Full Employment: Accountants Only

We love accountants.  We spent the majority of our life educating them.  Unfortunately, we cannot support the plan for a massive expansion of the opportunities for accountants.  Veronique De Rugy at the NRO Corner has the details on Elizabeth Warren’s proposed wealth tax.  You should, of course, read the whole thing.  The tax is loosely justified as a response to income inequality but as we have often said the issue is really envy.  Finding the levers to adjust income inequality and agreeing on the right level of inequality are akin to trying to predict climate change.

The one sure thing is the wealth tax will provide lots of opportunities for accountants. Veronique right when she tells us:

That’s why wealth taxes are always so hard to administer and so easy to avoid. It makes them a terrible vehicle for raising money. [and later]

But apparently the senator thinks she can avoid any problems by implementing anti-avoidance measures such as a repressive 40 percent exit tax on any targeted household that attempts to emigrate, minimum audit rates, and increased funding for IRS enforcement.  [Emphasis added]

Because it is off her topic she has left out is all the opportunities for the accountants in the private sector to avoid or reduce the tax.  She mentions that a wealth tax might be unconstitutional.  There is also the issue in bold above.  Can we really tax people that want to leave such a repressive regime?  On both those questions it is wise to reject the proposal rather than count on the courage of the Supreme Court.  Especially when the left wants to pack the court.

One issue we would like to see discussed is the impact of the wealth tax on wealth.  We don’t have a complete model but when wealth produces about eight percent returns and you tax it at two or three percent then the returns on assets are substantially reduced.  That, it seems to us, would reduce the value of assets.  The folks that pay the tax own lots of assets and lots of them are equities.  Equities won’t have two prices.  Will the wealth tax reduce the value of equities?

A wealth tax is at least a really bad idea for everybody but accountants.  It might be absolutely terrible if it has a major negative impact on equity prices.

 

 

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Bad Evidence Leads To Wrong Conclusion

We have some longer or deeper things we are trying to work on but folks keep writing foolish things that need to be dealt with.  In this case it is Jeff Spross at The Week.  The Week appears to be a serious publication with, one would think, editors. How, then, did Jeff’s “How The Democrats Can Raise Taxes Without Technically Raising Taxes” end up on The Week?  We don’t know.

Jeff sets up the article by discussing that the The Donald’s administration decided not to index capital gains for inflation.  Then he says:

But Democrats — or anyone, really — should take a hint from Trump’s decision. It’s not just that capital gains shouldn’t be indexed to inflation; income taxes shouldn’t be either.

Doing away with that indexing would raise plenty of new revenue for the government. But more fundamentally, it would fix a basic misunderstanding about good macroeconomic policy.  [Emphasis added]

Jeff is serious.  And he is seriously wrong.

Sidebar One: Jeff has no comment on the standard deduction which is also currently adjusted for inflation.  End Sidebar One.

It doesn’t seem to us that “You are paying more taxes but we didn’t really raise your taxes” is much of a rallying cry for any party.  The more serious problem is Jeff’s understanding inflation.  Here is Milton Friedman explaining that inflation is a monetary phenomenon.  In the United States, Milton tells us, inflation is made in Washington DC.

Sidebar Two: If you want you can now discuss the extent to which the Federal Reserve, which controls the money supply and hence inflation is independent within the government.  You can come back to that discussion later as it might take a really long time.  End Sidebar Two.

Jeff doesn’t agree with Milton. Jeff thinks inflation is caused by supply-demand problems.   Jeff says that we need higher taxes as a brake on an overheated economy:

Here’s the problem with that logic: If your economy is experiencing high inflation, like what we went through in 1980, then it needs to slow down. Mainstream macroeconomics assumes that high inflation is evidence of an overheating economy: too much demand chasing too little supply. In which case, to cool inflation off, money needs to be taken out of the economy. And taxes are one tool for doing just that.  [Emphasis added]

There is a big problem with Jeff’s example.  We checked the economic data for 1980 at The Balance.com where they have unemployment at year end, GDP growth, and inflation by year on one page.   It was really easy to find and somebody at The Week should have checked.   At the end of 1980 the unemployment rate was 7.2 percent, GDP growth was negative signaling a recession, and inflation was 12.5 percent.  So Jeff’s example contradicts his theory.  Rather than the economy being overheated it was in recession.  How about Venezuela?  Nope.  Zimbabwe?  Nope and you can even use the same cite for that and more.

Few people have been more exactly wrong than Jeff when he says that indexing income tax brackets is pro-inflation:

By contrast, brackets that are indexed to rise with the price level are essentially pro-inflation. As the inflation rate increases, the rate at which the bracket thresholds rise increases as well. That’s a fiscal stimulus added to the economy right when it’s already running too hot. In fact, Russel Long, a Democratic senator from Louisiana at the time, made this exact point, arguing indexing would “make inflation worse by pumping more money into circulation at a time inflation is at its worst.” [Emphasis added}

Inflation is at best independent of real economic growth.  What makes Jeff so wrong is that the government (see Sidebar Two above) controls inflation.  To have the government benefit from inflation by increasing receipts from bracket creep is a really bad incentive for folks who want to avoid inflation.  Hint: that should be almost everyone.  Indexing brackets is strongly anti-inflation because the folks that control inflation, the government, have fewer incentives to inflate.  It is really important that inflation indexing for brackets and standard deductions stay.  It is also really important to check the data that you rely on.

 

 

Sports, Asthma, And Original Work

We are no fan of Joe Biden.  We shouldn’t stand for big smears of Brett Kavanaugh, The Donald, and almost everybody on the right.  We shouldn’t consider them for Joe either.  Part of the problem is referencing an original work.  Jim Geraghty at the NRO Morning Jolt talks about the Brett smear and then ends with:

Of course, Michael Graham wonders how Biden could work as a lifeguard during the summers in college and simultaneously be medically excused from Vietnam for “asthma as a teenager.”

Jim has not smeared Joe but he is moving in that direction from Michael’s work.  Michael was not asking how Joe could be a lifeguard although he did wonder about football.  He is making a comparison between Joe and The Donald.  Michael says:

Just a few months before President Donald Trump received his now-infamous diagnosis of “bone spurs in the heels,” former high school football star Biden got the same 1-Y draft deferment for “asthma as a teenager.” It was one of five deferments Biden received (the same number as notorious GOP “draft dodger” Dick Cheney) and allowed him to avoid being drafted at the height of the war.

Michael’s main complaint is with the Democrat double standard although he seems to wonder if this is how the Democrats will get Joe.  Michael reports:

Does this prove that Biden was dishonest or made a false claim? No. But a similar story from [The Donald] was enough for Sen. Tammy Duckworth (D- Wis.), who was wounded while serving in Iraq,  to label [The Donald] a “coward.”

We have observational experience with asthma in athletes and medical deferments for Viet Nam.  The Princess de Gloves was an athlete including being a competitive swimmer, lifeguard, and swim team coach that had asthma.  We don’t know if it would have got her out of military service but we remember her pulling out her inhaler once when she was pitching in softball.  At the time swimming was thought to be good for asthma but now folks are uncertain.  At any rate, Joe was not the only lifeguard with asthma or football player that received a medical deferment.  Joe is nowhere near being unique.

We are a little younger than Joe so we know a number of folks that received medical deferments from military service during the Viet Nam era.  None of these folks were rich or famous so that is not why they were deferred.  We remember heart murmurs, flat feet, and hypertension as causes for deferments and we are sure there were others.  We would have judged our friends as at least healthy and some were athletes.   We concluded that they won the lottery.  We don’t know if any of our observations faked something but there was lots of information, perhaps not good information, on how to fake stuff.  Unless we see cold, hard evidence that Joe or The Donald faked something we have no reason for additional comment.  In fact, here is where the Brett smear comes back into play.  If Brett did something rude as a college freshmen or Joe or The Donald gamed the system 50 years ago how does this impact fitness of any of them for a position today?  For example, if you cheated on an exam in high school are you disqualified from holding public office?  It seems to us that we have more recent and relevant information to make that determination.  Let’s worry about Joe and Clarance Thomas or Joe and Barack rather than irrelevant stuff.

 

 

 

Jonah’s Bogus Journey

Conservatives, and especially those of us in fly-over country, tend to poke fun at the coastal leftists that try to discover these hidden tribes with odd beliefs that lurk in these strange burgs that the locals often pronounce wrong.  Places like Cairo, Illinois.  Jonah Goldberg, writing at NRO, goes on a similar journey as he tries to understand folks who support The Donald.  As if we didn’t know, Jonah tell us where he stands on The Donald at the end of his journey:

It may be that once [The Donald] is no longer the commander in chief in the war against Blue America, the ardor of his troops will give way to a better understanding of the price the GOP paid on his watch.

It is difficult to write about stuff you don’t understand.  Jonah put the question about The Donald’s approval rating by Republicans this way:

[The Donald] is consistently hitting in the mid- to high 80s with Republicans in polling, which demands a question: Why are his actual numbers so high?

When you write or talk about what you don’t know you sometimes get distracted and forget what you know.  Jonah knows many things but two things he knows for sure are, one, approval of The Donald, or anyone else, is a yes or no question. Two, in any coalition, like The Donald’s, there are lots of different factions.

That means that Jonah’s emphasis on “unwavering support” for The Donald is not related to his approval rating.  There are folks that give unwavering support or unwavering resistance to The Donald.  We are open to evidence but we don’t see these as large the largest groups in either coalition.  There are supporters of The Donald that love his twitter feed but many would lock him out.  Others like his trade wars while we hate them.

Jonah does have a point that hyper-partisanship on one side causes some on the other side.  It is like arguing with your roommate about sports teams and folks say things like no player from Arsenal could start at Tottenham (or vice versa) and things escalate from there.  Some of the Republicans are rabid supporters of The Donald but we think more are like us.  The Donald has done good things on regulations, taxes, the court appointments.  Then there is the alternative.  First, there was the choice in the 2016 election.  We thought The Donald dominated his opponent.  The alternatives have not gotten better since then.  Kevin D. Williamson at NRO puts the choice in his usual acerbic manner:

Eliminating the ability of those who currently align with the Republican party to meaningfully participate in national politics is not only wishful thinking in the pages of the New York Times. It is the progressive program, from Washington to Palo Alto and beyond.

The Editors at NRO tell us about Elizabeth Warren’s (and some other Democrat presidential candidates) plan for eliminating fracking:

Senator Elizabeth Warren of Massachusetts promises that if she is elected president, she will issue an immediate unilateral prohibition — based on some presidential power that she’ll invent as soon as she gets around to it — on the method of natural-gas production known colloquially as “fracking.” Other Democratic contenders, including Vermont socialist Bernie Sanders and Kamala Harris of California, have made similar promises.

It is not just AOC.  People that you might describe as serious senior leaders of the Democrats are making The Donald look good now and in 2020.  Like many other folks on the right, we approve of The Donald.  Our judgment is he is far from perfect but he has done some good things and we don’t approve of the opposition.  We hope Jonah will reverse the Bill and Ted franchise and soon go on an excellent adventure.  Strange things are afoot at the Circle K … and in the whole country.

Carbon Tax Analysis

It depends is the most reliable answer to almost any question other than is socialism a good idea?  It is particularly true as an answer to the following: should the US have a carbon tax?  Our starting points are that first, the left wants a carbon tax so there is space to negotiate with them.  Second, a carbon tax is conceptually a good idea because there is some relationship between carbon and global warming and we would, all other things being equal, like to reduce carbon emissions.  Third, a carbon tax is a good way to do that.

Paul Mirengoff at PowerLine has a discussion of carbon tax that we would like to review. We agree with much of his analysis but not his final decision.   Paul is correct that that the cost would be borne by consumers:

First, the cost of the carbon tax would be passed on to consumers:

While oil, natural gas, and coal companies would be responsible for paying the fee, they would likely pass a significant share of the associated cost on to their customers.

Yup, no doubt.  We are willing to agree that 100% will be passed on to consumers.  The GOP should see that low income folks are not sacrificed.  There are many ways to do this but the most obvious would be to reduce FICA, the biggest tax for most low income folks.  Make the first N thousand dollars of income not subject to FICA where N is the number that eliminates the impact of the carbon tax.

Sidebar: We could make this complicated and decide that only N at the first job applies.  We don’t think so.  If somebody works several different jobs we are OK with them benefitting from reduced FICA several times.  We think it is not exactly “fair” but the costs are not worth the benefits.  End Sidebar.

Like tariffs, sales taxes, and VATs it will fall more heavily on low income individuals:

Second, a carbon tax would have a disproportionate impact on low-income households:

As with the increase in energy costs, the increase in the cost of nonenergy goods and services would disproportionately impact low-income households.

Yup, no doubt.  Again, this can be fixed.  FICA is part of the solution.  Another part is to eliminate the gas tax that is currently 18.4 cents per gallon.

Paul might be right that is is not popular but we think presentation might matter:

Not surprisingly, the carbon tax is unpopular with voters. Indeed, Americans for Tax Reform notes that carbon tax advocates haven’t been able to get a carbon tax passed in a single blue state.

Two items are worth mentioning here.  First, carbon taxes by state are a really bad idea.  Second, in a purple USA, we can get a carbon tax that is modest and allows us to do good things like eliminate subsidies to alternative energy.  As our tweeter-in-chief might say, it all depends on the deal.

Again, in summary, a modest carbon tax, say, $20 per ton, that eliminates the gas tax and alternative energy subsidies while reducing low income FICA is a good idea.  We don’t know if the Democrats are willing to make the deal.  It might even be good politically even if they are not willing.

 

End Of A Specious Argument?

James Freeman on the WSJ’s Best Of The Web tries logic on the folks that want to try to reduce income inequality.  Do read the whole thing.  We think it is unlikely to work but it might help the voters make a better decision in the general election.  He starts with an assertion:

Leftist politicians have been saying for years that a dramatic rise in wealth and income inequality is the central economic problem of our time.

We are not sure that those leftists care about the changes in income inequality.  Our guess, and it is only a guess, is that they think there there are more folks that think they would benefit from eating the rich than there are folks that worry about being eaten.  James hopes that an academic paper by Gerald Auten and David Splinter

Sidebar: Yes splinter is a bridge bid but we are not making this up.  If we did, however, then Splinter would be one of the authors but Gerald would need a new name and Splinter a first.  How does Diamond Splinter and Bergen Raises sound for the two authors?  End Sidebar

will eliminate the premise to the argument.  We don’t think that logic will stop folks from selling envy.  Here is part of what James says about the new paper:

After a draft of the paper was released last year, Paul Solman of the PBS NewsHour of all places wrote:

You thought income inequality was rising dramatically, right? Well, so did I. In fact, maybe you thought so in part because I and journalists like me have been reporting it as fact, for decades. But maybe we’re wrong — all of us.Mr. Solman reported that the Auten-Splinter draft paper enjoys widespread respect in the economics profession—even if not everyone is willing to admit it.  [Emphasis added]

We don’t like the of all places dig in bold.  Our information is the the PBS NewsHour is only slightly left of center unlike the rest of PBS.  But the second bold item is really damming to about the group-think of journalists.  James tells us that the paper is well received even by those on the left.

We don’t see that Auten-Splinter have any impact on us and we doubt it will have leftist politicians James hopes to convince.  It won’t have any impact on us because we care about growth much more than inequality.  To be precise, at the current levels of inequality in the US we don’t care about it at all.  We do want the growth fairy to come and visit.  We think that the government has been far too worried about inequality and related issues and not worried enough about growth.  An example of this is The Donald, whose administration has sometimes helped growth but his trade wars have not.  No administration has emphasized growth enough.  Growth should be a higher priority than it currently is.

The left doesn’t agree.  They want to increase the emphasis on distribution.  We don’t think they will be deterred by logic from James.  They think envy sells and we are concerned that they might be right.  Will a specious argument be enough?

 

Stuck In (The Middle?) With You?

Well, Stealers Wheel’s lyrics often come to mind when surveying the political scene.  The first two lines of the chorus are often apropos but the we have never before felt like the last two lines apply to us.  In case you forgot:

Clowns to the left of me
Jokers to the right

Here I am
Stuck in the middle with you

What has got us in a tizzy is Kevin Drum at Mother Jones is reminding us that National Health Care Is Free.  It is silly but we have read it so you don’t have to.  What is worrisome is the jokers on the right.  Paul Mirengoff at PowerLine reports that:

At the recent National Conservatism Conference in Washington, the crowd voted overwhelmingly in favor of a resolution calling for the United States to adopt an “industrial policy.” In so doing, the conservative crowd agreed with Sen. Elizabeth Warren who, as John [Hinderaker at PowerLine] has noted, also wants the U.S. to adopt such a policy.

The idea is for the government, through a set of policies — taxes, spending subsidies, regulation, and tariffs — to protect factory jobs against the forces of globalization and technological change.

Paul links to James Pethokoukis at AEI for an evaluation.  The headline is “GOP’s Stupid Swoon For Big Government.”  We are entirely on board on “Stupid” but this was the National Conservatism Conference rather than just Marco Rubio.  As the link shows, serious people were there.

As we are trying to deal with the level of disagreement on the right, we come across this from Rosie Gray in Buzz Feed News:

It’s an odd feature of American politics today that while the Republican party as an institution has never been more unified, the right has never been more ideologically fluid. Intellectual subgroups have had their moments in the sun: neoconservatives, libertarians. But they, and the Reaganites who have decided conservative dogma since the 1980s, have all diminished as Donald Trump has occupied all of the available breathing room on the right.

We can help Rosie with her confusion.  The GOP is as fractious as ever.  Just like the Democrat party.  The right has always had intellectual subgroups.  Each candidate brings a number of those subgroups together.  The Donald created a new one: NeverTrump.

Oh, back to Kevin and our concerns on the left.  Kevin is trying to convince us that national health care is free and he says:

You see, the vast bulk of health care spending goes to providers. This means that the only way to reduce spending is to pay doctors less, pay nurses less, pay drug companies less, and pay device manufacturers less. This will not happen, and anyone who’s serious about national health care would be insane to try. Why put up an enormous barrier to success, after all? [Emphasis added]

We agree with Kevin on the part we have put in bold.  The only problem is that the part above it is a description of national health care.  It is certain

Sidebar: We often envy writers for their certainty about a variety of things.  The outcome of very few events is certain.  End Sidebar.

that national healthcare will pay doctors less, nurses less, drug companies less, and manufacturers less.  As a small example from the left, there is the Obamacare tax (#10) on medical devices.  The Donald, like many politicians, is upset with drug prices.

Then Kevin explains how it is free:

The one thing we probably could do is get rid of insurance companies, which would save a bit of money—probably about enough to make up for the cost of adding the remaining uninsured to the system. So in the end it comes out even after all.

We did not make that up.  Kevin is saying that moving administration largely from the insurance companies to the government is going to save us money.  Not just a few dollars but enough to add all of the uninsured into insured.  What do you think the probability that the government is more efficient that private enterprise?  To be fair, given the government regulations in health care, the chance is very close to but not exactly zero.

The clowns and jokers seem to be more numerous than ever.  Did MWG really end up in the middle?  How many adjectives or prefix will there need to be to make MWG a conservative? Are you with us?  We have received but not read the other Kevin’s new book.  Perhaps reading that we relieve our funk.  We hope to get around to explaining why George Will’s new book is great but we still feel lonely.