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LESSONS FOR TAX POLICY IN THE GREAT RECESSION

While policy makers struggle with identifying and enacting the appropriate short-term policy response to the recent financial crisis and economic downturn, both academics and policy makers are examining the causes of the crisis and what lessons this might bring to bear on longer-term policy.  With near unanimity attention to both the causes and appropriate long-term policy response has focused on the financial sector, although fiscal policy, including tax policy, has certainly figured prominently in countries’ short-term policy response to the economic contraction.  In recent months, though, officials from two international organizations, the IMF and the OECD, have produced reports addressing what aspects of the tax system may have helped cause or exacerbate the crisis, and whether tax policy needs to be re-evaluated in light of the recent events.  In this article OTPR Director Joel Slemrod offers some speculations about the lessons for tax policy, and the analysis of tax policy, from the Great Recession.  What did we get wrong?  What did we underestimate the importance of?  What do we need to think more about?

 

 

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On March 24 the Obama administration announced the formation of a high-level task force to review the U.S. tax system and make policy recommendations by December 4, 2009.  Former Federal Reserve Chairman Paul Volcker will head the panel, and senior economic adviser Austan Goolsbee will serve as staff director.

Is it déjà vu all over again? Just four years ago President Bush formed a tax review panel, The President's Advisory Panel on Federal Tax Reform, whose report was delivered on November 1, 2005.  To see what that panel recommended, what became of their recommendations, and what lessons the episode provides for Obama's task force, read the article by OTPR Director Joel Slemrod and Katherine Blauvelt, "Tax Reform for Grown-Ups" that was published in the March 2006 issue of the Milken Institute Review.

 

UPCOMING CONFERENCES
Tax Policy Analysis Using Large Panel Data Sets of Tax Returns:
An International Research Workshop
   


March 13-14, 2009, Rm. R1240
School of Business, University of Michigan, Ann Arbor,

 
Co-organizers:
Henrik Jacobsen Kleven, London School of Economics
Wojciech Kopczuk, Columbia University
Joel Slemrod, University of Michigan

       
     

Publicly available (if not generally available) tax return data played a large role in the first wave of modern empirical tax research that lasted from approximately 1975 to 1985. In recent years, large panel data sets of tax return data, often supplemented with data from other administrative records, have become accessible to researchers in many countries. The availability of these data, plus the development of sophisticated panel-data econometrics techniques, has led to an explosion of research around the world that promises to greatly enrich our understanding of the effect of tax, and other, policies on individual’s behavior.

The Office of Tax Policy Research will bring together economists who are actively engaged in this kind of research, along with others who can contribute to a discussion of the methodological and policy issues involved.

To view the agenda, please click here.

       
               
     

The Role of Firms in Tax Systems

        
   

April 17-18, 2009
Ross School of Business, University of Michigan, Ann Arbor, MI

        
      On April 17-18, 2009, the Office of Tax Policy Research is hosting a conference presenting frontier research on the role of firms in tax systems. Among the topics covered are firms' role in the implementation of tax policy, including as withholding agents, the special tax issues that arise in the taxation of multinational companies, and how taxes affect the form of business organization. Some of the papers are theoretical, including treatments of the optimal tax enforcement of small business and optimal tax treatment of multinational enterprises.  The topics of empirical papers include the effect of taxation on the size distribution of firms, extent of business incorporation and self-employment.

To view the agenda, please click here.

To register, please click here.

        
     

NEW RESEARCH -- INCOME TAX NONCOMPLIANCE BY INCOME GROUP

        
      New research by OTPR Director Joel Slemrod and IRS employee Andrew Johns looks at income tax noncompliance by income group.  It makes use of newly available data for tax year 2001 from the IRS’s most recent comprehensive study of individual income tax noncompliance, the National Research Program.  The study finds that, when taxpayers are arrayed by their “true” income, defined as reported income adjusted for the underreporting estimated by the IRS tax gap methodology, the ratio of aggregate misreported income to true income generally increases with income, although it peaks among taxpayers with adjusted gross income between $500,000 to $1,000,000, and is lower than the peak ratio for individuals with income above $1,000,000.  In sharp contrast, though, the ratio of underreported tax to true tax is highest for lower-income taxpayers.  This contrast in results reflects the fact that under a graduated tax schedule a given percentage reduction in taxable income corresponds to a higher percentage reduction in tax liability the lower is a taxpayer’s income.  Much, but not all, of the distributional pattern of noncompliance is related to the fact that on average high-income taxpayers receive their income in forms that have higher noncompliance rates.  To view this paper, please click here.        
               
     

The Office of Tax Policy Research, The Concord Coalition, and Concerned Youth for America are sponsoring a showing of I.O.U.S.A. – The Movie.

        
               
    Money House

Thursday, December 4, 6:30 – 9:00 p.m.
Palmer Commons Forum Hall

       
     

Per the Concord Coalition, a nonpartisan grassroots organization advocating generationally responsible fiscal policy, the critically-acclaimed "I.O.U.S.A." documentary, directed by Patrick Creadon ("Wordplay"), follows The Concord Coalition's "Fiscal Wake-Up Tour" and tells the story of America's four key deficits - budget, savings, balance of payments and leadership - and their implications for the nation and U.S. citizens.

The movie, an official selection of the 2008 Sundance Film Festival, features Concord Coalition Executive Director Robert Bixby and Fiscal Wake-Up Tour keynote speaker, former Comptroller General of the U.S., David Walker. It contains interviews with Concord Coalition President Peter G. Peterson and Concord Board members Robert Rubin and Paul Volcker. There is also rare footage of The Concord Coalition's first media event, a press conference below the National Debt Clock in Times Square, with founders Paul Tsongas, Warren Rudman and Pete Peterson. Using candid interviews, archival footage and economic data, "I.O.U.S.A." presents a vivid, alarming profile of America's current financial status.

Following the movie, a panel discussion was held by OTPR’s director, Joel Slemrod, U-M alum Diane Lim Rogers, chief economist at the Concord Coalition, and Yoni Gruskin, national executive director of Concerned Youth of America. Reception followed.

        
     

THE OFFICE OF TAX POLICY RESEARCH is a research office of the Stephen M. Ross School of Business at the University of Michigan. OTPR supports and disseminates academic research on all aspects of the tax system, with the goal of informing discussion about the future course of policy. We are non-partisan and advocate no particular policies.

This Web site is a guide to the activities we sponsor, to the findings of the research we have supported, and to the policy implications of that research.