Giving Back the Tax Cuts: A Guest Post
By IAN AYRES
My colleagues Jacob Hacker and Daniel Markovits have created a cool website called www.GiveItBackForJobs.org that not only includes a useful tool to let you calculate the size of your tax cut, but suggests that “Americans who have the means should collectively give back our Bush tax cuts, by making donations to organizations that promote fairness, economic growth, and a vibrant middle class.” Here’s a post from the creators themselves that gives more details:
Giving Back the Tax Cut
Daniel Markovitz and Jacob Hacker
If a dysfunctional political process leads to bad fiscal policy — a pretty good first approximation of the current state of play in Washington and the tax deal it produced — what are ordinary citizens to do? Can citizens make shadow fiscal policy that at least partially counteracts the government’s?
On the revenue side, this question raises the familiar specter of Ricardian Equivalence — the proposition that consumers internalize the government’s budget constraint and thus respond to government borrowing by increasing savings, nullifying the stimulative effect of public deficits. That proposition has been much discussed of late, including in the blogs associated with this newspaper (see here). The best current thinking suggests that Ricardian Equivalence does not fully hold — private savings does not offset public borrowing one-to-one. Moreover, even if it did fully hold, a temporary increase in government borrowing would still retain a stimulative effect. Even if consumers do save to offset the public borrowing, their savings will be spread over many years while the increased public spending enters the economy immediately, producing an economic stimulus.
But what about the spending side? Suppose citizens think that government stimulus is unfairly and inefficiently allocated. In the recent tax deal, modest support for middle class Americans was combined with massive tax cuts for the rich. This is unfair: the rich don’t need the help. It is also inefficient: the rich will save rather than spend their tax cuts, so that cutting their taxes yields little stimulus per dollar of deficit. Can citizens adjust their conduct to counteract such wrong policy?
We believe that they can and propose a mechanism for doing so. The most fortunate citizens can convert their inefficient and unfair tax cuts into good fiscal policy. Rather than saving their new-found after-tax income, citizens who can afford it should donate their tax cuts to charities that promote the kinds of stimulative programs that better government policy would provide.
We’ve built a website to help achieve this — www.giveitbackforjobs.org enables citizens to calculate their approximate tax cuts and, acting in concert, give them back to appropriate charities. Acting together matters here. First, each participant encourages others to join as well. Second, by tying giving to tax policy, donors emphasize that they are not giving out of private grace, but from a shared sense of the obligations of citizenship. They practice political philanthropy.
We’re not so naïve as to believe that all the tax cuts will be given back. But we are convinced that there are many, many Americans who have the means and the desire to encourage a better policy. By actually putting their money where their mouths are, they won’t just be helping out their fellow citizens and encouraging economic growth; they will also be signaling the need for a better public fiscal policy.
Ian Ayres is a professor of law and economics at Yale. Follow @freakonomics on Twitter.
