Weekend reading: “tax day” edition
This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.
Equitable Growth round-up
This past Tuesday was Tax Day, and next year when Americans file their taxes they’ll see some of the changes made by the Tax Cuts and Jobs Act in action, such as the higher standard deduction. People aren’t waiting that long to assess the effects of last year’s tax bill, though, with supporters of it already pointing to signs of its success. How should one actually assess the economic effects of the tax bill though? Greg Leiserson breaks it down for you.
President Trump isn’t wrong when he points out that American workers have been hurt by free trade, particularly by the impact of imports from China. But his proposed policy solution—imposing tariffs on imports—won’t actually help workers. Instead, argues Heather Boushey and co-author Todd Tucker, policies that strengthen workers’ bargaining power and provide the benefits lost alongside lost jobs would do more to improve workers’ lives.
The marginal propensity to consume is economists’ way of talking about the likelihood that an extra dollar in your pocket turns into an extra dollar you spend. Your marginal propensity to consume depends on a number of factors, including changes in income. Nick Bunker explains how how much wealth your family has also factors into your marginal propensity to consume, which is the subject of a new working paper by University of Wisconsin economist and Equitable Growth grantee Timothy Smeeding and co-authors Jonathan Fisher, David Johnson, Jonathan Latner, and Jeffrey Thompson.
Links from around the web
Proponents of the Tax Cuts and Jobs Act often touted its simplification of the tax code via the increase of the standard deduction as a reason to support the law. Another easy way to simplify the tax filing process would be for the government to use the information it already collects from employers and banks to prefill people’s tax returns for them. This would particularly help low-income households, which are often eligible for large refunds from the Earned Income Tax Credit. Those eligible for the tax credit often turn to tax preparers who offer advance loans on tax refunds, which decreases the amount recipients ultimately get back. [wapo]
The number of tax brackets has decreased dramatically over the past few decades, which has collapsed broader segments of the income distribution into the same bracket. This means that millionaires and billionaires are now in the same tax bracket as professionals. At the same time, technology has made it easier than ever to calculate the marginal rate on every dollar you earn. [vox]
Growing up doesn’t necessarily mean learning to do your own taxes. [wsj]
It may sound ridiculous, but could dating apps be exacerbating economic inequality? “Assortative mating” is when two people of similar education marry one another, and it has increased over the past half century as women have pursued higher education in greater numbers. Dating sites that limit membership to graduates of elite colleges or prominently display information about users’ education furthers this trend. [bloomberg businessweek]
“Under-matching” refers to when students with good test scores and grades don’t attend the best college their performance qualifies them for. This is particularly an issue for students from low-income and minority families. These students are often unaware that their grades qualify them for elite colleges or that financial aid at elite schools is often more generous and would enable them to attend. This has consequences for their chances of graduating withinfour to six years as well as for the pipeline of talent for leadership positions, which is still dominated by graduates of elite institutions. [the atlantic]
Figure is from the presentation “U.S. Inequality and Recent Tax Changes” by Greg Leiserson