Should-Read: Larry Summers: Hassett’s flawed analysis of the Trump tax plan

Should-Read: Larry Summers has had it with Kevin Hassett. Me? I am not surprised that Kevin has taken this road. But, then, I read Dow 36000 20 years ago. I am surprised that people are surprised:

Larry Summers: Hassett’s flawed analysis of the Trump tax plan: “Kevin Hassett… accuses me of an ad-hominem attack…

…I am proudly guilty of asserting that it is some combination of dishonest, incompetent and absurd. TV does not provide space to spell out the reasons why, so I am happy to provide them here.

I believe strongly in civility in public policy debates, and before the Trump administration do not believe I have ever used words like dishonest in disagreeing with the policy analyses of other economists. Part of my rationale for speaking so strongly here is that Mr Hassett called into question the integrity of the Tax Policy Center, a group staffed by highly respected former civil servants, by calling their work “scientifically indefensible” and “fiction”…. Hassett throws around the terms scientific and peer reviewed, yet there is no peer-reviewed support for his central claim that cutting the corporate tax rate from 35 per cent to 20 per cent would raise wages by $4,000 per worker….

Hassett’s “conservative” claim that the cut will raise wages by $4,000 in an economy with 150m workers is a claim that workers will benefit by $600bn or 300 per cent of the tax cut. To my knowledge, such a claim is unprecedented in analyses of tax incidence. Mr Hassett, though, doubles down by holding out the further possibility that wages might rise by $9,000….

Regressions of wage growth on tax rates cannot be understood as causal without a theory of the level of tax rates…. The observation that low tax rates coincide with significant growth in eastern Europe is of dubious relevance to the US…. If a PhD student submitted the CEA analysis as a term paper in public finance, I would be hard pressed to give it a passing grade. I predict that as debates on tax policy unfold there will be many serious Republican economists who endorse parts of the Trump plan. I doubt that any will associate themselves with the CEA analysis. If Mr Hassett wishes to preserve the CEA’s reputation and his own, next time he will not attack honest analysts and will himself be much more careful.

October 17, 2017


Brad DeLong
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