Debate thoughts

Romney promises that his tax reform wont raise taxes on middle class, increase the deficit, or lower taxes on the wealthy.  A promising change in policy.

I wish Obama had addressed the idea that small businesses need less taxes to hire more workers.  I'm pretty confident that businesses hire if demand is high, but if there's no demand, they wont hire more workers no matter how profitable.  Business profits are very high right now.

I wish they wouldn't talk past each other.  I actually like that Romney has been addressing points (somewhat).  Obama is really just making and expanding his economic stump speech. 

Bringing down rates while decreasing deductions is about incentive effects, not about budget effects; that's the whole point of revenue neutral reform.  So Romney's early point about businesses not having enough money to hire workers doesn't get fixed by his proposals.  I mean, I guess he can move that cost to someone else while being revenue neutral, but who? 

Romney: cuts through attrition based on the "is it worth borrowing from China for?" principle.   Borrowing money from China doesn't seem like a huge risk to me, I mean... are they going to come collect?  I'm pretty sure they only have one aircraft carrier.  That's not going to go well.

I think it's kind of unfair to hold Obama's pre-recession deficit promises against him.  Recessions cost money to fight, and they dramatically reduce tax revenue on account of no one has money to pay taxes.  Also, there are plenty of programs like unemployment that automatically grow.

Romney definitely has the best of the early energy policy exchange, albeit through conceding his early policy position.  I don't know how John Taylor would feel about discretionary rescues for failing state poverty programs.

I like that the debate is fairly respectful thus far.  That makes me not hate myself.

I hate how Romney presents interesting useful general principles without every being willing to instantiate them.  Why is Obama spending more time detailing Romney's proposals? Because Romney's proposals either violate his expressed general principles, or are super unpopular, or both.

Romney's "private plan better than medicare" argument is silly.  You can switch from medicare any time you want, so long as you can afford it.  Ditto for private plans.  They compete against one another.  Also, medicare is cheaper than private health insurance.

Appeals to authority are *really* annoying in this format, because they are completely contentless and hard to verify.

Always, Romney is avoiding details in favor of interesting but hilariously general problems.  Total lie about Dodd-Frank.  The "too big to fail" thing is all about setting up plans to put those banks through specialized bankruptcy procedures, not backstopping them.

Dealing with the cost of healthcare: all of the cheapest healthcares are socialized. Dear Mitt Romney, why are we ignoring that fact?

Every private insurance company is an unelected board that decides what they'll cover in insurance.

Why didn't Romneycare cause companies to get rid of insurance coverage?  It is the same as Obamacare.

Government is awesome at cost control. It just sets the prices and that's what they are.  It may be bad at providing equal quality on a given price point in the absence of market failures, but that's not what they're talking about.  And, for the record, healthcare is basically the definition of market failure.

Also, on every single point about healthcare, why do we never reference every single European nation--a group that has unanimously solved the universal healthcare problem in a variety of interesting ways?

Romney's preferred health care policy is that every state implement Romney care.  So Romney's preferred policy is Obamacare, but run by states?

Liberals think that supply side reforms are necessary for education and healthcare, I think.  Have to consider that more.  Not sure how I feel.

Romney seems to start every thing with agreeing with Obama, or discarding the accurate description of his prior policy positions provided by Obama.  I mean, fair enough.  

"trickle down government" is one of Mitt's "clever" phrases.  Emphasis on "", Mitt's, and phrases.

I'd like to just have Obama say "I will return to Clinton era policies: policies that coincided with the most prosperous time in our nation in recent years.  In what way is that radical or dangerous?"

Why do we disagree? contd.

The recent debate over the student loan rate hikes is a great example of the ways in which fundamental policy agreements can be obscured by other issues.  In this case, Republicans and Democrats agree that student loan rates should not double this year.  If these were the good old Bush Years that would be the end of it because, as Cheney allegedly said, "deficits don't matter", but nowadays everything but tax cuts for the rich have to be paid for.  Which leads us to the confusing state in which the Democrats have blocked the Republican bill preventing the rate hikes, and Republicans have reciprocated.  Democrats like to pay for things with tax increases on the wealthy, and Republicans like to pay for things with "dynamic scoring" and/or imposing further financial burdens on the poor and middle class.

Problematically, this issue has been spun by both sides as evidence that the other wants to impose rate hikes on students.  The general public has a natural bias towards not giving a shit about accounting unless the political classes are really insistent that it matters, so politicians preferentially phrase disputes as policy disagreements.  But a disturbing number of bills fail due to the same fundamental disagreement over how much money the government should spend, and where it should come from.

From my perspective, this is doing it ass-backwards.  You figure out what you want to do, then you figure out what it should cost, then you figure out whether it is worth doing, then you figure out how to pay for it.

The Republican strategy is to pick how much they want to spend, and then eliminate social programs until they get far enough below that spending number to give some tax cuts to the rich.  The Democratic strategy is to pick policies and pay-fors in an ad-hoc manner, which would be fine except that you lose sight of the greater context that way and you have to have two debates for each policy, one for policy and one for pay-for.  A better strategy would be to work out a bunch of things you want to do each year, prioritize them, and pay for all the ones you can afford. But that would require a fair amount of consensus about a) priorities and b) how much can be afforded, and we have neither.  Please can we get a parliamentary system?

Delightfully Wonky

I thought I was going to have to do it myself, but this slide-deck from the White House puts together the graphical evidence about economic performance under Obama quite nicely.  Highly recommended for people who want to get a sense of context for the economy.

http://www.treasury.gov/resource-center/data-chart-center/Documents/20120502_EconomicGrowth.pdf

And just one more thing (still contraceptives)

The key question about whether Catholics are harmed by the contraceptive mandate is whether they are being asked to do something immoral.  I don't think they are.  The key questions about whether religious freedom is harmed by the contraceptive mandate are:
1. Is the mandate objectionable to some on the grounds of faith?
2. Is there a legitimate federal interest in overriding these objections (as in prohibitions on human sacrifice or (perhaps less legitimately) polygamy)?

It's clear that the answer to 1 is yes, but it's not clear that the answer to 2 is no.  The federal government heavily subsidizes employer provided healthcare, so one might reasonably think that if you take the subsidies you have to take the strings that come with them.  Furthermore, it seems possible that there's a legitimate federal interest in reducing healthcare costs, and perhaps even a right to reproductive freedom to be protected.  More below the fold.

deregulation, tax reform, capital gains cuts, and corporate tax cuts

For those of you just joining American Politics, the title describes the "conservative" "solution" to the economy (not just our current economic problems, but all economic problems at all times).  Now, I have varying feelings about the items in this list.  I basically think that capital gains should be treated as regular income, which couldn't be farther from the conservative position.  By way of contrast, I think that certain kinds of tax reform (mostly in terms of loophole removal) would be awesome for both corporations and people, and I think that the government could do a lot of good by removing regulations created to protect incumbent businesses from entrepreneurial competition.  But! I think it is crystal clear that none of these things are solutions to the current economic crisis.  In case you disagree with me, I did a little research and made some charts.

9/11 impact on the economy

It was proposed to me that one possible reason for the results of the "unexpected" difference between the Bush and Clinton economies (that is, that the Clinton tax increase preceded larger growth than did the Bush tax cut), was that 9/11 had a strong negative impact on the economy.  It seemed like a reasonable point, so I looked into it.  It turns out that a report on the subject was prepared for congress.  Short summary: 9/11 didn't have much economic impact.  Summary from the report:

The Economic Effects of 9/11:
A Retrospective Assessment
The tragedy of September 11, 2001 was so sudden and devastating that it may be difficult at this point in time to write dispassionately and objectively about its effects on the U.S. economy. This retrospective review will attempt such an undertaking. The loss of lives and property on 9/11 was not large enough to have had a measurable effect on the productive capacity of the United States even though it had a very significant localized effect on New York City and, to a lesser degree, on
the greater Washington, D.C. area. Thus, for 9/11 to affect the economy it would have had to have affected the price of an important input, such as energy, or had an adverse effect on aggregate demand via such mechanisms as consumer and business confidence, a financial panic or liquidity crisis, or an international run on the dollar.
It was initially thought that aggregate demand was seriously affected, for while the existing data showed that GDP growth was low in the first half of 2001, data published in October showed that GDP had contracted during the 3rd quarter. This led to the claim that “The terrorist attacks pushed a weak economy over the edge into an outright recession.” We now know, based on revised data, this is not so. At the
time of 9/11 the economy was in its third consecutive quarter of contraction; positive growth resumed in the 4th quarter. This would suggest that any effects from 9/11 on demand were short lived. While this may be true, several events took place before, on, and shortly after 9/11, that made recovery either more rapid than it might have been or made it possible to take place. First, the Federal Reserve had eased credit during the first half of 2001 to stimulate aggregate demand. The economy responds to policy changes with a lag in time. Thus, the public response may have been felt in the 4th quarter giving the appearance that 9/11 had only a limited effect. Second, the Federal Reserve on and immediately after 9/11 took appropriate action to avert a financial panic and liquidity shortage. This was supplemented by support from
foreign central banks to shore up the dollar in world markets and limited the contagion of 9/11 from spreading to other national economies. Nevertheless, U.S. trade with other countries, especially Canada, was disrupted. While oil prices spiked briefly, they quickly returned to their pre-9/11 levels.
Thus, it can be argued, timely action contained the short run economic effects of 9/11 on the overall economy. Over the longer run 9/11 will adversely affect U.S. productivity growth because resources are being and will be used to ensure the security of production, distribution, finance, and communication.

Cool Charts about Taxes and GDP

I've seen several interesting charts about the impact of tax rates on the economy, but I'm generally frustrated with the small amounts of data presented, so I looked up the source data on revenues, real GDP growth, and top tax rates to make a sweet chart.  On a related note, here's a post about the Reagan tax increases that Republicans should read.

Now onto the good stuff.  Below are reproductions of the charts (in order of information density) from the "several interesting charts" links, as well as the one I made myself.  If you're curious about how some economists interpret this data, read the source posts.

Large interactive version of my chart is here.
Small static image below:

Bounds on Taxation (part 1)

I was recently asked to put some concrete bounds on what I think acceptable levels of taxation are.  This seems like a reasonable question, and I put out so much pie-in-the-sky stuff that I figure it's worthwhile to lay out what sort of constraints I tend to think under.  So, first some general principles:

1. Taxes should never make you earn less money when you make more money.
2. No one should ever have to choose between paying taxes and purchasing essential goods and services... if you can't afford a place to live and food to eat you shouldn't have to pay taxes
3. Governance without taxation is clearly impossible, so let's not pretend that 0% taxes across the board are possible or desirable.

Together, these principles suggest a stepped tax code basically similar to the one we have today.  It protects the poor from having to choose between obeying the law and eating, and it protects the rich from losing money by making money.  Now, this isn't terribly constructive, since no serious proposal violates these constraints, so let's see if I can't get further into things next time.

Taxes again

I noticed this post advocating a cap on tax deductions.  I think it's a pretty interesting compromise between the current system and the system I've proposed previously.  If only they could manage to fit in the domestic purchase deduction.  Ideal tax code in a nutshell:

1. stepped income tax brackets as per usual, with no exceptions for capital gains or inheritance... Any money you recieve counts as income, period.
2. all domestic purchases tax deductible

HOLY CRAP I JUST HAD A COOL IDEA.  I just realized that we can combine 2 with a flat tax and make everyone go crazy.  Here's how it works:  Flat tax of X%. You're only taxed on money you make but don't spend on domestic goods and services.  Poor people would still pay basically no taxes as their incomes are almost entirely devoted to making ends meet, and rich people would have effective tax rates fairly close to X because they rarely manage to spend a significant proportion of their income in a given year.  We might want to include a tax deduction for savings up to a certain absolute dollar amount (say 10k a year) to add some stability to the system, but that's the only other deduction.  This is a great political compromise as it tricks conservatives into accepting a highly redistributive tax and tricks liberals into accepting a flat tax.  VICTORY!

P.S. Yes, tricking politicians into doing something is basically the only way to achieve victory in modern American politics.

Taxes - how they should be (Part 2 Simple)

Complexity is the friend of the wealthy.  This causes problems all over our country, but I'm going to focus only on tax law right now.

Complexity problem 1: Wealthy people can afford lawyers and accountants, who exist entirely so that money can be made off of the complexity of our laws.  Unsurprisingly, this means that the well off are more likely to receive tax deductions &c.  They report and record their income and expenditures more carefully and they have access to experts who can maneuver the many loopholes and edge cases in our current system.

This is compounded by problem number 2: As some of you may have noticed from this income and expenditure spreadsheet, education trends with income.  That means that if you're not making a whole lot of money, it's likely that you don't have a whole lot of education or training in order to deal with the complexities of tax law, which means you probably wont be able to do as good a job as a highly trained professional expert tax payer like an accountant.  Surprise!

I'm not the first person to have noticed this, as you can see from Obama's recent budget speech, but I hope this expresses the issues succinctly.  Basically, I think tax payments should be a simple function of your income.  We should be adjusting the level of taxation to what we expected to make on average at each income level once deductions were applied, and we should leave social policy implementation out of our revenue stream.  This would have a whole pile of interesting side benefits like:

1. Taxes would be hilariously easy to calculate for people with regular salaries, which means the government could just send you a bill rather than forcing you to wade through a pile of inconvenient forms.  I'd love that.

2. Human beings might understand the tax code.

3. Politicians wouldn't be able to sneak in weird policy ideas under the guise of tax breaks.

4. Our revenue stream would be highly predictable on account of no variance being introduced by lawyers

5. We would put huge numbers of accountants out of jobs (Hurray!)

We Interrupt Our Regularly Scheduled Rant For A Brilliant Idea

In conversation with lab-mates Mike, Reid, and Shawn, someone (we cannot reconstruct who) proposed a brilliant and counterintuitive solution to the problem of redistribution of wealth.  It requires no wellfare, and is implemented entirely through the application of a tax break.  I believe that, in the biz, this is considered a WIN.  Here's the idea:

Make all domestic purchases tax deductible.
Only tax wealth (as opposed to income).

Bam! Let's break down the consequences of this.
1. We have effectively incentivized spending, use it or lose it (though not more of it than you do already)
2. The wealthy are the most motivated to spend (but it's still good to be wealthy cause you can get more and cooler stuff!)
3. Making the purchases you need to improve your life or expand your business helps you save money on your tax return
4. In the worst case it degenerates to the current situation: say no one spends anything for a year (awful for the economy and insanely unlikely, but hey) then everyone pays taxes in the tax bracket they are in without any spending deductions and the government gets the same amount of tax income it does now
5. In the hilarious case, everyone wants to be minimally taxed so they distribute income equally among all people and everyone pays the tax bracket of the mean amount wealth in the government.  The government makes the least money when it's the needed the least - in the egalitarian utopia the people created in order to evade taxation.

The basic economic intuition behind why this would be good is that spending stimulates the economy.  This is relatively well understood, and the government is constantly doing things like tweaking interest rates in order to incentivize spending and keep businesses rolling.  A common problem in economic models is that while poor people spend just about all their money on account of needing to be alive and that costing money, rich people end up saving most of their money, which essentially removes it from the economy.  Money that sits around doesn't do anything to increase demand for products, provide jobs, or any such goodness.  So more money actually cycling in the economy is definitely good, and this suggestion does that without any (discernible to me thus far) negative consequences.  Please tell me why I am wrong, otherwise I am running for some major political office tomorrow, on the platform of "Everything is tax deductible and incidentally watch your economy become a perfect fountain of efficiency productivity and wealth redistribution".

Entitlement (edited for improvement)

EDIT: This post is badly written and reasoned.  I have other better opinions about this that I will one day expound upon.  I'm leaving this up as a sort of "history of Rory's thoughts" post, but it no longer reflects my views on this subject.

Today we will settle once and for all the argument about entitlement programs.  People hate these for all sorts of reasons.  Commonly cited:

1. We can't afford them
2. Big Government is bad
3. Government shouldn't enforce redistribution of wealth (related to 2); leave charity to the choice of individuals
4. Moral Hazard (Perverse incentive encouraging them what are poor not to do work)

In brief, my responses to 1-4 are as follows:

1. As they are now, agree
2. what does that even mean?
3. I am too angry to briefly address this, but it is stupid and I can prove it with Science and also Reason (related to 2)
4. Sure, there is moral hazard, but you know what else is morally hazardous? allowing innocent people to suffer and/or die when you could have given up money to stop it (related to 3, and 2)

Later, when I am less angry, I will write some stuff about how misguided beliefs 2 through 4 are.  For now, I will content myself with my proposal to remove the legitimate objection (that's number 1 for those of you who werent counting, or can't)

Once again, I propose a rights based approach.  Here's the deal: the thing I care about most is that people who are poor don't die or get sick or get injured on account of being poor.  I think that when that happens it is bad and also not good.  That's my primary concern.  So I figure, we should do with other entitlement programs what we've done with our most successful entitlement programs to date (education and the post), give them to everyone, everywhere, and make everyone, everywhere, pay for them.

In practice, I think it would look something like this:

1. Mail everyone a multi-vitamin with the stuff that peeps actually need in it (as much as medical science can anyway)
2. Mail everyone food stamps or maybe even actual food to the point where every person has the means of acquiring enough calories to be healthy
3. Guarantee FREE emergency and routine medical care (though only for bottom shelf medicines, treatments, &c)
4. Provide some baseline housing allowance to all people, payed directly from the government to the provider of housing (so the money can't be redirected to, you know, drugs or the like)

Please note that this system would apply equally to everyone.  Any purchases you made above and beyond this would of course be up to you, but there would be no reason for (for instance) health insurance companies to provide a basic coverage package, though there's still plenty of incentive to buy health insurance if you want to benefit from the pinacle of medical science and have the money to do so.  Furthermore, the government would be paying hospitals for all of their procedures, rather than forcing them to eat the cost of emergency medical care for the uninsured (as they currently do).  Likewise, the rich could put their housing allowance towards their second or third home, and would benefit as much (monetarily) as the poorest people.  The rich would also get their vitamins and food stamps, but would have the opportunity to go out and pay the premium on top of those food stamps to get nicer food or eat at restaurants and the like.

How would we pay for this? Taxes! and yes, stepped taxes, that means that the rich will pay out more in taxes than they take in in government living support.  On the upside, they will never ever ever have to feel guilty when they don't want to give a beggar money, on account of they KNOW BEYOND A SHADOW OF A DOUBT that that person has enough food, nutrients, shelter, and medical care. 

Incidentally, if we do this we can get rid of social security, medicare and medicade, which would be nice.  Since we're not providing any income or luxuries, people would still be motivated to find work, but if they didn't find work, no one's health would be at risk.  As a bonus, no one would ever die from neglect-by-society which, you know, could be cool.  Let me know what you think, and feel free to point out how I might be an idiot and am also almost certainly a communist.

EDIT: How does this save us money on entitlements?

This saves us money in a few key ways.  First of all, it lets us get rid of social security.  Secondly, it dramatically reduces the benefits provided to people (no cell phones, no cash-per-kid).  Thirdly, it eliminates the possibility of fraud and all of the resources that attempting to combat that would take up.  Fourthly, it simplifies the system, greatly reducing the administrative cost of running it.  The administration required to support such a system would basically be post office infrastructure, and maybe a way to connect landlords and their client's housing allowance.