A Not-So-New Direction for Tax Policy

During the past eight years, tax policy has been something of a political hot potato in the United States. Although President Bush accomplished only a few major domestic policy objectives in his two terms, the first and perhaps most notable was an across‐the‐board reduction in marginal tax rates, which should perhaps serve as a warning to those who draw too many conclusions from a president's early accomplishments.

Throughout the past eight years, opposition to the Bush tax cuts on high earners has practically been a membership requirement of the Democratic Party. Since 2004, every major Democratic presidential candidate, including our new president, has called for their repeal. To academics who study tax policy, the angry partisan tone of the debate has been highly ironic. As illustrated in Auerbach and Hassett (2005), among academics there is fairly broad agreement concerning the optimal design of tax policy.

Given the sweeping Democratic victory in November 2008, one might have expected the Bush tax reductions to have been quickly repealed. Circumstances, however, conspired to save the tax cuts, for a brief time at least. What is already the worst recession in postwar U.S. history has focused the attention of lawmakers on economic stimulus, with an ambitious plan becoming law.

The stimulus "distraction," however, has set the United States up for a truly momentous year in the history of tax policy. In 2010, virtually all of the Bush tax cuts will expire. Many of the expiring provisions are popular with Democrats and Republicans alike, and, hence, an important tax bill will inevitably emerge. Will that bill be a simple extension of the more‐ popular preexisting policies or a reform that is guided by the academic consensus? The answer will depend on our new president's economic philosophy, which we can discover by drawing on the evidence from his first hundred days in office.

Any historical picture of the economic philosophy that animates a president must refer to changes he accomplished and changes he attempted but failed to accomplish. In the case of President Obama, we have already, in his first hundred days, a significant accomplishment to evaluate, as well as a fairly detailed view of his plans for the future. In the next section, I discuss the recent stimulus bill. In the subsequent section I turn to the president's budget, which details many of his plans for the future. I then discuss the tax panel that President Obama has assembled and the likely substantive effects of the charge that the panel has received. The final section is a conclusion. . . .

Click here to view this paper as an Adobe Acrobat PDF.

Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Kevin A.
Hassett
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.



    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

  • Phone: 202-862-7157
    Email: khassett@aei.org
  • Assistant Info

    Name: Emma Bennett
    Phone: 202-862-5862
    Email: emma.bennett@aei.org

What's new on AEI

image Dad and the diploma: The difference fathers make for college graduation
image A better way to finance that college degree
image Fracking for bigger budgets
image Earth Day: Hail fossil fuels, energy of the future
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.