Finally, Something We Can Agree On

Did you just say we should eliminate corporate taxes?

You have probably heard about the exasperated President Truman asking for a “one-handed economist” because all of his economics advisers were prone to saying “on the one hand… on the other hand.”   Or, perhaps you’ve heard of the First Law of Economists: for every economist, there exists an equal and opposite economist (with the Second Law of Economists being that they are both wrong). Or, you might have even heard that if you were to lay all economists end-to-end, they still wouldn’t reach a conclusion.

Hilarious, indeed, and fair enough, it’s true that our profession is prone to qualifying our assessments.  But as a recent NPR Marketplace segment uncover, there are some thing views that seem to hold from east-to-west, from north-to-south, and, yes, from left-to-right across the profession.

And here they are, six shared policy beliefs among economists:

One: Eliminate the mortgage tax deduction, which lets homeowners deduct the interest they pay on their mortgages. Gone. After all, big houses get bigger tax breaks, driving up prices for everyone. Why distort the housing market and subsidize people buying expensive houses?

Two: End the tax deduction companies get for providing health-care to employees. Neither employees nor employers pay taxes on workplace health insurance benefits. That encourages fancier insurance coverage, driving up usage and, therefore, health costs overall. Eliminating the deduction will drive up costs for people with workplace healthcare, but makes the health-care market fairer.

Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that’s good. Don’t tax companies in an effort to tax rich people.

Four: Eliminate all income and payroll taxes. All of them. For everyone. Taxes discourage whatever you’re taxing, but we like income, so why tax it? Payroll taxes discourage creating jobs. Not such a good idea. Instead, impose a consumption tax, designed to be progressive to protect lower-income households.

Five: Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.

Six: Legalize marijuana. Stop spending so much trying to put pot users and dealers in jail — it costs a lot of money to catch them, prosecute them, and then put them up in jail. Criminalizing drugs also drives drug prices up, making gang leaders rich.

The catch, of course, is that politicians tend to not like these policies.  You can listen to the full NPR segment here.

For more on what economists do and don’t agree on, you might check out this survey from Robert Whaples at the Econ Journal Watch.

4 thoughts on “Finally, Something We Can Agree On”

  1. Let’s see, on the first point, this is excellent fodder for a public finance course.

    As for #6, let me see what I can do.

  2. Any idea of the size of the inefficiencies associated with 3 & 4? Is there really consensus on 6?

  3. I agree on point four. That is, I agree with the point that I’m not sure there is consensus on this point.

  4. This list does characterize many (most?) economists’ views. Such a consensus tends to hold on both efficiency (that is, resource misallocation) grounds and equity (especially horizontal equity) grounds. As point 4 notes, income and payroll taxes would be replaced by a consumption tax; thus, four point three one might note that the corporate income tax would be integrated with the individual tax; that is, all corporate income would be allocated to share holders and count as individual income. Of course, if the income tax were to be removed then this point would not be important.

    For two reasons, I believe that there is less agreement on point four than is suggested here, and this would hold even if one were to introduce a progressive comprehensive expenditure tax to replace the income tax. First, the consumption base is much smaller than the income base (roughly 1/3 smaller), so to raise the equivalent amount of revenue one would need to increase the average tax rate by 50% (assuming no behavioral changes.) Secondly, it’s not that easy to determine what exactly consumption is. Art works on one’s walls might be viewed as both consumption and investment; a similar case can be made for owner occupied housing and some vehicles. The 1980s featured a great deal of academic debate about the virtues of a comprehensive income tax base versus a comprehensive expenditure base. Virtually all economists, however, would agree that our current income base is far from comprehensive, and thus, far from optimal.

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