Tuesday, September 25, 2012


Apparently the editorial board at the New York Times doesn't understand Deadweight Loss. The say:

Voters don’t react positively when a candidate speaks incomprehensibly about taxes, as Mr. Romney did on “60 Minutes.” He said he would lower everyone’s tax rate by 20 percent but that everyone would wind up paying essentially the same taxes because he would limit unspecified deductions and exemptions. Even on its face, that makes little sense. If everyone will pay the same taxes, how does that stimulate growth or reduce unfairness? In fact, tax experts say the rate cut is such a huge benefit for the rich that it can’t be balanced by curbing their deductions. But listeners don’t have to do the math to calculate how fundamentally hollow the proposal is.
I'm not arguing that the cut in rates (and here I assume he was specifically referring to the top marginal rate) will actually be revenue neutral, though Feldstein and Rosen argue its feasible. Krugman and others suggest the cut in top marginal rates is too large to be offset by base broadening. I am suggesting, if it were possible it is easy to think about how that stimulates growth and reduces unfairness. Think of lower top marginal rates lowering the incentive to hide income as an example.

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