Question A:
Eliminating tax deductions for non-investment personal interest expenses (e.g., on mortgages), with reductions in personal tax rates that are both budget neutral and keep the burden of taxes by income group the same, would lead to more efficient financing decisions by individuals.
Responses
Responses weighted by each expert's confidence
Question B:
Reducing the deductibility of interest expenses for non-financial businesses to equalize the overall tax cost of debt and equity financing, while using the extra revenue to reduce personal and corporate tax rates in a budget neutral fashion that also keeps the burden of taxes the same, would lead to more efficient financing decisions by firms.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
 Daron Acemoglu |
MIT | Bio/Vote History | ||
|
There is no reasonable Pigovian justification for mortgage deductions, which are not only distortionary but also generally regressive.
|
||||
 Joseph Altonji |
Yale | Bio/Vote History | ||
|
The interest deduction distorts consumption decisions in favor of housing and narrows the income tax base, requiring higher tax rates.
|
||||
 Alan Auerbach |
Berkeley | Bio/Vote History | ||
|
|
||||
 David Autor |
MIT | Bio/Vote History | ||
|
|
||||
 Katherine Baicker |
University of Chicago | Bio/Vote History | ||
|
|
||||
 Marianne Bertrand |
Chicago | Bio/Vote History | ||
|
|
||||
 Raj Chetty |
Harvard | Bio/Vote History | ||
|
|
||||
 Judith Chevalier |
Yale | Bio/Vote History | ||
|
|
||||
 Janet Currie |
Princeton | Bio/Vote History | ||
|
A caveat is that moving from the current system to one without interest deductions could be disruptive.
|
||||
 David Cutler |
Harvard | Bio/Vote History | ||
|
Primary impact is likely to be on house prices.
|
||||
 Angus Deaton |
Princeton | Bio/Vote History | ||
|
Hard to do the distributional effects in my head, let alone do the full second best calculation.
|
||||
 Darrell Duffie |
Stanford | Bio/Vote History | ||
|
|
||||
 Aaron Edlin |
Berkeley | Bio/Vote History | ||
|
Trick question. i object. financing could be less efficient-- it would bias to pay cash instead of borrowing. housing choice would be better
|
||||
 Barry Eichengreen |
Berkeley | Bio/Vote History | ||
|
|
||||
 Ray Fair |
Yale | Bio/Vote History | ||
|
|
||||
 Pinelopi Goldberg |
Yale | Bio/Vote History | ||
|
|
||||
 Claudia Goldin |
Harvard | Bio/Vote History | ||
|
The mortgage interest rate deduction is only for housing and distorts household decisions relative to other goods and services.
|
||||
 Austan Goolsbee |
Chicago | Bio/Vote History | ||
|
there is some question in the data about how large these effects are, in practice, but the economic idea is straightforward
|
||||
 Michael Greenstone |
University of Chicago | Bio/Vote History | ||
|
|
||||
 Robert Hall |
Stanford | Bio/Vote History | ||
|
The interest deduction offsets the wedge of high property taxes. We really need a comprehensive consumption tax, not little changes.
|
||||
 Bengt Holmström |
MIT | Bio/Vote History | ||
|
In theory, of course, but unclear how to measure it in practice. Note: tax subsidies for debt may serve other social purposes.
|
||||
 Caroline Hoxby |
Stanford | Did Not Answer | Bio/Vote History | |
|
|
||||
 Kenneth Judd |
Stanford | Did Not Answer | Bio/Vote History | |
|
|
||||
 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
|
There is no good reason for using the tax system to subsidize home purchases. Lower rates and a broader tax base are the way to go.
|
||||
 Pete Klenow |
Stanford | Bio/Vote History | ||
 Edward Lazear |
Stanford | Bio/Vote History | ||
|
More important than financing choice is likely the excess of housing investment relative to other investment that would be reduced.
|
||||
 Jonathan Levin |
Stanford | Bio/Vote History | ||
|
|
||||
 William Nordhaus |
Yale | Bio/Vote History | ||
|
This is well studied. Perhaps some reservations for externalities of home ownership, but that has proven elusive.
|
||||
 Maurice Obstfeld |
Berkeley | Bio/Vote History | ||
|
|
||||
 Cecilia Rouse |
Princeton | Bio/Vote History | ||
|
Better to level the playing field in terms of investments.
|
||||
 Emmanuel Saez |
Berkeley | Bio/Vote History | ||
|
Ideal solution is to tax imputed rent. As this is difficult in practice, it's better to not allow interest deductions
|
||||
 José Scheinkman |
Columbia University | Bio/Vote History | ||
|
|
||||
 Richard Schmalensee |
MIT | Bio/Vote History | ||
|
|
||||
 Hyun Song Shin |
Princeton | Bio/Vote History | ||
|
|
||||
 James Stock |
Harvard | Bio/Vote History | ||
|
|
||||
 Nancy Stokey |
University of Chicago | Bio/Vote History | ||
|
Unclear what is meant by the "efficiency" of financing decisions by individuals.
|
||||
 Richard Thaler |
Chicago Booth | Bio/Vote History | ||
|
Can't just drop this suddenly given the state of the housing market so best to phase it out very gradually.
|
||||
 Christopher Udry |
Northwestern | Bio/Vote History | ||
|
|
||||
 Luigi Zingales |
Chicago Booth | Bio/Vote History | ||
|
|
||||
Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
|
Daron Acemoglu |
MIT | Bio/Vote History | ||
|
Caveat: the appropriate corporate tax reduction is important here, since many firms do not have access to equity financing.
|
||||
|
Joseph Altonji |
Yale | Bio/Vote History | ||
|
Corporate finance is not my area.
|
||||
|
Alan Auerbach |
Berkeley | Bio/Vote History | ||
|
|
||||
|
David Autor |
MIT | Bio/Vote History | ||
|
|
||||
|
Katherine Baicker |
University of Chicago | Bio/Vote History | ||
|
|
||||
|
Marianne Bertrand |
Chicago | Bio/Vote History | ||
|
|
||||
|
Raj Chetty |
Harvard | Bio/Vote History | ||
|
|
||||
|
Judith Chevalier |
Yale | Bio/Vote History | ||
|
|
||||
|
Janet Currie |
Princeton | Bio/Vote History | ||
|
|
||||
|
David Cutler |
Harvard | Bio/Vote History | ||
|
Not sure I can characterize all of what would happen if we had debt-equity switch.
|
||||
|
Angus Deaton |
Princeton | Bio/Vote History | ||
|
|
||||
|
Darrell Duffie |
Stanford | Bio/Vote History | ||
|
Subsidizing debt increases expected financial distress costs, only some of which are internalized by firms' managers and shareholders.
|
||||
|
Aaron Edlin |
Berkeley | Bio/Vote History | ||
|
sounds like introducing a level playing field for debt and equity...what am I missing..different tax rates at individual level i suppose.
|
||||
|
Barry Eichengreen |
Berkeley | Bio/Vote History | ||
|
|
||||
|
Ray Fair |
Yale | Bio/Vote History | ||
|
|
||||
|
Pinelopi Goldberg |
Yale | Bio/Vote History | ||
|
|
||||
|
Claudia Goldin |
Harvard | Bio/Vote History | ||
|
|
||||
|
Austan Goolsbee |
Chicago | Bio/Vote History | ||
|
same rationale as on the personal side. Clearly there would be transition issues for existing capital but the basic idea is straightforward
|
||||
|
Michael Greenstone |
University of Chicago | Bio/Vote History | ||
|
|
||||
|
Robert Hall |
Stanford | Bio/Vote History | ||
|
Can't even think about removing interest deduction while retaining taxation of interest receipts. Again, we need cons tax, not little fixes.
-see background information here |
||||
|
Bengt Holmström |
MIT | Bio/Vote History | ||
|
Equity financing plays small role for mature firms, Leveling the playing field may not matter that much.
|
||||
|
Caroline Hoxby |
Stanford | Did Not Answer | Bio/Vote History | |
|
|
||||
|
Kenneth Judd |
Stanford | Did Not Answer | Bio/Vote History | |
|
|
||||
|
Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
|
|
||||
|
Pete Klenow |
Stanford | Bio/Vote History | ||
|
Edward Lazear |
Stanford | Bio/Vote History | ||
|
This is the standard issue of subsidizing debt financing over equity financing and the proposal moves in the right direction.
|
||||
|
Jonathan Levin |
Stanford | Bio/Vote History | ||
|
|
||||
|
William Nordhaus |
Yale | Bio/Vote History | ||
|
Complicated b/c financing structures are currently tangled, so it will be impossible to achieve assumptions. Unclear about financial firms.
|
||||
|
Maurice Obstfeld |
Berkeley | Bio/Vote History | ||
|
|
||||
|
Cecilia Rouse |
Princeton | Bio/Vote History | ||
|
|
||||
|
Emmanuel Saez |
Berkeley | Bio/Vote History | ||
|
|
||||
|
José Scheinkman |
Columbia University | Bio/Vote History | ||
|
I do not like the distinction between financial and other firms proposed here. An allowance for corporate equity seems preferable.
|
||||
|
Richard Schmalensee |
MIT | Bio/Vote History | ||
|
|
||||
|
Hyun Song Shin |
Princeton | Bio/Vote History | ||
|
Case for "yes" is stronger for financial firms.
|
||||
|
James Stock |
Harvard | Bio/Vote History | ||
|
|
||||
|
Nancy Stokey |
University of Chicago | Bio/Vote History | ||
|
|
||||
|
Richard Thaler |
Chicago Booth | Bio/Vote History | ||
|
|
||||
|
Christopher Udry |
Northwestern | Bio/Vote History | ||
|
|
||||
|
Luigi Zingales |
Chicago Booth | Bio/Vote History | ||
|
|
||||
