Will More Audits Fill the Gap?

In an op-ed at the Washington Post Lawrence Summers Natasha Sarin propose that going after tax evaders will bring materially more money into federal coffers:

What is the overall potential? In a study released this weekend, we conservatively priced out a program of increased auditing, IT investment and greater third-party reporting. We estimated that it would be possible to close 15 percent of the tax gap by spending approximately $100 billion on additional enforcement, as would be necessary to return the IRS to its historical scale. Every $1 that is spent would generate more than $11 in greater tax collection.

Congressional scorekeepers have suggested more modest revenue potential from investment in enforcement; however, our study shows these differences can be reconciled. Their approach is based on a program that is more modest in size (only a quarter as large as our proposed restoration of enforcement effort to previous peak levels) and scope (we consider the revenue potential of targeting audit resources on high-income individuals, as well as increasing information reporting). Critically, the Congressional Budget Office does not account for deterrence effects, which Treasury Department reports suggest greatly magnify the revenue gains from increased enforcement.

Why is the federal government leaving so much money on the table? Part of the answer is that there are powerful interests that want to maintain a system that facilitates evasion.

Frankly, I’m skeptical for two reasons. The more important reason is that it isn’t your father’s IRS any more. The IRS has engaged Palantir Technologies to create a system for using modern data mining and artificial intelligence strategies to identify possible cheats and train IRS personnel in its use. Traditionally, the IRS’s procedures have had a two-pronged approach: investigators identify possible cheats, something of a hit or miss proposition, while auditors do the spadework. The new system should identify more tax fraud less expensively and I have found little evidence for a backlog of IRS audits. There’s a backlog in correspondence and FOIA requests, yes, but that doesn’t necessarily translate into a backlog of audits. Said another way giving the IRS the 2009 IRS’s budget adjusted for inflation will probably not produce more results. It’s about 20% lower than it was then.

The second reason is that the world is not linear. Increasing the IRS’s budget by 20% won’t necessarily realize 20% more fines, penalties, and recoveries.

0 comments

Chinese Industrial Policy With American Characteristics?

I’ve read Gabriel Wildau’s piece at Bloomberg urging the United States to emulate China’s industrial policy a couple of times now and I still don’t understand what that would actually look like. Maybe it’s because I understand China’s success differently than he. I see what has transpired over the last 40 years is China’s imitating the Soviet Union’s actions of 80 years ago, moving relatively unproductive labor resources from agriculture to manufacturing. Unlike the Soviet Union before it China has managed to accomplish that without reducing agricultural production. China has now reached the end of that process and, predictably, its economic growth has faltered just as the Soviet Union’s did. It’s now flailing trying to keep the party going.

Can you see the United States implementing the web of state ownership of businesses, subsidizing underdeveloped sectors, forced migration, and import barriers that prevails in the United States? Me, neither. Not to mention that in the United States subsidizing industry inevitably means giving money to politically connected insiders.

This passage from the piece did catch my eye:

China’s recent launch of a second state-funded semiconductor development fund valued at $29 billion, following an earlier $20 billion fund for the same purpose, prompted a former U.S. assistant trade representative to complain that “China is doubling-down on the state-led practices and policies that led to the trade war.” But China’s strategy resembles what Mariana Mazzucato, economist at University College London, calls the “entrepreneurial state.” Her 2013 book chronicles how state investments were crucial in fostering industries that the U.S. still leads, such as IT, biotech and fracking.

When you combine state capitalism with nationalism and China’s notable racism, isn’t that the dictionary definition of fascism? Is Mr. Wildau recommending fascism as the solution to the U. S.’s economic woes?

7 comments

Heggie’s Dead Man Walking at Lyric Opera, 2019-2020

Last night my wife and I attended Chicago Lyric Opera’s production of Jake Heggie’s 2000 opera, Dead Man Walking based on the best-selling book by Helen Prejean and later made into a movie of the same name. This is a much belated arrival at Lyric—Dead Man Walking has had something like a dozen productions and hundreds of performances since its San Francisco premier almost 20 years ago. It is claimed to be the most frequently performed 21st century opera, a remarkable achievement for a first-time composer of opera.

We found it a moving and transformative experience, if not the most so, one of the most so since I began attending Lyric Opera which is something like 40 years ago now. The music, libretto, story, performances, sets, staging all came together beautifully and effectively. It is dramatic and affecting but neither political nor preach-y.

The key theme of this opera is transformation. In the aftermath of a horrific crime and the punishment meted out for that crime, the lives of everyone involved are transformed. This opera accomplishes something unusual in drama and nearly unheard of in opera. At the end of the opera every character has changed, is different than he or she was at the beginning of the opera.

If you have the opportunity of seeing this opera in Lyric’s production or, indeed, any production, I strongly recommend that you not miss it. It is not a work that you would want to see every week but you will not regret having seen it.

The Critics

Chicago Classical Review

If you want to know about the details of the production and performers by all means read Lawrence A. Johnson’s review at Chicago Classical Review:

In addition to being the most Catholic opera since Poulenc’s Dialogues of the Carmelites, Dead Man Walking is a failsafe piece of musical theater—perfectly constructed with moments of wry humor amid the serious drama. There are a wealth of well-drawn characters throughout its large cast, and the narrative moves inexorably to its devastating denouement in the execution chamber.

McNally’s libretto deals with a host of important issues in an intelligent yet non-polemical way—is capital punishment moral, what is the nature of faith and forgiveness, and how can one find any spiritual meaning in a world of unspeakable crimes and violence.

Yet it is Heggie’s rich, extraordinarily assured score that really sells the rather downbeat story. His eclectic style naturally incorporates the vernacular, gospel music and church hymns mingling with solo arias and choruses for large ensemble. Dead Man is almost as much straight theater at times as opera, yet the dialog moves seamlessly from speech to musical recitative and back again with ease and facility. At its best, Heggie’s score rises—as with the sextet and closing ensemble of Act I—to masterly heights.

Among the three principals, Ryan McKinny made a knockout Lyric Opera debut as the condemned murderer, Joseph De Rocher. The American singer didn’t set a shackled foot wrong as the embittered, heavily tattooed convict– distrustful of Sister Helen’s motivations, cynical about his imminent execution, and steadfastly refusing to admit his guilt in the crime. McKinny is a first-rate actor, wholly inhabiting the hard-as-nails-convict. Yet his pained expressions reveal the conflicted humanity of this brutal yet tormented man, building into Joseph’s devastating emotional breakdown when he finally confesses his guilt to Sister Helen.

Vocally, McKinny was just as strong. His bass-baritone has a bit of grain in it—apt for the role—but his voice is surprisingly flexible and McKinny floated high soft notes with supple tenderness.

Read the whole thing.

Chicago Tribune

At the Tribune Howard Reich writes:

Heggie’s score tells the tale more eloquently than words could, the slashing orchestral accompaniment that accompanies the crime followed by the spiritual strains of “He Will Gather Us Around,” sung by soprano Patricia Racette as Prejean. The sheer juxtaposition of these two extremes cues the viewer that “Dead Man Walking” will be investigating a vast breadth of human endeavor, from the evil to the sublime.

When De Rocher sings of “A Warm Night,” articulating his aspirations for peace and beauty, we realize that notwithstanding his heinous acts, he too feels and dreams and hopes. Even a murderer may have a bit of humanity left, the opera seems to be saying. Or, as Prejean puts it, De Rocher remains a child of God.

The most devastating musical sequence occurs toward the end of the first act, when all four grieving parents, plus De Rocher’s mother and Prejean, sing “You Don’t Know What It’s Like.” In this stunning sextet, each character gives voice to psychic pain that can be articulated but not resolved. Thus for the course of several minutes, the listener experiences anguish that these characters will feel for the rest of their lives.

Heggie’s music reflects the story’s emotional contours in consistently poetic terms, his score built on long lines, mostly delicate orchestration and a musical language that’s accessible yet not simplistic. Samuel Barber’s neoromantic lyricism, George Gershwin’s harmonic colorings and Leonard Bernstein’s rhythmic agitations course through this work, which nonetheless sounds more original than derivative. In essence, Heggie’s score defines these characters via the same gentle spirit with which Prejean approached her Death Row correspondent. McNally’s libretto somehow manages to provide religious discourse while keeping the story pressing briskly forward, and the touches of humor that McNally wrote into the script bring welcome moments of respite.

Chicago Sun-Times

While at the Sun-Times Nancy Malitz observes:

The “Dead Man Walking” staging by Leonard Foglia is forbiddingly evocative of institutional steel and fluorescence when it needs to be. A streamlined, multi-platform set on lifts by Michael McGarty and projections by Elaine J. McCarthy together allow for seamless switching from the claustrophobia of a prison cell on death row to a Louisiana children’s schoolroom, a lakeside trysting area, a highway mirroring Sister Prejean’s anxious journey, and the forbidding prison labyrinth among spaces swiftly summoned.

But what sticks in the mind is the music’s explosive expansion of the plot at every turn. Conductor Nicole Paiement, in her masterful Lyric Opera debut, is a new-music specialist who has devoted much of her recent career to helping worthy operas receive traction with second and third productions. Paiement took excellent care of the singers, including the nest of little ones who sang their cheerful song of Christian love, “He will Gather Us Around,” with the sisters, in a scene that directly followed the profoundly brutal prologue, where two teenage lovers, frisky from a dip in the lake, are shortly overcome by Joseph and his brother, who are drunk, drugged and deadly.

0 comments

Incoherent

“Incoherent” is derived from the Latin, in- meaning not and cohaerere, literally, “sticking together”. Sen. Sanders’s and Rep. Ocasio-Cortez’s plan for public housing as reported in the Washington Post is incoherent:

Rep. Alexandria Ocasio-Cortez and Sen. Bernie Sanders said Thursday they plan to introduce legislation to give the country’s public housing units an energy-efficiency overhaul, their first attempt at turning the Green New Deal’s broad framework into specific policy.

The bill, dubbed the Green New Deal for Public Housing Act, would use seven grant programs to upgrade housing units into carbon-neutral communities with organic grocery stores, on-site child care and community gardens. Residents of public housing would be given preference in hiring to renovate those units.

After energy production and transportation, the third largest emitter of carbon dioxide is in the production of cement and the amount of cement that would be required to implement their plan would offset a good deal if not all of the benefit they hope to achieve.

It would probably be more efficient to use the billions that would be required for their public housing plan to enforce our immigration laws. Despite it being explicitly against the law a shockingly large number of those living in public housing are immigrants and even illegal immigrants, as noted by the Center for Immigration Studies:

Most Americans are probably shocked to learn that illegal immigrants can get public housing benefits. Indeed, such assistance is prohibited by the Housing and Community Development Act of 1980.

Carson’s proposal would provide relief to low-income households headed by American citizens who now cannot get public housing due to a short supply.

However, successive administrations have allowed households that include at least one American citizen – often a U.S.-born child – to receive a pro-rated subsidy, which obviously benefits the entire family, including the illegal residents.

According to a HUD study, about 25,000 households that include illegal immigrants are now living in public housing. About 55,000 children who are in the U.S. legally live in those households.

Some states have openly allowed illegal immigrants to live in public housing. For example, President Barack Obama’s Kenyan-born aunt, Zeituni Onyango, lived in a public housing unit in Boston for years after her first asylum application was rejected in 2004. She was ordered to leave the U.S. but refused. She was then granted asylum in 2010 and died in 2014.

“Ask your system,” Onyango said when questioned about her public housing by a local reporter. “I didn’t create it or vote for it. Go and ask your system.”

Additionally, public housing suffers greatly from the “tragedy of the commons”. That is illustrated by the lessons of Pruitt-Igoe (total lifespan: 20 years), Cabrini Green (total lifespan in final form: 30 years), and the Robert Taylor Homes (lifespan: 40 years).

10 comments

Saving DACA

I don’t cite the Washington Examiner very often but this remark of theirs on DACA comports closely enough with my views I thought it was worth pointing out:

Out of mercy, out of respect for the fundamental rights of Americans, and observing their lake of culpability, we ought to find a way to legalize the Dreamers who have been here for many years.

Yet the discussion can’t end there. Any deal in which the White House and congressional Republicans grant relief to this set of illegal immigrants ought to include dramatic improvement in immigration enforcement, including more wall along the border and tougher enforcement against recent illegal entrants.

Granting limited amnesty can create a moral hazard and serve to invite thousands more to enter the U.S. illegally, expecting one day to get their own DACA or other sort of amnesty. That would be an unjust consequence of a national act of mercy. To prevent this outcome, we need enforcement.

Congress should fund the erection of walls or other physical barriers in the border sectors where walling is both needed and currently incomplete — for example, around McAllen, Texas. Congress should also draw a cutoff date on DACA, such as 2012, when Obama announced the policy. Anyone who entered after that with children is not eligible.

The final cutoff date can be a matter of negotiation, but the principles at play here must be clear. America is a compassionate nation, and Americans are a merciful people. A nation and a people are not a nation or a people if they do not control who enters or who joins them. U.S. immigration laws should be geared towards advancing the interests and protecting the rights of Americans.

One of the sticking points on DACA is whether its beneficiaries should have a “path to citizenship”. I think they should but but the length of time involved should be substantial, substantial enough that those beneficiaries should be unable to sponsor the legal immigration of their parents who entered the country illegally. Simply banning them from doing that after they become citizens will never pass Constitutional muster.

5 comments

Deadweight Loss


It occurred to me that I’ve alluded to deadweight loss pretty frequently here over the years without defining it. The triangle formed by the right edge of the grey tax income box, the original supply curve, and the demand curve is called Harberger’s triangle. That is the loss of economic activity that results from taxation. That is the deadweight loss of taxation. There are other forms of deadweight loss including the deadweight loss from price supports and the deadweight loss from crony capitalism in general.

One way to improve economic growth is to constain government only within the limits of what we actually need and only taxing to that degree. I think a substantial reason for slower growth in developed countries is deadweight loss of various different varieties.

1 comment

The Risks of Impeachment


I’m trying to hold my water on the ongoing House impeachment inquiry until they and their consequences have unfolded more fully. As you can see from the graph above of President Trump’s job approval rating, the inquiry, presumably, is not having the effect that House Democrats had hoped for as, I think, House Speaker Nancy Pelosi had suspected.

Meanwhile, the editors of the Wall Street Journal echo some of the things I’ve been saying here:

At the constitutional convention, Gouverneur Morris discussed the meaning of bribery and used the example of King Charles II taking money from King Louis XIV in return for supporting French policy in Europe.

Mr. Schiff’s problem is that he still hasn’t found a quid pro quo in the Ukraine episode that fits this traditional definition of bribery. Here he is on NPR again: “Well, bribery only requires that you’re soliciting something of value. It doesn’t have to be cash. It can be something of value. And clearly, given the concerted effort that was brought about to get these investigations going by the President, by Rudy Giuliani, by Ambassador [Gordon] Sondland, by others, this was something of great value to the President.”

Sorry, but bribery requires a specific quid pro quo. Mr. Trump asked Ukraine’s President to investigate corruption, including Joe and Hunter Biden. No such investigation began. There was no “quo.” Even if an investigation had started, it is unlikely to qualify as a quo under the bribery law because it isn’t a specific and tangible enough benefit like money.

By Mr. Schiff’s definition, “something of value” is anything that might benefit Mr. Trump politically. But Mr. Trump couldn’t know a Ukraine investigation’s result or even how it would proceed. Every President asks foreign leaders for actions or policies that would benefit him politically in some way. None of this absolves Mr. Trump of rotten judgment in all of this, but it doesn’t qualify as bribery.

The emphasis is mine. Creative definitions of crimes that actually have accepted definitions will not help Democrats sway public opinion in their direction. President Obama, presumably, got “something of value” from his executive agreement with the Iranians who received actual cash money. Bill Clinton got “something of value” when he bailed out the Mexican government with a $20 billion loan (without Congressional approval). Did they commit bribery? Every president always gets “something of value” from the deals he negotiates with foreign governments.

The House Democrats should tread carefully. They should not establish any precedents they don’t care to live by.

16 comments

What Do They Know?

One of our economic problems is that large companies are sitting on massive amounts of cash. They aren’t expanding facilities, they aren’t buying other businesses. Presumably, they don’t see anything worth investing in or they don’t feel the need to put that cash to work. Following the cut in the corporate income tax rates of 2017 there was a small bump in corporate investment but not nearly as much as I’d hoped for.

It isn’t just businesses. High-earning individuals are also sitting on record amounts of cash. From Bloomberg:

America’s wealthiest households are stashing their cash at record levels. The top one percent have three times more in readily available cash than the bottom half, with holdings jumping from less than $15 billion shortly before the last recession to a record $303.9 billion at the end of 2018, according to Federal Reserve data released last week. By contrast, while holdings for the bottom 50 percent of households surged almost ten-fold since the pre-recession low, they’ve increased at a much slower pace than the wealthiest cohort.

3 comments

How Will They Pay For It All?

The Chicago Tribune is curious about how Chicago Mayor Lori Lightfoot and the Chicago Public Schools plan to pay for the substantial raises they’ve given Chicago teachers as a result of the teachers’ strike:

Mayor Lori Lightfoot and Chicago Public Schools leaders have come up with enough cash to pay for the first year of new union contracts, relying on a couple of one-time windfalls to patch up the spending plan.

But for the next four years, they’re taking a bit of a leap by counting on money that’s not guaranteed to materialize. The district is banking on the state to keep its pledge to increase school funding, which can change year to year. CPS also is relying on its own ability to significantly raise property taxes, which assumes a healthy economy.

CPS officials said their revenue projections are based on historical trends and noted that the state is committed by law to increasing funding. The contracts “are responsible and affordable based on conservative assumptions about our finances and anticipated revenue,” district spokesman Michael Passman said in a statement.

I couldn’t help but wonder which “historical trends” she was looking at? I doubt it was population trends. Since 1950 Detroit’s population has declined by two-thirds as has St. Louis’s, Cleveland’s, and most other Midwestern cities. The only major Midwestern cities whose populations have increased since 1950 of which I’m aware are Indianapolis and Kansas City.

Chicago’s population has declined by one-third since 1950. If it follows the patterns of Detroit, St. Louis, and so on, its population could fall below 2 million for the first time in a century. The most difficult thing about those teachers’ raises is that the fewer remaining people of Chicago will be stuck with them in the form of pensions long after those teachers have retired or been RIF’ed due to Chicago’s declining population.

0 comments

The Outsiders

At The Hill law prof David Schoenbrod makes a plea to “make democracy real again”:

Back in the days of trust, President Kennedy and President Johnson both ran and won as experienced Washington insiders capable of getting government to accomplish more. With growing distrust, however, voters have tended to elect leaders who vow to upend Washington. Many new candidates ran as outsiders, including the peanut farmer turned governor Jimmy Carter, the Hollywood actor turned governor Ronald Reagan, the “man from hope” turned governor Bill Clinton, the Texan businessman turned governor George Bush, the Chicago community organizer turned senator Barack Obama, and the New York real estate tycoon turned reality television star Donald Trump, who had the additional political advantage of running against consummate insider Hillary Clinton.

The “trust”, as he calls it, was earned by the perception of Roosevelt’s handling of the Great Depression, whatever the truth of it may be, and by our victory in World War II. It has been waning ever since, dealt a mortal blow by the Vietnam War, and further weakened by a series of unwinnable and, in some cases, unnecessary wars. I do not believe we will be able to put the toothpaste back into that particular tube.

Here’s his prescription for solving the problem of Congress and the executive perennially dodging the blame for their feckless actions by blaming someone else:

Getting the right mix of policies is of course critical. But in a democracy, the choice should be made by elected officials who are responsible to their constituents. Instead, the cheating befuddles voters and makes government unstable. Congress should pass a statute to establish new legislative procedures that would force roll call votes on the most important hard choices between regulatory protection and regulatory burdens, the most important federal mandates that penalize states and localities for failing to do the federal bidding, and putting our troops into combat. Such votes would make politicians personally responsible for both the unpopular and popular consequences of their choices.

Finally, the statute should order the Congressional Budget Office to inform voters of the costs of spending increases and tax cuts. It is nonpartisan and has a reputation for speaking truth to power. That is why so many incumbents are leery of it. It should be ordered to mail voters an estimate of the annual cost to the average family of the tax increases or spending cuts needed to keep the debt from growing faster than the economy, how much Congress has changed that cost, and how much greater the cost will be if Congress continues to kick the can down the road.

He’s dreaming. To understand why, you need only look at the measures that did have a roll call vote. Anonymity has made little difference. Even when you know what your legislators did, they are not held accountable, generally because they have the right letter after their names.

Every reform that might actually be effective that I can think of would require a Constitutional amendment which means that they won’t happen. The one thing I can suggest is to expect less from the federal government. Demand that your legislators not nationalize everything they want to get done. Judging from the platforms of the individuals seeking the Democratic nomination for president, that’s not going to happen, either.

12 comments