Must-Read: I wish that the extremely sharp Alan Auerbach would turn his concern knob up a bit more—in fact, I wish he would turn it up to 11. He says: “change in the guise of [tax] reform has the capacity to make things worse, and the secretive, often chaotic nature of the current process provides ample opportunity to do so…” I wish he would say: “the secretive and constantly chaotic nature of the current tax reform process makes it inevitable that it will end up making things worse…” Nobody should have any illusions that Republican congressional leaders know what they are doing—any more than they knew what they were doing with their health care fiasco:

Alan Auerbach: Five Questions for Congress on Tax Reform: “Congressional leaders say they’re working on a corporate tax reform…

…Yet… they’re keeping their plans under wraps until the last moment, with rumors and leaks serving as the main form of advance discussion…. A framework so we can quickly assess any proposals that emerge…. Does the plan have temporary provisions, and how are they justified?… The “big six” proposal… would allow companies to fully deduct short-lived capital investment… “for at least five years”… presumably because a permanent tax break would look a lot more expensive…. This is worse than a mere budget trick: The temporary nature of the measure would also distort investment incentives and increase uncertainty. This week’s fiasco over reducing the limit on contributions to 401(k) retirement accounts was also about the timing of tax revenues… Roth 401(k) accounts… are taxed up front…. Does the plan pay for itself in the long run, using realistic forecasts?… How does the plan address the deductibility of interest?… A 2016 proposal from House Republicans offered a sensible… scrap the interest deduction, but allow companies to fully expense all capital investments…. The big six proposal, by contrast, calls for only a partial limitation on interest deductions for C corporations, with no details provided…. How would the plan prevent companies from avoiding taxes by moving their operations or profits abroad?… There’s a simple and complete solution: Levy tax based on where a company’s products are services are used…. Unfortunately, the big six has already rejected this approach….

How would the plan prevent people from using pass-through businesses to avoid personal income tax?… To prevent this from happening, any plan will have to include serious enforcement measures—such as taxing a certain share of reported business income as ordinary income.

The U.S. business tax system sorely needs reform, particularly in the way it deals with multinational corporations. But we must pay close attention to what Congress and the Trump administration propose. Change in the guise of reform has the capacity to make things worse, and the secretive, often chaotic nature of the current process provides ample opportunity to do so.

Should-Read: Kim Clausing gets one wrong. Greg Mankiw does not say that “it is possible for a 1 dollar reduction in corporate taxes to result in a more than 1 dollar increase in wages”. He says, instead: in a model in which the U.S. is a small open economy, in which all corporate profits are a return to capital investment (rather than some of them being rents, returns to bearing risk, or market power), in which the revenue lost is made up by other taxes that do not cause economic distortions, then at least the “static” assessment is that a one dollar reduction in corporate taxes generates a 1/(1-t) dollar increase in wages.

Now since the U.S. is not a small open economy, since a substantial share of corporate profits are not returns to corporate investment, since steps to rebalance the public fisc will induce other economic distortions, and since misinterprets what a “static” assessment is (or—more likely, I think—made an algebraic error), he in fact does not say that it is conceptually possible that “cutting [U.S.] corporate taxes [would] raise workers’ incomes”. Nevertheless, he leaves himself open to Clausing’s thumbnail as a summary:

Kim Clausing: Would Cutting [U.S.] Corporate Taxes Raise Workers’ Incomes?: “Overall, it is difficult to document a relationship between lower corporate taxes and higher wages…

…Some… including Jason Furman, Lawrence Summers, and Paul Krugman, found it implausible to argue that for every dollar of corporate tax cut, workers wages would rise by at least $2.50, and perhaps as much as $5.50, as implied by the CEA’s report. Other economists have argued that it is possible for a $1 reduction in corporate taxes to result in a more than $1 increase in wages (see for instance Casey Mulligan and Greg Mankiw), but even most of those economists do not back the wildly optimistic numbers of the CEA report.

Some cross-country analyses report a pattern between higher corporate taxes and lower wages, but these studies have some important limitations; I have found no empirical evidence in my own research to support the idea that countries with higher corporate tax rates have lower wages…

Should-Read: Cosma Shalizi Review of Gillian Tett, Fool’s Gold: How the Bold Dream of a Small Tribe at J. P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe http://bactra.org/reviews/fools-gold/: “This is an extremely smart and well-written look at the growth and explosion of credit derivatives, as told through the story of Tett’s sources at J. P. Morgan…

…It’s a really good book, which painlessly explains a lot of the details of how we got into the present mess, and I strongly recommend it. That said, Tett clearly sympathizes with her informants, and while she doesn’t exactly re-touch and air-brush their portraits for maximum flattery, they’re ones reasonable people would be happy with. A less becoming picture of the same facts begins like so: In the early to mid 1990s, the Morgan bank had a group of arrogant, inexperienced young financiers who looked at the damage then being done by unregulated financial derivatives, and decided the key institutions of the capitalist economy need some of that. Historically, a major role of banks has been to help provide corporate governance, which (as Uncle Norbert would remind you) relies on information. When firms go to banks for credit, they have to disclose lots of information about their finances, workings and plans which would normally stay locked inside the firm. (The firm does not want its rivals to know these things.) Banks have allocated capital, or not, on the basis of this information….

What the Morgan crew did was figure out a way of using derivatives to let a bank take a portfolio of loans and sell the risk of the loans in chunks to institutions outside the banks…. On the buyers’ side, the securities (“synthetic collateralized debt obligations”, in the jargon) were supposed to be safe because they were diversified across many borrowers; also they were structured so that all the buyers with low-grade securities would have to be wiped out before the payments to high-grade securities were cut….

In short, the group at Morgan decided to change the way a basic capitalist institution worked, on the basis of abstract ideological principles, without any concern for its real-world effects, or the hard-won experience embodied in the social order they had inherited. (No doubt it helped that they all considered each other super-smart.)…

It is at this point, after the victory of an elitist cadre of self-serving ideologues, that what Tett calls the “corruption” set in. The original Morgan group were rationalistic social engineers filled with hubris, but even they realized there were limits on the trick they devised. To pull it off, the bank had to estimate the risk not just of any one loan in the portfolio defaulting, but of groups of them doing so at once, which meant estimating the correlations among loan defaults. In the nature of things, this is much harder than just estimating the risk of a single loan, and in many cases, like defaults on sub-prime mortgages, the data just wasn’t there to support any sensible kind of estimation. (Cf..) The Morgan team realized this, and so did only a few mortgage deals. The rest of the industry was not so scrupulous…. Morgan suffered from its comparative restraint, and, had the bubble lasted just a bit longer, would probably have been forced to join in by its shareholders.)…

After turning Tett’s flattering portrayals into mug-shots, the truth is I find myself sympathizing with her protagonists. They are obviously nostalgic for being talented young people working on an innovative common project which they really believed in, and why not? That is a wonderful thing. (I can only imagine that being paid very well for being geniuses together enhances the experience.) Hearing about how their handiwork brought the global economy to its knees can’t feel good…

Should-Read: Equitable Growth: Research on Tap: Promoting equitable growth through tax reform: “Join us on November 6, 2017, for the second event in Equitable Growth’s new ‘Research on Tap”’ conversation series…

…a space for drinks, dialogue, and debate. The conversation will focus on three questions at the intersection of tax policy, inequality, and growth: What is equitable growth? What can tax reform do to promote it? And how would tax reform motivated by the pursuit of equitable growth compare with the version represented by proposals from the Trump administration and Congress?… Jason Furman… Melissa Kearney… Greg Leiserson…

Should-Read: Jess Benhabib, Alberto Bisin, and Mi Luo: Wealth distribution and social mobility in the US: A quantitative approach: “We concentrate on… i) skewed and persistent distribution of earnings…

…ii) differential saving and bequest rates across wealth levels, and iii) stochastic idiosyncratic returns to wealth (capital income risk), possibly differential across wealth levels. All of these factors are fundamental for matching both distribution and mobility, each with a distinct role in inducing wealth accumulation near the borrowing constraints, contributing to the thick top tail of wealth, and affecting upward and/or downward social mobility. The stochastic process for capital income risk which best fits the cross-sectional distribution of wealth and social mobility in the U.S. shares several statistical properties with those of the returns to wealth uncovered by Fagereng et al. (2017) from tax records in Norway…

Should-Read: Bridget Ansel and Heather Boushey: Modernizing U.S. Labor Standards for 21st-Century Families: “Women now make up almost half the U.S. workforce…

Our labor laws and institutions do little to address the various ways in which women are held back at work. This not only hampers women’s economic well-being, but also has implications for U.S. productivity, labor force participation, and economic growth…. Ansel and Boushey propose policies aimed at boosting women’s economic outcomes: paid family leave, fair scheduling, and combatting wage discrimination. They show how enacting carefully designed policies will better address the challenges of today’s labor force, enhance women’s economic outcomes, and provide benefits for the national economy…

Should-Attend: Heather Boushey: Economics and feminism: “Finding Time: The Economics of Work-Life Conflict…

…interviwed by Lance Knobel. What can now be done as the federal political tide pulls back on advances? Will the increasing outcry about sexism in tech provide a countervailing pressure for change?…

Should-Attend: Alice Rivlin: Evidence and Policy Analysis in the Age of Fake News: “The paradox of current political turmoil is…

…even though we cannot forecast the future in our complex world – that our policy makers and legislators can now access much richer data-based evidence about potential costs and effects of policies more than ever possible before. Yet public data, policy analysis, and the institutions that produce them are under increasingly strident partisan attack. Dr. Rivlin will speak on how evidence-based practitioners got into this tough situation, and how we can Improve It.