Tuesday assorted links

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#6. While the author stresses increases in polarization and other negative political consequences, I wonder if there may be positive effects from this policy on complacency in the United States by incentivising increases in interstate migration. Perhaps this will create new clusters of production in states that are beneficiaries and force bold policymaking in states that are net losers.

Or are these migratory patterns essentially safety-seeking in nature and reinforcing of complacent patterns? I would be interested to hear Dr. Cowen's thoughts on the relationship here.

It would be sad if the Republicans succeeded in averaging down higher ed and public (and private?) R&D across the country, and I would not think that good for innovation.

But it might be bounded by how much Republicans want to have House seats for blue states.

"public ... R&D"

What R&D is done by state governments? University R&D is US [or privately] funded.

UCB did a heck of a lot of good work on the UNIX system, essentially pushing Open Systems to domination. Sorry, Massachusetts.

What is "UCB"?

Open source was driven more out of Mass, especially MIT. DEC had its roots there, with DECUS tapes, followed by Stallman and GNU, out of MIT. X Windows was open source out of MIT. Free Software Foundation is based in Mass. Linus rewrote Unix under GNU.

Apple gave the world the evil software copyright in 1983.

Gates sued pretty much anyone pushing easy to install and use Unix, e.g., Windows.

Open industry standards have been driven more out of Mass than California, going back to screw thread standards.

It is funny you say that, Mulp. I was thinking of DEC, and saw them as a victim. While rebels (at Berkeley and elsewhere) loaded UNIX on PDP, DEC was trying really hard to keep people on VMS.

An old DEC-20 user myself. Before Apollo! Another Massachusetts failure.

Stallman is (in Cowenesque terms) an excellent guy, and yes state of Mass taxpayers funded him, but .. we never did run GNU HURD.

(Apollo workstations were actually excellent, and their distributed revision control and concurrent build system has in some ways not been beat.)

@Bob from Ohio: Berkeley. Because of the Berkeley Software Distribution (BSD), FreeBSD.

VMS came much later. During the critical period, Unix was competing against RSX-11 on the PDP-11. Bell Labs offered Unix to DEC for free, because they wanted a manufacturer-supported operating system, but DEC turned it down in favor of RSX-11.

Ken Thompson (co-author of Unix) once said if he ever saw the guy who was head of the RSX project, he'd punch him in the nose.

I will accept that history, though VMS made it to "my neighborhood" before UNIX. Heck, I ran Apollo Domain before straight UNIX.

House members don't set state and local taxes.
It seems to me the smart citizens would then turn their ire to the Democrats running these blue states and municipalities to reduce those taxes, which is partly why the GOP is trying this gambit.

Blue state Republicans were just blindsided by national Republicans.

The will have to be pretty hard core to blame Democrats for that.

By the way

https://twitter.com/Noahpinion/status/938198840624037888

Strongest approval from 50-64 year olds, those in the prime of their careers, and least by 18-34, still wet behind the ears. Interesting.

In other words, people like this

http://babylonbee.com/news/millennial-pays-0-taxes-outraged-will-still-pay-0-taxes/

You poor guy.

You trumpet that 34% strong approval in the 50-64 year olds, while ignoring 44% strong disapproval from the same group.

Is that the best "win" you can manage these days?

On 6, is there is any reason that state legislatures cannot cut back on state income taxes in response to the ending of SALT, and instead just raise payroll taxes instead?

In theory, states could definitely game the system. In practice, they may find it hard to get such legislation passed (in time or at all) and presumably congress could close off any successful system-gaming in the future.

Investment income isn't covered by payroll taxes.

#1 Tries to address correlation vs. causation, but doesn't actually do a good job of it. They are focused on levels, but not changes. Fit an error correction model or something.

#6 seems to ignore that the people who are moving are those who chose to live in high tax states before, may have been among the voters who supported those higher taxes, and once they move to the newer low tax state may vote for higher taxes. So while I get their logic and maybe that's how things play out, it hardly seems inevitable.

My tenants never saw a bond measure they didn't agree with.

https://www.opb.org/news/series/election-2016/portland-oregon-affordable-housing-measure-result/

#6 Crazy idea: cut spending and you won't need such high state income taxes

Why should a Florida taxpayer subsidize spending by the NY state government ?

Better question, why should a Maryland taxpayer (moi) fund hurricane relief in Florida.

Bob from Ohio - So you dont have an answer then.

"Better question, why should a Maryland taxpayer (moi) fund hurricane relief in Florida."

Shouldn't.

You could argue however that FEMA serves the whole country and sooner or later Maryland will need FEMA help. Maryland has gotten hit by hurricanes before. No Florida taxpayer benefits from NY state spending ever.

But, NY has historically funded Florida spending, not the the way you assume.

The only reason NY isn't paying for more in Florida is.NY embraced Obamacare increasing Federal spending in NY, but Florida gave up billions in Federal spending to pay Florida workers in health care, resulting in Florida paying about as much as it gets. When Florida expands Medicaid, it will go back to getting money from NY, California, Mass.

In general, Blue States donated welfare and jobs to many Red States, until Obama, when Red State engaged in self harm to spite Obama and Blue States, refusing Blue State money.

The current governor of Kentucky ran on reversing the obamacare implementation, but he has failed to kill all the jobs and throwing part of his base under the bus by actually stopping the obamacare money.

+1

A lot of taxes in high tax state and local regimes goes to fund local amenities. Parks, schools, police, roads, subsidized utilities, etc.

People who live in low tax states often purchase those things but privately. E.g. your HOA fees pay for the park-like amenities in the development. You're more likely to send your kids to private schools if the local public schools are bad. You have a gated community with private roads and security. You pay full price for utilities instead of enjoying various subsidies.

I.e. New Yorkers through SALT are purchasing things that Floridians purchase privately. So why should New Yorkers get a tax deduction when they're buying the same thing.

> I.e. New Yorkers through SALT are purchasing things that Floridians purchase privately. So why should New Yorkers get a tax deduction when they’re buying the same thing.

Exactly.

#6 - query for Tyler, a job position opens up in the University of Mississippi econ department for a full professor. Do you take the job and move to a low tax state or stay at GMU? Assume ethnic dinning opportunities are the same in each locale.

Will we see a net outflow of University of Chicago economists (home of the rational school of thought) to low tax states? the questions are endless and Dailio has not considered even a fraction of them.

Do adequate ethnic dining opportunities require a high-tax locale?

"ethnic dinning": you may find ethnic people noisy but many foreigners find Americans noisy.

Why would you assume ethnic dining opportunities are the same? They're not.

People have been trying to show that high SALT cause out-migration for decades and every attempt ends up being discredited. I suspect Dalio will not be an exception.

His chart shows a change of plus or minus 1% Of what? I think it is relative real income by state, but I would not swear to it.

I live in Mass that has a very high real income and higher taxes. People have been writing about high income people leaving Mass per years, but the number of high income people in Mass keeps increasing even though total population growth is negligible -- even negative some years. What actually happens is there are large in and out migration with most of the out-migration
being middle income people leaving because of the high housing cost while at the same time very high income, highly educated people keep moving into Mass because of the great quality of life. For example, Medical Doctors earn less in Mass than in any other state. But we constantly see the graduates of the state medical education establishment remain and set up, or join practices in Mass. They obviously think it is worth the trade off of higher incomes to get the high quality of life.

What Dalio, and others miss is that the high income people they think will leave, know that if they move to lower income states they will not be able to earn the high incomes they get in the leading states. Try being a top notch hedge fund manager in Alabama. It just does not work because of the externalities portfolio managers need to be top notch performer. It is the same reason that major corporations establish their headquarters in New York and other expensive cities. Virtually no top notch executives or others will leave the expensive states for a 1% change in their income. If that were true it would have happened a long time ago.

Well said.

I live in Mass that has a very high real income and higher taxes.

Huh? MA has a flat 5.1% income tax. MS and AL, as an example, are 5% above an income of $2k or $3k. Yeh that 0.1% drops them down the ranking but it’s still 0.1%.

Massachusetts isn't a high tax state. It ranks 20 out of 50 when looking at State and Local General Revenue as a Percentage of Personal Income. That's the metric that matters. It's the cost of government after accounting for the income boost of living in a highly productive urban state.

Mississippi ranks #19 out of 20.

In other words, adjusted for personal income, Mississippi has a *slightly* higher tax burden than Massachusetts.

http://www.taxpolicycenter.org/statistics/rankings-state-and-local-general-revenue-percentage-personal-income

Exactly. Maybe true for tier 2 blue state cities, but the 1% in SF and NYC are not leaving. Where would they even go?

Zuckerberg has been poking around Iowa. The consensus is that he's laying the ground for a presidential run, but maybe he is actually house hunting.

The other way to look at it is that SF and NYC are creating sufficient very high income jobs to support their expensive real estate.

(3.) Pretty dull list. Peter Leeson's WTF is more fun, and teaches you more economics, than any book in Noah Smith's list. No offense Prof Cowen, your book is very good, but I'm being frank here. And Jean Tirole's book ... a real slog, although admittedly there are snippets of genius here and there.

Those (Leeson and Tirole) are the only two of those books I’ve ordered online. The others don’t interest me.

3. Those books sound pretty bad. You can't have a monopoly without government collusion.

#1 "Still, before we take an axe, Pruitt-style, to anything that looks like it might be a regulation, it would be nice to have some actual evidence to show the degree to which regulation undermines our freedom and prosperity, and some data to help us prioritize the worst regulations for early excision."

Better yet, how about we have some actual evidence that the regulation is good before we enact it?

5. But some of the most readable history books have been written in the last 30 years. Not all is lost.

6. Here's what Ray Dalio says at the link: "So, our big picture perspective is that, on the margin, the tax law changes are going to be significant and bad for high SALT locations and good for low SALT locations, and are going to be good for businesses and business owners (and hopefully those who the money trickles down to), so those businesses in low SALT states will get a double whammy benefit." Does anyone believe that nonsense? Does Cowen? Why would Mr. Dalio share his insight with you and me? Dalio is a fraud. Name one company that he invested in that made America great again. One.

Lazy Alertness.

LOL you sure showed him.

Clearly you are a greater man than Dalio. BWHAHA.

The metric that matters isn't "tax rates".

People are optimizing for after tax income!

Compare Massachusetts and Mississippi.

In MA the government takes 10.1% of personal income (state and local). In MS, it's 10.57% (state and local). Massachusetts isn't a high tax state unless you want to claim Mississippi is a high tax state.

Now when you account for the after-tax income gap between those two places it becomes clear why hardly anyone moves from MA to MS.

Now look at Florida and New York. Lots of people (not just retirees!) move from NY to FL.

In FL, the government takes 7.6% of personal income. In NY, the government takes 14.94%.

It's true that the median family earns 20% more dollars in NY than FL but they're losing a lot of that increase to the government and they have to pay a lot more for housing and other basic commodities. Shouldn't surprise us at all that people are moving south.

http://www.taxpolicycenter.org/statistics/state-and-local-tax-revenue-percentage-personal-income

Number 4 was not what I expected. Thank you for linking to that. I almost did not read it, inasmuch as I have considered Lukacs, for several decades, to have been fundamentally unsound on civilizational issues (in brief, I considered him, after reading several hundred pages of his not-badly written prose, to sadly be a self-styled conservative who was too much of a follower of the zeitgeist, one of those people, like Rod Dreher, another interesting person, who clings to the illusion that the American powerful live in a world where the changes they force on us - for Dreher, the illusion that the leftwards change in the Overton window that the media moguls bought, long ago, when he was living in a not very expensive apartment, was not a boring useless trick - for Lukacs, an insufficiently grateful immigrant to a country that was better than the country he came from, the illusion that the Ivy League lawyers on the Supreme Court and on the staffs of every Democratic senator - his fellow erudite contemporary thinkers - were not barbarians, for the most part. Well, he is in his 90s now, and maybe he knows better.

Number 5. I was counting states to Pennsylvania (4) while reading, and forgot that (5) was the Lukacs reference: "5. John Lukacs, "from the age of books," at age 94. (Many states are 4 states from Pennsylvania.) (several Canadian provinces, if provinces were states, would also count.) Not to mention Bermuda!!!

6. Ray Dalio on SALT and out-migration from high-tax states.

We might consider economies of scale, as in California vs Maine.

California spent three years with horrible unemployment and lived on the edge of bankruptcy after the crash. Maine spent those three years much better, except they had to wait while the Fed got Cal pensions into health at the stock market.

If the market corrects by 7%, then California local governments go into major downturn. Even the change in tax law will cost the Cal state government 30 billion in a 200 billion budget. When California goes, like in 2008, all of the economy get taken down too, as in 2008 .

Dalio is wrong. People won't move until they retire. They will pay taxes while they can earn and send kids to school. Then move out when the don't need either.

Prohibition memories for a few Philadelphians and their ilk. Drive a Buick from Pennsylvania, through Maryland, and down Route 1 to Norfolk. Get on board the Bermuda-bound steamer. First bottles of wine opened three hours from the pier, typically at the end of the day that had started at the Philadelphia gas station, where the help had been so happy to gas up a shiny new Buick - they loved cars, loved different cars, and knew them all - sort of like a certain sort of middle aged person in the mid-60s considered themselves to be a movie buff because they looked forward to the Late Movie and the Late Late Movie every night (on WPIX in NYC, who knows on what channel in Philadelphia and all the other little cities, with their charming glowing skyscrapers against the night sky, that, as tall as they were, did not begin to create a memory such that even one person on the whole entire internet is likely to say: No, E.P, ; I for one remember the real name of the 11PM movie in every big city in the USA from back in the day - God, I wish someone did) (nobody does) ---- well, back to the Bermuda-bound vessel on its itinerary through the now forgotten coordinates that measured its progress, over Adrienne von Speyr's Unbounded Sea, to Bermuda - don't forget that, back then, the first few meals on an ocean-going ship were fantastically good, as the cooks of the day knew how to value freshness and fresh availability. Feliz Viernes ....

That was for John Lukacs.

2. Do people here care about actual academic economics, other than to bash it occasionally or to remind us after every Nobel that "THERE IS NO NOBEL PRIZE IN ECONOMICS"? Or am I just deeply misled by the commenters, and most of the lurkers are actually interested in economics.

6. From the article: "Ending SALT deductibility will result in a sizable increase in the effective tax rate faced by high earners in high tax states (3-5% for most making over $500,000), notable outbound migration of high income filers (we estimate 1-2.5% will leave for most states we looked at), and a hit to state tax revenues (around 1%)."

I don't believe it. Folks making that kind of income are already subject to the phase-out of itemized deductions and the AMT on their federal returns, they are not getting all that much benefit from their SALT deduction.

Actually, it appears that with the lower rates, a taxpayer at that income level in California would pay less in federal income tax under the new rules than under the current rules.

https://www.wsj.com/graphics/republican-tax-plan-calculator/

Dalio gets the economic analysis wrong. To some extent, higher effective state/local tax burdens are reflected (capitalized) in lower property values in those states, especially the wealthiest neighborhoods. This is a loss to the owners of the property when the tax is enacted, but it's a burden that they cannot escape by selling the property and migrating to a lower-tax state. The incentive to out-migrate only exists to the extent the tax burden is not capitalized in lower property values. Lower property values are an incentive to stay put.

#6) Dalio and others overstate the effects of SALT deduction loss. Already, far, much larger cost considerations do very little to compel people to leave California, or even move locally, where far larger cost differences (Real Estate) are seen, but which do little to motivate household moves.

#2: Brilliant. I wanted to write a book with this structure, but on finance, not economics. (I don't have the econ background to write the latter.) But I never got around to it. Glad to see someone is on the case.

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