Sunday, August 24, 2008

Don't Just Tax the Rich

Megan McArdle offers some reasons why we shouldn't place too heavy a tax burden on "the rich." 

High taxes on a narrow base are about the opposite of optimal tax theory.  This is not because economists are mean, cruel people who are primarily interested in serving their corporate overlords, but rather because the narrower the base, and the higher the rates, the more sharply the marginal returns to rate increases diminish.

Take an extreme example.  The top 1% of households, about 1 million in all, have about 20% of national income.  They've also experienced most of the income gains in the last twenty years.  So let's say we want to fund federal operations entirely out of their pockets.  Well, to do so, we'd need an income tax rate of 100%.  Even ardent liberals will surely concede that at these levels, the supply-siders are right, and we'll soon end up with no tax base.

Even a less extreme example--make them pay half the tax burden--ends up with a 50% effective rate on high earners.  And to get a 50% effective rate, you need an even higher marginal rate.  The problem for people who want to load tax increases on these people while cutting taxes for everyone else is that if you actually succeed in shifting the tax burden this way, you'll rapidly end up on the wrong side of the Laffer Curve.

There is another reason too - "the rich" are highly susceptible to changes in the economy.  They have done reasonable well for the last several years because the economy, in general, has done very well.  But when the economy starts to do poorly the rich tend to see some pretty dramatic drops in their income.  Its very much a high risk/reward system.

Do we really want the tax base so highly dependent on these wild swings?  It might be entertaining to watch for a bit, but probably not very good for the overall health of the country.

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Sunday, August 10, 2008

More on Diversity

Quite simply, Rep. Cohen will have to accept what the rest of the country will have to accept -- there has been an unofficial Congressional White Caucus for over 200 years, and now it's our turn to say who can join 'the club.' He does not, and cannot, meet the membership criteria, unless he can change his skin color. Primarily, we are concerned with the needs and concerns of the black population, and we will not allow white America to infringe on those objectives.

Doesn't having any sort of "insert race here" club/caucus/fraternity just reinforce the idea that said race is different?

I always kinda found it odd that there were black fraternities, a black Resident Council, a Black Student Union, heck, we even had a couple black only lunch tables in the cafeteria.  Meanwhile the rest of the fraternities, student unions and lunch tables were pretty integrated.  And let me point out quite clearly that this isn't a case of the majority segregating a minority - this is a case of a minority holding themselves apart.

I understand feeling more comfortable with people like you - we all do it.  I even concede that I have no idea what being black is like, I get that.  But holding yourself apart and preventing yourself from meeting and interacting with people that don't look like you is completely contrary to the large university experience.  It's contrary to the concept of diversity (one of the justifications for affirmative action, btw).  And most of all runs counter to the goal of eliminating racism and prejudice.  Blacks and minorities should be seeking to interact with as many people that don't look like them as possible if only to show that they are really just like them after all.

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I know it may be politically incorrect to say so, but why is it that diversity means "anyone except white guys?"

My employer is celebrating diversity month and handled out Diversity Pamphlets to everyone as they walked in the building.  Not a single white person in the whole thing.

There are several posters around the office - not a single white guy anywhere to be seen.

Do whites simply not have any value?  Or are we so alike that we couldn't possibly represent the concept of diversity?

I don't get it.

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Wednesday, August 06, 2008

Truly Creative Capitalism

The true power of capitalism is its ability to take the basest of human instincts - greed and selfishness - and transform them into an engine that generates wealth, innovation and prosperity for the entire society. 

Truly creative capitalism would discover a method to use the powerful forces of self-interest to incent the despotic and authoritarian leaders of the poorest countries to embrace the power of markets.   It will take a wiser man than I to find such a system, but I can imagine how such a system might work.

Perhaps it is a betting-market based on the GDP growth of a nation in which the rulers get a controlling share.  Perhaps the leader would collect a percentage of all taxes generated from business.  Either way, if  such a leader could be convinced that they would become wealthier and more powerful by letting their nation prosper as opposed to simply stealing whatever they wanted a win-win situation might be created.

Without creating the incentives for these authoritarians to make institutional changes within their countries I fear that any effort by the developed nations or Creative Capitalists will simply be throwing good money after bad.  It may help a little today, but shouldn't creative capitalism really be striving to make long term advancements in wealth that only changes in institutions will really achieve?

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