To pay for those cuts in investment taxation, the administration is eyeing two large funding sources: eliminating the tax deductibility of employer-provided health insurance and eliminating the deductibility of state and local taxes. Again, White House economists laid out their argument a long time ago. In the February 2003 Economic Report of the President, the White House held that the deductibility of state and local taxes -- especially property taxes -- "lowers the price of local public services" and unfairly favors local government services over privately provided services.
Again, Diamond said, that theory is just too simple. A good public education produces graduates who earn more money and pay more taxes. But many of those graduates will move away from the local jurisdiction that financed their education, so, Diamond argued, it is appropriate for the federal government to provide some subsidies.
 
Friday's Question:
| | |
|
To finance its plan to introduce personal investment accounts to Social Security, the administration is likely to rack up hundreds of billions of dollars a year in additional government borrowing. But, administration officials argue, such borrowing should be treated differently from borrowing to finance other government programs. Mankiw said yesterday that such Social Security costs are not new costs to the government but an acknowledgment of existing liabilities owed to future beneficiaries.
"It's turning implicit debt to explicit [debt], not creating new debt," Mankiw said.
Again, that may be theoretically true, economists say. But even Hubbard, a staunch advocate of Bush's Social Security reform ideas, said $1 of Social Security benefits owed to a hypothetical retiree in 50 years is not equal to $1 of debt today, because few international lenders believe future retirees will actually get all of their scheduled benefits.
"The pattern in all of this is, they know the [policy] direction they want to go in, they have a propensity. And then they say, 'Is there an argument to support my propensity? Oh, yes, here's one,' " Diamond said.
Kevin Hassett, an economist at the American Enterprise Institute, said such grumbling reflects a liberal propensity to dismiss the intellectual merit of Bush's policies, especially his economic proposals.
"The economy's doing great, but all you hear is complaints about the Bush economic team," he said.
