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2. except the dirty little secret is that the revenue whopper in all of that is basically just cap gains, dividends, and estate tax, with everything else a drop in the bucket by comparison. Republicans want to touch those even less than they want to touch marginal income tax rates.

Sory, I think this has got to go. I understand economists think lower cap gains rates are important, but investors like Buffett seem to disagree. Also, tax reform in 1986 established parity between income and capital gains rates. I don't recall any cataclysm ensuing.

Plus there's the whole dodgy 'carried interest' thing, which I don't even understand fully, but doesn't smell quite right.

The capper, though, is that the current structure is political manna for the left, allowing them to carp about tax rates for folks like Romney, conveniently ignoring the fact that, aside from the capital gains treatment, which affects a small number of mostly very rich people, taxes in this country are already more progressive than they were in the 1950s, or they are in Europe today.

I'm pretty sure Obama understands this but most people in the country don't, and he's perfectly happy to pander to 'soak the rich'.

Obama's budget has called for expiration of Bush cap gains cut as well as dividends taxed as normal income from the get-go. I agree this is the most critical issue. Carried interest, while completely absurd and untenable, raises relatively little revenue. As for the top income tax brackets, while it's true that they may not affect the 0.01% significantly, they do affect very well-off people while leaving somewhat-well-off people mostly untouched since (a) they're marginal and (b) those people still get the Bush tax cuts on all of their income below 300k--and these breaks are a truly massive revenue-suck, on par with cap gains and dividends.

When you add it all up, the accumulation of Bush tax cuts was huge for the middle class.

Based on current progressivity, it seems clear to me that it is the middle class that is undertaxed (gasp!)- say, the 20th-70th percentile.

And that's the story of how I came to love the fiscal cliff.

"Bush" tax cuts? You are talking about the tax rates enacted by Title I of the "Tax Relief, Unemployment
Insurance Reauthorization, And Job Creation Act Of 2010" authored by a Democratic House, passed by a Democratic Senate and signed by a Democratic president. (A pedantic point, or more accurately, a pedantic beside-the-point, to be sure, but one must give credit where credit is due.)

If I were RICH(!) and made about $125k (to match my RICH(!) wife's $125k for example) what could you tell me to convince me it's right that the government takes more of my money to hand directly to other people?

I would tell you to reread my post and look up "marginal tax rate", because a family making $250k will see $0 rise in taxes under this plan.

Oh, Mr. Obama, I didn't realize that was you.

Okay then, I have a followup, so what happens with inflation?

Yeah, mw, but what if Andrew' and his wife made $250,001 in taxable income? That last dollar would now be subject to a higher tax rate.

On the bright side, inflation may just lower our real wages rather than contributing to bracket creep.

I wonder if weakened power of Labor puts a damper on inflation. If employees have less bargaining power, maybe less threat of wage/price spiral, if you believe in such a thing.

Actually replying downthread, but the craptastic forum software won't allow me to inline responses.

mw: What I suspect will happen, from the article, is that when you reach the $250K "magic" threshold, you'll see a whole host of deductions that
you were counting on disappear: Home mortgage interest, student loan interest etc. Kind of like what already happens with the AMT today to people who live in expensive locales like NYC or the Bay Area.
The net result is that while your marginal rate won't change, your effective rate sure as hell will.

I wonder what will happen to dividend taxes for us foreign investors (with zero US-based income) if they move to taxing them as income.

Also as someone recently pointed out, you have to be careful when talking about tax progressiveness. While there's no question that the 'poor' do better from taxes now with the tremendous benefit of EITC, other areas have become much more unfair. Specifically, given how insanely, steeply unequal the income distribution gets the higher up you go, you have to remember that up until Reagan there were 14 brackets above 250k, now only 2. So in the area that has seen the sharpest rise in inequality--namely at the top--the tax system has become tremendously less progressive by a long shot, with cap gains only compounding that.

Yeah, but this is mostly political fodder, seen in the recent fascination with the 0.1%, the 0.01%, etc. As you mention, though, there is not a serious amount of money here, so why do Repbulicans insist on putting up with these lousy optics?

To your general point, that the US has more unequal income distribution than, say, Europe, I think there is a case for a modicum of more tax progressivity than in Europe.

But give Europeans points for honesty- they want their fancy welfare state, they pay for it (VAT and payroll taxes.) The worrying trend in America is that we're moving closer to the European welfare state model, but with the illusion that the rich can pay for it all.

This is actually a tremendous misconception--our *tax* system is *more* progressive than most of the Northern European welfare state models, and our *spending* system is much *less* progressive (absence of things like child care, universal health care, parental leave, and so forth). Some argue that our tax-progressive spend-less-progressive approach breeds more resentment for further redistribution.

How are the things you mention progressive? Progressive means worse for the rich, but universal health care, child care, etc. are about as regressive as you can get- everyone gets the same benefit. The opposite of welfare, food stamps, medicaid, etc.

Cliff--yes I wasn't clear it's more just about the magnitude of the social spending. If two countries have identical tax systems but one country spends 5 times as much on social programs as the other, then that country has redistributed more income, even if the social programs themselves are not progressive per se, because the poor are getting much more out than they put in.

But nevertheless the US tax system is more progressive, while other countries may even have regressive tax burdens overall.

mw, not sure what your trying to say. This was all covered in a 2011 blog post by Mankiw that drew fire from Yglesias, but Matt got his facts wrong, so he received a richly-deserved bitch slap from Sumner. Well-trod ground.

But Medicare Part D and Obamacare are steps down the road toward Europe. And these ships have sailed. So if our redistribution is gonna be more like Europe, our tax structure needs to follow suit. Obama is in fantasyland with his "the rich, who already pay the bulk of taxes in this country, can pick up the tab for this too" argument.

The upper income earners already pay a large amount of the tax burden.

This is political grandstanding. The revenues will be minimal. The needed revenues are in taxing the middle class. What will happen is rich will be defined down to anyone who has a job. And there will be fewer of them.

You can't fund a welfare state on taxing the rich. Not enough and has a tendency to not be there.

This policy puts the Democrats squarely in the stupid party category.

I understand economists think lower cap gains rates are important, but investors like Buffett seem to disagree.

Buffet seldom sells anything. Tell him that he has to pay taxes on capital gains every year on stocks that he has not sold and ask him how he feels about such a tax.
Also should capital gains be reduced by inflation and some discount rate (say 3%/year)?
IMHO A progressive consumption tax is the only sensible solution.

You couldn't sell the welfare state except on the false premise the rich were going to pay for it.

Suppose Obama went out and said he was going to take a lot of money from middle class people and spend on things he thinks the middle class ought to have. Would they have bought it? Would they have preferred the sub-standard NHS to buying their own insurance? I don't know.

Whatever happens, Obama is going to have to raise taxes massively to pay for the pork-fest that he has promised. That probably means a VAT. Which is one of the most regressive taxes around.

Republicans, however, would mostly be fine with eliminating the deduction for state and local taxes, muni bonds, and even the mortgage interest deduction, but Democrats would never go for those.

The Plumer piece is infuriating. It conflates getting the externality "corrected for" with reducing emissions. Not the same thing. I think recognizing that leads to uncomfortable conclusions.

This is exactly right. If the dirty good is taxed at the Pigouvian rate and it continues to be consumed at a significant level, too bad! Case closed! If Plumer is saying that the academic estimates of an optimal carbon ramp indicate it needs to keep gradually rising above $30/tonne of CO2 in coming decades, he should explicitly say that. But for 2012, $30/tonne CO2 (not per tonne of elemental carbon) is the higher end of the ballpark for current estimates of the social cost of carbon.
Plumer is reading too much into 3 years of results in emissions rates. Of course the short run demand elasticites are low! We already knew that. It's the 10-year elasticities that are interesting. We don't need solar and wind to make huge per-capita emissions progress; the US and Canada should be able to gradually converge on current European per-capita emissions with current technology. The best power plants are only ~40% efficient; the rest goes out as waste steam. On the decade scale under a carbon tax, we should see co-generated district heating become a much bigger deal in urban areas and combined heat/power in large suburban buildings. Near-free heating (and cooling with an absorption chiller) for only the capital costs of installing the steam pipes (urban areas only) makes sense only as the current power-generation and HVAC capital stock depreciates and is replaced. That takes time!

Why does the Times now go through the comments on their articles and pick out the worst and most partisan to give the seal of approval of the NY Times? You would think if they were going to indicate approval of any comments, it would at least be ones that were well thought out. Does not reflect well on them.

A carbon tax needs to be teamed with a payout for removal of CO2 from the air. This is very important because it is probably much cheaper to remove CO2 from the air than to stop putting it into the air. Possible methods include: Biochar, enhanced weathering and deep ocean iron fertilization. It could turn out that the tax can be low and still enable us to reach equilibrium.

Government funding of public clean-energy R&D is an invitation to corruption. Consider the ethanol subsidy, it has corrupted the state of Iowa.


There's a lot of opportunity for scams there, but it does seem like the natural way to handle this is to let people who can sequester carbon out of the atmosphere either get back some money (give them some cash from the CO2 tax revenues) or let them sell a carbon offset to polluters that keeps them from getting charged for that amount of CO2 emissions.

As far as trying to develop clean energy via subsidies, I agree that there is a lot of opportunity for corruption and inefficiency there. But I don't see any realistic hope of geting CO2 emissions down where we'd like them with current technology. (It's possible, but it's expensive enough that it would be unacceptably painful for a whole lot of voters, which means that anyone imposing that level of CO2 cuts via taxes or cap-and-trade or other regulation will soon find themselves out of power.) Now, my guess is that it's already not so hard to get people willing to invest in clean energy technology that's close to being ready to roll out--that's a kind of glamorous area, and there are subsidies for solar and wind power that help keep the investors interested. But stuff that's further out, where you're not going to be getting to market for a decade or two, is just a lot harder to fund with private investors, especially if you don't have a currently viable business that knows how to deal with this kind of research. (For example, pharmaceutical companies deal with investments at this level of riskiness and timeline, but they're set up to do that; probably nobody is set up do do the same with alternative energy investments.)

My suspicion is that clean energy is an area that lots of people are thinking about, because it's an area that almost everyone knows is important. This is not a place where you need the funding to get people interested in working on the problem, but rather one where you need funding to help people make some progress on it.

What the article mentioned was that a carbon tax *would* cut the output of CO2, but the law of diminishing returns would kick in and the reduction would not drop as steeply as some think. This is not the same as saying a carbon tax has no effect. Also I recall reading something on G. Mankiew's blog a while ago about the merits of a mileage based gasoline tax vs a vehicle based tax, pros-and-cons. Seems then that carbon taxes are a good way to reduce the reliance on fossil fuels and raise revenue for government, hopefully not to be misspent by the same (!)

5. What I learned (again) from breast-feeding while working: autarky is tough and gains from trade are helpful. Now I leaned on formula as opposed to lactating FB friends to make it all work, but that's just me. Here's a loosely related article by a smart female economist that is maybe a bit more approachable than the link:

I mean, this is just a modernized version of a wet nurse, right? Everything old is new again.

I find it funny how they're touting these "micro-homes" as some bold new idea for the trendy urban elite. I lived in an under 300 sq ft place, with a roomate, for several years. It was a dorm room.

Shocking awful and partisan NYT "article".

But is it even possible to raise $1.6 trillion from wealthy households without changing tax rates?

That's not actually the question being debated. NYT attempts to insinuate that the republican's are "lying" that their alternative isn't possible by asking that question, but instead the republicans have offered to raise about ~800B over ten years.

But doing so would mean that a family earning just over $250,000 a year might face a sharply higher tax bill than a household earning just under that amount. A phase-in, which most analysts consider unavoidable, might slash $300 billion from the revenue pot, leaving roughly $1.7 trillion, just over what the White House seeks.

Again no Republican has put forward plan that deductions should be capped for high earners. That's actually an Obama proposal on top of his proposal to set the top rate at 43% (yes higher than it was under Clinton not 39% as this article suggests--another bit of partisan dishonesty).

The only republican plan clearly put forward in this vein is Mitt Romney's plan to cap deductions at $50k for all income levels. That plan raises none of the issues that the NYT discusses. Note: it is possible to raise 1.7T over ten years by lowering the cap further.

In general, Republicans are not offering any source of revenue that directly depends on a person's income. This is about bringing fairness to tax code while bringing the budget into balance, not creating a rube goldberg machine that raises money from minority groups while creating byzantine rules that enable political patronage.

Why are reductions in deductions and increases in rate considered alternatives? Why not do both, except that instead of limitind deductions above a certain amount, convert deductions into partial tax credits so that people of all income levels receive the same incentive to spend on favored categories. The partial credit on each category could be set so as to increase revenue and wouold increade the progressivity of the tax. Also a partial credit couldrecognize that spending on different categories are not necessiraly of equal value. Personally I'd keep a fairly high credit for charitable giving but phase out the mortgage interest credit but keep credits for tax payments (all) to S&L governments and a 100% credit for the payroll tax, both portions..

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