Friday, January 22, 2010

Feldstein assesses economic policies

It's hard not to agree uniformly with Martin Feldstein's views on Obama administration economic policies, but there's one thing I think he left out. An attractive element of the health insurance reform bill from an economist's perspective is or was the so-called excise tax on employer-paid plan contributions, a better description of which is a reduction or elimination of the tax preference for health insurance premia over wages. Unless we feel health insurance is under-utilized for those with employer-provider coverage, and I don't think we do, there's no reason to tilt the tax code toward premia and away from wages, as the current system is.

Feldstein also argues that permanent tax cuts are better than temporary tax cuts, and that incentives to replace aging equipment (investment goods) would have brought more bang for the buck. Even a lengthy temporary tax cut on capital goods would probably result in much stimulus. What is somewhat less clear is whether temporary tax cuts on wages or income have much impact on consumption spending.