Sunday assorted links

by on August 24, 2014 at 12:00 pm in Uncategorized | Permalink

1. Infovores.

2. The spiciest noodles in the world?

3. Unlike at Hinds, MRUniversity is open to goats too.

4. New David Autor paper on information technology and job polarization (pdf).

5. I agree with Greg Mankiw about tax reform.

6. The North Pond hermit (good story).

Dave Tufte August 24, 2014 at 12:23 pm

Regarding “Inforvores” …

My wife and I ran into something like this 17-18 years ago. And there’s a cute hook to this story at the end.

There was a bar (on Carrollton Ave. near Canal St. in New Orleans) we used to drive by that looked friendly, but no one we knew ever went there.

We stopped by one evening. It was filled with middle-aged men playing a competitive trivia game on computer terminals.

The questions were tough, and they were good.

But we were good too (an economics and a biology professor, both with wide-ranging interests — I even won Trivial Pursuit on the first turn once).

Once we got the hang of the questions, we rose to the top of the rankings within the bar. But we only got to numbers 2 and 3. One person was consistently ahead of us.

We groused a bit, and found out that the best player was sitting next to us. We made small talk, and compared life histories about why we knew so much trivia.

It turned out that he’d been born and raised in the same suburb of Buffalo that we had (Williamsville), his family had lived within a mile of my wife and a few miles of me, his tenure there overlapped all but a couple of years with ours, and he’d attended K-12 schools that neighbored ours. And all three of us had ended up in New Orleans in the mid-90s.

Perhaps the 7 months of gray skies and wet slushy snow in Buffalo gave us an advantage for learning trivia.

chuck martel August 24, 2014 at 1:14 pm

#2 Food that no one can eat. Real good idea.

Willitts August 24, 2014 at 3:33 pm

Yes, there are examples of competitions that aren’t Pareto improving. In this case there is information asymmetry.

Mark Thorson August 24, 2014 at 4:04 pm

If that restaurant were local to me, I’d go there and order that dish. This is probably very good publicity for the restaurant.

Doug August 24, 2014 at 7:54 pm

I’d rather eat a quarter a bowl of really spice noodles that I can’t finish, than a big bowl of bland food. If you don’t “get” spicy food, it’s hard to explain.

Mark Thorson August 24, 2014 at 8:21 pm

Yes, if I eat the whole thing it was very probably not hot enough.

JoeDog August 24, 2014 at 10:12 pm

Because the two choices in life are really spicy noodles you can’t finish and bland food….

bartman August 24, 2014 at 11:39 pm

Besides, it’s just a bowl of noodles with hot sauce on top. The restaurant claims the sauce is 125 times spicier than Tabasco. Since Tabasco has between 2,500 and 5,000 Scoville Heat Units (SHU), then this sauce is between 312,000 and 625,000 SHU. It could be made a lot spicier if it had Bhut Jolokia (1 million SHU) or Scorpion (2 million) or (worst of all) Carolina Reaper peppers (2.2 million) in it.

Sceptical analyst August 24, 2014 at 1:21 pm

Re Mankiw on taxes. A consumption tax could replace income taxes, but it would have to apply to rents and to the rental value of owner occupied homes.

Bryan Willman August 24, 2014 at 6:19 pm

and doing that would kill it, since huge numbers of people have paid for houses on the belief that their only ongoing cost is relatively low property taxes.

it would also hit a horrible problem – how do you value anything not exchanged in a market? putting a VAT on goods sold is easy – the price of the sale sets the VAT. putting a VAT on goods NOT sold will yield hopeless arguments that go on forever.

sceptical analyst August 26, 2014 at 4:06 am

Property taxes are based on estimated value. Local rental markets would provide a guide to rent taxing the same way local real estate transactions guide valuation. Housing is often 30% of one’s consumption properly defined, you can’t leave it out. Then of course you’s need a transition period.

jc August 24, 2014 at 1:23 pm

Re mankiw and tax reform

There is exactly zero possibility that America will adopt a Value Added Tax. Canada adopted a VAT (known as the GST or HST, depending on Province) 25 years ago and that policy DESTROYED the political party that introduced it. While the GST/HST remains in effect, it is widely hated. its opponents are dying off rather than being won over.

America should move to a territorial tax system for corporations and then prosecute aggressively the individuals and companies who engage in transfer pricing schemes.

Another step that should be taken is to copy Canada’s “tax integration”. Companies are taxed but when dividends are paid out to taxable recipients the dividends are taxed recognizing that the company has already paid some taxes. The goal is that one dollar in income should yield the same amount net after tax whether it is earned directly by the individual or is first earned by a company which pays some taxes and is then distributed to the individual who pays some taxes.

US companies are holding large “offshore” amounts of cash waiting for a repatriation holiday. The accumulation of those passive holdings is a fiscal drag. As part of a move to territorial taxation, the U.S. should consider making a one time offer to the companies holding cash offshore: (1) pay a 20% tax on money repatriated; (2) the net amount repatriated must be immediately distributed as dividends (no management bonuses or share buybacks); (3) the dividends will be received tax free by shareholders; (4) there will be an amnesty for any tax frauds related to the accumulation of the offshore holdings.

anon August 25, 2014 at 1:11 am

what is the difference between the cashflows and subsequent positions related to dividend vs share buyback that makes you think one is good and the other is bad?

JC August 25, 2014 at 11:31 am

The dividends go out proportionately to all current shareholders at the same time. Big enough and it causes a one time drop in the share price.

With share buybacks the company has the problem of the timing and price of the share purchases. The track record of share buybacks seems to be that companies buy back shares when the price is high. I want it to be part of the policy that the money MUST be distributed by a certain date – that may not be convenient or even workable with share buybacks but dividends have no such problem.

anon August 26, 2014 at 2:03 am

In your first comment you almost imply that share buybacks are like management bonuses, somehow. Now it sounds more like you think share repurchases are not so dissimilar from a dividend, but perhaps dividend is easier to execute reasonably efficiently in this case; the second picture looks like less of a red flag for bad reasoning.

ThomasH August 24, 2014 at 1:39 pm

I think lots of people, liberals at least, would agree with GM about repealing the corporate income tax (and imputing profits to owners) if he were not so casual about how to replace the revenue (and more, given long run projections of deficits. A progressive consumption tax would be an attractive alternative; a VAT not so much. The proposal will of course face fierce opposition from businesses that have or hope to obtain favored status under the corporate income tax and high consumption individuals for whom the corporate income tax and special treatment of investment income is an easy way to avoid tax.

mulp August 24, 2014 at 1:40 pm

Well, Mankiw is the first economist harping on the US corporate tax rates being twice as high as the rest of the world call for implementing a VAT like the rest of the world.

Of course, those tax rates being twice as high as the rest of the world are only true for small businesses because large corporations get even Gov Perry to provide huge amounts of welfare so they don’t pay any taxes.

What will follow eliminating the corporate tax rate and implementing a VAT is most likely a crash in the stock market as all the corporate tax dodges to eliminate paying taxes become liabilities.

I don’t think Mankiw goes far enough. I think the corporate tax rate should be eliminated by imputing all profit to the shareholders. It would be easy to require the reported earnings per share be reported as income to shareholders with 15% paid to the IRS as tax withholdings, which would then be credited to the tax liability of the shareholders. This will make shareholders much more diligent in overseeing the corporate financial doings because they will be paying taxes on the earnings reported, and if CEOs are cooking the books to boost stock prices, taxes will be paid on fictional income.

Eliminating all taxes on corporate profits makes hiring workers and investing in capital assets cost the corporations a lot more. With zero taxes, these costs are 100% of profits. And eliminating worker compensation is 100% toward profits. The only argument against such policy is “it takes money to make money” or the way I put it, “capitalism requires sacrifice today for future benefits”, but sacrifice is something Reagan told us were did not need to do because Americans are Excepted from sacrifice. That is what I recall as the attack on Carter – Carter called on Americans to sacrifice.

Art Deco August 24, 2014 at 1:41 pm

There is exactly zero possibility that America will adopt a Value Added Tax. Canada adopted a VAT (known as the GST or HST, depending on Province) 25 years ago and that policy DESTROYED the political party that introduced it.

Unless there were an increase in the dimensions of public spending vis a vis domestic product and knock-on increases in the total tax burden, what a value added tax would do is shift tax burdens from people in their capacity as workers and property owners to people in their capacity as consumers. The taxes would also be more opaque as incorporated into retail prices. It’s hard to believe that will ‘destroy’ the enacting party unless the opposition can mount a successful campaign of demagogy or unless business interests facing compliance costs mobilize against it post hoc. However, if it’s already enacted, the only path to repeal is increasing income taxes, which is a good way to make people irate as well.

Might suggest Mr. Mulroney’s political party had more trouble than value added taxes. The Conservative Party was succeeded by two regional parties, who may have had viewpoints on taxation but were motivated by other issues.

derek August 24, 2014 at 1:57 pm

The only tax revolt I’ve seen in Canada was in BC against the HST. The Federal GST is 5% and the provincial sales tax was 7%, not a value added tax. The provincial government changed it to a combined 12% value added tax, and the peasants revolted. We now have a 7% sales tax along with the 5% GST. The change came by referendum on that issue.

I suspect there would be the smell of boiling tar in every capitol in the US if anyone dared implement such a thing.

Art Deco August 24, 2014 at 2:34 pm

Why? Are you insisting that compliance costs (new and more complicated accounting) are going to induce business to go to war or are you insisting that the general public will somehow be more irritated by VAT than by final-sales taxes?

RohanV August 24, 2014 at 4:51 pm

The issue in BC is that provincial sales tax covered less things than GST. So there was a whole range of goods that saw a tax hike from 5% to 12%.

See http://en.wikipedia.org/wiki/Sales_taxes_in_British_Columbia

Art Deco August 24, 2014 at 7:08 pm

Are the dimensions of the revenue stream, relative to the size of the economy, the same? If so, what’s the issue? If it’s a distributional question you can adjust income taxes. What you’re telling me is that either their are distributional questions or that people are not thinking this through. It’s up to politicians to sell this stuff.

JC August 25, 2014 at 11:42 am

Art Deco

The issue in BC was that the former Provincial Sales tax applied to many (not all) corporate purchases of goods and equipment and some purchases of services. Some consumer purchases were exempt from PST; for example, children’s clothing. When the Provincial Sales Tax was merged with the Federal GST to become the “Harmonized Sales Tax” the PST effectively disappeared from all corporate purchases (because of the input tax credits) but was extended to children’s clothing and other things that had been exempt from the PST. The effect was to reduce the tax burden on business and increase the tax burden on consumers.

The harmonization made perfect economic sense but stirred up so much public rage that it was reversed. There were politicians who tried really hard to sell the HST and politicians who engaged in demagoguery against it. The demagogues won.

JC August 24, 2014 at 2:45 pm

Mr Mulroney’s party had other issues but the Western based Reform Party campaigned heavily against the GST, as did the Liberals in the 1993 election. The GST turned what would have been an electoral defeat to a decimation from which the Federal Progressive Conservative Party never recovered.

Bear in mind that the GST was designed to be more or less revenue neutral and replaced a prior hidden manufacturing tax. If a “revenue neutral” tax can generate that much animosity in docile Canada imagine how Americans would react to an overt attempt to shift the tax burden from companies to individual consumers.

Art Deco August 24, 2014 at 2:56 pm

imagine how Americans would react to an overt attempt to shift the tax burden from companies to individual consumers.

1.The economic burden of a consumption tax is distributed between the producer and the consumer, the proportions depending on characteristics of the good or service in question.

2. Over the last 80-odd years, around about 12% of public sector receipts have typically been derived from corporate income taxes (the burden of which is borne by various stakeholders, by the way). It would not be a huge shift in the tax burden.

3. We’ve been running current account deficits without fail for over 30 years. Something to discourage consumption just might be in order.

jc August 24, 2014 at 5:20 pm

Art

What we have here is a failure to communicate. I don’t care if you think a rational voter should willingly accept a shift of taxes from corporations to consumers. My point is that the electorate would react very negatively to a shift from corporate income tax to a VAT.

Willitts August 24, 2014 at 6:10 pm

“overt attempt to shift the tax burden from companies to individual consumers.”

The communication failure is all yours. Statements like these above contribute to the widespread ignorance of economics. Pedantry is necessary when basic understanding of principles is implicated.

That said, the perfect world of an economics blackboard doesn’t guarantee that well-established facts hold true in the real world. If you or anyone else has reason to believe that tax burdens can, in fact, be shifted, I’m open to argument.

It is also clear that administrative burdens can be shifted, and sometimes these are non-trivial. To the extent you are making a behavioral economics argument, I am of course persuaded that people make seemingly irrational financial investment choices as demonstrated and modeled. However, one can always plead “behavioral economics” without supporting evidence, so I require more than just an assertion.

I was exposed to a VAT for five years in Germany, and I didn’t find it onerous. Americans often oppose things they don’t understand, and the worst politicians take advantage of irrational fears.

Art Deco August 24, 2014 at 7:15 pm

I don’t care if you think a rational voter should willingly accept a shift of taxes from corporations to consumers. My point is that the electorate would react very negatively to a shift from corporate income tax to a VAT

You’re insisting that the behavior of the Canadian electorate reflects some sort of law of social behavior and I’m telling you you’re full of it. Canadians also tolerate rancid star chambers, fuss for decades over the character string ‘distinct society’, allowed Pierre Elliot Trudeau to stick you with a Charter of Rights which reflected his own disordered impulses, haven’t had the sense to give Quebec it’s walking papers, and had sociopaths occupying the prime minister’s chair for 28 of the last 46 years.

JC August 25, 2014 at 11:26 am

Art Deco and Willitts

Go ahead. Take out full page ads saying that the Republican party wants to replace the corporate income tax with an end user consumer tax structured as a VAT. See how far your sophomore class economics takes you then.

Willitts August 24, 2014 at 5:13 pm

One CANNOT shift the burden of the tax onto consumers. It is well established that the economic incidence of a tax is independent of its statutory incidence.

The VAT shifts the administrative burden of taxes onto businesses.

Art Deco August 24, 2014 at 7:16 pm

If it replaces a final sales tax, it does not even do that.

Boonton August 25, 2014 at 1:59 pm

The administrative burden of the income tax when you are talking about simple wages is minor. Even a more complicated tax return that itemizes deductions for charity, mortgage interest and charity is not really all that burdensome.

For business the administrative burden of figuring profit or loss each year is higher and entails a lot more accounting questions that start become less and less clear cut. However for most business this is still going to have to be done even absent an income tax so the administrative relief is less than is often presented here. Most businesses would still have to do financial statements. They might avoid having to do a different set for income taxes (for example, depreciation wouldn’t be accelerated), but they still are going to have to do it.

ibaien August 24, 2014 at 2:09 pm

the town should have applied for welfare on the hermit’s behalf and put the money in a reimbursement fund for locals.

Donald Pretari August 24, 2014 at 2:29 pm

#5…There is a very good reason to tax income and profits, which is that these individuals are demonstrably better off economically than they were. They can afford to pay taxes without actually lowering their standard of living. Both taxes are also counter-cyclical, with individuals paying less if the economy contacts. This seems fair and right to me.

The real problem is the amount of taxes levied. There will obviously be a dispute about how much is fair and how much is efficient. As regards efficiency, we should approach that issue pragmatically, taking care not to remove any incentive to earn. How fair an amount it should be is just going to always be messy, although focusing on how much we really want or need to spend should be a part of this discussion.

derek August 24, 2014 at 2:37 pm

It would depend on why you would levy taxes. If taxes are a means of raising revenue to cover the costs of government programs, then a value added tax along with fees and royalties and a payroll tax are the way to go. Corporate taxes, progressive income taxes are to variable and encourage an economy built around tax avoidance.

Art Deco August 24, 2014 at 2:44 pm

You can tax share-holders dividend and distribution receipts, as well as their real capital gains (and, one hopes, not their nominal capital gains).

The thing is, you extend a benefit to a corporation in the form of limited liability. Proprietorships and partnerships do not receive that benefit. So what’s the charge for the benefit? One thing you might attempt (if it could pass constitutional muster) would be to make an assessment on the company’s equity in the form of a stock dividend. The dividend would be small (say, 0.66% of outstanding equity per annum) and would go into a federal trust fund. The trusteeship would be a passive owner by law, not exercising any voting rights, and would be compelled to sell the issue in due time). Publicly traded issues could be sold on equity markets and the rest via online auction. The federal government could abjure assessing such a fee on companies incorporated and employing personnel in only one state and leave that stream to state governments. There would not be any accounting mess for companies; the big nuisance would be the potential acquisition, willy nilly, of annoying minority shareholders.

Mesa August 24, 2014 at 2:35 pm

#5- No this is a bad idea, one usually floated by academics.

Because of the ability of accountants and financial engineers to transform income types (personal, corporate, capital gains, income, etc), this type of law will only favor the wealthy, who will shift their income into the least painful regime. There is tons of empirical evidence for this – file under “Tax Avoidance” Professor. With zero corporate tax everyone will start a corporation, funnel their non deductible personal expenses through it, and their will be millions of sham businesses to take advantage of this. Everyone will become a consultant, or join a large consultancy if pass through taxation is treated differently.

The right answer is low, flat, and equal taxes on all types of income/revenue, and to eliminate all deductions, even business expenses, except employee compensation. People pay taxes on top line revenue, so should businesses. This will reduce the rates to about 10% (GDP 15 trillion, federal revenues 1.7 triliion) and get rid of all the games. It’s effectively a sales tax coupled with an equal rate income tax. Capital gains would be taxed the same.

derek August 24, 2014 at 2:38 pm

And put any capital or input intensive business out of.

Art Deco August 24, 2014 at 2:47 pm

With zero corporate tax everyone will start a corporation, funnel their non deductible personal expenses through it, and their will be millions of sham businesses to take advantage of this. Everyone will become a consultant, or join a large consultancy if pass through taxation is treated differently.

Sorry, chum. Not buying. Show your work.

Dan Weber August 24, 2014 at 6:57 pm

It’s not like you couldn’t do this today. But the IRS is already onto this scheme.

You’d need to not tell any of your friends, or else they could anonymously tip off the IRS for a share of the penalty.

Jay August 25, 2014 at 12:39 am

Sorry, Art, it’s you that needs to show your work on refuting this. It’s a longtime objection by numerous tax experts to the elimination of the corporate income tax. That said, the danger is not that “everyone” will do so, but that upper-income people, in particular, will do so. If you think otherwise, please explain how the law can/will protect against this possibility effectively.

Corp Tax expert August 25, 2014 at 1:02 am

You’re wrong, Jan. Many, many Code sections, regulations, rulings and case laws, past and present, address corporate accumulations.

Jay August 26, 2014 at 2:11 pm

No disagreement there. But saying “many, many” doesn’t really mean much in this example. Under current law, for example, many docs in individual practice incorporate in order to play themselves a salary out of the corp and place a variety of expenses (including cars, real estate, etc.) in the corp. For this I be advantageous today, given current corp tax rates, the doctor (in this example) needs to have a large amount of expenses that can be put in the corp’s name to get any advantages over personal tax rates and deductions. (Of course, in the real world the line between business and personal expenses for a self-employed individual is a very thin one.) But if the corporate tax rate was zero, the calculation would be much, much different.

Art Deco August 25, 2014 at 10:19 am

There is nothing that stops someone from setting up a personal corporation right now. Tax inspectors can and do collar people for failure to declare as income those benefits received from corporate purchases (see Helmsley, Leona). What that sort of pilferage has to do with taxation of corporate profits I cannot figure.

Dismalist August 24, 2014 at 4:20 pm

Except, it’s not the accountants and financial engineers who transform income to suit the tax code, but rather lawyers and our democratically elected politicians who are responsible.

“We have met the enemy and they is us.”

andrew' August 24, 2014 at 8:40 pm

“Democratically elected (sic)”

Bryan Willman August 24, 2014 at 6:36 pm

There’s one more serious problem with #5 (VAT) – when you tax something you get less of it, the purpose the economy is to support consumption by citizens, so what you are doing is encouraging everybody to be poorer (at least in purchased goods.) Given that the current unsatisfactory circumstance is often at least partly blamed on inadquate aggregate demand, is taxing aggregate demand a good idea, ever?

Further, Mankiw surely realizes that money is very much about claims on future output, and one of the pressures in society is to smooth the distritubtion of some of those claims. A VAT doesn’t do that very well, because it can only tax the present, not a claim on the future.

Dismalist August 24, 2014 at 6:51 pm

In case anybody forgot: The incidence of the VAT is the same as the retail sales tax! It’s these foreign names mucking up our thinking… . :-)

Art Deco August 24, 2014 at 7:19 pm

The VAT is levied on intermediate goods.

Dismalist August 24, 2014 at 8:30 pm

The VAT is COLLECTED in part from everybody in sight. The complete collection rests on the final consumer. Hence, the incidence is the same as a retail sales tax.

JC August 25, 2014 at 11:47 am

“The VAT is levied on intermediate goods.”

The whole point of a VAT is that the intermediates get to claim a credit for the tax they pay so that the tax flows through the system and only the final consumer actually pays.

In Canada businesses register for HST/GST. When they buy goods or services they pay the tax and keep track of how much they have paid. They do not pay tax on wages. When they sell goods or services they charge tax and keep track of how much they have collected. They only remit to government the difference between what they collect and what they pay. If a business makes a large capital purchase such that the tax they have paid exceeds the tax collected in that period they can apply for a refund.

dearieme August 24, 2014 at 3:16 pm

I think Lord Clyde’s dictum is more vivid than Learned Hand’s.
“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores.”

dearieme August 24, 2014 at 3:22 pm

I wonder if he just rephrased Clyde’s dictum to make it dull enough for the NYT to carry?

rayward August 24, 2014 at 4:20 pm

5. “For companies incorporated in the United States, the tax is based on all income, regardless of where it is earned.” No, it isn’t; can you say Apple. Mankiw can say and write whatever he wants, untethered from reality, but does it really matter. Not really. It’s sad, but politics trumps academics; it pays more..

Art Deco August 24, 2014 at 4:26 pm

He hasn’t been a political office-holder for nine years and he writes his blog gratis. Come up with a better argument if you want to impugn his motives.

byomtov August 24, 2014 at 5:02 pm

Whatever his motives, what he wrote is inaccurate.

And just because he is not an office-holder now – what office would he hold in a Democratic Administration? – doesn’t mean he wouldn’t like to go back if there is a GOP President in the future. Note that he was an advisor to Romney in 2012.

Art Deco August 24, 2014 at 7:23 pm

The man is 56 years old and has spent a grand total of 2 years of his work life on the public payroll. He also put his signature on an inane amicus brief to the Supreme Court supporting judicial imposition of parody of marriage. If he’s jonesing for anyone’s approval, its the people with whom he socializes, not Republican pols, who would distrust him going forward (and with good reason).

byomtov August 25, 2014 at 1:17 pm

Does that make his statement true?

Jay August 24, 2014 at 5:44 pm

The tax is most certainly based on Apple’s worldwide earnings. If profits remain overseas indefinitely the taxes are categorized as deferred. 21st century intelligent humans have moved onto accrual based accounting from rayward’s dark ages cash basis accounting.

MikeW August 24, 2014 at 4:33 pm

Re Mankiw’s consumption tax proposal: I don’t see a federal VAT ever happening in my lifetime. It’s a political non-starter, whether it’s a good idea or not. I think a more feasible consumption tax is to hike – drastically – the existing federal tax on gasoline. In other words, use the tax as a general revenue generator instead of its current ostensible purpose of supporting transportation infrastructure.

It seems to me such a proposal could be implemented almost immediately. No new paperwork or rules, just a different (huge) percentage applied.to the price.

Sure, it would be regressive. It would raise prices on almost everything (as a VAT would). But it’s in the realm of political possibility, especially if it’s paired with a revenue-neutral income tax reduction. The greens would love it, too, as Americans would have a lot more motivation to car-pool, buy smaller cars, or live closer to where they work.

Willitts August 24, 2014 at 6:25 pm

Why do you assert that a VAT would be regressive?

The tax is on the value added at each stage of production. Fresh vegetables, for example, have only a few stages and the margins are small, leading to a low tax.

It is luxury goods that have many stages and wider margins.

Remember that any income tax can be replicated by a sales tax and a savings tax. Switching from one to another does not imply any change in tax incidence.

JC August 25, 2014 at 11:52 am

“Remember that any income tax can be replicated by a sales tax and a savings tax. Switching from one to another does not imply any change in tax incidence”

Then there is no need to replace a corporate income tax with a sales tax. We just need to tinker a bit with the corporate income tax. We should try to minimize the actual change implemented to move to a system which is equivalent to the optimal system possible.

Art Deco August 24, 2014 at 7:29 pm

An excise of $3 a gallon on gasoline (allowing for short-term and long-term changes in consumer prices to manifest themselves on consumption) might net you a sum which could cover 5% of federal expenditure. Not going to address the problem much.

Were it distributed to dedicated state and local funds for road maintenance, it would not be a bad idea as the cost of that sort of public works would be shifted from people in their capacity as earners or property owners or consumers to people in their capacity as motorists. The costs of road transportation would be more intimately aligned with benefits. (I’ll wager selling that would be a good deal tougher than selling a fancy sales tax).

Bryan Willman August 24, 2014 at 6:33 pm

re: #4 – I’m part way through it, and they make good points. There is one that so far they have hinted at, but don’t make explicit (as far as I’ve read)

Computers/software do not generally do anything well the first time it is done. Even something like Watson is depending on making reference to huge stores of things already done at least once by somebody else. Things like ‘big data” and very broad data input to and extraction from the web will allow “expert systems” that are only “surprized” by things nobody on Earth (well, nobody who contributes to the web) has ever seen before. In fields where there is lots and lots of activity (e.g. remodeling houses) this could produce an AI Expert Carpenter who was virtually never surprized by the hacks people installed in the past. One could imagine an AI Expert Safety officer which “knew” about every bad accident, AND about every practical safe practice ever seen, and thus was very good at not bogging a project down with silly rules while also rushing in to prevent real hazards. But totally new things that had really really never happened before, or at least never recorded in its database before, would still present a problem to it.

a Michael August 24, 2014 at 9:49 pm

#5 “only politics stands in the way”

The understatement of the year…

Ronald Brak August 25, 2014 at 1:51 am

6. I guess the hermit was lucky to be let off with only seven months after a string of robberies in the United States. (Funny you know, when I was a kid I used to think the United States was merciful because they always seemed to be letting the Joker out of prison every other week.) I can sympathise with him. For some people the modern world just hurts. There is too much sensory overload, and that, for want of a better word, is painful. Even I am tempted on some days to just start walking and leave society behind. But I don’t because I live in Australia and everything wants to kill me. Even some of the sheep. Requiring him to go to school or get a “normal” job seems cruel. After all, it’s difficult enough for a person who has spent the last 27 years working to get a job, let alone a person whose only boss for about three decades has been his stomach. Rather than try to reintergrate him into society it might be better to place him along side it. Get him a job watching sheep or mending fence lines or maintaining remote communication towers or something along those lines where he can be alone and most importantly, in control.

And just to be clear, I’m not saying his stealing was okay. Stealing is bad, mmmkay? But stealing food is what people do when their stomachs are empty and they think they have no other choice. That’s how Australia ended up with European settlement. And for those who suggested throwing the book at him I’ll point out it no doubt be a lot cheaper to provide him with some extra warmth and groceries than to keep him locked in a prison. It’s not as if cracking down on a hermit is going to have a whole lot of a deterrent effect.

Boonton August 25, 2014 at 7:48 am

So corporations don’t pay taxes, people do. So if we abolished the corporate income tax, why would we need a different tax to replace it? Wouldn’t abolishing the corporate income tax cause individual income and consumption to increase? There seems to be something missing in this story here. If corporations don’t really pay corporate income tax then why is it vitally important for corporate health to decrease or eliminate it?

Brian Donohue August 25, 2014 at 8:53 am

Well for one thing it might end the embarrassing spectacle of our political leaders demonizing companies for maximizing shareholder value (shocking, I know.)

Any discussion like this needs to be grounded in political reality. Rightly or wrongly (probably rightly), Republicans would be perceived to benefit most from a lower corporate tax rate. Maybe swapping this out for an increase in capital gains taxes and/or closing ‘carried interest’ loopholes would be a good trade here.

I know economists get all frothy about capital gains taxes, but professional investors like Buffett don’t seem so fazed by this, and the current system allows a small sliver of high-paid people to pay low overall tax rates, which is bad optics and misleading since, in general, the rich pay most of the taxes in this country already.

Boonton August 25, 2014 at 1:45 pm

A corporate tax rate doesn’t alter the fact that many corporations make huge profits. Apple, Microsoft, etc. all have huge profits whether it is reported before or after taxes. If you eliminated the corporate income tax how would that be any different?

Brian Donohue August 25, 2014 at 1:54 pm

Shareholders don’t attach value to profits that are forked over to the government.

Brian Donohue August 25, 2014 at 7:52 am

#6. Tyler, this is one of the best links you’ve ever posted. Many of us have a little hermit in us. What a fascinating perspective on the human condition.

Donald Pretari August 25, 2014 at 6:53 pm

I agree with Brian. Absorbing and meaningful.

JasonL August 25, 2014 at 9:36 am

Marketing failure – clearly the proprietor should have launched an “eat my spicy noodles” viral campaign to support a pet cause.

Student August 25, 2014 at 10:13 am

I am not expert on taxation so I dont have much to bring to the table on that regard. However, I do take issue with the assertion that dodging taxation is not unpatriotic. I think it maybe so.

Lets suppose a great war broke out and significant resources were required to support our society in that contest. Would I be unpatriotic if I were to do something like divorce my wife in order to marry some citizen of another country (maybe I pay them to do that) so as to gain citizenship in that place in order to move my family there and avoid having to support my country?

Couldn’t I likewise say that a family chief who arranges a merger that increases the welfare of the family is doing his job. To forgo that opportunity would be failing to act as a responsible provider for one’s family members? Who are we “obligated” to support, our families, our shareholders, or our country?

I am not opposed to revamping the tax system, but gaming the system to provide for shareholders over one’s country is unpatriotic to me.

Guest August 25, 2014 at 10:22 am

I don’t think its pedantic to point out that Mankiw is completely wrong in claiming that corporate executives would “be failing to act as a responsible fiduciary for shareholders” by forgoing the opportunity to pursue a tax inversion.

Larry Siegel August 26, 2014 at 5:46 am

Wrong because…?

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