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Economists are from Mars, Lawyers are from Venus: The Tax Policy Implications of Communication Failure. Roberta Mann University of Oregon School of Law Fall 2013. Equity vs. efficiency. Optimal Income Tax Model Mirrlees (1971) Goal: avoid deadweight loss Second best tax
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Economists are from Mars, Lawyers are from Venus: The Tax Policy Implications of Communication Failure Roberta Mann University of Oregon School of Law Fall 2013
Equity vs. efficiency • Optimal Income Tax Model Mirrlees (1971) • Goal: avoid deadweight loss • Second best tax • Endowment is ideal tax base • Rational person maximizes earnings • Result: lower tax rates on wealthy • Historical context and caveats • Top marginal tax rate 70% • Consumption-leisure utility function is “heroic abstract” • Is it fair to say that economists have abandoned equity? • What can economists do? • What can’t economists do?
Equity: where we are, where we would like to be Norton & Ariely (2011)
Dueling Economists on the Fiscal Cliff • CRS report • Lower tax rates on wealthy do not stimulate the economy • Rather, lower tax rates on the wealthy leads to increased inequality • E&Y report • Higher marginal rates lead to: • Shrinking economy • Fewer jobs • Less investment • Lower wages
Conclusion • Objectivity is a worthy goal • Read the caveats (economists, help us by translating) • Understand limitations of economic analysis • Economic analysis is not an excuse for avoiding normative and political judgments