Quotulatiousness

October 4, 2012

Why EU politicians love the idea of a Financial Transaction Tax

Filed under: Economics, Europe — Tags: , , , — Nicholas @ 10:31

Tim Worstall explains why politicians love the notion of an FTT, and why all the benefits claimed for imposing an FTT are not going to happen:

Large numbers of people have convinced themselves that a Financial Transactions Tax (FTT) would be a really very good idea indeed. It would make the banks pay for the problems they’ve caused, it would lower speculation and thus lower volatility, it would raise a lovely large amount of money that can be spent on good causes and anyway, there are a number of FTTs around and they’ve not caused any problems, have they?

Politically this is of course quite wonderful. Lots of money to pay for things and it’s the banks that have to cough up? We’ll get tens, no hundreds of billions and none of us will really have to pay any of it? Let’s tax the other guy usually does gain public support after all.

The thing is, all of the stated joys of this tax are in fact untrue. I’m rather involved in this as I prepared evidence for the House of Lords on the point (evidence which I’m glad to say heavily influenced their final report). Other submissions also pointed to posts on this very blog here at Forbes in support of various points. Finally, this formed the basis of my one and only peer reviewed paper to date. You might say that I’m more involved in this story than I am in most.

The thing is, those four things which campaigners for the FTT say are the good things about it all turn out to be untrue. Firstly and most obviously, banks are companies and companies never pay tax. It’s always some combination of customers, workers and shareholders who do: for only a real human being can bear the burden of a tax. As to speculation, more speculation lowers price volatility so reducing speculation will increase volatility, not reduce it. An FTT would crimp economic growth and thus would reduce total tax revenue, not increase it and finally, we do indeed have several FTTs currently and also know that they crimp economic growth and thus reduce total tax revenue.

All of these things have been explained by all of the serious people (plus me, who you can regard as serious or not as you wish) who have looked at the question. And yet governments continue to sign up for what they keep being told is a seriously bad idea. They’ve even been told this in terms simple enough for a politician to understand.

September 29, 2012

Regulating the size of soft drinks won’t solve the obesity problem, but will infringe on individual rights

Filed under: Food, Health, Law, Liberty, USA — Tags: , , , , , — Nicholas @ 10:41

At Reason, Baylen Linnekin explains that even if all the claims about the nutritional evils of sweetened soft drinks are completely true, regulations will not actually make much difference:

As an opponent of increased regulations, I find these latter scientific points noteworthy. But I also believe that even if sugar-sweetened drinks turn out to be virtually everything their opponents claim, people still have a right to buy and drink these beverages — just as much, as I argued in a recent Bloggingheads debate, as they have a right to buy a Big Mac. After all, we don’t have a right to free speech or to travel from one state to another because speech or travel has been proven by the scientific community to promote good health.

But suppose, for the sake of argument, I was to take at face value the assertions of those who claim the NEJM studies justify some combination of sugary drink taxes and bans.

There is still this problem: The solutions these advocates propose won’t likely solve the problem of obesity. For example, studies have suggested taxes will have little or no impact on obesity. And not one person has (to the best of my knowledge) even attempted to argue that soda bans would have any specific impact, either — unless one counts “sending a message” or “creating a debate” as conditions precedent to weight loss.

There is also the issue of a genetic predisposition, which again is one finding of the studies. Many people are genetically predisposed to certain food allergies — including soy, dairy, gluten, nuts, and seafood — and food intolerances. I have never seen a researcher or AP journalist like Marchione argue seriously that the widespread impact of food allergies “adds weight to the push for taxes” on wheat, tofu, and shrimp. Yet if one were to buy the argument of those calling for taxes and bans to combat consumption of sugary drinks in light of the NEJM studies, one would have to accept the idea of taxing society writ large based largely on the outcomes of what these researchers argue is a genetic condition.

September 22, 2012

Mismeasuring inequality

Filed under: Economics, Media, Politics, USA — Tags: , , , , — Nicholas @ 10:20

If you haven’t encountered a journalist or an activist going on about the Gini Coefficient, you certainly will soon, as it’s become a common tool to promote certain kinds of political or economic action. It is also useful for pushing certain agendas because while the numbers appear to show one thing clearly (the relative income inequality of a population), it hides nearly as much as it reveals:

The figures they use for a comparison are here. Looking at those you might think, well, if the US is at 0.475, Sweden is at 0.23 (yes, the number of 23.0 for Sweden is the same as 0.23 in this sense) then given that a lower number indicates less inequality then Sweden is a less unequal place than the US. You would of course be correct in your assumption: but not because of these numbers.

For the US number is before taxes and before benefits. The Swedish number is after all taxes and all benefits. So, the US number is what we call “market income”, or before all the things we do to shift money around from rich to poor and the Swedish number (in, fact, the numbers for all other countries) are after all the things we do to reduce inequality.

[. . .]

The US is reporting market inequality, before the effects of taxes and benefits, the Europeans are reporting the inequality after the effect of taxes and benefits.

[. . .]

Which brings us to the 300 million people in the US. Is it really fair to be comparing income inequality among 300 million people with inequality among the 9 million of Sweden? Quite possibly a more interesting comparison would be between the 300 million of the US and the 500 million of the European Union. Or the smaller number in the EU 15, thus leaving out the ex-communist states with their own special problems. Not that it matters all that much as the two numbers for the Gini are the same: 0.3*. Note again that this is post tax and post benefit. On this measure the US is at 0.38. So, yes, the US is indeed more unequal than Europe. But by a lot smaller margin than people generally recognise: or than by he numbers that are generally bandied about.

Which brings us to the second point. Even here the US number is (marginally) over-stated. For even in the post-tax and post-benefit numbers the US is still an outlier in the statistical methods used. In looking at inequality, poverty, in the US we include the cash that poor people are given to alleviate their poverty. But we do not include the things that people are given in kind: the Medicaid, SNAP, Section 8 and so on. It’s possible (I’m not sure I’m afraid) that we don’t include the EITC either. We certainly don’t in the poverty statistics but might in the inequality. All of the other countries do include the effects of such policies. Largely because they don’t offer benefits in kind they just give the poor more money and tell them to buy it themselves. This obviously turns up in figures of how much money the poor have.

September 21, 2012

California’s “wall of debt” actually a very high cliff of debt

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 09:21

Mary Williams Walsh on the so-much-worse than estimated debt of California:

Gov. Jerry Brown of California announced when he came into office last year that he had found an alarming $28 billion “wall of debt” looming over the state, which had to be dismantled.

Since then, he has slowed the issuance of municipal bonds, called for spending cuts and tried to persuade the state’s famously antitax voters to approve a tax increase this fall.

On Thursday, an independent group of fiscal experts said Mr. Brown’s efforts were all well and good, but in fact, the “wall of debt” was several times as big as the governor thought.

[. . .]

The task force estimated that the burden of debt totaled at least $167 billion and as much as $335 billion. Its members warned that the off-the-books debts tended to grow over time, so that even if Mr. Brown should succeed in pushing through his tax increase, gaining an additional $50 billion over the next seven years, the wall of debt would still be there, casting its shadow over the state.

August 27, 2012

Finland and the dangers of being a company town

Filed under: Business, Economics, Europe — Tags: , , , , , — Nicholas @ 09:09

I had no idea that Finland’s economy was so tightly tied to the fortunes of Nokia:

Nokia contributed a quarter of Finnish growth from 1998 to 2007, according to figures from the Research Institute of the Finnish Economy (ETLA). Over the same period, the mobile-phone manufacturer’s spending on research and development made up 30% of the country’s total, and it generated nearly a fifth of Finland’s exports. In the decade to 2007, Nokia was sometimes paying as much as 23% of all Finnish corporation tax. No wonder that a decline in its fortunes — Nokia’s share price has fallen by 90% since 2007, thanks partly to Apple’s ascent — has clouded Finland’s outlook.

[. . .]

Strip these sorts of firms from the list and only one resembles Nokia: Taiwan’s Hon Hai, an electronics manufacturer. Yet Nokia made 27% of Finnish patent applications last year; the corresponding figure for Hon Hai was 8%. Although numbers are falling, Finland is home to the greatest number of Nokia employees; Hon Hai’s staff is mostly in China. It is a similar story with other firms. Sales of Nestlé, a consumer-goods company, weigh in at 15% of Swiss GDP but its share of Swiss jobs is punier than Nokia’s in Finland. Samsung, whose revenues are twice Nokia’s, has half its clout as a share of GDP: South Korea’s economy is more diversified. The importance of Nokia to Finland looks like a one-off.

August 9, 2012

QotD: “No one is patriotic about taxes”

Filed under: Britain, Bureaucracy, Government, Quotations, WW2 — Tags: , , , — Nicholas @ 08:54

The money situation is becoming completely unbearable. . . . Wrote a long letter to the Income Tax people pointing out that the war had practically put an end to my livelihood while at the same time the government refused to give me any kind of a job. The fact which is really relevant to a writer’s position, the impossibility of writing books with this nightmare going on, would have no weight officially. . . . Towards the government I feel no scruples and would dodge paying the tax if I could. Yet I would give my life for England readily enough, if I thought it necessary. No one is patriotic about taxes.

George Orwell, diary entry for 9 August, 1940.

August 8, 2012

“In the real world, cleaning a driveway costs $15. In politics, it costs $175,000”

Filed under: Bureaucracy, Cancon, Government — Tags: , , — Nicholas @ 09:17

In the National Post, Kelly McParland on the difference between real world costs and government costs:

In other words, the town is prevented by bureaucratic realities from doing the job at a reasonable price. A contractor can just show up with a snow blower and clear the drive. The town, however, would have to send two workers – one to run the plow and the other to stand around and watch act as a flagperson. They’d have to be paid the going rate of $47 an hour, plus benefits. And there’s the cost of the plow.

If Mr. Williams was to get his windrows cleared, everyone in Iroquois Falls would have to have their windrows cleared, which the town estimates would bump the price to about $175,000 a winter.

So, in the real world, cleaning a driveway costs $15. In politics, it costs $175,000.

That’s why we have deficits, dear readers. And why government costs so much. And why civil servants grow accustomed to treating ludicrous costs as normal expenditures. And why taxes are far higher than they need be.

August 3, 2012

How “you didn’t build that” strikes at “Bourgeois Dignity”

Filed under: Books, Business, Economics, Liberty, Politics — Tags: , , , — Nicholas @ 00:05

Virginia Postrel explains why President Obama’s “you didn’t build that” gaffe has lasted so long when usually politicians’ gaffes barely last a single news cycle, by outlining the arguments of a recent book by Dierdre N. McCloskey:

The president’s sermon struck a nerve in part because it marked a sharp departure from the traditional Democratic criticism of financiers and big corporations, instead hectoring the people who own dry cleaners and nail salons, car repair shops and restaurants — Main Street, not Wall Street. (Obama did work in a swipe at Internet businesses.) The president didn’t simply argue for higher taxes as a measure of fiscal responsibility or egalitarian fairness. He went after bourgeois dignity.

“Bourgeois Dignity” is both the title of a recent book by the economic historian Deirdre N. McCloskey and, she argues, the attitude that accounts for the biggest story in economic history: the explosion of growth that took northern Europeans and eventually the world from living on about $3 a day, give or take a dollar or two (in today’s buying power), to the current global average of $30 — and much higher in developed nations. (McCloskey’s touchstone is Norway’s $137 a day, second only to tiny Luxembourg’s.)

That change, she argues, is way too big to be explained by normal economic behavior, however rational, disciplined or efficient. Hence the book’s subtitle: “Why Economics Can’t Explain the Modern World.”

[. . .]

McCloskey’s explanation is that people changed the way they thought, wrote and spoke about economic activity. “In the eighteenth and nineteenth centuries,” she writes, “a great shift occurred in what Alexis de Tocqueville called ‘habits of the mind’ — or more exactly, habits of the lip. People stopped sneering at market innovativeness and other bourgeois virtues.” As attitudes changed, so did behavior, leading to more than two centuries of constant innovation and rising living standards.

I’ve read McCloskey’s book and plan on reading the next one too. Earlier mentions of Bourgeois Dignity are here and here.

July 18, 2012

Who Exploits You More: Capitalists or Cronies?

Filed under: Business, Government, Liberty, Politics — Tags: , , , , — Nicholas @ 09:48

What is the best way to demonstrate care for the future?

Filed under: Economics, Environment, Government — Tags: , , , — Nicholas @ 08:29

According to Steven Landsburg, the answer is to cut capital taxes, and he makes a good case:

There are only three things you and I can do to make the future world a better place. First, we can consume less, leaving more resources behind. Second, we can work harder, planting trees, building factories and writing poems that will live on after we’re gone. Third, we can innovate, advancing science and technology so that our children’s children’s children can make better use of the resources they inherit.

As it happens, there’s one key policy variable that drives all three of these things, and that’s the tax rate on capital income (which includes interest, dividends, corporate income and capital gains). Capital taxes are a disincentive to save, and when people don’t save they consume instead. Capital taxes are a disincentive to work and a disincentive to innovate.

This is not a plea for lowering taxes in general, and it’s not a plea for making the tax system either more or less progressive. (If you want to soak the rich, there are plenty of things to tax besides capital.) As a matter of fact, this isn’t even a plea for lowering taxes on capital. It’s simply an observation that if your goal is to leave a better world for our descendants, then your best bet is to support lower capital taxes.

H/T to Tim Harford for the link.

July 17, 2012

FATCA “may end up killing more U.S. jobs than all the call centers in India combined”

Filed under: Economics, Government, Law, USA — Tags: , , , , — Nicholas @ 09:52

Matt Welch on the worst bit of legislation for US workers so far:

That’s a line from this commendable Wall Street Journal column by William McGurn about the oft-lamented-around-these-parts Foreign Account Tax Compliant Act of 2010, or FATCA (rimshot). While President Barack Obama keeps hitting presumptive Republican presidential nominee Mitt Romney over offshoring and jobs, one of Obama’s most economically deleterious laws continues inflicting damage largely off the journalistic radar screen.

“Within the United States,” McGurn writes, “almost no American has heard of it. Save for the occasional article, it’s gone largely uncovered. And just like ObamaCare, the nastiest, job-killing aspects will not hit until after this November’s election.”

McGurn points out that FATCA was the revenue-generating side of the Hiring Incentives to Restore Employment Act of 2010 (HIRE! God, I hate these people….) — “a jobs bill dominated by tax breaks designed to get businesses to hire unemployed Americans.” So once again, government is “paying” for the economically dubious and morally spurious act of granting targeted tax breaks to favored corporations by screwing over the middle class.

July 13, 2012

The only long-term answer to road congestion: real-time tolls

Filed under: Cancon, Economics, Politics, Technology, USA — Tags: , , — Nicholas @ 00:04

I know, I know … I hate paying road tolls as much as the next driver. But the current road pricing scheme is broken and getting broken-er. Andrew Coyne points out the unpleasant realities:

… the demand for road use — traffic — is not a fixed quantity. Like anything else, it fluctuates with the price. And the price to use the roads, under present policies, is denominated in time: that is, by how long people are prepared to stew in traffic. This is, when you think about it, perverse. The people who get first claim on the roads are the ones who put the lowest value on their time. Or in other words, the people who need them the least.

That’s why analysts have long recommended pricing roads in more conventional terms, i.e. dollars and cents. But there are lots of ways of getting even this wrong, so we need to eliminate a couple more alternatives, such as:

More taxes. Many people’s first response to the notion of pricing roads is to say “but I already pay a gas tax.” The more knowledgeable will point to statistics showing that revenues from gas taxes more than pay for the cost of building and maintaining the roads.

But these are far from the only costs at issue, or even the most important. As far as congestion is concerned the cost that matters is not the cost of building the road, but the cost of using it. Every time you use the road, you impose a cost on other drivers, so far as you make the roads that much more crowded — as they, of course, do you. Add up those costs over millions of drivers every day — costs measured not only in delays, but in more collisions, more wear and tear, more pollution, and so on — and we are well into the billions, according to several estimates.

[. . .]

What’s really needed, then, is a more comprehensive approach. With modern technology, there’s no reason to toll only some roads and not others. Using GPS-style in-car transponders and satellites, it’s now possible to charge drivers to use the roads generally, with the highest charges applying in downtown centres and at rush-hour — just as you pay a higher charge to use your cellphone depending on the location and time of day. You’d even get a monthly bill in the mail.

Far-fetched? Britain and the Netherlands have each been on the verge of adopting similar schemes in recent years. That each backed down in the end tells you something of the political sensitivities involved: It’s always hard to get people to pay for things they are used to getting for free. But the roads aren’t free. We’re paying more and more to use them every year.

Pay in congestion, in time and noise and aggravation — or pay by credit card. Once you think of it that way, the choice should be easy.

July 11, 2012

Obama’s tax proposal being misreported by all major media outlets

Filed under: Government, Media, USA — Tags: , , , , — Nicholas @ 09:48

How so? Dan Amira explains:

Obama is not proposing that families making up to $250,000 a year keep their tax cuts while families making more than that don’t. He’s proposing that every family keep their tax cuts on their first $250,000 of taxable income (which is not the same as “income” or “earnings,” by the way).

That includes families with taxable income of $260,000, $1 million, $5 billion, $3 trillion, or whatever Jay-Z and Beyonce make in a year. Everyone would continue to pay a lower tax rate on their first $250,000 of taxable income under Obama’s plan. To report that Obama only wants to maintain tax cuts for families making less than $250,000 is simply false.

[. . .]

Normally, a president would want to publicize that he’s trying to cut taxes for everyone in the country. But Obama actually has an incentive this time to downplay the number of Americans who would benefit from his tax plan. His proposal is, at its heart, a political maneuver meant to force Mitt Romney to defend tax cuts for the wealthy. It’s more effective, then, for it to be seen as a cut solely for the middle class. The reality is that Obama’s proposal would also keep Warren Buffett’s taxes lower, if only a little bit.

H/T to Iowahawk for the link.

July 10, 2012

American exceptionalism, especially in taxation

Filed under: Business, Government, Liberty, USA — Tags: , , — Nicholas @ 10:19

Mark Steyn on the unique American perspective on taxes:

Elsewhere in the world, there are two generally accepted bases for taxation: residency and source of income. Most countries tax you if you live within their borders, some tax you if you live elsewhere but earn money within their jurisdiction, but only America claims the right to tax you simply for being American — even if you, say, live in Belgium but drive over the border to work in Luxembourg every day. This is unique to the United States: Spain taxes you if you’re a resident of Spain; Slovenia taxes you if you’re a resident of Slovenia; but America taxes you if you’re an American who’s working as a teacher in Gabon. You’re at permanent risk of double taxation, and the fines for minor and accidental infraction are arbitrary and confiscatory.

As I say, no other developed country does this — although Eritrea does.

On January 1st 2013, all this gets worse. The FATCAT act (technically, it’s FATCA, but we all get the acronymic message) makes it not worth a foreign bank’s while to do business with Americans. I don’t just mean Mitt Romney’s chums in the Cayman Islands, but an American of modest means on a two-year secondment to Hong Kong requiring a small checking account with which to pay local utility bills — or a small businessman attempting to expand his distribution in Canada.

Maybe you don’t care about these people: Why can’t the business guy expand his business in Michigan or Idaho like true-blue Americans would do, etc? But at a time when America is ever more mortgaged to foreigners, making it more difficult for Americans to go out and earn money from the rest of the planet doesn’t seem a smart move. Unless you’re planning on making U.S. citizenship a combination food-stamp card. American exceptionalism and American isolationism are not the same thing.

More to the point, the 2008 “exit tax”, the existing foreign bank-account disclosure paperwork, the new FATCAT act, and even the recent habit of publishing the names of those who renounce citizenship are simply inappropriate in a free society.

July 2, 2012

Here’s what to expect to pay in Obamacare penalty tax

Filed under: Government, Health, USA — Tags: , , , — Nicholas @ 10:10

There are no easy answers in figuring out in advance exactly what taxes will apply to any given person, but Henry Blodget at Business Insider outlines what to expect in general terms:

  • The penalty/tax will be phased in from 2014 to 2016.
  • The minimum penalty/tax in 2016 will be $695 per person and up to 3-times that per family. After 2016, these amounts will increase at the rate of inflation.
  • The minimum penalty/tax per person will start at $95 in 2014 (and then increase through 2016)
  • No family will ever pay more than 3X the per-person penalty, regardless of how many people are in the family.
  • The $695 per-person penalty is only for those who make between $9,500 and ~$37,000 per year. If you make less than ~$9.500, you’re exempt. If you make more than ~$37,000, your penalty is calculated by the following formula…
  • The penalty is 2.5% of any household income above the level at which you are required to file a tax return. That level is currently $9,500 per person and $19,000 per couple. The penalty on any income above that is 2.5%. So the penalty can get expensive quickly if you make a lot of money.
  • However, the penalty can never be more than the cost of a “Bronze” heath insurance plan purchased through one of the state “exchanges” that will be created as part of Obamacare. The CBO estimates that these policies will cost $4,500-$5,000 per person and $12,000-$12,500 per family in 2016, with the costs rising thereafter.

Update: In spite of all the agonized wailing from the Republicans (especially the Tea Party folks), Steve Chapman is determined to find the limited government silver lining in the Obamacare decision:

While it was upholding the mandate, the court was striking down an equally important part of the law: the requirement that states greatly expand Medicaid coverage, at a cost of about $1 trillion between 2014 and 2022. The administration sought to force states to go along by threatening to take away all their Medicaid funds — not just those provided for the expansion. But Roberts and Co. said no.

Does it matter? You bet. It’s the first time the court has ever said Washington went too far in the conditions it places on money sent to state governments. The ruling will give states more latitude to make their own decisions in all sorts of areas.

The case also registered a victory for the notion that judges should apply the Constitution in an impartial way rather than simply impose their policy preferences. George Washington University law professor Orin Kerr, writing on the conservative-libertarian blog The Volokh Conspiracy, said the overall decision was “a largely conservative opinion that just happens to get to a liberal result.”

Equally significant is that it took a worse health care option off the table. The irony of the challenge is that if Obamacare had been struck down, supporters of universal health coverage would have been left with no good option but a “single-payer” system, also known as “Medicare for all” — which is undoubtedly constitutional.

Whatever the flaws of Obamacare, it at least builds on the existing system of private insurance. Vermont’s self-proclaimed socialist senator, Bernie Sanders, used the court’s decision to renew his call for a single-payer system. But for him, the verdict was the worst thing that could have happened.

For anyone even slightly open to evidence, letting Obamacare take effect will provide an illuminating experiment in how to afford the miracles of the American medical system to more people, including many in dire need. It may be a failure, or it may be a success. But it will not be uninformative.

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