The US Senate wonders about tax policy for the American Dream: here is the homework they gave me
On a hot evening in July I flew back home to Ottawa from Washington DC after having testified before The United States Senate Committee on Finance. But that was not the end of it. A few days later an email arrived with a list of questions. The Senators gave me homework!
Tax policy is currently at the center of public policy discussions in Washington, much of this dealing with deficit reduction: the extent to which cuts in government spending or increases in taxes should be used to narrow the gap between revenues and expenditures, and who should pay any increase in taxes.
Indeed, a prominent Harvard economist, Larry Summers, who has played important roles in both the Clinton and Obama administrations, recently spoke about these discussions in a speech given in Ottawa on November 8th that you can listen to on the web site of Canada 2020, a Canadian think tank. Summers looks at this issue from the macro-economic perspective suggesting that if fiscal policy—the government’s taxing and spending decisions—is severely tightened, the US could fall back into recession.
But the debate between the Republicans and the Democrats is also about redistribution: who will pay the costs in the short-term and the medium-term.
This discussion may lose sight of the question the Senate committee addressed on that hot July day, but which remains all the more important: how should tax policy be reformed to promote opportunity in the longer run?
The hearing, held on July 10th, was called “Boosting Opportunities and Growth Through Tax Reform: Helping More Young People Achieve The American Dream.”
It involved four other witnesses, all experts on some aspect of labour economics, poverty, and government policy: Katherine Newman of Johns Hopkins University, an anthropologist who profiles the experiences of poor families and the working poor; Lars Lefgren, an economist from Brigham Young University who studies human capital and education; Erin Currier who is the project manager of the Pew Charitable Trust’s Economic Mobility project; and Eugene Steuerle of the Urban Institute who offered testimony on patterns in government spending addressed to promoting mobility and opportunities.
You can watch a video of the testimony and download copies of the written submissions from the Committee’s website.
My favourite part is about an hour in when the co-chair, Senator Hatch, offers me the opportunity to explain the meaning and implications of the Great Gatsby Curve.
But I must say that while leaving the Senate Committee that afternoon, I felt my testimony may not have been specific enough to help in designing tax policy for opportunity. So in a sense I was glad to receive the list of more detailed questions from the Committee. Over the course of the next few days I will post the answers I offered. As you read them please feel free to share any insights or concerns you may have.
[ The first question is by Senator Hatch, who asks about the validity of the statistics. Read the answer here.
The second question is by Senator Baucus, who asks if things are getting worse. Read the answer here.
The third question is also by Senator Baucus. It concerns why the US education system falls short of promoting more opportunity. Read the answer here.
The next question is also by Seator Baucus, and deals with the design of public policy when parents don't always act in the interests of their children. Read the answer here. ]