Jason Furman on the House tax reform plan
Find the slides here, 44 pp., very useful. I found (what seems to be) #36 most interesting, namely to the extent interest deductibility remains, many corporations will face a negative marginal rate under the new reforms.
I do think Jason could have offered more praise to how the plan limits various inefficient deductions, a long sought-after goal.
Hat tip goes to Greg Mankiw.
Sunday assorted links
1. Street food markets in North Korea.
2. If you would like to read a dystopian scenario about Google-Facebook-Amazon.
4. Arbitrage! (Walmart vs. Amazon)
5. The Courbet culture that is Swiss: “Our little canton can be a model for how to conduct an investigation.”
Have the Saudis created a coup-proof society?
You might wish to read James T. Quinlavin from 1999 (pdf), who also covers Syria and Iraq, here is one bit:
While observers have pointed to the apparent fragility of this balance for decades, the longevity of the balancing act is both a tribute to the Saudi rulers and evidence that their tools are more effective than generally recognized.
Ibn Saud’s personal conquest of Arabia, supported by a community of trust of about sixty men willing to fight against the odds, began with the recapture of the family seat in Riyadh. From there Ibn Saud went on to conquer the Nejd, the traditional heartland of Arabia, relying on both war and marriage to personalize his alliances and conquests. Marriage, even to bereaved relatives of defeated opponents, provided Ibn Saud an effective means of monitoring his enemies. The tribes of the Nejd made up the human core of Saudi Arabia, while Ibn Saud’s numerous progeny comprised the dynasty’s human core. Today the al-Sauds rule from a base within a family group that is not monolithic. Bonds of personal loyalty rather than of an “abstract notion of citizenship” extend from the family to the tribal groups. Only nontribal Saudis define their relation to the Saudi rulers in the latter terms.
Here is another:
To varying degrees, Saudi Arabia, Iraq, and Syria have come to concentrate key capabilities of offense and defense in parallel military forces. The total military power of the state is reduced, however, when these forces are not made available when needed.
Ahmed Al Omran on Twitter, a former WSJ correspondent, is monitoring current developments. If you are wondering, Saudi stocks have rebounded.
Should we tax the endowments of wealthy universities?
This NYT story has some background detail:
The House Republican tax plan released on Thursday includes a 1.4 percent tax on the investment income of private colleges and universities with at least 500 students and assets of $100,000 or more per full-time student. It would not apply to public colleges.
The endowments are currently untaxed, as they are considered part of the nonprofit mission of the colleges. The new tax, if it passed, would bring in an estimated $3 billion from 2018 to 2027, one of many new revenue sources Congress is considering to pay for broad tax cuts.
Note that this would apply to about 140 schools, and also that private foundations already pay tax on their investment income. Greg Mankiw writes:
If my rough calculations are correct, the tax would cost schools like Harvard between $1,000 and $2,000 per student every year.
I am opposed to this change, mostly because I don’t like to see the government deciding to go after a new source of wealth for its tax base. The focal point of non-interference ceases to be focal, and excesses and politicization too often follow. Slippery slope!
But if you are otherwise not so keen on this Brennan-Buchanan argument, what exactly are the grounds for opposing this? It taxes the relatively wealthy, and it taxes income from wealth. It taxes finance. I haven’t heard anyone oppose the tax on the investment income of private foundations, other than diehard anti-tax types. That tax has hardly vanquished the private foundation form. On top of all that, university endowments seem to have long time horizons, and to play the g > r game pretty well. As early as 1958, Paul Samuelson taught us we can transfer resources out of g > r games at no real cost.
So, you’ll hear a lot of caterwauling on this one, but the only good arguments against it are the libertarian ones. Broadening the base isn’t always good. Don’t be suckered by the “give up education for tax cuts for millionaires” non-rigorous rhetoric you will hear. With or without those tax cuts, you still have to ask yourself whether this tax hike is a sensible way of paying off our huge and growing debt.
I wonder if there are people who think a corporate income tax falls mainly on capital, but that this levy would fall mainly on students. Actually…I don’t wonder.
*Thor: Ragnarok* a brief review, no real spoilers
They have licensed another Led Zeppelin song, there is a new Morgan Freeman figure, and befitting the director the film is drenched in Maori design and themes and to some extent Maori humor.
“Being Maori,” Waititi [the director] said, “it’s extremely important to me to have native presence on any film. (link here)
Korg had a Maori accent, not surprisingly because the director himself played Korg; he is also Jewish from the maternal side. You can spot indigenous Australian and Maori actors throughout the movie. The spaceships are named after classic Australian Holden car brands. Democracy is not on the agenda, however, and the warrior ethic is more South Pacific than Nordic. Don’t get me started on the Ponaturi, Maori goblins of a sort. I’d love to hear an expert on East Bay legends analyze this story.
One of the most fun and interesting movies of the year, although the mainstream American reviews seem oblivious to these broader connections. Sadly, I didn’t have the knowledge to pick up on all the Marvel Easter Eggs.
Appear before the judge on your birthday
Using all French court decisions from 2002–2014 with 6 million decisions, we estimate significant impact on sentence lengths, but mainly for those defendants present at trial—equivalent to 3.5 days reduction. The average sentence length is 95 days. Focusing on the three-month threshold (the median sentence length), defendants are 1.6% less likely to be sentenced above this threshold on their birthday. Including controls for gender, crime, age, and nationality, the effect is 1.1% and remains statistically significant at the 5% level. Disaggregating the components of the sentence length reveals the impact is greatest on probation sentences–defined as the prison sentence people get in case of violation of their probation. Notably, individuals with drug offenses—but not violent offenses—benefit from this judicial leniency. They are 5% less likely to have sentences above three-months if sentenced on their birthday and appearing at trial.
For the United States, the birthday effect shows up only for the “days” component of the sentence, not for the “months” component.
That is all from a paper by Daniel L. Chen and Arnaud Philippe, via Robert Dur.
SALT fact of the day
In 2014 nearly 90% of the benefits of the state and local deduction as a whole flowed to those with incomes over $100,000.
So limiting the value of this deduction is obviously a good idea, right? No one is suggesting that this “tax hike” will ruin blue state coastal economies? Everyone is on board? Good, glad to hear that.
That is from The Economist.
Saturday assorted links
Medicaid, asthma, and ADHD caseloads
There is a new NBER working paper on these topics, by Anna Chorniy, Janet Currie, and Lyudmyla Sonchak, here is the abstract:
In the U.S., nearly 11% of school-age children have been diagnosed with ADHD, and approximately 10% of children suffer from asthma. In the last decade, the number of children diagnosed with these conditions has inexplicably been on the rise. This paper proposes a novel explanation of this trend. First, the increase is concentrated in the Medicaid caseload nationwide. Second, nearly 80% of states transitioned their Medicaid programs from fee-for-service (FFS) reimbursement to managed care (MMC) by 2016. Using Medicaid claims from South Carolina, we show that this change contributed to the increase in asthma and ADHD caseloads. Empirically, we rely on exogenous variation in MMC enrollment due a change in the “default” Medicaid plan from FFS or MMC, and an increase in the availability of MMC. We find that the transition from FFS to MMC explains most of the rise in the number of Medicaid children being treated for ADHD and asthma. These results can be explained by the incentives created by the risk adjustment and quality control systems in MMC.
The economics of medical diagnoses remain a drastically understudied area.
Friday assorted links
1. Volatility crashed in October.
2. The Faroe Islands by Google Sheep View.
3. The economics of elephants in Laos, and more here.
4. Can neuroeconomics explain “penny wise, pound foolish”? Paper here.
6. By 2030, will religious Catholics be a minority in Brazil?
7. Does Bitcoin use as much energy each year as does Nigeria?
Transcript of my Conversation with Brink Lindsey and Steve Teles
Due to popular demand, we are releasing a transcript of the Conversation with Lindsey and Teles.
We talk about liberaltarianism, how bad is crony capitalism really, whether government affects the distribution of wealth much, universities as part of the problem, whether IP law is too lax or too tough, why Steve didn’t do better in high school, the British system of government, Charles Murray, the Federalist Society, Karl Marx, Thailand, the Coase Theorem, and Star Trek, among other topics. Here is one bit:
COWEN: What’s the most important idea in the book that you understand better than he [Brink Lindsey] does?
TELES: Well, so there is a division of labor here. Brink did a lot more work on the cases than I did, although we talked about them all and I did a lot more work on the political analysis. We draw a lot on great, really seminal article by Rick Hall at University of Michigan called “Lobbying as Legislative Subsidy.” And I think that idea is dramatically under appreciated. The idea that what lobbyists are essentially doing is providing information, that information is scarce, it is a source of power. And one thing that we add is, if the state isn’t providing information itself, it essentially has to get it from outside. And when they get it from outside, it imports the overall inequality and information gathering and processing that’s in civil society. And that can be a very strong source of inequality in policy outcomes. I think Brink understands that, but this is my wheelhouse so I think probably if you were gonna push me, I’d say I understood it better that he did.
And this:
LINDSEY: One can see the whole sort of second wave feminist movement since the 60s as an anti rent-seeking movement, that white men were accumulating a lot of rents because of the way society was structured, that they were the breadwinner and there was a sexual division of labor, and they received higher pay than they would have otherwise because they were assumed to be the breadwinner, and women were just sort of kept out of the workforce in direct competition with men in many roles. The last half century has been an ongoing anti rent-seeking campaign and the dissipation of those rents especially by less skilled white men has been a cause of a great deal of angst and frustration and political acting out in recent years.
Here is a link to the podcast version of the chat, plus further explanation of my interview method for the two. Better yet, you can order their new book The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality.
Dina Wadia and the Partition
Muhammad Ali Jinnah was nothing if not complicated. Jinnah, an alcohol-drinking, pork-eating, English-loving barrister, was the founder of the Islamic Republic of Pakistan. Yesterday, his only child Dina Wadia died and that too is complicated.
Dina Wadia was the daughter of Jinnah and his Parsi wife Rattanbai Petit whom he proposed to at 16 and married at 18 when he was 42. Rattanbai was the daughter of one of Jinnah’s friends, who never forgave him. Jinnah and Petit’s daughter, Dina, was born in 1919 shortly after their marriage. Rattanbai died only ten years later.
Dina herself married young, to the Parsi Neville Wadia whose successful family-business went back to the days of the East India Company. But Jinnah was furious that she had married outside the faith telling her “There are millions of Muslim boys in India,” and she could marry any one of them she chose. Dina promptly replied, “Father, there were millions of Muslim girls in India. Why did you not marry one of them?” Jinnah did not attend the wedding.
When India’s partition came, Jinnah’s family was partitioned as well. Jinnah went to Pakistan and his daughter stayed in India, never to see him again. Her son, Nusli Wadia, became one of India’s richest men. Thus the descendants of the founder of the Islamic Republic of Pakistan are successful Indian Parsis. The last twist perhaps in Jinnah’s complicated tale.
In her later years, Dina Wadia moved to New York where she died yesterday.
What I’ve been reading
1. Andrea Dworkin, Heartbreak: The Political Memoir of a Feminist Militant. Published in 2002, this sure sounds like 2017. Your mileage may vary, but it has a strong, unique voice and it looks more relevant than ever. It reminds me of the in-your-face directness of Amiri Baraka, another underrated figure who ought to be rediscovered just about now. If you are going to read only one Dworkin book, this is the one.
2. Gordon S. Wood, Friends Divided: John Adams and Thomas Jefferson. This is a high quality work, as you might expect. Still, I am numb from the oversupply of material on the Founding Fathers, and so I could read no more than a third of this one. If only it had come out twenty years ago.
3. George William Van Cleve, We Have Not a Government: The Articles of Confederation and the Road to the Constitution. The best book I’ve read on the Articles period, most of all a revision of Merrill Jensen. Van Cleve details clearly and analytically why the Articles did a poor job on fiscal, trade, foreign policy, and Western settlement issues.
4. Augustine, Confessions, new translation by Sarah Ruden. This is the most readable translation I have encountered. While I cannot vouch for the accuracy, Ruden has very strong qualifications as a classical translator.
5. c n lester, Trans Like Me: a journey for all us. A memoir of sorts, might this be the best introductory book on its topic? It is already out in the UK, not until June in the US.
Jason Brennan, Bas van der Vossen, and David Schmidtz, editors, The Routledge Handbook of Libertarianism, my blurb reads: “This is the best contemporary anthology introducing the reader to the basics of libertarianism.”
Joshua Clark Davis, From Head Shops to Whole Foods: The Rise and Fall of Activist Entrepreneurs. Covers African American bookstores, head shops, businesses in the women’s movement, and natural foods stores, a good revision of Milton Friedman on the social responsibility of business.
The new GOP tax bill
As I’m on the road, I’ve only read summaries. Kevin Drum has an excellent post on how the distributional implications harm the blue states, follow-up here. Scott Sumner says better than expected. Kevin writes:
The Republican tax bill eliminates deductions for a bunch of odd things: tuition debt, mortgage interest, alimony, medical expenses, state and local taxes, gambling losses, tax prep expenses, moving expenses, and a few others.
Bravo! I’m actually impressed, noting that many of these deductions are limited rather than eliminated as I understand matters. Furthermore, in various embedded ways the plan discourages the itemizing of deductions, which in turn limits the value of remaining deductions for many taxpayers, but in a politically subtle way. The bill even nips at the endowment income for well-off universities, though I don’t favor that change, as it may harm innovation.
The plan as a whole is a reckless expansion of the deficit, but if that is going to happen anyway this is one of the better ways to do it. In fact, we should tax companies less and homes/land more. Why? First, for behavioral reasons homeowners are insufficiently diversified; the tax code should not encourage that. Second, this bill will (modestly) lower land, home, and rental values in the fancy cities on the coasts, a net gain at least for non-itemizers perhaps (caveat: I don’t know everything that is in the bill). Third, big, fancy homes on big plots of land are not that “green,” and furthermore residence size seems to bring a lot of hedonic adaptation. Fourth, there are more likely increasing returns across companies than across expensive homes. Fifth, American equities seem to bring a long-run return of 5-7% and real estate zero percent. More of the former please! Companies > homes.
I believe that with further examination I could find many ugly and stupid aspects of this bill, and many politically craven decisions. And again, I don’t favor increasing the debt. But holding the size of the debt constant, let’s face it — this is a step in the right direction.
Regulatory progress in Arlington, Virginia?
Arlington County is considering whether to relax regulations that allow homeowners to legally rent to long-term tenants on a portion of their property, after only 20 homeowners out of 28,000 eligible successfully obtained licenses over the past eight years.
At a time when people increasingly are sharing cars, bicycles and workspaces, and are renting out rooms by the night on Airbnb, the idea of providing a legal way for residents to safely lease their garage or basement room to a young adult — or anyone else — seemed like a no-brainer.
But the detailed regulations, written in part to mollify wary neighbors, apparently stopped the practice from taking off, county officials said.
That is from Patricia Sullivan at the Washington Post. As a frontier for further deregulation, this does not seem to be a hopeless cause:
California’s legislature passed bills in 2016 that made it easier for local communities to create ADUs, prompting cities throughout the state to adopt ordinances that are designed to be more user-friendly.
Even California.