Tuesday, October 5, 2010

Feldstein and the President Publicly Clash Over Ending Tax Breaks for the Wealthy

John McKinnon reports on a public debate between the President and two of his outside advisors – Martin Feldstein and William Donaldson – over the President’s proposal to let the Bush tax cuts for the wealthy expire:

When Harvard professor Martin Feldstein’s turn came to talk, he suggested continuing the current tax rates for two years for everybody, then ending them. He said that course would bolster demand at a time when the economy is weak, and also would reduce the long-term federal debt that Obama projects. When Harvard professor Martin Feldstein’s turn came to talk, he suggested continuing the current tax rates for two years for everybody, then ending them. He said that course would bolster demand at a time when the economy is weak, and also would reduce the long-term federal debt that Obama projects. William Donaldson, a former chairman of the Securities and Exchange Commission, then offered similar suggestions, saying that confusion over future tax policy is adding to business uncertainty.


The President needs better advisors than this. Donaldson’s argument that business uncertainty is retarding economic recovery strikes me as Tea Party propaganda but then Donaldson is not an economist. Feldstein is. The difference between the President’s and Feldstein’s policy positions centers on whether we should extend the tax cut for the wealthy for another two years. Does Dr. Feldstein really believe that a temporary tax cut for the wealthy significantly increases consumption demand? I’m sure most of his students at Harvard have heard of the life-cycle model of consumption and the Barro-Ricardian equivalence proposition!

1 comment:

Jack said...

It is insufficient to describe Feldstein as a Harvard professor. To understand his perspective (a nice way to say his bias) is to note that he is tied tightly to corporate America. Quick search on WikiP, "As a member of the board of AIG Financial Products, Feldstein was one of those who had oversight of the division of the international insurer that contributed to the company's crisis in September, 2008. He has also served as a board member for Eli Lilly and Company." Serving on a corporate board doesn't make one a bad person, but it does influence one's point of view. Funny thing about income sources.
Also, Feldstein is associated with both the Bilderberg Group and the Trilateral Commission, two more corporate/wealth friendly organizations it would be difficult to identify.

So let's be a little more careful regarding the attributions attached to the identities of those members of the political class who give their professional opinions in order to influence circumstances which then impact their own financial self interests.