Daily Archives: 04/27/2011

You Can’t Tax a Dead Man

This argument that taxing a man who spends none of a hoard of cash wealth takes consumption from other than the hoarder is made here.  It illustrates that case is not wealth and the fallacy of mercantilism.  Interestingly Paul Krugman is confused about this.

On Monday, I wrote about the man who can’t be taxed. There were many comments, some confused, some insightful, and (at least) one brilliant. Let me highlight that brilliant comment, then beat the point to death a little, and then draw a large moral.

Our commenter Ken B invited us to imagine a dead man, with, say $84,000,000 in his bank account (and a will that requires this bank account to be maintained forever). And let’s suppose the government confiscates, say 82 of those 84 millions, thereby allowing it to reduce other people’s current or future taxes —making those people richer. They buy more stuff. They eat more, they burn more gas, they occupy more space. Where did that stuff come from?

(Alternatively, instead of lowering someone else’s taxes, the government takes the opportunity to spend more, in which case the government claims more stuff. We still have to ask where it comes from.)

It certainly did not come from the dead man, who was eating nothing, burning no gas, and occupying no more space than he continues to occupy. Instead, somebody else must decide to consume less.

But initially nobody wants to consume less. So people, collectively, are trying to consume more stuff than is available. This excess demand for stuff pushes up prices and/or interest rates until people are willing to cut their consumption.

There is no meaningful sense in which the dead man paid the tax. Instead, the tax burden is borne by those people who were hurt by rising prices and/or interest rates.

Now Robert Kendrick, who has 84 million dollars in the bank and spends effectively zero, is (for these purposes) the economic equivalent of a dead man — he can’t consume (much) less than he’s already consuming. So if you take his money and use it to reduce some people’s taxes (or to increase government spending), then you’ve surely pushed the cost off on to some other people. Your accountant might tell you you’ve taxed Mr. Kendrick, but your economist will tell you that the actual tax burden fell on some entirely different people.

Who are the losers here? If Mr Kendrick has a nephew who plans to inherit and blow through the 84 million, he’s certainly prominent among the losers. But even if Mr Kendrick has no heirs — even if he somehow manages to live forever (continuing to maintain a minimum level of consumption), the someone else bears the burden of the tax.

Here is the larger moral: Money is not wealth. The great mistake is to think you’ve understood a transaction just because you know where the money went. That will lead you to even sillier mistakes, like thinking that if the government comes into an $82 million windfall, it can use that money to buy goods, and the goods don’t have to come from anywhere. This confusion — the idea that money can substitute for goods — comes up often in economic policy discussions, and it inevitably spawns nonsense. The same confusion underlies the mercantilist fallacy, which economists have recognized as exactly that — a fallacy — for over 200 years. It’s a good one to be on guard against.

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You Can’t Tax a Dead Man
Steve Landsburg
Thu, 21 Apr 2011 06:01:35 GMT


Deficit compromise


The Washington Post reported last week on a discouraging poll. Americans supposedly want to reduce the deficit, but not if it means changing Medicare, cutting programs like defense or Medicaid, or raising taxes on anybody but the very richest Americans. Democrats and Republicans seem farther than ever from finding agreement. It’s times like this that I’m glad there are some optimists around who still see some basis for making progress with America’s daunting fiscal challenge.

Diane Lim Rogers sees the issue this way:

Stories about [the Washington Post-ABC] poll have tended to emphasize the majority who are opposed to each item in a "pick one" menu of tough choices: 78 percent opposed to cutting Medicare, 69 percent opposed to cutting Medicaid, 56 percent opposed to cutting defense spending. The only "pick one" option that a majority (72 percent) supported: "raising taxes on incomes over $250,000." And even that is not as agreeable as it sounds, considering that households with incomes over $250,000 make up only about 2 percent of the population– i.e., you’d think we could get a little closer to 98 percent support on that one.

But that majority opposition to each of the "tough choices" is because respondents were asked to take or leave each of those tough choices as the single strategy for deficit reduction. No one wants to agree to give up something if they think others in society aren’t going to give up something, too. None of those "pick one" choices conveyed a notion of shared sacrifice or a "balanced" approach.

Diane notes that only a slight majority opposed a

more balanced approach which combines ("small") cuts in the major entitlement programs with "raising taxes on all Americans." This is a glass that is (almost) half full. We haven’t even begun to make the full sales pitch on this "shared sacrifice" plan with more specifics about how Medicare and Social Security can be trimmed while actually strengthening the safety-net parts of those programs (reassuring the liberals), or how revenues can be raised in a progressive manner by reducing “tax entitlements” rather than merely jacking up tax rates (reassuring the conservatives).

This gives me hope.

The same poll shows that a majority of Americans (59 percent) already agree that the best way to reduce the deficit is through the only-generally-described "combination" of tax increases and spending cuts– not just one or the other.

David Paul Kuhn quotes a related analysis of the Washington Post-ABC poll by political psychologist Steven Kull, director of the Program for Public Consultation at the University of Maryland:

It’s like you are saying, would you like to have some cake? Yes. Would you like to eat your cake? Yes. Ah, they want to have their cake and eat it too!

The public is capable of dealing with the budget in a rational fashion. When you ask one-off questions they can only react in a visceral way. No, it’s not attractive to cut spending. No, it’s not attractive to raise taxes. Yes, you want to balance the budget. You haven’t asked them to make tradeoffs.

Kuhn reports an approach by Kull that tried to get at this more constructively:

Kull’s study asked a random sample of Americans to do precisely that. They presented adults with the discretionary budget shortfall of $625 billion by 2015, as well as shortfalls in Social Security and Medicare. Participants chose from a range of realistic options using a computer application.

The majority made Social Security solvent. They accomplished that by raising the income limit subject to the payroll tax and increasing the retirement age to at least age 68; majorities agreed to similar tweaks of Medicare eligibility and benefits.

The average respondent reduced the discretionary budget deficit by 70 percent. One third of deficit reductions came from cuts to government programs. Two-thirds came from increased taxes and adjustments to the tax code.

A budget proposal from Representative Paul Ryan (R-WI) relies on sharp cuts in future Medicare benefits, but the accompanying reductions in tax rates make both the claimed effects on the deficit implausible and the proposal a political nonstarter when Democrats control the Senate and White House. Paul Krugman endorses an alternative calling itself the People’s Budget, though Tyler Cowen thinks it implies 70% marginal state plus federal tax rates, 50% tax on capital gains, and yet the plan’s calculations assume that this is going to raise the real GDP growth rate by 0.3% per year. Ditto what I said about the Ryan plan.

It is abundantly clear to me that the only plan that is going to work must be based on Diane’s principle of shared sacrifice– taxes need to be raised and entitlements need to be cut.

Now just give us some leaders with the courage to state the obvious.

Deficit compromise
James Hamilton
Wed, 27 Apr 2011 02:13:54 GMT

Have We Won the Empirical Debate About Economic Policy/What issue can and can’t be debated to a consensus

In any debate about governmental and economic policy its seems to me three elements are involved.  The first two can be discussed conceptually to a consensus resolution and third can’t.  Discussion of redistribution of income illustrates how that issue is coming to issue that can’t be resolved.

Of the three elements the first is there a problem?  For example is the distribution of wealth or income becoming more unequal?   Is this true even if non-cash income is counted?  Many issue about measurement will arise.  But at least conceptually these question should be resolvable.  These are simply questions of what are the facts, though often times these can be disputed for a long time.  If there global climate change would be a similar question.

The second element is how to address the problem.  Also what side effects of policies will arise?  If you redistribute income or try to will you be able to do so?  Is likely instead that tax avoidance, evasion and reduced work effort will defeat the attempt.  Is cap and trade or carbon tax a better approach to reducing green house gases.  I believe that people of can in good faith ultimately resolve this kind of question thought spirited but ration debate and discussion.

The third element is apart of the facts, and means to reach certain ends, what ends do we want?   Do we want a more equal distribution of wealth and income is that necessarily desirable?  People will disagree about this and I think it a philosophical issue that can’t be resolved even by discussion in good faith.  It just boils down being able to picture different societies and which one more people will support.

Matthew Yglesias:

Yglesias » Pity For The Rich: You can tell something’s happening in the economic policy debate when you start reading more things like AEI’s Arthur Brooks explaining that it would simply be unfair to raise taxes on the rich. Harvard economics professor and former Council of Economics Advisor chairman Greg Mankiw has said the same thing. And of course Representative Paul Ryan is both a fan of Books and a fan of the works of Ayn Rand. Which is just to say that we used to have a debate in which the left said redistributive taxation might be a good idea and then the right replied that it might sound good, but actually the consequences would be bad. Lower taxes on the rich would lead to more growth and faster increase in incomes.

Now that idea seems to be so unsupportable that the talking point is switched. It’s not that higher taxes on our Galtian Overlords would backfire and make us worse off. It’s just that it would be immoral of us to ask them to pay more taxes even if doing so would, in fact, improve overall human welfare.

If that sounds remotely plausible to you, you might have a lucrative career ahead of you working as an apologist for said Galtian Overlords. If not, then congratulations for possessing a modicum of common sense.

Have We Won the Empirical Debate About Economic Policy
J. Bradford DeLong
Sat, 23 Apr 2011 17:05:51 GMT

I agree that redistributive policy in the past have been dismissed on the grounds of their unintended consequences such as reduced work effort, not on the grounds that egalitarian goals were undesirable.   That seems to be changing as redistribution is opposed as having undesirable, even immoral goals.  The policy disagreement is moving from the first two elements to the third, and as such isn’t subject to any kind of resolution based on a technocratic agreement on facts or mean.

Brad DeLong is often worth a read, but I think is intellectually dishonest in that he treat all policy disputes as subject to technocratic resolution.  That’s not true.

As I said an issue’s facts and means to ends can be resolved as technical or empirical question.  However I don’t think we can demonstrate what ends as a society we want to pursue in a technocratic way.  DeLong ignores this fact, and shouldn’t claim be able dismiss those who disagree with the grounds of science when its his preferences in fact.

What Birthers need now!

Not Good Enough

by Kieran Healy on April 27, 2011

No-one will be fooled. I demand the White House release video of Obama being born on home plate during the 1961 World Series, with Roger Maris attending the delivery and being heard to remark “That’s a fine-looking future President you have there, Ann”. Oh wait, is the White House REFUSING to release this video? Or maybe—just maybe—are they in fact UNABLE TO? And why do you think that would be? Because the so-called President was IN AFRICA at the time? Because Hawaii wasn’t even a U.S. Territory in 1961? I think you can join the dots yourself. I rest my case.





Too late to Kill Birtherism

It seems to me that this (releasing the Long Birth Certificate) should have done early on, or not at all.

An early release I think might have quelled this pointless discussion before it got so much momentum. I emphasize “might”.

Doing it now just makes Trump look powerful. I think the true hard core birthers will still not be convinced, or they’ll just turn their attention to some other issue like his college years, or both. The web has more wacky ideas about his origins that you can imagine. I think it lacks the seal of the state or so I’ve heard.

Maybe it is a make the Republicans look nuts scheme, but I don’t know.