a real government. Shanghai and HK become the financial centers of the world. NYC real estate crashes as foreigners move money into assets denominated in Swiss Francs and RMB.

You’ve created a system with horrible side effects. You could have just set a consumption tax and made it progressive.

It’s progressive. It incentivizes capital formation. The “rich” pay their fair share!!

For fucks sake just have a progressive consumption tax and get rid of everything else.

A. Perhaps but the Fed would continue to operate with its mandate to keep inflation low.

B. I'm unclear at how savings could be disincentivized. What model of individual consumption-savings are you using where increased tax burdens causes a person to save more than they otherwise would?

C. Assuming the Fed maintained inflation at a low and stable rate why would the world desire to hold US dollars less?

D. See C regarding the Euro plus if the US was a near zero tax environment why would the Euro gain?

E. See B-D.

Note I also pointed out I would make the payroll tax a forced savings model. Instead of being taxed for social security, we would be required to buy bonds instead. Upon retirement we would be free to sell those bonds (but out checks would be docked for the funds raised). That would give retirees a powerful incentive in both holding onto savings accumulated over a long term AND a political incentive towards maintaining the validity of the US debt.

Today the tax code has a complex impact on savings. On one hand work disincentives may boost savings rates but ultimately lower savings... Or it can push one type of savings (like buying a house) over other types of savings (setting aside more to retirement or building a larger emergency fund). It may be simpler to just wipe the slate clean of criss-crossing incentives and see what savings is like and then work on policies that are more direct if savings is too low.

I think you're forgetting marginal behavior here. if your income suddenly increased 20% you would not rush out and increase your consumption 20%. Odds are you would save quite a bit of that increase, at least initially. Individuals building up larger savings, likewise, lowers gov't spending on poverty programs (look up the stats on how many Americans would be 'ruined' by an unexpected $500 expense...if more Americans had less taxes or there were more jobs because people were blowing their paychecks on consumption the unexpected $500 hits that do actually hit many Americans will not ruin them). Again even if you will spend every dollar you get without regard to savings, at the end of the day your dollars end up in someone's bank account which means they would likely end up buying quite a few Treasury bonds even if you yourself never save a penny.

Ditto for other policy goals like inequality. A potent estate tax would be much more direct when it came to inequality IMO. You either spend your money when you are alive or it gets taxed big time trims inequality at the top while letting Americans accumulate a portfolio of bonds when they retire builds up from the bottom. Even more direct policies like cash grants directly to the bottom could also be deployed without the political fight becoming one of rich against poor. Again the question is muddied by bringing taxes into the mix. Either a program that gives purchasing power to the poor will pull too many resources from the economy or it won't. That should be enough of an economic question to answer, trying to compare such a program that's 'balanced' by equal taxes versus unbalanced by deficit financing just adds more complexity to the question.

This model jettisons whatever fiscal discipline exists for public sector agencies.

Inflation and interest rates would not be fiscal discipline?

I'm unclear of what the model is supposed to be now. A balanced budget works as a model since taxes=spending appears to net the cost of government against the gain of gov't spending. OK. A 'long run' balanced model where deficits are balanced by surpluses over time also appears to be an extension of that. But it is pretty clear to anyone whose watched this since the 80's that the budget is going to be in a deficit for multiple already has been for at least one there is no long run budget surplus waiting to balance everything out and nothing bad seems to be happening because of that.

So if a balanced budget is not the model then what is? A deficit of 1% GDP, 2%, 5%? Outside of balance there seems to be no clear theory at play here other than people worrying about deficits that cross 'magic numbers' ($1T, 5% of GDP, 10%...debt to GDP of 90%, 100% etc.). This muddies the issue, is a gov't that spends 45% of GDP but taxes 44% better than one that spends 35% but taxes only 20%? What about spending 45% but taxing 30%? At least with a near zero tax system we can focus instead on what level of gov't spending is beneficial and what level becomes problematic

Blame the media for a fast moving bill that moved ahead of not just journalists, but would-be modelers?

Of course when the dust settles journalists were wrong, because everyone who attempted a numeric analysis was wrong, in real time.

(By the time most articles were published, they were on previous versions of the bill. This left the public with a very lagged sense of what was in it.)

What were some of those changes?

Sorry, my answer jumped down below

I mean, assume someone like Justin Wolfers was critical but fair .. you would have to follow him very closely to be up to date yourself.

There were days when a morning analysis was no good by afternoon.

He updated, but did all readers, or journalists doing explainers, keep up?

‘Justin Wolfers ... fair’

Thanks for the laugh. Literally LOLed.

You’re the best. A true comedian. Keep up the “good work” and please throw in more hypocrisy. Thanks!

Go ahead, ignore all the Cowen Wolfers linkages.

Geez, I think the House bill, the Senate bill, and the reconciliation bill, all modelled differently.

Here was a moment in time:

There was also the big impact of the last minute Rubio negotiations:

A Republican Party that rushed through a tax reform bill without timely disclosure and without proper time for analysis is in no position to quibble about the analysis other people have attempted.

If the Republican Party truly wanted a more informed debate about the law:
1) they should have released the text in advance
2) they should have released their own formal analysis of the effects of the legislation
3) Mnuchin should have released the analysis from the Treasury Department that he promised.

Absent those steps, commenters on the right simply have no right to complain.

I like the gratuitous aside about the tax law's "many objectionable features." Sticks out like a sore thumb -- wonder what compelled the writer to include it?

Probably the objectionable nature of many of the features of the law.

Yes. Trump signed it.


You're such a triggered snowflake.

It is interesting. If the objectionable features are the key, why so many economic spins that only touch bases with that reality?

I have to put it down to partisanship. If you affiliate with Republicans you will choose a softer target for criticism than .. if Obama had authored exactly the same thing in 2016 as the economy reached full employment.

>I would say that media coverage of this bill — which does have many objectionable features........

>Overall, claims about redistribution — from either side....

I say we take the "Donald Trump On Charlottesville Award" and rename it the "Tyler Cowen Award."

The secretive, constantly changing proposals that amounted to no more than suggestions made useful coverage impossible, by design. That the insiders ended up reigning is no surprise though.

Internet companies should face a tax punishment for failing to deal with the threat of terrorism in the UK, security minister Ben Wallace has said.

It is interesting to see a government minister realise that tax is a "punishment". Of course this is so whatever the reason for levying a particular tax, and whether particular classes or races or nationalities of people are discriminated against by being singled out to pay it.

Global internet companies are getting into direct conflict with governments for the same role. Already they are taking over roles in public health, energy management and pollution control, and even space exploration. If these companies manage to cut down or even reverse ageing damage, they would totally disrupt pensions, thus health would affect economic policy. Some of these companies have larger capitalisation than some governments and more users than governments have citizens.

"Global internet companies are getting into direct conflict with governments for the same role. "

What also helps is that the largest (Alphabet, AMZN, etc) are American, so they are easy targets for (non-American) governments.

An important table, but is it correct? or rather, are we interpreting it correctly? It is supposed to describe the distributional effect of the full law (which by the way I like), containing both the changes to income tax and the changes to corporate tax, isn't it?

I find difficult to believe that the effective rate on the $1 million+ income earners willl drop only from 32.5% to 30.2%, that is only by 2.3% of income. Think about it:

1) Concerning ordinary income, all tax rates have gone down by at least 2.6%, so this implies for anyone a drop by 2.6% of income at least of tax paid. The richest may have to deal with the cap on the deduction of local taxes and property taxes, but this cannot be reasonably more than 6% of income: local taxes are never more than 10%, so if you loose the deduction on them, you loose 10% times the marginal tax rate of your income, so that's about 3.5% for super-rich. And for the property taxes deduction, if your home is worth 5 times your annual income, and the taxes on it are 1.5% (huge!!) a year, the end of that deduction costs you, at marginal tax rate about 35%, about 35% x 1.5% x 5 = 2.5% of income. And these losses only concern the super-rich who managed not to be hit by the AMT under previous law...

Conclusion: for the super-rich, the ordinary income part of the law can cause an increase in taxes due of about 3% of income at the maximum, and probably much less on average...

2) The corporate tax is down from 35% to 21%. This means that on their part of income coming from those corporate profits the rich pays less taxes by 14% of income.

I do not know what part of the income of those rich people comes from corporate profit, and what part comes from
ordinary income, but I would believe that the part of 2) is very significant, which would suggest an higher drop in their effective tax rate... If someone has an explanation, or a more detailed analysis of the effect of the two parts of the law (ordinary and corporate income), I would be interested.

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