| Revised Feldstein TegenArgument1 #232171 In response to objections, Feldstein produced a revised version of his analysis with assumptions closer to those of his critics. He stands by the core claim of his first paper - that the Romney scheme of cutting rates funded by base broadening without burdening the middle class - is viable. |
The revised Feldstein paper has been linked the original by a Variation semantic cross-link (indicating the source is a variation on the target of the link). |
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- CitatenVoeg citaat toeList by: CiterankMapLink[1] A reply from Martin Feldstein
Citerend uit: Martin Feldstein
Publication info: 2 September 2012 - posted in Greg Mankiw's blog
Geciteerd door: Peter Baldwin 5:08 AM 25 October 2012 GMT
Citerank: (3) 231239Figure is arbitrarySome have suggested the benchmark definition of 'high income' set by the TPC (and in the general political debate) is too high and have called for analysis where it is set at lower levels. For example Martin Feldstein has defended a $100,000 since this only subjects the top 21% to base broadening.13EF597B, 232170Elasticity too highIn his original paper Feldstein assumes that raising the after-tax share of earnings an individual keeps by 10% increases taxable income by 5% - the elasticity of the tax base is 0.5 - reducing the cost of rate reduction by $33 billion. Critics claim this elasticity is too high.1198CE71, 232794Feldstein revisionA reply from Martin Feldstein1198CE71
URL:
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| Fragment- While I still believe the assumptions that I used in my analysis, I can modify them as suggested by the critics and still support my original conclusion by broadening the tax base in ways suggested but not developed in my WSJ piece. Eliminating a few of the “tax expenditure” exclusions and credits that are important for high-income taxpayers would raise more than enough revenue to compensate for assuming a smaller marginal tax rate, cutting the behavioral response effect in half, and phasing in the base broadening for individuals with incomes over $100,000 to avoid the notch.
More specifically, using a 25% marginal tax rate instead of 30% would reduce the revenue from eliminating deductions by 5% of $636 billion or $32 billion. Cutting the behavioral response in half (i.e., using a taxable income elasticity of just 0.25) would raise the cost of the tax cut by $17 billion. The cost of the “phase in” would depend on just how it was done but say another $15 billion of reduced revenue. So instead of my conclusion that the revenue from eliminating deductions would exceed the cost of the tax cuts by $5 billion, these assumptions would imply a shortfall to be made up by other base broadening of $64 billion.
One part of that broadening could be eliminating the exclusion of employer payments for health insurance for those with AGI over $100,000. That would increase income tax revenue by about $40 billion (out of the total revenue loss from the health insurance exclusion for all taxpayers of $168 billion) plus an additional $10 billion of additional payroll tax revenue. (My estimate of this $40 billion is based on an imputation method developed by John Gruber based on data collected in the Medical Expenditure Panel Study.)
Eliminating the exclusion of municipal bond interest for taxpayers with AGI over $100,000 would increase tax revenue by an additional $15 billion.
Eliminating the child credit for those with incomes over $100,000 would increase revenue by an additional $10 billion.
So just those three changes to the list of base broadening measures would raise $75 billion or more than enough to exceed the $64 billion of potential shortfall with the very conservative assumptions noted above.
Additional tax revenue could be raised without reducing incentives to save or to invest efficiently by eliminating the exclusion for high-income taxpayers of such things as capital gains on home sales, the “cafeteria plan” benefits, and the capital gains at death. |