Think Tank Preps For Tax Showdown

Martha Gimbel’s new New Haven-based think tank is preparing to help the country figure out a crucial question next year once the smoke clears from this year’s federal election campaigns.

That question: What to do about the 2017 income tax cuts that expire in 2025?

Should Congress renew the cuts contained in the 2017 Tax Cuts and Jobs Act (TCJA)? Should it amend them to cover just the wealthiest taxpayers? Or should it let all the cuts expire?

That decision could impact the American economy for not just the next 10 years but decades into the future.

It’s just the kind of complex economic debate that Gimbel’s 16-person think tank, which opened its doors in April, was founded to support.

Called The Budget Lab at Yale, the ​“nonpartisan policy research center analyzes federal policy proposals’ impact on the economy” with the goal of bringing ​“fresh ideas and new methods so policymakers can make better choices.” 

Gimbel is a former senior adviser in the White House Council of Economic Advisors among other government and private research posts. In an interview Tuesday on WNHH FM’s ​“Dateline New Haven,” she said she and co-founders Natasha Sarin and Danny Yagan agreed on the need for a new ​“scorekeeper” to analyze the impact of proposed policies. The main scorekeepers on whose work lawmakers base their debates and decisions — the Congressional Budget Office and the Joint Committee on Taxation — have proscribed missions that often can fail to account for benefits (rather than just costs) and proposals’ far long-term impacts on the economy and on people’s lives, she argued.

“The three of us were working in government and just started getting increasingly frustrated with how what we refer to as government scorekeepers put out information about policies that policymakers are considering. 

“This is not a slam on CBO and JCT. They’re doing what Congress has asked them to do. But when they evaluate those policies, they don’t look at costs. They don’t look at benefits.

“Also they only look over 10 years. For a normal human, 10 years is a pretty long period, but for the government it’s not. And certain types of investments, like putting money into children or the climate, take a much longer period of time to pay off. I always joke that no 5‑year-old has ever paid for themselves in 10 years.

“But if you think about the analysis that you’re getting right now, if you’re a policymaker, it’s the equivalent of you coming home and saying to your partner, ​‘I just went to the store and spent $100.’ And your partner would presumably say to you, ​‘What did you get for the $100? Did you, you know, was it on a coat? Was it on shoes? Why did you do that?’ And right now, the information is just, ​‘I spent $100,’ and there’s no sense of what are the relative benefits, what’s the return on investments?”

The center has already begun preparing papers on the long-term implications of pressing policy debates: for instance, on whether to revive, expand or incorporate new work requirements in the expired federal child tax credit championed by U.S. Rep. Rosa DeLauro.

It has also gotten to work on teasing out the various impacts of the TCJA. It developed a ​“Build your own TCJA reform” interactive simulator to enable people to view the impact of extending or modifying different parts of the law. 

More broadly, popular perceptions about inflation — arguably the single biggest driver of many voters’ preferences this election year — are in need of a more nuanced understanding, Gimbel argued.

“We’ve just gone through this pandemic period where many people were taking lessons from the 1970s, the mid 2000s, that didn’t necessarily apply to this particular period in time,” she argued. ​“2021 inflation is not the same as 1970s inflation. And so one of the things that I think is really important for all of us to do right now is to think about what are the correct historical parallels to this period in time, and what can we learn from that.

“I mean, economics is complicated. When the troops came home after World War II, you saw this increase in inflation that was really about this pent-up demand. People had ration cards. They weren’t able to buy certain things, not because they didn’t have the income, but because that was just not what the economy was doing at that time. So the instant the war ended, everyone wanted to go out and buy silk stockings now that they were no longer needed for parachutes.

“But also it takes time for the supply chains to readjust. So if a factory had been making tanks one day, it isn’t an immediate switch back to making cars for consumers. And so you had this mismatch between supply and demand that reflected the economy switching from a wartime footing to a peacetime footing. People weren’t consuming, not because they didn’t want to consume or didn’t have the income to consume, but because they couldn’t. People weren’t taking vacations, they weren’t going to restaurants, they weren’t going to theater. Not for typical recession reasons, of you didn’t have enough income usually, but because theaters weren’t open. Restaurants were open, if they were open, at a very small capacity.”

In the 1970s, ​“you had oil, you had a Fed that had not been responsive to some of these longer-term inflation pressures that had been building up. That was much more a conventional inflation shock that was allowed to get out of control, as opposed to we have this weird imbalance that has been caused by factors out of our control, but that we know will readjust.”

Click on the video to watch the full discussion with Budget Lab Executive Director Martha Gimbel on WNHH FM’s ​“Dateline New Haven.” Click here to subscribe or here to listen to other episodes of Dateline New Haven.