Academic journal article Federal Reserve Bank of New York Economic Policy Review

Summary of Floor Discussion

Academic journal article Federal Reserve Bank of New York Economic Policy Review

Summary of Floor Discussion

Article excerpt

The third session's discussion focused on the policies that state and local governments in the metropolitan region could pursue to improve the region's outlook for the future. The participants also commented on some issues raised in the conference's previous sessions.

Glenn Hubbard opened the discussion by reacting to Dick Netzer's paper with the observation that, as a general matter, the recommendation to state and local government officials when considering tax policies is to "do no harm." Hubbard also characterized Netzer's paper as one that explored the relative efficiencies or effects of the various forms of tax. He noted that it was obvious from economic theory that taxes on intermediate inputs--such as those on utilities--should be closely examined as candidates for reduction.

Howard Chernick also reacted to Dick Netzer's paper, by querying him on the relative effects of different taxes on the economy, including shifts from firms to individuals, in Netzer's search for the most efficient tax cuts. Chernick wondered whether there were tax cuts that could be made without reducing the expected revenues from that tax. Netzer responded that in most cases the lowering of the tax would not be recouped by an increase in that particular tax revenue stream, except perhaps in the very long run. However, Netzer acknowledged that, as a practical matter, he was focusing on tax cuts that would involve relatively small net losses or tax cuts that were likely to be revenue-neutral.

Next, a conference participant commented on a statement in the Netzer paper that state and city effective tax rates are 20 percent above the national average measured as a percentage of regional product. The participant noted that, at the same time, the state does export federal tax dollars to the rest of the country in significant quantities each year. The participant wondered whether government officials, and the business community in the region, are giving enough attention to how national tax dollars are being allocated.

The discussion then turned to several issues raised in the earlier sessions at the conference. Glenn Hubbard noted the difficulty of distinguishing the contribution of national economic changes from that of regional economic movements. …

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