My Response to Viard

Alan Viard responds in the comments section of my post concerning his co-authored post at "The American", titled "The Folly of Obama's Tax Plan". The bolded text below is his, and the non-bolded text is my point-by-point response to him:

As one of the authors of the article being discussed, I want to respond to the unfounded accusations made here.

Actually, every "accusation" was founded. I stand by everything I wrote in the previous post.

Gelbach's suggestion that we "cooked" the numbers is a vile libel for he which he presents no evidence. The accusation is utterly false.

I did not suggest that Brill and Viard cooked the numbers. What I did do is take as given their numbers and then write in a parenthetical aside "assuming that Brill and Viard haven't cooked the numbers themselves". I wrote that because (a) my main point was to show the dishonest nature of their hit piece, which could be done while stipulating to their numbers, and (b) I don't have time to check their numbers.

While we're at it, let me explain why point (b) is relevant. In my view, no one who would push the sort of cherry-picked, misleading piece they did under the title "The Folly of Obama's Tax Plan" ought to be given the benefit of the doubt. Actions have consequences, if only with respect to credibility. That said, I emphasize again that I did not "suggest" they had cooked the numbers. Rather, I explicitly noted that I wasn't assuming it in making my argument.

It's interesting to me that Viard's response leads with a defense to a made-up charge.

Gelbach also says that it is "deeply dishonest" and a violation of "basic honesty" to say that Obama's plan would raise marginal tax rates as well as reducing tax payments. In fact, since Obama's plan would do both of those things, basic honesty requires that both effects be mentioned, as we do in our article. We repeatedly make clear that Obama would cut taxes for the poor and the middle class: the topic sentence at the beginning of the second paragraph states that "Obama is offering a new series of tax breaks," the next paragraph says that he would make some tax credits refundable (and illustrates refundability with an example which makes clear that it involves a reduction in tax payments), the fifth paragraph mentions that he would expand a tax credit and repeats that he would make credits refundable, and the seventh paragraph mentions that he would increase another credit's maximum value. Gelbach himself quotes some of these statements. It is unclear what aspect of Obama's tax plan we are supposed to have concealed, but it certainly can't be the fact that he's cutting taxes.

Actually, what I wrote was that it is deeply dishonest to stress increases in marginal tax rates while ignoring the associated reduction in net tax payments. That is, my beef with Brill and Viard is their failure to live up to the first sentence of this part of his response.

I'm glad Viard raises the topic of his second paragraph. If there's anyone out there who thinks the textual function of this paragraph is to fair-mindedly emphasize that Obama's plan would raise income for the (cherry-picked) people on whom Brill and Viard focus, they need only read its third and fourth sentences:

In Washington, taking away tax breaks as families work harder to make more money is called a “phase-out.” Economists have a different name for it—we call it a tax.

[Update: now that I think about it, the two sentences are either together false or don't make logical sense. What is the antecedent of "it" in the fourth sentence? The best answer is "taking away tax breaks as families work harder to make more money". But if so, then "it" is NOT a "tax": "it" is a reduction in the total *credit* received, i.e., an increase in the effective marginal tax rate. Yet Brill and Viard call "it" a tax. So even on their own terms--emphasizing marginal tax rates to the exclusion of discussing net taxes paid/credits received--Brill and Viard's discussion is incorrect on precisely their key point of defense.]

Now, I'm sure Viard will argue that they're just saying that phase-outs involve effective taxation at the marginal. But then why include the *next* sentence? That sentence is:

Reducing a person’s tax credit as his income goes up also reduces his incentive to earn more income.

Why bother with the word "also" if the point of sentence 4 was marginal tax rates. I think the obvious point of sentence 4 is to confuse people into thinking that Obama's plan raises the taxes they will pay.

As for "what aspect of Obama's plan tax plan we are supposed to have concealed," I think I was pretty clear about this. An honest discussion of the effects of Obama's tax plan, even for the cherry-picked example used here, would provide as much detail on the effects of the plan on after-tax-and-transfer income as on marginal tax rates. It would be easier to credit Viard's claim that "We repeatedly make clear that Obama would cut taxes for the poor and the middle class" if the article itself cited a single concrete comparison of after-tax-and-transfer income under Obama's tax plan to current law. Unless I missed it, there aren't any. And even if I did miss one (or even two!), providing a detailed, color graph of marginal tax rates but not of after-tax-and-transfer income is simply not living up to the requirements of basic honesty.

And while we're at it, a commenter to my original post made a very nice point: why is $25k the lowest income level on the MTR graph Brill and Viard provide? I'm pretty certain that the poverty rate for a family of four (household of three in this case) is below $25k. So it's hard to credit Viard's protestation concerning "the poor" at all.

Yesterday, one blog (that apparently looked at the chart without the article) did trumpet our work as showing that Obama would impose "higher taxes" on nearly everyone; I immediately posted a comment explaining that Obama would lower tax payments.

That's great to hear. I look forward to seeing the revised version of Brill and Viard's article in "The American" emphasizing this point and providing a detailed graph so that anyone confused by their first piece will understand this point.

The point our article makes is that Obama's tax cuts are designed in a way that increases disincentives by raising marginal rates and increases complexity. Since Gelbach himself admits that the disincentive effects exist (and explains why they arise), it is unclear why he considers this claim dishonest.

I don't have to "admit" this -- "admit" suggests that I'm somehow reluctant to note the point. Past that, I'll let my original post and the text above speak for itself concerning the dishonesty issue.

Of course, he's perfectly free to draw different policy conclusions from this fact; that's the kind of debate Alex and I hoped to encourage. So far, the disincentive effects have scarcely been mentioned, so pointing them out is a necessary step towards informed discussion.

A person who hopes to encourage debate doesn't emphasize only those facts that he finds helpful. A piece titled "The Folly of Obama's Tax Plan" would seem to be drawing the conclusion that the plan is a bad one. If disincentive effects are the bad side of the Obama tax plan, then redistribution to the "poor and the middle class" is the good side. An article that draws a conclusion concerning the overall "folly" of a plan is one that by its nature is claiming to have weighed the pluses and minuses of the plan; Brill and Viard's article simply doesn't do this.

There are certainly people who oppose redistribution down the income ladder, and these folks could stop at the observation that disincentive effects exist. Perhaps Brill and Viard are such people. But either way, if the point of their article is to (either) inform or encourage debate, then they have failed miserably, because they do not put on the table in anything approaching an even-handed way those facts that others would find relevant in evaluating their conclusion. That is another way of understanding why the article is deeply dishonest.

The reason we graph effective marginal tax rates rather than average rates is because the former, not the latter, control incentives, which was the topic of our article. The fact that Obama's plan lowers average rates in this income range is clear from the text of our article (as explained above) and is abundantly documented elsewhere (see the excellent calculations by the Brookings-Urban Tax Policy Center study that we cite in our article). Steve Roth asks why we label our graph of effective marginal tax rates "Effective Marginal Tax Rates"; the answer, to coin a phrase, is basic honesty. Our label makes clear that we are not talking about, or claiming that Obama would raise, average tax rates.

See my point immediately above.

I don't have space to defend the example, but it is not "cherry picked." Some other examples would show bigger disincentive effects; others would show smaller. Unfortunately, there is no typical example to fall back on, because different kinds of households are affected in so many different ways. But, since it's undisputed that Obama makes credits refundable and increases the use of phase-outs, any example will show these kinds of disincentive effects. Can any of our critics construct a remotely realistic example that doesn't? Again, Gelbach himself admits that the disincentive effects exist. (As a side note, the child in our example need not, of course, be exactly 12, but can be any age 12 or younger).

Not counting his name and affiliation, Viard provides a 643-word response to my post, yet he claims he doesn't have space to "defend the example". I'm wordy myself, but I think it's odd to claim that one can't explain in less than the length of an NYT op-ed length why the single example for an article titled "The Folly of Obama's Tax Plan" is an appropriate way to characterize the entire plan (and I'm delighted to know that 11 year-olds are admissible as well).

I'm sure he's right that one can construct an even more cherry-picked example with even higher MTRs. But that's not the point. I didn't claim to evaluate the entire plan with one cherry-picked and stilted example--Brill and Viard did. (As an aside: the way serious evaluations of a tax plan are done is by using either distributional measures or measures of central tendency, like means or medians. I have no idea how accurate a representation of the plan's overall impact on MTRs Brill and Viard's cherry-picked example is. Perhaps they do; I don't know.)

Alex Brill and I hoped that our article would call attention to the disincentives and complexity of Obama's tax cuts, an important topic neglected in the discussion to date. It is unfortunate that this discussion has been sidetracked by misinterpretations of the (clearly stated) points in our article.

Above, Viard wrote that their goal was to encourage debate allowing people to "draw different policy conclusions" from their piece. Here I suspect he's being a bit more honest: the point of their article was to emphasize only one collection of facts. I think the virtual exclusion of numerical facts not helpful to the "Folly" conclusion tells readers all they need to know about which goal was the more important one. Leaving motive aside, the article that Brill and Viard did write is a one-sided piece that draws policy conclusions while de-emphasizing or simply ignoring key pieces of information. I imagine that both Brill and Viard are too smart not to realize this point.

Perhaps, however, Brill and Viard were simply sloppy. A nice way to demonstrate their interest in informed debate would be for them to construct the after-tax-and-transfer income graph I suggested (I think this would be more useful to many observers than an average-tax-rates graph, though the latter would be a welcome addition). Then they could post a new article explaining the pluses and minuses of Obama's tax plan. With all the facts on the table, at least for the one type of family they chose to consider, Brill and Viard could even make an honest argument as to why they think the plan "Folly".

And what's nicest is that readers could come to their own, informed conclusions.

Alan D. Viard, Resident Scholar
American Enterprise Institute