The Rich Pay for the Federal Government
Despite all the deductions, loopholes and clever accountants the federal income tax is strongly progressive. Moreover the federal tax system remains progressive even if you include the payroll tax, corporate taxes and excise taxes. The chart below with data from the Congressional Budget Office, shows the effective tax rate by income class from all federal taxes. Effective tax rates are considerably higher on the rich than the poor.
The effective tax rate is higher on the rich and the rich
have more money – put these two things together and we can calculate who pays
for the federal government. The final
column in the table shows the share of the 2.4 trillion in federal tax
revenues that is paid for by each income category. The remarkable finding is that the rich and
especially the very rich bear by far the largest share of the federal tax
liability. The top 10% of households by
income, for example, pay more than half of all federal taxes and the top 1% alone pay over a quarter of all federal taxes.
(Click the table if it is not clear.)
Illegal Immigration and local government finance
The CBO has a good review of the literature on the costs of illegal immigration for state and local governments. Key grafs:
Over the past two decades, most efforts to estimate the
fiscal impact of immigration in the United States have
concluded that, in aggregate and over the long term, tax
revenues of all types generated by immigrants–both
legal and unauthorized–exceed the cost of the services
they use….However,
many estimates also show that the cost of providing
public services to unauthorized immigrants at the state
and local levels exceeds what that population pays in state
and local taxes.…The amount that state and local governments spend
on services for unauthorized immigrants represents a
small percentage of the total amount spent by those
governments to provide such services to residents in
their jurisdictions.For example,… the Oklahoma Health Care Authority estimated …that,
since fiscal year 2003 (the first fiscal year considered), the
services provided to unauthorized immigrants have
accounted for less than 1 percent of the total individuals
served and cost less than 1 percent of the total dollars
spent for Medicaid services.
If you look, you can find some places where the costs are significant, in San Diego for example 9 percent of the law enforcement budget was associated with illegal immigration.
Where do our beliefs come from?
We all like to think that our beliefs come from rational thinking, deep experience and good judgment. But suppose that you had to predict someone else’s beliefs, let’s say their beliefs about taxes, welfare, regulation….economic policy of all kind. Let’s put some money on it, the better your predictions the more money you make.
I will give you one piece of information to improve your predictions. Either I will tell you whether the person whose beliefs you must predict is an economist or a biologist or I will tell you whether the person whose beliefs you must predict is American or French. Which piece of information do you want?
What does this say about where beliefs come from?
Addendum: Suppose I asked you instead to predict the types of arguments that the person will use to justify their beliefs. Now which piece of information do you want? What is the role of education in determining beliefs?
Prescription for Reform
[In Italy] small proposals bring protesters to the streets, one hurdle to
making changes as protected interests seek to preserve themselves.
Pharmacists shut their doors this year when the government threatened
to allow supermarkets to sell aspirin. The cost for just 20 aspirin
tablets at a pharmacy is $5.75.
That is from an excellent article in the NYTimes on Italy’s malaise. We may snicker when we think that Italians couldn’t buy aspirin at the supermarket but our prescription-only system isn’t much better. Kerry Howley, writing in Reason, says Basta!
On a Fast Track to Nowhere?
Periodically when the FDA is criticized for slowing the approval of new drugs they announce a new policy like Fast Track. I’m skeptical of these announcements since they are inconsistent with the FDA’s incentives. A recent investigative report in the Cleveland Plain Dealer seems to suggest that I am right to be skeptical but in the end makes me wonder whether Fast Track may be useful after all. Here’s the part that supports my skepticism.
A decade ago, the Food and Drug Administration introduced a Fast
Track designation for drugs in development that was intended to speed
the availability of medical treatments for serious diseases.However, a seven-month investigation by The Plain Dealer shows that
this government blessing has not increased the number of drugs approved
or moved them to market faster.…Dr. John Jenkins, director of the FDA’s Office of New Drugs,
acknowledged that the Fast Track designation only gives companies the
same access to FDA programs that was already in place when they lobbied
Congress for the provision in 1997."There’s really not much other, if any, benefit for Fast Track," he said.
The report, however, makes a big deal of the fact that stock prices do respond positively to Fast Track designation. The report spins this as pump and dump with the FDA in effect doing the pumping and insiders and hedge funds doing the dumping.
…frenzied trading occurs regularly when companies announce Fast Track
status. The number of shares bought and sold more than doubled on 49
percent of days that companies announced Fast Track designations.
Trading was 10 times higher than the day before in 22 percent of
instances….hedge funds and others who [short the stock] bet that the price of a
stock will fall – and it often does after the initial jump a company
receives from Fast Track designation.
But I’m also skeptical of stories that suggest markets are systematically fooled by non-events and the numbers presented do not seem wildly inconsistent with a modest but real positive signal from being listed as Fast Track.
Stock prices of companies that trade on the New York Stock Exchange
rose just 1 percent after Fast Track announcements… Excluding these companies, most of which are major
pharmaceutical firms, Fast Track announcements boosted stock prices
11.5 percent.
I’ll call this one a draw until further information arrives. What wisdom does the crowd offer?
Hat tip to Mike Giberson at Knowledge Problem.
That Cyber #*$! Stole My Credit Cards
A program that can mimic online flirtation and then extract personal
information from its unsuspecting conversation partners is making the rounds in
Russian chat forums, according to security software firm PC Tools.The artificial intelligence of CyberLover’s automated chats is good enough
that victims have a tough time distinguishing the "bot" from a real potential
suitor, PC Tools said. The software can work quickly too, establishing up to 10
relationships in 30 minutes, PC Tools said. It compiles a report on every person
it meets complete with name, contact information, and photos.
"As a tool that can be used by hackers to conduct identity fraud, CyberLover
demonstrates an unprecedented level of social engineering," PC Tools senior
malware analyst Sergei Shevchenko said in a statement.
Cap and Trade as Futures Market
Daniel Hall at Common Tragedies has an interesting argument for cap and trade over a carbon tax. Cap and trade with bankable and borrowable allowances can respond much more quickly than Congress to new information.
[I]magine that in 2015 we get some bad news from the scientific community
about climate change: the risk of truly damaging climate change are
higher than previously thought. Although it would likely take Congress
a few years to act on this info and revisit the question of what the
cap should now be, firms would start banking more allowances today in
anticipation of the government intervening to tighten the cap, and thus
prices would rise immediately. Conversely, if new scientific info
suggests the risks from climate change are lower than previously
estimated, firms would start borrowing against future allocations
(assuming borrowing is allowed) and prices could slacken in response to
new info.
The Golden Compass
It lacks direction.
A Gut Feeling
The title, Campylobacter jejuni infection increases anxiety-like behavior
in the holeboard: Possible anatomical substrates for viscerosensory
modulation of exploratory behavior, is unpromising but the paper is fascinating. The authors show that infection with certain bacteria can cause more anxious or cautious like behavior in mice, perhaps causing the infected agent to avoid predators.
The presence of certain bacteria in the gastrointestinal tract
influences behavior and brain function. For example, challenge with
live Campylobacter jejuni (C. jejuni), a common
food-born pathogen, reduces exploration of open arms of the plus maze,
consistent with anxiety-like behavior, and activates brain regions
associated with autonomic function, likely via a vagal pathway.
Could bacteria also influence our emotional state? If verified in humans this could offer insights into conditions like Crohn’s disease, irritable bowel syndrome and perhaps into fears such as agoraphobia. Long time readers will know that this study is not alone in suggesting that parasites can influence our emotions. Ever wonder why you like cats?
Hat tip to Monique van Hoek and Faculty of 1000.
Filler-er Up
Don’t forget to click on the Amazon link to the left while shopping for your holidays. It will help Tyler and I to cover our costs, especially Tyler’s book budget, and it won’t cost you a penny. And if your total comes to just under the $25 that you need for free shipping, try the Amazon Filler Finder, it will find those $1.29 items that you need to save $6.
The Allocation of Talent
Talent flows to where it is highly rewarded so if price and wage control limit rewards in one sector of the economy, talent will flow to the uncontrolled sector. Mark Ramseyer looks at one implication:
The Japanese national health insurance
provides universal coverage. Necessarily, this entails a subsidy that
dramatically raises the demand for medical services. In the face of the
increased demand, the government suppresses costs by suppressing
prices. By combining extensive biographical (including income) data on
all 449 Tokyo cosmetic surgeons and a random sample of 499 other Tokyo
physicians, I explore the effect of this price suppression on the
allocation of talent and the development of expertise. Crucially, the
national health insurance does not cover services – like elective
cosmetic surgery – deemed medically superfluous. Facing price caps in
the covered sector but competitive prices in these superfluous sectors,
the most talented doctors should tend to shift into the superfluous
sectors and there to invest heavily in their expertise. I find evidence
consistent with this: cosmetic surgeons earn higher incomes than other
doctors; are more likely to have attended a national (generally more
selective) medical school; are more likely to have served on the
faculty of a medical school; and are more likely to be board-certified.
I speculate on the broader implications this phenomenon poses for the
allocation of talent in medicine.
Hat tip to Larry Ribstein at Ideoblog.
The Commanding Heights
Australian bloggers Andrew Norton and Andrew Leigh will debate public education in a series of posts. Judging by Andrew Norton’s first missive it will be a good debate.
People are used to the idea of state schools, so they don’t think about how
uneasily government-controlled education fits with liberal democracy. If someone
said that Australia’s media should be owned by the state, with journalists told
by the state what they should say, with media audiences examined to make sure
they had absorbed the official line, there would be predictable and justifiable
outrage.Yet public education means essentially that for Australia’s young people. The
government owns most schools, employs most teachers, tells them what to teach
through state-set curricula, and examines students to make sure they have it
right–even kids escaping to private schools can’t avoid these last two aspects
of state-run education. And unlike state-owned media, there are severe
consequences for ignoring state education….
Hat tip to New Economist.
Addendum: Andrew Leigh’s first reply is here.
Best Sentence of the Day
By 2025 “at the latest,” he predicts, “artificial-emotion technologies”
will allow robots to be more emotionally available than the typical
American human male.
I believe that my wife would not be alone in thinking that the toaster exceeded this standard some time ago.
Laissez-Faire Marriage
Should the state be involved in marriage? Writing in the NYTimes professor of history Stephanie Coontz notes:
The American colonies officially required marriages to be
registered, but until the mid-19th century, state supreme courts
routinely ruled that public cohabitation was sufficient evidence of a
valid marriage. By the later part of that century, however, the United
States began to nullify common-law marriages and exert more control
over who was allowed to marry.By the 1920s, 38 states
prohibited whites from marrying blacks, “mulattos,” Japanese, Chinese,
Indians, “Mongolians,” “Malays” or Filipinos. Twelve states would not
issue a marriage license if one partner was a drunk, an addict or a
“mental defect.” Eighteen states set barriers to remarriage after
divorce.
It’s no accident that the state began restricting and intervening in the marriage contract at the same time as it was restricting and intervening in economic contracts. It was of course the evil Oliver Wendell Holmes Jr. who dissented in Lochner v. New York and who also upheld forced sterilization laws in Buck v. Bell (writing that "three generations of imbeciles in enough.") Economists don’t like to talk about social externalities but the connection between economic and social regulation is very clear in the progressives.
I think it’s time to restore
freedom of contract to marriage. Why should two men, for example, be denied the same rights to contract as are allowed to a man and a woman? Far from ending civilization the extension of the bourgeoisie concept of contract ever further is the epitome of civilization. Our modern concept of marriage, for example, is simply one instantiation of the idea of contract.
People will claim that this means a chaos of contracts for every form of marriage. This is wrong factually and also conceptually misguided. Factually, we already allow men and women to adjust the marriage contract as they see fit with pre-nuptials. Moreover, different states offer different marriage contracts with some offering more than one type. Partnerships of other kinds have access to all manner of contractual arrangements without insufferable problems.
More importantly, the chaos of contracts argument is fundamentally misguided. The purpose of contract law is to give individual’s greater control over their lives. To make contract law a restraint on how people may govern themselves is a perversion of the social contract. To restrict people from accessing the tools of civilization on the basis of their sexual preference is baseless discrimination.
It is time to restore
freedom of contract to marriage, Laissez-faire for all capitalist acts between consenting adults!
Thanks to Daniel Akst for the pointer.
China Story of the Day
"Dad," said the 6-year old, "can we go to China?"
"Hmmm…maybe. Why do you want to go to China?"
"That’s where they make all the toys."