The Fed balance sheet contains 20% of all publicly held federal debt and 34% of the value of all outstanding government-guaranteed mortgage-backed securities. As the economy returns to normal growth, getting rid of those assets risks runaway inflation or a crippled recovery or both.
As the House and the Senate hash out their differences, it now appears that for the first time in 31 years, we are going to get major reform of our federal income tax system.
Congress has decided to stop forcing federal taxpayers to subsidize people who live under state governments intent on levying excessive income taxes. Now, how about ending federal subsidies rewarding states that tax the heck out of health care?
The GOP tax bill is good, but not great. It will increase investment, output and real wages, but by far less than a smarter reform can generate. Second, the GOP plan is revenue-neutral at best. Yet, we desperately need more taxes to shore up Social Security and Medicare and to rebuild our failing infrastructure.
The feature of Obamacare that is least liked by the public is the individual mandate. Under current law, people are required to have health insurance. If they don’t, they can be fined.
Both the Senate and House Republicans have now spoken about their preferred tax reforms. The differences between them are relatively minor.
The GOP tax plan should do three things. It should expand the economy while raising wages. It should pay for itself. And it should be fair.
Former Treasury Secretary Lawrence Summers wrote an op ed for the Washington Post on October 8 calling the Trump Administration’s tax plan “an atrocity.”
Greg Mankiw (Harvard) weighs in to show that there are theoretically large gains to labor when you reduce taxes on capital. Casey Mulligan (Chicago) cites Larry Summers’ own work to make a point that has long been standard fare in economics: a tax on capital is ultimately born by labor, not owners of capital. Alan Auerbach(Berkley) apparently agrees. See also John Cochrane (Stanford) and Steve Landsburg(Rochester).