In yesterday’s publish on Alan Blinder and inflation-induced bracket creep, I promised to inform this story.
On the American Financial Affiliation conferences in New York in December 1988, there was a session on financial coverage and the financial system. Quite a lot of main economists introduced, however the two I keep in mind clearly, as a result of I requested them each questions, had been Alice Rivlin and Joe Pechman. I’ve typically referred to Alice as “my favourite liberal economist” as a result of she had a no-nonsense, clear-eyed view of issues (though I believe she by no means gave supply-side cuts in marginal tax charges their due.) However that was after I began following her work throughout the Clinton administration, when she was deputy director after which director of the Workplace of Administration and Price range.
In her discuss on the AEA conferences, Alice famous that there simply hadn’t been almost as a lot controversy about elevating taxes to stop main federal price range deficits within the late Seventies, when she was director of the Congressional Price range Workplace, as there had been from the mid-Eighties to the 12 months we had been in, 1988. She said it as if it had been a puzzle. To me, it wasn’t a puzzle in any respect. So I stood up and requested the next (in fact I’m going from reminiscence right here):
You said that there wasn’t almost the controversy about elevating taxes to scale back the deficit within the late Seventies as there’s now, however isn’t there an apparent reply? Inflation within the final half of the Seventies averaged excessive single digits and the federal earnings tax brackets weren’t listed for inflation. So inflation plus non-indexing assured that federal authorities revenues grew considerably yearly, even with out express legislated tax will increase.
She answered, “Nicely, there’s that.”
After I had an opportunity to speak about this in my class when it was related to our dialogue of bracket creep, I quoted her “Nicely, there’s that.”
Joke: The subsequent day after I quoted her in school, a pointy pupil caught me out on some vital causal issue that I had overlooked of one other dialogue unrelated to bracket creep. I hesitated, thought via it, after which admitted his level. One other pupil piped up, “Nicely, there’s that.” All of us acquired a great giggle.