Of Janet Yellen to become Chairman of the Fed, if someone takes Casey Mulligan's advice;
...aging is not the only change affecting labor supply. Marginal tax rates have increased five percentage points since 2007 and will increase another five percentage points over the next 15 months, a trend attributed especially to expansions in health and other safety net programs. By 2015, a typical worker will keep only half of the value created by employment, compared with 60 percent kept before the recession.
Economists have traditionally recognized that a 17 percent reduction in the reward to working (from keeping 60 to keeping 50) would significantly contract the labor market, and do so at least as much as the 2 percent that the aging of the baby boom does. Yet this time many economists are reluctant to acknowledge marginal tax rate increases, even though marginal tax rates affect labor supply in many of the same ways that aging does.
Perhaps the economists who are silent about marginal tax rate hikes are worried that acknowledging the new rates would overshadow their well-intentioned origins: helping the poor, the unemployed and people without health insurance.
Professor Krugman, for example, says life is too short for him to look closely at my criticism and at the marginal tax rates I’ve measured, and doesn’t indicate that he’s looking at anyone else’s measures either. He’s not the only one: I have visited several Federal Reserve banks since 2009, and hardly any of the economists there seemed to be aware of what’s happening to marginal tax rates.
The Federal Reserve cannot reverse the tax rate increases any more than they can reverse the aging process. Perhaps Congress should ask Janet Yellen, nominated as chairwoman of the Federal Reserve, what she knows about changes in tax and retirement rates, and what they say about the future of the labor market.'Tis a consummation devoutly to be wished.
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