The other morning, I was doing my stretching while listening to Morning Edition on NPR. One of the stories involved NPR gathering five economists of different political persuasion and giving them the task of finding areas of agreement for a mythical candidate for President to propose. Listening to the rest of the story, which included two of the areas of agreement, gave me the inspiration to frame an examination question for a fictitious class I am teaching, namely Econ 398 – The Effects of Income Taxation on the National Economy as a method of encouraging discussion. The question follows, along with a bit of tongue in cheek fun.
You have 50 minutes to answer the following questions. When finished, or when the time has expired, please turn your Blue Book in to the proctor at the front of the room. Remember, points will be deducted for misspellings and egregious grammatical errors. Good luck, and enjoy the weekend.
Question: Recently, five economists were asked to arrive at a consensus for steps to be taken to amend the Internal Revenue Code. Two of their proposals were to eliminate the mortgage interest deduction and eliminate the corporate income tax. Based on the above, please:
a) indicate whether you agree with either or both of these proposals;
b) identify the economic rationale underlying the proposals; and
c) support your answer to question a) by applying the identified rationale to the proposals given above.