A Question I Asked a Much Shorter Version of at the Berkeley "How Did Tax Reform Happen?" Symposium: I have a question for Alan Auerbach: a question hinted at in his slide that contrasted the analyses of the tax cuts from economists from those from “economists“. It was also hinted at in David Kamin's slide the one that contrasted:
- the analyses of policy shops with models—including the highly unreliable Tax Foundation (yes, crowding out is a thing; no, the long run does not come in ten years)
- that found very small growth effects with the unmotivated and unjustified claims of the Trump administration.
There are two problems:
- David's slide omitted a number of estimates of the effect that were even higher
- Alan's slide omitted the fact that the most absurd estimates I saw came not from "economists" but from economists—Ph.D. economists with tenured appointments at places like Princeton, Harvard, Columbia and Stanford.
The claim by Stanford's John Taylor, Mike Boskin, John Cogan, and George Schultz; Columbia's Glenn Hubbard, Princeton's Harvey Rosen; Harvard's Robert Barro; plus Larry Lindsey and Douglas Holtz-Eakin that the tax cuts would boost GDP by 3% in the long run and that it was possible the long run might come in as few as 10 years.
The claim by 100-odd economists led by James C. Miller III, Douglas Holtz-Eakin, Charles W. Calomiris, and Jagdish Bhagwati (who backtracked, saying he thought it was standard practice to sign letters that contained claims with which one did not agree) claiming not just such rapid growth but that the tax cuts would pay for themselves: "Sophisticated economic models show the macroeconomic feedback generated by the TCJA will... [be] more than enough to compensate for the static revenue loss..."
Three of the nine—Douglas Holtz-Eakin, Larry Lindsay, and Glenn Hubbard of Columbia—whom Sen Susan Collins (R-ME) believes assured her that the tax cut was likely to pay for itself. (They claim that they did not say that, and are not responsible for Susan Collins's misapprehension; NEWSFLASH: when you talk to a senator, you are responsible for what the senator hears, not for the loopholes you preserve so you can sleep better at night.)
One of the nine, Robert Barro of Harvard, doubling down and saying that the long-run boost to GDP is not 3% but 7%—and Michael Boskin of Stanford then endorsing his analysis.
(Robert Barro has since cut his estimate of the effects of the law-as-written from 7% to 0.4%. See Barro and Furman (2018). Michael Boskin has not, to my knowledge, backed off of the 7% number.)
The net effect of all of these "analyses" by not "economists" but by economists of note and reputation was to put the Trump administration estimates in the middle of the distribution, rather than way far out on the fringe. And this mattered for the debate in the public sphere. It led, among other things, to this outraged cry from Binyamin Applebaum:
I am not sure there is a defensible case for the discipline of macroeconomics if they can’t at least agree on the ground rules for evaluating tax policy. What does it mean to produce the signatures of 100 economists in favor of a given proposition when another 100 will sign their names to the opposite statement? How does Harvard, for example, justify granting tenure to people who purport to work in the same discipline and publicly condemn each other as charlatans? How are ordinary people, let alone members of Congress, supposed to figure out which tenured professors are the serious economists?...
I agree with Alan Auerbach that it would be wonderful if we had strong nonpartisan analytical institutions. But I want to ask Alan: What marching orders do you give us to get there? How can we get there when we see such egregious behavior not just from "economists" who serve political masters and do not know how to do analyses that get the incidence right, but from economists who know well how to do analyses that get the incidence right?
Symposium: How Did Tax Reform Happen?
Monday March 12, 2:00–3:30pm, 648 Evans Hall
In late December, less than two months after its initial introduction in Congress, the Tax Cuts and Jobs Act became law. Full of complex and controversial provisions, this major change in the U.S. tax system occurred more than three decades after the last significant change, the Tax Reform Act of 1986, and followed a very different process in a starkly different political environment.
This coming Monday, the Robert D. Burch Center on Tax Policy and Public Finance will sponsor a special panel on how institutions shaped, or failed to shape, the new law of the land.
The panel will discuss:
- Basics of the new tax law
- What the Joint Committee on Taxation and Congressional Budget Office [staff] actually do
- How the Executive and Legislative branches interact
- The role of budget rules and the minority party
- How 2017 differed from 1986 and with what consequences
Our panel comprises three academics with direct experience in the tax policy process:
- Edward Kleinbard, Robert C. Packard Trustee Chair in Law, USC Gould School of Law; former Chief of Staff, U.S. Joint Committee on Taxation
- David Kamin, Professor of Law, NYU School of Law; former Special Assistant to the President for Economic Policy
- Alan Auerbach, Robert D. Burch Professor of Economics and Law, UC Berkeley; former Deputy Chief of Staff, U.S. Joint Committee on Taxation; current member, Panel of Economic Advisers, Congressional Budget Office
- Moderator: Danny Yagan, Assistant Professor of Economics, UC Berkeley