We have expanded our topics in a way that suggested that Politics (per se) and a Pint was somewhat misleading, we now engage in Conversations at the Cow, in which we engage in many conversations, not all of a political nature. Come join us!
Well, it’s the silly season again, and Republican candidates are scrambling all over each other to get their tax simplification plans in place. Governor Rick Perry, for example, proposes a simple 20% flat rate (NYTimes, 5 Nov 2011), which is most assuredly a part of a secret jobs creation program for editorial cartoonists. Cain’s 9-9-9 plan fared no better.
These plans, and plans like them, are popular not because they are fairer than the existing plan, but rather because they are simpler. The byzantine US tax codes are legendary, and the immediate appeal of these plans is their simplicity, a simplicity that promises to remove all those special interest advantages that so distort the free market that we believe in.
The guiding idea behind the flat income tax is the idea that all taxpayers should be treated equally, but any introductory economics class will certainly introduce the student to the concept of the law of diminishing utility, which leads, from a fairness argument, to the concept of a progressive tax structure.
For example, a person who earns $90,000 per month attaches less importance to $10. But a man who gets $1000 per month, the value of $10 to him is very high. A finance minister knowing this fact that the utility of money to a rich man is high and to poor man low bases the system of taxation in such a way that the rich persons are taxed at a progressive rate. The system of modern taxation is therefore, based on the law of diminishing marginal utility.
So, while the candidates try to use a flat tax to appeal to the voters, in a gesture with no hope of ever becoming law, what they might find more success with, in a manner consistent with basic principles of human behavior, is a “fair flat tax”.
The figure below illustrates graphically the three forms:
- In red we see the current tax code, idealized with a smooth curve, it starts with a low rate and steps up to a maximum rate of 35%. We also observe some of the special interests … these exceptions to the tax rules are sometimes very small divots in the collections (how many llama farmers are there, anyway?). Sometimes they are larger (oil companies come to mind) and sometimes they are simply politically powerful special interests (renewable energy companies). Some even experience negative tax rates due to grants and the like.
- In blue we see the simple flat tax as proposed by Perry. At 20% (which seems to reflect Hauser’s Law), it is simple in theory, but is not really fair. The person earning $20K per years will miss much more from the tax of $4K than the person making $100K will miss the $20K. The former may miss some meals, the latter may miss some trips to restaurants.
- In black we see a progressive flat tax. This correctly recognizes the decreasing marginal utility of money as a function of income (itself a surrogate for wealth, against which real marginal utility must be measured).
Both the blue and the black lines promise the most important feature of the flat taxes, which is that there are no special breaks, making both “flat” when compared to the current tax codes. If Republican candidates were able to make their proposals look like the black “fair flat tax”, then the editorials would have to take them seriously and the cartoonists would have to find honest ways to make a living. As long as we don’t add the word “progressive” we will never make it past the late night comedy show monologues and the editorial cartoonists, and lacking any meaningful dialog, we (the taxpayers who fund all this silliness) shall surely lose.
(Never let it be said that we do not see the irony in this cartoon.)
- What: Politics and a Pint
- Where: Contented Cow, Northfield MN
- When: Sunday, 13 November 2011, 6-7:30PM
Footnote: The Center of the American Experiment is hosting a roundtable on political compromise that could use this information, methinks.
The tragedy of the commons refers to the tragedy that befalls resources that are held in commons. Like the overgrazed commons of a British sheep town, since no one feels ownership, no one feels compelled to preserve the commonly held resource. Some of the current examples include water and air quality, which are often viewed as resources that cannot be owned by individuals. The tragedy of the commons is then invoked to justify attempts to control those resources by governments rather than by markets.
At our last session, we were briefly presented with the ideas of Elinor Ostrom, winner of the Nobel Prize in Economics in 2009 (the only female recipient of this award) and considered one of the founder of the “Bloomington School” of economics. Much of her work deals with efficiencies in local governments, natural resources and turning the “tragedy of the commons” into the “opportunity of the commons“.
What: Politics and a Pint
Where: The Contented Cow
When: Sunday 23 OCT 11 starting at 6:00pm
Caplan puts forth the arguments that our regular, Stephen Kallestad, makes … that free markets (not the same as capitalism, by the way) are the economic engine that produces the greatest wealth. I completely agree, and have used the old
to explain to unbelievers why they should believe. But see statement (1). To the voter, it does not matter if the planet is wealthier if they (locally) are poorer. No wonder we get the sorts of economist-layperson discrepancies that Caplan identifies in his book, including anti-free trade attitudes amongst the laypeople. (By the way, the statistical methods used in the referenced study are quite interesting and quite sound, if done correctly).
WHAT: Politics and a Pint
WHERE: Contented Cow
WHEN: 6-7:30PM Sunday, 11 Sept 2011
Well, there is a kerfuffle or two in Northfield, while nothing interesting is happening out east, so we will focus on some local stuff this week.
- First on the agenda, the LoGroNfld alarm over a public prayer event with an agenda. Not since the prayer incident in the City Hall have we seen the forces of darkness so riled up. The principalities have gathered and the conversation has begun. See the forces of good and evil duke it out right here in River City.
- Then we’ll talk about bullying by … public officials. There are some tough characters out there and we’ll grumble about their rough treatment of local innocents. Bring your stories of power and corruption run amok in the small towns around us. This is all in good fun, so leave your lawyers at home.
Where: Contented Cow
When: 6-7:30 PM, 4 Sep 2011
Your correspondent just returned from the 2011 Annual Research Meeting of the AcademyHealth meeting held in Seattle. At this meeting I heard some truly interesting talks about health care, politics and the public debate. While looking for additional resources I also came upon a presentation from last year’s meeting (ARM2010) that provides interesting background on how the debate unfolded.
To begin, I would suggest that you listen to the 85 minute presentation and questions from a session, “How Health Services Research Was Used in Health Care Reform”
Panelists: Jack Ebeler, Committee on Energy and Commerce; Elizabeth Fowler, Senate Finance Committee; Jonathan Gruber, Massachusetts Institute of Technology; Mark McClellan, Brookings Institute; Cathy Schoen, The Commonwealth Fund
Description: Karen Davis chaired a special session at the 2010 AcademyHealth Annual Research Meeting that looked at the role of health services research in informing Congressional health reform discussions. During the session, panelists Jonathan Gruber, Mark McClellan and Cathy Schoen focused on issues around affordability and delivery system redesign. Schoen’s presentation included a discussion of the Commonwealth Fund Commission Path Report and its contribution to the health reform framework, while Gruber discussed how health services research and simulation modeling contributed to health insurance design decisions, and McClellan reviewed contributions to payment and delivery system design decisions. Respondents Jack Ebeler and Liz Fowler provided their perspectives on the contribution of health services research to the key health reform decisions in the House of Representatives and Senate.
Then we can discuss what I heard this year, at a session on Health Care and the Affordable Care Act (ACA).
- Discussion started with $14B debt, then adds unfunded promises (pensions, etc), grows to $60T,
- but that’s conservative, worst case is $124T
- total capital of USA, $50T [actually, tangible assets and financial assets are tough, see http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/]
- [interestingly, the presenter had not heard of the IOUSATHEMOVIE website.
- Pelosi and (D) kicked the can to the (R) [which raised a conspiracy theory, (R) all know the wreck is coming, so they will let (D) hold white house in 2012 so Dems take the hit]
- One credible analysis says 5yrs to “impact”.
- ACA means you will have access to insurance, but hospitals going bankrupt means you may not have access to a doctor. It is not a health care bill, it is an insurance bill.
- [and it basically bankrupts the insurance industry by making it an arm of the government, unable to set fees to cover risks]
- Analyses suggest that about 50% of health care expenditures is waste (from the patients’ perspective)
So, anyone feeling sick yet?
What: Politics and a Pint
Where: Northfield, Contented Cow
When: 26 Jun 2011, 6-7:30PM
I will bring my own insights to the group as we review the Richard Heinberg presentation on Friday. We will talk about The Limits to Growth (Alarmism, 101), Peak Oil (Alarmism, 102), Substitutability of commodities (Balance 101), and the whale oil shortage as a lesson in free markets.
If the weather and the football season keep everyone at home then I’ll talk to myself or enjoy whatever conversation I find in the room
The election is behind us and it looks like the statistics did not lie. Statistically, the longest any one party has led all three Federal bodies (President, Congress, House) is four (4) years (since the two party system evolved). So it should have been no surprise at all that at least one of the three changed hands. One of three.
But at LocallyGrown we see the election has generated a general kerfuffle. Maybe it is time to go to the whiteboard and build a taxonomy of fears and hopes and design a principles based candidate, then ask where that candidate is most likely to be found. I hope to keep it a lot lighter than LG, but more serious than the “Rally to Restore Sanity”.
I’ll bring the white-board, the CC will provide the venue and you will provide the ideas, at the next Politics and a Pint.
What: Politics and a Pint – A politics salon.
Where: Northfield’s Contented Cow
When: 6-7:30PM, 7 Nov 2010
The proof at the top is an homage to a famous scrawl presented at some royal court in Europe. A mathematician was asked to prove that God existed, and he scrawled a meaningless equation that he know no one there would understand and exclaimed “There! God exists.” My equation says that a politician’s position on the issues is a function of the candidates principles (often unstated) and the relationship of those principles to the issues. We will see that framing is critical to energize the voters, so we will desensitize ourselves to framing by confronting the framing. For example, who says that being for the death penalty has to be called “pro-death”? We will put a little verbal base in with that pedantic acid and apply the resulting salts as part of our diet of reason.
Low key this week, if I get enough interest we’ll meet and talk about mathematics behind the Laffer curve, plots of the distribution of wealth, and some other esoterica.
We are not meeting formally for the Labour Day weekend, but a topic presents itself. Last month, Bridgewater Township declined to approve the annexation of farmland just west of town (the Gil-Prawer farms). So, given the information on the Bridgewater Township website and the comment by Township Board Chair Castore, what do you think? We hope to take the results to the Bridgewater Township Board of Supervisors meeting on the 8th September, 2010.
Please check two boxes.
- In the first four, pick the one you agree with most
- In the remainder, pick the one that describes where you vote.
And thanks for your support.