Honoring Gramlich part 1: Federal programs, budget policy, and income distribution

[ Noise & Inaudible Discussions ]

>> Good morning everybody and welcome. It's really a pleasure to have all of you here with us at the special conference Honoring Ned Gramlich and the Importance of Policy Research. I'm Susan Collins. I'm the dean of the Gerald R. Ford School of Public Policy at the University of Michigan. And this is a really special event for us. Before I go any further though, I do want to give a very warm welcome to Ruth Gramlich who is Ned Gramlich's wife and a number of members of their family. Ruth, it's wonderful to have you here and Rob and others as well especially because this is another important day for them as well. Ruth and Ned's granddaughter Rachel is graduating from high school and I understand she'll be joining us for part of the lunch, so a special day for them and we're particularly pleased that they're spending part of it with us today. Well, today's conference honors two centennials. As many here in the room may know, it was 100 years ago this year that the 12 Federal Reserve Banks first opened for business. And it was 100 years ago as well that the first policy program at the University of Michigan was launched. Of course, it was known by a different name in 1914. It was a program that was started as part of the university's Political Science Department, it expanded overtime, it evolved as an institute and finally in 1995, a school, in 1999, we were named for President Ford. Well, Ned Gramlich played key roles in both of those institutions as you'll hear he was here as a governor of the Fed for five years. And he was truly a founding integral part. He was one of the founding fathers of the Ford School. He was a driving force behind the university's decision to make us a school with the ability to grant 10 year and to take our place among the outstanding professional schools on University of Michigan's campus. And he was, in fact, our very first dean. So, how better to celebrate the importance of research for good policy as we recognize both the great policy school and also one of the most important policy institutions in the world than a conference in honor of Ned Gramlich. In a minute, our conference organizers, Paul Courant and Dan Covitz, will tell you more about his remarkable legacy. I would simply like to say at this point that for 100 years, the Ford School has produced many policy leaders and many faculty who we remember fondly and of whom we are truly proud but really none has been more accomplished, had a greater impact or been more beloved than Ned Gramlich. I'd like to thank the Federal Reserve for their work and their assistance with today's conference. Dan Covitz and his colleagues have really been behind this idea 100 percent and had been a great joint partner in putting this together. And that's really a testament to Ned's ability to link together his students, his academic colleagues and policy practitioners. I'd also like to thank Adorsh [assumed spelling] and Wendy Trayham [assumed spelling] for their generous support which helped to make this conference possible. Today's event is attended and viewed online by many, many of Ned Gramlich's friends, his colleagues, his former students and I'd like to thank all of you whether here in the room or watching us online or being streamed for joining us today. And with that, it is my pleasure to turn things over to our conference organizers, Paul Courant who is the Harold T. Shapiro Professor of Public Policy in Economics and Dan Covitz, who is Associate Director of the Federal Reserve's Division of Research and Statistics. Paul and Dan.

[ Applause ]

>> Thank you Susan. Thank you all for being here. It's really a great pleasure to be able to honor Ned Gramlich and his work much of it was done here and with the Federal Reserve Board and of course much of the University of Michigan which are the two institutions that we represent. So, I have to say in a lifetime with co-authoring with people with the letter C, right? I'm CLU, he's CLV so he goes second as the--

[ Laughter ]

So, we've had a tremendously good time putting this in good time putting this symposium together, calling on old friends and colleagues of Ned's and some younger folks who may have known Ned less well but whose work was shaped by him either directly or via the simple fact that it's really hard to find any important topics in policy economics that they didn't work on. The old friends were especially gratified. All of us, almost all of us in this room, have put together conferences over the years and of course the people you want to have as participants are busy and hard to get. In this case, all we have to do is say the magic words, Ned Gramlich and everyone we ask who do not have a pre-existing plan to be hundreds, at least hundreds, in some cases, thousands of miles away said, "Of course. Thank you for asking. That would be great. When is it? I'll be there." And frequently, they'd say, "There's no way I could turn down something that would honor and celebrate Ned." Many of the people in this room can speak to both the joys of being Ned's colleagues and his friend. Ned and I wrote something like 10 papers together as well as a book on Budget Deficits that unfortunately nobody read.

[ Laughter ]

We, unfortunately, because we aren't getting royalties and even more unfortunate because if they'd read it, things will be in much better shape. So, we like to believe. So, we also went to dozens of baseball games, argued over the definitions of many crossword puzzles, went to basketball games. Ned and I always played basketball together and Ned always won, that's obvious and playing tennis together and, you know, sometimes I won that. That was better. He was fun to work with and he was fun to play with. And although he was always serious about his work and for that matter serious about his play, no one flat out enjoyed the work as much as Ned. As you can see from the topics that we will be discussing today, Ned had great taste in problems, issues that he worked on 40 years ago and more are still generating interesting arguments. And among the many reasons for mourning his untimely death is that although he would have been frequently angry and frustrated, who isn't, by the political economy of the past seven years or so, he also would have really enjoyed being part of it, talking about it, writing about it, even finding humor in it and it would have been a pleasure to share that experience with Ned. Importantly, there's much--there was more that he left out than we were able to fit into a one day symposium. Among other things that we aren't discussing today, Ned work on poverty, income distribution, by the way he did poverty intervention, income distribution, generally, public employment, minimum wages, school finance, tax limitation, the demand for public services, baseball compensation schemes and the fiscal systems of several other countries. He was also an institution builder. As Susan pointed out, he was the founding dean of the Ford School, an engaged member of the Board of Governors, interim provost of the University of Michigan, acting Director of the CBO. In all of these settings, he tinkered and congealed and designed systems that made things work better and that continues to serve us today. And known to many of you but not all, he was a great teacher again both serious and playful. His students talked about him in much the same way that his colleagues do. He was fun to work with, he helped to make the work interesting in those small part because he found it so interesting. And of course there isn't a great deal in the world of public policy that tickles the--there is a great deal in the world of public policy that tickles the funny bone and that fact was not lost on Ned. This conference is pull together--was pulled together to celebrate Ned and the Importance of Policy Research and our method of course is to bring together leading policy researchers of our time to talk about the issues of the day that are related to Ned's work. Ned was an exponent of positive economic analysis who was motivated by scientific considerations, how the things work but even more by normative considerations, how can we make the world better. He loved economics and he loved thinking like an economist about pretty and about pretty much everything. All of this leads to what might be termed the Gramlich's Theorem on Policy Economics which is as follows. I don't have slides. You have to pay attention. One, there are interesting problems out there, problems that matter for human well being. Two, the intelligent application of economics to many of these problems perhaps all of them will yield understanding and provide direction for policy. Three, therefore it is our ethical duty to use economic methods to do a policy analysis and to do it well and honestly the way Gramlich would do it and then apply it to the policy arena. That's a little too serious because we have to add that it's also our duty to have fun along the way, again, following Ned's example. And now it's my pleasure to introduce my colleague Dan Covitz to say a few more words.

[ Applause ]

>> Thank you Paul. On behalf of the Federal Reserve, I would very much like to welcome all of you to what promises to be a very interesting and meaningful day. Like Paul, it has been a pleasure for me to help put together this symposium. I have known Ned's family for many years and I had the privilege to work closely with Ned and along the Guarantee Board when he served as a governor here at the Fed, his second to our duty, the first being spent early in his career as a fed economist. As governor, Ned engaged effectively in the monetary policy process. It was also deeply committed to issues relating to consumer affairs and community development. As Paul mentioned, finding enough topics and participants for the program, it was not difficult at all given the breath of Ned's work and his connections to so many involved in economic research and the implementation of economic policy. However, some topics had to be left off the program including some that Paul already mentioned and my personal favorite, Federal loan guarantee programs.

[ Laughter ]

Ned was on several guarantee boards, loan guarantee boards, some of which he chaired and he also gave a speech on the economics of Federal loan guarantee programs. So, well, all of Ned's work will not be on--not be discussed today, the topics we choose are among the most important issues in policy that Ned worked on during his career. Our hope is that the sessions generate lively and in the spirit of Paul's addendum to the Gramlich theorem fund discussions. Before we begin however, I'd like to thank the Ford School for co-sponsoring the conference as well as a colleague of mine in the research division, Rodney Ramcharan for helping us to think through which areas of Ned's prolific career to highlight in the conference. I would also like to thank staff both here and at the University of Michigan for their substantial support. And finally, I'd like to add that we were especially pleased that the Gramlichs, all of the Gramlichs, Ruth, Rod, Mary, Rachel, Sammy, Kate, Jack and Jake are all joining us for various portions of today's program. So, with that said, let's get started with the celebration of Ned, his work and the role that economic thinking and research can play in shaping good policy. Paul will introduce our first moderator.

[ Applause ]

>> So, the first session will be moderated by Marina Whitman, Ned's colleague and mine, there's information in the large program sheet about Marina's career which like Ned's is too long to recount. And she'll introduce her panel. So you have a brief biography of her as I said, I'll just say that in addition to a distinguished academic career, very distinguished because many of us were required to read papers or resume when we're in graduate school. She's also been a member of the Counsel of Economic Advisers and our vice president of General Motors and Marina, the show is yours.

[ Inaudible Remark ]

>> Yes they are together.

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Thank you, Paul and Dan. I can't tell you what an honor and privilege it is to be part of this event even though our substantive fields, Ned's and mine, didn't particularly overlapped but Paul graciously found something for me to do.

[ Laughter ]

I came--Ned and I got to know each other fairly late in life quite late in mine and moderately late in his but it didn't take any time at all for me to become part of the legion of Ned Gramlich friends and loyalists. The biographies of our speakers are in your program. Each of them is titled professor or researcher at the various institutions thereof. So I won't repeat that information except to say that I believe one piece of it is already wrong that is Sheldon Danziger, who is president of the Russell Sage Foundation has--is listed as being on leave as a distinguished university professor at the University of Michigan. I believe that Sheldon has now cut that cord, is that correct? And retired--

>> December 31.

>> December 31st. OK. We already had his retirement party which misled me. But while we will continue to admire his work from a far, we do not realistically expect him back full time. And it's hard to believe this, but Sheldon has said that, in the 12 minutes he's allotted, and by the way I have time cards here which I will utilize if necessary. He intends to talk about the link between fiscal policy solutions and the inequality debate, the tradeoff in income tax reform, between promoting, preserving, saving and investment and preserving distributional neutrality and also some thoughts on broader tax reforms that is going beyond the income tax. So without further ado, Sheldon?

[ Noise ]

>> Nope--There you go. Somebody would--Great. Thank you. Actually Marina, I think you read somebody else's blurb. I don't know anything about savings but that's OK.

[ Laughter & Inaudible Remark ]

>> But that's fine,

>> It's probably faults of the internet. It says up here Sheldon Danziger. And I think I'm afraid I read Bill Gale's which I guess means I won't have to read Bill Gale's again.

[ Laughter ]

>> So I'm honored to be able to speak in a conference that commemorates Ned's contributions to policy research. And one of the things I did which was a true pleasure was to go back and google Ned. One of the things Paul said, it's remarkable how many papers and books were widely read. But I picked out a few in my area on poverty and then equality. And just from reading a few papers, you get Ned's deep interest in applying economics to real world problems. He wrote about the minimum wage and the distributional effects of the minimum wage versus the disemployment effects in a 1970 something Brookings paper. He wrote about the distributional effects of unemployment after the recession of the '70s and focused on the extent to which unemployment and other transfers were cushioning the earnings, losses, differently for higher income or lower income workers and he wrote about the welfare system. So I'll start with a few quotes and in the--it would--I guess we'll have to speculate whether the recent trends which I would say are worst than they were when Ned was writing, would have made Ned less of an optimist but I don't think so. But I focused on this because it's certainly--it's the kind of thing I've said recently and then I went back and saw it with Ned's in the '60s and I would say the '70s when I started. There was a view that policy should be farsighted toward the future and generous toward those of low incomes and I know Eugene Steuerle is going to talk about that today. Today it is harder to make all are arguments. I personally feel we've replaced too much optimism with too much skepticism. This is not the only domain of life where are sadder but wiser. We still push on. And I think that's important for those of us who think we've had policy solutions whether it's the deficit book that Paul and Ned wrote or policies, antipoverty policies that don't get much attraction. So more closer to the topics that I've been involved in, two selections of Ned's research on the safety net, this is very relevant. There are some people who argued that unemployment insurance caused the Great Recession to be as long as in deep as it was. Certainly, I think Ned wouldn't agree with that. But again, this notion of focusing both on the descendant--decent incentive effects and the distributional effects come through this. And then I found a paper which I didn't remember and then I printed it from Google and found out that it was actually in a book that Peter Gottschalk and I edited.

[ Laughter ]

But after I read it, I thought that was a really good paper. I'm glad we asked Ned and his colleagues to write it. But again, this is really--this is 1993. And as I'll suggest, unfortunately things are a lot worse largely because of the decline and the relevant importance of transfers. The increase in the share of transfers received by high income elderly persons, the rising importance of social security taxes, tax and transfer policies worsened, there's disparities by a notable amount. And he was talking about growing inequality between the late '70s and the late '80s. So let me briefly talk about the poverty issue which I think most people are aware. This is the 50th anniversary of the war on poverty and at least some people say, well, the war on poverty must be a failure because poverty remains high and spending is high, therefore spending is ineffective. And if there's anything we at the Ford School and Ned when he was teaching would have emphasized, it's that correlation. It's not causation. And indeed, I've argued in work over a long period that the rising transfers were needed just to keep poverty from rising even further. And so, you need to think about the counterfactual, certainly something that Ned tried to teach our students. And so in my view, poverty is high because we went from this golden age when it really was the case that a rising tide lifts all boats that economic growth was trickling down to the poor, the middle class and high income workers. And during this period, poverty fell rapidly and inequality fell slightly. But that, since the early '70s, we've lived in this yielded age of rising inequality and obviously the quote from Ned in the early '90s was sort of at a period when some people were arguing, "Well, the increase in inequality we've seen is a temporary phenomenon. It will be self correcting." Twenty years later, its obviously--it's not--we're in a period where inequality has increased rapidly and I'm just going to skip because of my time, a very simple picture of what it means to say a rising tide lifts all boats is the slide on the left that's roughly inflation adjusted, family income at various points in the income distribution. And all the bars are tall and they're pretty similar. If anything, the 95th percentile was a little bit less of an increase than the 60th percentile. And we have this much prettier step ladder on the right which is what we mean when we say a rising tide no longer lifts all boats that income gains were lowest, almost none existed at the bottom and higher at the top. But obviously, a period in which all the bars are lower than they were on the left. And, so the argument which I've made in greater detail elsewhere is that it's the failure of the economy not the safety net that the poor would be much more soft without the war on poverty, variety of causes that most economists have in the early years were arguing which one is 15 percent, which one is 20 percent. But I think the consensus is that all of these are important in various ways over this really remarkable 40 year period in which the real earnings of full time full year male workers has hardly changed. I don't have time to do the footnotes about the details. Much the same about the counterfactual is said about the stimulus. So, Allan Blinder has a book and which he argues and there's a lot of research across the spectrum Robert Hall that basically the stimulus worked. It just wasn't as big as it should have been in retrospect but again, people are saying--missing the counterfactual and focusing on correlation. Gee, we spent all this money on the stimulus. The employment rate is still high, therefore, the stimulus failed. This is where we are now and it's why I'm grumping and depressed and--

[ Laughter ]

I wonder whether Ned could still be optimistic. Unemployment is high, five years into the recovery. I don't see any prospects for real wage growth for our less educated workers. We haven't had any for 40 years why we should--why should we expect it now? Income and wealth inequalities are at high levels, indeed. Wealth inequality, I think, has really increased more than income inequality since the Great Recession. There's this relentless, what I call deficit mania that threatens the safety net as we know it. I'll just quickly jump to here. A few policy recommendations and I think--I'd liked to think that Ned would agree that these are relevant, given this 40-year-period of inequality related to the "about rising inequality of the '90s" from his paper. There were changes in the food stamp and the unemployment insurance program and the stimulus that it expired. An example was that, I guess, it may be less important now but the coverage of COBRA health insurance for laid of workers, I don't know enough about how the ACA works know--to know whether they'll be able to quickly get subsidized on the exchange. The probably most important thing that came out of the welfare reform experience and then the recession experience is that it's fairly clear that we now have a safety net that works primarily for low income workers. If you're a low income worker, you get subsidized by the EITC. But the experience of the 20 years post-welfare reform is that there's a substantial group of people who are disconnected from work and welfare. Robert Moffitt recently wrote about this and it was picked up in Washington Post. And so if you really want to have a work based safety net, which is what we have, what we're missing is the focus on providing a low wage job of last resort by which people who can no longer get on welfare, the long term unemployed who were a terminated from unemployment insurance ex-offenders who virtually nobody wants to hire end up now in a safety net without the kind of minimum benefit that I think Ned would have proposed. Expanding the EITC for childless low wage workers and raising the minimum wage, I think are less controversial. But I think all of these are consistent with Ned's analysis that one can look at these issues. I'm going to stop now. And I know that Bill and Gene will have something to say about the revenue needed to pay for these program expansions. Thanks.

[ Applause ]

>> Thanks Sheldon. Since I've already told you what Bill Gale is going to talk about, I don't have to do that now. Let me just say then that you now know from my goof why I had many others really dislike those strings of messages that Gmail forces on us. One tiny substantive point, I guess, it's something that Sheldon's very last comment reminded me of is that a lot of the things that seemed to be stuck at the Federal level, and the minimum wage is one of them, are being implemented and this ranges over a wide range of policies in various ways by various states. And the state of Michigan is well on its way of it to raising the minimum wage in the state of Michigan, I think, to 9.25 an hour. It's been passed by both Houses and the governor said he signed it--he will sign it. So, apparently the--apparently somewhat hopeless block on legislation at Federal level is proceeding at the state, so--at certain states. So, without further ado, I will introduce Bill Gale, whose CV--distinguished CV you have here, to talk about all the things that I said Sheldon was going to talk about.

[ Applause ]

[ Pause ]

>> I very cleverly named my talk The Gramlich Presentation. So, there might be a few of those--

[ Inaudible Remarks ]

--out there, all right? Where do we go? Here? OK. Good. Thanks. So, I was a little worried that I just been scooped when I heard Marina's description of Sheldon's talk but then I thought of maybe it's just a case of brilliant minds thinking a like and we have the same thoughts. Anyway, let me start by saying what an honor it is to be asked to be speak here, an event in honor of Ned. I was one of those people that Paul referred to who eagerly accepted the opportunity to speak here. Ned was both a first-rate scholar and a truly nice guy. I find myself continuing to stumble across his scholarly work in a whole variety of various income distribution housing, low income family, fiscal policy. I was kind of depressed to hear your story Paul about nobody reading your book on fiscal policy because I'm in the process of writing a book on fiscal policy. And so, I, you know, I can't say I promise that won't happen but it's a useful lesson. But Ned is a classic example of a scholar doing interesting work on important and terrible issues. He's also a great example when emphasizing policy researcher. He's a great example, to me, of someone who has the mind to do first-rate academic work but--and choses to do that work in the policy arena. There's a lot of work in the world that is brilliantly conceived and utterly useless in terms of thinking about the real world and Ned's work does not fall on that latter category. On top of that, he was a truly kind and generous person. I probably did not know him as well as most people here but I found him utterly gracious, entirely willing to take time to talk to people like me about ideas, to solicit ideas, to respond to feedbacks. And one of the joys of the profession was working--is working with people like him. So, let me--having said all that, I hope I haven't set the bar too high for my own talk but I hope that the talk falls, sort of, falls in the tradition of issues and substance that Ned would think was a useful contribution. So, I want to tell you about three things as Marina noted. And the first is to highlight the relationship between inequality and the fiscal problem. And I'll say more of that in the second--in a second. The second is to highlight the relationship between inequality and promoting saving and tax reform. There's--I think there's a lot of confusion about this in the literature or in the policy world. And I think there's a very simple way to clarify and cut through the issues. And the third is to talk about role--the role of distribution effects in inequality, in the analysis of particular taxes, like carbon taxes or the VAT. And the points are going to be remarkably simple. And so, if you think that you're missing something, that I'm really saying something deeper, I promise you I'm not. I'm making very simple points here. All right. So, let's start with two facts. When we're talking about the long term fiscal problem, the reason it's a concern is that chronic death is thought to drag down the economy. That is if we could get the fiscal house in order, the reward would be stronger economic growth, a larger future economy, higher future standards of living, et cetera. That's--If that weren't the case, we probably wouldn't care at all about fiscal policy. So, that's point one. Point two is if you look over the last 20 years, the distribution of growth has gone mainly to the high end of the income distribution. I put up two separate numbers here, two sets of numbers, one from Piketty and Saez and one from CBO's estimates on market income. Sheldon had some stuff as census money income which would be CBO market income is a more general number that includes things like health insurance that money income doesn't. And so, Piketty and Saez and CBO agree on the distribution of income 20 years ago in the early 1990s. They get somewhat different--a quite different estimates for the share of income growth over this--over the subsequent 17 years, Piketty and Saez have almost all they're going--or all, they're going to the top 10 percent, 60 percent, going to the top one percent. CBO has 31 percent going to the top one percent, 28 to the next nine and 42 to the bottom 90. What's interesting, and what I want to highlight in both of those is that the distribution of income that--sorry, the share of income growth over that period has been disproportionately weighted towards the high end. There are issues with both sets of numbers and I--we can talk about them if you want but I think, as a stylized fact, we accept the fact that growth has been disproportionately weighted for the high end people. We'll combine that with the first point. And if the main benefits of solving the fiscal problem or stronger economy and the main benefits of stronger economy go to high income households, OK, at the risk of oversimplifying, then the benefits of fiscal solutions would accrue mainly to higher income households, OK? And that has a number of implications. First, let me be clear here. The goal is not to downplay the importance of fiscal problem. I just read a paper called--which I'm reminded about "forgotten but not gone" about the fiscal problem. Nor it's to argue that the bottom 90 percent of the population shouldn't care about the fiscal solution, although you can see why they might not care if they're not going to benefit from the growth that that would occur. Rather, it's to emphasize that if these two facts persist, it has big implications for what the right, what the fair, what the just fiscal solution is. That is how much you place on low income, how much you place on below income, how much you place on high income because there's two aspects of it. One, there's bearing of the burden of the lost in government spending or the increase in taxes that somebody has to pay. And then there's general--there's obtaining the benefits of a stronger economy. So, if most of the benefits or those benefits are going disproportionately to high income households, then that suggests that a solution should be weighted more toward high income households than otherwise would be. And this last point is too technical and I will--I'll just skip it. I want to--I'll--I'd rather stay consistent with the fact that I'm saying simple points than add a complicated point. OK. So that's point one. Point two is tax reform. Everybody wants to either preserve distribution mortality in tax reform on hand or be progressive on the one hand, and everybody wants to encourage saving on the other hand. There's no tax reform that people advocate as anti-saving. OK? But pro-saving and progressive tax reform turn out not--I won't say they're impossible but they are very difficult if you're trying to do adjust in the income tax. And that's a function of the current distribution of income and the current distribution income tax liabilities. But let me talk to you through this. So, let's go to three prominent recent tax reform proposals, Bowles-Simpson, Romney and Representative Camp. In a lot of ways, they look the same but it turns out that their distribution effects differ and their distribution effects differ because they treat saving differently. And that's the key. So, if you look at the three proposals 39:57, this like a sesame street thing and, you know, these ways are similar and this way is quite different. They have basically the same top rate. Although Camp's, sort of, tax is a little higher. They all repeal the alternative minimum tax. They all do something to itemize deductions, basically cap them or restrict them. The top corporate rate is either 25 or 28. They all move to a territorial system and they're all basically revenue neutral. Bowles-Simpson actually raises more revenue than current policy would, but Camp was current policy and Romney was very explicit. He wants to raise the same amount of revenue as current policy. So, what are the differences? The differences are on two things, the distribution effects and the treatment of saving. Bowles-Simpson was actually progressive relative to existing system. Camp is neutral with an asterisk that's because there's some budget gimmicks. It's distributionally neutral rate, first 10 years after that, it looks like it's regressive. But, you know, this is Washington and let's keep a sense of humor about it. And roughly speaking, roughly speaking if I'm going to call it distributionally neutral. Romney's plan, I estimated with a couple of other people, would be regressive. That it was--That is it would have to raise taxes on the middle class if it did everything else that it want it to do. And so, the question that's come up every year is, "Well, how did Camp do it? How did he come up with the distributionally revenue neutral? Distribution gets a revenue neutral reform that looks a lot like Romney's. How come his is distributionally neutral and Romney's is regressive?" And the answer is the treatment of saving and there's number of ways here. Romney "wanted to promote" saving which we interpreted as not increase the taxation of saving and Camp instead raises the taxation of saving massively. So, Romney would repeal the state tax. Camp would retain it. Romney would keep [inaudible] gains of 15. Camp would raise it to 25. Romney would repeal the high income surtaxes associated with the healthcare reform act. Camp would retain them. Romney would not restrict 401K contributions or mini bond income, Camp would in the surtax which is sort of a pseudo AMT. Everything that Camp does, Bowles-Simpson does even more and Bowles-Simpson would even touch unrealized cap against death--which is actually a big money item and these differences in the plans would generate the differences in distributional considerations. And the reason that's a problem is that, we want a tax reform to be pro-saving, generally, people want it to be distributionally neutral and it turns out that that's a very hard combination to come up with. Currently, given the existing distributionally neutral relative to the current system which remember is more progressive than it was in the Clinton era because we kept the voice tax cuts for low income people but not the top rates, and the income distribution has become more skewed. So, it's just--it's much harder to do tax reform now because of the changed in progressivity of the system and the changed in distribution of income. So, some things got to give in tax reform proposals. All right. The last point is just about specific taxes. I personally I'm a huge fan of the carbon tax. Every time a report comes out, I remember talking about which part of Antarctica is about to fall or the--which part of the ice on Antarctica is about to fall into the water. I remind myself that. I think there's also a fairly strong case for a VAT, it's more new ones then it depends on other factors. But I want to make--I want to link these things to inequality in the few minutes I have left. The standard objection to both of these is that they're regressive. Larry Summers has famous a quote about the VAT. The carbon tax is also regressive. My point is that it's a totally valid point. It should not get in the way of implementing these taxes even if you care about distribution and regressivity. And there's two reasons. One is there are way to decide offsets to these taxes. We should basically first figure out what the best tax is and then if we want to offset those effects that's fine. And second is what we care about is the distribution or regressivity of the entire system not on particular components of it. And they're happened to be particular components that are good for other reasons. We should do them and then deal with the systemic effects as part of the overall system. So, this is widely from the paper for my colleague at Del Moors [assumed spelling]. It basically indicates the regressivity of a carbon tax by income decile. I think the vertical axis is carbon taxes as a sure of income so more is worse than low income households are worse. This is from my paper by [inaudible] and others, the Tax Policy Center on the value added tax. The bluish gray lines show the distribution of a straight broad-based value added tax. And remarkably, it's not regressive. That's because of some issues in the way they define income, which we can talk about. But it's a double proportional. But then the--what do you call those? The coral-colored lines showed the effects of adding a refundable credit to the VAT which essentially gives people back the VAT on the first like $10,000 or $15,000 of their income. And you can see that's a progressive tax shift, those two in combination. And so, we shouldn't be scared of the distributional effects of what we might otherwise think of as good taxes for reasons relating to efficiency and saving, and administration, and environment and stuff like that. So, let me just conclude, I think you're very much in the vein of things that Ned talked about and cared about, and things that I learned about from him. Inequality is increased that makes policy formulations more difficult politically. This emphasis on distribution neutrality, revenue neutrality as all status quo based. And because the underlying baseline has changed, the policy choices, defined in terms of distribution neutrality, had become more difficult. Second, we want to take that into account in terms of generating solutions added, both fair and politically workable. It--Nothing is going to stay in place if it's not broadly conceived to be fair and, you know consistent with broad-based public goals. I just completed writing a chapter for this fore mentioned book on fiscal history in the U.S. And one of the really interesting things to think about is which parts of the system stick and which parts of the system don't. And it turns out that a lot of the things that people really want to change, like getting rid of the income tax, getting rid of tax expenditures, massively forming social security and medicare, those are things that have been with us for very, very long times. And the things that don't tend to last long are low tax rates or broad-based. So, we need to take account of inequality if, for no other reason then, people's notions of what's fair and what's politically viable depends dramatically on the current distribution of resources. So, we should--the last point, we should take an account but we shouldn't be afraid of it. There are ways of dealing with this stuff that should not constrain us to, you know, nth best policy. Maybe we can move up to N minus one best policy. Anyway, thank you very much.

[ Applause ]

>> Thank you Bill and you actually did cover them all in the allotted 15 minutes. Our final speaker in this session is Gene Steuerle now of the Urban Institute, but, who has had a distinguished and varied career both in the government and in the non-profit sector. And he is going to talk, I believe, about some thoughts in a book he has just published called "Dead Men Ruling" which, I guess, is a kind of paraphrase of John Maynard Keynes famous remark about the hand of some scrivener of the past. In other words, the fact that, despite the fact that we are a very rich country, legislators of the past from both parties, have so tied our budgetary hands with permanent entitlements that there is zero leeway for new discretionary spending. Does that pretty much sum it up?

>> Thank you Marina. And it's an honor to be on the panel with you and Sheldon and Bill, three people whom I very much admire. And of course, we're all here because we all specially admire Ned Gramlich. And I was thinking of him today as I came to the conference because I actually wandered off, slip away to make a last minute adjustment to a slide. And I was walking down 21st street, and those of you who live in Washington, know that Ned often walk from his home on Connecticut Avenue, and actually would often come back 21st street and walk right down here, spend a two mile walk mile to work, and I was just like keep thinking of them as I came down here. We also had a chance to work together over time. At the time of his death, he was actually working at both Michigan and the Urban Institute putting out books on the subprime mortgage before the actual full impact of the great recession had hit. And earlier, we had written a book together called "The Government We Deserve" with two other co-authors which actually dealt with some of the same issues today. Can the income distribution and physical policy, and so on. In fact, I still use that title, "The Government We Deserve" for a column I do today. So it's an honor to--as I said to be here with everyone else to honor him. I should mention also, just as a matter of housekeeping. We did a film, a tribute to Ned Gramlich. Several people in the room here actually contributed to that film. Maybe if you raise your hand. I see a bunch of them here. And that film is now available online. There were just a couple of things in there that was slightly sensitive. I would--what is given as permission, we just made it available. And maybe Susan, Paul, we could send an e-mail to everybody. With that film or we can maybe list it outside at the table to so--if you want to look at it. There are some great tributes to him, not just the people as a [inaudible] but people like Ben Bernanke and Alan Greenspan. So, what do I want to do in my brief period of time here? I basically want to convince you of two things. So this slide says I've got four but the two things are that we live at time of extraordinary possibility. So, I don't think this would be a surprise to anybody in this room. You know, if you take any projection from the Federal Reserve or from congressional budget officer list, and you project out a number years, we project economic growth that might be economic growth at a rate we're not happy with. It might be lower than we've had historically but it doesn't mean we're still not the richest--richer than we've ever been in past, then we're going to get richer in the future. And a large amount of what I wrote about this book, "Dead Men Ruling" is nothing more. It just recaptures the ability to allocate that growth in ways that we think is useful. And that we have extraordinary possibilities before us. And when we talked about this being an age of austerity it's just wrong. We--yes, we have constraints, but they are largely self-imposed upon us. They are straightjacket we wrap around ourselves. And to make it even more complicated, in many cases, I've got most--they're a straightjacket we tie around ourselves because of good things happening to use. We live longer. We're getting better health care. I have this dream that, sometimes, that I'm sitting in the ways and means committee room, and someone from the National Institute of Health comes in and shouts "Eureka, we found this cure." Though expensive for cancer and win the audience who's sitting back, you know, just feeling pretty good about, you know, the possibility of our longer lives with those of our relatives. And I look behind the podium and the members of Congress are sweating and wiping their brows. "Oh my gosh, what's this going to do to the so social security and Medicare trust funds?" The deficits are going to be even worse. And that's really, really what's going on in our fiscal situation. I do want to make a one very strong point which is a little more academic. I think diagnosing this problem instead of a deficit is incorrect. The deficit is a symptom of this larger problem. The larger problem is basically the extent to which over decades just built up over decades, we have attempted to control the future in ways that's just not possible, a future that cannot possibly be known fully, certainly, has uncertainties. This attempt to control that future is what's really boxing us in. And when you define it, don't loose deficit. You're looking only at one. One symptom has implications, not just for the way we conduct fiscal policy. So we did go on to distinguish between these people in this room know between short term and long term policy. But it has implications the way we do our econometric and fiscal studies as well. So as one proof, I've got audiences for a number years on this topic, and I kept trying to prove that the world today is different in the past. Because the world deficit is well, we always have probably good legislators and executives, and aren't they just being profited again. Is that the problem? The difference between that world where you're profligate year after year in the current world, is that, if you want to call it profligacy is built in. And that's unique in all of our histories. So this little graph is nothing more than the extent to which our revenues are taken up by what we call mandatory programs or commitments from the past. It's already in the law, that doesn't require any new appropriation by the Congress. So basically, this is the percent of revenues that are left after you take a new account is mandatory. Sometimes called entitlement programs and interest on the debt. And as you can see, for the first in US history, in 2009, every dollar of revenue had been committed before Congress even walked in the door. Now this has--as I discussed in this book has enormous economic and political implications. But among the political implications are to do anything with appropriations congresses has to raise the deficit. To do anything new, they've got to either raise the deficit or renege. And this is a crucial renege on a past promise to the public. So say, the disease as before us, is that, basically, these attempts to control the future set in motion a whole series of economic and political problems. Only one of which is the level of--say some current deficit. And I should say that that attempt to control the future, and I go through a long history in the book, comes above both because of the automatic growth particularly in health and retirement programs. But there's also automatic growth on many of the tax expenditures that Bill talked about. Such as the home mortgage interest deduction. Most of us live in housing that's 50 percent, say larger than, let's say our parents lived in and we automatically got 50 percent higher tax rates. So, it extents throughout the taxes that we automatically--basically had this growing. And of course, we also have--and I go through this long history, the republicans basically came in around the--about the--around the late '70s or '80s and argued for what Jude Wanniski, a Wall Street Journal editorial writer wrote called "The Two Santa Theory". He's--What he was talking about was this, is that, we democrat--we republicans have never won the House of Representatives in 40 years or we hadn't been win it. I think there was--I think it was 57 or 61 years they didn't have it. The presidency from Franklin Roosevelt to 1968 was held by democrats except for a short 10-year with Dwight Eisenhower. And they weren't sure they wanted to count him as a republican. And he said, "You know, that's because they got to be Santa Claus. They got up to operate on the giveaways, set on the budget, we were always screwed. We need to be Santa Claus, too. We need to have tax cuts we don't pay for. " And so, as we move to the modern era, we actually got the two Santas. We had both spending increases that we didn't finance, tax cuts we didn't finance. And that automatic growth and spending on one side and tax cuts we didn't pay for on the other side basically created this--together created this situation. As they say, this led to four economic problems. One of which everybody in this room knows, the threat of an unsustainable debt. I'm not even going to discuss it because I think it's well understood. What's a little less understood by the public, but well understood by this audience is that we have decreased flexibility to respond to new emergencies that new emergency might be another recession. Look what's going on Europe. They didn't have the fiscal flexibility to handle their back to back recession. You might argue, they had more flexibility than they thought they had. But at some level, they reduced flexibility whether you think that's a political constraint or an economic constraint. It's still playing through. We have less flexibility to respond to some new need like autism or Alzheimer's disease, you know. Why do elderly programs--if Alzheimer's is a growing problem, why do we keep devoting more and more of the benefits earlier and earlier in our lifetimes relative to expected death, right? The fact we don't adjust for retirement age means a larger, larger percentage of benefits go to us when were younger and yet we got this problem coming out when we're older. I'd like to argue, we have a budget for a declining nation. One example I give, here's the growth in social security Medicare defense, I've assumed some cut back and interest on the debt. And you can see that anything else basically has to be paid for out of deficits. And that's crimping basically on those programs we might think of. And as a debate on how you organize them and design, but that we might think of as an investment program. Certainly, we've really had a huge impact on children, we've done a study now for six, seven years at the Urban Institute which we call Kids' Share. We examine the percent of the budget that's going to children. And basically, as you move forward towards the future, nothing of economic growth is going to children. So, this budget is if you want to upside down, it's more and more is financing consumption, and less and less is financing investment. And this doesn't even have to do with the tax issues that Bill talked about them, which add to them. Because our design of pension policy which by the way doesn't subsidize savings, it subsidizes deposits which one of the reasons it doesn't work. So, you have a budget ever more financing consumption, which discourages work particularly among those approaching older ages producing if you want to for the economy, a negative rate of return. And things we might think might produce a positive rate of return, infrastructure, investments, children education is going into a tailspin, which I call budget for a declining nation. And I don't think by the way is built in to any of the econometric models. They don't really deal with that impact on growth. In the three political problems, I started--I already mentioned one of them. Basically, we've put politicians to a position were to do anything new, they've got to renege on a past promise. So, think about the last presidential debate when President Obama and Governor Romney were debating Medicare. So, Governor Romney accuses President Obama of cutting back on Medicare for the elderly, which he did partly, because that's partly how he paid far through a little more price controls. That's how he paid for more healthcare for the nonelderly. So, he did cut back on Medicare for the elderly a little bit because it's unsustainable. Governor Romney in turn, proposed the voucher system which would have cut back if you want to on Medicare for the elderly. And the president accused him of cutting back. And so they--as soon as either one said I'm going renege on some unsustainable promise, the other immediately attack them for what they do. And politics plays on, if you want to, identifying winners, it's not a good position to be in to identify losers. And actually, at least to a classic prisoner's dilemma, which I think the politicians really are in if they lead, they lose. The democrats felt that '93, they did deficit reductions. They exaggerate what they did by themselves. But they did some of this. They lost the Congress for the first time. They feel like they financed George W. Bush's tax cuts in 2000. The Republicans in turn leave when they were--fiscal hoax back in the '50s and '60s, they never won elections. I think there's truth to it. Their's--it is a prisoner's dilemma. And as you know for a prisoner's dilemma, you got to figure some way of getting the parties to cooperate upfront to be able to solve it. So, here's just a tiny little bit more proof that the world is different today than the past. Here is the traditional budget scenario that we had for over 200 years of our history. By the way, the same thing plays out in all the developed nations of the world. So you're running a deficit in the current period, right? But what's happening to revenues? They rise with the economy. I don't care if you have a terror for an income tax. Revenues rise with the economy. Over a period of 20 or 30 years, you probably have twice as money revenues. Period of an eight year presidency, you probably have 30 percent more revenues by the time the president is in his eighth year than the first year. And what happens to spending under current law, not where spending will be in future. This is what current law requires with discretionary spending with the clan. The post office was built, the highway was built. Yes, you probably maintain it, so it's--doesn't decline this for a zero, but discretionary spending under current law declines. And so, what do you have in the future? Well, you have these massive surpluses coming. And those of us who were all--little bit older in the room, remember, we used to pick up our textbooks and read about fiscal drag and how we had to solve fiscal drag. So the politicians, their job is to deal with this fiscal drag and give away money. They've got to have tax cuts or spending increases to offset what current law would do by itself. Then move forward to sort of the current scenario where spending is not only built in and automatic, but mainly in the health and retirement programs, for reasons I'm not going to go into here, it's actually scheduled to go ever faster than the economy. Wage indexing, health is the superior good. There's all sorts of reasons why we grow faster than the economy. So, spending is scheduled to grow faster in the economy. Now, you're in this situation where if all you do is short run deficit reduction, you never solve the problems. So, whether it's domestic agreement in '93, this list try to get deficits to 3 percent GDP or even what we succeeded in doing in the '90s in United States. You never get out of the soup if you don't deal with this fundamental issue. You can't promise so much in the future that you're trying to solve the problem. If you want to, deficit reductions is sort of like you--it's like we've got this house and the doors and the windows are wide open in the front and the vermins and the creatures are coming and--through deficit reduction, we're going set traps and try to shove them out the back door. But we never shut the front door. So, they keep coming in. And that's exactly, that's exactly what we do. We're trying to solve this problem with the short run deficit reduction agreement, after deficit reduction agreement, you've got to get at this extent to which we try to control the future. I've got some slides here I'm not going to go through. You don't sell the problems economic growth either. Economic growth does raise revenues. But it turns out these programs are also scheduled to grow faster when the economy grows faster. In terms of macro-economy, it's actually what you think about what our fiscal history say. So there's this--It's a little more of the popular history. But this--Both the change and the supply setters keep looking back to periods like the '60s. They talk about how these tax--that's actually virtually paid for themselves. They both made the argument for different reasons. One was demand side, one with supply side. If you think about it, if they were wrong, it didn't matter because given my earlier slides, if they were wrong, we went back into balance in four years. If they were right, we went back into balance in three years. That's a very different world than if you're running a macro study, and you say, "Well, I can project from the past with some tax cut did to what some tax cut is going to do in the future because you've got to build into that model with these automatic programs and these automatics programs they're doing. So just to give you an idea of extent to which commitments from the past are dominating us, this is sort of projection taking subsidy in another figures on what current law requires. But 10 years from now, we'll have another trillion dollars of revenues to spend. That's not by the way an issue of austerity. You know, another trillion dollars is basically about--this just the Federal spending by the way. This doesn't include tax subsidies which also grow. It does include state and local spending. It's about $8,000 a household or something like that. Then we'll have more in about 10 years to spend but guess what we've already said how to spend it. We're going to have, you know, 500 billion more in healthcare, about 400 billion more in social security, another 500 billion in that interest on the debt. So, we already have sort of overspent it. And again, squeezing everything else including those things we might think of as an investment in the future. So, I've got a bunch of other issues here with respect to just how this plays out. For instance, this commitment--back to this question whether we're promoting investment or promoting consumption, those commitment to ever more money for elderly programs, we often look at it on the spending side. But if you look at congressional budget office or our fed reserve or anybody else's on the projections on what's happened labor force, we're also doing it in a way we're adding to this pressure--downward pressure on the labor force which also affects GDP, personal income, income tax collections. The biggest effect of the early retirement age in a study we did by the way, wasn't on social security, it was on income tax collections. If you're worried about what it does to the federal policy. Here's just a little connection with the discussion on income distribution. And this is partly federal led. It is not entirely our led. Because if you look at income growth for 20 year period from 1990 to 2010, and you asked what happened after income, 33 percent of all income growth basically went in the form of healthcare. So, when we do a lot of these distributional studies, we don't take into account the extent to which that healthcare is added or not added into the measure of the income of individual. That's 33 percent on average for low and moderate income workers, it's probably even more. It's probably over 50 percent of their income growth comes in the form of health benefits we provide. I'm going to go on and try to end here on a positive note. So, this is again--I know this, kind of, often sense where we go actually it is a negative lesson. But basically, I didn't want to convince you, this is a straightjacket we tie around ourselves. So here's just some numbers projected in the future. Let's hope that they come true. These are basic led, so you can see the old projections. About 10 years from now, they say that basically, GDP will probably grow by about $27,000 per household. These are numbers per household not for the county as a whole. Direct spending would grow by about $90,000 mainly because of discretionary spending growing quite substantially. Tax and expenditures would grow by another 3,000. So whether you're cutting growth in GDP or growth in the spending that we are going to do, or can do, and by the way, that's true whether you're under Republican agenda or a Democratic agenda, economic growth is probably going to make possible, in much higher level spending. So, the real question, just the real question before us, is how do we again regain control of our future? How do we allocate these moneys? I'm not talking about cutting back on what we do now but how do we allocate--reallocate that growth so that we can put it more towards what we hope would be more of an investment agenda. And in my view, we should start making--thinking about things like making the 21st century a century for children, the same way we made the 20th century a century for improving programs for elderly. I think it's entirely possible if we set our minds to do it. You know Antoine de Exupery who wrote something called "The Little Prince" once said that our jobs is not to control the future but to enable it. And I think that's the task we have at hand. Thank you.

[ Applause ]

>> Thank you very much Gene and thank you particularly for ending on this optimistic note. I can't help taking away thereon business schools hours asking about what is the take away. For among three of you, despite the fact that two of you I think might deny it, that in a way, you all do share Ned's optimism in the following sense. And I will simply give you two quotes. One is from Shakespeare's Julius Caesar, "The fault, dear Brutus, is not in our stars but in ourselves." And the other one coming from--was it Pogo? "We have met the enemy and he is us." So--And it seems to me, you know, if tis us, by golly, we have to be able to fix it. Before we go unto questions from the audience, let me ask the speakers if there's anything, any or all of them would like say in response to their fellow speakers.

>> OK. I'm even more depressed than when I started because Bill if there's general agreement that tax reforms should be distributionally neutral and we're at this all time high end income and wealth inequality and the same thing with your point. I mean I don't see how you get any change in growth in income for the bottom 40 percent unless you have progressive taxation. So obviously, I would think and I'm not going to go to the Piketty and Saez, 70 percent marginal tax rates but another 10 percent on the top tax rate. Now, I don't see how you reduce poverty in an inequality unless you do that.

>> Anybody else.

>> I was going to make a totally different point which is the reason I put up the CBO market income relative to Piketty and Saez was that CBO market income includes health insurance. I realized I forgot to mention that one. Gene emphasized how important health insurance is but the main difference between Piketty and Saez and CBO is that, CBO in their market income measure adds in a variety of non-cash forms of compensation and the most prominent one of which is healthcare but also retirement contributions and stuff like that.

>> But there's also increasing inequality, I think, in death rates. Jim House at Michigan has a book coming out on that. So, I think when you attribute the average spending, they're not doing distributional analysis in that. So, I guess, health insurance has increased dramatically but I think inequality and access to health insurance or the benefits of the increase spending has also become more unequal over this period.

>> So, Gene, I'm not opposed to you Gene. And my problem is it's [inaudible] which generally is only applied to one or two percent of the population doesn't really give us all that much money there to solve some of these fundamental problems at the bottom. And I've suggested that another direction--and you've written on this as well but another direction that we really need to go is trying to think about how we refocus our social welfare programs. So the very fact that they're so oriented towards consumption these days means that they do--we can argue about how large it is, but they do have a negative impact upon work and they have a negative impact on market incomes. That's particular true for the elderly and near elderly. So, people now today retire for about 11 years more than they did in 1940 when the program was first created. That's about, I think, it's about seven years of--six, seven years of living longer about in about three or four years of retiring earlier even the nominal age. Those six or seven extra years of living longer by the way, mainly benefit you in this so--for couples, you know, we might be getting say 50,000 of Social Security benefits here. We're getting $300,000 of extra Social Security benefits here. And the argument is, "Well, we need to do that because we care about the guy who might die at 62 or 63, where we give him 20,000." So, we totally, reallocate--allocate the money and spend huge amounts in ways that encourage us to retire early. And actually, among low income people, discouraged work affect the income distribution and the other is getting worse because the higher income are now working longer and lower income aren't. And so, by the time they're 70, what might be a two to one ratio becomes a four to one ratio. So, to me--and you, again I say, you've heard about it. This is moving that social welfare agenda. Not because I'm opposed to the consumption agenda, I don't think it didn't succeed in doing tremendous things and reducing poverty. We can argue about how well allocated it is. But I think rolling it back towards an investment agenda, back towards education things like training which you've talked a lot about, you know, apprenticeships, on and on. If we start taking some of that growth and allocating it there, to me, that is crucial and maybe provides even more money than even just say taxing the rich to try to do some of the same things you want to do.

>> Let me ask one question and then we'll start in. And that is one of the things that has come out of these discussions is that the ideological differences between stylized Democrats and stylized Republicans is not absolutely crucial to what happens. Therefore, leaving aside this--the current ideological standoff, how would you reach into this [inaudible] and not and which string would you pull first to try to move things back to a better world which all of you say we are capable of doing? I mean capable in the sense of our resources broadly construed.

>> Well, I'm reminded of Ned's Social Security Task Force where Ned proposed a reasonable series of small benefit cuts and small tax increases to be implemented over a long period of time and as I recall, there were five votes for--five votes on the left that were against it because it was going to cut benefits and five votes against it because it was going to raise taxes and Ned, and maybe he got one other vote but I think that was the early indication of what went wrong. The Greenspan Commission on Social Security was an '83 and I think, Ned came along a dozen years later and thought, "OK. We can do the same thing." And that I think is the early indicator of what went wrong. I think for Green's issues presumably, I haven't gone back and looked at it but I suspect if we go back to that Social Security reform, you would say, "OK. That would help with this unsustainable increase in spending on the elderly that, you know--You know, Ned talked about all these issues all the time.

>> If either of you has a response, quick, because we need to give the audience some time.

>> Yeah. I want to say I agree. I mean, I can get to the slides but, in this perkily in line of what [inaudible] was saying I'm--the compromise that I talked about is in it's hard politically but economically, the extent is the Democrats, they need to give up the automatic wealth into spending, doesn't mean you don't have the growth but you need to decide it on a level of playing field so education can compete with health in retirement. That the Republicans need to give up an automatic wealth and tax, subsidies, and they have to agree to pay our bills as go along. To having a tax that you don't pay for is just shifting your tax to future generations. And that type of compromise, it seems to me, gives us the flexibility to do a lot of the things that I think all of us at this table would like to do.

>> I'll just have one quick thing. I don't think we can get where we need to go without added revenues and that's why I talked about the carbon tax of that. I don't think we're going to get that much more revenue out of the income or the corporate tax. But--I mean, I'm not saying just tax the hell out of everything and then, we can spend all money we want. I am saying that a solution under current revenue restrictions, it's going to be very difficult to achieve. Basically, Gene has presented a very eloquent case for why we should mess if we cut Social Security Medicare benefits and that's just not going to happen and so, the idea is ,to me, is generating revenues in a way that is a fair and efficient and then, using it to fund government spending that is fair and efficient.

>> There was a question I know in the back.

>> Right. [Inaudible]. So, I'm not an economist, Vina Trahan [assumed spelling]. I'm not an economist. I'm a policy writer and activist. So, I wanted to say a few different things. First of all, you know, there's a Oxfam study that said, I think, it was 85 people that is--as many people as would fit on a double-decker bus essentially had as much wealth as three and a half billion people on this planet. And so, I think, for a lot us when we look at things like Walmarts, the six areas of Walmart have, basically, as much money as the GDP of Bangladesh or 42 percent of the country. It's very difficult morally to see a case where we don't have highly progressive taxation on income and wealth, and obviously, what's happening in terms of hedge funds and private equity is just, I think purely morally and defensible.

>> Excuse me but is there a question in there?

>> Yes. OK. Thank you very much. So, that's one question and this is non economic question. This is a question dealing with the morality but to be really honest, I think, that needs to be part of it. Number two, and you can defer this if you like but my number two question was is it part of what we should consider the whole sort of discussion of reparations in the sense that there is institutionalized predatory practices occurring against people. So, even if we give the poor more money, you know, if that's taken away from them in terms of foreclosures, in terms of so many other things, it doesn't matter. And then, my final point would be--what's my final point?

>> If you don't mind, I'm going to go on while you think about it.

>> Yeah. Actually, I kind of do mind and I just do want to say one more thing and--

>> If it's a question.

>> Yes. Exactly. It is a question. I recently gave a talk on the garment industry but my third point would be, I think for many of us, the lack of transparency in the current globalized system is a problem. So, for example, when my daughter buys a t-shirt, she's often buying a t-shirt made from essentially cotton that was produced under slave labor. So, if we do not have true visibility into how things are produced and what the external costs are, in terms of carbon cost et cetera, can we truly reform the system or what's the rule for that?

>> I'm going to--Since we are very short of time. I'm going to ask if there are other questions and then, ask our speakers to respond to--collectively to whatever they're asked.

>> Hi. I'm Vick Miller, working economist, now retired. The question is you've talking about the changes in income and wealth distribution to the country overtime in terms of revenues and expenditures of government, how much of that is also should we discuss in terms of monetary policy, banking policy, the changes and wealth that have accrued in the stock market and such that have very little, to some extent, suffered, relatively, a little to do with the government expenditures and revenues you're talking about.

>> I find it hard to see so--OK. If there are no more questions, unless I've missed somebody's hand somewhere, and why don't we go in the same order that people spoke? Sheldon?

>> Well, to be brief. Certainly, the issue about private equity carried interest is certainly something that I think nobody on this panel would say should be anything other than tax at ordinary income. I don't know how much revenue that raises but I think both of the points were made. There've been lots of changes in labor market regulations, banking regulations, tax policies, et cetera, I think that have all contributed to rising income and wealth inequality after taxes and transfers.

>> OK. I want to focus on the morality question and thank you for raising the issue. I share what I gathered on your concerns about the distribution of income, the poverty of a large chunk of the world's population but there's a difference between sharing that concern and being convinced that, you know, high opinion of tax rates are the right answer. I mean ask yourself, "Would all this people be better off if Walmart had never existed?" And I think the answer is no. I think Walmart makes a heck of a lot of money because it provides a heck of a lot of valuable services to a heck of a lot of people. And if we feel--If there's some way in which they abuse the system or committed criminal acts or, you know, did something that was not, you know, legally appropriate then sure, they should be penalized for it but I don't get--I have never understood in the absence of something like, the notion of blaming the failure of some or the lack of progress that some, you know, filthy experience on the success of others. And--So that's one point, the morality point. The other is just to share efficacy of really high tax rates. I mean Piketty and Saez almost as an afterthought or a logical implication of what he is saying it seems propose a global wealth tax. I don't get the sense that his heart is really in that and I don't know any economists or anyone who's thought of seriously about how a global wealth tax would work who's heart is really in a global wealth tax. And so even if we want to shift the distribution of burdens in a more progressive manner which I would not be opposed to, we got to think real carefully about what actually works. And I don't think, especially in today's society where money can be moved around so easily, that it's so obvious that we should just go straight to the, you know, '70 percent rate. That is sometimes talked about. I think I've--Even if we share the goal that you're discussing and even if we think that distributions should be shifted, there's a real question about how you actually do that and it's not obvious.

>> Gene, the final word.

>> So I have testified on increasing taxes on private equity owners and I'm very much in favor of that. I've also, in times, you know, favored higher tax rates. Again, I just want to point just taxing the superrich or the high rate just doesn't necessary raise up much revenues. Most revenues of the government are paid for by the middle class and most of the benefits were received by the middle class. And if we can't address that issue, you know, if the [inaudible] will only attack the really wealthy and the right really tax welfare recipients, you just never going to get at these problems. And on the wealth issue, I'm going to try to tie this together to the--There's a couple of other things we actually have to worry about. It's not just the question of what's happening to the wealthy. We really want to change policies and there--and I don't know the answer here but I think we need a modern form of any trust policy too. That it's not just the question of trying to tax our way out of what's going on in this broader economic problems but there's also the issue how we increase the wealth of the non-wealthy because there's two things going on. It's not just the wealthy are getting wealthier but even as we get richer as a society, the non-wealthy have--in many cases, are not been saving very much. They have very inadequate money in their retirement accounts. We've also done this thing related to this question part with monetary policy, but probably more regulatory policy. We've got in a number--We've got some younger generation and some extra people of color in this situation where we live, encourage them to buy housing when the market was bubbling up and then when the market was--fall quite rapidly, we sort of cut them out of the market. And now that the market's sort of a little bit back in the bubble, we, by the Federal Reserve numbers I looked at, wealth income ratios, now are saying, "Well, maybe we'll let you back in." So for the low income people, we got them in this buy high, sell low type of policy. So there are a lot of things I think we have to work on if we care about this income and wealth distributions and they go beyond just the question of taxing the wealthy and it would go to what we want to do with the--I think with monetary and regulatory policy and in the trust policy as well.

>> We should thank our speakers. And I'll leave to Paul and Dan to solve the problem of the fact that we have eaten up the break.

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>> So we will just eat into our lunch a little and push everything back, 10 minutes. Thanks.

[ Inaudible Discussion ]

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