Buffett Rules

There’s nothing more dismaying that seeing progressives revert back to the mistakes of the past.  I’m talking about the renewed interest in super high top marginal tax rates.  Rates even the Nordic countries abandoned years ago.  Even worse, they want to apply the taxes to income, not consumption.  As if higher taxes are going to make Buffett move into a smaller house in Omaha, rather than cut back on his donations to the starving kids in Africa.

Of course the Obama administration is leading the charge, with support from multi-billionaire Warren Buffett (and why not, it won’t affect Buffett’s living standard.)

To see just how serious Obama is about going after the hedge fund managers who financed his 2008 campaign, let’s take a look at who he chooses to subsidize.  After all, welfare economics is all about consumption, not income.

Obama’s export-subsidy chief promised a billion dollars in taxpayer-backed subsidies for corporate jets, according to Bloomberg News.

Fred Hochberg heads the Export-Import Bank, a federal agency that subsidizes U.S. exports by loaning money or guaranteeing loans to foreign buyers of U.S. goods.

Those who have taught economics know that some points that are seemingly obvious can go right over the heads of most students.  For example, subsidies are negative taxes, and hence have the opposite effect of tax increases.  If taxes raise prices, then subsidies cut prices.  (I kid you not, many students think a tax will be passed on to consumers, but a subsidy will be pocketed by corporations.  Why you ask why, they actually think it’s in the corporation’s interest to pass on tax increases, and pocket subsidies.  By which logic a $20 tax combined with a $20 subsidy, i.e. a “nothing,” would cause prices to rise by $20.  Go figure.)

Sorry if I’ve insulted anyone’s intelligence, but on questions of taxes I’ve learned it’s better to be safe than sorry.  Since the rich are the only people who use corporate jets, Obama basically wrote a Treasury check for $1,000,000,000 and handed it over to the very wealthy.

And by the way, who else benefits?  Guess who owns a major corporate jet leasing company:

President Obama, Democrats in Congress, and Obama’s billionaire fundraiser Warren Buffett are talking this week about a tax hike proposal that is mostly about politics, but meanwhile, the IRS just issued guidance on changing tax law in a way that is mostly about increasing profits for corporate-jet owners and Obama’s billionaire fundraiser Warren Buffett, who owns a corporate-jet company.

Berkshire Hathaway, Buffett’s holding company, owns NetJets. NetJets is a company millionaires use in order to arrange fractional ownership of private jets — time shares, of sorts. NetJets lobbied like crazy, as Ryan Grim and Ariel Edwards-Levy at Huffington Post explained last month, to change the treatment under the tax code of flights on fractionally owned jets.

Yup, Buffett owns a corporate jet company.  Now you understand the title of the post, I’m using “rules” as a verb.

PS.  Instead of subsidies, we need a big tax on corporate jets.  If that drives much of the corporate jet industry into bankruptcy, and costs lots of jobs, then GOOD.    What progressives don’t understand is that the only way to make society more equal is to cut jobs in industries making stuff for rich people.  There is literally no other way.

PPS.  Any smears against progressives obviously exclude Matt Yglesias, who understands everything.

Update: Vivian pointed out that the total cost of the subsidy to the US government is considerably less than $1 billion.  On the other hand Joe C. pointed out that corporate jets worsen global warming.


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83 Responses to “Buffett Rules”

  1. Gravatar of dwb dwb
    17. May 2012 at 07:14

    What progressives don’t understand is that the only way to make society more equal is to cut jobs in industries making stuff for rich people.

    last i checked there was about 700 Bn of tax expenditures in the tax code (i think that’s a 10 year #, don’t quote me I think i got that from Mankiw’s blog).

    the biggest lobbyist for tax expenditures though is not the corporations, but the tax accountants and lawyers who support the industry (yes, its an industry). my tax return was about 80 pages, how can that possibly be anything but the full employment act for accounting firms?

  2. Gravatar of Bryan Willman Bryan Willman
    17. May 2012 at 07:21

    The structure of the US today is not so very different from feudalism or some other form of cronyism – it’s just designed to look different.

    Hence, the “we’ll tax the rich!” and the actually tax renters to pay for mortgage subsidies for people richer than they, all the while keeping the real estate industry relatively happy.

    Warren Buffet wants YOU to pay more taxes to support HIS projects. Regardless of his personal thinking or morals, the effect is to use government to steal.

  3. Gravatar of Morgan Warstler Morgan Warstler
    17. May 2012 at 07:28

    Exactly. Go further. Make expense accts past Holiday Inn Express and Friday’s personal income.

    AND… allow SMB owners to freely move profits from one SMB to another with 0% capital gains, instead of treating it like income.

    Also, Overstock.com is finally delivering on that Orgasm:

    http://www.rollingstone.com/politics/blogs/taibblog/accidentally-released-and-incredibly-embarrassing-documents-show-how-goldman-et-al-engaged-in-naked-short-selling-20120515

    Goldman I do believe is finally going to eat it on this one.

  4. Gravatar of Martin Martin
    17. May 2012 at 07:47

    “PS. Instead of subsidies, we need a big tax on corporate jets. If that drives much of the corporate jet industry into bankruptcy, and costs lots of jobs, then GOOD. What progressives don’t understand is that the only way to make society more equal is to cut jobs in industries making stuff for rich people. There is literally no other way.”

    Yup. A tax on income reduces income and thus production. A tax on a particular production mostly diverts production. Once you start to look into tax avoidance you’ll see it everywhere:

    English preference of tea over coffee? Result of different tax treatment.

    Narrow and deep houses along the channels in Amsterdam? Taxes on width of the house.

    Relatively windowless houses in different countries around the world? taxes on windows.

  5. Gravatar of Benjamin Cole Benjamin Cole
    17. May 2012 at 08:09

    Right on.

  6. Gravatar of Alan K Alan K
    17. May 2012 at 08:10

    Forgive me, student here. I understand that both a straight tax and a straight subsidy will both be passed on to the consumer, but what about subsidy in the form of tax reduction? If prices are sticky and an industry as a whole gets a tax break (ie not targeted at an individual producer, giving them competitive advantage), why doesn’t the business keep the difference? Won’t consumers who are used to paying the same prices keep paying them and the business gets more profit without more input?

  7. Gravatar of Mike Sax Mike Sax
    17. May 2012 at 08:14

    Obama wants to bring the top marginal tax rate to 39.6% and impose a small millionare tax and end a few subsidies like the oil companies get in particular.

    I dont see much proof looking at gas prices that their subsidies are being passed to the cosumer.

    None of this qualifies as very high rates-the days of very high rates was when we had a top rate of 75%.

    Mind you when you consdier the fact that while today’s top rate is 35% the effective top rate is only 17.3% you see that in today’s terms a 70% rate would merely get us what we supposedly are asking for today.

    You could almost write a formula-the effective rate is always about half the nominal rate.

    Overall I reember the age of the sinister 39.6% rate-even dividends were taxed this “job killing” rate-and it didn’t seem to hurt the economy at all. In fact the economy was never better. So I’m not buying the idea that raising taxes on the super rich hurts the little guy.

  8. Gravatar of Frederic MARI Frederic MARI
    17. May 2012 at 08:20

    I kid you not, many students think a tax will be passed on to consumers, but a subsidy will be pocketed by corporations. Why you ask why, they actually think it’s in the corporation’s interest to pass on tax increases, and pocket subsidies. By which logic a $20 tax combined with a $20 subsidy, i.e. a “nothing,” would cause prices to rise by $20. Go figure. Sorry if I’ve insulted anyone’s intelligence…

    Well, you haven’t insulted mine. And, you know why? Because I think your students might be right. What’s a company’s objective? To make money. By any means, including dubious ones. If it has the pricing power to get away with passing down to the customers tax increases while pocketing subsidies – It will.

    There’s a reason corporate profits are at historical high. Clearly, the competition we expect to do away with rent extraction and outright political corruption by corporations isn’t working as it’s supposed to. Not for multinational mega-corpos at least.

    That said, I am not sure about where you stands. You criticise raising tax rates on income to correct for income disparity. It’s not my favourite mechanism either – I would prefer wage increases for the bottom 99% and wage decreases for the top 0.1 or 0.01% even or thereabout – but it’ll kind of do the trick, if the cut off point is not too low i.e. as long as it doesn’t catch small business owners and the like.

    And, sure, that won’t force Buffett to downsize his house but, anyhow, he shouldn’t be involved in charity. It’s probably doing no real long term good to Africa either. So I am okay with that too.

    And taxing (conspicuous) consumption (your preferred solution, I suspect?) is great in principal. But doesn’t it run into problems when most super-wealthy keep their wealth into financial assets?

  9. Gravatar of Greg Ransom Greg Ransom
    17. May 2012 at 08:24

    Your “just off the turnip truck” naïveté is harming.

  10. Gravatar of Greg Ransom Greg Ransom
    17. May 2012 at 08:25

    charming

  11. Gravatar of Frederic MARI Frederic MARI
    17. May 2012 at 08:49

    Greg, I guess both words could apply. To whom are you addressing your comment and is it all you got to say?

  12. Gravatar of MikeDC MikeDC
    17. May 2012 at 09:00

    I’ve been too busy to read much lately, but the sudden desire to destroy ourselves to equality is sarcasm, right?

    Second, qualify that supplier</b? subsidies lower the market price of a good.

    Consumer subsidies raise market prices by pushing out the demand curve further than it should go. Which is why all those basic markets with large consumer subsidies: housing, health care, education, are too expensive and so thoroughly screwed up that they're not really "markets" anymore.

  13. Gravatar of Richard A. Richard A.
    17. May 2012 at 09:04

    Export subsidies are just another form of protectionism. It has the effect of artificially raising the value of the domestic currency– and that leads to an increase in imports and a decrease in exports from those not receiving the export subsidy.

  14. Gravatar of Rennie Scinto Rennie Scinto
    17. May 2012 at 09:07

    Given corporate tax avoidance, I think it would be much more efficient if we had zero corporate taxes and tax all capital gains and dividends at individual marginal rates.

  15. Gravatar of Steve Steve
    17. May 2012 at 09:10

    Yes, Warren Buffet is the master of regulatory capture. Tax subsidies for NetJets. Regulatory blockage of Keystone, so that Burlington Northern can have an oil transportation monopoly. And on it goes. The problem is that capitalists and liberals alike all want Warren photo ops alike, and Warren knows how to convert that into favorable regulation.

  16. Gravatar of Bill Ellis Bill Ellis
    17. May 2012 at 09:13

    Professor Sumner as you point out, “…subsidies are negative taxes, and hence have the opposite effect of tax increases. If taxes raise prices, then subsidies cut prices. ”

    So given that oil is fungible, and that the US consumes about 20% of the world’s oil when the US subsidies the oil industry 80 cents of every dollar we spend to cut prices goes to the rest of the world.

    Seems like a poor investment for us.

  17. Gravatar of Steve Steve
    17. May 2012 at 09:17

    BREAKING NEWS!!!

    Billionare thinks millionaires should pay more taxes!!!

  18. Gravatar of Steve Steve
    17. May 2012 at 09:20

    @ Morgan Warstler (and ssumner)

    Wow! I agree with you. Goldman screwing the masses, say it ain’t so? Naked short selling, manipulating, etc.

    Did anyone notice that oil dropped $15 in two weeks? The EXACT two weeks before Obama announced he wants to release the Strategic Petroleum Reserve? Think Goldman with all its government alumni didn’t know that two weeks ago?

  19. Gravatar of W. Peden W. Peden
    17. May 2012 at 09:27

    Frederic MARI,

    “If it has the pricing power to get away with passing down to the customers tax increases while pocketing subsidies – It will.”

    If it had such pricing power, why didn’t it simply raise its prices earlier, to the extent that it had such pricing power? Unless the firm is in a monopoly position, I don’t see why it shouldn’t use its pricing power long before the tax increases/subsidies are introduced, if it’s trying to make money.

    If it’s already using its pricing power, then there is no reason for it to react to a tax increase/subsidy any differently from a normal change in customer demand for the product/service.

  20. Gravatar of Joe C Joe C
    17. May 2012 at 09:30

    It should also be noted that fewer corporate jets flying around would also benefit the environment.

    Unless my mind is failing me I thought progressives were big on reducing the impact of global warming.

  21. Gravatar of Bill Ellis Bill Ellis
    17. May 2012 at 09:37

    When European nations subsidies health care for all, while we place a large part of the burden for health insurance on our businesses, aren’t we putting our nation’s businesses at a competitive disadvantage ?

    What hurts more higher taxes to pay for health care or forcing business to pay ?

    The better question is which approach works better while at the same time fulling society’s desire for health care for all ? ( Sure some folks would withhold care to those who can’t afford it… but society as a whole ? Not really. )
    I think free market approaches to providing health care to society in practice have failed miserably compared to socialism in both terms of numbers covered and overall costs.

  22. Gravatar of Cthorm Cthorm
    17. May 2012 at 09:59

    > What progressives don’t understand is that the only way to make society more equal is to cut jobs in industries making stuff for rich people.

    This is just another way of saying that a more equal society is not desirable. i.e. it is not welfare increasing. If you want higher living standards, the most you can do to increase equality is to guarantee a low minimum level of consumption. Paging Morgan…

  23. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. May 2012 at 10:02

    ‘Those who have taught economics know that some points that are seemingly obvious can go right over the heads of most students.’

    I worry more when obvious points go over the head of the professors, such as these guys;

    http://baselinescenario.com/

    Sample:

    ‘Obviously Jamie Dimon doesn’t like losing money. But he also likes making money, and for that reason he’s going to keep on pushing his people to take on additional risk in pursuit of profits. He can talk all he wants about how this trade went badly, but that doesn’t change the fact that he and his traders want to continue engaging in this class of trades—highly risky, proprietary, macro bets dressed up for as hedges for public consumption. The fact that one went bad is just a cost of doing business. “Markets” aren’t going to solve that problem because those markets are distorted. As long as those distortions exist, JPMorgan’s strategy isn’t going to change.’

    Remind me, who was the one Bank CEO who avoided the MBS debacle because he listened to his risk managers. We should want him to change his strategy?

  24. Gravatar of KRG KRG
    17. May 2012 at 10:09

    “As if higher taxes are going to make Buffett move into a smaller house in Omaha, rather than cut back on his donations to the starving kids in Africa.”

    Why would moving to a smaller house be the goal? And why would a higher tax rate reduce the level of a tax deductible activity like making donations?

    The point is almost completely the opposite- it’s to reduce the value of money that he doesn’t feed back into capital improvements, wages, tax-deductible purchases, donations and other such productive or consumptive uses so that it’s not being dumped into financial markets and creating asset bubbles or otherwise creating pressure to sell more private sector debt.

    The point of higher top level taxes is to create a use it or lose it incentive to keep velocity up, rather than letting money stagnate in financial markets where it only serves to create debt (the repayment of which is effectively negative velocity)

  25. Gravatar of Cthorm Cthorm
    17. May 2012 at 10:15

    Bill,

    If you think free market approaches to providing health care have failed I submit that you are either not looking or deluding yourself as to what constitutes ‘free market’.

    The US healthcare system is anything but free market. It has grown progressive more inefficient since the 1940s, when wage controls pushed businesses to offer tax-free health insurance benefits as compensation. We have a system that completely obscures the pricing mechanism by having third-party provision of insurance, creating significant inflation of health care costs and moral hazard galore. If you don’t pay the market price for something, you will over consume.

    We would be best off scrapping Medicare/Medicaid, getting rid of the health care tax exemption, and offering a national catastrophic health insurance plan to all citizens. If you want more health insurance, you can buy it. Or you can buy health products directly without facing the inflated costs of third-party payer.

  26. Gravatar of Negation of Ideology Negation of Ideology
    17. May 2012 at 10:23

    Rennie Scinto -

    “Given corporate tax avoidance, I think it would be much more efficient if we had zero corporate taxes and tax all capital gains and dividends at individual marginal rates.”

    I think that approach makes sense. Then the government doesn’t care how you make your money, it taxes it all the same – wages, dividends, interest, capital gains. I think the easiest way to do it is to make dividends deductible for corporations. Then most corporations would pay out all their profits in dividends and issue new shares to raise capital. Most people reinvest their dividends so there would be no loss of corporate investment.

    Then Buffett’s taxable income would be well over a billion dollars per year, paid at the ordinary rate. Everybody with a 401k would be a huge winner long term as their dividends are reinvested pre-tax. It’s about as close as you can get to a progressive consumption tax politically.

  27. Gravatar of Becky Hargrove Becky Hargrove
    17. May 2012 at 10:27

    OMG I can’t stop laughing. Frederic, while I think Greg’s remark was addressed to Scott, the fact remains that you seem to have something in common.

  28. Gravatar of Don Geddis Don Geddis
    17. May 2012 at 10:34

    @Alan K says: “I understand that both a straight tax and a straight subsidy will both be passed on to the consumer”

    @Frederic MARI says: “I think your students might be right. … If it has the pricing power to get away with passing down to the customers tax increases while pocketing subsidies – It will.”

    You two need to read up on “tax incidence” (http://en.wikipedia.org/wiki/Tax_incidence). The insight that you’re missing: “The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.”

  29. Gravatar of Rennie Scinto Rennie Scinto
    17. May 2012 at 10:50

    Negation of Ideology

    I was thinking every corporation would be treated at a S-Corp/partnership…just pass thru income to shareholders. Corporations would be forced to pay out must of earnings as dividends thus eliminating the debt tax shield. Less debt should reduce bankruptcy and should decrease corporate fraud as GAAP accounting would better approximate underlying cash earnings since there is no need to avoid taxes.

  30. Gravatar of Becky Hargrove Becky Hargrove
    17. May 2012 at 11:04

    Cthorm,
    You said, “If you want higher living standards, the most you can do to increase equality is to guarantee a low minimum level of consumption.” Everytime we guarantee any such ”minimum’ level, the factors in relation to it respond in kind, such as Pell grants and higher school costs. There’s a good chance that a guaranteed minimum income would push up the price of housing so that the two would continue to chase one another. The best option therefore would seem to be a market option: one which bypasses the government subsidy, cuts through regulations (and plumbing union requirements) and offers high tech low cost housing options on freed up (rentable) land, and such mobile housing pieces could be moved about as needed.

  31. Gravatar of Vivian Darkbloom Vivian Darkbloom
    17. May 2012 at 11:07

    “…subsidies are negative taxes, and hence have the opposite effect of tax increases. ” and

    ” Since the rich are the only people who use corporate jets, Obama basically wrote a Treasury check for $1,000,000,000 and handed it over to the very wealthy.”

    I don’t disagree with the general point that a “subsidy” is effectively the opposite of a tax increase; however, is what we are talking about here a “$1 billion subsidy”? That was the term used by the Washington Examiner and uncritically repeated here.

    Actually, the Ex-Im Bank appears to have agreed to provide $1 billion of *financing* towards the purchase of corporate jets. That financing can take different forms, but normally it would involve the Ex-Im Bank providing loans to foreign purchasers of corporate jets that those purchasers could not have gotten in the private market (at least not on the same terms). In other cases it takes the form of loan guarantees. This indirectly helps US manufacturers sell more corporate jets to “very wealthy” foreign buyers (at best it may increase foreign sales by $1 billion), but it doesn’t strike me as the equivalent of a tax decrease to US corporate jet manufacturers (or anyone else) of $1 billion.

    Regardless of the price tag and who those “checks” are written to, it does strike me as inconsistent with the administration’s much touted proposal to eliminate an actual tax subsidy that the CBO estimates would raise $3 billion over 10 years (accelerated US depreciation on corporate jets owned by US persons—a rule that the current administration has extended, I think, three times).

  32. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 11:11

    Cthorm:

    If you want higher living standards, the most you can do to increase equality is to guarantee a low minimum level of consumption.

    You just conflated an absolute quantity with a relative quantity.

    Standards of living and relative wealth are two very different things. We could have zero relative inequality and absolute poverty, and we can have high absolute standards of living and high relative inequality.

    Increasing absolute standards of living does not mean a reduction in relative inequality. It means the everyone is getting wealthier, but some are getting wealthier faster than others.

    If you and I both produce the same and earn the same, but then I produce more and earn more than you, then neither of our standards of living have gone down, in fact wealth has gone up, but inequality has gone up too.

  33. Gravatar of Alan K. Alan K.
    17. May 2012 at 11:19

    Thanks for the pointer, Don, and thanks for being a condescending jackanape about it, too.

    Assuming demand is more inelastic than supply, so tax incidence falls at least partly on the consumer, does a reduction in that tax adjust the curves as a supply side subsidy or a demand side subsidy?

  34. Gravatar of Cthorm Cthorm
    17. May 2012 at 11:24

    @ Major_Freedom

    I’m not conflating the two. I’m saying that you can not improve relative inequality without destroying the incentive to improve absolute standards of living. Relative inequality may very well be low along with high standards of living, but that can only happen if actions are unrestricted.

  35. Gravatar of Becky Hargrove Becky Hargrove
    17. May 2012 at 11:32

    As I think about it, the direction of a subsidy on price seems to depend on where the subsidy lands in the process and how complex the process actually is. Subsidizing food commodities affects their market in other countries and makes it easier for food processors to gain profit. Whereas subsidies at the end of production or service oriented processes would seem to work quite differently.

    What is clear in all this, however, is that the irrational complexity of tax rules ultimately breaks down the efficiencies of rational complexities.

  36. Gravatar of Bill Ellis Bill Ellis
    17. May 2012 at 11:50

    Cthorm,

    You are right, the US health care system is not a pure free market…what is ? But it is far more “free market” than European systems. The European way has provided comparable care for much less per capita.
    As for health care inflation since the 40′s… I believe that the bulk of that comes from increases in med tech and our ability to prolong live spans. I fail to see how a free market approach would have prevented that form happening unless the market priced long life spans out reach.

    Applying a moral hazard approach doesn’t work when human nature prevents us from allowing people to face the consequences. “offering national catastrophic health insurance plan to all citizens” would help, mitigate the problem, but I doubt you could convince society that we should let people go with out care unless it is a catastrophic problem. ( Think of the Children ! Ya know what I mean? )

    And who would pay for the national catastrophic health insurance plan ? If it is the consumer, then you run into a mandate vs moral hazard enforcement problem. If it is the government, then you are subsidizing the insurance industry by having the government take on the cost of one of the most expensive segments of medical care.

  37. Gravatar of Floccina Floccina
    17. May 2012 at 11:51

    (I kid you not, many students think a tax will be passed on to consumers, but a subsidy will be pocketed by corporations. Why you ask why, they actually think it’s in the corporation’s interest to pass on tax increases, and pocket subsidies. By which logic a $20 tax combined with a $20 subsidy, i.e. a “nothing,” would cause prices to rise by $20. Go figure.)

    People are easily confused about the incidence of taxation. I have a hard time convincing my fellow landlords that in our competitive market the renter pays the property taxes. The landlords are outraged at the level of the property tax and they seem to want to stay outraged. On the other hand the renters, who should be outraged, are completely unaware that they are paying the tax but at least when I tell them the light comes on. Much of the art of modern democratic politics is to hide the costs from the majority of voters and show the benefit.

  38. Gravatar of ssumner ssumner
    17. May 2012 at 12:14

    dwb, That’s right. All tax expenditures should be abolished.

    Bryan, I agree about the cronyism.

    Morgan, Excellent, And I’d tax 100% of restaurant meals.

    Martin, Good point.

    Thanks Ben.

    Alan, Prices aren’t sticky in the long run–which is what matters in tax analysis. And jet prices aren’t even sticky in the short run. How long would it take companies to pass on higher prices? That’s how long it takes them to cut prices.

    In any case, if prices are sticky then a different set of super rich people pocket the Obama subsidy.

    Mike Sax, You said;

    “Obama wants to bring the top marginal tax rate to 39.6% and impose a small millionare tax and end a few subsidies like the oil companies get in particular.”

    Look, if you are going to blog on taxes you’ve got to stop believing the Obama lies–he is advocating top rates above 39.6%, indeed with no change in the law the federal top rate will hit about 43% next year.

    Why would oil companies not pass on the subsidies to consumers? I thought they were greedy. Are you claiming they aren’t greedy? And where is your “evidence.”

    Frederic, You said;

    “Well, you haven’t insulted mine. And, you know why? Because I think your students might be right. What’s a company’s objective? To make money. By any means, including dubious ones. If it has the pricing power to get away with passing down to the customers tax increases while pocketing subsidies – It will.”

    Yup, I haven’t insulted your intelligence. If a tax raises the profit maximizing price then ipso facto a subsidy lowers it. I claim they will lower prices because they are greedy SOBs. I’m not using any economic assumptions here, just logic.

    So you don’t like Buffett helping kids in Africa. Does that mean you’d rather the government take the money and give it in foreign aid to Egypt, Israel, and Pakistan to buy weapons?

    MikeDC, I was talking about producer subsidies.

    Richard A, Exactly.

    Rennie, Let’s eliminate taxes on corporations, and on dividends and capital gains. Go with 100% consumption taxes.

    Steve, That’s right.

    Bill Ellis, That’s right.

    Joe C. Excellent point.

    Cthorm, I actually think it is desirable to have less consumption by the rich. But I oppose any taxes on capital, inheritance, etc. Just tax high consumers.

    Patrick, Good point.

    KRG, You said;

    “Why would moving to a smaller house be the goal? And why would a higher tax rate reduce the level of a tax deductible activity like making donations?”

    If people care about “equality” then presumably what bothers them is an unequal level of consumption. So if Buffett doesn’t reduce his consumption, you haven’t actually taxed him. You’ve taxed the entities where he will cut back spending/donating.

    You are right about charity, I forget that it’s tax deductible. However if you tax capital income, and a guy like Buffett waits until he’s old to give it away, then you actually are cutting into charity somewhat. But the biggest cost would be less investment, which is where good jobs come from.

    Tax policy has nothing to do with keeping velocity up–that’s monetary policy.

    Becky, Yeah, I was wondering who Greg aimed that at.

    Don Geddis, It goes beyond economics and elasticities, to simple logic. They are claiming that a combined tax/subsidy that nets out to zero would raise prices. That’s like economic homeopathy (no offense to alternative medicine fans.)

    Vivian, Good point, I exaggerated. But as someone pointed out above, it’s also horrible for global warming.

  39. Gravatar of ssumner ssumner
    17. May 2012 at 12:16

    Floccina, Yes, that’s a constant problem.

  40. Gravatar of Morgan Warstler Morgan Warstler
    17. May 2012 at 12:17

    Yes indeed, once again my Guaranteed Income plan to Auction the Unemployed is the future.

    —-

    If you are a GOOD LOGICAL PROGRESSIVE… in order to actually figure out what real cash transfers need to be made to keep everyone’s basic nut covered, we first have to drag the non-working 30M into the workforce, auction their labor, so we can see the REAL LOWER PRICE LEVEL of services in poor areas.

    Then once we know the REAL COSTS of goods and services when all of the poor are working, we can better figure out what kind of progressive consumption tax we need.

    Right now the prices of goods and services (REAL QUALITY OF LIFE IMPROVEMENTS) are artificially high because we have so many marginal labor workers sitting on the couch instead of making the cost of fixing up the ghetto and cleaning public parks far cheaper.

  41. Gravatar of Saturos Saturos
    17. May 2012 at 12:37

    But if the incidence of luxury taxes is mostly on the workers, as seems to be the case, then how does that reduce inequality?

  42. Gravatar of Saturos Saturos
    17. May 2012 at 12:46

    Scott, I think the phenomenon here is that people think more about the tradeoff between marginal revenue and sales when raising prices above the status quo than when lowering them. People also forget that just as you might want to reduce output to reduce marginal tax-payment, so you might also increase output to increase marginal subsidy-receipt.

  43. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 12:48

    Morgan:

    If you are a GOOD LOGICAL PROGRESSIVE… in order to actually figure out what real cash transfers need to be made to keep everyone’s basic nut covered, we first have to drag the non-working 30M into the workforce, auction their labor, so we can see the REAL LOWER PRICE LEVEL of services in poor areas.

    Then once we know the REAL COSTS of goods and services when all of the poor are working, we can better figure out what kind of progressive consumption tax we need.

    Right now the prices of goods and services (REAL QUALITY OF LIFE IMPROVEMENTS) are artificially high because we have so many marginal labor workers sitting on the couch instead of making the cost of fixing up the ghetto and cleaning public parks far cheaper.

    If it were lucrative for employers to hire these workers now, they’d be hiring them now. Putting the unemployed on a database for hire, won’t suddenly make potential employers believe there are money making opportunities.

    If the state hires them, to do make work projects, then we’d call them the TSA. You’re presuming all the workers would do “good, nice, clean” things like sweeping the streets and cutting park grass.

  44. Gravatar of orionorbit orionorbit
    17. May 2012 at 12:50

    I agree with the post except the bit about progressives having to acknowledge that the only thing that can be done to make society more equal is to tax luxuries either at production or consumption.

    A better monetary policy and a tax financed student support program like the one Sweden has would be effective in reducing inequality.

  45. Gravatar of Saturos Saturos
    17. May 2012 at 12:51

    My idea has always been to abolish corporate taxes, but tax capital gains and dividends at the ordinary income/consumption rate, after subtracting losses and the nominal interest rate.
    See here: http://daviddfriedman.blogspot.com.au/2011/08/capital-gains-taxation-contra-landsburg.html

  46. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 13:03

    Cthorm:

    I’m not conflating the two. I’m saying that you can not improve relative inequality without destroying the incentive to improve absolute standards of living.

    That wasn’t clear, because in your post you yourself advocated for a policy that would reduce the incentive to produce, namely, some form of “guaranteed” consumption, which of course means those who produce would be compelled to produce for other people’s benefit and not their own. That will reduce the incentive to produce.

    Relative inequality may very well be low along with high standards of living, but that can only happen if actions are unrestricted.

    Don’t you mean “Relative inequality may very well be high along with high standards of living”? Because that’s what I said.

    And I don’t see why you’re calling a reduction in inequality an “improvement.” For that implies I am somehow worse off if there exists people who get wealthier faster than me. That’s silly. If anything, I am better off the more people are wealthier around me because it means I have more opportunities to trade for more wealth.

    The more wealth others produce, the more I have the opportunity to increase my prosperity by doing business with them.

    Inequality is good for me. Given my wealth, I’d rather live in a world where I am the poorest, BY FAR, than a world where everyone has my level of wealth.

    If I had to choose between being the poorest in a rich country, or equally well off as everyone else in an impoverished country, I’d choose the former. I think most others would too, even those who preach equality.

    Those who preach equality are almost always those who believe they will get free wealth if equality were imposed. Rarely have I ever seen an equality advocate preach that the poorest in their own country should become poorer still in order to “improve” inequality between them and poorer Africans. No, it’s always “tax the millionaires, and leave the ten thousand-aires alone!”, as African children starve to death every day.

  47. Gravatar of Mike Sax Mike Sax
    17. May 2012 at 13:10

    “if you are going to blog on taxes you’ve got to stop believing the Obama lies–he is advocating top rates above 39.6%, indeed with no change in the law the federal top rate will hit about 43% next year”

    The nominal top rate would go from 35 to 39.6 percent. This was what they were under Clinton. But really whether 39.6 or 43 it’s far from the 70 it was until Reagan.

    Remember that it’s really not Obama’s rate anyway-it was the way Bush himself wrote the law-to expire in 2010. So we’re already 2 years beyond it. So in reality the rate is Bush’s rate as he wrote the law.

    It seems to me that the GOP made a really bad deal in the debt ceiling last year. Where’s their leverage to stop the Bush tax cuts form expiring especially as they say they won’t negotiate, are just demanding nonmilitary spending cuts and demanding that the already agreed on military cuts are ended-they wont get that either.

    For more please see

    Boehner’s Debt Ceiling 2.0

    http://diaryofarepublicanhater.blogspot.com/2012/05/boehner-debt-ceiling-chicken-20.html

    “Why would oil companies not pass on the subsidies to consumers? I thought they were greedy. Are you claiming they aren’t greedy? And where is your “evidence.”

    My evidence is that no one thinks gas prices are cheap. There’s certainly no evidence that they have passed the subsidies to the consumer. There are plenty of things they can do with it besides giving the consumer a break: retained earnings, a stock dividend, or maybe in new research and development. Or maybe in another bonus to their CEO…

    The possiblities are limitless besides giving them back to consumers. That’s just one thing they could do with the subsidy.

  48. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 13:15

    Saturos:

    My idea has always been to abolish corporate taxes, but tax capital gains and dividends at the ordinary income/consumption rate, after subtracting losses and the nominal interest rate

    My idea is to abolish taxes.

    But since that is “embarrassing” to say in public, I say that all taxes on all saving related incomes should be abolished, including corporate taxes, capital gains taxes, dividend taxes, payroll taxes, interest taxes, and that the only thing that should be taxed is consumer goods and services at retail.

    The more you consume, the more taxes you pay. If you save and invest, then 100% of that is tax free.

    If you think this will harm the poor, think again, because with zero taxes on all saving and investment, and all taxes falling on consumption, the amount of saving and investment will skyrocket, and the explosion of productivity will make the supply of consumer goods and services so abundant that the high tax rates on consumer goods will easily be affordable by even the poorest of the poor. It would be like paying 90% tax on goods priced at $10.00, rather than paying a “lower” 10% tax on goods priced at $100.00.

    Of course, the high priests of equality are going to crawl out from their rocks and have a conniption, and declare that this is an attack on “the poor”, because “the rich” earn their incomes via investment, little would those morons realize that this will turn poor people into rich people, by making investments too attractive to pass up. Welfare statists want to turn poor people rich by making them into child-like dependents, whereas my plan will turn them rich by making them into capitalists. Heck, even their labor income can take the form of tax free stock options. Companies can pay their employees in shares of the company, and turn poor youngsters into wealthy grandparents.

    All that is needed is for the redistributionists to be beaten back hard enough and long enough, and their guns pointed at real criminals, and not “the rich”, to allow capital accumulation to occur.

  49. Gravatar of Cthorm Cthorm
    17. May 2012 at 13:16

    Major_Freedom, you’re preaching to the choir with me. I favor maximal economic freedom. The ‘guaranteed income’ idea is not necessarily something I want, but I present it as a less-bad option to those who favor welfare etc. I believe Morgan has the same attitude.

    Scott, you said:

    “Cthorm, I actually think it is desirable to have less consumption by the rich. But I oppose any taxes on capital, inheritance, etc. Just tax high consumers.”

    Desirable for whom? I don’t see anything wrong with the rich consuming all of their wealth if they choose to do so. I obviously agree that relying on a consumption tax is the least harmful and most practical, but I don’t see the need for punitively high rates on luxury goods. Just like buying and selling financial assets, why would you want to constrain such activity? Often times the luxury goods of today are the mass market goods of tomorrow.

  50. Gravatar of Negation of Ideology Negation of Ideology
    17. May 2012 at 13:39

    Rennie Scinto -

    I agree with that approach. Then every corporation would be treated like S-corps or REITs are today. A side benefit is it would help us get away from the idea that work is and end in and of itself. Having more corporate profits and more people living off their dividends instead of labor income is a good thing. Then there will be less incentive for voters to favor make work jobs. Every job replaced by productivity means more money in their dividend check.

    “The answer to the problems of capitalism is more capitalists, not fewer.” – GK Chesterton

  51. Gravatar of KRG KRG
    17. May 2012 at 14:24

    Scott:
    “If people care about “equality” then presumably what bothers them is an unequal level of consumption.”

    That’s a bad assumption. I’d say that inequality in economic opportunity, security, and liberty are more at issue. These end up being reflected in a certain degree of conspicuous consumption; but it’s not the consumption at issue but the growing disparity in the ability of people to actually be able to achieve the same result based on a similar amount of work.

    Wealth isn’t a problem in and of itself, but the fact that, as things currently are structured, wealth contributes far more to a person’s ability to determine their income than work does makes inequalities self-perpetuating and actively lowers the future value of people trying to work to improve their position rather than employing inherited wealth to do so.

    “So if Buffett doesn’t reduce his consumption, you haven’t actually taxed him. You’ve taxed the entities where he will cut back spending/donating.”

    Exactly- and that’s why taxes should be shaped to exempt spending that employs people or expands productivity (consumption, wages, and capital investment) and to discourage less desirable uses of money (market speculation, financial products) We want him to buy a house and implicitly pay all of the people that helped build it and not to put that money into an account that, instead of providing income for those people, offers them all higher limits on their credit cards or tries to get them to take out more loans; things that look similar in the short run, but will turn into deadweight in the long run.

    “You are right about charity, I forget that it’s tax deductible. However if you tax capital income, and a guy like Buffett waits until he’s old to give it away, then you actually are cutting into charity somewhat.”

    If he gives his income to charity, it’s not taxed. If he reinvests it int wages, business expenses, or other capital products, it shouldn’t be taxed (get rid of FICA completely, as it only serves to increase the cost of labor without the feedback benefit of increasing incomes). It’s only if he takes the money out and dumps it into speculative or financial investments, where it’s just attracting more money through loans or market manipulation without needing to produce and sell any real goods or services in the middle.

    “But the biggest cost would be less investment, which is where good jobs come from.”

    Only if you don’t distinguish between productive capital investments and financial investments. No taxes on it if he hires people to do things, buys things that other people made, or even uses it to buy original issue stocks. Only tax it if he pulls it out of the productive cycle and gives it to a banker to make loans with or a broker to make market trades with other brokers. That way there’s no impact on the kind of investment that creates good jobs and economic opportunities, but there is a disincentive on financial manipulation and creating private debt.

  52. Gravatar of Morgan Warstler Morgan Warstler
    17. May 2012 at 14:43

    MF,

    Cthorn is right.

    And at $40 per week opening bid, everyone is profitable.

    It’s not perfect but it fixes 75% of what is wrong, and can be passed.

  53. Gravatar of Morgan Warstler Morgan Warstler
    17. May 2012 at 14:51

    This is a great article:

    http://www.theatlantic.com/business/archive/2012/05/mitt-romney-one-night-stands-and-the-economics-of-relationships/257239/

  54. Gravatar of Mike Sax Mike Sax
    17. May 2012 at 14:56

    “Inequality is good for me. Given my wealth, I’d rather live in a world where I am the poorest, BY FAR, than a world where everyone has my level of wealth.”

    “If I had to choose between being the poorest in a rich country, or equally well off as everyone else in an impoverished country, I’d choose the former. I think most others would too, even those who preach equality.”

    The poorest people in a rich country-come to NYC sometime and you’ll see poor people in a very rich country-ours. Their homeless street bums.

    With laws like Stand Your Ground these people won’t last long as they have no property and there are rights only for those with property.

    Sure you’d relish that MF.

  55. Gravatar of cassander cassander
    17. May 2012 at 15:03

    I do not understand your fascination with yglesias. I grant you he’s good on monetary policy, but as much as he is willing to point out government screw ups he treats each one as a new and fresh surprise, with seemingly no understanding of why they keep happening, or even that there is a pattern. see, for example, his admirable war on occupational licensing that never once seems to have made him question the virtues of other kinds of regulation. On this, he is a typical oblivious liberal.

  56. Gravatar of Mark A. Sadowski Mark A. Sadowski
    17. May 2012 at 17:29

    Yes, Scott. Buffet rules!

    http://en.wikipedia.org/wiki/File:Swedish_buffet-Sm%C3%B6rg%C3%A5sbord-01.jpg

    Ahhh.

  57. Gravatar of Morgan Warstler Morgan Warstler
    17. May 2012 at 18:10

    Somebody just got back from Ikea

  58. Gravatar of dwb dwb
    17. May 2012 at 18:39

    i see Yglesias picked up your story.

    All i can say is, I prefer my pork on a sandwich, with BBQ sauce, a big kaiser roll and some sweet potato fries. I don’t like DC pork. It smells like burning paper.

  59. Gravatar of Coming Soon: Subsidized Corporate Jets, Courtesy of the Export-Import Bank | Breaking Import Export News Coming Soon: Subsidized Corporate Jets, Courtesy of the Export-Import Bank | Breaking Import Export News
    17. May 2012 at 19:36

    [...] Via Scott Sumner, it seems that partial of a understanding to replenish a Export-Import Bank is that it will now start subsidizing a prolongation of private jets. [...]

  60. Gravatar of Saturos Saturos
    17. May 2012 at 21:26

    Here’s an interview with the man himself: http://www.economist.com/blogs/schumpeter/2012/05/warren-buffett-and-giving-pledge

  61. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 23:25

    Cthorm:

    Major_Freedom, you’re preaching to the choir with me. I favor maximal economic freedom. The ‘guaranteed income’ idea is not necessarily something I want, but I present it as a less-bad option to those who favor welfare etc. I believe Morgan has the same attitude.

    That means you want it.

    Morgan:

    Cthorn is right.

    No, he’s wrong. Guaranteed income will only exacerbate the problem you’re trying to solve.

    And at $40 per week opening bid, everyone is profitable.

    If that were true, you’d already be seeing it now. But we’re not.

    You’re blowing smoke, Morgan. Your problem is that you’re thinking like a central planner.

    Mike Sax:

    The poorest people in a rich country-come to NYC sometime and you’ll see poor people in a very rich country-ours. Their homeless street bums.

    With laws like Stand Your Ground these people won’t last long as they have no property and there are rights only for those with property.

    Sure you’d relish that MF.

    Look at all those tangents and complaints.

    The poor in NYC are far better off in NYC than they would be in Saudi Arabia, or Sudan, or wherever else they would be more “equal” with others.

    And what’s this? You’re against the stand your ground law? So you’re in favor of criminals having their way with innocent people who should not be allowed to protect themselves because they don’t have any right to defend their life?

    OK, so I guess you won’t mind me suddenly running at you with a knife while I yell I’m going to kill you. You would be perfectly happy with not standing your ground, and hope that the real people, the people in uniform, come to your rescue.

  62. Gravatar of Saturos Saturos
    17. May 2012 at 23:39

    Cthorm:

    Major_Freedom, you’re preaching to the choir with me. I favor maximal economic freedom. The ‘guaranteed income’ idea is not necessarily something I want, but I present it as a less-bad option to those who favor welfare etc. I believe Morgan has the same attitude.

    That means you want it.

    I have a new theory. Major Freedom is really – Scott Sumner’s sock puppet.

    Dun Dun Dun !!!!!

    (This is like when we found out that Doctor Janice was really the City Wok Guy all along: http://www.southparkstudios.com/clips/387871/he-wouldnt-harm-a-fly)

    The purpose is to boost the credibility of Scott’s “Pragmatic Libertarian” position – to create the most horrendous caricature of a “Dogmatic Libertarian” so that their credibility would be destroyed forever.

    The game is up, Scott. We know what’s really going on here.

  63. Gravatar of Saturos Saturos
    17. May 2012 at 23:46

    Oh, man – It’s doctor “Janus” isn’t it? Shit, I just finally got that episode after like a year.

  64. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 23:52

    Saturos:

    The purpose is to boost the credibility of Scott’s “Pragmatic Libertarian” position – to create the most horrendous caricature of a “Dogmatic Libertarian” so that their credibility would be destroyed forever.

    You only WANT so badly for that to be the case.

    Leave it to a dogmatic state interventionist to call one who requires proof state intervention works as “dogmatic.”

    You’re dogmatic you dogmatist. Your dogma is screw individual freedom because people can’t take care of their own finances and need to be deluded by benevolent state induced inflation because they’re idiots.

    Inflationism = Dogmatism. Live it. Learn it. Accept it.

  65. Gravatar of Major_Freedom Major_Freedom
    17. May 2012 at 23:55

    Pragmatic libertarian = Non-libertarian = Statist who wants to appear libertarian to libertarians and statist to statists.

  66. Gravatar of Mike Sax Mike Sax
    18. May 2012 at 01:28

    MF

    “You would be perfectly happy with not standing your ground, and hope that the real people, the people in uniform, come to your rescue.”

    I’d certainly be happier counting on them than you to come to my rescue. I’d rather the guys in uniform than a bunch of vigilantes running around who think all Black people look alike and all Arabs look alike

    What makes you think Saudi Arabia or Sudan are egalitarian paradises? MF I’m not a pure egalitarian by any stretch when I talk to firebaggers on the Left there’s no doubt about it. But to act like there’s nothing to worry about at all, and that poverty is fine, there’s something wrong with that attitude.

    I suggest to you that it’s not that you wouldn’t mind being the poorest in the country but that you have so little imagination and ability to empathize with the poorest that you can actually delude yourse that “it’s not that bad what are they making all the fuss about?”

  67. Gravatar of J.V. Dubois J.V. Dubois
    18. May 2012 at 01:32

    Excellent article I must say. I think that most people that understand taxes agree with you here.
    .
    But I think there is a huge and still untapped area that you touched here – social responsibility and social pressure on the rich to act responsibly. While we value personal liberty and even if we defend property and other personal rights, we may still disapprove of rich people who live lives of needles luxury. For instance if I see somebody wearing designer clothes, all I think about is that this person is part of the industry that sucks valuable resources from other uses into media coverage, expensive fashion shows etc. This is what seems to completely vanish from public discussion on the right – that if you have freedom (to amass massive riches) you also have responsibility to use it in a socially meaningful way once you have it. For instance buying personal superyacht that just sits in the port most of the time and that just sucks vast resources for maintenance so that you may use it once a year is huge waste and it is in my eyes morally reprehensible. Even if you can “afford” it.
    .
    This whole “greed is good” era had huge costs in terms of social capital. People are rightfully angered if they see such a waste of resources all the while they see a lot of suffering around them. This is the stuff of revolutions. I short, the society needs more examples of people like Ingvar Kamprad and less of people like Roman Abramovich.

  68. Gravatar of Saturos Saturos
    18. May 2012 at 01:56

    C’mon Scott, give it up, I know it’s you.

  69. Gravatar of Morgan Warstler Morgan Warstler
    18. May 2012 at 06:55

    Saturos, you think like me.

    “You’re blowing smoke, Morgan. Your problem is that you’re thinking like a central planner.”

    “Pragmatic libertarian = Non-libertarian = Statist who wants to appear libertarian to libertarians and statist to statists.”

    MF,

    I’m a anarcho-capitalist. I’m also a hacker. Hacking us towards less govt. is the only way it will get done.

    It is the end of journey. There are many roads there… the question is HOW FAST we get there.

    1. “Spending all the money” has been working for the GOP, and if Obama loses in November, Scott has to dedicate his next book to me.

    Scott will be forced to admit hat this hack has scored the first direct blow, keeping Dems from paying off non-taxpayers for votes.

    It isn’t perfect, taxpayers still get paid off, but unhooking the non-payers form vote for free shit is a big first step.

    If Obama wins, the hack didn’t scale.

    2. NGDPLT as another anti-government hack will gain more power if Obama wins.

    If #1 fails, I lose my bet, Scott gets to thank his wife instead, I will immediately rationally adopt this hack as my preferred method of shrinking the growth of the state.

    3. My Guaranteed Income is hack #3. And on this one MF, you have proven you don’t understand it:

    “And at $40 per week opening bid, everyone is profitable.

    If that were true, you’d already be seeing it now. But we’re not.”

    MF we don’t auction ever person on the dole in the US at a starting bid of $40 per week….

    Under my plan we would.

    So there is nothing to see yet, EXCEPT proof in the way of unpaid internships.

  70. Gravatar of Troy Troy
    18. May 2012 at 09:13

    What about a tax on all purchases, to include securities?

  71. Gravatar of Major_Freed Major_Freed
    18. May 2012 at 10:24

    Morgan:

    I’m a anarcho-capitalist.

    And I’m the King of Kashmir. No, really I am, it’s just that I realize people won’t recognize my rule unless I get there in steps, and so in the meantime I will only act in a way contrary to it, so that I can hack my way into being ruler.

    You’re an anarcho-capitalist? Not according to your actions you’re not. You might as well say Stalin was a pacifist because his ultimate goal was world peace, he just took a long detour to get there.

    According to your actions, you’re a welfarist/inflationist.

    I’m also a hacker. Hacking us towards less govt. is the only way it will get done.

    Hacking towards less government by systematically destroying the monetary system? What kind of hacking is that? It would be like saying you want to live longer, so why not freeze your body and end your biological processes.

    It is the end of journey. There are many roads there… the question is HOW FAST we get there.

    Your path will not get us there.

    1. “Spending all the money” has been working for the GOP, and if Obama loses in November, Scott has to dedicate his next book to me.

    Scott will be forced to admit hat this hack has scored the first direct blow, keeping Dems from paying off non-taxpayers for votes.

    It isn’t perfect, taxpayers still get paid off, but unhooking the non-payers form vote for free shit is a big first step.

    The state can still bribe non-paying voters in NGDP targeting. They successfully did so for years prior to 2008, when NGDP was rising all nice and smoothly.

    Your NGDP advocacy won’t be a constraint on the state. Indeed, if anything it will give the state MORE spending room, since NGDP requires more money printing and more spending than currently exists.

    If Obama wins, the hack didn’t scale.

    You’re saying NGDP success is contingent upon who is President?

    2. NGDPLT as another anti-government hack will gain more power if Obama wins.

    It hasn’t been a hack so far with de facto NGDP targeting pre-2008. There is no reason to believe it will suddenly become a hack post-2008.

    Just look at the increase in government spending relative to GDP:

    http://i.imgur.com/UPq2T.png

    If you were right, government should not have been able to grow.

    If #1 fails, I lose my bet, Scott gets to thank his wife instead, I will immediately rationally adopt this hack as my preferred method of shrinking the growth of the state.

    3. My Guaranteed Income is hack #3. And on this one MF, you have proven you don’t understand it:

    “And at $40 per week opening bid, everyone is profitable.

    If that were true, you’d already be seeing it now. But we’re not.”

    MF we don’t auction ever person on the dole in the US at a starting bid of $40 per week….

    That’s because it is illegal, as it is below the minimum wage. Your “plan” can be tested by simply dropping minimum wage laws, and we’ll see if $40 per week takes place.

    The word “guaranteed” implies that people WILL get $40 per week, against voluntary consent if need be. It would have to be financed by coercive taxes, or taking advantage of the coercive monetary system by printing more money.

    Your guaranteed income plan is not even original. There are some novelties like bidding through the internet and whatnot, but fundamentally it’s just the same old stuff redressed in new clothing.

  72. Gravatar of Saturos Saturos
    18. May 2012 at 12:39

    Morgan Warstler, do you like Julian Assange?

  73. Gravatar of Mike Sax Mike Sax
    18. May 2012 at 13:23

    Morgan I knew there was something I like about you! Turns out your a welfare-inflationist according to the Major.

  74. Gravatar of Negation of Ideology Negation of Ideology
    18. May 2012 at 14:30

    Satorus -

    “I have a new theory. Major Freedom is really – Scott Sumner’s sock puppet.”

    Having a foil is an old technique – didn’t Plato use one to “debate” Socrates?

    I actually had a similar theory – that it’s an assignment Professor Sumner gave one of his grad students.

    Scott – If that’s true, I hope he’s getting a good stipend and a tuition waiver.

  75. Gravatar of ssumner ssumner
    18. May 2012 at 17:35

    Saturos, Yes, people tend to be very poor at reasoning through economic issues.

    I’d abolish all taxes on capital. Go with a progressive consumption tax.

    Orionorbit. Sweden taxes mostly consumption, so they understand how things work. Monetary stimulus won’t have much effect on income distribution.

    Mike Sax, You said;

    “The nominal top rate would go from 35 to 39.6 percent.”

    That’s what they are claiming, but it’s simply not true. I’d suggest reading some non-liberal blogs on taxes if you want to understand what’s really going on. If you go into battle armed with what you’ve learned reading Krugman you’ll end up looking foolish. It’s for your own good.

    You said;

    “My evidence is that no one thinks gas prices are cheap. There’s certainly no evidence that they have passed the subsidies to the consumer.”

    Is this some kind of joke? What does it matter what people think? People are idiots. The question is how were gas prices affected by subsidies? I didn’t know there were any subsidies on each gallon of gas sold. If there are, then find out when they were enacted, and what the impact was when they were enacted.

    Cthorm, I don’t want punitively high taxes either. It just seems to me that at that margin it’s better for the rich to pay a bit more percentage wise than the poor.

    KRG, You said;

    “Exactly- and that’s why taxes should be shaped to exempt spending that employs people or expands productivity (consumption, wages, and capital investment) and to discourage less desirable uses of money (market speculation, financial products)”

    This is bad economics. Money not consumed is saved. Period, end of story. Saving equals investment, period, end of story. “Speculation” just refers to risky investments, no reason to discourage it at all.

    You said;

    “Only if you don’t distinguish between productive capital investments and financial investments.”

    In the field of economics this sentence literally has no meaning. You are talking gibberish. What you are calling financial investment is simply saving, which is funds used to finance physical investment.

    Cassander, Didn’t he pick up this issue? You don’t see Krugman do that.

    Mark, At first I thought I’d misspelled Buffett again.

    dwb, Yup.

    Saturos, I don’t have the time to write those long MF posts, and I’m not capable of twisting arguments in such exquisitely illogical directions. But I’m flattered that you thought I was capable of such a devious plan.

    JV, Yeah, I’d like to see a big tax on those mega-yachts.

    Troy, No, just on consumer goods.

  76. Gravatar of Morgan Warstler Morgan Warstler
    18. May 2012 at 18:20

    Finally a good thread!

    MF,

    I have gotten closer to grasping our confusion.

    On #1, spending all the money – this is an ANTI-SUMNER hack. He assumes it is impossible.

    Having grown up in and around this decision making by the GOP, and having watched it work, I have “approved this message.”

    It is a Fiscal hack.

    All Dem politics is 2 steps: 1. vote for me 2. get free shit. The GOP has been making sure, non-tax paying citizens don’t get #2, in order to make them stop voting at all.

    So I come to this as a Fiscal hacker – trying to pig f*ck Obama into having to be Clinton – the theory is if you cut Dem voter free shit like Clinton, you get 4 more years, if you fight it like Obama – you get made an example of.

    Scott’s theory is right as a PRIMARY idea is “spending all the money” doesn’t work.

    If however the “spend all the money” fiscal hack works – and Obama is not re-elected, then Scott’s idea is the mop, not the machine gun.

    This is a high drama argument between two side of Milton Friedman’s brain.

    You should be able to understand that.

  77. Gravatar of Morgan Warstler Morgan Warstler
    18. May 2012 at 18:27

    Neg. of Ideology,

    My entire theory of rhetoric, what I took from 20 years of high end structured debate, is that Socrates is an invention of Plato.

    He used a formula:

    Rhetoric is making the weaker argument the stronger.

    So the opposite of rhetoric makes both arguments as poorly as they can be made rhetorically – the least wrong, is the truth.

  78. Gravatar of KRG KRG
    18. May 2012 at 22:08

    “This is bad economics. Money not consumed is saved. Period, end of story. Saving equals investment, period, end of story. “Speculation” just refers to risky investments, no reason to discourage it at all.”

    Not all investments are equal. Capital investments (which are generally impossible to distinguish from consumption in the short term because the difference lies entirely in how much future growth eventually arises from the spending) promote long term growth, while financial investment, in the long term detract from growth.

    It’s the difference between paying better wages and offering higher credit limits. Both increase AD in the short term, but in the long term better wages feed ongoing growth, while the credit has to be paid back with interest, quickly causing more contraction than it allowed for growth (unless, of course you keep layering it into a financial bubble, as which point you save up all the contraction for one massive burst when it pops)

    The point is to direct money that is saves into investments that produce goods and services or into the consumption required to make those kind of investments worth making in the first place, and to drive it away from the kind of investments that only serve to try to attract money without actually producing anything except for loans on the way. The problem with speculation is that we keep finding new ways to think we’ve removed all the risk, which drains money away from productive investments and into bubbles of the latest sure thing (Eg: Mortgage Backed Securities or Credit Default Swaps). Because the perception of risk is low and because, even when functioning ideally, they cause more net economic drain than benefit, money that’s not “saved” in the form of expenses to run and expand productive endeavors should be taxed sufficiently to lower the perceived risk-adjusted reward from such investments until it’s lower than that of productive investments.

  79. Gravatar of Buffett Rules « Economics Info Buffett Rules « Economics Info
    19. May 2012 at 13:01

    [...] Source [...]

  80. Gravatar of ssumner ssumner
    19. May 2012 at 17:18

    KRG, You said;

    “Capital investments (which are generally impossible to distinguish from consumption in the short term because the difference lies entirely in how much future growth eventually arises from the spending) promote long term growth, while financial investment, in the long term detract from growth.”

    With all due respect this is gibberish. Capital and financial investment are not two types of investment. What the average person calls financial investment is called saving by economists, which means it’s money used to finance capital investments.

  81. Gravatar of KRG KRG
    21. May 2012 at 09:57

    Are you seriously saying that a person should be just as happy to accept a loan of $50 as they would payment of $50 for their goods? (Note, not that they should be expected to extend $50 in credit to the would be purchaser, but that the purchaser actually makes the loan) because that’s the net effect of not differentiating between them, and the core of financial bubbles.

    “What the average person calls financial investment is called saving by economists, which means it’s money used to finance capital investments.”

    It’s money used, at best, to finance loans. At worst, it’s used to manipulate stock and commodity prices, producing nothing but a casino rigged in favor of those that have the most money to use to manipulated it (including, through the wonders of limited liability, granting them the power to take over control of companies, forcing them to make decisions that jack up short term returns, then sell out before they collapse, letting the CEO’s they worked with escape on golden parachutes to repeat the process). Some people may use the loans to then make real capital investments, but as we’ve just seen, those loans very easily overflow into the consumer market where they’re use as credit to replace wages that they should have been paying.

    At no point should tax policy ever reward someone for increasing AD by offering a $500 credit card over offering them $500 more to produce things, and yet, because of the higher and more sure short term profitability of the credit card, that’s exactly what happens if you don’t make a clear distinction in the way the very different kinds of investment are treated.

  82. Gravatar of ssumner ssumner
    22. May 2012 at 09:11

    KRG, I don’t have time to explain the basics of capital theory to every commenter. Might I suggest you get an EC101 textbook and study the chapter where they explain that S=I. As it is we are just talking past each other, as you have a private language that doesn’t correspond to how economists talk.

    For instance, you say:

    “It’s money used, at best . . .:

    I have no idea if you are talking about money used in the sense of saving, or in the sense of a medium of exchange. Either way you are wrong, but it takes to long to chase down every possibility when people are so vague.

  83. Gravatar of Major_Freedom Major_Freedom
    22. May 2012 at 09:50

    Morgan:

    I have gotten closer to grasping our confusion.

    On #1, spending all the money – this is an ANTI-SUMNER hack. He assumes it is impossible.

    Having grown up in and around this decision making by the GOP, and having watched it work, I have “approved this message.”

    It is a Fiscal hack.

    I submit that you haven’t shown how it is in fact a “fiscal hack.” History at least is consistent with the theory that a roughly constant NGDP growth does not prevent growth of the state. We have had de facto NGDP targeting for many decades (up until 2008 that is), and yet the state grew and grew.

    Are you saying that there is a limit to how much the state can grow in this context? Sure, I will agree, but it’s not because of the soft cap in NGDP, it’s philosophical in nature. It has to do with what people think the state should and should not do. Since real wages have stagnated since the early 1970s, it is clear enough people are willing to sacrifice their own standard of living for the sake of growing the state.

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