Comments and Discussion

Peckman, Joseph A.; Slitor, Richard E.
June 1978
Brookings Papers on Economic Activity;1978, Issue 2, p390
Academic Journal
This article comments on an article about the administrative and compliance problems of tax-based income policies. First, there is the issue of prices. The original Wallich-Weintraub proposal increased taxes on profits of firms with excessive wage increases, prices were not involved at all. However, Arthur Okun suggested that his approach might be expanded to provide reductions of profits taxes for firms with price increases below the average. It is clear from the paper that any kind of tax penalty or subsidy that depends on a change in average prices of particular firms is simply impractical. All the problems of constructing price indexes would emerge and measurement of costs to be passed through and there is no easy solution to mast of them. Second, there is the matter of the type of coverage of a tax-based income policy would entail. If a tax penalty or tax subsidy is to be designed, the law must be explicit about how every one of these units is to be treated. The authors of the article state that a penalty would be easier to administer than a subsidy because it would be possible to limit the penalty to large firms. If there are incentives to be handed out, it would not be possible to limit eligibility to employees of such firms.


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