PUBLIC ECONOMIC

Since the last Public Economics Program Report in 2001, the United States has undergone substantial tax reform in the form of the 2003 and 2004 tax bills. Because many of the tax reform provisions that were enacted in 2001 and 2003 are scheduled to expire later this decade, further tax reforms have already been enacted in a sense. Policy debate about the extension of these tax provisions and about the structure of the tax system more generally, seems very likely to continue through the next few years. Tax reform has been widely discussed and there have been substantial changes in the last five years. In contrast, Social Security reform has also been widely discussed, but there have been no significant changes in the program's structure. Public programs for retirement income support have been active topics of discussion in many industrialized nations. In the United States, the earnest discussion of Social Security reform began when a Presidential commission suggested several reform proposals in 2001. Since then, various policy analysts and legislators have advanced a range of different proposals for reform. They differ in the role that they envision for the government in providing retirement income, and in their potential effects on the long-run fiscal balance of the Social Security system. Medicare, which portends to become an even more costly entitlement program over the long-term future, has attracted less policy attention than Social Security. One recent innovation in the Public Economics group is the creation of several working groups that tackle specific research issues related to various topics in public policy. One such group, which Martin Feldstein and I have co-directed, focuses on the Behavioral Responses to Taxation. Its members are drawn from the U.S. Treasury Department, the Congressional Budget Office, and the Joint Committee on Taxation, as well as from NBER's ranks. This group has met to discuss completed research about, and the research agenda for, the link between tax rates and various dimensions of taxpayer behavior such as labor supply, capital gain realizations, and the reporting of aggregate taxable income. The Working Group has scheduled meetings just before or just after Program Meetings, or during the NBER's Summer Institute, to maximize participation by the NBER affiliates. A second such group directed by NBER Research Associate Douglas Shackelford of the University of North Carolina focuses on Financial Accounting and Taxation. It includes researchers in the fields of accounting, finance, and public finance. Its agenda includes issues at the intersection of public finance and accounting, for example explaining the growing disparities between book and tax income for U.S. corporations and evaluating the impact of various tax reform proposals on accounting earnings and corporate balance sheets. A brief report such as this cannot do justice to the breadth of research that is carried out by Public Economics Program members while also explaining the substantive contributions of this research.