Previous articleNext article FreeIntroductionRobert A. MoffittRobert A. MoffittJohns Hopkins University and NBER Search for more articles by this author Johns Hopkins University and NBERPDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinked InRedditEmailQR Code SectionsMoreThe five papers in this issue of Tax Policy and the Economy are all directly related to important issues concerning the US tax system and its transfer system and their effects on productivity, charitable giving, and the distribution of firm sizes.In the first paper, Shepard, Baicker, and Skinner note increasing recent interest in expanding Medicare coverage, often through so-called Medicare for All plans. Traditional Medicare in the United States covers a uniform set of benefits for all enrollees that is much more generous than public plans in nearly all other developed countries, but over time the efficiency costs of this uniform structure have grown substantially. Focusing on the elderly Medicare population, the authors develop an economic framework to assess the potential efficiency and equity gains from reforming Medicare’s current benefit designs. They argue that there is an inherent inefficiency in providing a uniform benefit to all enrollees because those with higher incomes might prefer a more generous insurance plan than those with lower incomes, who might prefer more money income coupled with a less generous plan. Shepard et al. show that three major shifts have increased this cost of uniformity since Medicare began in 1965: rising income inequality, expanding availability of expensive medical technologies, and increasing costs of financing the program. They then study optimal plans, finding that the optimal uniform Medicare benefit would be substantially less generous than the current plan and that an alternative design with a basic insurance plan that could be supplemented with additional benefits—as seen in many other countries—would generate even higher social welfare benefits. Such a plan may appear less equitable, but the authors demonstrate that the resulting Medicare savings could be distributed in a manner that raised social welfare at all income levels.In the second paper, Beshears, Choi, Iwry, John, Laibson, and Madrian provide a detailed discussion of the potential of employer-sponsored rainy-day savings accounts. Noting that roughly half of Americans live paycheck to paycheck and that, when financial shocks occur during their working lives, many of these households tap their retirement savings accounts, the authors explore the practical considerations and challenges associated with helping households accumulate liquid savings that can be deployed when urgent preretirement needs arise. In particular, they consider plans that would allow employers to automatically enroll workers into an employer-sponsored payroll deduction “rainy-day” or “emergency” savings account. They argue that having separate rainy-day and retirement savings accounts can facilitate greater saving for short- and long-term purposes by helping to psychologically segregate and catalyze these two motives to save and that auto-features and mental accounting can be jointly deployed to reduce the frequency with which short-term needs crowd out long-run retirement savings. Beshears et al. describe three specific implementation options: (1) after-tax employee 401(k) accounts, (2) deemed Roth individual retirement accounts under a 401(k) plan, and (3) depository institution accounts. They present the pros and cons of each approach, given the existing regulatory regime, relative to the following criteria: the ability to automatically enroll employees into the rainy-day account; the targeted size of the rainy-day account; the investment allocation used for the rainy-day account; the fees and expenses associated with setting up and administering the rainy-day account; employers’ ability to match employee contributions to the rainy-day account and the destination of those matching contributions; the ability of the rainy-day account to provide liquidity when the funds are needed; the tax treatment of contributions to, earnings in, and withdrawals from the rainy-day account; the portability of account balances when employees separate from a sponsoring employer; and compliance and potential interactions with the nondiscrimination rules that apply to tax-qualified employer-sponsored plans. They conclude that field testing would provide important new information on the performance of each of these options and that new legislation would be needed to address some of the drawbacks with each approach.In the third paper, Barro and Wheaton return to the issue of the effect of corporate legal form in the tax system, considering its effect on productivity. The authors note that there are differences in the tax liability between businesses organized as C-corporations and those organized as pass-through entities such as S-corporations, limited liability companies (LLCs), and partnerships. Corporate versus pass-through status trades off benefits (e.g., perpetual identity, limited liability, public trading, and earnings retention) against tax wedges, and incentives to organize in one form or another are affected by a tax wedge. Barro and Wheaton show that those wedges have changed over time and were affected by the Tax Cuts and Jobs Act (TCJA) of 2017, which lowered the tax rate on C-corporations while also liberalizing some rules on taxation of pass-through entities. They note that changes in the tax wedge may affect not just the choice of organizational form but also productivity in the economy. They then go on to assemble a data set that charts the changes in the tax wedge over time, the share of economic activity going through C-corporate versus pass-through form, and measures of productivity. Their results show that the tax wedge has declined, on average, over time, implying that the C-corporate form has been increasingly favored. In further work using regression analysis, they find that C-corporate economic shares decline with the wedge and exhibit negative trends that they relate to legal changes for LLCs. A model that they calibrate to observed total factor productivity (TFP) and C-corporate shares implies that, for 1958–2013, the declining wedge and the gap between corporate and pass-through productivity contributed 0.37% per year out of a total TFP growth rate of 1.09%. From 1994 to 2004, when the TFP growth rate was unusually high at 2.00% per year, they find the contribution from the falling productivity gap to have also been unusually large at 0.77% per year.In the next paper, Meer and Priday consider the effect of the 2017 TCJA on charitable giving. The authors note that the US tax code subsidizes charitable giving through the itemized deduction, with the justification that charitable organizations may provide valuable societal services while being more responsive than the government. They argue that the degree to which donations are responsive to the tax incentive is a crucial one, especially in light of the changes introduced by the TCJA, especially its reduction in marginal tax rates and substantial increases in the standard deduction. They note that the former directly changes the tax price of charitable giving—that is, the net cost of donating a dollar after accounting for the tax subsidy—whereas the latter reduces the number of taxpayers who are eligible for that subsidy. Meer and Priday provide estimates of the responsiveness of charitable giving to its tax price using newly updated data and then apply those estimates to the parameters of the TCJA. Consistent with previous findings, they find that giving is sensitive to its tax treatment, with a 10% increase in the tax price of giving expected to reduce giving by about 10.4%. They find that the TCJA should be expected to reduce giving by a significant amount for households that stop itemizing as a result of the policy and that increases in disposable income resulting from the reduction in tax liability offset a small proportion of this projected reduction.In the final paper, Mulligan provides a new study of the effect of the employer mandate in the 2010 Affordable Care Act (ACA). Mulligan notes that taxes and regulations are known to affect the size distribution of businesses because smaller businesses are less subject to enforcement. The author argues that large informal sectors are an obvious result in developing countries but that measurement challenges have hindered quantifying the size distortion’s impact on employment and productivity in developed countries. His analysis uses new and unique data that are readily linked to the specific regulation of the ACA’s employer mandate, which establishes a bright-line legal definition of a “large” business at 50 full-time-equivalent employees. He reports on the results of a new survey of 745 small businesses that shows little change in the size distribution of businesses between 2012 and 2016, except among businesses with 40–74 employees, in a way that is closely related to whether they offer health insurance coverage. Using measures of both size and voluntary regulatory compliance, Mulligan then links these changes to the Affordable Care Act’s employer mandate. As of 2017, he finds that between 28,000 and 50,000 businesses nationwide appear to be reducing their number of full-time-equivalent employees to below 50 because of that mandate. This reduction translates to roughly 250,000 positions eliminated from those businesses. He concludes that the amount and character of distortions going forward may be different if the mandate proves to be exceptionally difficult to enforce.Endnote. For acknowledgments, sources of research support, and disclosure of the author’s material financial relationships, if any, please see https://www.nber.org/chapters/c14342.ack. Previous articleNext article DetailsFiguresReferencesCited by Tax Policy and the Economy Volume 342020 Sponsored by the National Bureau of Economic Research (NBER) Article DOIhttps://doi.org/10.1086/708169 © 2020 by the National Bureau of Economic Research. All rights reserved.PDF download Crossref reports no articles citing this article.