Slightly left of center economic commentary on news, politics and the economy.

The Internal Blue Cross/Blue Shield Revenue Service. Awesome!

“Since the I.R.S. also is the chief enforcer of Obamacare requirements, [Michele Bachmann] asked whether the I.R.S.’s admission means it ‘will deny or delay access to health care’ for conservatives. At this point, she said, that ‘is a reasonable question to ask.’ ”

– Bob Unruh, Why Obama Released Embarrassing IRS Bombshell, WND Exclusive, May 13

Yes, that’s right.  You read the title of this post correctly.  Obamacare turns out to be a single-payer healthcare insurance program, after all!

Or so says Michele Bachmann, anyway.  And she certainly would know.

This is great news, in my opinion.  But, I mean, who knew?  I’d thought until now that the only role that the IRS plays in Obamacare was to collect the penalty, via the tax apparatus, from individuals who aren’t insured through their (or a family member’s) employer and who choose to pay the penalty rather than buy insurance in the private market.  In other words, that the IRS role concerns only people who don’t have healthcare insurance, not people who do.

But apparently I was wrong.  I haven’t actually read the statute, which is infamously long, and somewhere in it, it requires all healthcare insurance premiums to be paid to the IRS.  The  name of which, once the full law kicks in next year, will be the Internal Blue Cross/Blue Shield Revenue Service.

Yes, the agency will still collect ordinary income taxes as it does now.  But it also become our healthcare insurer. Unless you are a conservative, in which case it will still require you or your employer to pay your insurance premiums to that agency. Or maybe just through that agency; I’m not sure which.  As I said, I haven’t read the statute, so I don’t know whether this will be like the Medicare system, or instead the agency will forward the premiums to your chosen private insurer, at least unless you’re a conservation, in which case the agency might use your premiums to pay for daycare for the young children of liberals.

Or maybe I’m misunderstanding completely, because of wishful thinking on my part.  Maybe instead, the statute requires the private insurance companies to get the agency’s approval before agreeing to pay a policyholder’s medical bills.

Yeah, that must be it.  The statute requires the private insurance companies to get the agency’s approval before agreeing to pay a policyholder’s medical bills. It’s odd, though, that three years after the statute’s enactment, this has never been mentioned before. By anyone.  Which makes that report about the Bachmann interview truly an exclusive.

Tags: , , , , Comments (20) | |

High Marginal Tax Rates are Associated with High GDP Growth

After hinting at it for months, I can finally post the abstract of and a link to

“Top Marginal Taxation and Economic Growth”

by my student Santo Milasi

The paper explores the relationship between statutory top marginal tax rates on personal income and long-run economic growth. While theoretical models of endogenous growth explicitly allow for nonlinear effects of taxation on economic growth, the majority of existing empirical studies assume a linear association. By contrast, this paper investigates both a linear and a non-monotonic relationship between top tax rates and GDP growth. Using a panel of 18 OECD countries over the period 1960-2009, this paper finds support in favor of a quadratic top tax-growth relationship. Results are robust to different model specifications and estimation techniques. The point estimates of the regressions suggest that the marginal effect of higher top tax rates becomes negative above a growth maximizing tax rate on the order of 70 percent. The quadratic relationship found for the whole sample period does not hold over the period 1975-2009. Instead, the link between top tax rates and GDP growth after 1975 is well summarized by a linear and positive top tax-growth relationship. Since top marginal tax rates after 1975 are well below the estimated growth maximizing level, such a result suggest that the top tax-growth relationship after 1975 might be placed on the upward-sloping side of the “growth-hill”. There is an even stronger positive top tax-growth relationship after 1985, when average top tax rates across OECD are lower than 50%.

 

Link to a pdf of the paper.

 

Personally I think the null that there is any justification for the continued existence of the Republican party has now been rejected at standard confidence levels.  Your milage may vary.

Comments (31) | |

The Fed Is Not Printing Money: Two Updates

I’d like to reply to one confusion and one set of pushbacks on yesterday’s post:

Currency and Reserve Balances

I buried one fact: banks can reduce total Fed reserve balances by withdrawing currency — physical cash — from their Fed reserve accounts. I only gestured toward this in a parenthetical and a link. It’s a trivial point for this discussion, but it raises confusion. This is the other thing (besides bonds) that the Fed issues and retires in return for reserve balances. As with bonds, it’s purely an exchange between banks and the Fed (though it’s driven by customers’ cash needs).

Banks actually have nominal control over this. The Fed has to issue currency to them (retiring reserves in exchange) when they ask for it, and they have to retire currency (issuing reserve balances) when banks send it back.

But this in no way suggests that reserve balances are money. You can withdraw currency (notes) from your bank. Does that mean that your checking account contains currency? That checking deposits are currency? No.

This issue is unimportant here because it’s essentially a mechanical function. As long as it’s working properly — ATMs dispense cash and people can deposit cash — it has no effect on things. (And cash is pretty small magnitude in the total system). Banks keep enough cash on hand to handle their customers’ needs, and the Fed accomodates that. Aside from drug dealers, etc., nobody holds much physical currency.

The only reason cash would be an important consideration would be if the Fed starting paying (significant) negative interest on reserve balances — charging the banks to to hold their reserve deposits. Banks might decide to build secure warehouses and drive cash to and from the Fed, trading it for reserve balances, when they needed to fund loans or when loans got paid off. (It’s kinda tricky to fund a $400,000 mortgage with cash…)

Otherwise it’s a nonissue for this discussion. But I should have made it clear.

Whaddaya Mean by M, Buster?

People really don’t like the idea that the Fed’s not printing “money.” MV=PY adherents especially object.

Let’s look at the standard definitions. None of the monetary aggregate definitions M0 through MZM includes reserve balances. By those definitions, reserves are not money. (Ditto the divisia measures.) So by those definitions, when the Fed issues new reserves, it’s not “printing money.”

The one exception is the “Monetary Base,” or “base money.” That definition of money includes currency, coins, and reserves. Here’s a handy chart from Wikipedia:

Type of money M0 MB M1 M2 M3 MZM
Notes and coins in circulation (outside Federal Reserve Banks and the vaults of depository institutions) (currency) [8]
Notes and coins in bank vaults (Vault Cash)
Federal Reserve Bank credit (required reserves and excess reserves not physically present in banks)
Traveler’s checks of non-bank issuers
Demand deposits
Other checkable deposits (OCDs), which consist primarily of Negotiable Order of Withdrawal (NOW) accounts at depository institutions and credit union share draft accounts. [9]
Savings deposits
Time deposits less than $100,000 and money-market deposit accounts for individuals
Large time deposits, institutional money market funds, short-term repurchase and other larger liquid assets[10]
All money market funds

So fine: M in the equation of exchange means Base Money. But if you look at the data using that definition, it seems like there’s some serious explainin’ to do. Here’s the velocity of MB:

A 60+% decline since 2008? Hmm…

Cross-posted at Asymptosis.

 

 

Comments (1) | |

Why, Yes! Of Course! The Voters Will Vote to End Social Security, Medicare, Dodd-Frank and the EPA Because the IRS Improperly Hassled Political “Social Welfare” Organizations and the DOJ Issued Sweeping Subpoenas of AP Phone Lines!

Well, that didn’t take long, did it?

It began yesterday morning, with a Politico article by Jim VandeHei and Mike Allen, and an accompanying video by Allen, suggesting improper actions of the IRS resulting from its inability to adequately handle the tsunami of exempt-organizations applications, coupled with the DOJ’s overly aggressive use of its subpoena powers in trying to ferret out the source of a national-security leak to an AP reporter, might cause voters to conclude that what is needed is more Republicans in high office.

Apparently that would be because voters can’t distinguish between economic libertarianism and civil rights libertarianism of the First Amendment and Due Process variety.  And this must be so, because within just 24 hours after the Politico folks asserted it, there’s been another tsunami, this one in the form of a slew of mainstream pundits repeating the claim.  John Dickerson of Slate.  Reid Wilson of the National Journal.  To name two.*

Dickerson argues that the Obama administration “is doing a far better job making the case for conservatism than Mitt Romney, Mitch McConnell, or John Boehner ever did.” He says this is because “[s]howing is always better than telling, and when the government overreaches in so many ways it gives support to the conservative argument about the inherently rapacious nature of government.”

Yup.  I don’t know about you all, but the fact that the IRS mishandled some exempt-organizations applications in the wake of Citizens United, and that the Justice Department has been crazily overzealous in its handling of national security leakers, partly in order to hush the criticism from, um, conservatives that there has been insufficient investigation into the leaks, sure as heck makes me think Paul Krugman is spouting dangerous nonsense by arguing so forcefully for more fiscal stimulus, as opposed to ever more fiscal austerity. It’s not surprising that Boston Federal Reserve chief executive Eric Rosengren is pleading for a turn away from further budget cuts; he does, after all, work for the federal government in an unelected position, and so of course he wants the federal government to be ever more inherently rapacious.

No matter that the most inherently rapacious unelected federal officials sit on the federal bench, and in the name of conservatism pathologically gut Fourth, Fifth, Sixth, and Fourteenth Amendment rights.  And I won’t even mention the habeas corpus provision of the Constitution’s Article I, Section 9, Clause 2.  ”The privilege of the writ of habeas corpus shall not be suspended, unless when in cases of rebellion or invasion the public safety may require it.” Or unless when the conservative Supreme Court majority privileges state courts’ rights over the Supremacy clause.  As it does regularly.

What we need to secure our individual civil rights is more Samuel Alitos and Antonin Scalias on the Supreme court and on the lower federal courts, in order to ensure the continuation and expansion of the inherently rapacious federal and state criminal and civil justice system against non-corporate persons. The voters surely will look at the dual scandals of this week and draw that conclusion. In addition to the obvious conclusion that financial-services regulation by the Consumer Financial Protection Bureau and other Dodd-Frank provisions should be gutted along with the social safety net, taxes should be lowered for the likes of the Romneys, and that we need to kill the EPA.

To hell with climate change!  Pun intended.  And let hungry children and seniors eat cake and pay for their own healthcare!  After all, the IRS mishandled the post-Citizens United influx of exempt-organizations applications. So what we need is more Citizens United.  The court opinion; not actual citizens united.

Greg Sargent says of Wilson’s article in the National Journal that he “makes the case that 2014 will look more like 2006” than 1998, when the public was so disgusted with Republican scandal-mongering and the Clinton impeachment thing that Democrats routed Republicans in that year’s midterm election even though it was the sixth year of the Clinton presidency, thus countering historical trends.  Wilson argues the case, but unsuccessfully.  “The beginning of Bush’s second term bears the most resemblance to the current predicament in which Obama finds himself,” Wilson says.  “ The war in Iraq had grown unpopular during 2005, and the government’s bungling of the recovery from Hurricane Katrina gave voters the sense that Washington was inept.”

Yes, it gave voters the sense that the Bush administration was inept.  The concern was that FEMA did not do enough for Katrina victims, precisely because conservatism is against having the government provide assistance to people in need.  The Bush administration got us into a war in Iraq under false pretenses, precisely because that was what conservatives wanted, and then bungled the war itself.

And curiously absent from Wilson’s analysis is that Bush spent the first year of his second term campaigning to privatize Social Security.  Does Wilson think that the public changed its mind about the wisdom of privatizing Social Security, or, for that matter, privatizing or ending the social safety net–or FEMA!–by November 2006?   Does Dickerson?  Really?  What about Allen?  (Okay, maybe Allen does.)

A surprisingly common characteristic of current political punditry is the presumption that what matters to voters is policy semantics rather than actual policy.  And the more generic, sweeping, and ill-defined, the better.  Actual policy and specifics of ideology don’t matter.  What matters is such generic phrases as “big government,” “small government,” and “conservative,” however unrelated to one big/small-government issue another big/small-government issue is.

Another problem with mainstream pundits is their mindless custom of incessant analogy based upon some tenuous or tangential common fact between the earlier and the current or future situation.  I realize that it is their job to say something about big political stories, and that, at least for most of them, they don’t have the option of adhering to the wise adage of not saying anything at all if you don’t have anything worth saying.  But this nonsense becomes viral.  Really quickly.  As though it’s actual wisdom rather than the simplistic, formulaic vapidity that it is.

The danger right now is that Democratic politicians will cower in the face of it.  Politically sensitive IRS error and DOJ subpoena overreach = we should lower taxes on the wealthy and gut the social safety net and environmental and financial regulatory authority; that’s an odd mathematical equation.  Except maybe in Washington, a town not known for Einstein protégés.

Wilson, in his National Journal article, acknowledges that “[t]he mishandling of Hurricane Katrina and the various troubles Obama is answering for now are completely different types of scandals.”  He just doesn’t think the voting public will recognize the difference.  He thinks that the “message” the IRS and DOJ matters “send to voters about the aptitude of governing is remarkably similar” to the Bush administration’s mishandling of Katrina and Iraq.  “Once voters lost confidence in Bush’s ability to manage government, the Republican brand began to suffer…If voters begin to believe that Obama is similarly ill-equipped to govern, it will be the Democrats in Congress who bear the brunt of the political punishment.”

Unless, of course, the voters conclude that what happened to those applicant nonprofit organizations in the hands of the IRS–that they were temporarily denied tax-exempt status and asked to identify their donors, and that the DOJ issued sweeping subpoenas for the AP’s phone records in a national-security-leak investigation–really does not actually mean that we should privatize Social Security and Medicare. That is, that they conclude that those former things don’t just naturally lead to the latter ones, even though these political analysts think they do.  That they conclude that linking the two is bizarre and outright crazy.  Which is a real possibility, since it is.

—-

*CORRECTION: This post initially and incorrectly included Karen Tumulty of the Washington Post among the political analysts who are making this argument.  Actually, Tumulty’s piece says that others–specifically, Republicans–are pushing this claim.  Also, this post has been edited slightly for clarity after its initial posting. 5/16 at 9:20 p.m.

 

 

Tags: , , , , , , , , , Comments (13) | |

Catch of The Day: Tim Duy

Carpe diem, indeed:

Mr Bernanke’s own appointment in 2005 was a case in point. There were several candidates that year. According to people involved, then-President George W. Bush leaned towards Martin Feldstein, a former economic adviser to Ronald Reagan….

But Mr Feldstein was a director of the insurance company AIG, which restated five years of financial results that May after an accounting scandal.

Note—especially all you Hank Greenberg sycophants—that the AUG restatements were from 2005, long before anyone admitted the Emperor of AIGFP had no clothes.

Go read the whole thing, attending especially to:

So, no, Bernanke does not view quantitative easing as acting only through equity price and related wealth effects, and no, Feldstein shouldn’t either. But somehow he does, or wants to trick you into believing that Bernanke’s only objective is boosting equity prices. Either way, I don’t think this is the intellectual approach we should be looking for in a Fed chair.

Talking your own book as if it were your superior rivals. Feldstein and AIG were perfect for each other.

Comments (1) | |

The Fed is not “Printing Money.” It’s Retiring Bonds and Issuing Reserves.

Mark Dow had a great post the other day:

There is zero correlation between the Fed printing and the money supply. Deal with it.

He points out (emphasis mine):

From 1981 to 2006 total credit assets held by US financial institutions grew by $32.3 trillion (744%). How much do you think bank reserves at the Federal Reserve grew by over that same period? They fell by $6.5 billion.

As he says:

if you are an investor, trader or economist, understanding—and I mean really understanding, not just recycling things you overheard on a trading desk or recall from econ 101—the mechanics of monetary policy should be at the top of your checklist. With the US, Japan, the UK and maybe soon Europe all with their pedals to the monetary metal, more hinges on understanding this now than ever before.

Comments (23) | |

Four easy fixes for corporate taxation

Everyone “knows” that the corporate income tax is a mess. Ask any company. They pay too much in corporate income tax, face rates higher than in any other OECD country, and are just following the law when they use tax havens to keep profits eternally deferred from taxation and to perform general sleight-of-hand.

 

Don’t believe a word of it. While some economists believe we shouldn’t tax corporations at all, the corporate income tax (CIT) is a necessary backstop to the personal income tax (PIT). With no CIT or a rate lower than the PIT, individuals have an incentive to incorporate their economic activities so they aren’t taxed on them, or are taxed less. Needless to say, this is something an average wage or salary worker would not have the ability to do. This is another area where we have one tax law for the 1%, and different rules for the rest of us.

Tags: , , Comments (2) | |

Moving in the right direction: US, UK, Aussies to share tax info

by Linda Beale

Moving in the right direction: US, UK, Aussies to share tax info

One of the (many) ways by which rich, sophisticated taxpayers who are also ultra-greedy have managed to avoid paying their fair share of taxes is to move money offshore through trusts and “companies” set up in various no-tax/lo-tax, hi-sun jurisdictions like the Cayman Islands, British Virgin Islands, Cook Islands, Singapore, etc. I suppose for many years this scheme served multiple objectives–it stashed the cash beyond the reach of the US government, it provided a nice place to visit the cash, and it had the cachet of belonging to the exclusive jet set behind it.

Tags: Comments (0) | |