Of Lags and Caps: Possible Implementations of a Brandeis Tax

Last Monday, Aaron Edlin and I published a cri de coeur op-ed in the New York Times calling for a Brandeis tax, an automatic tax that would put the brakes on income inequality. This is the third in a series of posts (the first and second posts are here and here) explaining more about our rationale and providing more details on how a Brandeis tax might be implemented. You can also listen to my hour-long interview on Connecticut Public Radio’s “Where we Live” here.

Of Lags and Caps: More Details About Possible Implementations of a Brandeis Tax
By Ian Ayres & Aaron Edlin

Remarkably of the hundreds of emails we received in reaction to our op-ed, almost no one questioned Brandeis’s idea that we can have great concentrations of wealth, or democracy but not both. People questioned other aspects of our proposal, asking questions like (1) how would it work in a world of income bunching; (2) would people still have the incentive to work hard; and (2) is it fair to have very high tax rates on the affluent.

Our last post talked about alternative potential triggers. Here we tackle some more detailed questions about implementation including how to trade off different kinds of distortions.

There Will Be Rich Always: Finding a New Way to Think About Income Inequality

On Monday, Aaron Edlin and I published a cri de coeur op-ed in the New York Times calling for a Brandeis tax, an automatic tax that would put the brakes on income inequality. In the next few days, Aaron and I will be publishing a series of posts explaining more about our rationale and providing more details on how a Brandeis tax might be implemented.

There Will Be Rich Always
By Ian Ayres & Aaron Edlin

In one of the more memorable lyrics from the musical Jesus Christ Superstar (based on Matthew 26:11), Jesus tells his disciples “There will be poor always.”

The same is true of the rich. There will always be a top 1 percent of income earners. But what it takes to be rich can change drastically over the course of even a single generation. In 1980, you would have had to earn at least $158,000 to be a one-percenter; but by 2006 the qualifying amount had more than doubled to $332,000. (You can produce an estimate of your own household income percentile – albeit using a different definition of income that produces a much higher 1 percent cutoff – at this wsj.com site.) The rise is not due to inflation as both these numbers are expressed in inflation-adjusted, constant 2006 dollars.

The Perfect Gift for the Health Care Buff in Your Family

Searching for the perfect gift for the health care reform junkie in your family? A new graphic novel by Jonathan Gruber (out on Dec. 20) may be just what you've been looking for. The book, Health Care Reform: What It Is, Why It's Necessary, How It Works, has been gestating for awhile, and aims to explain the complicated legislation. Here's an excerpt from the Amazon book description:

You won’t have to worry about going broke if you get sick.
We will start to bring the costs of health care under control.
And we will do all this while reducing the federal deficit.

In the interest of full disclosure, it should be noted that Gruber served as an Obama advisor during the 2008 campaign and may not be the most unbiased of observers.

(HT: Marginal Revolution)

Did Racism Cost Obama Votes in 2008?

A new paper (PDF here) by Seth Stephens-Davidowitz, a Harvard Ph.D. economics student, attempts to measure whether "racial animus" cost Barack Obama votes in 2008. Using location-specific Google searches for racial epithets collected on Google Insights, and comparing Obama's 2008 performance to John Kerry's in 2004, the study concludes that racism cost Obama 3 to 5 percentage points in the popular vote.

Lessons in Anchoring and Framing From … George Clooney?

In a Time magazine Q&A, the actor gives a fascinating reply to the question "Are you disappointed in Obama":

I get angry at people who don't stand for him, actually. If this were a Republican president, Republicans would say, "We were losing 400,000 jobs a month. We stopped it. We saved the car industry." You could go down the list. Democrats should talk to Hollywood about how to posture some of these things. Say you're about to get into tax loopholes. Instead of "loopholes," say "cheating." And then on the floor of the Senate, get up and say, "We're not going to raise your taxes, but we're not for cheating. Are you?" I just think Democrats are bad at that.

A few points: I assume the "people" he gets angry at for not standing for Obama are Democrats? If not ... well ... hard to imagine someone like Clooney getting angry at Democrats who didn't "stand for" Bush.

Great point re the job loss and car industry! Perhaps not nearly 100 percent accurate, but still, a great point re how those accomplishments haven't been framed as successes.

Green-Collar vs. Blue-Collar Jobs: A Difference in Name Only?

Amid ongoing inquiries into the prudence of government loans to failed solar firm Solyndra, and a spate of other bad news on the green jobs front, there is growing concern that the green economy may not be the juggernaut President Obama promised when he vowed after his election to invest $150 billion to generate “five million new green jobs that pay well and can’t be outsourced.” To counter critics, the administration is greenwashing large swaths of the economy—defining “green jobs” down to the point that they are virtually indistinguishable from what we used to call “manufacturing jobs.”

Green jobs are central to arguments that new environmental regulations should be pursued even in a down economy. Supporters of the policies, like California’s carbon cap-and-trade system, claim that even if the cost of regulatory compliance causes job losses in the traditional economy, the regulations will create jobs in the green economy. And green jobs are better jobs, as the President says: high paying, reliably American, and yielding environmental benefits.

Success of the green economy supports the economic defense of environmental policy, which may explain why administration officials were on Capitol Hill last week defending the notion that millions of Americans, from bus drivers to car makers, are employed in “green jobs.”

Caption Contest: The Winners!

Last Friday, our contributor and friend Justin Wolfers decided to have some end-of-the-week fun and run a caption contest for a pretty amusing picture he came across. The response was great: the post got 170 comments. As promised, we picked a winner based on the number of thumbs-up approvals given.

That lucky, and witty winner, is VB in NV, who posted the following less than 10 minutes after the post went live:

“I checked the vault Mr. President, and we’re down to a stack of twenties about this high.”

Well-loved. Like or Dislike: Thumb up 276 Thumb down 13

We're going to give you some Freakonomics swag, VB, so watch out for an email from us. Thanks to everybody for participating!

Examining the EPA Cave-in: Does the Broken Window Fallacy Apply?

Did President Obama get the economics wrong earlier this month when he abandoned stricter air-quality rules, wagering environmentalist loyalty in a bid to avoid job losses from strict new ozone standards? Paul Krugman thinks so, calling the decision to wave off the EPA a “lousy decision all around.” But is Krugman right?

The short-run job-creating move, Krugman contends, would have been for Obama to promulgate the new ozone regulations, which would have forced firms in hundreds of counties across the country to replace and upgrade capital in order to comply with new, stringent pollution abatement requirements. He asserts that because the U.S. economy is in a liquidity trap, wherein conventional monetary policy is insufficient to induce firms to spend, the regulations could have accomplished what the Fed cannot. In such a "world of topsy-turvy,” as Krugman says, the usual rules of economics are thrown out, and even the “Broken Window Fallacy” ceases to hold.

How Big? A Caption Contest

It's Friday afternoon, and so I'm sure all of us are looking for a break. You know what that means: time for a caption contest! I mean, this picture is really crying out for it, isn't it? Add your funniest caption in the comments. We'll crowdsource the voting: Use the thumbs-up button to vote for your favorites. And we'll make sure to round up some schwag for the winner.

Obama's Jobs Bill: A Reasonable Plan

Here are some quick thoughts on President Obama's jobs plan:

- It's reasonably big, at about 3% of GDP.

- It's reasonably front-loaded. Goldman Sachs says it will raise 2012 GDP by about 1.5%--before any multiplier effects. Moody's chief economist Mark Zandi thinks the effect on 2012 GDP will be about 2%. Expect more estimates in the 1-3% range for 2012; smaller for 2013.

- It's reasonably well targeted. Unemployment insurance extensions will get spent. Infrastructure money gets spent and also builds stuff. as for the payroll tax: Who knows if it gets spent, but the point is to stimulate hiring, rather than spending.

- It's reasonably well designed. The biggest problem with a payroll tax is that firms get it even for employees already on the books. But this time, the biggest payroll tax cut is only for firms raising their payrolls. This will yield a much bigger bang-for-each-buck. Early analyses have yet to realize how important this is.