A Quick Quiz

According to the staff of the Joint Committee on Taxation, before the recent change in the tax law, taxpayers earning more than $1 million a year were scheduled to pay 19.3 percent of all federal taxes in 2019. What impact does the new tax law have on this percentage?

(a) It falls to 17.8 percent.

(b) It falls to 18.7 percent.

(c) It stays the same.

(d) It rises to 19.8 percent.

Find the answer here. (First table, seventh column, penultimate row.)

The Case Against Taxing Higher Ed

Click here to read my column in Sunday's NY Times.

Tax Cuts for the Rich?

As I have stated repeatedly, I have mixed feelings about the tax bill going through Congress. There is a lot of it that I don't like. But I nonetheless disagree with much of the commentary of its critics. A common refrain is that the bill entails big tax cuts for the rich. I am not so sure.

True, the top tax rate is reduced by 2.6 percentage points. But for those in states with a personal income tax, this merely offsets the loss of the state and local tax deduction. And if you are in a high tax state like California, where the top tax rate is 13.3 percent, the offset is far from complete.

The heart of the tax bill is a cut in the corporate tax rate. To be sure, in the short run, this change benefits shareholders, who are generally wealthier than average. But in the long run, increased profitability should increase capital accumulation and productivity, raising wages. That is, workers will benefit from the corporate rate cut.

Economists differ in how large this effect is. The Tax Policy Center, whose numbers are widely quoted, estimates that 20 percent of the corporate tax cut goes to labor. That seems low to me. I have not seen a poll of economists asking what percentage of corporate taxes is paid by labor in the long run (calling the IGM panel), but I would guess that many economists would put the number at higher than 20 percent.

In any event, when you see distribution tables for this tax bill, remember that these numbers are not facts, they are judgments.

I talk with NPR

A New, More Affordable Way to Read My Favorite Textbook

From Inside Higher Ed: 

The new offer, called Cengage Unlimited, will give students access to more than 20,000 Cengage products across 70 disciplines and 675 course areas for $119.99 a semester.

Paul Krugman...Sigh

I usually refrain from commenting on all the silliness found over at Paul Krugman's blog. But in a post a couple days ago, Paul is especially dyspeptic and calls me out by name. Let me offer a few comments.

1. Paul says I have never admitted to making a math error. Well, I would if I thought I made such an error. I make them all the time. But in this case I am not convinced.  Neither is University of Chicago professor Casey Mulligan, who thinks Paul made a math error. I spoke with several other economists (some of whom share Paul's politics) and they don't see Paul's point either.*

2. Paul says that economists like me have not been sufficiently critical of President Trump and his policies. Let me point out

A . I said during the election that I would not vote for him.
B.  I criticized his obsession with the trade deficit.
C.  I encouraged tax reform to be revenue neutral.
D.  I called the tax bill an "unworkable mess."
E.  I lamented the new tax on university endowments.

3. Paul thinks that economists like me should be more vocal about how horrible the tax bill is. I might be if I thought it was completely horrible, but despite its many flaws, there are parts that I like, including the lower corporate tax rate, the move to a territorial tax system, the reduced deduction for state and local taxes, and the scaled back mortgage interest deduction (in the House bill). Overall, the tax bill is a mixed bag, with some bad features and some good features.

4. Paul seems to take the position that unless you agree with him about the tax bill, you are unprincipled. In the world as I see it, reasonable people can disagree, and progress is best made when people do not question the moral rectitude of others simply because they hold different opinions.

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*Update: Robert Waldmann looks at the issue, concluding "no one has made an algebra mistake. Taxes on capital and capital income are different."

What I've Been Watching

This came out last year, but I only heard about it recently: The Night Manager, a six-part miniseries based on the John le Carre novel. Compelling story and great acting. Available now via Amazon.