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Chapter 12: The Design of the Tax System

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(Note: Page numbers referenced in posts prior to June 1, 2011 refer to 5th edition)

 

December 13

After Obamacare

Healthcare looms large in the fiscal challenge ahead. Mankiw has a link to an alternative to Obamacare. It features a tax credit to the uninsured and the individually insured, protects people with preexisting conditions, and includes provisions to keep costs down.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

December 1

Who Pays for Government?

A study by the Congressional Budget Office examines the net tax burden by income quintile. When one subtracts transfer payments received from taxes paid, only the top two quintiles pay positive net taxes.

Textbook References:

Pages 246-252 “Taxes and Equity”

November 12

Tax Fact of the Day

Compared to other developed countries, the United States relies more on individual income taxes and less on consumption taxes and social insurance taxes.

Textbook References:

Pages 234-241 “A Financial Overview of the U.S. Government”

August 23

What to Make of Corporate Tax Inversions

The U.S corporate tax rate is about twice the rate in Europe. And unlike most countries, the U.S. taxes all corporate income, not just the income made in the U.S. One of the principles of economics is "people respond to incentives." Unsurprisingly, U.S. corporations are merging with foreign corporations and incorporating abroad. Mankiw suggests that we repeal the corporate income tax and replace it with a broad-based consumption tax.

Textbook References:

Pages 250-251 “Who Pays the Corporate Income Tax?”

July 6

Some ACA Readings

Mankiw presents three links to articles about the Affordable Care Act. One suggests the ACA may help reduce costs. A second article suggests that the ACA will lead to fiscal disaster. The third article looks at alternatives to the ACA.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

May 1

British Healthcare Fact of the Day

Proponents of a government-run healthcare system often point to Great Britain as an example. Yet the British approach has created a two-tier healthcare system where people who can afford it buy private medical care.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

March 28

The Growth of Pass-Through Entities

Mankiw reminds us that reported statistics do not always reflect what we think they do. For example, as more corporations become limited liability corporations, income that had been subject to the corporate income tax no longer is; the income is instead subject to the personal income tax. Hence, changes in the share of tax revenue raised by different taxes may reflect legal changes, not economic changes.

Textbook References:

Pages 234-241 “A Financial Overview of the U.S. Government”

March 24

Not Class Warfare, Optimal Taxation

Mankiw takes Paul Krugman to task for presenting a distorted view of U.S. tax policy.

Textbook References:

Chapter 12 “The Design of the Tax System”

January 9

On Corporate Tax Reform

The corporate income tax encourages debt finance, encourages multinationals to shift profits abroad, and encourages firms to retain earnings rather than pay dividends to shareholders. Should the tax be reformed or repealed?

Textbook References:

Pages 250-251 “Who Pays the Corporate Income Tax? ”

December 7

The Progressivity of the Current Tax Code

A graph from the Congressional Budget Office shows average federal tax rates by income group from 1979 to 2010. Mankiw also includes a link to the CBO's report. The CBO says that "for most income groups, average federal tax rates in 2010 were near the lowest rates for the 1979-2010 period. The exception was households in the top 1 percent, whose average federal tax rate in 2010 was significantly above its low in the mid-1980s."

Textbook References:

Pages 248-249 “How the Tax Burden Is Distributed”

November 25

Is the Affordable Care Act reducing healthcare costs?

The Whitehouse says it has, but the Manhattan Institute says it has not. The government's credibility is once again in question.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

October 9

Obamacare's Finances

Charles Blahous argues that the Affordable Care Act is fiscally reckless. The Act promised to reduce the rate of growth of health care costs. But as detractors have said all along, by increasing the demand for healthcare, the Act is going to raise healthcare costs substantially.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

September 3

Marginal Tax Rates Under Obamacare

There is new evidence that the Affordable Care Act will effectively raise marginal tax rates on labor income.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

August 9

A Debate over Obamacare

Casey Mulligan and David Cutler debate Obamacare's effect on employment. The main issue is whether the explicit and implicit tax increases on labor will outweigh the cost reductions to employers from lower insurance premiums.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

July 23

Capital Income Taxation

Alan Viard points out that taxes on capital income penalize savers. The U.S. tax system imposes many such penalties, and more seem likely. He argues that the U.S. should completely replace the income tax with a progressive consumption tax.

Textbook References:

Page 243 “Should Income or Consumption Be Taxed?”

July 8

Summers on the Corporate Tax

Lawrence Summers points out how uncertainty about corporate tax reform is harming both multinational corporations and government revenue. He then offers a proposal that he says will "raise revenue relative to the current baseline, encourage the repatriation of funds and reduce the competitive disadvantage faced by U.S. multinationals operating abroad."

Textbook References:

Pages 250-251 “Who Pays the Corporate Income Tax?”

January 2

Tax Progressivity: Update

The Tax Policy Center reports the effective federal tax rates for 2013 by income groups.

Textbook References:

Pages 247-248 “The Ability-to-Pay Principle”

December 29

Maybe the Rs and Ds are both wrong

Republicans and Democrats both agree that we should not raise taxes on the middle class. Mankiw explains that unless we significantly reduce entitlement spending, an increase in taxes on the middle class may be unavoidable.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

December 11

Make Your Own Deficit-Reduction Plan

The Wall Street Journal presents an interactive tool that lets you create your own deficit-reduction plan. It is harder than it looks.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

November 18

The U.S. has a flat tax (in effect)

The Congressional Budget Office says that the effective marginal tax rate for low, moderate, and high-income taxpayers are quite similar.

Textbook References:

Pages 246-251 “Taxes and Equity”

November 10

How To Raise Revenue From The Rich Without Increasing Tax Rates

The Tax Policy Center says that if income tax deductions were limited to a maximum of $50,000, tax revenue would rise by about $75 billion per year. Most of the extra revenue would come from the richest taxpayers.

Textbook References:

Pages 246-251 “Taxes and Equity”

October 28

Tax Expenditure Fact of the Day

The tax deduction for interest paid on mortgages disproportionately benefits the richest fifth of households.

Textbook References:

Pages 246-251 “Taxes and Equity”

September 26

The Taxation of Capital Income

Matthew Iglesias argues that it is a good thing for capital income to be taxed at a lower rate than labor income.

Textbook References:

Page 243 “Should Income or Consumption Be Taxed?”

August 17

The Economist Platform

Economists from across the political spectrum agree on six major policy changes. Five of them reform the tax system. Unfortunately, most politicians will not even consider these reforms.

Textbook References:

Chapter 12 “The Design of the Tax System”

July 14

The Progressivity of Taxes and Transfers

The bottom three quintiles of income earners receive more in government benefits than they pay in taxes. In other words, only the top two quintiles are net contributors to the government.

Textbook References:

Pages 247-249 “The Ability-to-Pay Principle”
Pages 424-427 “The Political Philosophy of Redistributing Income”

June 28

SCOTUS on the Health Care Mandate

The Supreme Court's reasoning in its decision on President Obama's health care reform is quite similar to what Mankiw wrote in a blog post in 2007. A "mandate" enforced by a fine is an incentive to buy insurance.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

May 6

Laura Tyson on the Corporate Tax

Capital is mobile and will leave countries with high tax rates. Laura Tyson argues we should cut the corporate tax rate and pay for it by increasing the tax rate on capital gains and dividends.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 250-251 “Who Pays the Corporate Income Tax?”

April 14

The Case for Federalism

Competition among governments causes better governance. A federal system allows people and capital to move to cities and states that are better governed.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 234-241 “A Financial Overview of the U.S. Government”

April 10

The Composition of Fiscal Austerity

Alberto Alesina and Francesco Giavazzi argue that when governments act to reduce their deficits, spending cuts are much better for the economy than tax increases.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Page 773 “Fiscal Policy Might Affect Aggregate Supply”

March 29

Mr. Mandate

Jonathan Gruber argues that mandates are necessary to make health-care reform work.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

March 27

We're number one!

The U.S. now has the distinction of having the highest corporate tax rate in the world.

Textbook References:

Pages 250-251 “Who Pays the Corporate Income Tax?”

March 17

On the Taxation of Capital Gains

Mankiw, Uwe Reinhardt, and Steve Landsberg discuss capital gains taxes.

Textbook References:

Pages 246-251 “Taxes and Equity”

March 3

Taxing Carried Interest

Mankiw explains one reason why horizontal equity is so difficult to attain.

Textbook References:

Page 249 “Horizontal Equity”

February 8

Five Books on Public Finance

Jonathan Gruber recommends five books about public economics. In the process he discusses tax policy, health care, and social welfare programs.

Textbook References:

Chapter 12 “The Design of the Tax System”
Chapter 20 “Income Inequality and Poverty”

January 30

How much would a Buffet Tax raise?

At best, a 30 percent minimum tax on incomes above $1 million would raise $700 billion over 10 years. That is far less than what is needed to eliminate the budget deficit.

Textbook References:

Chapter 12 “The Design of the Tax System”

January 27

Support from Anonymous

Does Warren Buffet really pay a lower tax rate than his secretary?

Textbook References:

Pages 249-251 “Tax Incidence and Tax Equity”

January 21

How to Reform the Tax System

Mankiw suggests four ideas to reform the tax system: 1. Broaden the tax base and lower tax rates. 2. Tax consumption, not income. 3. Tax bads (negative externalities), not goods. 4. Make the system as simple as possible.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Chapter 12 “The Design of the Tax System”

January 19

Five Observations about Progressivity

The U.S. tax system, when viewed properly, is clearly progressive.

Textbook References:

Pages 246-251 “Taxes and Equity”

December 30

The Burden of the Debt

Paul Krugman argues that the Federal debt is not much of a problem. Laurence Ball and Greg Mankiw argue that the debt has distributional effects and that too much debt might trigger a collapse in demand for government bonds.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 704-706 “Government Budget Deficits”
Pages 823-827 “Should the Government Balance Its Budget?”

December 5

Eichengreen on U.S. Fiscal Policy

Barry Eichengreen argues that if the U.S. fails to bring its deficits under control, then investors will no longer want to buy or hold U.S. debt. When that happens, the consequences could be severe.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 704-706 “Government Budget Deficits”
Pages 709-711 “Political Instability and Capital Flight”

November 7

What would John Maynard Keynes have said about Obamacare?

Keynes argued that even necessary reforms might upset business confidence and slow recovery.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 729-731 “Why the Aggregate-Demand Curve Might Shift”

October 29

My Lecture at Princeton

An hour-long video shows Mankiw's recent lecture at Princeton. In a wide-ranging presentation, he discusses the current state of macroeconomics. In the process he addresses the policy difficulties created by the current slump and the long-term debt crisis.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Page 561 “Financial Crises”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 631-632 “Bank Capital, Leverage, and the Financial Crisis of 2008-2009”
Pages 745-748 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”

October 27

The Budget Deficit

In a 90 minute video, Peter Diamond, Jeff Leibman, Deborah Lucas, Greg Mankiw, and Robert Solow discuss the federal budget deficit. The discussion addresses both short-term and long-term concerns.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”
Pages 823-827 “Should the Government Balance Its Budget?”

October 22

Fates to Avoid

Mankiw warns against the policy blunders made by Zimbabwe, Japan, Greece, and France.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Page 654 “Hyperinflation in Zimbabwe”
Page 662 “Inflation Is Bad, But Deflation May Be Worse”

October 4

Alan Blinder and Glenn Hubbard Agree

Alan Blinder and Glenn Hubbard are from different parts of the political spectrum, but agree on a plan to bring the national debt under control.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”

September 23

Three from National Affairs.

Andrew Biggs is troubled by suggestions to means-test Social Security and Medicare.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”

September 22

Kotlikoff on the Corporate Tax

Laurence Kotlikoff argues that the corporate income tax harms workers more than investors. This is in part because capital can easily move to countries with lower tax rates, but workers can not. Kotlikoff proposes an overhaul of the U.S. tax system.

Textbook References:

Pages 250-251 “Pays the Corporate Income Tax?”
Page 568 “Policy 2: Investment Incentives”

September 20

The Progressivity of the Tax System

Contrary to what politicians have been saying, the U.S. income tax is in practice progressive.

Textbook References:

Pages 246-252 “Taxes and Equity”

September 10

Paul Samuelson on Social Security

In 1967 Paul Samuelson described the Social Security system as a Ponzi scheme, but in a good way.

Textbook References:

Pages 238-240 “Fiscal Challenge Ahead”

September 10

Fixing Our Sick Economy

Two essays, one by Mankiw and the other by Robert Barro, address the causes of the weak recovery, and suggest possible solutions.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 250-251 “Who Pays the Corporate Income Tax?”
Pages 250-251 “The Value-Added Tax”
Page 568 “Policy 2: Investment Incentives”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

August 8

I Talk to Reuters

Mankiw discusses the current U.S. debt crisis and what the Fed can do to boost the weak recovery.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Page 561 “Financial Crises”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 745-748 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

August 6

Federal Nondefense Spending (as a % of GDP)

A chart from the Bureau of Economic Analysis shows how Federal nondefense spending as a share of GDP has risen sharply in the past few years.

Textbook References:

Pages 234-241 “A Financial Overview of the U.S. Government”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”

July 13

Spending Hidden in the Tax Code

Federal tax expenditures are almost as large as federal discretionary spending.

Textbook References:

Chapter 12 “The Design of the Tax System”

June 11

How to Grow the Economy

Bruce Bartlett reminds us that saving and investment, education, infrastructure, and technological advancement ultimately drive growth.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 540-552 “Economic Growth and Public Policy”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”

June 4

The Demagoguing of Medicare reform

Mankiw wonders why politicians on both the left and the right seem more interested in scoring political points than solving a serious problem.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”

May 31

How to Fix the Long-Term Fiscal Problem

Six think tanks offer their solutions to the long-term fiscal crisis faced by the U.S.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 560-572 “Economic Growth and Public Policy”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

May 12

Our Negative Bequest to Our Children

John Cogan reports that the typical 66 year old couple will get $1 million in Social Security and Medicare benefits. That is double what they paid in taxes.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”

May 12

Fun Fact of the Day: California Edition

Lifeguard salaries help explain California's fiscal crisis.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 248-249 “State and Local Government”

May 5

If Supermarkets Were Like Public Schools

Donald Boudreaux describes how awful supermarkets would be if they were run the same way as public schools.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 248-249 “State and Local Government”

April 30

The Purple Tax Plan

Laurence Kotlikoff and Andrew Weiss propose a tax reform that both the left and the right might embrace.

Textbook References:

Chapter 12 “The Design of the Tax System”

April 19

A Free Book Well Worth Your Time

Mankiw recommends Policy and Choice: Public Finance through the Lens of Behavioral Economics by William J. Congdon, Jeffrey R. Kling, and Sendhil Mullainathan. A link allows you to download the book for free.

Textbook References:

Chapter 10 “Externalities”
Chapter 11 “Public Goods and Common Resources”
Chapter 12 “The Design of the Tax System”
Pages 484-489 “Asymmetric Information”

April 16

My Talk From Yesterday

A video shows Mankiw's talk at the University of Cincinnati. He provides a brief history of macroeconomics, discusses current monetary and fiscal policy, and discusses the long-run fiscal situation.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 539-541 “Real and Nominal Interest Rates”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 654-655 “The Financial Crisis of 2008”
Page 750 “The 2008 Fiscal Stimulus”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

April 14

Capping Tax Expenditures

Martin Feldstein, Daniel Feenberg, and Maya MacGuineas argue that we should cap individual tax expenditures at 2 per cent of adjusted gross income.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”

April 13

The Ryan Plan

Paul Ryan offers his plan to reduce the federal debt, and he contrasts it to the Bowles-Simpson plan.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

April 13

Two Visions for Medicare

Mankiw is pleased that the long-run fiscal health of the nation is now taken seriously by both parties. Yet there are fundamental philosophical differences between the two sides.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 28

Stiglitz on the Deficit

Joseph Stiglitz explains why he does not endorse the report produced by the bipartisan National Commission on Fiscal Responsibility and Reform.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 253-257 “Taxes and Equity”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 26

Our Children's Financial Crisis

Mankiw writes a speech for a future president that discusses the cost of not acting sooner to reduce the Federal debt.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 24

CEA Chairs on the Budget Deficit

Ten former chairs of the Council of Economic Advisers urge Congress to consider seriously the report produced by the bipartisan National Commission on Fiscal Responsibility and Reform.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 21

What nation has the most progressive income tax system?

Mankiw presents a table from the OECD showing an alternative measure of progressivity. The alternative measure shows that the United States has the most progressive income tax among the countries listed.

Textbook References:

Pages 253-257 “Taxes and Equity”

February 25

MIT Symposium

A 2-hour video presents a wide-ranging discussion of macroeconomic issues. Participants are Olivier Blanchard, Pedro Aspe, Robert Gordon, Paul Krugman, Greg Mankiw, and Christina Romer.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 654-655 “The Financial Crisis of 2008”
Chapter 32 “A Macroeconomic Theory of the Open Economy”
Page 750 “The 2008 Fiscal Stimulus”
Pages 778-787 “Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

February 23

Tax Fact of the Day

The corporate tax rate on new investment in the U.S. is the highest in the OECD.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 257 “Who Pays the Corporate Income Tax?”

February 22

Tax Fact of the Day

From an estate tax perspective, New Jersey is the worst place to die in the U.S.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 248-249 “State and Local Government”

February 2

Donald Marron on Tax Reform

Donald Marron testifies before Congress about the tax code. He argues that reducing tax preferences ("credits, deductions, deferrals, exclusions, exemptions, and preferential rates") could reduce tax rates and improve fairness.

Textbook References:

Pages 167-171 “Deadweight Loss and Tax Revenue as Taxes Vary”
Chapter 12 “The Design of the Tax System”

January 29

Tax Justice

A PBS video discusses the difficulties of establishing a fair tax code.

Textbook References:

Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”
Pages 258-260 “Conclusion: The Trade-Off Between Equity and Efficiency”
Pages 442-445 “The Political Philosophy of Redistributing Income”

January 19

What would repeal of Obamacare do to the budget deficit?

Defenders of the Affordable Care Act point to a CBO study that says its repeal would add to the Federal deficit. But Holtz-Eakin, Antos, and Capretta claim that the CBO study is based on wrong assumptions.

Textbook References:

Page 23 “The Role of Assumptions”
Pages 246-248 “The Fiscal Challenge Ahead”

January 1

Letter to the President

Mankiw offers advice to President Obama on how to work with Republicans.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 442-445 “The Political Economy of Income Redistribution”
Pages 563-565 “Education”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

December 19

The Charitable Deduction

Richard Thaler argues that there is little reason to allow a tax deduction for charitable giving. Mankiw disagrees.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 34-36 “Why Economists Disagree”
Pages 246-248 “The Fiscal Challenge Ahead”

December 10

Fairness and Tax Policy

Jonathan Weinstein responds to a paper by Greg Mankiw and challenges some of its assumptions. The discussion centers on competing views of fair taxation.

Textbook References:

Pages 34-36 “Why Economists Disagree”

Pages 253-257 “Taxes and Equity”

Pages 419-421 “The Superstar Phenomen”

Pages 442-445 “The Political Philosophy of Redistributing Income”


December 9

Hear me Squawk

Mankiw discusses the tax deal reached between President Obama and Congressional Republicans. He argues that it is a good deal that will help stimulate the economy. Mankiw also endorses the Simpson-Bowles plan to reduce the long-run deficit.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”

Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

Pages 793-797 “Using Policy To Stabilize The Economy”


December 9

Simon Johnson and Me on NPR

Simon Johnson and Greg Mankiw discuss the tax deal reached between President Obama and Congressional Republicans. Johnson fears that the deal adds too much to the tax deal. Mankiw argues that it is positive for the short run, but that the administration needs to get serious about reducing the deficit in the long run.

Textbook References:

Pages 34-36 “Why Economists Disagree”

Pages 246-248 “The Fiscal Challenge Ahead”

Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

Pages 793-797 “Using Policy To Stabilize The Economy”

Pages 842-843 “Dealing with Deficits”


December 7

The Distribution of the Tax Deal

The Tax Policy Center looks at the numbers behind the tax deal between President Obama and Congressional Republicans. The numbers show that the deal is progressive when compared to current policy, but regressive when compared to what would happen if the Bush-era tax cuts were allowed to expire.

Textbook References:

Pages 254-255 “The Ability-to-Pay Principle”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

November 29

The Simpson-Bowles Social Security Plan

Charles Blahous explains who will gain and who will lose under the Simpson-Bowles proposal for Social Security.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”

November 16

Hubbard on the Bowles-Simpson Tax Plan

Glenn Hubbard likes the idea of broadening the tax base so as to reduce tax rates.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

November 14

You Fix the Federal Budget

How would you reduce the federal deficit?

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 842-843 “Dealing with Deficits”

November 11

The Simpson-Bowles Social Security Plan

Charles Blahous examines the Simpson-Bowles plan for making Social Security financially sound.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”

November 10

Good Signs from the Deficit Commission

The Bipartisan Deficit Commission was appointed to find ways to reduce the federal deficit. Mankiw approves of some of the options the Commission is considering.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

November 9

Raise the Early Retirement Age

Andrew Biggs argues that the early retirement age for Social Security should be raised from 62 to 65. Having workers in the labor force longer will increase GDP and tax revenue. Biggs also says that average retirement income would be higher.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”

November 7

Thaler on the Estate Tax

Richard Thaler argues in favor of retaining the estate tax. Greg Mankiw makes the opposite case.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 256-257 “Tax Incidence and Tax Equity”

November 6

Laura Tyson and Me on NPR

Laura Tyson and Greg Mankiw discuss current fiscal policy on National Public Radio.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Page 560 “Saving and Investment”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 830-832 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”
Pages 842-843 “Dealing with Deficits”

October 24

Christy's First Column

Christina Romer argues against calls to cut the federal deficit now. She says that while the deficit must eventually be reduced, the economy is too weak to do so now.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

October 18

Hear Me Squawk

Mankiw discusses a variety of issues including marginal tax rates, long-term deficits, and ways to stimulate the economy.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Page 399 “The Trade-off Between Work and Leisure”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 749-751 “Why the Aggregate-Demand Curve Might Shift”
Page 750 “The 2008 Fiscal Stimulus”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

August 7

How Is Medicare Doing?

Rick Foster, the chief actuary for Medicare, says that planned Medicare cost reductions are not likely to happen.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 838-841 “Should the Government Balance Its Budget?”

August 6

On Congressman Paul Ryan

Paul Krugman argues that Paul Ryan's plan to cut federal spending and taxes actually raises the deficit. This is contrary to Ryan's claim. Ted Gayer suggests that Krugman's reading of the evidence is flawed.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 838-841 “Should the Government Balance Its Budget?”

July 23

The Mid-Session Review

The administration's mid-session budget review assumes rapid growth and hopes the fiscal commission will fix the deficit problems.

Textbook References:

Pages 242-249 “A Financial Overview of The U.S. Government”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

July 21

Harvardians in the FT

Kenneth Rogoff argues against more fiscal stimulus. Lawrence Summers supports short-term stimulus combined with medium and long-term deficit reduction. Niall Ferguson argues that Keynesian policies are misguided.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Page 750 “The 2008 Fiscal Stimulus”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 842-843 “Dealing with Deficits”

July 20

Government Spending By Another Name

Martin Feldstein points out that a significant portion of government spending is in the form of special tax rules called tax expenditures. Deficit reduction should include reducing such expenditures.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

July 7

Are Stimulus Skeptics Logically Incoherent?

Paul Krugman wonders why private spending would create jobs but public spending won't. Mankiw replies.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

July 1

The Influence of Alberto Alesina

Alberto Alesina argues that governments should take large, credible steps to reduce their deficits. That would calm bond markets and increase confidence for investors and consumers.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 560-572 “Economic Growth and Public Policy”
Pages 576-577 “The Bond Market”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

June 28

Federal Tax Rates by Income Quintile

A graph illustrates how federal tax rates have changed over time.

Textbook References:

Pages 243-248 “The Federal Government”
Pages 254-255 “Vertical Equity”

June 27

Links

There are five links sent in by readers. Four of them are humorous, but one, "Ten Commandments for Fiscal Adjustment," is serious.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 560-572 “Economic Growth and Public Policy”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Page 750 “The 2008 Fiscal Stimulus”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

June 7

CBO on Health Spending

The CBO argues that health-care spending "will put tremendous pressure on the federal budget during the next few decades and beyond."

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

June 7

A Bit More on the Soda Tax

Mankiw argues that savings from lower health-care costs associated with reductions in obesity are offset by additional health-care and pension costs due to longer life spans.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”

June 5

Soda and Other Sins

Mankiw considers the question of whether decisions that do not impose external costs on others may impose external costs on future versions of ourselves. He also asks us if we "trust the government enough to appoint it your guardian?"

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 204-209 “Externalities and Market Inefficiency”
Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Page 251 “Should Income or Consumption Be Taxed?”

May 28

Income and Federal Tax Shares

A chart from the Tax Policy Center shows that U.S. federal taxes are progressive.

Textbook References:

Pages 254-256 “The Ability-to-Pay Principle”

May 18

Is A VAT Good for Exports?

Alan Viard explains the fallacy in former President Clinton's assertion that a VAT would be good for exports.

Textbook References:

Page 251 “Income or Consumption Be Taxed? ”
Pages 728-730 “Trade Policy”
Chapter 12: The Design of the Tax System
Archived Posts

 

May 18

Lessons from Greece

Five prominent economists discuss what the Greek crisis means for the Euro-zone and for monetary unions in general.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Page 704 “The Euro”

May 10

The Welfare State's Death Spiral

Robert Samuelson argues that the problems affecting Greece stem from a problem common to almost all advanced countries: the people have been promised more benefits than they have paid for. The day of reckoning happened first in Greece, but it will come for us all.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Page 704 “The Euro”

May 5

The Budget in One Picture

A graphic shows the CBO's projection of how the federal budget will be divided in 2020.

Textbook References:

Page 245 “Table 4, Spending of the Federal Government: 2007”

May 1

Ambivalence

Mankiw explains the pros and cons of a value-added tax (VAT).

Textbook References:

Pages 160-164 “The Deadweight Loss of Taxation”
Page 251 “Should Income or Consumption Be Taxed?”
Pages 254-255 “The Ability-to-Pay Principle”

April 17

The Latest from the CEA Chair

CEA Chair Christina Romer reports on what has been done to fight the current recession and discusses what else can be done.

Textbook References:

Pages 30-33 “The Economist as Policy Advisor”

Pages 246-248 “The Fiscal Challenge Ahead”

Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

Pages 654-655 “The Financial Crisis of 2008”

Page 750 “The 2008 Fiscal Stimulus”

Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”

Pages 830-832 “Monetary And Fiscal Policymakers Try To Stabilize The Economy”

Pages 842-843 “Dealing with Deficits”


April 12

The Value Added Tax

Robert Carroll and Alan D. Viard discuss the structure, benefits and unresolved issues with the VAT.

Textbook References:

Page 251 “Should Income or Consumption Be Taxed?”

April 10

The Enormity of the Fiscal Gap

The Tax Policy Center argues that income taxes must rise by 40 per cent just to reduce the deficit to 3 per cent of GDP.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”

March 24

A Fiscal Train Wreck

In an "exceedingly rare" event, bonds issued by a private company (Warren Buffet's Berkshire Hathaway) paid a lower yield than bonds of a similar maturity issued by the U.S. Treasury. That is evidence that investors are getting nervous about the size of the U.S. deficit.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 576-577 “The Bond Market”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 604-605 “The Trade-off Between Risk and Return”
Pages 842-843 “Dealing with Deficits”

March 23

An Inflation Debate

Michael Kinsley and Paul Krugman disagree about how likely hyperinflation is in the U.S.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 591-593 “A History of U.S. Government Debt”
Chapter 30 “Money Growth and Inflation”

March 9

The Problem with Deficit Neutrality

A deficit neutral health-care plan does nothing to fix the problem of rising deficits.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 6

CBO on the President's Budget

The Congressional Budget Office estimates that under the proposed budget, federal debt held by the public will rise to 90 percent of GDP.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 5

Rogoff on Japan

Japan's economy has performed below its potential for 18 years. Kenneth Rogoff discusses the challenges it still faces.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 1

Life Expectancy at Retirement

People in developed countries are living much longer after retirement. They expect pensions and healthcare, which is putting great strain on public finances.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

February 26

Spreading the Wealth Around

Mankiw presents some facts about the distribution of income and the distribution of the tax burden. He then offers some thoughts on optimal taxation.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”
Pages 258-259 “Questions and Answers about Tax Reform”
Pages 442-445 “The Political Philosophy of Income Redistribution”

February 17

Thoughts About the Fiscal Commission

Mankiw offers suggestions for the fiscal commission on how to reduce the federal deficit.

Textbook References:

Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Pages 212-215 “Market-Based Policy 2: Tradable Pollution Permits”
Pages 246-248 “The Fiscal Challenge Ahead”
Page 251 “Should Income or Consumption be Taxed?”
Pages 252-253 “Marginal Tax Rates versus Average Tax Rates”

February 14

The Buck Stops Where?

The administration's proposed budget does not include a plan to reduce the federal budget deficit as a share of GDP.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”

February 1

President Obama's New Budget

Keith Hennessey says that "President Obama proposes spending be 12% higher as a share of the economy than it has averaged over the past three decades."

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”

January 31

Slow Growth and Rising Debt

Carmen Reinhart and Kenneth Rogoff warn that rising public debt may lead to default, higher taxes, or financial repression. All harm growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”

January 28

Lazear on the Spending Freeze

Edward Lazear argues that the spending freeze is "optical rather than substantive." Higher taxes will be needed to pay for higher government spending, and higher taxes mean slower growth.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”

January 26

The Budget Picture

There is a graph from the CBO showing past and projected spending versus revenue for the federal government.

Textbook References:

Pages 246-249 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

January 16

Healthcare Reform Debate

There is a link to a video and the Powerpoint slides of a symposium on healthcare reform. The U.S. and Canadian systems are discussed.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 114-123 “Controls on Prices”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 271-273 “Production and Costs”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

January 13

The Rise of European Leisure

Mankiw discusses some possible explanations for Europeans working less than Americans.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-163 “The Deadweight Loss of Taxation”
Page 170 “On the Way to France”
Page 243 “Table 1: Total Government Tax Revenue as a Percentage of GDP”
Page 399 “The Trade-off between Work and Leisure”

January 8

Wealth-Dependent Fines

Should traffic fines rise with the offender's wealth?

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Pages 254-256 “The Ability-to-Pay Principle”

December 30

The Temporarily Disappearing Estate Tax

The estate tax will expire on January 1, but only for one year. The terminally ill rich may make different choices about life support.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 250 “Deadweight Losses”

December 28

Gruber on the Cadillac Tax

Jonathan Gruber is in favor of the tax on high-cost insurance plans.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”

December 23

A Reading for the Pigou Club

David Wessel argues that the swelling Federal debt and the politics of climate change make a tax increase on gasoline more likely.

Textbook References:

Pages 209-215 “Public Policies Toward Externalities”
Pages 246-248 “The Fiscal Challenge Ahead”


November 21

Steering into an Iceberg

Former CBO director Douglas Holtz-Eakin warns that the proposed health care "reform" will make the already high Federal deficit larger. Politicians are steering us into a debt crisis.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficitss”

November 17

The Actuary on the House Bill

The Healthcare reform bill passed by the House will likely add almost 30 million people to government-run insurance such as Medicaid. These programs are already fiscally unsustainable.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

November 17

Flier on Healthcare Reform

The dean of Harvard's medical school argues that the proposed healthcare reforms will increase costs without improving access or quality.

Textbook References:

Page 80 “Figure 10: How an Increase in Demand Affects the Equilibrium”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

November 12

Steuerle on Healthcare Reform

Gene Steuerle argues that some versions of healthcare reform clearly violate the principle of horizontal equity.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 254 “Horizontal Equity”

November 2

Disincentives from Reform: The House Edition

The implicit marginal tax rates in the House version of health care reform are even higher than in the Senate version.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”
Pages 258-260 “Conclusion: The Trade-Off Between Equity and Efficiency”

October 31

Disincentives from Health Reform

Mankiw discusses how the proposed health care reform would significantly increase marginal tax rates on the middle and upper classes.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Pages 249-253 “Taxes and Efficiency”
Pages 253-257 “Taxes and Equity”
Pages 258-260 “Conclusion: The Trade-Off Between Equity and Efficiency”

October 30

Average Marginal Tax Rates

Robert Barro and Charles Redlick present a graph of the average marginal tax rate, defined as the sum of the marginal rates of the federal and state income taxes plus the marginal FICA tax.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 123-130 “Taxes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12 “The Design of the Tax System”

October 27

From the CEA Chair

Christina Romer discusses the effect of health-care reform on the projected budget deficit.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 797 “Automatic Stabilizers”

October 25

Cowen on Insurance Mandates

Tyler Cowen says that forcing everyone to buy health insurance may make many people worse off.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”

October 19

Is the Fiscal Stimulus Really Temporary?

Alex Brill and Amy Roden claim that 37 percent of the spending and tax components of the American Recovery and Reinvestment Act of 2009 are permanent.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”


October 15

Davis on Job Creation

Steven Davis does not like the proposed tax credit for job creation. He offers alternative suggestions.

Textbook References:

Pages 119-121 “The Minimum Wage”
Pages 246-247 “The Fiscal Challenge Ahead”
Pages 251-252 “Administrative Burden”


October 14

The Value Added Tax

Mankiw discusses his view of a Value Added Tax.

Textbook References:

Page 170 “On the Way to France”
Page 251 “Should Income Or Consumption Be Taxed?”
Pages 251-252 “Administrative Burden”


October 10

Marginal Tax Rates from Health Reform

The CBO estimates that the Baucus healthcare reform bill will add about 22 percentage points to the marginal tax rate of many working-class people.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 166-167 “The Deadweight Loss Debate”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 449-451 “Antipoverty Programs and Work Incentives”


October 8

Feldstein on Healthcare Reform

Martin Feldstein offers his solution to the healthcare reform debate.

Textbook References:

Pages 4-5 “Principle 1: People Face trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”


October 7

A 70-Percent Marginal Tax Rate

James Capretta argues that the Baucus healthcare bill will impose a marginal tax rate of 70 percent on workers just above the poverty line.

Textbook References:

Page 7-8 “People Respond to Incentives”
Pages 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 449-451 “Antipoverty Programs and Work Incentives”


October 5

Medicare and Freedom

Medicare sometimes imposes price controls on markets. When people try to circumvent them, more restrictive rules are imposed.

Textbook References:

Pages 7-8 “People Respond to Incentives”
Pages 114-123 “Controls on Prices”
Pages 246-248 “The Fiscal Challenge Ahead”


August 26

How large is the fiscal hole?

The Concord Coalition projects that the federal debt will grow by $14 trillion over the next decade.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”


August 22

Preview of the Midsession Review

Federal debt is expected to increase by $9 trillion over the next decade.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”


August 21

We are all supply-siders now

David Leonhardt and Geraldine Fabrikant argue that in the three decades after WWII, high marginal tax rates reduced the pre-tax income of the rich.

Textbook References:

Pages 7-8 “Principle 4: People Respond To Incentives”
Pages 169-171 “The Laffer Curve and Supply-Side Economics”
Chapter 12 “The Design of the Tax System”


August 19

Blanchard on the Outlook

Olivier Blanchard notes that in previous banking crises, output does not return to its previous growth path. It remains below it, though the average growth rate returns to what it was.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 550-554 “Economic Growth Around the World”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”


August 13

Ken’s Dystopia

Kenneth Rogoff argues that Western governments will have to raise taxes, inflate their economies, default on their debt, or do some of each.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”


July 20

Is “Deficit Neutrality” too Easy a Test?

Making health-care reform deficit neutral does nothing to reduce the long-term fiscal gap.

Textbook Reference:

Pages 246-248 “The Fiscal Challenge Ahead”


July 11

More Fiscal Stimulus?

Paul Krugman makes the case for another stimulus package. Phil Levy makes the case against another package.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


July 9

Lazear on Fiscal Stimulus

Edward Lazear notes that very little of the stimulus package has actually been spent. He claims that it is primarily an excuse to expand the size of government.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


July 02

Old Speeches, New Policies

Blogger Mark Thoma uses a speech Mankiw gave six years ago to defend Obama’s deficit spending. But Mankiw’s speech emphasizes that a deficit caused by spending may have a different long-term effect than a deficit caused by tax cuts.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?” Pages 838-841 “Should the Government Balance Its Budget?”
Pages 842-843 “Dealing with Deficits”


June 23

Financial Crisis Timeline

The New York Fed presents domestic and international timelines for the financial crisis.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 649-653 “Banks and the Money Supply” Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 589-593 “Policy 3: Government Budget Deficits”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


June 08

Randy and Phill

There is a video of former Fed governor Randy Kroszner and former assistant Secretary of the Treasury Phill Swagel as they discuss the policy actions taken during the financial crisis.

Textbook Reference:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


May 30

Ferguson Takes on Krugman

Historian Niall Ferguson argues that the recent rise in interest rate on long-term Treasury bonds is evidence that Krugman is wrong that expansionary fiscal policy will not drive up interest rates.

Textbook Reference:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


May 27

The Yield Curve is Steep

The yield curve that shows the difference between the yields on two year and ten year Treasury bonds has a large positive slope. In the past, this has signaled an end to recessions.

Textbook Reference:

Pages 576-577 “The Bond Market”

John Taylor is Worried

John Taylor is concerned that the U.S. federal debt is growing too large. Among other things, it jeopardizes the country’s credit rating.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


May 20

The Fiscal Future, Again

A graph from the CBO shows how demographics and rising health-care costs will cause Social Security, Medicare and Medicaid to absorb a much larger share of GDP in the future.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 842-843 “Dealing with Deficits”


May 18

The Fiscal Future

Robert Samuelson worries about the extraordinary amount of deficit spending.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Pages 842-843 “Dealing with Deficits”


May 17

Accountability?

The actual unemployment rate in the past two months has been higher than the administration said it would be with the stimulus bill.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


May 13

Paul Krugman concedes

In a previous blog, Mankiw doubted that the economy would grow as fast as the administration predicted. Krugman agreed with the administration and called Mankiw evil. Mankiw asked Krugman if he would like to bet some of his Nobel Prize money on it. Krugman hasn’t responded. But Krugman has recently written that we cannot expect the economy to grow very fast at all. Pride goeth before the fall.

Textbook References:

Pages 32-33 “Why Economists’ Advice Is Not Always Followed”
Pages 246-247 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”


May 1

From the CEA Chair

Christina Romer discusses the causes of the current crisis, the policy actions taken to end the crisis, and the prospects for the future.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


Apr. 29

Miron on the Financial Crisis

Jeff Miron argues the case for the government to do nothing in response to the financial crisis.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Apr. 21

President Obama’s Fiscal Policy

A graph shows projected federal government revenues and spending.

Textbook References:

Pages 242-249 “A Financial Overview of the U.S. Government“
Pages 589-593 “Policy 3: Government Budget Deficits“
Pages 838-841 “Should the Government Balance Its Budget?“

Solow on Posner

Robert Solow reviews Richard Posner’s book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression. Along the way he provides insightful observations, as one would expect from a Nobel laureate.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 484-489 “Asymmetric Information”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


Apr. 19

A Quick Quiz

Take a quiz made up of questions from past AP tests.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Page 614-619 “How is Unemployment Measured?”
Pages 649-653 “Banks and the Money Supply”
Pages 653-656 “The Fed’s Tools of Monetary Control”
Chapter 30 “Money Growth and Inflation”
Pages 742-744 “The Assumptions of Classical Economics”
Pages 749-751 “Why the Aggregate–Demand Curve Might Shift”
Pages 753-755 “Why the Long–Run Aggregate–Supply Curve Might Shift”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Apr. 16

Meet the Cassandras

Salon lists the 14 biggest critics of Obama’s economic policy, along with a short synopsis of their criticisms.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”


Apr. 3

Boskin on the Obama Budget

Michael Boskin argues that the Federal budget deficit will be much larger than the administration claims.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Mar. 20

Budget Deficits as a Fraction of GDP

The CBO projects the future of the budget deficit. There’s lots of red ink in our future.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”

The Direction of Policy

Alan Blinder argues that Obama is not a socialist. Gary Becker and Kevin Murphy think that Obama’s plan may kill capitalism.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Mar. 14

Reading the Tea Leaves on the Budget

Mankiw comments on Obama’s budget proposal, He finds that Obama is serious about climate change but not concerned about budget deficits.

Textbook References:

Chapter 10 “Externalities”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Mar. 8

Soaking the Rich?

A Washington Post article presents the views of a variety of people on the redistributive effects of Obama’s plan.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-Offs”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Government Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12: “The Design of the Tax System”
Chapter 20 “Income Inequality and Poverty”


Mar. 4

Federal Outlays as a Percent of GDP

Obama’s budget suggests that there will be a permanent increase in the federal government’s share of GDP.

Textbook Reference:

Pages 242-249 “A Financial Overview of the U.S. Government”


Mar. 3

CBO on the Stimulus

The Congressional Budget Office estimates that the stimulus plan will have a positive short-run effect but not much long-run effect.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 28

What is a Deficit Hawk to do?

Obama’s budget document is titled “A New Era of Responsibility.” Mankiw argues that the budget does not seem to live up to its name.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 27

A Speech From the CEA Chair

CEA Chair Christina Romer Defends the Stimulus Bill.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”

Rosy Scenario or Audacity of Hope?

Obama’s budget forecast depends on some extremely optimistic assumptions.

Textbook References:

Pages 32-33 “Why Economists’ Advice Is Not Always Followed”
Pages 246-247 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

Moving the Goal Posts

The Committee for a Responsible Budget believes that Obama’s budget contains absurd assumptions.

Textbook References:

Pages 32-33 “Why Economists’ Advice Is Not Always Followed”
Pages 246-247 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”


Feb. 26

Which Budget Deficit?

The CBO and the U.S.Treasury have different measures of the cost of TARP, and therefore different measures of the budget deficit.

Textbook References:

Pages 243-248 “The Federal Government”
Pages 654-655 “The Financial Crisis of 2008”
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 25

Gleaser on the Mortgage Interest Deduction

Ed Gleaser argues that the tax deduction on mortgage interest payments should be limited to loans up to $300,000.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Chapter 12 “The Design of the Tax System”
Pages 609-610 “Market Irrationality”
Pages 654-655 “The Financial Crisis of 2008”
Page 821 “Bernanke’s Challenges”

Leonhardt vs Obama

Obama says that families making less than $250,000 will not see a tax increase. David Leonhardt says that families making less than $250,000 will have to pay higher taxes.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-Offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 24

The Spending Stimulus Debate

Brad DeLong and Michele Boldrin are on opposite sides of the debate over the stimulus.

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 23

Is Macro Policy Overreacting?

Jeffrey Sachs argues that the current macroeconomic policy is courting disaster in the long run.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 22

The Fiscal Gap

Alan Auerbach and Bill Gale argue that the long-term fiscal picture for the U.S. is very bleak.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”

The Stimulus versus the Pigou Club

Politicians prefer stimulus money to raising the gasoline tax.

Textbook References:

Pages 32-33 “Why Economists’ Advice Is Not Always Followed”
Chapter 10 “Externalities”
Chapter 12 “The Design of the Tax System”


Feb. 17

An Increase in Marginal Tax Rates

David Henderson argues that the rebate included in the stimulus plan effectively raises marginal tax rates for the most productive people.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 252-253 “Marginal Tax Rates versus Average Tax Rates”


Feb. 11

Ray Fair on Stimulus

Ray Fair reports that his macroeconomic model predicts that the stimulus bill will create short-run gains and long-run pain.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-591 “Policy 3: Government Budget Deficits and Surpluses”
Pages 591-593 “The History of U.S. Government Debt”
Pages 724-728 “Government Budget Deficits”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Feb. 6

The Mature Keynesian Perspective II

Keynes would’ve approved a cut in the payroll tax now.

Textbook References:

Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Feb. 5

My preferred fiscal stimulus

Mankiw gives his own view of what should be done.

Textbook References:

Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Pages 216-217 “The Case for Taxing Carbon”
Chapter 12 “The Design of the Tax System”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Feb. 2

The Problem of Hasty Public Investment

A newspaper illustrates how wasteful government spending can be.

Textbook References:

Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Page 11 “Adam Smith and the Invisible Hand”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”


Jan. 21

Questions for Tim Geithner

There is a link to a New York Times story where seven prominent people ask questions for the nominee for Treasury Secretary.

Textbook References:

Chapter 12 “The Design of the Tax System”

Pages 648-649 “The Federal Reserve System”
Pages 654-655 “The Financial Crisis of 2008”


Jan. 13

There is a link to an editorial by Ed Glaeser that argues that the stimulus should be focused on ordinary people. That implies that a cut in the payroll tax would be better than large construction projects that disproportionately help owners of big construction firms.

Textbook References:

Pages 254-255 “Vertical Equity”
Chapter 20 “Income Inequality and Poverty”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”


Jan. 7

Varian on Stimulus

There is a link to an editorial by Hal Varian that suggests the fiscal stimulus should be transfers to state governments and subsidies for private investment.

Textbook References:

Pages 248-249 “State and Local Government”
Pages 512-515 “The Components of GDP”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”


Jan. 5

Glaeser on Stimulus

There is a link to an editorial by Ed Glaeser that suggests the best use of the stimulus money is to cut the payroll tax and give money to local governments.

Textbook References:

Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 248-249 “State and Local Government”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”

Dec. 24

Feldstein on Defense Spending

There is a link to an editorial by Martin Feldstein that argues that a significant share of new government spending should be for defense.

Textbook References:

Pages 227-232 “Public Goods”
Pages 242-248 “A Financial Overview of the U.S. Government”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Dec. 17

Crises and Government

Mankiw discusses how crises generally lead to permanently larger government.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 242-248 “A Financial Overview of the U.S. Government”


Dec. 13

The Case for a Payroll Tax Cut

There are links to more complex analysis of the Bils-Klenow stimulus plan presented on December 2.

Textbook References:

Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”


Dec. 2

The Bils-Klenow Stimulus Plan

Bils and Klenow argue that a cut in the payroll tax would be the best way to stimulate the economy.

Textbook References:

Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”