Thaler on Tax Cuts

University of Chicago Behavioral Economist Richard Thaler drops some hard analysis on the tax-cut-at-any-price crowd in his NYT column this week:

“Want to give affluent households a present worth $700 billion over the next decade? In a period of high unemployment and fiscal austerity, this idea may seem laughable. Amazingly, though, it is getting traction in Washington.

I am referring, of course, to the current debate about whether to extend all, or just some, of the tax cuts of President George W. Bush — cuts that are due to expire at year-end. They’re expiring because the only way they could be enacted initially was by pretending that they were temporary.

In this situation, it’s not clear what should be called a tax “cut.” If the temporary law is allowed to expire as planned, does that represent a return to normal, or a tax increase? Conversely, if some parts of the current rates are extended, should those count as a tax cut?

Psychologists call these descriptive choices “framing.” No one is proposing that tax rates be lower than they are now, so the question is whether some people should pay more, and, if so, who.”

The rest of the column is well worth reading. Warning: Many of you will not be happy with what he says (but I think his math is spot on) . . .

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Source:
What the Rich Don’t Need
RICHARD H. THALER
NYT, September 25, 2010
http://www.nytimes.com/2010/09/26/business/26view.html

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