Delayed gratification and wealth redistribution

[Bill Glasheen]

A lot of bitching about Massachuetts, Bill. Funny, considering that's the state where your company is located..which keeps you employed.

Actually... No longer so. Mergers, acquisitions, soon to be an IPO, opening of international offices, etc. Complicated.

Many who work in the Boston office have a 2 hour commute - or more - to get to work. They have chosen to stay living in New Hampshire, Providence, etc. As they say, they vote with their dollars and actions. It's getting REALLY expensive to buy more Boston office space, so... The virtual office is expanding. Meanwhile, I get to the Boston office faster from door to door living in Virginia than many who live up there. Go figure... (The new silver line on your end helps. Beltway on my end is a dream. Plane flights are direct and wonderful.)

Big dig a great deal? Hmm... We must be watching different news reports than the ones I watch when I'm up there. I've been visiting Beantown 2 to 3 times a year (minimum) since the mid-1980s. I'm a little familiar with the history of that project.

Nice place to visit though. No complaints there.

Can't get into a Bosox game though... Easier to do that in neighboring Baltimore. Much cheaper, too! Ask folks up your way who would often follow the team by plane to ballparks that don't fill up. They used to outnumber local fans in Tampa Bay and Baltimore. Very affordable.

Your standard of living is higher? Nope... Not for the dollar. But I'm glad you enjoy it up there. That's all that matters.

Bill

[Bill Glasheen]

Flat Tax anyone?

Read my post about flat tax and then explain why flat tax is better than any other tax, other than that it's easier to understand.

• Flatter tax rates are fair.
• There's no disincentive to work harder and earn more. Productivity is good for the economy.
• Contrary to popular belief amongst the socialist-minded, there is a "sweet spot" for revenue generation for the federal government that involves a flatter tax than some would wish to impose. If the goal is to get the federal government all the money it needs to avoid deficit spending and do good things for the needy, then taxing the wealthy at a steep rate or overtaxing commerce is a bad thing. What is good for the individual and business is proportionally good for Uncle Sam.
• The only reason to tax at a steeper rate with income is because you find wealth disparity a morally objectionable proposition.
  
  Some do! (Believe it or not...)

- Bill

[Bill Glasheen]

Gene

I just checked it out. Real estate taxes are much higher up there than where I live. And I'm not in the boonies by any means. Cheaper real estate tax rates can be found - far from the city. Same is true with housing.

It's not just Boston. I'd hate to live anywhere near San Francisco, New York City, etc. In fact... My company headquarters is strategically located SOUTH of the Hudson River. Not New York City!

- Bill

[Valkenar]

• Flatter tax rates are fair.
• There's no disincentive to work harder and earn more. Productivity is good for the economy.

Please explain what is fairer about a flat tax vs a progressive tax. In both cases you have an equation where more money is taken from those with more income. In both money is taken in proportion to the amount earned. Read what I wrote.

[*] Contrary to popular belief amongst the socialist-minded, there is a "sweet spot" for revenue generation for the federal government that involves a flatter tax than some would wish to impose.

I totally buy the sweet spot. Can you enlighten me about what that spot is and how you arived at it?

[*] The only reason to tax at a steeper rate with income is because you find wealth disparity a morally objectionable proposition.

Why is rate important? I could just as easily argue that the only reason to tax at a constant rate (rather than a constant amount) is because you find wealth disparity a morally objecitonable proposition. After all, you're taking more money from those who have more.

How is that fundamentally different from a wealth squared rule like I indicated before? (Bear in mind that I'm not actually advocating that and I realize that the actual function I gave would not work, but merely illustrates the concept).

I'll repeat it... what is magic about a constant rate that doesn't apply to a constantly increasing rate? What is wrong with a constantly increasing rate that isn't wrong with a constant rate? A flat tax is just a derivative (in the calculus sense) of a progressive tax. What about derivatives is more moral?

Yes, I do realize the actual application of a prgoressive tax uses the system Mike outlined. That doesn't really affect the argument, however.

[mhosea]

Yes, I do realize the actual application of a prgoressive tax uses the system Mike outlined. That doesn't really affect the argument, however.

Well, actually, I'm with you on this one. I don't get the moral indignation behind a progressive system with today's rates, at which you get to keep most of what you make no matter how much you make. I argue that a constant tax (not a flat rate) is unfair because the rich benefit more from the services the government provides for infrastructure and stability that are prerequisite for business operations. They're getting more out of it, so they should put more into it. IMO, the best aspects of flat tax proposals have been the anti-muda angle, i.e. reduced wasteful activity and recapture of revenues that are currently lost due to skillful misuses of our incredibly complex tax code. But I don't see what any of that has to do with a flat tax rate. They could achieve as much by throwing most of the tax code out the window and keeping the progressive rate structure. We'll never be ready for something as radical as a flat tax rate if we can't even simplify substantially around the rate system we already have.

[Gene DeMambro]

Contrary to popular belief amongst the socialist-minded, there is a "sweet spot" for revenue generation for the federal government that involves a flatter tax than some would wish to impose. If the goal is to get the federal government all the money it needs to avoid deficit spending and do good things for the needy, then taxing the wealthy at a steep rate or overtaxing commerce is a bad thing. What is good for the individual and business is proportionally good for Uncle Sam.

I was waiting for you to post this one, Bill. You've mentioned the "sweet spot" before. Strip all your BS about "wealth distribution" and your implications that Obama is a socialist and explain that, prima facie, Obama's tax plan is poor for business and poor for the economy. Compare it Bill Clinton's Presidency - a period a fantastic economic growth and wealth generation, mind you - especially how lowering taxes will impact in the federal budget deficit. Convince us that Obama is going to miss the "sweet spot".

Cheers,
Gene

[Bill Glasheen]

Compare it Bill Clinton's Presidency...

How about the Republican "Contract with America?" Who do you think didn't legislate spending? Certainly not the president.

As for balancing the budget, well there was that "peace dividend" thing. Did it help us? Frankly I kinda wish he had invested a few mil in a cruise missile and taken Bin Laden out when he had the chance. It might have saved us a LOT of money in 2001 and beyond. But... Woulda, coulda, shoulda...

I've given anecdotes for the sweet spot, Gene. There's plenty out there on it. You might start by reading up on The Laffer Curve.

Meanwhile... you might want to look at some tax experiments going on in other countries. Here's an interesting article that took me 10 seconds to google.

ICELAND JOINS THE FLAT TAX REVOLUTION

There's an interesting plot in the article that drives the point home. (I tried to hotlink it. Didn't work.)

- Bill

[Valkenar]

I've given anecdotes for the sweet spot, Gene. There's plenty out there on it.

Well, the two links you listed aren't really convincing. The first, aside from being a wikipedia article doesn't really say anything very specific and also seems to cast it as a rather dubiously applicable concept. Furthermore, it doesn't mention any hard numbers, except when it points out that some people think it's around 65% -- clearly not what you have in mind.

The second, about Iceland really fails because Iceland is in a giant economic hole at the moment. So it's hard to use Iceland's success as an anecdote since they were apparently creating false growth by practicing unsound economics. Hard to pin down credit for their prior growth with that muddying the waters.

I would really like to know what you think makes the flat rate more fair than anything else.

[IJ]

"The Laffer-curve is central to supply side economics, as it provides an argument for why lowering taxation may actually increase tax revenues. Many economists have questioned the utility of the Laffer Curve in public discourse. According to Nobel prize laureate James Tobin, "[t]he 'Laffer Curve' idea that tax cuts would actually increase revenues turned out to deserve the ridicule with which sober economists had greeted it in 1981."[2]"

--Bills reference.

There's a lot of debate about this curve. The problem is, there's no data I am aware of to figure out where the sweet spot is. As Bill's megavillified Al Franken wrote, "as it turns out, I am in agreement ... on this one. I also believe the tax rate should be somewhere between 0 and 100%."

May we pause as well to consider the proposition that trying to figure out how government can get the MOST money possible out of the people is not a laudable goal? We should be focused on evidence that shows when tax increases impair collections, if it exists, and whether tax rates (that is, government programs) are excessive.

[Bill Glasheen]

I would really like to know what you think makes the flat rate more fair than anything else.

Asking the same question many times won't get you a different answer from me, Justin. If you don't like the answer, you don't like the answer. I can live with that.

The second, about Iceland really fails because Iceland is in a giant economic hole at the moment. So it's hard to use Iceland's success as an anecdote since they were apparently creating false growth by practicing unsound economics.

Thank you, professor Justin. It's a good thing we have the US model to compare it to. You know... the economic model that's doing so much better.

Oh wait...

Here's the thing in a global economy, Justin. When the US economy gets a cold, the whole world gets the flu. We are some of the biggest consumers. Nobody to buy your stuff? It's difficult to make money. We are highly interdependent.

Have you ever heard of a fellow by the name of Uwe Reinhardt? He has "rock star" status in the world of economics. A Princeton guy. The WSJ loves to quote him. Great public speaker, too! (Makes me wish I went to school there...)

So sayeth Uwe...

Uwe Reinhardt examines what went wrong in Iceland. “Iceland’s problem, like that of the rest of the world, is rooted in the unquestioned belief in the free market doctrine that swept the world during the past two decades, especially after the fall of the Soviet Union. According to the axioms underlying that credo - and a pure credo it is - free markets are self-regulating, because they are dominated by rational decision makers who are well informed and smart. In such a world, rational bank executives are unlikely to finance the acquisition of risky assets with debt, unless they have a large enough equity cushion to absorb even substantial declines in the value of the assets they bought. And on that credo, Iceland’s liberal government thought it was safe to let the island’s bankers loose in a global market of debt and asset financing.”

That has nothing to do with taxes, Justin. It's the same bad debt that caused the entire world economic system to collapse.

Good thing we can raise taxes and fix it all, right? (NOT!!!)

- Bill

[TSDguy]

It's getting REALLY expensive to buy more Boston office space, so... The virtual office is expanding.

No it's not; class B buildings downtown, in the Seaport district and Backbay (i.e. everything except the towers) have been in complete and total free fall.

[Valkenar]

Asking the same question many times won't get you a different answer from me, Justin. If you don't like the answer, you don't like the answer. I can live with that.

Have you actually answered? So far all I've seen you say is that it maximizes revenue, which has nothing to do with fairness, only efficiency. Other than that you've just repeated that it is fair. I'm asking why is it fair and the alternative unfair? I was trying to make you realize that you hadn't actually answered the question. You haven't addressed that issue at all, you've only talked about what happens when taxes are too high.

That has nothing to do with taxes, Justin. It's the same bad debt that caused the entire world economic system to collapse.

Exactly. The article about Iceland that you posted was proclaiming that Iceland's success was due to tax cuts. My point is that such a claim is not persuasive when there's much evidence that the success was actually an illusion created by risky lending practices and security trading. I'm not saying that Iceland's problems are due to taxes. I'm saying that Iceland's prosperity was based on a faulty economic bubble, so Iceland is not evidence for the great things that happen if you cut taxes. But that's beside the point, I'm not even trying to argue for high taxes. I'm just trying to point out that there's nothing inherently fairer about a flat tax than a progressive tax. And all you've said is that it is fairer, you haven't made an argument for why.

[IJ]

Both take progressively more from the wealthy. The principle is the same, but it's a matter of degree. That's about all there is to say about it. I mean, I understand why Californians froze their real estate taxes to avoid booting people out of neighborhoods, but then, when I see I pay 10 times what my neighbor pays, I wonder if the disproportionate burden is disproprotionately disproportionate.

[Bill Glasheen]

Spell check applied...

I wonder if the disproportionate burden is disproportionately disproportionate.

How elegantly simple. Thank you, Ian.

- Bill

[Gene DeMambro]

You've posted this graph before, Bill. The questions still linger - where is the sweet spot on the graph, Bill? Where are we now, Bill, with our current tax rates? Where will Obama's rate put us?

And Sorry Charlie, the Omnibus Budget of 1993 - which passed without a Republican vote and well before the failed Contract with America - lowered spending and pared down the deficit. So yes, it was President Clinton who "didn't legislate spending".

Have a nice weekend!
Gene