Kristin Forbes: Economists must bridge disciplines to find answers to financial crises

MIT Sloan Prof. Kristin Forbes

In 2009 when my colleagues at the National Bureau of Economic Research and I began planning a conference for a project we’re running on the global financial crisis, we were concerned that the material would no longer be timely when the symposium actually occurred. We needn’t have worried.

I’ve just returned from Washington, DC, where our symposium was held, and again financial crises were the topic of the day. Three years after cracks in the subprime mortgage market erupted into the most severe and synchronized global financial crisis and recession since the Great Depression, the world economy is once more in dangerous territory. What began as a singular sovereign debt problem in Greece has spread to the rest of Europe, and now threatens to become a second act to the first financial crisis. How did we get here? And how can we keep it from happening again?

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Kristin Forbes among five leaders sharing ideas for creating jobs and reforming taxes

MIT Sloan Prof. Kristin Forbes

From the Boston Globe

My top priority if I was in charge: fundamental tax reform for individuals as well as consumers. Get rid of all the numerous deductions, exemptions, and special deals so that you could dramatically lower marginal tax rates while raising as much (if not more) money.

This would make our economy more efficient – raising growth and creating jobs. It would reduce uncertainty about future taxes and help stabilize our debt, allowing companies to invest and hire. It would keep companies and jobs in the US rather than moving to other countries with lower tax rates.

Given our unsustainable deficits, we will need to do a major overhaul of our tax code at some point. It will be difficult to grow and recover until the uncertainty about how we deal with our fiscal challenges is resolved, so fundamental tax reform would help our economy both in the short and long term.

See the full article in Money & Careers

The U.S. needs an overhaul of the corporate tax system, not a temporary tax break

MIT Sloan Prof. Kristin Forbes

Today U.S. multinationals have more cash stashed overseas than ever before –according to several estimates, companies have more than $1 trillion in profits squirreled away in foreign subsidiaries. Many of the companies with the most money abroad – including powerhouses from Apple to Google to Pfizer – say they’d like to bring a large portion of it back to the U.S.

This comes with a catch, however. The companies want a temporary tax holiday – nearly identical to the one passed in 2004, and the subject of my recent paper – that would allow them to repatriate profits attributed to their foreign operations at a 5.25 percent tax rate instead of the usual 35 percent. Most of the funds returned to the U.S. will likely be paid to shareholders rather than used for investment and new hiring (as the companies lobbying for the holiday claim). But the tax break would raise billions of dollars for the government and bring cash back to the U.S., which is arguably a good thing. (It’s no secret that the Obama administration has recently made overtures to reboot its relationship with the business Read More »