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Tic Tac Toe, Supreme Court style

Bribes, payola, favor of the physical kind? Forget-about it. Just put the right person in the appropriate agency, preferably a person from the line of business the agency is to regulate. But, for extra insurance over the long haul, with a little luck of timing you get to fix the legal issue almost permanently: supreme court justices.

Justices Make it Tougher to Sue Makers of Medical Devices

The case has significant implications for the $75 billion-a-year health care technology industry, whose products range from heart valves to toothbrushes. In a recent three-month span, federal regulators responded to over 100 safety problems regarding medical devices.

At issue before the Supreme Court was whether the estate of Charles Riegel could sue a company under state law over a device previously cleared for sale by federal regulators. State lawsuits are barred to the extent they would impose requirements that are different from federal requirements, said the ruling by Justice Antonin Scalia.

In dissent, Justice Ruth Bader Ginsburg said that Congress never intended “a radical curtailment of state common-law lawsuits seeking compensation for injuries caused by defectively designed or labeled medical devices.”

But Scalia, in response, said, “It is not our job to speculate upon congressional motives.”

The Bush administration sided with industry, saying unfavorable state jury verdicts would compel companies to alter product designs or labels that had already gotten FDA approval.

Hey, the government said it was good, what the f#$k is your problem?

Well, besides lending its self to a commentary of fascism , or that all the court is saying is that congress needs to do a more complete job, or that this represents another major blow for our constitution in that the government is failing to respond to the people, this is the manifestation of gamesmanship having fully ascended to our final stop gap measure. I forget who, but a commenter stated that law suits are the free market response to a lack of government regulation (I think I have it corret). If true, then the free market is truly dead and it has been killed by the most effective means of all; legal tic tac toe. We have been observing it in congress for years, with it most refined and skillfully played currently.

Here’s how you play it. I ask you a question literally: X. You respond literally: X. I say no, I was asking figuratively: O. Everyone knows that you can not win it. But, and it’s a big BUT, the purpose of this version of tic tac toe is not to win. It is to perpetually play the game. Just keep on blocking. It can be played with me asking a question: O, feeling you out. You respond: X. I think Ok and ask it again as you have responded: X. You respond: O.

Think I’m wrong? Then think about the hearings for the supreme court justices. Think about the AG performance concerning torture. Think about the definition of “is”.

This form of tic tac toe servers a very specific purpose. It forever releases the player from being responsible. You can never fully come to terms with a person who’s entire approach to life is to perpetually play tic tac toe because there is no way to win the game of tic tac toe. You can only move beyond them. Stop playing the game. For a society with a form of governance like ours, it means voting. Voting not to approve those who do not answer the question as a responsible person. Holding in contempt, etc. For me it was a divorce.

updated to finish the last paragraph.

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Outsourced within the USA

What do you think of a job that use to pay $13/hr, three years latter paying that same person now $11/hour? What do you think of that same job having other people being paid $9.56/hr.

It is a union hospital job cleaning rooms after the patient goes home. Cleaning as in washing walls, floor, beds, etc. It includes doing “trash and linen”; collecting the bags of linen and throwing them into a cage that gets piled high, throwing trash into a dumpster but, not on a regular bases. They have a young man for that. Just one man for the heavy work during the week. He’s on vacation. They have another male, but only on weekends (works 2 jobs, 49 yrs old). He’s had enough. He’s leaving.

They are not allowed to strike as they are considered essential to the operations. The company can not keep help, especially male help.

We hear about people having downsized their incomes when they have to make a change of job, but this is a downsizing within the same employment. How did this happen? The hospital outsourced the maintenance and then the company was sold…not to an outside the nation company.

My brother-in-law use to earn $80,000/yr. They cut his job. He ended up working for a company that filled a contract that a second company had for a third company who outsourced the department to the second company. He was paid $45,000/yr, was part of a team of 5 who replaced 15 people who were all making what he use to make.

Maybe it’s time we start understanding that “outsourcing” is not just a process of moving a job out of the country. It is also a shell game within the country.

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Opus : Finale’ A Discussion On Taxation

“Taxation is in fact the most difficult function of government – and that against which their citizens are most apt to be refractory” Thomas Jefferson

First, I apologize for taking so long to get back to this. But….I needed to work on some leads/songs (it’s not really work), get a new singer up to speed (hope this one stays around, it would be a first), deal with temporarily replacing my office manager (medical leave) and of course Valentines (the other business). Oh yeah, get some tax stuff done: W2’s, fed and state reports, blah, blah, blah.

Well Jeff Beck is playing Going Down, next is Situation on a compilation CD I made so…
I left off with Mr. Avi-Yonah stating:

A society is a community with a shared culture and shared interests that transcend the interests of its individual members and extend back to its historical roots and forward into its future. Thus, it is necessary to look for affirmative reasons for taxing the rich that are rooted in a broader social and historical understanding of the vital function of taxation in maintaining such a community over time.

He list 3 common “excuses” shall we say, for answering the “why”.

A: That is where the money is. A presentation is made of the inequality numbers which I have taken every opportunity to put in front of the AB reader and then states:

While these facts demonstrate the potential for large redistributive gains by increasing taxes at the very top of the income distribution, they also illustrate the importance of the rich to the economy and thus the potential cost of taxing them. Thus, any argument for taxing the rich must depend on more than mere income or wealth distribution numbers.

I could take issue with the first sentence, but I agree, we have to depend on something more than “that’s where the money is”. Although, considering our nations debt and who has benefited from such, it makes a very strong number 2 at least if not a co-number one for the present.

B. “I Took All of It from Them”

Another argument for taxing the rich can be summarized in department store mogul Edward Filene’s explanation of why he approved of the income tax: “Why shouldn’t the American people take half my money from me? I took all of it from them.”

Getting beyond the simplicity of Edward Filene’s argument, Mr. Avi-Yonah presents this as a case of partnership between the individual’s contribution and the government’s contribution thus, taxation is the government receiving it’s share. Government also can do with it’s share as it want including giving it to others. The problems he sees with this are:

First, since it is as focused on individual taxpayers as optimal tax theory, individual taxpayers can object that the partnership does not apply to them. Second, even if one accepts the partnership model, it is still unclear that it justifies progressive taxation of the rich rather than mere proportionate taxation.

I don’t think he captures the error of the argument correctly here. Being that we are the government, we are all in a partnership. That one would argue the partnership does not apply is purely selfish want verses civic understanding and rightly should not be a serious consideration of argument. But as he notes, that still does not get us past the issue of progression over proportion.

C: “Money is the measuring rod of power.”
Mr. Avi-Yonah note it is a quote of Howard Hughes. He develops the argument that the rich go beyond acquiring money for consumption needs and wants and thus pursue wealth for it’s own sake.

Wealth confers power beyond its consumption value.74 This power is economic, social, and political. The economic power of the rich derives primarily from their ability to use their wealth to invest in enterprises that employ thousands of people and can dominate large sectors of the economy. The social element derives from the knowledge other people have of the potential ability of the rich to use their wealth to acquire goods and to contribute to charities, which leads them to court such acquisitions and contributions even without such consumption taking place. Finally, the political power of the rich stems not just from their actual donations or their ability to finance runs for political office, but, more importantly, from politicians knowing that they have the excess funds to donate.

The problem as he views it is:

As the eminent public finance economist Richard Musgrave has stated, a consumption tax is deficient because it “ assumes that consumption, current or future, is the only benefit that income provides. This overlooks the benefits derived from the accumulation and holding of wealth, whether in terms of security, power, or social standing.”

If this analysis is true, what does it imply for taxing the rich? From an optimal tax perspective, arguing that the rich derive added utility from their wealth that is not available to people for whom (because of their lesser means) money only has consumption value is an argument against taxing the rich. That is because any redistribution in the optimal tax model derives from its assumption of the declining marginal utility of money, and the “ riches mean power” model militates against this assumption.

A fine Catch 22.

I have stated that we have to ask: When is enough, enough? I ask this from a reference of consumption. Beyond that, the utility of further acquisition is no longer a need of material wants. It is a need of intangible wants. Considering my post on the World Bank’s finding that true wealth is from intangibles, a reason for progressive taxation has to address the intangible such as power.

Thus the reason for progressive taxation via some history as presented by Mr. Avi-Yonah:

The American Revolution likewise was founded on the conception that while people have natural, Lockean liberal rights to their property, undue concentrations of private power and wealth should be discouraged.81 This view found its expression in the republican creed of civic humanism, which emphasized public virtue as a balance to private rights. A virtuous republic, the Framers believed, was to be free from concentrations of economic power that characterized England in the eighteenth century.82 Therefore, from the beginning of the Republic, federal and state legislators used taxation to restrict privilege and to “ affirm communal responsibilities, deepen citizenship, and demonstrate the fiscal virtues of a republican citizenry.”

The idea of progressive taxation is part and parcel to achieving the ideals set out in our constitution in that our constitution is a formulation for assuring a disbursement of power. Though I wonder if in this “virtuous republic” we are finding the mantra of the Republican’s intrusion into one’s personal life, be it as usual a bastardized use by them.

There is a political lesson presented in the history of how we got our income tax that I was not aware of:

There was another agenda at play as well in the early years of the federal income tax: the desire to use progressive taxation as a way to “ stave off more radical calls for industrial democracy.” 97 This explains why even some high-income Republican groups supported the Sixteenth Amendment.98 Andrew Mellon, Secretary of the Treasury in the 1920s and one of the wealthiest Americans, “ believed that keeping tax schedules graduated (albeit flatter) would mitigate radical demands for restructuring the capitalist system.” 9

Interesting. It was a time when those with the economic power were actually feeling threatened of a greater loss. This is a very important aspect of the debate that I don’t believe the citizenry appreciates. Perhaps if the citizenry knew that in the past they were able to instill the fear of greater loss, today the message of change would take on a more definitive tone than just “hope”.

Mr. Avi-Yonah summarized the need to be concerned with the inequality of income/wealth:

There are three arguments why extreme concentrations of wealth are undemocratic.
The first two are obvious: In the American system of government, great wealth can buy political favors (often at minuscule expenditures) and finance runs for office (at somewhat greater but still quite limited costs).114 The third is more subtle—that vast inequality of wealth is socially destructive because it degrades relationships among people (cultural, social, and political) and eventually undermines the sense of community on which a democratic polity must rest.115 This argument is particularly true in a country like the United States, which is not bound together by ties of ethnicity, culture, or language.116

…that extreme concentrations of power resulting from extreme concentrations of wealth in the hands of private individuals who are unaccountable to the majority is an unhealthy phenomenon in a democracy. Such private individuals exercise degrees of power and influence that run counter to the ability of the government of the people to govern the country in accordance with the people’s wishes, as expressed in democratic elections.

As to where the responsibility belongs for presenting this argument:

As Slemrod writes,

The approach of mainstream modern public finance economics to these issues has been to accept, for the sake of argument, the right of government to redistribute income through the tax system (and other means); to sidestep the ethical arguments about assessing the value of a more equal distribution of economic outcomes; and toinstead investigate the implications of various value judgments for the design of the tax system.126

Such an attitude to distributive issues may be fine for public finance economists, although it did not characterize the economics profession before the 1950s and still does not characterize some of it today.127 But it does not excuse the abdication of equity in favor of efficiency by most legal tax academics, especially in some of the elite law schools…It is time for legal tax academics to redress the balance.

As a professional, I can understand the argument to separate the two issues via 2 professions. The concept of a profession is that it is specialized. As a thinking person and a citizen, the public discussion should not allow the issue of efficiency to dominate one profession’s focus while the issue of equity dominates another profession. We have to assure both equity and efficiency are discussed and decided upon in order to stay true to the preamble of the Constitution and minimize Thomas Jefferson’s observation of the citizens response.

Part 1 is here.

Update:
In response to Dmerek question regarding what Thomas Jefferson thought:

“I approved from the first moment of… the power of taxation [in the new Constitution]. I thought at first that [it] might have been limited. A little reflection soon convinced me it ought not to be.” –Thomas Jefferson to Francis Hopkinson, 1789. ME 7:300

Being that President Jefferson believed in the will of the people and the people passed the 16th amendment, the issue becomes a question of how much for what expenditures and not whether we can tax.
There is much more on what President Jefferson had to say.

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Super Tuesday Voter Turnout

Hearing that democratic turnout has been stronger in the past primaries prior to Super Tuesday, I used C & L’s chart data to total up the voter count. I exclude the states that did not have duel party primaries. The turnout was 14,865,735 democratic to 8,929,123 republican. The republican turnout was 60% of the democratic turnout.

I then went to this map to see the “red states” from 2004 and calculated the voter turnout. Super Tuesday had 11 red states voting. Of those, 8 had more democratic voters than republican voters for Super Tuesday. For those 8 states (AR, CO, GA, MO, ND, OK, TN, UT) it was 3,407,658 democratic voters, 2,963,340 republican voters. The republican turnout was 87% of the democratic.

For the 3 remaining states of the 11 “red” (AK, AL, AZ) it was 1,001,540 republican voter turnout to 902,755 democratic voter turnout. The democratic turnout was 90% of the republican.

Interesting no? Cha, cha, cha changes…

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Voter Info and AARP FYI

I came across this site: Voice of the Middle Class. They have organized the candidates by issue and voting record. They have created comparison tables by issue listing the solutions on the side and candidates across the top with a check mark if they support. They have tables by candidate for each issue. You can also see their voting record based on bills related to each issue. Seems like a nice place to start in understanding the differences. There are links to each candidates’ web page.

There is this article I thought would also be of interest: AARP position on Universal Health Care.
It is a collection of info via articles with links on AARP and their influence on the debate. It notes various other front organization they have teamed up with to keep the discussion moving toward private insurance. AARP and the Business Roundtable have joined with SEIU [Service Employees International Union] to form something called Divided We Fail. Divided We Fail is a corporate liberal answer to single payer.

We’re talking some big money here by AARP. Even AARP, which earned $379 million in royalties in 2005, mostly from health insurance sales, appears to favor universal public and private health care coverage…. AARP also said it would use $500 million of insurance sales revenue over the next decade to help people navigate the health care system, with a new counseling service.

One of their links is to an article in the Nation on the drive to privatize medicare.

However, after 2003 the government began shoveling huge sums of money into the Medicare Advantage plans to entice seniors to leave the traditional program-in effect subsidizing privatization… This year the government will pay insurers on average 12 percent more than it costs to provide the same benefits to people who stay in the traditional program, according to the Medicare Payment Advisory Commission (MedPAC), an independent group that advises Congress. HMOs will get 10 percent more, but private fee-for-service plans will get a whopping 19 percent more, a subsidy that lets them offer rock-bottom premiums and lots of extras-at least for now.

All I can say in such a climate where hiding one’s true intentions can be done so easily is THANK GOD FOR NET NEUTRALITY!

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Opus 1, Second movement: On taxation

“Servers, labourers, and workmen of different kinds make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed cloath, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed, and lodged.”

I left off with a statement which suggested taxation for a progressive purpose, for redistribution purposes is an issue of reason and not mechanics. That is not to say understanding the mechanics is not necessary. Such knowledge however can only be the means to achieve the goal but, not the reason for the goal. Mr. Avi-Yonah sets up his second phase of discussion by quoting Does Atlas Shrug editor Mr. Slemrod:

“ [h]ow much and how to tax high-income individuals are questions at the core of many recent proposals for incremental as well as fundamental tax reform. The right answers depend in part on value judgments to which economic analysis has little to contribute.

Let me give a little bit of my philosophy here. A long time ago I figured out that in the end, after all the pros and cons are lined up, the research is done, the discussion had, the reason anyone does anything is because they wanted to do it. Why did I do X? Because that is what I wanted to do – period. Decisions are made based on values held at the time of decision not on changing values during the decision. Secondly, I am only as free as I allow you to be. Before someone starts thinking “libertarian talking here”, I understand that if in my freedom I accumulate enough money such that you have to rent a toilet from me verses buying your own, I’m not free because now I have to make sure the toilet is always available at the time of your need. If I don’t accommodate your timing, then I am at risk of retaliation by you (and maybe a few of your friends).

I have presented in the past that the goal of our economy is defined in the Constitution:

We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.

Specifically but not exclusively “domestic tranquility”, “general welfare” and “posterity”. An economy has been developed to serve our purpose. In the crudest terms of economic purpose; to create capital, as in “a company exists to create profit”. But for me, the crude answer begs the question: why create capital? Because I want to… because of my values. I see taxation as how money comes into play in meeting the goals as stated.

Mr Avi-Yonah starts the second part of his argument with a review of other lawyers’ work concerning the question of progressive taxation:

…Walter Blum and Harry Kalven published a classic article entitled The Uneasy Case for Progressive Taxation. [They] used most of the article to demolish systematically all previous arguments for progressivity made in the name of “ ability to pay” and “ equal sacrifice.” …they concluded that any remaining case for progressivity must be made in the name of redistribution, or an inherent objection to social inequality,…This is the same type of “ aesthetic” argument that motivated Henry Simons’s oft- quoted conclusion in Personal Income Taxation (published in 1938 at the height of New Deal progressivism) that sharply graduated rates are defensible only because there is something inherently “ unlovely” about inequality.

Next up was the introduction in 1987 by Joseph Bankman and Thomas Griffith of optimal tax theory “developed by economist James Mirrlees”. Mr. Avi-Yonah describes the theory as:

“Optimal tax theory seeks to answer the following question: Given that income taxes generate a disincentive effect on work, what is the ideal tax and transfer system if the ultimate goal is to maximize the sum of the utilities of individuals with identical preferences?

As described here, considering the findings suggested in the first post, there is a problem with the assumption. At least as it relates to the tippy top of the earning pile. Googling “optimal taxation theory” will bring up lots of information so I leave more in-depth discussion to you. Surfice-it-to-say, there are issues with the theory when one like Mr. Avi-Yonah is looking for reasoning in support of progressive taxation. He quotes Larry Zelenak and Kemper Moreland:

Regardless of the results of any simulation, optimal tax analysis can never prove that the income tax should have progressive marginal rates. Even if a simulation indicated gradual rates were optimal, and even if the simulation’s factual assumptions were unassailable, an opponent of progression could still dismiss the results by rejecting the philosophical basis of the simulation. If the premises of the simulation are utilitarian or Rawlsian, no amount of sophisticated mathematics will convince someone who objects to those premises.

He continues:

Fundamentally, the problem with optimal tax theory is that, like any welfarist theory, it focuses completely on the well-being of individuals.

Before we go further, let me introduce you to this paper: Taxes and Torts in the Redistribution of Income by David A. Weisbach, THE LAW SCHOOL THE UNIVERSITY OF CHICAGO

He puts the issue of law vs economics as a bases for redistribution discussion thusly:

The thesis is that the presence or absence of the tax system completely changes how one thinks about basic subjects.

The reason why this is so is because the tax system plays a central role in the redistribution of income or wealth. In thinking about legal rules, we must ask whether they should be designed to redistribute or whether they should merely be efficient…Taking these arguments altogether, the double distortion argument and the problems with contracting around and haphazardness, I believe the case against using legal rules to redistribute to the poor becomes almost overwhelming. The tax system is a dedicated system designed to measure the variables relevant to redistribution and act only on those margins. It is hard to imagine that legal rules are likely to do a better job. One key point to note is that I have not argued that legal rules should be efficient. All the argument has shown so far is that legal rules should not be used to redistribute income.

But income is not the only source of inequality. Race, gender, disability, or health all mightbe sources of inequality in our society. If we value equality of all sorts not just income equality, we might want to redistribute based on other sources of inequality.

We are talking 2 different aspects of equality and redistribution as the morality applies to life. One concerns our relationships to each other as individuals exclusive of money. It is nature. It is the place for law. The other concerns our relationship inclusive of money. It is a human added event to nature. Money is based on value which is from our inherent concept of values, but I argue that there is no inherent concept of money. All else being equal, money is the only thing that can create an inequality not found in nature. There is nothing that can substitute for money when trying to equalize the effect of money. This is the place for taxation. I believe the conflating of these two distinct relationships becomes the means to argue against redistribution/progressive policy related to income. The conflation is in denying that collectively we have agreed on, consequently assigned the properties of money within the scheme of life unlike an event of nature.

Mr. Avi-Yonah leads into his reasoning in support of progressive taxation with:

A society is a community with a shared culture and shared interests that transcend the interests of its individual members and extend back to its historical roots and forward into its future. Thus, it is necessary to look for affirmative reasons for taxing the rich that are rooted in a broader social and historical understanding of the vital function of taxation in maintaining such a community over time.

Sounds to me that Mr. Avi-Yonah is talking about the founding ideology manifest in our constitution: We the people…
To be continued…

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What Fiscal Stimulus needs to look like

Fiscal stimulus? All sorts of numbers being tossed around, not sure where they are coming up with them from. But, if we are looking to drive a consumption based economy, it seems to me we have to get money into the hands of the most consumers on a regular basis.

Here is what has to be made up using year 2000 dollars. Keeping the same ratio of income for the top 1% as in 1962 (just seemed like a nice year to pick), the share per person for the bottom 99% (of total population) in 2005 goes from $24,515 which is just under 120% of poverty, 4 people ( 2007 tables) to $28,274 or just around 140%. It’s a $3759 increase. That’s the number to fix the problem as I see it. Or, one wage earner at $113,096/yr. Close to the top 1% number for 1962 of $114,711.

The $3759 times 4 (four people in a family) is $15,036. That’s health insurance of the non-high deductible type plus an extra $3000 for a retirement plan for this family of 4. If they are a young family, they could probably split that $3000 putting half in retirement and blowing the rest. Imagine 99% of the population in 2005 blowing $1500 just because they had it to spend. Real, in the hands, cash money.

Or look at it this way, we shifted the “risk” of health coverage and pension from the company to the employee, but not the $3759 per person that would need to go with it. You know, that old increased reward for increased risk meme of the free market capitalist system. Instead it went to the top 1% such that they have $681,370/yr/person. That’s $2,725,480/yr (family of 4 you know). And that is more than double the threshold for the top 0.1% excluding capital gains (Saez data). BTW, there were 2,969,720 people in the top 1%.

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Opus 1: A Discussion on taxation

My hunt for Obama’s econ advisor lead me to a paper that incorporates a review of a book: Does Atlas Shrug? The Economic Consequences of Taxing the Rich. It caught my attention because the paper is written by a tax lawyer.: Reuven S. Avi-Yonah, the Irwin I. Cohn Professor of Law and director of the International Tax LL.M. Program… He also served as consultant to the U.S. Treasury on tax competition and OECD on tax competition, and is a member of the Steering Group of the OECD’s International Network for Tax Research and chair of the American Bar Association’s Tax Section Committee on Consumption Taxes.

I never really thought about it, but laws are the means by which we create taxation. They do reflect our reasoning. So, maybe we need to consider law arguments as we discuss taxes?

This will be presented in multiple parts in order to not hog the blog space here (or bore those not interested). My intent in presenting this review is to move the question of taxation beyond the simple rhetoric. We are at a time that is being implied will be a mark on our historical time line of national personality; the coming presidential election. For the best of our personality to come through, we need more than focus group tested conversation about money. We need to do the work to not only understand the physics of money but, also the philosophies of money. We have experienced 3 distinct approaches: pre-income tax, New Deal and Reaganomics. Time we start being responsible for the decisions made and look at what we decided, how we justified them and what those decisions gave us. Now is the time to ask: Just what the hell was I thinking here?

The paper is actually a discussion by Mr. Avi-Yonah that uses a review of Does Atlas Shurg for his lead in to his title: Why Tax the Rich? Efficiency, Equity, and Progressive Taxation. We here at AB have tossed around the short answer “because the richer you are the more benefit you get”. Mr. Avi-Yonah sets up his paper’s question:

“Thus, the question of whether high marginal tax rates come with an unaffordably high cost to the U.S. economy remains unsettled. Does Atlas Shrug?,…attempts to answer this question.

Part I begins with an excellent historical survey by W. Elliot Brownlee of the rates facing the rich from the beginning of the U.S. income tax in 1913 to the present. He indicates that effective rates during the high marginal rate years of World War I reached 15.8%, and that during the high marginal rate years of World War II they reached an astonishing 58.6% in 1944. After the war, while the top marginal rate remained extremely high at 91%, the effective rate for the rich declined to 32.2% in 1952, then 24.6% in 1963, rising to 28.9% when Ronald Reagan took office and declining to 22.1% following the 1986 tax reductions. The conclusion drawn by Brownlee is that the rich can be taxed at very high effective rates during times of national emergency, but that at other times their political clout ensures that effective rates are much lower than marginal rates.”

Well, guess we don’t need to worry about the nominal rates, they mean squat. But the question; do high rates cost us? The summary answer:

“In general, they provide a mixed answer… While there is some evidence of behavioral responses, it is quite limited and seems to depend crucially on the authors’ chosen methodology. Importantly, most of the findings of behavioral response relate to the use of various tax avoidance techniques—and even there the evidence is mixed, with some obvious techniques being used less than they should be in a world in which tax minimization is very important to the rich. Real behaviors, such as labor and saving, seem much less affected by taxation. This distinction is important because while both tax avoidance techniques and real behavioral changes cause deadweight losses, the former can be partially prevented by changing the law, while the latter are less amenable to legal change since one cannot force the rich to work or save more.”

As to the evidence, Mr. Avi-Yonah states that the 9 studies are reported in 3 groups. The first being limitations of past research such as noted by Goolsbee. The second group:

“…support the view that behavioral responses by the rich to taxation are quite limited. A study by Moffitt and Wilhelm investigates the labor supply decisions of the rich based on responses to the 1986 Tax Reform Act and finds essentially no responsiveness of the hours of work of high-income men to tax reductions…But the studies also suggest that high-income men are unlikely to decrease hours worked as tax rates go up…Other studies in this group suggest that even financial behaviors, which are less “ real,” and therefore more likely to be tax-motivated than labor or saving decisions, do not respond much to taxation.”

He specifically notes evidence that portfolio choices do not significantly change, there is not “judicious” sheltering of capital gains and that “inter vivos giving” are “much lower” than would be expected if “households were taking full advantage of this estate tax avoidance technique.”

So far, nominal rates mean squat and the rich don’t really play the tax rate game as has been implied by those offering tax rates as an excuse for our sorry condition. But, they do play:

“The third and final group is made up of studies that do find some behavioral responses to taxation. For example, Auten, Clotfelter, and Schmalbeck find that the current tax system does stimulate some charitable giving by the wealthy, compared with a system in which contributions are not deductible, but that the sensitivity of giving to tax changes is smaller than suggested by previous researchers. They also find that current law does encourage the wealthy to engage in elaborate estate tax arrangements associated with their charitable donations. Alm and Wallace examine a wide range of taxpayer reporting decisions by the rich in the wake of tax law changes and suggest that they show increased responsiveness due to their larger control over the form of their compensation. Finally, Carroll, Holtz-Eakin, Rider, and Rosen investigate the behavior of entrepreneurs in response to tax rate increases and conclude that individual income taxes do have a large negative effect (a five percent increase in marginal tax rates decreases mean capital expenditures by approximately ten percent).”

My theory on this last info, they like to make sure they settle their conscience in the end but only if they get a break and if they earned it with their own business they will sacrifice the business to keep up the income.

“I would also add that most of the evidence for behavioral responses in the book relates to tax avoidance strategies (e.g., charitable giving techniques, shifting income from corporations to individuals, and the timing of receipts), rather than to real activities (labor and saving decisions).”

Mr. Avi-Yonah closes this part of his argument noting that the book did not address the issue of illegal tax avoidance:

“Slemrod is not to be blamed for not focusing on this issue because no recent data exist, but it is high time for Congress to study the question of illegal tax evasion by Americans.”

So, if the nominal rates don’t matter as the tax code is currently set up and the rich don’t respond to higher rates by working less or lower rates by working more and they will cheat the game to the benefit of them self, then the question of “why” and “how much” tax needs a reasoned answer verses a mechanized answer. We have to justify our taxing with words and use the research to tell us if our reasoning is getting us to our goal. We have to accept that money is and does as we say it is and will do. It is the entity created in our own image. It is a medium of personal creative expression.

To be continued…

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Moody doesn’t like the US

From the latest Financial Times:
Moody’s says spending threatens US rating

The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody’s, the credit rating agency, said on Thursday.

In its annual report on the US, Moody’s signalled increased concern that rapid rises in Medicare and Medicaid – the government-funded healthcare programmes for the old and the poor – would “cause major fiscal pressures” in years to come.

Steven Hess, Moody’s lead analyst for the US, told the Financial Times that in order to protect the country’s top rating, future administrations would have to rein in healthcare and social security costs.
“If no policy changes are made, in 10 years from now we would have to look very seriously at whether the US is still a triple-A credit,” he said.

Cut them taxes baby! Yeah!

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Austan Goolsbee, Obama’s Econ Man

T-bone got me thinking in his response to my comment about Obama. Well, as a good AB’er, that meant I had to go a hunting. In this case, specifically for Obama’s econ advisor: Austan Goolsbee.

This lead me to an article by Austan Goolsbee, It’s Not About the Money. Wow, a man thinking like me. This lead me to a book: Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Edited by Joel B. Slemrod which is a collection of papers presented at an October, 1997 conference in Michigan of which Mr Goolsbee was a participant.
(scroll down to mid page.) This lead me to a review of the book which I will post on later. (Yes, I’m still playing with the income data stuff.)

As a sample of Mr. Goosbee’s thinking I pulled this from his paper’s introduction:

One of the liveliest areas of debate of the last twenty years in public economics has been the argument over the behavioral effects of marginal tax rate changes.

The methodological approach in what I term the New Tax Responsiveness (NTR)literature is to control for the unobserved determinants of taxable income by using “natural experiments,”….The influence of the NTR literature such as Lindsey (1987) and Feldstein (1995a) is undeniable and, if correct, has profound implications for tax policy and revenue estimation. The backbone of the NTR approach, however, is this assumption that lower income people are a valid control group for higher income people—that the change in income of the two groups would have been identical if there were no change in taxes. If this assumption is false, existing estimates may have significant biases.

And his conclusion:

After ten years of finding large elasticities of taxable income with respect to the net of tax share by using tax changes as natural experiments, the NTR literature has had a large impact on the conventional wisdom regarding progressivity and the efficiency loss of high marginal tax rates. I argue, however, that the results from these papers are based on the faulty assumption that the very rich differ from other income groups only because they have different tax rates. Independent data on several thousand high-income executives as well as on other prominent rich people show that even the moderately rich are not a valid control group.

So what’s the up shot? Well, I’m still not sold on Obama, but then I’ve never not had him on the list. I like his econ advisor from the little I read. He likes comedy! (See Other interests)
He is dedicated to his profession. He knows how to speak:

…a prestigious New England preparatory school, Goolsbee became one of the most decorated competitive speakers in the country. In 1987, Goolsbee won the National Forensics League national title in extemporaneous speaking and finished second in original oratory with a speech on the SAT entitled “Right of Passage”

Think he may be Obama’s secret to his oratory ability?

He thinks deficits matter. He thinks companies have a morality problem:

The evidence shows that companies are particularly likely to raise prices when the government is footing the bill… It’s not your grandpa’s moral hazard anymore.

Also here he tackles the 529 savings plans problems.

He seems to be hangin’ with a crowd that thinks there is a problem with just focusing on tax rates as policy for moving an economy. Although he also seems to focus a lot on the internet and taxes. This appears to be his “thing”? In doing a quick look at some of his work, Obama’s current econ plan appears to be totally Mr. Goolsbee’s ideas. I have no problem with this. It suggests that with Obama, we would actually get people who’s qualifications actually match the job assigned. Though I feel confident with the top 3 dems we would see properly fitted personnel.

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