Lazear on Tax Reform

At the Wall Street Journal Edward Lazear proposes reforming the tax code to allow the immediate expensing of capital spending:

Allowing investment expenses to be fully and immediately deductible turns an income tax into a consumption tax, but the logic is subtle. All of an economy’s output is used to produce either current consumption or investment goods. If all income, which must equal output, is taxed, then both consumption and investment are taxed. But if we tax only the part of output that is not investment by allowing investment expenditures to be deductible, all that remains is consumption so only consumption is taxed.

There is no need for any complicated new tax laws or bureaucracies to make this change. Investments in plants, equipment, R&D and even human capital would be deductible from profits when paying taxes, and the deduction could be used now or against future or past tax liabilities.

The potential benefits of moving away from taxing investment to a consumption tax are well documented. A 2005 Tax Advisory Panel appointed by President George W. Bush estimated from Treasury data that moving to a consumption tax by removing taxes on investment would result in a 5%-7% increase in GDP. (Its scoring included lower and flatter individual and corporate rates, though expensing accounted for most of the gain.) A 2001 study in the American Economic Review by David Altig, Alan J. Auerbach and others estimates that GDP would rise more than 9% by moving to full expensing of investment spending (with a flat tax).

If recollection serves, that’s the rule in business-friendly countries, e.g. Switzerland, Hong Kong, Singapore (which also typically have much lower business income taxes). Business spending on financial instruments or real estate frequently cannot be expensed immediately.

One of the benefits of immediate expensing is that it provides fewer incentives for transferring capital overseas.

While I broadly support abolishing the business income tax completely or, as Dr Lazear proposes, changing how business income is calculated to incentivize capital spending, I think his proposal has almost no traction in Congress. Somehow the notion that taxing business income twice is fair (once when realized by the business, once as income by individuals) has caught on and has become a political shibboleth.

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Samuelson on Piketty

Robert Samuelson devotes his most recent column to Thomas Piketty, the French economist whose work on income inequality has become a cause célèbre among American progressives:

Agree or disagree with his views, Piketty’s project represents a prodigious research achievement. With other economists, he has constructed statistics tracing the distribution of income and wealth for many major countries back to the 1800s. The most obvious conclusion from the data is common-sensical: Even relatively egalitarian societies have huge disparities in economic fortune.

Dr. Piketty’s preferred solution seems to be taxation. My own view is that taxation is probably the easiest to enact but the least effective way of solving the problem, at least in the current state of American political policy.

Some people have always been more talented, hardworking, or just plain lucky than others. They haven’t always been able to corral such a large proportion of income and wealth. I don’t believe that the difference is either in the people or in the underlying economy but in the policies that have been put into place for which there are significant consensuses in both Congressional caucuses. Over the period of the last thirty or forty years a series of what are called “neoliberal” policies have given a significant advantage to areas that receive subsidies while stripping them from areas that don’t.

Another solution that progressives sometimes propose, stronger labor unions, is even less likely to succeed. That’s a cargo cult mentality, a form of the post hoc propter hoc fallacy. I believe that the underlying labor conditions, conditions of relatively tight labor markets and increasing marginal productivity of labor, made labor unions attractive and promoted the distribution of income and wealth. We don’t have those conditions any more.

Meanwhile, I think we need to recognize that if we keep doing what we’ve been doing, we’ll keep getting what we’ve been getting. The political class is more than happy with that.

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A Man’s Job

Today I read a comment to the effect that there were no longer any men’s jobs or women’s jobs. To my mind this is one of those remarks that sounds like it should be true but isn’t.

I think it depends a lot on how you define things. If you define a “man’s job” as one in which 2/3s or more of those in the workforce are men and a “woman’s job” as one in which 2/3s or more of those in the workforce are women, even after nearly a half century of the women’s movement many, many jobs remain dominated by one gender or the other.

Men’s jobs: physician (70%), lawyer(70%), engineer (90%), truckdriver (95%), construction trades (98%), computer programmer (80%), soldier (85%), architect (80%).

Women’s jobs: nurse (90%), kindergarten teacher (98%), social worker (80%), hairdresser (85%), speech pathologist (95%).

Those are round numbers—they might be a few percentage points off one way or another.

Here’s a biggie: 95% of Fortune 500 CEOs are men.

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The Stolen

Doris Pilkington Garimara, who wrote the book, Follow the Rabbit-Proof Fence which inspired the movie Rabbit-Proof Fence, has died:

When she was 4, Doris Pilkington Garimara was uprooted from her home in western Australia and sent to a camp for “half-caste” aboriginals, where she grew up believing she had been abandoned and forgotten by her mother.

Decades passed before she learned the full story – one that would not only answer painful questions about her past but help Australians understand one of the ugliest chapters in theirs.

Pilkington Garimara and her mother belonged to “the stolen generations”—the estimated 100,000 children of mixed aboriginal and white ancestry who by government edict were snatched from their homes and reared in desolate settlements. By separating them from their darker-skinned relatives, the policy aimed to assimilate them into white society.

The forced removals occurred through most of the last century, ending in the 1970s but kept hidden far longer, in part because those who had been the targets accepted what the government told them: that aboriginal people were dirty and evil.

The Australian aboriginal people were not alone. Native Americans in the United States had their children stolen as did Canadian Inuits.

I think it’s important to recognize that the officials and private citizens who engaged in these acts which we now recognize as heinous thought of themselves as enlightened and forward-thinking. They weren’t acting out of simple hatred for indigenous peoples but in all likelihood thought they were acting in the best interest of the children. People with the very best of intentions can be just bad as those with evil ones. Good intentions are not enough.

I recommend Rabbit-Proof Fence, streamable via NetFlix. It’s well-made, well-acted, and engaging and casts some light over a shameful period of history.

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Lower the River!

Reducing crime is hard. Sometimes it’s easier just to reclassify it:

Stung by a 16% spike in killings in 2012 that led Moody’s, the ratings agency, to downgrade the city’s debt due to its “unrelenting public safety demands”, Emanuel promised a tough response. Amid spending cuts, the former White House chief of staff to Barack Obama has ploughed tens of millions more taxpayer dollars into policing. Sure enough, in January he proudly announced that 2013 had seen the city’s fewest homicides since 1965 and lowest crime rate since 1972.

Yet a startling 7,000-word investigation earlier this month by Chicago Magazine cast serious doubt over the crime-busting miracle of Emanuel and his superintendent, Garry McCarthy. It identified at least 18 apparent murders in 2013 that had either been quietly redefined as “non-criminal deaths” or shunted off the city’s books by other statistical sleights of hand.

Professor Eli Silverman of the City University of New York, an authority on the CompStat-style data systems used by police in Chicago, New York and other major cities, told the Guardian he had been contacted by several Chicago officers concerned about the determination among chiefs to drive down crime numbers at whatever cost.

“The pressure from the top is unrelenting,” he said one had told him. “The defenders of the system always say ‘You can’t hide a dead body’,” said Silverman. “But you can reclassify one.” City authorities deny any impropriety.

That’s the genius of Emanuel at work. Don’t solve the problem, jigger the statistics. That’s a patch that will hold until the next election. It’s IBGYBG at work in politics, applying what he learned in the financial sector to city governance.

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Why Is Chicago Funny?

A bunch of psychologists at the Humor Research Lab (!), which itself sounds like a punchline, have produced a highly suspect ranking of America’s cities which ranked Chicago as America’s funniest city. Without looking closely at their methodology, just accepting their finding at face value, are there reasons we might believe they’re right?

Chicago’s Second City improv club which has fostered so many Chicago comedians over the years and conditioned what we think of as funny probably has something to do with it. However, I think it boils down to people. Chicago has a lot of funny people.

Steve Allen once observed that humor is pain plus time and I think that’s about right. Chicago has lots of Jews, Irish, and blacks, all oppressed people, for whom humor has historically been an outlet. Indeed, Chicago is one of the most racially segregated cities in America, something I don’t think is irrelevant.

But so does New York. Perhaps the title of this post should have been “why isn’t New York funnier?” Maybe it’s as simple as land use. While New York has plenty of venues for the highly successful, those who’ve already “made it”, relative to Chicago it has fewer places where a young comic can get started. My guess is that it’s just too expensive.

Or maybe, again, it’s people. New Yorkers may just take themselves too seriously now.

If I could do one thing that I can’t, it’s write humor. I think that’s not only a high art but a wonderful gift, one I don’t have. It’s not that I’m not funny. In life, I’m very funny. And I certainly have pain a-plenty. But I can’t write humor. It’s just not my gift.

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The Council Has Spoken!

The Watcher’s Council has announced its winners for last week.

Council Winners

Non-Council Winners

The announcement post at the Watcher’s site is here.

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The End of Political Campaigning As We Know It

You know, I think that those who are dismayed over the case before the Supreme Court, Susan B. Anthony List v. Driehaus, over whether state laws banning false statements about candidates’ voting records meet Constitutional muster, which George Will kvetches about here have the wrong end of the stick. Here’s a snippet of the Ohio law, quoted by Mr. Will:

An Ohio statute, which resembles laws in at least 15 other states, says, among many other stern things, that: “No person, during the course of any campaign . . . shall . . . make a false statement concerning the voting record of a candidate or public official.”

Rather than overturning it, I think that law needs to be extended, by Constitutional amendment if necessary. As I interpret the law, it would prohibit candidates from lying about their own records. Not only could that mark the end of political campaigning as we know it, it could mark the end of politics as we know it.

Of course, there’s that pesky clause in the Constitution. Not the First Amendment, the other pesky clause (Article I, Section 6, Clause 1):

The Senators and Representatives shall receive a Compensation for their Services, to be ascertained by Law, and paid out of the Treasury of the United States. They shall in all Cases, except Treason, Felony and Breach of the Peace, be privileged from Arrest during their Attendance at the Session of their respective Houses and in going to and returning from the same; and for any Speech or Debate in either House, they shall not be questioned in any other Place.

The emphasis is mine. That’s been interpreted to render sitting Congressmen immune from prosecution for conduct undertaken in the course of their offices. Which, in turn, would seem to subject challengers to state “false statement” laws while releasing incumbents from them, which seems like dirty pool.

Ah well, one can always dream.

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Why Don’t People Cook?

Last night my wife had an early dog-training class, so I threw together a quick early dinner for us. I poached a chicken breast, cooked some pasta, and made a sauce of caramelized onions, mushrooms, chicken breast, olive oil, garlic, a splash of sherry, a little parsley, freshly-ground black pepper, and a sprinkling of parmesan cheese. From turning on the burner to serving the dinner took just under a half hour. I opened no cans, took no prepared food out of boxes to put them into the microwave, and had complete control over the fat, sodium, nutritional content, and flavor of what we ate.

As I put the pot of water on to boil for my pasta, I thought “I’m sure it will come in handy for something.” That’s a reference to one of my favorite little cookbooks, Edouard de Pomiane’s French Cooking in Ten Minutes. It’s one of the handful of cookbooks (along with The Joy of Cooking and Mastering the Art of French Cooking) that I think every serious cook should have.

It’s a charming little book. Here are the first few paragraphs:

First of all, let me tell you that this is a beautiful book. I can say that because this is its first page. I just sat down to write it, and I feel happy, the way I feel whenever I start a new project.

My pen is full of ink, and there’s a stack of paper in front of me. I love this book because I’m writing it for you. It’s nice to imagine that I’ll be able to let my pen go and you’ll understand everything it writes down. My ideas run on faster and faster—I’ll be able to say everything in less than ten minutes.

My book won’t even be ten pages long…It’s going to be ridiculous…Worse than that, it will be incomprehensible.

A more scientific approach will make things clearer, so I’ll start by telling you everything you should know before you start ten-minute cooking, even if all you’re going to do is boil an egg.

The first thing you must do when you get home, before you take off your coat, is go to the kitchen and light the stove. It will have to be a gas stove, because otherwise you’ll never be able to cook in ten minutes.

Next, fill a pot large enough to hold a quart of water. Put it on the fire, cover it, and bring it to a boil. What’s the water for? I don’t know, but it’s bound to be good for something, whether in preparing your meal or just making coffee…

You see?

Pomiane is dated now. Today’s electric stoves are much better than they were in France in 1930 when the book was written. And today there are an enormous variety of frozen vegetables and any number of other time-saving gadgets.

I still find Pomiane inspirational. It’s full of ideas and for harried working people ideas for tasty, nutritious things to eat that can be prepared in ten minutes are always handy.

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The Astonishing Rate

I’m glad to see that somebody besides me sees Google’s moves of the last couple of years as I do:

You could see these adventures in future-making as visionary, or as folly. But there’s another motive that could be driving Google: quiet desperation. Google hasn’t figured out how to make its mobile ads valuable enough, and there is growing suspicion that it never will. In the meantime, then, why not shoot for the moon?

The standard narrative around Google’s falling ad prices is that more and more online activity is taking place on mobile devices, where advertising simply isn’t as valuable. No one has really figured out how to make a banner ad for an app that isn’t obnoxiously intrusive. As for the less annoying paid links that Google insets around its search results and elsewhere in its products, ad “engagement” suffers because of how people use their phones. Sitting at a desk, a user may be inclined to browse, to take an extra second to follow their interests, to click on a tempting ad. But when people pull their mobile devices out of their pockets, they usually have a specific task in mind. Out on the street, looking for directions or the time the game starts, there’s just not a lot of time to click around.

[…]

Perhaps it’s too melodramatic to call Google desperate. After all, how desperate can you be when you still reap billions in profits every quarter? But if there’s one thing Page likes to think about, it’s the future. And he’s smart enough to see that the future is getting dimmer for a company that depends upon people surfing the web and clicking ads on PCs. In a recent onstage interview at TED, Page spoke with relish about Google’s many grand experiments to change how the world works for future generations. One thing he didn’t talk about is ads. But he did say he believes in business as the best way to reach that future.

Of the top ten companies in the Fortune 500, most are 120 years old or more in one incarnation or another (three are Standard Oil). The relative newcomers are retailer WalMart (roughly 70 years old) and Apple (just under 40). Google, a relative infant at 18, is undoubtedly searching for its identity. I don’t think it’s alone. I think Microsoft is experiencing a sort of mid-life crisis.

It might be that Apple, Microsoft, and Google will always be the technological giants they are now. Or they might disappear. We’re accustomed to thinking of large companies as eternal but that’s not necessarily the case. Several of the original components of the Dow-Jones Industrial Average no longer exist.

Unlike the last century in which enormous companies rose and have remained part of the landscape ever since, as events unfold I think we’ll be amazed at the astonishing rate at which new companies arise, grow to sizes that were unimaginable just a few years previously, and then vanish as quickly as they arrived. What’s more I think we’ll see the same with whole sectors.

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