Alice Rivlin on Bracket Creep
In yesterday’s post on Alan Blinder and inflation-induced bracket creep, I promised to tell this story.
At the American Economic Association meetings in New York in December 1988, there was a session on economic policy and the economy. A number of major economists presented, but the two I remember clearly, because I asked them both questions, were Alice Rivlin and Joe Pechman. I’ve sometimes referred to Alice as “my favorite liberal economist” because she had a no-nonsense, clear-eyed view of things (although I think she never gave supply-side cuts in marginal tax rates their due.) But that was after I started following her work during the Clinton administration, when she was deputy director and then director of the Office of Management and Budget.
In her talk at the AEA meetings, Alice noted that there just hadn’t been nearly as much controversy about raising taxes to prevent major federal budget deficits in the late 1970s, when she was director of the Congressional Budget Office, as there had been from the mid-1980s to the year we were in, 1988. She stated it as if it were a puzzle. To me, it wasn’t a puzzle at all. So I stood up and asked the following (of course I’m going from memory here):
You stated that there wasn’t nearly the controversy about raising taxes to reduce the deficit in the late 1970s as there is now, but isn’t there an obvious answer? Inflation in the last half of the 1970s averaged high single digits and the federal income tax brackets were not indexed for inflation. So inflation plus non-indexing assured that federal government revenues grew substantially every year, even without explicit legislated tax increases.
She answered, “Well, there’s that.”
When I had a chance to talk about this in my class when it was relevant to our discussion of bracket creep, I quoted her “Well, there’s that.”
Funny story: The next day after I quoted her in class, a sharp student caught me out on some important causal factor that I had left out of another discussion unrelated to bracket creep. I hesitated, thought through it, and then admitted his point. Another student piped up, “Well, there’s that.” We all got a good laugh.