tag:blogger.com,1999:blog-9069354713843321730.post4254352226940259824..comments2023-10-01T09:22:37.695-07:00Comments on Economists for Obama: Obama's Tax Plan and Basic HonestyDon Pedrohttp://www.blogger.com/profile/15438565798505041042noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-9069354713843321730.post-448042688166375192008-09-06T20:51:00.000-07:002008-09-06T20:51:00.000-07:00Sure marginal rates increase when credits are phas...Sure marginal rates increase when credits are phased out, but the average rate is lower. Thus, the tax liability is lower. I don't think we have to worry very much about disincentives from the higher marginal rates in this case. I seriously doubt the father/mother of a college freshman and a 12 year old are going to cut back their hours of work as result. I bet they would appreciate the lower average rates.<BR/>But, just in case, they could avoid the higher marginal rates by simply not taking the credits.glhhttps://www.blogger.com/profile/17919225442978715898noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-52136076118340467762008-08-15T08:56:00.000-07:002008-08-15T08:56:00.000-07:00On second thought, it's not such a useful graph......On second thought, it's not such a useful graph... it doesn't answer the question, "Would the poor be better off today or under Obama?" Instead, it begins to provide data for "Are the incentives for increasing GDP higher today or under Obama?" and one must then balance this answer with the social benefits of GDP vs. health or stability. Due to the low labor elasticity of demand for income under $40k, the higher marginal tax probably doesn't matter, but it does matter to the right where elasticity is higher but the graph cuts off. What I want to know is, if you take everything into account (taxes, foodstamps, financial aid, section 8 housing, SSI, subsidized utilities and phone), does the marginal net income ever go close enough to 0, or even below 0, so that poor people find a local maximum in net income and have a decide not to work? This graph doesn't go close to answering that.yonranhttps://www.blogger.com/profile/01991189606415753720noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-38240137190483567812008-08-15T08:10:00.000-07:002008-08-15T08:10:00.000-07:00That's actually a pretty cool graph, and the anger...That's actually a pretty cool graph, and the anger seems to stem from people trying to integrate without knowing the magnitude of the differing impulses at $0. For a college student's parents, marginal income is even lower due to financial aid (those formulas aren't open to study, as far as I know). But more importantly, people making under $40k probably are trying to earn as much as they can, because each additional dollar is worth so much more to them than to a richer person—so much so that a higher tax rate may not matter. Does anyone know what the labor elasticity of income is?yonranhttps://www.blogger.com/profile/01991189606415753720noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-77043514599381946542008-08-14T10:56:00.000-07:002008-08-14T10:56:00.000-07:00Alan,Thanks for taking the time to comment.I'll le...Alan,<BR/>Thanks for taking the time to comment.<BR/><BR/>I'll let Jonah defend the general sense of his post.<BR/><BR/>But on what seems to be the most important point: it's clear you have cherry-picked the analysis, by taking a case of a household with children who are getting both the child care credit and the college tuition credit. This means (I think) that the high marginal rates you point to would be lower for a household with any other composition. I can't tell for sure because you don't provide the full set of information and assumptions you used for the analysis, as you would have if you had intended this to be an honest exploration of marginal rates under Obama's proposals.Don Pedrohttps://www.blogger.com/profile/15438565798505041042noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-61765496946382327832008-08-14T09:36:00.000-07:002008-08-14T09:36:00.000-07:00As one of the authors of the article being discuss...As one of the authors of the article being discussed, I want to respond to the unfounded accusations made here.<BR/><BR/>Gelbach's suggestion that we "cooked" the numbers is a vile libel for he which he presents no evidence. The accusation is utterly false.<BR/><BR/>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.<BR/><BR/>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.<BR/><BR/>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.<BR/><BR/>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.<BR/><BR/>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 <B> not </B> talking about, or claiming that Obama would raise, average tax rates.<BR/><BR/>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).<BR/> <BR/>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.<BR/><BR/>Alan D. Viard, Resident Scholar<BR/>American Enterprise InstituteAlan Viardhttps://www.blogger.com/profile/15199698715559138241noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-57901847981210442862008-08-14T09:20:00.000-07:002008-08-14T09:20:00.000-07:00The proper answer would be presented in a chart. W...The proper answer would be presented in a chart. What's the net effect on the taxes I pay under Obama's plan by income. If it's so easy to discredit the analysis, shouldn't it also be easy to make a corrected chart?Cobbhttps://www.blogger.com/profile/14540420277243106564noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-29033816122780080002008-08-14T08:39:00.001-07:002008-08-14T08:39:00.001-07:00My understanding is that "marginal tax rate" means...My understanding is that "marginal tax rate" means how much your taxes change for each additional dollar in income. So a very steep percentage change in taxes may be a disincentive to work, which is what the graph appears to be implying. However here they are saying that even though the tax rate is rising, it is being offset even more so by other benefits, so it can't really be seen as a disincentive. Do I have this right?Unknownhttps://www.blogger.com/profile/00950952557474229385noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-82847034240234718682008-08-14T08:39:00.000-07:002008-08-14T08:39:00.000-07:00My understanding is that "marginal tax rate" means...My understanding is that "marginal tax rate" means how much your taxes change for each additional dollar in income. So a very steep percentage change in taxes may be a disincentive to work, which is what the graph appears to be implying. However here they are saying that even though the tax rate is rising, it is being offset even more so by other benefits, so it can't really be seen as a disincentive. Do I have this right?Unknownhttps://www.blogger.com/profile/00950952557474229385noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-49272409340308898852008-08-14T06:59:00.000-07:002008-08-14T06:59:00.000-07:00Nobody has mentioned the cut-off of the below $25K...Nobody has mentioned the cut-off of the below $25K range, where there's a lot action in marginal effective rates that could be affected by Obama's proposals.<BR/><BR/>If I was at my old job I would produce such a graph. Somebody else should.<BR/><BR/>(Hi Jonah)<BR/><BR/>Miracle MaxAdminhttps://www.blogger.com/profile/10750074535504200029noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-76150586783013880462008-08-13T18:52:00.000-07:002008-08-13T18:52:00.000-07:00Apparently I misunderstood the concept of "margina...Apparently I misunderstood the concept of "marginal".Jeffhttps://www.blogger.com/profile/16439323657060902346noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-67429082844945005342008-08-13T15:23:00.000-07:002008-08-13T15:23:00.000-07:00"An honest article meant to inform would show both..."An honest article meant to inform would show both the marginal tax rates graph and a graph of after-tax-and-transfer income against pre-tax-and-transfer income."<BR/><BR/>So the latter graph would simply look a little less dramatic. <BR/><BR/>But still, with this "cherry picked" example you'd still be better off with the old tax policies.Jeffhttps://www.blogger.com/profile/16439323657060902346noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-10355315506013226172008-08-13T15:22:00.000-07:002008-08-13T15:22:00.000-07:00This comment has been removed by the author.Jeffhttps://www.blogger.com/profile/16439323657060902346noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-26217989635389477242008-08-13T15:20:00.000-07:002008-08-13T15:20:00.000-07:00"An honest article meant to inform would show both..."An honest article meant to inform would show both the marginal tax rates graph and a graph of after-tax-and-transfer income against pre-tax-and-transfer income. I assure you that there is a very good reason that Brill and Viard don't include that second graph. Of course, a really honest article wouldn't cherry pick the way Brill and Viard did, either."<BR/><BR/><BR/>I just came here from Marginal Revolution which linked the site.<BR/><BR/>And I'm having trouble understanding the quoted text above.Jeffhttps://www.blogger.com/profile/16439323657060902346noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-12019703255001133482008-08-13T07:43:00.000-07:002008-08-13T07:43:00.000-07:00The disingenuousness of the article is obvious fro...The disingenuousness of the article is obvious from the moment you read the title of their graph: "Effective Marginal Tax Rates."<BR/><BR/>What does that *mean*? Why don't they just discuss effective tax rates at different income levels?<BR/><BR/>Maybe because the effective tax rates for middle-income people under Obama's plan will be lower?Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.com