Sachs Support Occupy Wall Street Movement; Goldman Pissed

[Hauldren Collider]

Well, for social security and medicare, we might settle for "Washington cuts", which aren't actually cuts, they merely mean that the government will increase spending by less than originally planned.

[Tupac Shakur]

No one can restore confidence in America's long-term fiscal health without a credible plan to cut spending on entitlements and defense while raising revenues, which are now at a 60-year low as a share of GDP.

Europe, China, U.S.: Whose Economy Has It Worst?

Yes. Reform entitlements, cut defense spending, and get tax revenues up around 19-20% of GDP.

[KrazyHorse]

get tax revenues up around 19-20% of GDP.

Mortgage interest: 95 bln
Health insurance: 130 bln
State & local tax: 40 bln
Charitable donations: 45 bln

There's a free 2-2.5% right there.

And by "free" I mean "better than free"

[KrazyHorse]

Distributional impact on after-tax income of eliminating those tax expenditures:

Bottom (fifth) quintile: -0.08%
Fourth quintile: -1.51%
Third quintile: -2.51%
Second quintile: -3.63%
Top (first) quintile: -5.20%

EDIT: both this and previous post are based on static analysis. Dynamic response would be different, of course.

[KrazyHorse]

So these changes would increase efficiency, increase equality and increase government revenues.

[Kuciwalker]

No, those changes still increase income inequality because 2.5% of the middle class's income is far more important to them than 5% of the wealthy's.

[Hauldren Collider]

We need to protect the middle class at the expense of everyone else to ensure proper class mobility

[Jon Miller]

No, those changes still increase income inequality because 2.5% of the middle class's income is far more important to them than 5% of the wealthy's.

I know that you don't really agree with this statement (while I would agree with some similar statement), the 0% impact on the very poor compared to the 2.5% impact on the middle is about right.

JM
(Namely I would agree because for a household making 34k$ per year (less than I), 800$ is more important than 4.4k$ is for a household making 88k$ per year. I would prefer the upper two quintiles to shoulder the tax increases (and the only reason I am below this is because I my postdocs are in europe and not the US).)

[KrazyHorse]

No, those changes still increase income inequality because 2.5% of the middle class's income is far more important to them than 5% of the wealthy's.

Do you mind thinking before you post?

A statement about income inequality does not depend on a utility function. Secondly, this statement assumes an extremely rapid decline in marginal utility of consumption. You're positing that a marginal dollar is worth ~4-5 times to somebody at the national median (~45k household income) than to somebody in the bulk of the top quintile at 100k household income.

I'm offering up the list of the biggest free lunches in the US tax code, and demonstrating that they are strongly progressive in nature (when defined according to any of the standard metrics of INCOME INEQUALITY). Requiring that any change impact the top quintile MORE THAN TWICE AS STRONGLY RELATIVE TO INCOME AGAINST THE MIDDLE QUINTILE is unfeasible without substantial increases in marginal tax rates at the top, which is the least efficient way to raise taxes.

You are setting the bar for "decreasing inequality" or "progressive" higher than I have ever seen it placed in serious discussion.

[Jon Miller]

I know that I would be in favor of this tax reform.

And I think I am still quite progressive.

But KH, think back to when you made ~20k$ per year. You never made ~45k$ per year, but I did. I can compare the marginal utility of 300$ as a graduate student and 1k$ as a postdoc (Before I started taking care of my girlfriend) and say that the 300$ had more value than the 1k$.

I extrapolate my income up to ~100k$ (what I want to have in a few years), and consider what my needs/desires/expenses would be like (for a household of 2 and with saving which I was not able to do this last year). The value of 1k$ is greater (for a household of 1.8) at ~45k$ then ~5k$ is at ~100k$ (for a household of 2).

JM

[KrazyHorse]

The joke is that it would never pass. If you want a model of the US tax and benefit system, it is the top 5% subsidizing the 50th to 90th percentiles, with some scraps thrown to the bottom half.

No sane redistributionist system would subsidize college education, for example. Only one designed to appeal to the median voter would engage in that type of patent idiocy.

[KrazyHorse]

I know that I would be in favor of this tax reform.

And I think I am still quite progressive.

But KH, think back to when you made ~20k$ per year. You never made ~45k$ per year, but I did. I can compare the marginal utility of 300$ as a graduate student and 800$ as a postdoc (Before I started taking care of my girlfriend) and say that the 300$ had more value than the 800$.

I extrapolate my income up to ~100k$ (what I want to have in a few years), and consider what my needs/desires/expenses would be like (for a household of 2 and with saving which I was not able to do this last year). The value of 800$ is more valuable (for a household of 2) at ~45k$ then ~5k$ is at ~100k$.

JM

1) If the claim about your own experience is true, then it demonstrates that you have a negative discount rate
2) For the very reason that intertemporal optimization is available, I don't think it's reasonable to base a judgment of elasticities of utility on individual experiences over time
3) My marginal utility of money has dropped by about a half. I'm unwilling to say how much my income has gone up by, but it is substantially more than to 45k. FYI, I choose to live in a 550 sq ft one bedroom apartment which costs me 40% more than the apartment I lived in with my wife in Baltimore. If my utility function had flattened as dramatically as you and kuci are claiming is reasonable, I would have increased my consumption of housing dramatically. Extrapolating what appears to be claimed as a relatively flat elasticity of between two and three would lead to marginal utilities which are absolutely ridiculous from my experience.

[Jon Miller]

Yes.

I think the arguments for subsidizing college education are not about redistribution, but rather that it is a more efficient use of human capital by a country.

JM

[KrazyHorse]

Those claims about elasticities are also incompatible with revealed preferences I can think of, e.g. the number of hours worked by high earners vs. low earners.

In fact, with some simplifying assumptions the fact that those who earn more per hour work more hours is indicative of elasticities smaller than one.

[KrazyHorse]

Yes.

I think the arguments for subsidizing college education are not about redistribution, but rather that it is a more efficient use of human capital by a country.

JM

Anybody who makes that argument needs his head examined. College graduates capture the vast majority of the return from the investment. Subsidizing it leads to too much college attendance. The only significant positive externality I can think of is the taxation of wages. To internalize that externality, it is sufficient to make tuition tax deductible.