by Tyler Cowen
on September 10, 2011 at 7:24 am
1. Property value calculator for the board game Monopoly.
2. The battle over Zomia.
3. Excellent piece by Stephen King on our current economic predicament, highly recommended.
4. In defense of Georgia Work$.
5. How to get out of our mess, by Jim Manzi. Notice the emphasis on wealth creation. And are scientists well-suited to be entrepreneurs?
6. Does Warren Buffett understand taxation?
# 3. Indeed I agree with King’s assessment. If there is any doubt, next week there will be none.
Let me applaud you for not posting anything about Obama’s last speech on jobs. There have been hundreds of reports and opinions based on the assumption that in his speech he proposed a plan –one that has to become a law and therefore has to go through a Congress that he didn’t bother to consult before announcing the plan (as a matter of fact no draft law was yet submitted to Congress). His ideas were not even a proposal because he didn’t say a word about how he was planning to finance the additional deficit that tax cuts and new expenditures implied.
Obama promised to announce his proposal for reducing the deficit on September 19, long after he should have done it, and it seems that tax increases and expenditure cuts will be announced to be implemented in some distant future, well after the November 2012 election. Let us hope that the events of next week –in particular a Greek default– make clear to Obama and all other fraudulent clowns (as well as their mercenary media) that Greece and some other European countries are being hit hard by markets because their inept and corrupt clowns first cheated and then failed to deliver on their promises to their creditors and in particular to their lenders of last resort. Tyler, please make sure that this last point is well understood by all those American pundits and readers that still believe that the U.S. public debt and deficits can be inflated away by printing currency because the dollar is a reserve currency or because some magic power of the Fed.
And this is for all the mercenary media to read
Tyler, this Daniel Gros’ column is closely related to the issue addressed by S. King’s piece.
The funny thing is that your beloved Scott Sumner wrote the following comment on Gros’ column:
I hope you find time to comment on the idea that the problem is more profound than one of insufficient monetary stimulus. BTW, this Higgs’ column may help you to think how sufficient or insufficient a monetary stimulus may be:
“how he was planning to finance the additional deficit that tax cuts and new expenditures implied. ”
Yes he did. He is cutting entitlements “modestly” to accomplish this. Obama: the first tea party president.
He also said that Abraham Lincoln was the founder of the Republican Party, but then something funny happened
From that Buffett link – ‘Let’s assume his consumption is less than $600,000.’ That is a joke, right? Or is it just a matter of saying what he consumes isn’t ‘his,’ but that of his company(s)? Because I have a hard time imagining the staff that Buffett already has available, quite literally 24/7/365 (think, for example, health care or security) costs less than a few hundred thousand dollars a year. The same would be true of personal legal representation, to give another example.
Oh wait, this another ‘imagine a can opener’ type of economic writing, as quoted – ‘But the tax rate on investment income should be zero–only consumption should be taxed.’ Buffett, who likely pays more in accounting bills than a mere $600,000 a year, is not dumb enough to actually think that just because something ‘should be’ what someone imagines is how he can actually handle his tax bill. Or how he looks at it, for that matter.
Sometimes, I think the amount of what just has to be sly humor found at some of the links is meant to belie the idea that Americans are incapable of subtle mockery of their own worst traits.
Because this is just comedy gold – ‘It’s very possible that the wealthy should be paying far more taxes. But Buffett should be paying far less than he currently pays.’ Because when a wealthy person tells you they don’t pay enough, it is obvious that –
a. The wealthy possibly should pay more
b. But using an imaginary scale without any connection to a., Buffett, an extremely wealthy man, should be paying far less, regardless of what he, his lawyers, his accountants, and his various other advisors feel is legally required, and the way that all of those people calculate the numbers is meaningless compared to the personal opinion of some author who is very fond of the word ‘should.’
Then, sadly, the reality that even imagining a can opener won’t solve this problem becomes overwhelming. The Germans, as so often the case, have an expression – ‘Mit einem lachenden und einem weinenden Auge’ (‘mixed feelings’ as a translation misses the literal meaning behind the concept).
It’s also downright strange to question WB’s understanding of taxes when one of the reasons he is so wealthy is that he’s designed his investments to avoid taxation. He recognized early that our tax code only taxes when an investment is sold, but you can typically borrow against assets. So having a long term investment strategy gives you the potential for large appreciation that is essentially never taxed, while gives the ability to access liquidity if and when needed.
John Henry (billionaire) has said as much about Warren Buffet. This idea – that Buffet designed his investment strategy to maximize gains that will not be taxed in his lifetime or perhaps ever – is common among the more intelligent investment managers, and isn’t hard to find in books about Buffet.
So when I hear someone talking about how Warren Buffet does not understand taxation, I wonder if he knows anything about Warren Buffet’s understanding of taxes at all.
So Warren Buffet understands perfectly well how taxes are actually calculated, he just doesn’t understand how this idiot thinks taxes should be calculated.
Buffett may or may not understand taxation – but someone who argues that the tax rate on investment income should be zero is clearly rather more of an idealist than a realist.
The fun just keeps coming, from link 4 -‘By allowing people who are receiving unemployment to work for free for a limited period of time without losing their benefits…’
Unemployment insurance, in theory and speaking broadly, is self funding – employees and employers pay into a fund, which is then used to pay unemployment benefits.
And now, instead of a company actually paying a worker for their labor, the worker should actually benefit an employer by working for free while being paid from a portion of their withheld wages they had already paid into a fund, because it is in the worker’s interest to work for free? This is hilarious – but then, Georgia is also the state that decided dealing with those ‘illegals’ was more important than actually harvesting crops, leading to an estimated loss of a couple of hundred million dollars as crops rotted unpicked as the ‘illegals’ (in another day and age, they were called ‘field laborers’ before being declared to not be fit to set foot in the state of Georgia) found work elsewhere, while the same politicians responsible for such losses began advocating that those receiving state benefits should also work for free picking produce. That’s right, in Georgia, there was a serious attempt by the state to use unpaid labor to harvest crops. And now, an attempt to use unpaid labor for corporate profit in another, post-Civil War context.
Sometimes, I really think this all just absurdist humor. Then I remember this is what passes for serious thought in America, and then the laughter really starts flowing, until the tears start.
You’re really outdoing yourself here. Your compounded incoherence in your first post, the laughable confusion about the difference between insurance and welfare, the hilarious illegal immigrant bit… Just a fantastic streak.
Oops – the Georgia probationer field labor is minimum wage, at $7.25 an hour. Which is at least a step up from how that work looked 50 years ago, not to mention 150 years ago. But no fear, the new Georgia ‘intern’ program is unpaid labor, going directly to help a company’s bottom line, who doesn’t even have to worry about paying wages. Makes one wonder when some corporate manager will discover the need for interns everywhere, and get a handsome bonus in the bargain.
Scientists make fine entrepenuers when they have marketable ideas. Very, very, very few scientists work on things that are even close to marketable.
I think excessive medical research is making medical treatment absurdly expensive with only marginal returns on improved health.
I’m very pessimistic science will bail us out of this mess, especially with the rest of the trying to do the same thing.
“rest of the world”
Scientists, in general, will not make good entrepreneurs because most of them are dogged liberals (52%, vs 9% conservative) who in majority think that government is great. Only 20% of them think that “business corporations generally strike a fair balance between making profits and serving the public interest”.
Pew study source: http://people-press.org/2009/07/09/public-praises-science-scientists-fault-public-media/
I am scientist who is also an entrepreneur (which is possible, notwithstanding the comments below), and generaly this is frowned upon by my colleague scientists. Believe me, most scientists have neither the drive, energy, or willingness to lose face to start a business. Having a paper rejected is a private matter; having your business fail because people did not want to buy that widget of yours is very public.
In addition, the regulatory requirements for managing conflicts of interest are offputting to say the least.
In an alternative universe where the income tax is zero, warren buffet knows nothing about taxes.
Stephen King: “Will those losses accrue to taxpayers, recipients of public services, equity investors, bondholders, domestic debtors or foreign creditors? This is ultimately a matter for politicians.”
I would change this to “will those debts be paid by borrowers or savers, at home or abroad”?
If a bondholder or equity investor pays, the effect will trickle down eventually to people with pensions and savings. The Great Recalculation is people.
For Item 6, I think the answer to the title question is:
“Yes. Scott Sumner does not.”
A scientist who becomes an entrepreneur has to stop being a scientist. I.e., has to stop doing any actual science.
Try to imagine that for some other passion. Suppose Tyler for instance, had to give up being a foodie, had to stop eating in good restaurants and live on a diet of cafeteria food and cheeseburgers instead, as the price of being able to pursue some entrepreneurial activity.
5. The number of people truly capable of being entrepreneurs is probably much lower than assumed in all fields.
Oh, Scott understands taxation, as does Warren Buffet. Scott is just honest about it.
prior_approval is a comedy god.
But the tax rate on investment income should be zero–only consumption should be taxed. His taxes paid are probably over 90% of taxes plus consumption.
Huh? So Buffett’s statements are wrong because we don’t have the tax system the writer prefers?
Sumner logically argued in terms of the incidence of taxation. Almost everyone who responded negatively to him here didn’t even bother to use logic to try refute him; instead they merely engaged in ad hominem attacks.
Probably some blogger who believes in big government linked here and this is what we get…people who believe that trashing someone or mocking someone passes for logic.
Sumner logically argued in terms of the incidence of taxation.
Only partly. He also argued that Buffett should pay less because taxes should be based on consumption. But they’re not, you see. He also argued that taxes on capital income should be zero. But, again they are not.
You are mistaking what Sumner argued. His post argued that Buffett got several things wrong. It is a mistake to read his post as using each logic point to build on another, he was merely rebutting Buffett’s many mistaken understanding of the incidence of taxation.
You said He also argued that Buffett should pay less because taxes should be based on consumption.
Well, no he didn’t; you are combing two of his rebuttals. He argued that taxes should be taxed at the consumption level to avoid disincentives to investment. He also argued that Buffett should pay less in taxes, not because taxes should be taxed at the consumption level, but the reason was because the taxes paid would’ve gone toward charity instead of consumption. No amount of taxation is going to change how much Buffett consumes, he is an anomaly in that regard.
You said He also argued that taxes on capital income should be zero. But, again they are not.
This is neither here nor there, and doesn’t detract from Sumner’s argument that Buffett is overtaxed.
Scott Sumner answered a ton of comments in the comments section of his post from people who didn’t understand his arguments. You should go read his responses to them, maybe you will then understand what he is talking about.
No. He said some things about incidence, but an awful lot of the post is “taxes should be,” etc. Indeed, his comments on Buffett’s taxes are puzzling. He seems to believe that “income” is a meaningless concept, but proceeds to claim that Buffett pays more than a 90% tax rate. Ninety percent of what, if income is meaningless?
Even in the comments he talks about what he thinks is a good system of taxation.
Later Sumner writes:
His taxes paid are probably over 90% of taxes plus consumption. Even worse, taxes on capital income represent double taxation, as the money was first taxed as labor income, and then taxed again as capital income. He ignores that problem; perhaps he’s not even aware of it.
So now we know. It’s taxes as a percentage of (tax plus consumption). But so what? We don’t have a consumption tax. (And surely Buffett well understands the notion of double taxation, so the snarky comment is really uncalled for.)
Capital income was first taxed as labor income? Always? I don’t think so. First, the distinction between capital income and labor income is a bit muddy when you get into returns on investment in human capital, but let that go.
Let’s look at an example. An entrepreneur develpos an idea and raises, say, $1 million to start a company, giving up 50% ownership in exchange. He works hard, for relatively low pay, like a true entrepreneurial hero, and some years later sells the company for $20 million, of which he keeps half. So he has a $10 million capital gain. Some questions:
1. What was the labor income that was previously taxed?
2. Isn’t some of the gain really labor income anyway, given that he earned considerably less while building the company than he would have had he sold his labor on the open market?
No. He said some things about incidence, but an awful lot of the post is “taxes should be,”
Imagine that, when discussing what someone else thinks about what taxes should be.
The he did not explicit explain ever detail exactly so I will pretend that he meant something other than what he obviously meant tactic.
The monopoly property value calculator seems to ignore one component of the value of a property — if you own it, you won’t have to pay rent to anyone else.
When I read Sumner I feel like I’m sitting on a piece of lego. Something just isn’t right – there are assumptions in there somewhere.
But it would take a long time to figure them out.
One assumption seems to be that investments are zero NPV. I earn money, pay some tax, spend some and invest some.
Now, I may have misunderstood, but I think that there is an assumption that the return I get on the money I invested is the correct risk-adjusted market rate of return. Therefore, there is no “income” in some sense – no economic profit since it’s just paying the cost of capital. Or something like that. Maybe.
I want to hear from the other Stephen King about fear and the economy.
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