Back in October, I caught part of an NPR show in which they asked five economists to agree on an economic policy for the country. Now I consider myself a fact-and reality-based person, so when I heard that five different experts on the economy were in agreement on economic policy for the country, I felt those ideas deserved serious and careful consideration. Yet when I heard the policy ideas of the five economists, I was shocked. The five economists all agreed that some of my most sacred of liberal cows were bad for the country. Tax deductions for home mortgages: bad. Corporate income taxes: bad. Taxing employer health benefits: good. How could it be that a group of economists could agree that some of my most cherished liberal ideas were bad for the country? Was the world of facts and reality now conflicting with my liberal sensibilities?
The NPR piece started with a question: if you put a group of economists together in a room, are there any economic ideas they can agree on? So the NPR team put together a panel of prominent and respected economists from across the political spectrum, and asked them to identify any national economic policies they could all support. (Links to the article: http://www.washingtonpost.com/...
The five economists:
Dean Baker, co-director of the Center for Economic and Policy Research. He describes himself as “”left-of-center”.
Katherine Baiker, professor of health economics at Harvard University's Dept. of Health Policy and Management. She was identified as a “centrist”.
Robert Frank a professor at Cornell University's Johnson Graduate School of Management. He says he is a registered Democrat and a “radical pragmatist”.
Russ Roberts, professor of economics at George Mason Univ. He describes himself as “a hard-core free market guy...probably called a libertarian”
Luigi Zingales, a professor at the University of Chicago's Booth School of Business. He describes himself as “pro-market, but not necessarily pro-business”.
And the policies supported by all the collected economists:
1. End the tax deduction for home mortgagesLet look at each of these in turn.
2. End the tax benefit for employee health care
3. Eliminate entirely corporate income tax
4. Reform the entire tax code to tax consumption, not income
5. Put a tax on carbon emissions
6. Legalize marijuana – and tax it
The mortgage interest tax deduction. Every American who pays a mortgage gets to claim the interest they pay on their mortgage as a tax deduction. This part of the tax code is very popular with the American public, such that no politician (not even Mitt Romney) will suggest removing the tax deduction. All the economists say this is a bad policy and all five economists agreed that the mortgage interest tax deduction should be eliminated altogether. Their reasoning: in essence, the mortgage interest deduction gives a check to every American who owns a home and pays a mortgage on it, and the more expensive the home you own, the bigger your check. This is unfair to those Americans who do not own homes and therefore do not get any such check. (N.B. In this article, I am merely reporting the opinions of the above-cited economists, so don't attack me for these opinions. I will clearly identify my own opinions as such if they appear in this article, and you can attack me for my own opinions if you want.) And wealthier people who buy more expensive homes get a bigger check than those less well off, so that wealthier people have even more money which they can spend on buying even more expensive homes. This has the effect of driving up housing prices, making home ownership more difficult for those less well off, and furthering the divide between the haves and the haves-less. In addition, the mortgage interest tax deduction costs the US tax-payers about $100 billion/yr. in tax revenue. Public acceptance of this idea: 53% oppose, 25% support, 21% neutral or no opinion*.
End the tax benefit for employee health care. In America, if you get a health benefit from your employer, you pay no taxes on that benefit. Additionally, employers pay no taxes on the health benefits they offer employees. All the economists favored having Americans pay taxes on their employee health benefits. The thinking here is that the wealthiest Americans tend to have the greatest health benefits from their employment, and therefore get a greater tax break than Americans who have lesser health benefits, or who have no health benefits. Such a tax policy unfairly benefits the wealthy. In addition, the panel of economists suggest that tax-free health benefits result in more use of health care benefits, thereby driving up the costs of healthcare for everyone. It is estimated that not taxing employee health benefits costs the US tax-payers $185 billion/yr in tax revenue. Public acceptance of this idea: 46% oppose, 26% support, 28% neutral or no opinion*.
Eliminate the corporate income tax entirely. All the economists agreed that taxing corporate income is a bad idea, and that corporate income taxes should be eliminated entirely. To the panel of economists, taxing corporate income discourages corporations from investing their money in improving their products and growing their business. Companies that grow their businesses are more likely to need more employees and create more jobs, and more jobs means a healthier economy. Companies that improve their products are more likely to sell more products, which also stimulates the economy. All the economists agreed that encouraging companies to make better products and grow their business is better overall for the national economy. Public acceptance of this idea: 43% oppose, 32% support, 25% neutral or no opinion*.
End all income and payroll taxes. All the economists agreed that the tax code should be reformed to eliminate all income taxes. To the economists, if income is a good thing (and I think we all agree it is), it makes no sense to apply a tax to it and thereby have a disincentive to making more income. This goes against the logic of the economists. Payroll taxes discourage companies from hiring people, and in order to encourage greater hiring, should be eliminated. Instead, all the economists agreed that a better tax policy would be to tax consumption and consumer goods. All the economists agreed that such a consumption tax should be progressive to protect lower income households (the devil is in the details – the panel did not say how this could be accomplished, and there might be a good deal of disagreement among the economists on this point). And eliminating income taxes would remove the home mortgage tax deduction and the employee health benefits tax deduction, which the economists have already agreed need to go anyways. Public acceptance of this idea: 38% oppose, 36% support, 27% neutral or no opinion*.
Tax carbon emissions. All the economists agreed that carbon emissions are harmful and taxing harmful things to reduce or discourage use is a good idea. A tax on carbon emission works as a sort of consumption tax, and is consistent with the idea of a tax policy based on consumption and not income. All the economists agreed that such a tax would mean an increase in the price of both gasoline and electricity, and such a tax would have to be carefully structured to be progressive and not fall unduly on the less wealthy. Public acceptance of this idea: 42% oppose, 29% support, 29% neutral or no opinion*.
Legalize marijuana. All the economists agreed that marijuana should be legalized, regulated, and taxed. Legalizing marijuana would save tax-payers billions in law enforcement and prosecutions, add to the tax base and overall revenues, provide a whole host of new jobs in agriculture, distribution, and sales, and stop making drug lords rich and powerful. To the economists, the only reason to continue prohibiting marijuana involve morality, not economics, and outdated notions of racial identity, which are in general, economically unprofitable. Public acceptance of this idea: 35% oppose, 51% support, 14% neutral or no opinion*.
(*The poll was conducted for NPR by Penn Schoen Berland of 542 “people” - who are not otherwise identified or categorized.)
Part of the NPR article was to show how publicly unpopular these ideas are and how politically impossible it would be to implement any of these policies, even when economists are in agreement that these policies are needed to improve the overall national economy. And having heard the collected wisdom from a group of experts on the economy, now I have to re-examine my previously strongly-held liberal ideas. Until today, it has been my conviction that the government should of course encourage home-ownership through tax policy. But the experts tell me that is unfair to the 40% of Americans who do not own homes and bad for the housing market. Until today, I was convinced that of course corporations should pay a tax on their income, just as I pay tax on my own income. However, experts on the economy tell me my ideas on corporations and taxes are wrong, and can give some pretty good reasons why I am wrong. On the plus side, I have no problem supporting a consumption tax, a tax on carbon emissions, or the legalization of marijuana, and am pleased to see what I thought to be my radical ideas get approval from mainstream experts on the economy.
Being a fact- and reality-based person, I have to give special credence to the thinking of experts in a field where I have no expertise, especially when a group of those experts are in agreement. This means that from time to time, facts and reality will intrude on my preconceptions. Then, I have a choice: I can continue to hold my now wrong-headed opinions, or I can revise my thinking to accommodate new information: This can mean killing off some of my sacred cows. I am ready (no, eager!) to criticize conservatives for maintaining whole herds of fact-free opinions in the face of overwhelming real-world evidence that contradicts those opinions. Now it is my turn: can I be as flexible in my thinking as I demand of those others?