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Are Matt Yglesias’s Words That Wise?

Summary:
Co-blogger Bryan Caplan quotes Matt Yglesias, claiming that his words are wise. Here’s what Bryan quotes: Trump’s accession to the presidency alarmed liberals on two levels. On the one hand, there was the policy damage he might wreak. That policy worry doesn’t go away with the House in Democratic hands, since control over the judiciary and the administrative state still matters. But in truth, the GOP’s legislative accomplishments in 2017-’18 were quite modest, and Tuesday’s results mean that there will be no further Republican legislative agenda. If you were worried primarily about a new round of regressive tax cuts offset by cuts to the social safety net, you should breathe easy today. Notice the last sentence. A “new round of regressive tax cuts” suggests that

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Co-blogger Bryan Caplan quotes Matt Yglesias, claiming that his words are wise. Here’s what Bryan quotes:

Trump’s accession to the presidency alarmed liberals on two levels.

On the one hand, there was the policy damage he might wreak. That policy worry doesn’t go away with the House in Democratic hands, since control over the judiciary and the administrative state still matters. But in truth, the GOP’s legislative accomplishments in 2017-’18 were quite modest, and Tuesday’s results mean that there will be no further Republican legislative agenda. If you were worried primarily about a new round of regressive tax cuts offset by cuts to the social safety net, you should breathe easy today.

Notice the last sentence. A “new round of regressive tax cuts” suggests that the first tax cut, in 2017, was regressive. I had understood it to be progressive, at least on the individual income tax side. That is, the average tax rate for low-income people fell by a higher percentage than the average tax rate for high-income people. One of the main drivers was the limitation of the state and local tax deduction, which disproportionately hurt higher-income households, and the related substitution of a $24,000 standard deduction (for a married couple filing jointly) and $12,000 standard deduction (for a single person filing) for the previous much-lower standard deduction and deduction per person, which disproportionately helped low-income households. Maybe it’s regressive when one considers the drop in the corporate tax rate, but when you consider that cut, you need to make assumptions about tax incidence: who bears the burden of the corporate income tax?

But when I went to check by Googling “was the 2017 tax cut regressive?”, all I found was people like Jared Bernstein doing the analysis wrong, pointing out that higher-income people got a huge percent of the tax cut. Of course, they did; they were paying a huge percent of taxes. That’s not the way to estimate regressivity, as is known to virtually anyone who carefully studies the relevant chapters of a public finance text.

So I went to the Trump Council of Economic Advisers’ 2018 Economic Report of the President, figuring that if the tax cut was not regressive, they would have the right incentive to “trumpet” (pun intended) that fact. But I couldn’t find it there either. They emphasized the growth consequences of the tax cut.

So I’m not saying that Matt Yglesias’s words are not wise; I’m saying that I don’t know if they’re wise. My gut feel is that he’s wrong about the alleged regressivity of the 2017 tax cut. If my gut feel is right, then that part of Yglesias’s piece is not wise at all.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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