Archive for January, 2008

Warren Buffett: Estate Tax Good

January 17th, 2008 Comments off

Buffett testified to Congress on Monday. Why isn’t the blogosphere talking about this?

Short story, Buffett is foursquare behind the estate tax.

He points out that the basis step-up at death (cap gains taxes just go away) is a huge gift to survivors, 99.5% of whom pay no estate taxes. “If people insist on renaming the estate tax, it would be more appropriately labeled the ‘death present.’”

His prepared remarks (they’re short; read them) are here.

Tax the Rich! And make us all richer?

January 16th, 2008 Comments off

Lane Kenworthy takes up the tax-rates-on-the-rich-versus-GDP-growth discussion (hat tip to Free Exchange for the pointer). His key point: more important than top marginal rate, is the effective rate that top earners pay. The post is also quite interesting in concentrating on  the GDP-growth effect of taxes on the top 1% of earners.

Unfortunately this chart is rather useless, as it compares tax rates in given years to GDP growth in the same years. (And he didn’t include a trendline.) Obviously, it can take a long time for tax consequences to play out in the overall economy.

He does make the point that of late, periods of declining effective rates and rising effective rates on the top 1% resulted in the same GDP growth in ensuing years.* No real impact.

But again, the periods he considers are far too short to draw any effective conclusions. Hoping he’ll serve up longer-term analyses, such as this. And he only looks at the U.S.

Like FreeExchange, I think Kenworthy’s analysis of GDP-growth effect is what’s important here. (Not the obvious counter-voodoo, that lower taxes don’t pay for themselves.) I’ve ordered two of Kenworthy’s books and will report back.

* His actual words (hard to to grasp immediately without multiple readings; a graphical rep would have helped):

the effective tax rate on the top 1% fell sharply between 1979 and 1982. In the five-year period beginning in 1982 the growth rate of per capita GDP averaged 2.6%. By contrast, the effective rate on top incomes jumped appreciably between 1990 and 1995. Yet over the five-year period starting in 1995 the average rate of economic growth was virtually identical: 2.7%.

The Economist’s New Gilded Age

January 16th, 2008 Comments off

Since The Economist chose not to publish my incredibly cogent response to a recent “Economics Focus” column, I’ll share it with them (and you) here:

The new (improved) Gilded Age

Dec 19th 2007

The very rich are not that different from you and me; or less different, perhaps, than they used to be

The article points out—accurately—that many aspects of life are much better for the poor today, relative to the rich, than they were in the last gilded age of major income inequality. (Having a cheap car compared to an expensive one is much better thanwalking versus driving.)

Their last paragraph gives credit where they believe credit is due: “…those intrepid souls who make vast fortunes turning out ever
higher-quality goods at ever lower prices widen the income gap while reducing the differences that matter most.”

My reply:

sir – Are those “intrepid souls who make vast fortunes” (Economics focus, December 22nd) to be thanked for the differences between this Gilded Age and the last? Those souls haven’t changed: we had ambitious and sometimes-rapacious entrepreneurs then, and we have them now. We had innovation and technological progress then. We had increasing productivity. What’s changed since 1920?

Today we have the whole corpus of national and international institutions that emerged after that Golden Age, and its spectacular demise. (And we have the taxes to pay for them.) Compare GDP growth to the growth of government over the last hundred years: The rocketship of widespread prosperity didn’t take off until A: the New Deal and B: WWII (when U.S. taxes and spending were the highest—45% of GDP—that they’ve ever been, before or since).

Is it possible that those institutions—including central bankers, social welfare programs, international monetary organizations, and a whole raft of despicable regulators and inspectors-general—are in fact requisite to achieving the widespread prosperity that you celebrate? All the world’s stable, prosperous, successful, developed countries—without exception—are rife with those leaky, imperfect, sometimes-corrupt, and often-fumbling institutions.

Your newspaper’s thank-god-for-greed conclusion ignores what’s changed since the twenties (government has grown), and rains predictable and rather tiring adulation on what hasn’t (people—obviously—are still trying to build profitable businesses).

All conscience aside, here’s one less-than-intrepid but very successful entrepreneur who thanks god (and, yes, The Economist) for those institutions, and for the increasingly stable, equitable, and prosperous world that they’ve built over the last seventy-five years—a world that made it possible for me to achieve the success that I did.

Pinker on Morality: Libs and Cons

January 16th, 2008 Comments off

The NYT Magazine’s cover story this week is “The Moral Instinct” by Steven Pinker. (Full disclosure: He’s my idol; I am such a groupie for this guy.)

Here’s one of the things I like about the article:

  • He cites five “spheres” of morality devised by psychologist Jonathan Haidt: not harming, fairness, loyalty, respect for authority, and purity.
  • He explains that in Haidt’s surveys, liberals value harm and fairness “inordinately,” while conservatives value all five equally.
  • He identifies two reality-based touchstones for morality: mutual interest (non-zero-sum games), and other-perspectiveness (putting yourself in another’s shoes). I would characterize both as “selflessness.” And as Pinker points out, these have been widely and repeatedly codified as the core of morality. Viz, the golden rule.
  • He somewhat casually, sort of under the tablecloth, associates the liberal values with those two touchstones, contrary to the three values that are given equal weight by conservatives.

Seems right to me—avoiding harm and fairness are selfless values, while loyalty, authority, and purity are about propagating genes.

(Who says I’m a political axe-grinder? This is hardly a summary of the article—just me cherry-picking for the sake of rhetorical advantage. Successfully? For you to decide.)

In place of “authority,” btw, I would put Concern with Status. It’s universal, stunningly powerful, and utterly unrelated to selfless morality. Though recasting it as “reputation” makes it more morality-related, because a good reputation usually requires avoiding harm and being fair. Though, again, Osama Bin Laden has an awfully good reputation with an awful lot of people.

Nature: Good?

January 16th, 2008 1 comment

Megan McArdle nicely skewers the Naturalistic Fallacy today, responding to an article in Reason, quoting Lew Rockwell:

Reason quoting Rockwell: “Wishing to associate with members of one’s own race,
nationality, religion, class, sex, or even political party is a natural
and normal human impulse.”

Megan: Anyone who has ever observed a two-year-old knows that lying,
stealing, and using force to bully those of slightly lesser strength
are also natural and normal human impulses. The point is, society is
supposed to encourage us to control some of our less noble desires.

The woman who cleans my house (bless her everbeloved heart) likes to use "product" on my kitchen counters. When I asked her not to, she explained that “it’s all natural.” I pointed out that belladonna, urine, and feces are all natural too, but that doesn’t mean I want them in my food.

Government: BAD? — Part 4: Higher Taxes, More Prosperity

January 7th, 2008 4 comments

This one came as quite a surprise even to me.

In general, among developed countries, those with higher taxes over the last thirty years have higher GDP per capita today than lower-taxing countries.

I think the graph speaks for itself.