How To Be Rich And Miserable In The Wealthiest Nation That Has Ever Existed

by Jacob Davies

1. Accumulate really a very large amount of debt.
2. Decide to care deeply about what people who are a lot richer than you think of you.
3. Spend all of your money and then some trying to keep up with them.

There's a little pile-on going on with an unfortunate U of C law professor complained about the terrible consequences of the return to pre-Bush tax rates over $250k and got mocked for it by Michael O'Hare and then thoroughly dismantled by Brad DeLong - although I think it's worth noting that the income amounts given are speculative. Still, his whining isn't a matter of speculation.

I think they did a thorough job, so I don't need to add too much. But I do find it interesting just how often the pattern of unhappy high-income people follows the checklist I started with. Massive debt loads can make you poor whatever your income, and once they're run up, you don't get any enjoyment from them. Judging yourself by the standards of wealthy people is a good way to make yourself very unhappy (as is hanging out with wealthy people, often, as many of them didn't get wealthy by being nice). And you cannot possibly keep up if you try.

I feel bad for the professor for much the same reason I feel bad for anyone who has made a series of bad decisions - that they may have found impossible to avoid making at the time - that have put them in a situation where they are both unhappy and unable to escape the consequences of their actions. I don't know what advice to offer. But I don't think avoiding a 4% hike in marginal rates is going to solve his problems.

(Edited to remove an uncharitable comparison.)

Comments

[Harald Korneliussen]

Decide to care deeply about what people who are a lot richer than you think of you.

Sadly, it often matters what people who are a lot richer than me think, because the rich are also influential. I can't afford not to think about it.

[Ugh]

Re debt: I wonder if there ever has been a study of the relative advantage of graduating from college and/or graduate school debt-free, or those who are able to rid themselves of such debt in a short period of time. It is likely that such people generally already are ahead of the game as they are also likely to have well-off parents who paid for said education (especially college).

No debt means you are more free to do what you want, rather than taking the highest paying job out there. It let's you take more risks. It let's you accumulate assets sooner and start compunding the earnings thereon. Used to be that those who could not afford the Harvard's and T
Stanford's of the world could get a great education for muc less at the elite public universities, which also had generally lower tuition for their graduate professional schools, now such tuition is as high (or higher!) Than that of their private counterparts (UC Berkeley, I'm looking at you!). This is almost guaranteed to lead to a drop in the quality of matriculated students.

Anyway, just some thoughts.

[GoodOleBoy]

I agree with the points made in the post and would add that the cumulative force of perhaps millions approaching life as described likely helped foster the behaviors that crashed the whole system.

Ugh's comments also strike me as accurate. We have reached a stage where there needs to be a serious re-evaluation of why so many people spend so much (and go into debt) to pay for an education.

'Sadly, it often matters what people who are a lot richer than me think, because the rich are also influential. I can't afford not to think about it.'

I'm not sure how to interpret this last, since the reference statement was 'Decide to care deeply about what people who are a lot richer than you think OF YOU'.

[Jacob Davies]

I wonder if there ever has been a study of the relative advantage of graduating from college and/or graduate school debt-free, or those who are able to rid themselves of such debt in a short period of time. It is likely that such people generally already are ahead of the game as they are also likely to have well-off parents who paid for said education

I think that's a big part of it, perhaps in this case too. The worst thing seems to be going to an expensive elite private university without the parental resources to pay for it. You come out with a huge debt load compared to your wealthier classmates but then you're expected to keep up appearances the same way they do, to maintain the trappings of wealth whether that's practical or not.

Judgments about people's abilities and success are made on the basis of visible signs of that success, which is why rich but dumb kids can often go far in business, so it's not a totally illusory pursuit. It does matter. But you probably shouldn't buy an expensive house and send your kids to private school before paying down your student loans.

In the Bay Area I see a lot of people who make themselves absolutely miserable, despite high salaries, by arranging their living situation such that they have no way to save and then comparing their situation unfavorably to that of millionaires. I've gone down that route some way myself at times, but it's no fun.

[Brent]

Part of what comes in here is also a set of obligations that one feels when they have a family. I took on a lot of debt for school and I don't make anywhere near the amount of money that the good professor makes, but I have always lived a pretty comfortable life. When it comes down to it, there really isn't that much to buy that would really change my quality of life in any significant way. But them I am single and childless. If I had a family whose welfare I needed to consider in terms of quality of education and so forth, I might feel more put upon to keep up with the Joneses even with a significantly higher salary and less debt. Who knows?

None of that is meant as a defense for Henderson, who seems to lack the basic self awareness to consider his financial situation from any reasonable perspective but to say that there are social pressures in the handling of one's wealth that are not entirely as petty or venal as they may appear from the outside.

[dave]

The disgruntled professor is clearly wrong for considering himself anywhere near an average American, given his expenses and his income.

But the critiques miss the point. The professor is implying that by increasing his taxes, he will have to cut expenses, such as the lawn service, the babysitter, and the maid. He's arguing that rich people who spend lavishly are more helpful to Americans than the extra revenue generated from increased taxation of said rich people.

Who knows how common this scenario is in a macro-sense, but it would have been much more useful if DeLong and O'Hare responded to this, rather than wasting time criticizing the professor's spending habits.

[CaseyL]

dave -

I think that issue was addressed, albeit indirectly. Higher taxes means, among other things, more fully funded government programs, including such things as education, agency administration, and public works. All of which either pay better than jobs like "lawn service, baby-sitter, maid" or offer the opportunity, through advanced education, of getting a better paying job than "lawn service, baby-sitter, maid."

(I note parenthetically that "lawn service" is manual labor very often done by immigrants, including illegal immigrants. So the disgruntled professor not only wants to be able to continue to employ people at less than livable wages, he also wants to continue to be, according to the GOP, a part of the illegal immigration problem supposedly undermining the country.)

[GoodOleBoy]

Ugh and CaseyL might consider debating the relative merits of increasing taxes to fund higher education. CaseyL seems to suggest that is a positive and Ugh suggests that public university costs are approaching and sometimes exceeding those of private universities without delivering a demonstrably equal or better education.

[Jay C]

@CaseyL

Prof. Henderson does make the point in his post that the lawn guy and housecleaner, at least, are "legal" immigrants, so that - for once - shouldn;t be part of the critique. Whiny and self-serving as it may be, fwiw, exploitation of the undocumented isn't a factor.

[bobbyp]

Apparently the the old adage "expenses rise to meet income" ceases to be operable at a much higher income level then I thought previously....(although this guy is socking away a lot for his retirement).

[bobbyp]

Dave,

The professor is arguing that his marginal propensity to consume, even at his high income, is 100%.

For his particular inept financial situation, this may be the case, at an aggregate level, this strikes me as not believable (i.e., a tax increase across all wage earners at his income level would reduce consumer spending dollar for dollar).

[Cranky Observer]

> I think that's a big part of it, perhaps
> in this case too. The worst thing seems to
> be going to an expensive elite private
> university without the parental resources
> to pay for it. You come out with a huge
> debt load compared to your wealthier
> classmates but then you're expected to keep
> up appearances the same way they do, to
> maintain the trappings of wealth whether
> that's practical or not.

If I have read the nutty professor's posts correctly, part of the referenced debt is his wife's medical school tuition, which under our system is quite difficult for the applicant to control (particularly if they are driven to work with the best, which I think is generally an admirable trait in would-be doctors that have it {not that all do or need to have it}).

Now the next step would be to question whether the US system of medical education and reimbursement makes any sense, but that's not a topic a Republican U of C law professor is likely to think about clearly.

Cranky

[nous]

It is possible to get a graduate degree with no debt coming from a marginal financial background -- it just takes a lot longer and you have to be really lucky.

GOB -- public schools have gotten more expensive for students in part because the portion of their budgets financed by the state has dropped so precipitously. Both public universities I have attended (which rank as tier 1 schools) receive less than 10% of their operating budget from the state. They are much like the law prof, however, in that they feel they have to compete with the private schools while the state legislatures restrict them from raising their tuition. This is why so many public schools are discussing privatization.

Not advocating for anything here...just describing the situation.

[efgoldman]

Oh stop.
Just stop.
Henderson is an entitled bleephole, and that's all there is to it.
As more than one commenter said at DeLong's and also at Balloon Juice, he most likely voted for Bush, twice, and there's no sign that he ever objected to the unfunded spending, especially the wars, that went with the tax cuts.
Fnck him and the 'orse he rode in on. Let him go to Sears and buy a fncking mower.

[efgoldman]

PS Hilzoy pointed a similar comment at BJ.

And where did the edit function go?

[Bernard Yomtov]

There are a number of things here that I find interesting.

First, while he complains about the government spending money, there is no acknowledgement that the $500K in student loans the couple is paying back were government guaranteed. Some portion may even be further subsidized. Without those loans would they have been able to attend law and medical school at all?

Second, with respect to the principal portion of these loans and their mortgage, the money being paid is not an expense. It is savings. Paying off debt is saving money. What they have done is invest a huge amount of borrowed money, probably wisely, in their educations. Complaining now about having to repay that is churlish. And of course retirement fund contributions are also, and even more clearly, savings. I wonder if they have 401(k)'s or the like, and whether their employers contribute to them.

Finally, the argument that the gardener and house cleaner may lose their jobs is appealing, but ultimately unconvincing. To begin with, it's a recipe for aristocracy. Cut Henderson's taxes even more and he might hire a butler or a chauffeur. Wouldn't that be wonderful?

No. It wouldn't be. We shouldn't be aiming at maximizing the number of people working as household servants. The increased taxes he will pay may generally improve economic conditions, broadly defined. That can mean better opportunities for his house cleaner, more work for the lawn service, and even better prospects for their children. IOW, Henderson's argument counts possible harm, which is visible, but not any of the diffuse benefits.

[hilzoy]

Yeah -- I said, in a moment of annoyance, that I thought he might do well to undergo compulsory reeducation in the countryside, as In Mao's China. It takes a lot for me to express even a momentary sympathy with Mao's policies, but he did it.

He's one of the luckiest people in the history of the world. Hundreds of thousands a year, in one of the best places to live in human history, and after the invention of anaesthesia to boot! He should just recognize that fact and be grateful.

I also find this annoying:

"what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions?"

I think the government does best when it spends money in ways ordinary people can't, either by spending it on collective goods (national defense, transportation systems, etc.), on regulation that ordinary people do not have the power to undertake (e.g., the SEC, FDA), or on programs one wants to be universal rather than piecemeal -- food stamps, for instance. (One could think of this as the provision of the collective good of food security for all citizens, but to avoid arguments about whether that makes sense, I list it separately.)

These are not things that Prof. Henderson could possibly buy. It's not as though the government is deciding for him whether or not he should have a flat-screen TV; it's deciding (via our and his elected representatives) what proportion of our wealth to spend on goods most of which he could not obtain in any other way, like the national defense or clean air or a well-regulated stock market.

He teaches this stuff, apparently. He should know better.

[Tom M]

I don't find the professor's rant at all surprising. He's expressing his victim-hood along with so many of his confreres who have heard the propaganda for well on 30 years now.
If I worked at AEI or the Hudson Institute or some similar propagandizing machine, I'd be high-fiving my colleagues on another job well done.

A good part of my career has been collecting loans for a bank, mostly corporate stuff but a lot of high-net worth people in those companies. The professor's story is an old one. A particularly memorable "client" was a well-known Las Vegas performer who made, at the time, almost $14 million a year. His troubles were directly related to the fact that he spent over $20 million a year.
The professor needs a simple lesson in cash management. He can afford it, he should get it.

[Tony P.]

Here's an offer I would make to Prof. Henderson:

1) We keep the top rate at 35% on AGI up to $500K so that struggling professional couples like you don't see a tax increase; but

2) We raise the rate to 41% on AGI between $500K and $1M, and to 45% on AGI over $1M, so that we make up the revenue.

Got it, Prof? We give poor people like you a break, and hit up people richer than you for a few extra bucks. It's called "progressivity". You got a problem with that?

--TP

[Whammer]

Hey Tony P.,

Might want to bump up the capital gains tax too. At the end of St. Ronnie's second term, the top marginal income tax rate was 28%, but the capital gains tax rate was also 28% (as opposed to today's 15%).

The top 400 earners in the US nowadays pay effective tax rates of slightly higher than 15% as a result of our treatment of capital gains. Their tax rates would rocket, I'm telling you, rocket, up to slightly more than 28%. It would be socialism the likes of which has never been seen since the days of St. Ronnie.

[Brett Bellmore]

"GOB -- public schools have gotten more expensive for students in part because the portion of their budgets financed by the state has dropped so precipitously."

What's the portion of their budgets devoted to educating the students doing? I find it hard to believe that it's staying constant, as tuition year after year goes up at well above inflation, and the instructors year after year don't seem to be getting a lot wealthier.

Granted, to some extent the reduced subsidies could account for this, but I get the impression the increase in tuition has been much larger than that could really explain. Where's the money going?

[Thoreau]

This is definitely the age old argument of only worrying about your own sand box. It is difficult to not compare oneself against the wealth of others but it happened every day, sadly.

[hairshirthedonist]

"what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions?"

This annoys me, too. What tax rate does this not apply to? It's an argument against having a government, not this or that marginal income tax rate. The theory is "Democracy of some sort is better than anarchy." Off to Somalia!

[McKinneyTexas]

If the budget numbers published by DeLong are accurate, the Prof and his wife pay about 100K total in taxes (a lot less than I would pay on the same gross earnings), they put back over 100K a year in savings and equity and still put 3 kids through private school. Not much for the makings of a pity party, not that I expect anyone making even 150K a year to get much sympathy for their tax burden in these quarters, regardless of circumstances.

What non-business owners don't take into consideration, particularly when there is a regulation-friendly administration in office, is that taxes are only part of the load a business bears. The 1099 rule that was stuck in HCR imposes a significant drag on a small business. Incredibly stupid new banking regs that are in no way related to the meltdown have substantially restricted access to credit, e.g. my operating LOC is secured by my net worth and my accounts receivable. Ninety percent of my AR is institutional, Fortune 1000 companies, i.e. as good as gold. Yet, under the new banking regs, the only AR my bank can lend against are those that are 60 days and younger. Thus my operating line of credit, despite my personal pledge of assets and despite the solidity of even my aged AR, is to the point where I cannot fund any new contingent fee cases (cases for people who cannot afford legal counsel but who need representation) because I don't have the case flow to support the cost of litigation (costs run between 20K and 100K to get a case to verdict, all of which is advanced with after tax dollars, courtesy of the tax code, you can't expense advanced costs unless you lose the case).

Other small businesses have similar issues. Further, not every year is a great year. Last year was terrific, this year is less than half. That's the risk of being in business, it's what I signed on for; but don't rest easy thinking that taxes plus regulatory/reporting burden doesn't impede growth. It does.

[russell]

I don't see much "keeping up with the Joneses" in this guy's piece. I see a guy in a two-professional-income household with high student loan and mortgage debt, who wonders why he's getting stuck with the tab.

The answer to this is really simple. The country needs the revenue. We need it because we've incurred a lot of financial obligations. We raise a lot of revenue through income taxes. The least-painful way to assess income taxes is through a progressive regime.

That means folks who earn more pay relatively more. So yeah, this guy is stuck with the tab.

The amount he's being asked to contribute is an additional three percent on income about $250K, and approximately one additional point on income above about $400K.

If the household income is (frex) $500K, they're gonna pay about another $8500 on top of the nearly $100K they pay now in federal and state taxes.

So yeah, that sucks, but realistically speaking, they can afford it, and it will not deprive them of anything like real necessities of life.

I'm not unsympathetic to the guy's issue, but I think in the big picture his problems are not that large.

His point about folks making much, much more than him getting a better deal than his is, IMO, quite apt. It's reflected in the effective tax rates that are paid by folks in the upper income percentiles. Folks in the top 1 or 2 percent of income pay a lower effective tax rate than somewhat lower-paid neighbors in the upper quintile and decile.

So yeah, if I was him I'd be pissed about that, and I'd be on the horn with my House Rep and Senator about making changes to the tax code.

But bottom line, yeah, this guy is going to pay more, because he has more, and that's the way we do things. The paying more part sucks, the having more part is pretty sweet.

Take the good with the bad and be glad you have a nice home, a good job, and a partner with the same. Work hard at paying down your debt for a few years and you'll be in good shape.

Regarding small business owners, I'll point out that increases in their income tax liabilities are balanced by a variety of tax relief programs targeted specifically at them.

So, it's not all bad for our entrepreneurial class.

[hairshirthedonist]

...not that I expect anyone making even 150K a year to get much sympathy for their tax burden in these quarters, regardless of circumstances.

That's an odd lack of expectation, given that most of the advocacy I've seen here is for additional brackets at incomes above the current 35% mark, which is well above $150k. Depending on the circumstances, I personally could be very sympathetic about someone's tax burden with an income of $150k. Say, if someone were supporting someone with a chronic illness or a number of children, perhaps with disabilities, or even a perfectly healthy, childless, single person who simply had to pay too much relative to others more able to afford a greater tax burden.

[Phil]

Ninety percent of my AR is institutional, Fortune 1000 companies, i.e. as good as gold.

Not to be tendentious, but, e.g., Fortune 9 -- JP Morgan Chase -- only exists now because it got several million dollars from you, me and the rest of the American taxpaying public. So be careful with that "Good as gold."

[Phil]

Meanwhile, this:

Millions of Americans like Patricia did what they were supposed to do. They worked their whole lives, were dedicated to a company, they lived within their means (as she must have, because she has been unemployed for years and is still in her home), and because of the economic downturn brought on by unprecedented greed of the FIRE crowd, she may spend the rest of her life barely making it, if she is lucky. There will never be enough job creation in the short term (3-5 years) to soak up all the people like her. Hell, the way things look, we may be at 10 percent unemployment forever.

Meanwhile, we’ve got a bunch of over-privileged whiny-ass titty babies bitching about their bonuses, and the Republicans, the glibertarians, and the blue dogs, all think the people who matter are the bonus babies. Not Patricia Reid. Meanwhile, that same crew of creeps is doing everything they can to extend tax cuts for the very rich while cutting large holes in the safety net that would protect her. It really is this simple- the Republican and glibertarian world view is that Donald Trump needs a tax cut, and Patricia Reid needs to wait until she is 68 or 70 to collect social security- at a reduced rate, because we “can’t afford it.”

[McKinneyTexas]

only exists now because it got several million dollars from you, me and the rest of the American taxpaying public. So be careful with that "Good as gold."

Fair point. I should have said, "solvent, non-financial Fortune 1000 companies".

That's an odd lack of expectation

Maybe so.

that same crew of creeps is doing everything they can to extend tax cuts for the very rich while cutting large holes in the safety net

At what level does someone qualify as very rich?

[McKinneyTexas]

But bottom line, yeah, this guy is going to pay more, because he has more, and that's the way we do things.

Up to a point, but you can only go to this well some many times, then your only option is to cut spending. And, if the Laffer Curve impact is less rosy than some believe, and if the tax increases do stem growth, whatever bang you get from increasing taxes could make a sluggish economy even more sluggish.

Regarding small business owners, I'll point out that increases in their income tax liabilities are balanced by a variety of tax relief programs targeted specifically at them.

Russell, these are more apparent than real. I read something about a 100% capital write off for new equipment. Service industry providers don't get diddly from that, and even then, you only get a benefit if you go out and spend the money for new equipment. If you don't need new equipment, the tax benefit is pointless. More to the point, if you are marginal to begin with, there's no money for new stuff anyway, you just need more cash for operating expenses. Added taxes reduce cash for operations. Also, please revisit my point on borrowing money these days.

[russell]

At what level does someone qualify as very rich?

There's no hard and fast definition. I'll give you a personal rule of thumb. Note that this is income, non-income wealth is also highly relevant, I'm just not considering it here.

$250K / year - not rich, but in some housing markets it's effectively rich. In other markets, it's merely solidly and unimpeachably upper middle class.

$500K / year - not rich, but wealthy. You have people to do things you don't feel like doing.

$1M / year - starter-kit rich. out of private schools, second home, nice big boat, private plane time-share, maybe you can only have 3 but not all 4.

$5M / year - rich.

$10M / year and up - very rich.

Hope that helps.

[efgoldman]

@ McTex

I think you, properly, lost most of the rest of us when you refer to the Laffer curve as if its real, and not right-wing unicorns and ponies.

[russell]

Up to a point, but you can only go to this well some many times, then your only option is to cut spending

In the last 50 years, the top marginal tax rate has been cut 8 times, for a total reduction of 64.6%.

It has been raised once, in the amount of 8.6%.

Total net reduction in the top rate over that period: 56%.

We have, clearly, gone to one particular well quite a few times.

More to the point, if you are marginal to begin with, there's no money for new stuff anyway, you just need more cash for operating expenses.

If you're marginal to begin with, I'm not sure it's the feds' responsibility to make you well.

I'll leave it someone else to address your point on borrowing money, it's not something I'm qualified to offer an opinion on.

[McKinneyTexas]

Hope that helps.

We are on the same page.

I think you, properly, lost most of the rest of us when you refer to the Laffer curve as if its real, and not right-wing unicorns and ponies.

My understanding of the Laffer Curve holds that, at some point, the marginal tax rate produces a disincentive to produce more income. For sure, that is at a rate of 100%. You think this is fantasy?

[hairshirthedonist]

And, if the Laffer Curve impact is less rosy than some believe, and if the tax increases do stem growth, whatever bang you get from increasing taxes could make a sluggish economy even more sluggish.

The Laffer Curve is about revenue versus tax rate, not about growth, per se. The high point on the curve is the rate that maximizes revenues, beyond which rate increases reduce revenue because people stop making or stop admitting to making more money because it's not worth it. (Not that there really is a curve or any that anyone knows is correct - but that's the concept.)

But any tax increase, all other things being equal, will reduce growth. The only problem is that all other things are usually not equal.

Taxes, at least according to mainstream economists, fund government expenditures (which may not be exactly true in a fiat-money system, but let's not digress). Those expenditures, when on high-value public goods, can spur more growth than leaving the taxes in the hands of the private sector. (e.g. The private sector would never have built a national network of highways, without which there would have been far less growth, even if the private sector kept the taxes that funded the highways.)

[McKinneyTexas]

Those expenditures, when on high-value public goods, can spur more growth than leaving the taxes in the hands of the private sector. (e.g. The private sector would never have built a national network of highways, without which there would have been far less growth, even if the private sector kept the taxes that funded the highways.

I agree, in principle. The problem lies in 'mission creep' which is no less costly financially in peace than in war. Most spending at the Federal level is transfer payments. Some would argue these are 'high value', but that's more of an ideological than an objective assessment. Gov't can only do so much. My view is that we are maxing out, or close to it. With record deficits, additional 'high value' has to be weighed against the benefits, near, mid and long term. I don't trust congress to set these priorities and I am hardly alone in this. Perhaps another damn commission is needed.

[McKinneyTexas]

We have, clearly, gone to one particular well quite a few times.

And yet, with those high rates, gov't spending on domestic matters was a fraction of what it is today.

If you're marginal to begin with, I'm not sure it's the feds' responsibility to make you well.

I agree, gov't owes no obligation to a private sector employer other than to not smother him/her with taxes and regs to the point where the business shuts down and you put more people on the street. I was responding to your point about what is being touted as tax breaks for small businesses and pointing out that they are more illusory than real.

My reference to the 1099 issue has passed without comment. Let's personalize it: supposed every citizen was required to report to the gov't, in detail, every entity or person to whom it paid, in the aggregate, $600 or more a year? There would be a revolution. Yet, this is a good example of the kind of load left-of-center policy wonks drop on the private sector, having no clue what they are asking or imposing.

[Jacob Davies]

"Most spending at the Federal level is transfer payments."

Are you talking about Social Security and Medicare?

Those are forced-savings programs that compensate for the fact that people (in general) are too short-sighted (and too buffeted by events) to save effectively for retirement. They barely count as spending. As deferred compensation, if people were rational they would not diminish work effort. (And if people aren't rational they will regard all retirement savings as not being compensation and you will have the exact same (imaginary) problem with work effort, unless you want to get all Logan's Run and kill everyone off at 65.)

Most actual spending at the Federal level goes on defense.

[McKinneyTexas]

Most actual spending at the Federal level goes on defense.

JD, maybe so, but SS and Medicare look like spending to most people, since they are both funded by tax revenue.

[Ugh]

So if SS and Medicare barely count as spending do the taxes that fund them barely count as taxes, such that they should be excluded from a discussion of, say, the marginal/effective federal tax rate of persons A and B?

[John Spragge]

It seems to me, speaking as a citizen of a relatively solvent country with a solvent banking system, that this discussion misses the point. The United States government spends, and has spent, a lot of money. They have racked up a lot of IOUs. Someone has to pay off those IOUs, and someone then has to carry the resulting spending. Maybe Todd Henderson doesn't think he should have to do it, but if not him, then who? If he thinks letting the Bush tax cuts expire will do his comfortable life a mischief, and leave the people who do his scut-work for him in the lurch, what would he prefer? Trust me, letting the US debt build up to unsustainable levels and then paying for it would disrupt his life far more. Defaulting on the debt (or printing money to cover it) would cause the US dollar to collapse. Does he want to live in a world where he makes dollars and the gas station only takes Euros, Yen, Yuan, and loonies?

[Jacob Davies]

Ugh: So if SS and Medicare barely count as spending do the taxes that fund them barely count as taxes, such that they should be excluded from a discussion of, say, the marginal/effective federal tax rate of persons A and B?

If you're asking me, yes, although I think at the lower margin where work income overlaps with welfare income you have to be careful to design the system not to discourage work effort with taxes. But in general I think of SS & Medicare contributions as deferred compensation, not taxes, since the benefits come to you personally later in life.

Aircraft carriers do not, generally. School funding is a trickier case if you have kids.

[Carleton Wu]

What's the portion of their budgets devoted to educating the students doing? I find it hard to believe that it's staying constant, as tuition year after year goes up at well above inflation, and the instructors year after year don't seem to be getting a lot wealthier.

A conversation that never gets old no matter how many times it's repeated: why scale education budgets with inflation rather than GDP? The implied assumption is that education services don't need to improve over time as the rest of the economy improves- that if a one-room K-12 schoolhouse was good enough in 1930, it ought to be good enough now.

[Carleton Wu]

If the household income is (frex) $500K, they're gonna pay about another $8500 on top of the nearly $100K they pay now in federal and state taxes.

Yeah, that's the kicker of the guy's column- he's going to get rid of all of his domestic and gardening help, sell his house and both cars, because on 500k a year he can't absorb another 700$/mo in expenses.

But I think that, contrary to others' speculation, that he is totally aware of what's going on on the rungs below him. He is aware that he lives in a million-dollar house, and that this separates him from the people earning 200k and living in 500k houses. He is aware of the cars they drive and the cars he drives. etc. What he is really saying is that this additional tiny cost is a tiny movement towards a lower socioeconomic rung. It's the difference between buying a two-year-old lexus and a new one off of the lot. It's the difference between vacationing on Tahiti and vacationiong in the Keys. And he knows that those differences set him apart from those who earn less, even if he wouldn't actually notice the upgrades in the new Lexus.

His point about folks making much, much more than him getting a better deal than his is, IMO, quite apt.

It is, and it isn't. Like his complaint that he can spend his money better than the government does, it doesn't make sense in the context of his position. Does he argue for taxes that cannot be as easily avoided by the megawealthy, which is is obvious next move from his argument? No. He appears to argue that, because they megawealthy are able to dodge taxes, taxes shouldn't be increased on him- and that doesn't really follow in any logical sense.

[russell]

My reference to the 1099 issue has passed without comment.

From what I understand of it, you are correct, the 1099 requirements under HCR are going to be an annoying and expensive PITA.

And yet, with those high rates, gov't spending on domestic matters was a fraction of what it is today.

I'm looking at Table 1.2 in this historical survey of federal budgets. The table begins on page 23, and summarizes historical federal spending as a percentage of GDP.

It doesn't break it down by domestic vs. non-domestic, but in the aggregate federal spending as a percentage of GDP appears to be fairly consistent across the 50-year period I mentioned above, ranging from 17.0 to 22.8% of GDP.

The last number given there is for 2009, which is an estimate of 19.4% of GDP. My guess is that it was actually more than that, due to losses in the actual GDP.

Some other numbers I've seen, like here, make the current numbers more like 43% of GDP.

I have no idea who is giving me the straight tip here, and who is full of crap.

I'd be interested to know if anyone can lay it out for me.

[wj]

McK: certainly the Laffer curve, in its most general form, is correct. The maximum revenue comes from taxes somewhere between zero and 100%. The question is, where in between is the maximum?

There are lots of assumptions in various beliefs about proper tax rates. Including both people who think it is extremely high and people who think it is extremely low. But I haven't seen any research, with hard data, which shows where that maximum is really. Perhaps someone else here has.

[Carleton Wu]

Up to a point, but you can only go to this well some many times, then your only option is to cut spending.

If we were constantly increasing our spending relative to GDP and also increasing taxes, then this argument would make more sense to me. We're talking about returning tax rates to those of a time of relatively good growth, which were actually pretty low compared to the whole post-WWII era.
It is not the case that spending has grown out of control and we're forced to raise taxes to compensate. Taxes have been cut, spending stayed the same, and now we're reaping the fruits of that decision. (Well, that and a big ole recession).
Im sympathetic to the idea that very high tax rates would be an unacceptably large drag on growth and productivity. But Im not sympathetic to the idea that we're anywhere near those rates, given that rates today are historically very low compared to recent eras of high growth and productivity. I think the burden would be on you to explain how today is different from the norm of the post-WWII era, or to show numbers that suggest a large drag.

[dave]

Hi CaseyL, thank you for your response.

"I think that issue was addressed, albeit indirectly. Higher taxes means, among other things, more fully funded government programs, including such things as education, agency administration, and public works. All of which either pay better than jobs like "lawn service, baby-sitter, maid" or offer the opportunity, through advanced education, of getting a better paying job than "lawn service, baby-sitter, maid."

A few problems:

you're saying that lawn-jobs are replaced with "higher paying government jobs."

1. who has the moral authority to tell someone i'm going to make a tax decision that will cost you your job, but hire someone else.

2. if these gov. jobs pay better than maids/lawn/etc., then where is that extra salary money coming from? For example, are you saying for every 2 lawn jobs lost, the government can now afford to hire one more worker? Why is that a good idea?

(side note: government programs, by near universal definition, have overhead costs/waste. making the lawn service jobs lost: gov't employee jobs gained ratio even more stark).

3. The demand for lawn service/etc jobs is dictated by the market -- we know it already exists. The demand for these public programs/educational opportunities is much more abstract and theoretical. Where's the lawn guy going to get the money to live while going through this hypothetical gov-paid training? What are the chances that the money that used to pay him, will go to a gov. program in his area? (answer = little chance in hell).

4. I thought the point of increasing taxation was not to spend MORE money on government programs, but to pay off our debt. Thus, firing the lawn service guy does/should not result in new gov. programs.

This overall, represents my annoyance at people who recommend raising taxes on rich people, just because rich people can afford it. Where's the analysis of opportunity cost on such a decision? Why does no one else here mention that?

Bobbyyp:

"For his particular inept financial situation, this may be the case, at an aggregate level, this strikes me as not believable (i.e., a tax increase across all wage earners at his income level would reduce consumer spending dollar for dollar)."

I'd believe it, but neither of us has data. But I'd believe rich people pay for all kinds of things/services they don't want to do themselves. Let's say someone only spends half their income on services, and the other half on retirement/investment. Now you increase his taxes.

Is he going to pay for those taxes out of his retirement fund? Or is he going to fire his chef? Without knowing the answer, isn't it incredibly unethical to support a tax decision that might fire the chef? I'm sure some economists have looked at this. But my critique, is why don't Delong/others mention them? The have a moral obligation to explain the opportunity costs to others, of their decisions.

[Jacob Davies]

if these gov. jobs pay better than maids/lawn/etc., then where is that extra salary money coming from?

Potentially from the increased productivity of putting someone in a more useful job. I'm not so much talking about a 1:1 "maid -> government job as an engineer!" swap as I am a more indirect process - the government hires someone with more skills to do a more productive work that produces substantial public goods, the maid goes to college and learns more productive skills, she gets hired (maybe in the private sector) with those skills.

Productivity of domestic workers is pretty low. There is very low utility attached to correctly-ironed and folded sheets or floors vacuumed every day. It is very inefficient to have a nanny in each house rather than send your kids to shared daycare (although obviously it's nice if you can afford it).

I would favor a lot less spending on defense and a lot fewer tax breaks for rich dudes with domestic servants, which would allow a lot more spending on, say, domestic appliances, which would drive more investment in appliance design and reduce the domestic workload far more. (I might be fixated on this because we just bought a brand-new washer & dryer and they are totally awesome and I am in love with them.)

I don't object to servants per se but prevalent use of domestic servants is a bad sign for a society.

[Tony P.]

I ask once again: what are the axes of the Laffer Curve? Where does the top marginal income tax rate (one rate among many rates, on one tax among many taxes) appear in the Laffer Curve?

We could easily construct a tax code that collects only 10% of GDP, but includes a 91% tax rate on income above $10M per year. Which side of Laffer's hump would THAT be on?

--TP

[McKinneyTexas]

The United States government spends, and has spent, a lot of money. They have racked up a lot of IOUs. Someone has to pay off those IOUs, and someone then has to carry the resulting spending.

Yes, the IOU's have to be paid back. Yet, no one is talking about capping or reducing spending and using increased taxes to pay off the huge, bipartisan deficits that everyone is to blame for.

You can't talk about taxes without talking about spending and without reconciling the two.

I have no idea who is giving me the straight tip here, and who is full of crap.

I'd be interested to know if anyone can lay it out for me.

Indeed.

But I haven't seen any research, with hard data, which shows where that maximum is really. Perhaps someone else here has.

Probably isn't any good data. First, rates alone don't tell the story--if you change other factors, e.g. interest rates as in falling rates in the 90's, you can stimulate activity even with higher tax rates. Further, I can't say that 39.6% is anti-growth, other than at the margins. Of course, our margins are thinner these days, so it may be more of an issue. Another point about tax rates--you could have a lot higher rates and really loose allowances for business and personal deductions that would offset the rates to a significant degree, particularly for people earning under 100K. One of the problems with comparing historical and current rates is that deductions were treated so much differently prior to 1982. So, to really get a feel for any Laffer Curve research, you'd have to have reliable effective income tax rates, not just raw numbers.

[Carleton Wu]

(i.e., a tax increase across all wage earners at his income level would reduce consumer spending dollar for dollar)."
I'd believe it, but neither of us has data.

Well, we have this data- people in his income bracket devote a substantial amount of their income to investments (or paying off debt, which amounts to the same thing for our purposes ie not consumption). It's unlikely that any decrease in income to that group would be allocated entirely to consumption rather than to both consumption and investment. In fact, given that the ratio of consumption to investment goes up as income falls, if we expect people losing income to act similarly to those already at that income level then he will give up more investment than consumption relative to his current consumption/investment ratio.

Is he going to pay for those taxes out of his retirement fund? Or is he going to fire his chef? Without knowing the answer, isn't it incredibly unethical to support a tax decision that might fire the chef?

Incredibly unethical?
I think that there are two basic choices for conservatives who want to debate taxes: 1)argue that all taxation is wrong or 2)argue that a specific tax regimen is poorly designed.
But, just as the original writer did, you've run these two issues together. And not only is this nonsensical, it makes debate impossible.
I recommend that you pick one of those items and concentrate on it if you're actually interested in debate. Arguing that taxes are in general acceptable but that ones you don't like are unethical will not get anyone anywhere.

[dave]

Hi Jacob, thanks. But your response ignores a lot of questions i raised, and makes a large assumption about government worker productivity.

"""Potentially from the increased productivity of putting someone in a more useful job. I'm not so much talking about a 1:1 "maid -> government job as an engineer!" swap as I am a more indirect process - the government hires someone with more skills to do a more productive work that produces substantial public goods,""

I don't have gov. overhead costs in front of me, but the US government is rarely known as a model for efficiency. This comment assumes

1. the government will use this money to hire someone who will create public goods, rather than some other use.

2. that everyone, including the laid-off maid, will want and benefit from these goods as directly as they would have benefited from their paycheck.

"""Productivity of domestic workers is pretty low. There is very low utility attached to correctly-ironed and folded sheets or floors vacuumed every day."""

3. when maids do work for rich people, like say successful engineers, those engineers have more time to do other things. Those "other things" might include being more productive at their own jobs, investing time in their children, helping out at a soup kitchen, who knows. Point being, your analysis of productivity has holes. you're weighing the hypothetical productivity of an new gov. engineer against the productivity of a rich person with more free time + a maid. Again, without making any promises that the tax increase will go to hiring engineers. Maybe it will go to hiring janitorial services in congress.

"""the maid goes to college and learns more productive skills, she gets hired (maybe in the private sector) with those skills."""

With who's money, Jacob? college is expensive. Living while in college is expensive. I raised this point earlier. And before you say that the new tax money pays for it, that new tax money can't both 1) pay for a new engineer and 2) pay for free tuition, it also can't even pay for free tuition on a 1:1 maid:tuition basis. It also has to be proven that those tuition services would be available in his/her area.

Again, my point: people f--king with other people's lives, without examining opportunity costs.

[Jacob Davies]

your analysis of productivity has holes

I didn't say it was comprehensive. I was sketching how it works.

With who's money, Jacob?

Mine. Education is a social investment worth making. We should pay for it. Educated workers are more productive and as someone who wishes to live in a more productive, more broadly affluent society, I think it's worthwhile. I favor raising the marginal income tax rate on a significant portion of my income by a significant amount (like 10-15%).

As was pointed out above, the actual effect of that would likely be fairly small since I expect the net effect will mostly be to reduce the amount spent on housing, which has been where the positional bidding-up wars have been the worst.

As for the productivity of rich people, many of them have zero productivity, especially those in the financial sector. They have hacked the economic system to give themselves fat payouts for doing nothing. As a gamer, I have little time for people who exploit holes in the system to break the rules and screw things up for everyone else, and the idea that we should free them up for more such cheating by supplying them with maids and nannies fills me with horror.

[McKinneyTexas]

Productivity of domestic workers is pretty low. There is very low utility attached to correctly-ironed and folded sheets or floors vacuumed every day. It is very inefficient to have a nanny in each house rather than send your kids to shared daycare

This is debatable in a lot of ways. First, a clean house is as worthy a service as clean clothes, a mowed lawn, a washed car, a meal prepared and served in a restaurant, etc. You can do all of these things yourself or spend more time working--the time/value of a given person's time. Pretty much everything you spend on the above services is paid with after tax dollars, i.e. after the gov't gets its cut, of your money. So, the person who hires a maid, a cook, someone to do the clothes, a lawn service, etc. is putting people to work at zero cost to the gov't. Let me emphasize "putting people to work". We don't have a surplus of better jobs rights now and, unfortunately, there is a measurable demographic whose education and talents leave them unprepared for more "productive" endeavors. I respect the work anyone does, those at the lower end in particular.

It's easy to sneer at people who hire these kinds of services. I used to dis people who paid to have their shoes shined and who valet parked, until it occurred to me that shoe shine people and car parkers work pretty damn hard for not a whole lot of money. Now I'm the dipstick who valets when I could self park and walk an extra 20 feet and my shoes are shiny new. I haven't owned a lawnmower in 20 years and I'm really glad my wife and I don't have to keep up with the house.

[dave]

Hi Carleton. Thank you for your comment, although I find your tone at the end to be a little insulting.

“””Well, we have this data””

yeah…that’s not data. That’s you saying stuff. Again, my point = people arguing in favor of tax decisions that impact other people, without responsibly considering that impact. It is not unfair of me to suggest that people on this blog and elsewhere who support such policies have rich people consumer-spending data on hand that validates their assumptions. Why is it not unfair? Because your advocating an opinion that could cost someone his job.

Let’s say he does just decrease his monthly investments.

“””Incredibly unethical?”””

yes. See above. Randomly proposing policies that influence people’s lives without considering all the implications to those people is unethical. It’s like invading Iraq and assuming everything will be hunky-dory afterwards.

“””I recommend that you pick one of those items and concentrate on it if you're actually interested in debate. Arguing that taxes are in general acceptable but that ones you don't like are unethical will not get anyone anywhere.”””

Yeah, this is off topic. My dream tax code is off topic, and would lead to a massive, massive tangent where we debate spending items. I have raised a lot of issues in previous posts you have yet to address, and so I dislike the idea of just “skipping them” so we can talk about something new. Our current discussion is about the responsibility of experts/people who support tax increases to thoroughly examine the opportunity costs of those increases on everyone – not just rich people—before they support them.

[Jacob Davies]

I'm talking about productivity in a very strict and simple sense. I'm not saying there is no utility derived from domestic servants. I'm saying that domestic servants produce far less than specialized and/or more educated workers do, partly because the work they do often isn't particularly important anyway (clean sheets are nice, ironed sheets... not so much), partly because they use very little specialized equipment in their work, and partly because they are splitting their work effort between many different areas rather than specializing.

(Gardeners are a little different - they do use specialized tools, and they tend to work for many employers. They are efficient because they can own many good tools and put them to heavy use and because they have specialized knowledge.)

Shoe-shiners and valets are more like gardeners than general domestic servants. They have specialized equipment and experience and serve many people.

Domestic servants of the full-time kind are inefficient because they only serve a handful of people. They're conspicuous consumption and very much a luxury good. Domestic workers who serve many people are less inefficient although it's likely that with more education they could be in more productive jobs too.

That isn't really about sneering, it's just the way it is. The real welfare value of having your floor cleaned every day or having your dinner cooked by a chef every night is very small; only very wealthy people can afford to indulge in it. It is a bad sign when that group of people grows very large and takes efforts to protect their ability to engage domestic servants.

Which is, by the way, why we have the stupid immigration system we do. A lot of influential people don't want to pay what a unionized American or legal-immigrant nanny would cost. The current system works just fine for them, thanks, and never mind the collateral damage.

[dave]

Hi Jacob,

well, I think your definition of productivity is very subjective, but i'll concede that maids are "low productivity" workers, just so we can move on. This is not a counter to what I said, however.

You're still not weighing the productivity gains of people who hire maids.

You're also somewhat avoiding the other workers. You admit gardeners or shoe-shiners have high productivity. So now what happens to your productivity calculation when you lose a gardener+ the rich person's productivity, and then you replace it a gov. worker who may or may not be an engineer, or a janitor.

Also, all my other points remain unanswered. Does this mean you don't have answers to them? Are you conceding these points?

[hairshirthedonist]

We don't have a surplus of better jobs rights now and, unfortunately, there is a measurable demographic whose education and talents leave them unprepared for more "productive" endeavors. I respect the work anyone does, those at the lower end in particular.

Productivity is not a measure of respect for a person or that person's efforts. It's a measure of value produced. Instead of mowing lawns, maybe people should be planting low-maintenance, indigenous-plant landscaping, reducing the amount of water wasted, the pollution from mowing and the use of fertilizers that run off into and contaminate waterways. That would be more productive.

Maybe we should provide the education people need to do more productive work, and maybe that work will create more jobs for other people than would ironing someone's shirts.

[Hogan]

My dream tax code is off topic

In other words, you want to rant about other people's proposals and how if we raise this guy's taxes THAT GUY DIES YOU MURDERER, but you don't have the courage to put out any proposals of your own for other people to put through that kind of "analysis." Party of no indeed.

[hairshirthedonist]

Randomly proposing policies that influence people’s lives without considering all the implications to those people is unethical.

Is someone doing this on this blog? Randomly, I mean. You can disagree with someone's premises, conclusions and logic, but that doesn't make that person a random advocate of anything. I don't take positions on tax rates simply by rolling dice or flipping coins.

[McKinneyTexas]

I'm talking about productivity in a very strict and simple sense. I'm not saying there is no utility derived from domestic servants. I'm saying that domestic servants produce far less than specialized and/or more educated workers do, partly because the work they do often isn't particularly important anyway (clean sheets are nice, ironed sheets... not so much), partly because they use very little specialized equipment in their work, and partly because they are splitting their work effort between many different areas rather than specializing.

And I'm saying it doesn't matter what they do or who they do it for, even in some theoretical utilitarian system. It isn't for gov't or anyone else to decide how 'efficiently' or not I spend my dollars. If I put someone to work cleaning the house or driving me around (I don't, I am making a point), you may think that those dollars might be better captured and spent by the feds, but thinking it doesn't make it so. As dave points out, your basic assumption is that gov't would be more efficient in spending my money than I am. Not only does gov't have a poor track record generally, there is the more fundamental issue of who gets to choose how someone else disposes of their own property. Neither I nor anyone else has to account for their judgment in how they live their personal lives, in the bedroom, or how they spend or in any other way.

If we were talking about fixing the debt, which does have to be paid, that would be different. But we're not. There is no collective right to a person's surplus income beyond point X simply because that person spends in a way that the majority disapproves.

[dave]

hairshirthedonist

In general, I get the sense that the logic of these tax increases is "rich people can afford it, we have pet public goods we want the gov. to buy, ergo, lets tax those greedy bastards." That sounds random to me.

but, whatever, fine. change the sentence to this:

"proposing policies that influence people’s lives without considering all the implications to those people is unethical."

happier? don't avoid my primary point by splitting hairs.

[McKinneyTexas]

I missed this one: Domestic servants of the full-time kind are inefficient because they only serve a handful of people.

This is true for my secretary/assistant. But let's carry this to its logical conclusion: Barak Obama should drive his own car and Michelle needs to get back to the house and do the laundry. I mean, if it's inefficient for a private citizen to spend his/her own after tax dollars on personal domestic help, then it's doubly or triply so to spend tax dollars on it.

[Phil]

Thank heavens someone finally has the guts to stick up for the landed frigging gentry, and for not having to clean your own house. Bravo, gentlemen.

[dave]

Hogan,

"""In other words, you want to rant about other people's proposals and how if we raise this guy's taxes THAT GUY DIES YOU MURDERER, but you don't have the courage to put out any proposals of your own for other people to put through that kind of "analysis." Party of no indeed."""

1. I'm not ranting. I'm discussing calmly, and I'm not using all-caps.

2. I'd be happy to discuss my dream tax code. But not before I'm done with the current discussion. I get really tired of raising point after point that no one responds to. I'm not going to go through that, again, on a new topic.

3. "don't have the courage..." Ah yes. I'm a coward, because I dare to engage a very liberal blog on issues of taxation. I'm irritated at how much i think the rudeness of this "debate" is rubbing off on me.

Guys, i'm really surprised by the backlash here. Why is it so controversial to say if you want to raise taxes on someone to do "whatever" (pay off debt/fund pet project), then you should be armed with an analysis that examines all opportunity cost.

I still can't get anyone to agree with this. That should really disturb anyone who is a compassionate, rational person.

[hairshirthedonist]

What "pet" public goods, dave? You seem to assume much about what people are arguing for. And I'm not splitting hairs. I'm simply responding to what you wrote. Don't blame me for your lack of clarity.

It may not be possible to know all the implications of a given policy, which would make it impossible to consider all of them. The important thing is that people make a reasonable good faith effort. I'd probably put a greater analytical effort out if I were actually making policy, as opposed to chatting with people on the internet. And I'd be curious to know how deep your analysis goes regarding your preferred positions, or do they somehow lack implications?

[McKinneyTexas]

Party of no indeed.

Hogan, not every proposal merits a counter proposal and "no" is often an appropriate response to a bad proposal, e.g. let's invade Iraq/answer: no, let's don't. I suspect dave's tax ideas are unconventional and it probably would be a thread jack for him to put that out there. His general point is that justifying raising a wealthy person's taxes by the presumed frivolity of how they spend their money, e.g. personal chefs, carries it's own moral freight since the chef pays the price for the tax proponents' moral evaluation of having said personal chef.

[russell]

To provide a bit of context:

The changes to the tax regime that are under consideration are, in fact, selective extensions of tax breaks that are currently scheduled to expire.

The folks whose taxes will be going up from their present levels are generally going to be liable for what they would have been liable for anyway.

The exception are the folks in the $250K-$400K bracket, who will see their rate rise to 36%, rather than stay at the present 33%.

The tax reductions that are being allowed to expire were, frankly, acts of gross irresponsibility, because they were enacted in the face of two wars and an unfunded extension of an extremely expensive entitlement.

In short, we have bills to pay.

The "moral argument" for placing more of the burden on wealthier people, even if that means their chefs go looking for another job, is that a dollar taken from the pocket of a rich man deprives him of a luxury, while a dollar taken from the pocket of a less-rich or poor man is relatively more likely to deprive him of a necessity.

So, the aggregate level of pain incurred is lower.

The pragmatic argument in favor of preserving lower rates for less-rich people is that they will actually spend the money, thus spurring demand and waking up a slumbering economy.

I believe we have something like a consensus that lack of demand is a major part of our current economic doldrums, so that's actually a relevant point.

So yeah, there's an "opportunity cost" in asking a wealthy person for another 3 to 5% on the upper marginal dollars of their income. That's money they won't have to spend on something else, or invest, or whatever.

There's also an opportunity cost to not addressing the financial straights that the federal, state, and local governments find themselves in.

And to take this out of the realm of the hypothetical, as a simple matter of fact, wealthy people are spending lots of money. They held onto their cash pretty tightly for a year or so after the fall of 2008, until they were able to get a sense of how bad things were going to be. When they figured out the answer, for them, was "not so bad after all", they resumed enjoying their wealth.

So as a practical matter, the chef's job is probably pretty secure, most likely more so than most other folks.

And if anyone wants to have a debate about the productivity of "service workers", I encourage them to do so when their home or office building is overrun with trash, or their toilet is backed up, or they have a leak in their roof, or an infestation carpenter ants, bees, or squirrels in their home, or the lovely trees and shrubs around their home are dying of some unrecognizable blight, or they've dropped 20 pounds and their suits need altering, etc etc etc etc.

People who work for a living create value each and every day, and lots of it.

And as Jacob points out upthread, many folks in the financial sector, as an example, are not only not productive, but are a net drag on the economy, through extracting wealth created by other people and putting it in their own pockets.

Seriously, we're talking about *not* cancelling a 3 to 5 percent increase in marginal rates on wealthy people that is already, by law, supposed to take place. The only "change" from the original plan is to extend the lower tax rates for lower income people.

This isn't about punishing the rich, it's about raising needed revenue.

[dave]

If you had responded to what I wrote, your response would have gone something like

1. "We have no responsibility to justify our taxation policies in terms of opportunity costs."

2. "Delong/other do thoroughly justify their/our policies in terms of opportunity costs to the losers in this scenario. see? they're right here! click on this link from Delong. Rejoice and be glad."

Sadly, that's not what you said.

"What "pet" public goods, dave?"

Uh, I dunno. you all have different ones. raising taxes goes to paying for stuff, I assume. You tell me what stuff you want to pay for.

Yeah, again, not discussing the tax policies of Dave Land until the existing discussion is complete. I'm not the one saying I should take people's money, and then allocate it elsewhere. You are. You defend yourself.

""It may not be possible to know all the implications of a given policy, which would make it impossible to consider all of them. The important thing is that people make a reasonable good faith effort. ""

1. Well, we can start with the ones we do know, at least. I've raised lots of possible implications here.

2. Then maybe that should be a good reason to question said policy, hmm? Think Iraq.

Also, yeah, DeLong/other's response is not a good faith effort. It was a "laugh at the stupid rich guy who thinks he's middle class" effort. And people here are still arguing with me over whether or not a good faith effort is even required.

[hairshirthedonist]

e.g. personal chefs, carries it's own moral freight since the chef pays the price for the tax proponents' moral evaluation of having said personal chef.

But I think Jacob's point about productivity holds in your example. It's not a moral evaluation of having a personal chef. It's that being a chef for one person is less productive than being one in a restaurant for many people. It's also a question of the revenue having to come from somewhere, so where best, knowing that there is no perfect place, only a best one? Yes, there are implications to any tax policy, so which one has the least downside (as opposed to no downside, which doesn't exist)?

But we're arguing at a level of generality and abstraction such that we're never really going to get anywhere.

[McKinneyTexas]

I'm irritated at how much i think the rudeness of this "debate" is rubbing off on me.

Goes with the territory. Not everyone rolls that way here, FWIW, and Hogan and many others here are good folks.

Why is it so controversial to say if you want to raise taxes on someone to do "whatever" (pay off debt/fund pet project), then you should be armed with an analysis that examines all opportunity cost.

It isn't, but you and I are probably a lot closer on issues than most of the folks here. My take, very generally, on the progressive notion of lost opportunity costs is (1) those costs are not very significant in the greater scheme of things and are certainly outweighed by the need for "adequate" gov't funding to deliver essential gov't services and (2) the wealthy have so much money, it isn't a big deal for them to get by with less and it is up to them to order their own priorities. Mainly, though, when you boil it down, there is a heavy bias in favor of gov't-delivered jobs and services and we, as a citizenry, have to pay what it takes to make it happen. Consequences are seldom seen as dire by progressives as a more libertarian oriented person might see them.

[dave]

McKinneyTexas = way more eloquent than me.

I'm interested in knowing your opinion of my critique, if you're willing to give it. I sometimes read the comment thread on this blog, and I think you're a regular contributor here.

[Hogan]

Hogan, not every proposal merits a counter proposal and "no" is often an appropriate response to a bad proposal

Fair enough. But if the argument against a certain tax regime is "but that will harm people who don't deserve it, or implies possibly unfair negative judgments of someone," then it's not unreasonable to ask how we could construct a tax regime that doesn't do any of those things. "The opportunity cost of that proposal is unacceptably high, so let's not do it" is not the same as "that proposal has an opportunity cost, so let's not do it." I would at least like to have some clarity on which of those positions we're supposed to be engaging. And the immediate move to hypothetical individual cases of opportunity cost is not helpful doesn't help to sort that out. (Yes yes, I know, that's the kind of things we liberals do all the time. Mea saurus, mea saurus, mea maxima saurus.)

[hairshirthedonist]

Hogan, not every proposal merits a counter proposal and "no" is often an appropriate response to a bad proposal, e.g. let's invade Iraq/answer: no, let's don't.

Right, but we don't have to have wars to keep the country running. We do have to have taxes, so you can't just say, "No, let's don't." You have to have something when your discussing not-optional things, as opposed to optional things, like the Iraq War.

Maybe dave and, say, I just disagree about the implications of raising taxes slightly on people making $250k or more. Maybe a few chefs will lose their jobs, but I don't think many will, not enough to justify forgoing the revenue we need (unless we decide to legalize pot and cut the defense budget significantly or something that will reduce that need). Maybe dave thinks lots of chefs will be out of work. It doesn't mean I haven't considered the chefs. It just means I think the implications are different than he does.

[dave]

hedonist """But I think Jacob's point about productivity holds in your example."""

except it doesn't. because it offers an incomplete measure of productivity loss/gains. As I've said above. repeatedly.

"""It's not a moral evaluation of having a personal chef. It's that being a chef for one person is less productive than being one in a restaurant for many people."""

what you said above, is a moral evaluation. you're arguing that all jobs in society should be judged on their "productivity," and that removing less "productive" jobs (however you subjectively define it) is perfectly reasonable. It leaves no room for preferences. Maybe I don't want to be a restaurant chef. Maybe the fact that you're justifying your tax policies because you deem that I should be more "productive" elsewhere is really insulting.

By your logic, we should all wear the same clothes, because its more productive to streamline clothing manufacturing.

[Phil]

I just . . . can we not pretend that having a nanny or a gardener or getting your car valet parked is something people do out of some sense of noblesse oblige? My mother raised ugly children, not stupid ones. If you value "whatever I'm doing when not mowing the lawn" over mowing the lawn, just say so. If you value "not having to vacuum my own carpet" over vacuuming the carpet, just say so. Let's don't be disingenuous.

[Jacob Davies]

I'd defend to the death - well, to the pain, at least - the right of people to hire people to cut their lawn and vacuum their house. I regularly pay people to do those things myself. I am saying that a society where those things - or full-time domestic servants - are taken as being part of a "middle-class" lifestyle is not going to be very efficient or productive or egalitarian or fun to live in for most people.

My definition of productivity is not "subjective", it is the standard economic definition:

https://secure.wikimedia.org/wikipedia/en/wiki/Productivity

And my point about low productivity and low social welfare is a standard one in tax policy discussions. russell gives a good summary above. Judgments about fairness are based on the welfare effects of different policies. Wealthy people have more money (duh) so they spend more of it on things with lower welfare value than the things that poor people spend it on. It's more important that every 5 year old gets dinner than it is that even one rich person has their sheets ironed. Of course, most judgments are less cut-and-dried than that, and even something like ensuring that every 5 year old eats dinner is much trickier than just spending money, but you see the point I'm making.

As for people's right to keep all the money they made, look, we have a system for producing little pieces of paper with numbers on them in this country, and it's not a very rational system, and it's controlled by people who are, in many cases, sociopaths and amoral assholes you wouldn't trust to watch your kids for five minutes. I'm not going to pretend that that system is the best system that could ever exist in this the best of all possible worlds. It's a crappy system. It's probably better than any plausible alternative, but the sacredness of the process by which certain people receive very large quantities of those pieces of paper with numbers on them is kinda lost on me at a time when 10% of the population is out of work, 14% live in poverty, and huge numbers of children lack a stable home environment, food security, and quality education. The pretense that the freedom of rich assholes to command vast swathes of the resources and work effort of this country and direct it in ways that vary from stupid to downright destructive is more important than the freedom to be free from fear and debt and physical want is not one I'm interested in playing along with.

[dave]

""Maybe a few chefs will lose their jobs, but I don't think many will, not enough to justify forgoing the revenue we need ""

well, if we aren't losing a lot of chefs, that means we aren't raising very much money. The revenue we need for...what? What if you got fired so that I could raise revenue for something?

Again, I am not saying that essentially firing chefs (or you) isn't possibly justifiable. I am saying that no one is providing adequate justification. you just advocate doing stuff, saying you gave the implications your "best guess," and then move onto the next pet project, ignoring the people who get screwed.

Propose taxes? ok. sure. But consider who you hurt a little better than you do.

""Maybe dave thinks lots of chefs will be out of work. It doesn't mean I haven't considered the chefs. It just means I think the implications are different than he does""

If your consideration doesn't include data, then yes, it means you didn't consider them.

[hairshirthedonist]

Maybe the fact that you're justifying your tax policies because you deem that I should be more "productive" elsewhere is really insulting.

You're free to do whatever job you can legally find. I'm not talking about forcing people into specific jobs, but if we're talking about productivity, that's how it goes. You keep bringing up opportunity costs, and the opportunity cost of keeping a lower-productivity job viable at the expense of a higher-productivity job is just that - an opportunity cost. If you want to excoriate all economic analysis as being insulting, then you should pick another topic than the macroeconomic effects of tax policy.

We're not talking about making everyone dress the same, because we're only nibbling at the margins, not espousing a wholesale paradigm shift of our economic system. The chef thing is just the example that happened to come up and we happened to land on to facilitate the discussion. In any case, we wouldn't desire a policy, say, that we knew would cause people burn great works of art for a living, because that would be highly unproductive. Would that be insulting, too, if that were how you'd like to spend your time?

[McKinneyTexas]

I'm interested in knowing your opinion of my critique, if you're willing to give it. I sometimes read the comment thread on this blog, and I think you're a regular contributor here.

I agree, about equal parts in practice and in the abstract, meaning that (1) but for our freaking deficit and social outlays, I'd abolish income tax entirely, (2) we're stuck with a system that costs a sh*tload of money and therefore have to fund it up to a point, (3) which means taxes and which, in fairness, requires progressivity up to a point, and (4) it is axiomatic that every decision has opportunity costs and moral implications, if one believes, as I do, that taking another's money involuntarily has a moral dimension. My main issue is a practical matter: no one wants to discuss the spending side of the equation. Or, the increased gov't growth and associated regulatory load. Taxes are part of the cost, but only the part you see everyday, or at least, every payday.

In my world, we'd cut FICA for two years for taxpayers below 150K, cut corporate tax rates to 15% and increase taxes on incomes over 250K, dedicating the extra revenue exclusively to debt reduction. An essential corollary to debt reduction is that we would freeze aggregate federal spending at current levels, leaving it to the D-bags in congress to decide how to spend the money they have.

I think talking about tax rates in a vacuum is like discussing sex as if the only body parts were the nose and the index finger.

[hairshirthedonist]

If your consideration doesn't include data, then yes, it means you didn't consider them.

I'm not your monkey, dave. I'm not an economist, either. If data can include things I've read that economists have written, then my consideration does include data. But I'm not going to be able to produce numbers on the available personal-chef positions at this or that marginal tax rate above X dollars. Do you have any data on that?

[dave]

""" My definition of productivity is not "subjective", it is the standard economic definition:"""

yeah that doesn't tell me anything about your unit of measurement. dollars earned?

It also does not respond to my point, that your measurement of productivity did not consider all productivity. And that it assumes the government is using those funds to hire an engineer, and not a janitor.

""" I am saying that a society where those things - or full-time domestic servants - are taken as being part of a "middle-class" lifestyle is not going to be very efficient or productive or egalitarian or fun to live in for most people."""

uh... I agree. I started my comments by saying Rich lawyer man is not middle class. I call him rich lawyer man.

"""The pretense that the freedom of rich assholes to command vast swathes of the resources and work effort of this country and direct it in ways that vary from stupid to downright destructive is more important than the freedom to be free from fear and debt and physical want is not one I'm interested in playing along with."""

That sounds a lot like you think all rich people are assholes, and thus said value judgment is driving your tax code.

(initiates tangent with extreme hesitation)

All you said above, is what you want to spend that money on -- social welfare projects. Because being poor is really horrible, and I totally agree. Rich people should be more generous with their money. But why is it more efficient to have the government take care of that through taxation, and then unspecified resource allocation? Why not just...pass a law that says if you make over 250K a year, then you have to give x% of your income to charities. Specifically, charities that have are known for directly spending 90 cents or more out of every dollar they receive on the cause they support. (note: not something the government can boast).

[hairshirthedonist]

My main issue is a practical matter: no one wants to discuss the spending side of the equation.

Legalizing pot, thus ending a big piece of the drug war, and cutting defense spending are two cost proposals I've mentioned.

[Hogan]

no one wants to discuss the spending side of the equation.

I'm pretty sure that cutting the defense budget (especially our military presence in Iraq and Afghanistan) and wasteful counterterrorism programs gets talked about pretty regularly. There's also been some discussion about wringing costs out of the healthcare system (aka the government messing with my Medicare). So that's not exactly true.

[bobbyp]

Dave,

Is he going to pay for those taxes out of his retirement fund? Or is he going to fire his chef?

That depends on the shape of his particular individual indifference curves. But typically to generalize from the particular to the aggregate is a grave error (paradox of saving, which see). The fact that the marginal propensity to save increases with income is logical, reasonable, and well documented by empirical studies. Why do you think the rich have a disproportionate amount of our financial wealth?

Without knowing the answer, isn't it incredibly unethical to support a tax decision that might fire the chef?

Absolutely not. Conservatives typically view labor as fungible (neoclassical econ 101), especially when it comes to telling the poor to "just get another job". Your concern for the chef is touching, but not believable.

I'm sure some economists have looked at this.

Not from your strained angle.

The(y) have a moral obligation to explain the opportunity costs to others, of their decisions.

For the individual case they can not and they do not. So you are dead wrong on this assertion.

One might evaluate a tax from the standpoint of "shaping" individual behavior. Sin taxes are the penultimate in this regard. For taxes in general this does not hold. The opportunity costs are aggregated--do we want a larger defense establishment vs. more education for your youth? Do we ignore global warming and let the costs fall on the future? Do we collectively upgrade our infrastructure to improve future economic productivity or do we not? Or do we just give the store to weathly elites and let the chips fall where they may? These are big opportunity costs questions, and they are decided politically. As to a particular individual case, I urge you to go amongst the people and gather up 330 million answers.

Maybe that will put your time to good use.

[dave]

""" But I'm not going to be able to produce numbers on the available personal-chef positions at this or that marginal tax rate above X dollars. Do you have any data on that?"""

I'm not the one supporting certain tax policies. and frankly, i don't really care about your tax policies. I'm talking about policy makers, bloggers, columnists, politicians, experts who support tax policy X, but then don't consider all/most/the obvious costs. It's their policy. It's their responsibility. And you should be as irritated about the fact that they shirk that responsibility as I am.

why is this so difficult to agree on.

[russell]

Hey, I'm a funny kind of lefty. I don't care what rich people spend their money on.

Personal chef, fine with me. String of polo ponies with a stable to put them in, lovely. Gold-plated toilet, no problem.

It's your money, spend it however you like.

George W Bush and the Congress during his administration put into place a set of broad tax breaks, across all income levels.

They also incurred enormous expenses in the form of wars and unfunded social programs.

The only way they could get their tax cuts passed was to make them sunset right about now. Had they not done that, the long term budget numbers would be atrocious. Serious financial calamity.

Guess what? Their math wasn't so bad. If the tax cuts don't sunset, we will face serious financial calamity.

We're also in a serious recession, so we'd like to *retain* the tax cuts for the economic groups who will spend more of it then not.

That's the proposal.

Not soak-the-rich returns to astronomical top marginal rates, not crazy new transfer payment schemes, not class-levelling socialistic jackbooted thuggery.

Let the irresponsible tax cuts of the Bush era expire, *as they were intended to*, for the upper income brackets, but let them continue for some time period for lower brackets in order to spur consumer demand.

Talk about "f--king with other people's lives without considering opportunity costs", and the morality of firing personal chefs is a lot of horsesh*t. It's a red herring, and has virtually no relevance to the discussion at hand.

Nobody cares whether J Random Rich Guy employs a chef of not. Seriously, nobody does.

We need to raise revenue, because we have been racking up bills that we haven't paid.

If we continue to do so, we'll be in some deep sh*t.

That's the reality.

If you'd prefer to cut costs to make the ends meet, take your shot. You're going to have to tackle the DoD, Social Security, Medicare and Medicaid.

None of the constituencies of those programs will be pleased.

If you can't get the costs down, you're going to have to increase revenue.

Have fun.

[hairshirthedonist]

It's their policy. It's their responsibility. And you should be as irritated about the fact that they shirk that responsibility as I am.

why is this so difficult to agree on.

To the extend that I think they do that, I am irritated. I can't say if I'm as irritated as you, since I can't experience your emotions, but I don't think you were being quite that literal. So, on the general point, I do agree. The devil is always in the details, though.

[Hogan]

pass a law that says if you make over 250K a year, then you have to give x% of your income to charities. Specifically, charities that have are known for directly spending 90 cents or more out of every dollar they receive on the cause they support. (note: not something the government can boast).

Would that include symphony orchestras, the Cato Institute and Harvard University? If not, who gets to choose what counts as a real charity?

As for your parenthetical, see Social Security. (Of course, once we add means testing, those administrative costs will skyrocket.)

[McKinneyTexas]

I am saying that a society where those things - or full-time domestic servants - are taken as being part of a "middle-class" lifestyle is not going to be very efficient or productive or egalitarian or fun to live in for most people.

Valets and maids aren't hobbyists, and having a maid is very much a part of 2 earner families, particularly if they have kids or, as my wife and I do, 12 plus hour days. Maids, etc do what they do because they don't have a better alternative. They need to eat, have a place to live, etc. And no one is going to create a world in which everyone has a better alternative or where no one has to pick up the trash or where picking up the trash pays the same as being a registered nurse. Most of us are limited, to one degree or another, in what we can do. Not hiring a valet, foregoing a maid and self-parking and working an hour or two in the evening cleaning up is frugal and admirable, but putting someone to work is at least as socially beneficial, but more to the point, any discussion of tax policy or any other thing that gov't imposes on people that focuses on how people spend their money is inherently anti-liberty to the point of being authoritarian. The whole notion of valuing private economic choices based on your or anyone's notion of productivity takes the "private" out of choice and makes it collective which is no different from compelled. Not good.

[hairshirthedonist]

I'm not the one supporting certain tax policies.

But you acknowledge that we do have to have some tax policy, right? And if you're going to critique the ones other people support, you have to do the same amount of homework that they do, don't you, if you're going to argue in good faith? Any policy is going to have negatives, so simply pointing out negatives isn't sufficient. It's a least bad endeavor.

[efgoldman]

So, I've followed all these theoretical discussions all the way down here from my original post.

The fact remains Henderson's still an entitled bleephole.

And even if we posit that government is less efficient at lots of things than *some* private industries (although Medicare is the most efficient medical delivery system in the country, by far, in terms of %% of %% to direct care) lets also posit that there are some things that government just ought to do, and taxes are needed to pay for those things.

Those weren't theoretical people that died when the theoretical I-35 bridge theoretically collapsed a couple of years ago. The deferred maintainance that caused the collapse wasn't theoretical, either. Someone made a real decision, affecting real people.

That money comes from somewhere, folks. Now you may say: well governments made bad decisions 10-20-30 years ago in the agreements they made to fund union contracts and pensions. And you may be right. But our wayback machine broke a long time ago. We have to deal with the consequences of the last decade as best we can. And screwing people on the low side of the median food chain isn't the way to do it.

[dave]

"""Absolutely not. Conservatives typically view labor as fungible (neoclassical econ 101), especially when it comes to telling the poor to "just get another job". Your concern for the chef is touching, but not believable."""

Thanks for countering my point by not addressing it, and instead labeling me with an evil word, comrade. Whether or not you think I'm genuinely concerned about chefs is completely irrelevant to the argument. And does nothing to address my point, that anyone who proposes a policy that effects people's lives significantly, has an obligation to prove that they have examined its ramifications thoroughly.

"""I'm sure some economists have looked at this.

Not from your strained angle."""

Oh! Zing! Another great way to rationally argue your point.

"""The(y) have a moral obligation to explain the opportunity costs to others, of their decisions.

For the individual case they can not and they do not. So you are dead wrong on this assertion."""

Translation: You are wrong, because I say you are wrong.

"""These are big opportunity costs questions, and they are decided politically. """

and they are excellent examples of simplistic analysis, that contend doing X will only result in a trade off of Y, instead of all impacting A B and C.

"""That depends on the shape of his particular individual indifference curves. But typically to generalize from the particular to the aggregate is a grave error"""

whatever. social scientists do it all the time. It's called polling.

[McKinneyTexas]

HSH and Hogan--it is a given that defense spending is on the chopping block (but is that all?). The question is: what should our defense establishment look like and why or why not? This is not a thread jack. Eric personally promised me--smiley face, smiley face, smiley face--that he was going to do a thorough and objective threat analysis and devise a standing and reserve force structure adequate to those needs and he has not. Someone needs to whack him in the butt. More smile faces.

[Tony P.]

McKinney, if you want to talk spending we can talk spending. But even if we absolutely agree on exactly what spending the government should do, we STILL have to decide how to apportion the tax burden.

Even if government spending were only 5% of GDP, that 5% would have to be collected somehow. Even with such a "small government", a head tax would probably not work. So some people would end up paying more than other people. The "some" people would still bitch and moan that they're carrying the "other" people.

So we can talk spending if you like (and probably disagree about it) but it won't make the tax arguments any easier.

--TP

[dave]

pass a law that says if you make over 250K a year, then you have to give x% of your income to charities. Specifically, charities that have are known for directly spending 90 cents or more out of every dollar they receive on the cause they support. (note: not something the government can boast).

Would that include symphony orchestras, the Cato Institute and Harvard University? If not, who gets to choose what counts as a real charity?

Obviously not, hogan. Jacob was referring to social welfare programs. It's his goal. I assume he would chose charities known for running soup kitchens, helping with housing, and helping the poor obtain degrees.

[dave]

"""The question is: what should our defense establishment look like and why or why not? This is not a thread jack. Eric personally promised me--smiley face, smiley face, smiley face--that he was going to do a thorough and objective threat analysis and devise a standing and reserve force structure adequate to those needs and he has not"""

I'm sorry, but does Eric have some clearance level I'm not aware of? I don't see how he alone could accomplish that. in his spare time. In a thorough enough manner to be relevant. The dod has teams of people who's job is to do this. They're still trying.

I think you might be waiting a while longer :)

[Hogan]

McK: I'm not saying everyone who doesn't use emoticons is a tzadik nistar. But I do believe that everyone who is a tzadik nistar does not use emoticons.

[Hogan]

I assume he would chose charities known for running soup kitchens, helping with housing, and helping the poor obtain degrees.

So under your law, Jacob would get to decide what counts as a charity? Cool.