Friday, February 22, 2013

Why is Martin Feldstein Allowed to Comment on Economics?

No Just Because He is a Ph. D. and on the Harvard Faculty Doesn’t Mean He Makes Sense

Former Reagan economic adviser Martin Feldstein certainly has the credentials expound on economic policy, but most of the time what he says just doesn’t make sense.

Consider this from the editorial pages of the Wall Street Journal (ok, very little there makes sense, we already know that)

Martin Feldstein: A Simple Route to Major Deficit Reduction

A 2% cap on tax deductions and exclusions would reduce the national debt by $2 trillion over a decade.

Well we were pretty excited, until we read this.

Putting a cap on tax expenditures—those features of the tax code that are a substitute for direct government spending—can break the current fiscal impasse and prevent the dangerous explosion of the national debt. If a cap is combined with entitlement reforms, the government will also be able to reduce tax rates and increase some spending to accelerate the economic recovery.

Yep there it is again, the government can cut tax rates (and even increase spending) and still reduce the deficit.  How does this happen?  We don’t know.  No one knows.

As for the ‘simplicity’ of it, well there is this.

Limiting the tax savings from all deductions and the two major tax exclusions to 2% of an individual's adjusted gross income would reduce the deficit in 2013 by $220 billion. This 2% cap does not refer to the amounts of the deductions and exclusions but to the tax saving. This means that for someone taxed at a 25% marginal tax rate, the 2% cap would limit deductions and exclusions to 8% of that individual's adjusted gross income.

The 2% cap could also be modified to retain the existing deduction for all charitable contributions and to allow employees to exclude the first $8,000 of employer-paid health-insurance premiums from the cap. This would still reduce the current year's deficit by $141 billion. That translates to about a $2.1 trillion reduction in the national debt over the next decade.

Yep that is simple. (No it’s not, this is sarcasm.  Use the example in your classes if you need to.) Still we would support Mr. Feldstein if, like all Conservatives, he would just leave his limitation on deductions alone. But he won’t.  He wants to use the savings to cut taxes for the wealthy.

Higher tax rates, in short, are not necessary in order to raise substantial revenue. Indeed, some of the $2.1 trillion could be used to reduce current tax rates and promote growth.

Yes, we know, he doesn’t say whose taxes would be cut.  But look, he is a Conservative writing in the Wall Street Journal.  Just whose taxes do you think he wants to cut?

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