Re: Guest Post - Minivet

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Funny considering Wonkblog I believe discussed those same studies comparing growth to tax rates elsewhere.


Posted by: Minivet | Link to this comment | 09-21-12 6:52 AM
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Heebie's take: Dylan Matthews is full of shit. The greed of the wealthy isn't an argument against fair redistribution of wealth, even if they've had some success destroying redistribution efforts.

He is actually arguing against taking the path of most resistance when redistributing wealth. Now perhaps you don't think he is sincere but that is a different matter.


Posted by: James B. Shearer | Link to this comment | 09-21-12 7:02 AM
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In the abstract, I like the idea of offering a compromise along the lines of "ok, we'll implement some kind of regressive national sales tax if you let us actually create some kind of real safety net with the money." But in the current political environment, I think any such offer would just lead to us sacrificing and them taking.


Posted by: rob helpy-chalk | Link to this comment | 09-21-12 7:07 AM
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3: Also, most people in America don't really have any money. Tax the bottom half more if you like, but you won't get much from them.


Posted by: real ffeJ annaH | Link to this comment | 09-21-12 7:08 AM
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This has been a major theme for Yggles for several years now:that the path to egalitarianism is strongly progressive social policies and programs combined with regressive tax policies. And I have been staring at it for several years now trying to determine how it is supposed to work, or why it is supposed to be working in Northern Europe.

1) Did they start out very equal?

2) Is it a matter of simply redistributing and equalizing the wealth and outcomes of the bottom 80 or 90 percent, and leaving the plutocrats be? In this way Murdochs and the Royal Family are feelthy loaded, but doctors and lawyers have a very low multiple of the earnings of nurses and cops. And thus professionals and the "UMC" (which would barely exist) would be much more strongly politically affiliated with workers and poor, and voila, single-payer.

3) But then, in America, the plutocrats would use their wealth to grab all the wealth and political power, make sure the 99% pay 99% of the costs of the welfare state, and then you have a polity where everybody is simply equally poor with lousy services, and without chances of changing the situation.

Wait...


Posted by: bob mcmanus | Link to this comment | 09-21-12 7:12 AM
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5.2 is Belgium. No capital gains, which is compensated for by horrifically high taxes on salaries. So it's a haven for the idle rich, and the country is essentially carried by the UMC.


Posted by: real ffeJ annaH | Link to this comment | 09-21-12 7:17 AM
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Did they start out very equal?

There was this little thing called World War II, which meant that European economies were essentially wiped out and had to be rebuilt from scratch. Even the people who were theoretically industrialists and financiers therefore bought in to the idea that the state had to pay for reconstruction, because the industrial plant had literally been flattened and many of the main currencies had ceased to exist.

Therefore marginal tax rates of 95% for the highest earners seemed like a small price to pay.

In the United States, as I understand it, the plutocracy hardly noticed the war happening, except to the extent that their order books looked good for a few years.


Posted by: chris y | Link to this comment | 09-21-12 7:33 AM
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Therefore marginal tax rates of 95% for the highest earners seemed like a small price to pay.

I recall reading a guide from the 50s or 60s for Americans working abroad. The guide said there was no capital gains tax and stated that insider trading (without using the exact words) was the only way to get ahead.


Posted by: Moby Hick | Link to this comment | 09-21-12 7:43 AM
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Americans working abroad in the U.K. that is.


Posted by: Moby Hick | Link to this comment | 09-21-12 7:43 AM
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He is actually arguing against taking the path of most resistance when redistributing wealth. Now perhaps you don't think he is sincere but that is a different matter.


True, and I do think he's sincere. However, I think that the "most resistance" is path-independent. It's just a function of being a greedy asshole.


Posted by: heebie-geebie | Link to this comment | 09-21-12 8:07 AM
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Krugman this morning on the political economy of redistribution

I said I have been staring at the Yggles model for years, and that is because I am more open to it than might be supposed. When I am wearing my Keynesian hat instead of my Jacobin hat.

6 mentions the "idle rich."

To me, and this goes back to Malthus, there is a huge critical difference between a aristocracy of wasters who spend their time and rentier incomes on polo ponies, baccarat, and lawn parties and Mitt Romney types who want to buy Yahoo, lay off half the employees, and turn their millions into billions. It seems to me that an upper class that comfortably parks their inheritance in IKEA at 3% return and then goes to lay on a Greek beach while technocrats guide the company could be a net good for society. This is a form of socialization of capital and investment.

(And this was in a very complicated way, the Japanese model in the growth years. Ownership and great returns on stock were not really available. They were all technocrats and salarymen. Oversimplification tag)

And part of the key to one variety of a stable just society might be in making the UMC having the social security to not be afraid of poverty but cut off their possibilities of becoming feelthy rich.

This is not a model that Anglo-American capitalist economists have spent much work on, that I know about.


Posted by: bob mcmanus | Link to this comment | 09-21-12 8:08 AM
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Shocking that Yglesias would support a tax based largely on consumption, leaving inheritance and the ability to build dynastic wealth alone.
Cryptic Ned recently mentioned that he suspected the other Yglesian pet program of replacing governement anti-poverty programs with cash payouts would just result in raising the cost of living at the lower end by almost 100% of the benefit. The flip side of this is that one could increase taxes on the poor and their rent would go down in compensation.


Posted by: Eggplant | Link to this comment | 09-21-12 8:19 AM
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||

Politics

>Who Can Pull the Plug on the Romney Campaign

...a theme today, Krug also celebrates Romney funding drying up

This is not good news. I went to Wiki and did a little research on 1996. Clinton buried Dole with 379 electors, but as it became an apparent landslide, Rethugs shifted the cash to Congressional Campaigns and only lost two seats. The next four years were no fun, and set up 2000.

Enough from me

|>


Posted by:
bob mcmanus | Link to this comment | 09-21-12 8:22 AM
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Ikea is not publicly traded, and has a financial structure very cleverly designed to evade taxes. It's owned by a nonprofit design board controlled by the Kamprad family and legally based in the EU country where controls on nonprofits are the weakest, NL.


Posted by: lw | Link to this comment | 09-21-12 8:24 AM
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I think bob in 11.3 gets something very right. The key problem isn't letting the wealthy have polo ponies, it's letting them destroy the rest of society, something that eg Germany has been able to do well. I would happily trade the capital gains tax for Eg making it substantially more difficult for private equity firms to destroy companies and lay off mass numbers of workers.


Posted by: Robert Halford | Link to this comment | 09-21-12 9:27 AM
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14:Whatever. it was a word picked from the air

s/b "Company X" for "IKEA" in 11. or k-sub-i


Posted by: bob mcmanus | Link to this comment | 09-21-12 9:32 AM
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15: This is a good point, but I'd be willing to bet that flatter taxes aren't the reason Germany has successfully kept their wealthy from looting their economy.


Posted by: Eggplant | Link to this comment | 09-21-12 9:44 AM
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In my fantasy history, the wealthy sometimes got so bored they subsidized literary publishing houses or round-the-world natural history explorations* or like that. Ventner's contamination controls are rumored to have been literally for shit, but hey, Schliemann's technique sucked too.

*"How much fun do you need to have without work?"


Posted by: clew | Link to this comment | 09-21-12 9:50 AM
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17 - Agreed. Abandoning tax progressivisty in the US in the hope of more social spending is an idea so insane it could only come from counterintuitive DC centrist "liberals."

Also, my understanding is that in most of socialist Europe the rates on the wealthy are higher even if the tax progressivisty is lower. I don't think rich people took that deal in exchange for higher spending on social services, so something else must be going on.


Posted by: Robert Halford | Link to this comment | 09-21-12 9:53 AM
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Also, my understanding is that in most of socialist Europe the rates on the wealthy are higher even if the tax progressivisty is lower. I don't think rich people took that deal in exchange for higher spending on social services, so something else must be going on.

Yes there is something else going on. Unions.


Posted by: Ginger Yellow | Link to this comment | 09-21-12 9:57 AM
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Germany has successfully kept their wealthy from looting their economy

Didn't Germany do this by letting their wealthy loot the Greek economy instead?


Posted by: rob helpy-chalk | Link to this comment | 09-21-12 10:03 AM
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I should probably click on links and go figure this out for myself, but does "European social democracies have more regressive taxes" describe the structure of their tax systems, or the outcome (i.e., where the tax revenues are coming from)? Because if you take the same tax structure, and apply it to two societies with differing levels of inequality, taxes are going to look less progressive in the low-inequality society, because the bottom half of the income distribution will have more money to pay taxes with, IYSWIM.

I don't know if this is a factor, but it seems like something that might confuse the issue.


Posted by: LizardBreath | Link to this comment | 09-21-12 10:04 AM
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Unions cause high tax rates, low tax progressivisty, and high levels of social spending? What's the connection to low tax progressivisty (this is a real question)?

Or do you just mean that the rich in socialist Europe were forced into high social spending because of unions (and working people's power generally)? In which case, yup.


Posted by: Robert Halford | Link to this comment | 09-21-12 10:08 AM
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23 to 20.


Posted by: Robert Halford | Link to this comment | 09-21-12 10:09 AM
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Then why were the rich in enlightened, topless Europe not able to dismantle their unions?
I'm assuming the answer has something to do with racism's greater importance in the US and it's connection to opposition to the welfare state.


Posted by: Eggplant | Link to this comment | 09-21-12 10:13 AM
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Didn't Germany do this by letting their wealthy loot the Greek economy instead?

Not sure if this is a joke or not, but no.


Posted by: real ffeJ annaH | Link to this comment | 09-21-12 10:21 AM
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I'm assuming the answer has something to do with racism's greater importance in the US and it's connection to opposition to the welfare state.

Yes, I think this, and also the experience of the war in Europe, which left a higher degree of social solidarity in its wake.


Posted by: real ffeJ annaH | Link to this comment | 09-21-12 10:23 AM
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Then why were the rich in enlightened, topless Europe not able to dismantle their unions?

They've been making progress on this, though. Union power in Germany has been falling for decades, as has the coverage of the wage-bargaining umbrella they hold over even non-union employers. Again based on one book I read; there're at least some folks pushing back against the argument that there are certain "varieties of capitalism" that are stable institutional configurations, resistant to attempts to destabilize them.


Posted by: x.trapnel | Link to this comment | 09-21-12 10:29 AM
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27: Ooh, also having had more powerful homegrown communist movements and being a bit closer to the Soviet Union. Having seen the upper class get devoured in neighboring countries may have kept them in check for a bit.


Posted by: Eggplant | Link to this comment | 09-21-12 10:43 AM
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Not sure if this is a joke or not, but no.

It wasn't a joke. The Greek debt crisis is about money owed to mostly German banks, right? And these are controlled by the wealthy people in Germany? To an outsider like me, it looks like rich people in Germany used the establishment of the Euro to trap southern countries like Greece in a cycle of debt and are now, in collusion with local Greek elites, using that to enforce nasty austerity measures that keep money flowing to the banks.

I don't claim to know a lot about these things, so correct me if I am wrong.


Posted by: rob helpy-chalk | Link to this comment | 09-21-12 10:44 AM
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O RLY: Semi-topical thing Think Progress just told me on Twitter: "Romney deliberately overpaid his 2011 taxes so that his tax rate wouldn't contradict his public statements on the matter. "


Posted by: oudemia | Link to this comment | 09-21-12 10:59 AM
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30. Greece is 10M poor people, all Greek debt taken together is economically insignificant; I think that the reason not to write the debts off is that a precedent would be set.

Greece is not economically viable within the Euro, in contrast to Spain and Portugal, which are recovering from very deep busts after a boom, but are basically competent countries run by adults.


Posted by: lw | Link to this comment | 09-21-12 11:09 AM
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I could be wrong, but I was under the impression that the Greek austerity measures were needed to get to the point where Greece wasn't borrowing more money just to meet expenses. Greece can't just default because it can't function without more borrowing.


Posted by: Moby Hick | Link to this comment | 09-21-12 11:10 AM
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re: 27

And also left the 'elites' with a healthy sense that if you don't have a fair degree of social solidarity, there's a very real chance they'll rise up and kill you.


Posted by: nattarGcM ttaM | Link to this comment | 09-21-12 11:11 AM
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It's owned by a nonprofit design board controlled by the Kamprad family

Its a charity set up to fund the important goal of promoting Scandinavian furniture design. If that's not a worthy cause, I don't know what is.


Posted by: Spike | Link to this comment | 09-21-12 11:28 AM
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Unlike some of those other charities working for world peace or ending poverty, the Kamprad's foundation has succeeded at its goal. Take that Oxfam.


Posted by: Moby Hick | Link to this comment | 09-21-12 11:39 AM
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I'm going to set up a charity dedicated to funding Caribbean vacation opportunities for slothful software developers.


Posted by: Spike | Link to this comment | 09-21-12 11:56 AM
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37: Now you just have figure how you can word it, so people will think the money will go to sloths instead of the slothful.


Posted by: peep | Link to this comment | 09-21-12 12:31 PM
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Yeah, I think that would make for a more effective Kickstarter campaign.


Posted by: Spike | Link to this comment | 09-21-12 1:29 PM
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For $50, you get a postcard with a picture of a sloth on it.


Posted by: Spike | Link to this comment | 09-21-12 1:30 PM
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|?

I am somewhat surprised and pleased that Brad DeLong, who wisely holds and moderates all my comments at his place, has let my last two on the Kocherlakota conversion go through.

Thread

However I do not take this to mean that those comments are correct, or that I yet know jackshit about economics. My analysis doesn't quite feel right, or complete, and I think I need to go back to Kalecki on an open economy.

|>


Posted by: bob mcmanus | Link to this comment | 09-21-12 1:33 PM
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I'd like some more candy, he typed, jaw still numb from the dentist's rough justice.

In unrelated news, thank heavens they don't make dentists like Doc Holliday anymore.


Posted by: Flippanter | Link to this comment | 09-21-12 1:36 PM
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Go to youtube and type "baby sloth"


Posted by: lw | Link to this comment | 09-21-12 1:50 PM
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I was about to post 5.2 as my personal impression. It's very easy for the rich to evade taxes within Europe, so the welfare state is funded by the upper middle class. The US works harder at taxing its citizens -- for example, it's the only country that taxes you on foreign-earned income, while European countries are happy to ignore any money you "earn" in Luxembourg or Switzerland.

I was once talking to an executive for a German "family-owned" company, and his description of the family's contribution to the company matched 11.4 pretty closely -- the only interest the family had in the company was that the checks cleared.


Posted by: Walt Someguy | Link to this comment | 09-21-12 1:56 PM
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Go to cooks.com and type "baby sloth".


Posted by: Moby Hick | Link to this comment | 09-21-12 1:57 PM
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For $25, I will send you a link to a youtube video of a baby sloth.


Posted by: Spike | Link to this comment | 09-21-12 1:57 PM
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I don't know, twirling a silver teacup and engaging in Latin badinage with Johnny Ringo would be an improvement over 'all the hits' my guy has on his PA.


Posted by: CharleyCarp | Link to this comment | 09-21-12 2:01 PM
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http://www.youtube.com/watch?v=CwEIkXMfL1E


Posted by: CharleyCarp | Link to this comment | 09-21-12 2:08 PM
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Can I buy a sloth at the pet store and, if yes, can it be an outside pet in the winter?


Posted by: Moby Hick | Link to this comment | 09-21-12 2:27 PM
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Go to YouTube and type "Kristen Bell sloth".


Posted by: essear | Link to this comment | 09-21-12 2:54 PM
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47, 48: I was thinking more along the lines of "Ol' Doc Sawed-Off 'n' me think you ain't bein' straight about the regularity of your flossin', boy."


Posted by: Flippanter | Link to this comment | 09-21-12 3:11 PM
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A lot of the stuff about Europe being more equalitarian and redistributive than the US depends on looking at the countries individually. IRC if you examine Europe as a whole things look a lot different.


Posted by: James B. Shearer | Link to this comment | 09-21-12 5:09 PM
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Thanks for 19 and 20 in this thread. I was having trouble figuring out what Minivet meant in the OP by "is this something that could be usefully applied by US liberals as a long-term strategy".

From the link:

UC Davis's Peter Lindert has argued in his book "Growing Public" that European social democracies were only able to develop the programs they did because they used efficient consumption taxes that didn't lower growth as much as progressive income taxes, particularly those on capital income. European countries needed tax systems that could raise a lot of money without hurting growth, and only regressive consumption taxes fit the bill.

Is this true? Is it actually true that the US's progressive tax system has hurt growth? I gather this is what comment 1 was alluding to.

Anyway, Dylan Matthews is full of shit sometimes. It's like he has a deep case of statistics-brain.


Posted by: parsimon | Link to this comment | 09-21-12 5:24 PM
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Has he tried looking at safer statistics about things like knee pain?


Posted by: Moby Hick | Link to this comment | 09-21-12 5:28 PM
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Minivet, do you remember when the Wonkblog had a post comparing growth to tax rates?


Posted by: parsimon | Link to this comment | 09-21-12 5:43 PM
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There was this little thing called World War II

Not quite. In the early years after WWII the focus was on growth and reconstruction while keeping down working class incomes in most continental European countries. (On both sides of the Iron Curtain. The folks in the East did the latter quite a bit more effectively.) It was only once the economic miracle was well under way in the mid fifties that efforts to create a more equal society with a very robust welfare state really took off.

In more recent years Germany has been a poster child for economic growth through policies that mildly decrease incomes for workers, sharply cut welfare benefits, and steer an ever growing share of the wealth and income to the upper class. The program was crafted and implemented by Germany's SPD. The closest thing we have to a real world version of Bob's Obama is Gerhard Schroeder.


Posted by: teraz kurwa my | Link to this comment | 09-21-12 7:42 PM
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55: Are you asking for a link? I can track it down if so, it was recent.


Posted by: Minivet | Link to this comment | 09-21-12 10:32 PM
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Oh hell, there's lots of stuff. Don't trust hack Klein and his evil minions

Congressional Research Service, Thomas Hungerford, Sept 14, 2012, pdf, linked from NYT Friday I think

Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945

Final paragraph of introductory summary

Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced.

This is a little recent to have been used by the usual suspects, you could search Krugman.


Posted by: bob mcmanus | Link to this comment | 09-22-12 6:53 AM
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And if you want to be amused or discouraged, here's Yggles Friday:

Why Mitt Romney's Effective Tax Rate Is So Low And Why It Probably Should Be

1613 fucking comments, 93 tweets

I view Yggles as a kind of bellwether, he is unlikely to post a view radically opposed to what will come out of DC, or at least one that would put him at odds with the Democratic Establishment.

So a small increase in upper-class income or withholding taxes (and possibly a little push against tax expenditures) combined with a large decrease in taxes on investment is probably coming soon.

"My Obama", as teraz called him at 56, has always been and always will be a fucking tax-cutter.


Posted by: bob mcmanus | Link to this comment | 09-22-12 7:05 AM
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59 is Yggles at his worst. He's right though that it's the consensus among mainstream economists. The real world evidence is lacking though. Low capital gains taxes don't explain growth because basically nothing economic explains growth. Years of research have shown that no purely economic explanation for growth really pans out, which is why you have people like Acemoglu and Robinson talking about things like institutions and culture.


Posted by: Walt Someguy | Link to this comment | 09-22-12 8:50 AM
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Isn't Germany still kind of a socialist paradise compared to the U.S.? Good article on U.S. vs. German labor relations.

American conservatives (at least the DC / Congressional ones I am familiar with) hate the VAT with a fierce passion, apparently because it is very efficient at raising revenue and relatively low visibility.


Posted by: PGD | Link to this comment | 09-22-12 9:01 AM
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Lest 61.2 be interpreted as sympathetic to Yglesias' point: he's being a fucking idiot. Capital gains taxes are taxes on speculation. If you want to encourage investment then give businesses an investment tax credit. Financial market profits don't generally represent investment. Investment is a business decision usually made with retained earnings.


Posted by: PGD | Link to this comment | 09-22-12 9:16 AM
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57: Oh, sorry, yes. I was asking for a link if you can find it easily, but if it was relatively recent, I can find it myself.


Posted by: parsimon | Link to this comment | 09-22-12 9:17 AM
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re 59: It's neither here nor there, but I like how Yglesias begins to call Romney "Rommey".


Posted by: parsimon | Link to this comment | 09-22-12 9:24 AM
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Yes Yggles' entire point is based on a misunderstanding of how business investment actually works, which is weird since I could have sworn he read that Doug Henwood book that explains it, and knew that very little business investment is financed through financial market speculation.


Posted by: Robert Halford | Link to this comment | 09-22-12 9:31 AM
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Given that economists have failed to explain long term growth, and decided questions of distribution are not proper objects of study, it's a failure of our society that they can go out in public without being pelted by rotten fruit.


Posted by: Eggplant | Link to this comment | 09-22-12 9:44 AM
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He also seems to believe investment gets taxed, rather than gains from that investment.


Posted by: Eggplant | Link to this comment | 09-22-12 9:47 AM
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I do like how "An army of economists have devoted countless shill-hours to looking for evidence and come up empty" becomes "Empirically, it's a bit difficult to verify".


Posted by: Eggplant | Link to this comment | 09-22-12 9:53 AM
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60: Years of research have shown that no purely economic explanation for growth really pans out, which is why you have people like Acemoglu and Robinson talking about things like institutions and culture.

This is interesting (to me -- I'm a newbie). What about institutions and culture? If you'd be willing to coach me, I'm all ears.


Posted by: parsimon | Link to this comment | 09-22-12 10:03 AM
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The Mythical Shill-Month

I'm pretty sure one of the Wonkblog people linked and discussed the first link in 58 - Klein certainly did on Twitter - but it'll take longer on the phone.


Posted by: Minivet | Link to this comment | 09-22-12 10:03 AM
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68: Dylan Matthews does that sort of thing at the very end of (some of) his posts as well.

'You can't prove that's true' is countered, in a fair and balanced manner, by 'You can't prove it's not. All you can show is that nobody has proven that it's true.'


Posted by: parsimon | Link to this comment | 09-22-12 10:13 AM
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60,62,65,66: My first thought after reading that post yesterday was, "Jeez, is mainstream economics really this dumb, or is it just Yglesias?"


Posted by: real ffeJ annaH | Link to this comment | 09-22-12 10:15 AM
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He also seems to believe investment gets taxed, rather than gains from that investment.

This.


Also, the fucking just so stories. Right up with the ev psych stuff.


Posted by: teraz kurwa my | Link to this comment | 09-22-12 11:15 AM
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Oh, what do you know: Klein mentioned the CRS report in a little multi-tweet vignette, which is how I found it, but he never linked it or posted about it. (On the set of one of his TV guest-hosting gigs, guest Bruce Bartlett presents him with a copy of the report; later, guest Bob Greenstein sees it and says he had already printed it out to read.)


Posted by: Minivet | Link to this comment | 09-22-12 11:35 AM
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You can't raise taxes because it will discourage investment. You can't raise taxes because it will discourage ambition. You can't raise taxes because it will hurt business confidence. You can't raise taxes because the money that would be spent on taxes will instead go to creating jobs. You can't raise taxes during a recovery because it will slow growth. You can't raise taxes when the economy is growing because it will slow down the economy. And don't even think about raising taxes during a recession.

In 100% of all situations, you can't raise taxes. (But if you're going to, raise them on the poor and middle class, who need to have more skin in the game.)


Posted by: fake accent | Link to this comment | 09-22-12 11:54 AM
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Apparently we just have to assume that people will be assholes (look out only for their own personal/family interests) unless they're strongly incentivized not to be.


Posted by: parsimon | Link to this comment | 09-22-12 12:15 PM
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It makes me so happy when anybody spells "bellwether" properly.


Posted by: Flippanter | Link to this comment | 09-22-12 12:16 PM
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72: It's distressing to see this kind of anti-science attitude. You must understand, in models of the macroeconomy there is a variable representing capital investment, generally designated as 'K'. This variable enters directly into the production function, producing economic growth according to a specified mathematical relationship. Capital gains taxes are a direct tax on this variable, reducing its size by making it more expensive to accumulate 'K'. This is easily demonstrable from the use of the term 'Capital' in capital gains taxes -- it says right in the name of the tax that it is a tax on K, capital. Since the first derivative of the production function with respect to K is positive, capital gains taxes retard growth. QED.


Posted by: PGD | Link to this comment | 09-22-12 12:31 PM
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Rather

Let us divide the output into what goes to workers and what goes to capitalists, roughly wages and profits.

Wages will equal worker consumption, and pay for itself. Any increase in worker share will stabilize and expand the economy.

On the other side is capitalist consumption and capitalist investment. Capitalist investment is fixed capital for production, machines, buildings, materials (but not wages in this model)

Capitalist consumption is polo ponies, Jeff Koons, and baccarat savings, speculation, and finance.

The health of an economy is inversely proportional to the size of capitalist consumption.


Posted by: bob mcmanus | Link to this comment | 09-22-12 2:15 PM
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bad tag

and baccarat savings, speculation, and finance.


Posted by: bob mcmanus | Link to this comment | 09-22-12 2:17 PM
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Gov't is really not so interesting in the above model, because it can most be deconstructed to wages (the lion's share), fixed investment (bridges, schools), and capitalist consumption (armies, social security, national debt)

Worker savings is merely a form of capitalist consumption, whether mediated thru finance or gov't , and should be taxed away to be replaced by wages or fixed investment.


Posted by: bob mcmanus | Link to this comment | 09-22-12 2:37 PM
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82

There's a model? Thank God, they could have any reason for telling us we need to reduce their taxes.


Posted by: Asteele | Link to this comment | 09-22-12 3:44 PM
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83

parsimon, I recommend Acemoglu and Robinson's blog, Why Nations Fail, for a version of the institutions and culture view. Their particular view is that poorer countries are held back by "extractive elites" that appropriate the country's output, thus slowing down economic growth.


Posted by: Walt Someguy | Link to this comment | 09-23-12 12:58 AM
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To add to 78 (which is fucking funny), the basic economic growth model has three variables: K for capital, L for labor, and A for "everything else". Economic growth is completely dominated by changes in A. Economists have completely failed to explain changes in A. For all we know, capital gains taxes increase A.

66: To be fair, if you have a pet theory about economic policy and the causes of economic growth, the data probably doesn't support it either.


Posted by: Walt Someguy | Link to this comment | 09-23-12 1:13 AM
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In my defense, I very rarely get invited to advise governments or present my half-baked notions to the public as if they were incontrovertible.


Posted by: Eggplant | Link to this comment | 09-23-12 7:47 AM
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OK economists, here's my uninformed Sunday musings, tell me what's wrong with this idea (I'm talking about the long term, not as something that should be implemented right away, also obviously this has no chance of happening):

A graduated, progressively increasing consumption tax. I.e. a good that costs $10,000 is taxed at a higher rate than one that costs $500. We use the revenue raised by the consumption tax to get rid of payroll taxes and substantially lower income taxation, perhaps while creating a tax credit for business investment.

Wouldn't this have the same effect (encouraging investment and productive work) that the capital gains tax supposedly encourages, while punishing people for spending money on frivolous bullshit? Also, why not couple it with a financial transactions tax, to make sure that the money is cycled into productive activities instead of financial wheel spinning.

Tell me what's wrong with this. Maybe it's too regressive?


Posted by: Robert Halford | Link to this comment | 09-23-12 3:27 PM
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One problem is that how frivolous a purchase is doesn't correlate with how expensive it is. A $10,000 car might be just the thing that opens up more job possibilities for you, but paying 7 dollars for lunch rather than packing your own might be wasteful.


Posted by: rob helpy-chalk | Link to this comment | 09-23-12 3:32 PM
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88

I think it's too hard to administer. A meal that costs a thousand dollars is wildly more frivolous than a car that costs a thousand dollars -- the amount of the specific purchase isn't a good measure of the unnecessariness of the expenditure. And businesses will figure out how to break up purchases into smaller chunks: you won't buy a Lamborghini for 150K; you'll buy an engine for 30: and a dozen components of the body for 10 each.

Ideally, you'd make the tax progressive by total consumption for the year, but there's no practical non-totalitarian way to keep track of that.


Posted by: LizardBreath | Link to this comment | 09-23-12 3:33 PM
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89

Helpy-chalk pwned.


Posted by: LizardBreath | Link to this comment | 09-23-12 3:34 PM
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90

Googling, this guy seems to like the idea. I guess it would create even bigger piles of wealth for the wealthy, but they might be inclined to spend it more productively? Also I'll bet that perceived social equality, which is important, would rise.

I don't really have an answer to 87.


Posted by: Robert Halford | Link to this comment | 09-23-12 3:36 PM
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Oh, OK, the guy in 90 says that what you should do is pay tax on your yearly consumption, calculated as your annual income-annual savings.

Families would report their taxable income to the IRS (ideally under a tax code that greatly simplifies the calculation of taxable income), and also their annual savings, as many now do for IRAs and other tax-exempt retirement accounts. The difference between those two numbers--income minus savings--is the family's annual consumption expenditure. That amount, less a large standard deduction--say, $30,000 for a family of four--is the family's taxable consumption. Rates would start low and would then rise much more steeply than those under the current income tax.

Could this work?


Posted by: Robert Halford | Link to this comment | 09-23-12 3:38 PM
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The approach in 91 would get rid of the "But a $10,000 car" is frugal and "buy the engine, then the tires" problem -- your total annual consumption would be taxed.


Posted by: Robert Halford | Link to this comment | 09-23-12 3:40 PM
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91: so the idea is to penalize people who live in expensive parts of the country?


Posted by: Sifu Tweety | Link to this comment | 09-23-12 3:44 PM
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One effect would certainly be to make the expensive parts of the country less expensive.


Posted by: Robert Halford | Link to this comment | 09-23-12 3:48 PM
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I guess? I don't know what I'm talking about here. Come on economists.


Posted by: Robert Halford | Link to this comment | 09-23-12 3:49 PM
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Well, 88.last is clearly dead wrong. As is the rest of 88. But it still seems off to me somehow -- I'll see if I can come up with better quibbling.


Posted by: LizardBreath | Link to this comment | 09-23-12 3:53 PM
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86

Tell me what's wrong with this. Maybe it's too regressive?

The problem is it would encourage rich people to save more money and they are already saving too much money. We don't need the rich to save more we need them to consume more.


Posted by: James B. Shearer | Link to this comment | 09-23-12 3:54 PM
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Well, yeah, that's an objection for right now -- clearly it wouldn't be a good idea right now for people to not go out and spend, spend, spend. But what about when we're out of the recession?


Posted by: Robert Halford | Link to this comment | 09-23-12 3:56 PM
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98

Well, yeah, that's an objection for right now ...

No, it is a structural problem that was a major cause of the crisis in the first place. The rich are trying to save more money than the financial system can reasonably accomodate. So the money goes into asset price bubbles and bad loans. Which is how we got the housing bubble and subsequent crash.


Posted by: James B. Shearer | Link to this comment | 09-23-12 4:14 PM
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Ideally, you'd make the tax progressive by total consumption for the year, but there's no practical non-totalitarian way to keep track of that.

Uhh...that is what we are currently doing, with a lot of nuance actually. Net Income = consumption, and the Lamborghini is taxed either in whole of in the separate parts. Or ten KIAs. Whatever.

We give deductions for investment, savings, mortgage interest. What remains to be taxed is consumption.

Nuance:As with VATs and sales taxes, some places don't tax food, shelter, give deductions for weatherproofing, standard deductions and EITC, etc etc.


Posted by: bob mcmanus | Link to this comment | 09-23-12 4:33 PM
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I guess pawned ay 91.

I think I have made it clear in 79-81 that I would tax savings and investment to near oblivion, and encourage spending and consumption.

Nobody should have to save for healthcare, education, or retirement. They should be public goods, financed by taxation.

Who benefits from savings? Rich guys.


Posted by: bob mcmanus | Link to this comment | 09-23-12 4:48 PM
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"But, Bob, how could that possibly work? It is unimaginable. We need private savings to create jobs."

Hello, servants of Capital.

No, we don't.


Posted by: bob mcmanus | Link to this comment | 09-23-12 4:56 PM
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There are certain ad hoc measures in existence that work in the same direction as your proposal, Halford - in DC groceries (but not restaurant meals) are sales-tax-free; or there's the hotel tax in SF and elsewhere.

I wouldn't mind a Sumptuary Bureau of the IRS directed to identify whatever the rich are wasting money on this month and stick a 50% tax on it.


Posted by: Minivet | Link to this comment | 09-23-12 7:21 PM
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I have mixed feelings on consumption, since we are already consuming far more than our share of the planet's resources. Usually, I try to ignore issues of sustainability, since it makes thinking about the economy much more depressing.


Posted by: Eggplant | Link to this comment | 09-23-12 7:53 PM
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I guess I don't understand the problem the consumption tax is trying to solve. Lack of incentives for private investment doesn't seem like a big problem to me.


Posted by: Walt Someguy | Link to this comment | 09-24-12 12:03 AM
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104.1 to 105.


Posted by: Moby Hick | Link to this comment | 09-24-12 5:17 AM
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"Consumption" includes lots of things that don't particularly use up natural resources, like getting a haircut. A targeted tax on natural resource usage would work better. Anyway, since environmentally friendly will be more expensive than non-environmentally-friendly products, in some ways a general consumption tax hurts the cause of the environment.


Posted by: Walt Someguy | Link to this comment | 09-24-12 8:24 AM
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That makes sense. Nevermind.


Posted by: Moby Hick | Link to this comment | 09-24-12 8:25 AM
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Yggles Responds to His Critics with an appeal to authority, Brad DeLong:

We want to tax luck--heavily. We don't want to tax enterprise and ingenuity. We do not want to create armies of accountants gaming our system. In a world that is as a whole still relatively poor we do not want to tax thrift.

No, Brad, the Paradox of Thrift
is not just true at the zero bound or during recessions, it is always true. Brad, you say are a Keynesian?

...it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.
GT, Ch 25

The "euthanesia of the rentier" means exactly that the real cost of capital, the real return on idle investment, should be zero. Or less than zero, until we get to where we want to go.

1) Ever hear someone say the economists have not included finance in their macro models? This is because they say Savings = Investment, IOW, assume that all investment goes instantly into production and output. Investment must be divided into fixed capital (production) and bonds (etc, finance). (Part of ) the Organic composition of Capital.

Finance is about as useful as sticky prices or sticky wages, it is a friction that always reduces output. I could put a Minskeyan spin on this.

2) So like how do we get a million dollars for a new factory? I don't necessarily want to eliminate all savings and thrift, I just want to tax it rather than reward it.

3) But I am a Marxist because the so called Keynesians have shown me that a Keynesian politics is impossible.


Posted by: bob mcmanus | Link to this comment | 09-24-12 12:57 PM
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Delong, as quoted, was arguing for a progressive consumption tax. Yglesias was defending a making the system more regressive.


Posted by: Eggplant | Link to this comment | 09-24-12 1:06 PM
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110: Well, the only difference between net income taxes and consumption taxes, besides what I think is a pernicious optics and politics, is that saving and thrift are even more openly rewarded.

"Euthanasia of the rentier"

Why the heck are there bonds anyway, and why do they get interest? Where's my neo-Cartalist hat, and my argument against loanable funds? Why doesn't anybody respect Keynes?

Incidentally, it is pretty easy to connect Keynes "Euthanasia" to a Graeberish "End to Debt"


Posted by: bob mcmanus | Link to this comment | 09-24-12 1:32 PM
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The idea that the Paradox of Thrift applied outside of the zero bound and recessions was an idea that many Keynesians dropped by 1950. I think this is just the contingency of history -- in the immediate aftermath of the war, many people thought the Great Depression would resume, but instead we had an unexpected boom. For most of post-war US history, recessions were all temporary phenomena, which as the Great Depression faded from memory made the idea of a permanent Paradox of Thrift seem less plausible.

Keynes on the other hand was forming his ideas in the wake of ten years of high British unemployment, and that's even before the Great Depression, so the idea that unemployment could persist at high levels for a long time had already been borne out.


Posted by: Walt Someguy | Link to this comment | 09-24-12 2:02 PM
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Possibly amusing; money distributions treated with stat-mech thermodynamic tools. By rumor, there is a fundamental change from Reagan forward, but I don't think that paper is up yet.


Posted by: clew | Link to this comment | 09-25-12 9:51 AM
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