By Simon Grey, on January 18th, 2013
It’s apparently unpleasant:
American workers are opening their first paychecks of the year and finding an unpleasant surprise: The government’s take has gone up.
A temporary cut in Social Security withholdings gave Americans hundreds of extra dollars to spend over the past two years. But Congress allowed that break to expire during the wrangling over the fiscal cliff, meaning that Social Security taxes have reverted to 6.2% of salary from the temporary 4.2%.
The noticeable lightening of paychecks as consumers remain tentative threatens to put a drag on economic growth. The effect for companies is that the hit is likely to cement a frugal attitude that led consumers to cut back on eating out and shift to less-expensive store brands.
Now, I actually support a payroll tax increase. I think people who receive any form of government benefits should actually pay for them (yes, I know this is a crazy belief), and I think that the increase in tax rates is small enough and marginal enough that it will lead to increased revenues, thereby hypothetically reducing the deficit.
Of course, a higher tax burden means more economic malaise. But then, that’s simply the inevitable cost of the government living beyond its means. Bills must be paid, even by governments. If people don’t want higher taxes, they should vote for politicians who actually reduce spending. If people are unwilling to do vote for budget cuts, then they shouldn’t complain about higher taxes.
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By Simon Grey, on January 16th, 2013
Some economic news:
This morning’s jobs report shows that the economy’s subsidized private sector (industries like health care services that receive big government subsidies) is back as a major source of new hiring.
If a stronger but sustainable U.S. recovery depends on reinvigorating industries not heavily dependent on government largesse, then this hiring out-performance by the subsidized private sector is a bearish indicator.
As Tonelson figures it, the subsidized private sector created 65,000 net new jobs in December, nearly 40% of total private-sector job growth, about the same as throughout the recovery. But is that a lot or a little?
One easy way to tell if an economist is shallow is to see how they analyze the role of government in the economy. In this case, the assertion is that the government was responsible for about 40% of new net job creation. But, I wonder, how much net job destruction the government was responsible for.
By Simon Grey, on January 15th, 2013
Quelle surprise:
The tax this year will increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700.
Indeed, for most lower- and middle-income households, the payroll tax increase will most likely equal or exceed the value of the income tax savings. A household earning $50,000 in 2013, roughly the national median, will avoid paying about $1,000 more in income taxes — but pay about $1,000 more in payroll taxes.
That tax rates are nominally increasing, or that effective tax rates are not decreasing, should come as no surprise. Government spending must be funded somehow, and the only three possible options for raising revenue are taxation, inflation, and borrowing. The federal government must have money in order to do what it does, and that money must come from somewhere. To think that the federal government can spend close to $4 trillion without imposing any costs on anyone except “the rich”—itself a nebulous, ill-defied concept—is simply ludicrous. And to those who complain about the tax burden they must inevitably bear, I simply ask: what government services do you no longer want provided for you? If you want the government to do something for you, you must—you will—pay for it. Thus, any complaints about taxes, if they are serious, must be accompanied with complaints about spending.
By Simon Grey, on January 11th, 2013
Ross Douthat speaks it:
Alas for liberals, the tax debate isn’t that simple, because it’s taking place in the context of immense projected future deficits and a welfare state that seems unsustainable without substantial increases in revenue. Given these realities, fairness and progressivity are necessarily less important to liberalism over the long run than simple dollar figures, and the American left actually has a long-run incentive to make the federal tax code less progressive, because only a broader base can keep the liberal edifice solvent in the long run. [Emphasis added.]
While it may be quite pleasant to imagine that the tax code can be used to arbitrate fairness across social classes (a bullshit concept if there ever was one), the simple reality is that taxes have only one fundamental purpose: revenue. That’s it.
Taxes exist to generate revenue to the government. Thus, while it may be pleasant to imagine soaking the rich with a 90% income tax rate—in the name of fairness, of course—the reality is that this attempt at soaking the rich will inevitably lead to a decrease in tax revenues for the very simple reason that people simply do not like having large portions of their income taken away from them by jack-booted parasites. Thus, in the long run, the tax code must conform to fiscal reality instead of nebulous concepts of social fairness. The liberal vision of social fairness is literally unaffordable, and this must inevitably be reflected in the tax code.
The more rational approach to taxation is exactly what Douthat recommends: increase the tax base and keep rates lower. This would effectively mean lowering marginal tax rates on the wealthy and actually imposing real income taxes on the bottom two brackets. This won’t be fair, per the liberal definition, but it will ensure that the government remains funded. Of course, once poor moochers have teeth in the game, they may decide that they don’t want to pay the government for overpriced, substandard services. But then, those who are poor often tend to be short-sighted and foolish, and so it is also conceivable that they will learn nothing from history, and thus condemn themselves to a life of dependency. But at least they’ll have skin in the game.
By Simon Grey, on December 19th, 2012
Turns out it’s neither cheap nor labor:
“In 2010, 36 percent of immigrant-headed households used at least one major welfare program (primarily food assistance and Medicaid) compared to 23 percent of native households,” summarizes the document which was published by the Center for Immigration Studies and examines a wide variety of topics relating to immigration. Click HERE to read the full report.
The document breaks down the immigrant families by country of origin and gives specific types of welfare and percentages of the families that used it in 2010. An average fewer than 23 percent of native households use some type of “welfare” which is specifically defined in the study. 36 percent of households headed by immigrants use some type of welfare. Families headed by immigrants from specific countries or areas of the world range from just over 6 percent for those immigrants from Great Britain to more than 57 percent of those from Mexico using some type of welfare. [Emphasis added.]
From now on, I’m going to call bullshit on people who tell me how hard-working and thrifty Mexicans are. If that’s the case, why are 57% of Mexican immigrants receiving money from the federal government of the United States? Why are the taxes of American citizens being used to pay for people from shithole third world countries?
Also, I’m going to call bullshit on dumbass economists who insist that what we need is more cheap labor from Mexico. Hint: labor isn’t actually cheap if it’s federally subsidized. The savings of cheap Mexican labor are apparently illusory. What cheap labor really amounts to is federal subsidy scam.
What we’re seeing now is nothing more than a government that is forcing its citizens to pay for their cultural, economic, and social suicide.
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By Ajay Shah, on November 27th, 2012
We have released a cost-benefit analysis of the UID system. In one line, the result of the calculations, under fairly conservative assumptions, is that the IRR of building the system is 53% in real terms. Hence, building UIDAI is a pretty good use of public money.
Through this page, you can access a short and accessible explanation, a video presentation, and the full PDF paper. We have also released the spreadsheet used in our calculations, so that others can modify the assumptions or other numerical values, and obtain alternative answers.
This is true in the Indian case. Is it true in general? I feel the answer depends on (a) The scale of expenditure on subsidy programs and (b) The extent to which present implementation systems suffer from the kinds of leakages that UID readily addresses (multiple payments to one person, payments to ghosts). If a country has small welfare programs, that would undermine the case for UIDAI. If a country is doing a pretty good job of paying out subsidies through conventional procedures, that would undermine the case for UIDAI.
By Simon Grey, on August 9th, 2012
Some hack is complaining about how people who were promised that the government would take care of them are relying on the government to take care of them:
How much do senior citizens rely on Social Security? Even more than you might think. A new study finds that more than 46 percent of Americans die with less than $10,000 in financial assets, with many spending the end of their life strongly dependent on the government.
There’s a lot of stupidity in this first paragraph.
First, since you can’t take anything with you when you die, what good is it to have any assets left at death? Yes, you could always leave an inheritance for your children, but if leave a certain amount of wealth to your kids, the government takes half of it, unless you’re crafty enough to spend a sizable portion of your wealth on lawyers in order to not spend a sizable portion of your wealth on bureaucrats and their politician lackeys. Furthermore, your kids could waste your inheritance because you were a terrible parent who didn’t raise them right, so there’s no point in leaving anything to them anyway.
Second, the whole point of having government programs was to pay for people to not have to worry about paying for things in their old age. The government was supposed to provide for them. How could anyone possibly expect others to refrain from receiving government benefits when the whole point of said benefits was to give them to as many people as possible? (I, of course, refer more to social security than other programs, though I’ve yet to hear of any social spending program turn down money because it wasn’t interested in increasing its scope.) Why begrudge people for taking advantage of a system that asked to be taken advantage of.
Why should low financial asset levels be a problem, then, if these seniors’ income seems to remain steady? After all, you can’t take it with you. With almost no financial assets, these seniors “have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities.”
Again, the whole purpose of having government programs, like Medicaid or Medicare, or, recently, ObamaCare, is so that people don’t have to worry about unexpected health expenses. The government promised to step in. Why should anyone be surprised when people start acting like the government is supposed to step in?
Also, a lot of the things on the list are completely unnecessary. Travel, entertainment, and other activities? Yes, these things cost money, but is it really so heart-rending if some old fart can’t buy tickets to Batman? Or can’t go see the Grand Canyon in their own RV before they take the eternal dirt nap?
Really, this is a story about a non-issue that only matters now because the government is going broke and is going to have to find a way to cut the budget. Of course, it’s hard to feel bad for those currently lamenting the problems seniors face today when a lot of these problems were easily predicted by those who opposed the government welfare programs in the first place.
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By Simon Grey, on June 13th, 2012
In reference to meteorites:
Approximately 5,000–17,000 meteorites plummet to earth every year—some the size of a washing machine, some as small as a golf ball. But when a particularly rare and scientifically valuable specimen like Tissint lands outside Antarctica, scientists and institutions such as the Natural History Museum must jockey with private collectors for the prize.
“We are competing within a commercial market, although we have extremely limited finances,” said Dr. Smith. “There’s a danger in the price hiking of the market. Institutions without much money to purchase things may be priced out.”
In the months after Tissint’s recovery, the Natural History Museum was approached by four different collectors, all hawking fragments of the rock. Pitt and Dave Gheesling, a meteorite collector based in Atlanta, Georgia, offered the largest piece of Tissint to the Natural History Museum for what Dr. Smith calls a “good price.”
“We could have made a lot more money,” says Pitt. “There are a lot of private collectors in Asia and the Middle East that would have paid far more than the Natural History Museum.”
Asked why he and Gheesling chose to sell it to the Natural History Museum, Pitt answered: “There exists a social obligation to make the extraordinary accessible. I would not have been able to sleep at night knowing that this object was in someone’s private vault.”
Nevertheless, the sum well exceeded the museum’s annual acquisition budget (neither Dr. Smith nor Pitt would disclose the exact sum). Half of the money was put up by an anonymous philanthropist, with dual American and British citizenship and a keen interest in the museum’s meteorite collection. [Emphasis added.]
I’ve noted multiple times before, within the pristine virtual walls of this highly esteemed blog, that the critics of the free market often rely on projecting their attitudes onto others when explaining why a free market will fail to take care of, say, poor people or science. Quite simply there are some people that have absolutely no concept of philanthropy.
The theory is that the market always allocates resources of particularly scarce variety to the highest bidder, who then enjoys said object rather selfishly. Of course, the above story indicates that this is not the case, as there apparently exist public-minded men who voluntarily take an economic loss for the public good.
Sadly, there are some people for whom such a concept is completely foreign. They simply cannot understand how anyone would willingly sacrifice their money, time, or any other scarce resource for another human being. Naturally, their political policies consist of having the government force other people to act in the public good because they, the proponents of acting in the public good, could themselves not think of any other way to act in the best interest of others.
More to the point, though, this story is simply a modern piece of evidence that the free market will not necessarily devolve into a dog-eat-dog world where everyone is self-absorbed and no one cares about anyone else. Quite simply, there will always be people who are willing to concern themselves about other people and act in their best interest. Because of this, one need not fear the free market or the absence of a welfare state.
By Simon Grey, on May 29th, 2012
The number of PhD recipients on food stamps and other forms of welfare more than tripled between 2007 and 2010 to 33,655, according to an Urban Institute analysis cited by the Chronicle of Higher Education. The number of master’s degree holders on food stamps and other forms of welfare nearly tripled during that same time period to 293,029, according to the same analysis. [Hat tip.]
There have been some that have proposed that the current surge in college costs is not proof of a bubble, but rather the natural byproduct of college’s sorting function. (I think I first heard this proposal at Foseti’s.) If that were the case, it doesn’t make sense that holders of advanced degrees are having difficulties getting good jobs, since the natural purpose of sorting is to take the best and brightest and put them in the best positions.
The theory of sorting makes its case on the grounds that colleges are largely meritocratic—a dubious claim at best, though true relative to colleges of, say, fifty years ago—and that they can be trusted to determine the best, brightest, and most dedicated. Naturally, employers cannot perform direct testing for this, mostly because those sort of tests are racist, and so they need other proxies. The meritocratic elite just so happen to provide those proxies.
Unfortunately, the sorting theory of higher education is untrue because the reality does not follow the model: namely, those who have earned high educational honors and degrees aren’t more employable or working the better jobs. Thus, if college is supposed to sort people, it has obviously failed, as evidenced by the fact that holders of advanced degrees are 300% more likely to receive food stamps now than three years ago, while US citizens in general are only 43% more likely (see linked article above.)
Funnily enough, there is a model that would generally predict this occurrence, and it is the bubble model, which posits that wages for holders of college degrees will decline as the supply of holders of college degrees increase, which is a direct result of government intervention into the market, particularly through the expansion of cheap credit and direct subsidy. Low and behold, this has come to pass, mostly because the bubble model has better predictive power than the sorting model, and is thus more correct.
Since we’re on the subject of college degree holders, I’d like to point out as an aside that the idea that degrees aren’t real property because they aren’t transferrable is partially false. It is true that one student can’t sell his credentials to another student, but it should also be noted that students aren’t the only ones who use the credentials they earn. Employers also use student credentials by hiring employees who have certain credentials. While they don’t “transfer” credentials per se, it is observably true that when someone switches jobs, the people employing their credentials also changes as well. Given that there are signaling elements to college credentials (as evidenced by every guidance counselor that ever repeats the trope that college grads do better on the job market because they’re college grads), it should be plausible that there is a type of transference that exists with college credentials, except that is at the employer level, not the possessor level. Incidentally, this conceptual model reinforces the idea of a college bubble since it suggests that there can be diminishing marginal returns to adding one more college educated participant to the labor market, thus driving down wages.
By Simon Grey, on April 24th, 2012
This is no doubt how Mitt Romney and other wealthy people would like the public to see the debate. However the reality is that the government has implemented a wide range of policies that have led to a massive upward redistribution of before tax income over the last three decades. These policies have affected every corner of the market economy.
Just to take a few biggies, the fact that drugs are expensive is entirely due to government-granted patent monopolies. We spend about $300 billion a year on drugs that would cost less than$30 billion a year in a free market. The difference of $270 billion a year is close to 5 times what is at stake in extending the Bush tax cuts to the richest 2 percent of the taxpayers. (There are alternative mechanisms for financing drug research.)
If Republicans, and conservatives, are going to complain about welfare costs, they would do well to take a close look at corporate welfare. It’s just as insidious as individual welfare, it’s extremely costly, it’s undoubtedly unconstitutional, and it provides perverse behavioral incentives. While I have no love for welfare queens or for the pathologies that federal and state welfare programs generally encourage, it seems hypocritical to me to complain about one group of welfare recipients but not the other. Big business is not special or irreplaceable, and if mega-corporations need government to survive then perhaps it would be better to let them die. At any rate, principle demands that opposition to one form welfare be accompanied by opposition to all other forms of welfare. Hopefully Republicans pick up on this point and work to end corporate welfare.
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