University of Chicago event on macroeconomy and tax reforms… Roundtable Discussion with Austan Goolsbee and Edward Lazear

Notes on Goolsbee and Lazear

Interviewer:  What problems need solving through tax reform

growth rate is way too low
growth rate out of recession is low (both recoveries, historical standards)
growth related to productivity and related to wages
so 11:20 focus on growth is “best affect the average american”

growth is criticall important, and in ong run is only thing that matters
last 20 years of US has had trend break that producitivyt and wages grow together (sometime in the late 1980s)
75% of income distribution wages are not rising
hesitate to buy into premise of corporate tax cutting leading to higher profits which will be passed on to workers … nothing in last two decades says that will work… did same in 2001
argument about growth rates in 1980s leaves out that population growth rate was much higher

Interviewer: but we are at full employment why wages not rising?
Goolsbee does not really answer… repeats again wages and productivity diverging

Lazear – growth and productivity feed into average wages but maybe not median and lower
we have seen big increase in disparity between high-low education
we don’t address that with tax policy… that is a different problem
increase in the values of skill

Goolsbee – lazear views these as separate things, but
1- if have $1.5 trillion to add to debt… should use it to cut to taxes for very group whose income rising? or use it to college financial aid… business corporate cuts are second order effect on growth
2- if think bifurcation is a problem, again why exacerbate through tax changes?

Lazear – taxes not long run solution to inequality… can do things in short run but should not be focus
i think evidence is strong that tax cuts lead to growth – AER Auerbach et al…. if went to pure consumption tax would have very large increase in GDP… Romer&Romer AER… 1% increase in taxes reduces growth
but growth may not translate to lower part of income distribution

Interviewer: But President says this will be good for middle class average… do either of you buy that story? which part?
Goolsbee – nonsense…. anyway, mostly papers say taxes have no big effect… and they should not affect growth rate… tax cuts at top have zero impact…
Lazear – thinks plan is good… reductions in capital taxation. e.g. full expensing. deduct investment immediately forward and backward. all incentives are for new investments.

Goolsbee- in past 25 years profits have been “epically high” and tax rates very low, yet not translated to higher wages… they are taking Poterba-Lazear plan with full expensing permanent, GDP will be higher by 6% in 50 years…. Trump instead put it in for 5 years and then eliminate and just assume that will lead to all growth that permanent planned… making assumptions like that is dangersous.

Lazear – Inequality is largely because of change in technology that favors high skilled… happening everywhere regardless of tax changes

And there I gave up…. good clear discussion!

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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