One way to know that you are in the spin zone is if you are given a definite answer to a vaguely-phrased politically-important question that has different answers depending on precisely how it is phrased.
The University of Chicago Business School enters the spin zone:
The top 1% of Americans earn roughly 20% of income. The top 1% are roughly the people who pay the top income tax bracket. According to CBPP, the expected current law deficit over the next ten years averages 2% of GDP. The expected current policy deficit over the next ten years averages 10% of GDP.
The University of Chicago asks:
The cumulative budget shortfalls in the US over the next 10 years can be reduced by half (or more) purely by increasing the federal marginal tax rate on ordinary income for those in the top tax bracket.
This is, I think, a bad question. "Current law" or "current policy deficits? Where does the "half" come from? Where does the "ordinary income" come from? It smells as though the issue the question is supposed to address is whether most of the work in balancing federal spending commitments with taxes can be performed by burdening the top 1% with additional taxes. But that is not an issue that this question--as vaguely asked as it is-- can address. The devil is in the details:
Let the question be: "Can the cumulative current policy budget shortfalls in the U.S. over the next 10 years be reduced by half by increasing the federal tax rate on ordinary income for those in the top bracket?" The answer is: almost surely not. You have to raise an extra 5% of GDP, and once you take out capital gains, tax avoidance, and genuine supply-side effects there is not enough blood in that particular stone. Starting from current policy, most of the work in balancing federal spending commitments with taxes could not be performed by burdening the top 1% with additional taxes on ordinary income.
Let the question be: "Can the cumulative current policy budget shortfalls in the U.S. over the next 10 years be reduced by half by increasing federal taxes for those in the top bracket?" The answer is: almost surely yes. But it would be a silly policy to load that much of the burden on that small slice of population and income, but there is plenty of income and even more wealth to tax. Starting from current policy, most of the work in balancing federal spending commitments with taxes could be performed by burdening the top 1% with additional taxes, but it would be very silly to do so.
Let the question be: "Can the cumulative current law budget shortfalls in the U.S. over the next 10 years be reduced by half by increasing the federal tax rate on ordinary income for those in the top bracket?" The answer is: certainly yes. The current-law deficits over the next ten years are trivial--the worry comes from the fear and expectation that the Congress is going to take steps that actively bust PAYGO, not that gridlock plus autopilot are steering us to disaster. Starting from current law, most of the work in balancing federal spending commitments with taxes could certainly be performed by burdening the top 1% with additional taxes.
Let the question be: "Can the cumulative current law budget shortfalls in the U.S. over the next 10 years be reduced by half by increasing federal taxes for those in the top bracket?" The answer is: certainly yes. The current-law deficits over the next ten years are trivial--the worry comes from the fear and expectation that the Congress is going to take steps that actively bust PAYGO, not that gridlock plus autopilot are steering us to disaster. Starting from current law, most of the work in balancing federal spending commitments with taxes could certainly be performed by burdening the top 1% with additional taxes on their ordinary income.
It is, I think, important to distinguish between these four questions that normal readers might think Chicago Business School is asking. They are different questions--and they do have different answers.
The winning economists here, I think, are those who don't answer, or who say that the answer is "uncertain": Katherine Baicker, Judy Chevalier, David Cutler, Angus Deaton, Darrell Duffie, Ray Fair, Claudia Goldin, Austin Goolsbee, Caroline Hoxby, Eric Maskin, and Ceci Rouse.
