In a Wall Street Journal review of Alan Blinder’s latest book, Advice and Dissent, Matthew Rees writes:
Mr. Blinder cites two measures to show what can be accomplished when economists and politicians work together. In 1983 the members of a Social Security commission put forward a bold and sound idea: gradually raising the retirement age to 67.
Assuming that Rees is correctly referencing Blinder’s claim, Blinder blundered. The Social Security commission, headed by Alan Greenspan, did no such thing. Instead, it proposed hastening an already programmed increase in the Social Security tax rate and extending Social Security to non-profits and other entities not covered at the time. Congress accepted these recommendations and put them into law.
So how did the rise in the age for full SS benefits come about? It was due to one Congressman, a Texas Democrat in the House of Representatives named Jake Pickle.
This isn’t a picky point. If it were, I wouldn’t make it. I make it because it undercuts what I gather is one of Blinder’s main points about how to get better policy: get a bunch of politicians and economists together on a commission that will give some political cover to the politicians who have to vote on it. The Social Security did give cover for hastening tax increases and catching more people in the SS net. But these commissioners balked at the most important reform: raising the age for full benefits. It took one traditional politician saying “Hell, no” to get that one reform.
READER COMMENTS
Steve Y.
Apr 29 2018 at 3:41am
Jake Pickle’s name is famous in the equipment-leasing industry. He inserted a key tax-depreciation provision in the Deficit Reduction Act of 1984 that severely reduced the present value of depreciation deductions for equipment that is operated offshore.
For example, when a U.S. lessor leases an airplane to a U.S. airline , the lessor depreciates the airplane using 7-year MACRS. The deductions for years 1-8 are, in order: 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, 4.46%.
If the lessor leases the airplane to a foreign airline, the write-off is straight-line over 13 years, i.e., 4.167%, 8.333% x 11 years, 4.17%.
On a $100 million aircraft the difference in depreciation between a domestic and a foreign lease in the first year is a little over $10 million. Applying a 35% tax rate to the difference, we’re talking real money ($3.5 million) unless you’re the government—certainly enough to pay tax lawyers and investment bankers to devise structures that work around the Pickle provision. (Yes, the TCJA reduced the corporate tax rate to 21%, which reduces the Pickle penalty.)
People’s eyes have glazed over by now, but I remind them that hundreds of billions of dollars of aircraft are financed “cross border” each year–not to mention marine and rail equipment. All are subject to these Pickle rules, which have greatly affected how tangible assets have been financed for over 30 years.
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