Scott Sumner on capital gains taxation

You also see the media discuss the “principle” that capital gains should be taxed the same as wage income.  That’s about as sensible as saying that “in principle”, a gallon of gasoline should pay the same tax as a gallon of Scotch whiskey.  Exactly what principle is that?  Capital gains income is nothing like wage income, indeed calling both “income” is nonsensical.  For instance, the real and nominal tax rate on wage income is identical, and the real and nominal tax rate on capital gains is very different.  So if it’s a matter of “principle”, then why should we set the nominal tax rates equal?  Why not equalize the real tax rates?  And if they are merely two forms of “income”, then why don’t we allow full deduction of capital losses from wage income?

A wage tax essentially taxes current and future consumption at the same rate.  A capital gains tax taxes future consumption at a higher rate than current consumption.  What “principle” suggests that patient people should be taxed at higher rates than impatient people—even if they have the same lifetime wealth?

Here is more.

Monday assorted links

How well did Medicare pay-for-performance work?

For pain management, and pain management, only, it seems it worked just fine:

Medicare uses a pay-for-performance program to reimburse hospitals. One of the key input measures in the performance formula is patient satisfaction with their hospital care. Physicians and hospitals, however, have raised concerns regarding questions related to patient satisfaction with pain management during hospitalization. They report feeling pressured to prescribe opioids to alleviate pain and boost satisfaction survey scores for higher reimbursements. This overprescription of opioids has been cited as a cause of current opioid crisis in the United States. Due to these concerns, Medicare stopped using pain management questions as inputs in its payment formula. The authors collected multiyear data from six diverse data sources, employed propensity score matching to obtain comparable groups, and estimated difference-in-difference models to show that, in fact, pain management was the only measure to improve in response to the pay-for-performance system. No other input measure showed significant improvement. Thus, removing pain management from the formula may weaken the effectiveness of the Hospital Value-Based Purchasing Program at improving patient satisfaction, which is one of the key goals of the program. The authors suggest two divergent paths for Medicare to make the program more effective.

That is from a new paper by Lu Liu, Dinesh K. Gauri, and Rupinder P. Jindal.  Overall, why did incentives fail us so badly?

Via the excellent Kevin Lewis.

Me on the end of the Great Stagnation

Here is some (edited) transcript from an AEI symposium, via Jim Pethokoukis:

We’ve come up with great new ideas, took a little while to figure out how to use them and how to spread throughout the economy, and eventually they made big differences. Are we assuming that these new technologies are like the ones in the past and they’ll have that eventual impact?

I think the new innovations will be special in at least one significant way: A lot of them will not contribute that much to per capita GDP. So, if you take the mRNA vaccines, they’re influencing what would normally be called the “cyclical component.” If you think of older people as more likely to die from COVID-19 . . . by saving lives — I’m not suggesting per capita GDP will go down — but the impact on human welfare will be much greater than what would appear to be the long-term secular trend in GDP. Also, two of the big advances that might happen are a vaccine against HIV/AIDS and an effective vaccine against malaria. Those would be incredible advances for humanity, but I don’t know how much they would show up in US per capita GDP or productivity — possibly not really much at all.

The other new wave of innovations, which you could call green energy — again, you could be very optimistic about those, but the main thing they’re doing is helping us avoid a catastrophe. So they’re boosting GDP relative to a quite awful counterfactual of just continuing to burn coal and other fossil fuels. But I’m not sure we’ll feel we have higher standards of living relative to what we were used to simply because there’s a solar panel on your home. It might in some ways make your energy supply better, but again, it will be hidden by the counterfactual. So, it will be a very strange kind of technology boom when I look at the two main areas where I see a lot of progress.

If we go through a period where none of this stuff is really showing up in data and maybe it’s not obvious that people’s living standards are rising, do we risk having less societal tolerance for the kinds of disruptions that economic growth and progress naturally make?

Here’s one of my fears: The biomedical innovation progress is so fast but the rest of the economy stays relatively static, so we become older as a society more quickly than we had been expecting. You could have a lot more status quo bias — just more entrenchment, 10 years more of a problem — and we could, in a funny way, innovate ourselves into a tighter complacency and a tighter stagnation.

I’m not rooting against increases in life expectancy. Ceteris paribus, I would take them, obviously. But that said, you want to be careful about the order in which progress comes, and I’m not sure if we’re going to get it in an optimal order.

Here is the complete excerpt.

Falling prices prediction bleg

Over the next six to nine months, which things in the American economy will see falling nominal prices?

Don’t count goods and services for which the current price is de facto infinity, such as a cruise or a twenty-block of seats at an NBA game.

What are your predictions?  And what is your underlying model for that sector of the economy?

Will used car prices be falling by then?

At a dinner table discussion, one person I know picked “the price of TV streaming services” (falling viewing time plus excess capacity?), but this was much disputed.

Newark fact of the day

Newark Police officers did not fire a single shot during the calendar year 2020, and the city didn’t pay a single dime to settle police brutality cases. That’s never happened, at least in the city’s modern history.

At the same time, crime is dropping, and police recovered almost 500 illegal guns from the street during the year.

Here is the longer story.

Garett Jones sentences to ponder

UCSD’s Valerie Ramey, advisor to CBO and member of the NBER Business Cycle Dating Committee, notes the puzzling result reported by multiple researchers: *More* infrastructure spending predicts *no change or a decline* in jobs:

…Have wonks widely discussed the finding that U.S. infrastructure spending appears to have no positive short-term effect on jobs?

Here is the link, including to research by Valerie Ramey.

Saturday assorted links

1. At #6 and #7 you can read AIER on vaccines.  C’mon people, this particular debate is over.

2. Long Covid is real.  And U.S. excess deaths in 2020 more elevated in relative terms than during the 1918 pandemic (NYT).  And “BREAKING: Israel reports no new coronavirus deaths for second day in a row.”

3. Highly effective software to help you find a vaccine,

4. Wyoming will recognize DAOs as a new form of LLC.

5. The fiscal polity that is Illinois: “Winners of lottery jackpots of $25,000 or more have been denied payment by the lottery commission until the state balances the budget.”

6. “Ontario Parks cracking down on people reselling camping bookings for profit.

Periodicals to know about

There are new and transformed magazines and movements like American PurposePersuasionCounterweightArc DigitalTablet and Liberties that point out the excesses of the social justice movement and distinguish between those who think speech is a mutual exploration to seek truth and those who think speech is a structure of domination to perpetuate systems of privilege.

That is from David Brooks (NYT).

The petty narcissism of small vaccine differences

That is the topic of my latest Bloomberg column, here is one excerpt:

My survey of the cultural vaccine landscape in the U.S. includes the four major vaccines — from Pfizer, Moderna, AstraZeneca and Johnson & Johnson.

Pfizer, distributed by one of the largest U.S. pharmaceutical firms, is the establishment vaccine. Since it initially had a significant “cold chain” requirement, it was given out at established institutions such as big hospitals and public-health centers with large freezers. It is plentiful, highly effective and largely uncontroversial.

Moderna — the very name suggests something new — is the intellectual vaccine. The company had no product or major revenue source until the vaccine itself, so it is harder to link Moderna to “Big Pharma,” which gives it a kind of anti-establishment vibe. Note also that the last three letters of Moderna are “rna,” referring to the mRNA technology that makes the vaccine work. It is the vaccine for people in the know.

Moderna was also, for a while anyway, the American vaccine. It was available primarily in the U.S. at a time when Pfizer was being handed out liberally in the U.K. and Israel. As a recipient of two Moderna doses myself, I feel just a wee bit special for this reason. You had to be an American to get my vaccine. Yes, the European Union had also approved it, but it failed to procure it in a timely manner. So the availability of Moderna reflects the greater wealth and efficiency of the U.S.

Then there are the AstraZeneca and Johnson & Johnson vaccines…


To the extent vaccines turn into markers for a cultural club, vaccine hesitancy may persist.

It might be better, all things considered, if vaccines were viewed more like paper clips — that is, a useful and even necessary product entirely shorn of cultural significance. Few people refuse to deploy paper clips in order to “own the libs” or because they do not trust the establishment. They are just a way to hold two pieces of paper together.

To be clear, the primary blame here lies with those who hesitate to get vaccinated. But behind big mistakes are many small ones — and we vaccinated Americans, with our all-too-human tendency to create hierarchies for everything, are surely contributing to the mess.


Do career disruptions matter for the top five percent?

How resilient are high-skilled, white collar workers? We exploit a uniquely comprehensive dataset of individual-level resumes of bank employees and the setting of the Lehman Brothers bankruptcy to estimate the effect of an unanticipated shock on the career paths of mobile and high skilled labor. We find evidence of short-term effects that largely dissipate over the course of the decade and that touch only the senior-most employees. We match each employee of Lehman Brothers in January 2008 to the most similar employees at Goldman Sachs, Morgan Stanley, Deutsche Bank, and UBS based on job positions, skills, education, and demographics. By 2019, the former Lehman Brothers employees are 2% more likely to have experienced at least a six-months-long break from reported employment and 3% more likely to have left the financial services industry. However, these effects concentrate among the senior individuals such as vice presidents and managing directors and are absent for junior employees such as analysts and associates. Furthermore, in terms of subsequent career growth, junior employees of Lehman Brothers fare no worse than their counterparts at the other banks. Analysts and associates employed at Lehman Brothers in January 2008 have equal or greater likelihoods of achieving senior roles such as managing director in existing enterprises by January 2019 and are more likely to found their own businesses.

That is from a new paper by Anastassia Fedyk and James Hodson.  Via the excellent Kevin Lewis.

Friday assorted links

From the comments, Zaua on capital gains tax hikes

This is a big mistake even from a class equality perspective as it will cause rich people to invest more in things that are less liquid and accessible, and therefore harder to tax, from private businesses to real estate to crypto.

I believe that as much wealth as possible should be based on publicly traded corporations, because that is an avenue to build wealth that is accessible to all people with any amount of spare money and an avenue where regular people probably aren’t going to get screwed too badly by insiders because of the efficient markets hypothesis. However, the liquidity and accessibility of public markets also makes them easier to tax. So the higher capital gains tax rates are, the less attractive the public company form will be and the more attractive investment options will be put behind opaque structures that have tax advantages but also become too risky or even inaccessible to the general public.

If you must raise taxes on the rich, do it on their individual income rates, not their capital gains rates.

Here is the link.