Monday, November 07, 2011 3:31pm

Tax Reform

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
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

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
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Strongly Agree 5
There is no reasonable Pigovian justification for mortgage deductions, which are not only distortionary but also generally regressive.
Bio/Vote History
         
Altonji Joseph Altonji Yale Agree 7
The interest deduction distorts consumption decisions in favor of housing and narrows the income tax base, requiring higher tax rates.
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Strongly Agree 9
Bio/Vote History
         
Autor David Autor MIT Strongly Agree 9
Bio/Vote History
         
Baicker Katherine Baicker Harvard Agree 6
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 6
I doubt that most people will manage to save in non-housing assets--so if housing becomes cheaper will they end up poorer?
 
Bertrand Marianne Bertrand Chicago Agree 5
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Agree 7
Any elimination requires a sensible transition period. Such a transition period should not be started when the housing market is weak.
 
Chetty Raj Chetty Harvard Strongly Agree 9
Bio/Vote History
         
Chevalier Judith Chevalier Yale Strongly Agree 8
Bio/Vote History
         
Currie Janet Currie Princeton Agree 7
A caveat is that moving from the current system to one without interest deductions could be disruptive.
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 3
Primary impact is likely to be on house prices.
Bio/Vote History
         
Deaton Angus Deaton Princeton Agree 4
Hard to do the distributional effects in my head, let alone do the full second best calculation.
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 7
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Disagree 8
Trick question. i object. financing could be less efficient-- it would bias to pay cash instead of borrowing. housing choice would be better
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 6
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Agree 7
 
Fair Ray Fair Yale Strongly Agree 10
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 8
 
Goldberg Pinelopi Goldberg Yale Agree 4
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 3
The mortgage interest rate deduction is only for housing and distorts household decisions relative to other goods and services.
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Agree 9
there is some question in the data about how large these effects are, in practice, but the economic idea is straightforward
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Strongly Agree 8
Bio/Vote History
         
Hall Robert Hall Stanford Disagree 8
The interest deduction offsets the wedge of high property taxes. We really need a comprehensive consumption tax, not little changes.
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Disagree 10
Mortgage interest should be tax dedcutible since otherwise it is better to pay cash for a house than to borrow. Tax Housing services.
 
Holmström Bengt Holmström MIT Agree 5
In theory, of course, but unclear how to measure it in practice. Note: tax subsidies for debt may serve other social purposes.
Bio/Vote History
Revote 11/2013 Strongly Agree 7
 
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 10
Borden the base and lower the rates.
 
Judd Kenneth Judd Stanford Did Not Answer
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Agree 7
 
Kashyap Anil Kashyap Chicago Strongly Agree 7
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.
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 5 Bio/Vote History
         
Lazear Edward Lazear Stanford Agree 7
More important than financing choice is likely the excess of housing investment relative to other investment that would be reduced.
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 3
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 6
Good idea for the long run. But housing market too weak to eliminate mortgage interest deductions now
Bio/Vote History
         
Nordhaus William Nordhaus Yale Strongly Agree 8
This is well studied. Perhaps some reservations for externalities of home ownership, but that has proven elusive.
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Agree 7
Bio/Vote History
         
Rouse Cecilia Rouse Princeton Agree 6
Better to level the playing field in terms of investments.
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 1
Ideal solution is to tax imputed rent. As this is difficult in practice, it's better to not allow interest deductions
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Agree 8
Better yet would be a comprehensive rather than piecemeal tax overhaul.
 
Scheinkman José Scheinkman Princeton Agree 8
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Strongly Agree 8
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Agree 9
If we want to subsidize housing, the mortgage interest deduction is a poor method.
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Agree 7
 
Shin Hyun Song Shin Princeton Agree 7
Bio/Vote History
         
Stock James Stock Harvard Agree 4
Bio/Vote History
         
Stokey Nancy Stokey Chicago Uncertain 5
Unclear what is meant by the "efficiency" of financing decisions by individuals.
Bio/Vote History
         
Thaler Richard Thaler Chicago Agree 7
Can't just drop this suddenly given the state of the housing market so best to phase it out very gradually.
Bio/Vote History
         
Udry Christopher Udry Yale Agree 8
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 9
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Agree 5
Caveat: the appropriate corporate tax reduction is important here, since many firms do not have access to equity financing.
Bio/Vote History
         
Altonji Joseph Altonji Yale No Opinion
Corporate finance is not my area.
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Strongly Agree 9
Bio/Vote History
         
Autor David Autor MIT Strongly Agree 8
Bio/Vote History
         
Baicker Katherine Baicker Harvard Uncertain 4
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 No Opinion
 
Bertrand Marianne Bertrand Chicago Agree 3
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Agree 7
 
Chetty Raj Chetty Harvard Agree 7
Bio/Vote History
         
Chevalier Judith Chevalier Yale Strongly Agree 8
Bio/Vote History
         
Currie Janet Currie Princeton Agree 7
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 1
Not sure I can characterize all of what would happen if we had debt-equity switch.
Bio/Vote History
         
Deaton Angus Deaton Princeton No Opinion
Bio/Vote History
         
Duffie Darrell Duffie Stanford Strongly Agree 8
Subsidizing debt increases expected financial distress costs, only some of which are internalized by firms' managers and shareholders.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 6
sounds like introducing a level playing field for debt and equity...what am I missing..different tax rates at individual level i suppose.
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 4
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Agree 5
 
Fair Ray Fair Yale Strongly Agree 8
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 Agree 5
 
Goldberg Pinelopi Goldberg Yale Agree 4
Bio/Vote History
         
Goldin Claudia Goldin Harvard No Opinion
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Strongly Agree 9
same rationale as on the personal side. Clearly there would be transition issues for existing capital but the basic idea is straightforward
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Strongly Agree 9
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 8
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
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Agree 7
It might be better to revise the tax system more generally
 
Holmström Bengt Holmström MIT Agree 4
Equity financing plays small role for mature firms, Leveling the playing field may not matter that much.
Bio/Vote History
Revote 11/2013 Agree 5
 
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Agree 10
 
Judd Kenneth Judd Stanford Did Not Answer
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Agree 5
 
Kashyap Anil Kashyap Chicago Agree 7
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Agree 5 Bio/Vote History
         
Lazear Edward Lazear Stanford Agree 8
This is the standard issue of subsidizing debt financing over equity financing and the proposal moves in the right direction.
Bio/Vote History
         
Levin Jonathan Levin Stanford Uncertain 3
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 8
Bio/Vote History
         
Nordhaus William Nordhaus Yale Agree 7
Complicated b/c financing structures are currently tangled, so it will be impossible to achieve assumptions. Unclear about financial firms.
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Strongly Agree 8
Bio/Vote History
         
Rouse Cecilia Rouse Princeton Agree 5
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Agree 6
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Agree 6
It would be nice to have replace both corporate taxes and income taxes with a single (sufficiently progressive) consumption tax.
 
Scheinkman José Scheinkman Princeton Uncertain 7
I do not like the distinction between financial and other firms proposed here. An allowance for corporate equity seems preferable.
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 5
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Agree 3
This is a very tricky area, and distinguishing financial from non-financial businesses raises its own complexities.
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Agree 7
 
Shin Hyun Song Shin Princeton Uncertain 7
Case for "yes" is stronger for financial firms.
Bio/Vote History
         
Stock James Stock Harvard Uncertain 1
Bio/Vote History
         
Stokey Nancy Stokey Chicago Agree 5
Bio/Vote History
         
Thaler Richard Thaler Chicago No Opinion
Bio/Vote History
         
Udry Christopher Udry Yale Uncertain 1
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 9
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

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