Progressivity

This article, based on a longer research paper, is interesting throughout. Working with an enormous database of distributional national accounts, the authors quantify the redistributive impacts of tax and transfer systems across countries. I repeat their key findings here: 

We establish five main findings:

1. Tax-and-transfer systems always reduce inequality, but with large variations.

2.About 90% of these variations are driven by transfers, while only 10% come from taxes.

3. Redistribution rises with development, but this is entirely due to transfers; tax progressivity is uncorrelated with per capita income.

4. Redistribution has increased in most world regions, except in Africa and Eastern Europe, where it has stagnated.

5. About 80% of variations in post-tax inequality are driven by differences in pre-tax inequality (predistribution), while 20% are driven by the direct effect of taxes and transfers (redistribution).

Some caveats are in order, some of which spring from somewhat arbitrary or at least contestable choices made in the classifications. First, they count "social insurance" payments such as social security as part of pre-tax incomes, and hence "predistribution." Second, conditional cash grants are counted as transfers; presumably this implies that "negative income tax" programs such as the earned income tax credit (EITC) are counted as part of the transfer system, not the tax system. And inevitably they have to make numerous simplifying assumptions about the incidence of taxes and transfers (who really pays?), etc.

Perhaps the biggest takeaway is the last: cross-country differences in the inequality of pre-tax income accounts for the lion's share of cross-country differences in post-tax inequality. Of course, predistribution includes lots of determinants, many of which are driven by government policies, such as educational systems. It would not seem to be a category error to think of educational equity as part of redistribution, rather than predistribution. 

Regressive state and local taxation

Here's an excellent post from Kevin Drum on the distributive burden of state and local taxation, comparing California and Texas. His point is that for the lower and middle classes (the majority), state and local tax rates are actually lower in California than in Texas. Only the top 1-5% really get slammed in California compared with Texas. So there's little reason to think that high taxes per se should be driving a large-scale exodus from CA to TX.

The source he links to, ITEP, has a particularly interesting map of states by tax regressivity. You might be able to make out some correlation between red states and regressive states, but if so it's not a strong one: Washington state is the worst, and South Carolina looks quite equitable. Food for thought.

Warren's wealth tax

I'd like to believe Saez and Zucman's estimate that Elizabeth Warren's wealth tax of 2% on the very wealthy would bring in $200 billion annually. Summers and Sarin figure it might be a lot closer to 25 billion. (Links to the arguments can be found here.)

Why such a huge difference? It all hinges on how successful you think the very rich will be at tax avoidance. I suppose if there is a president who can bring them to heel, it will be Warren. Then again, ask yourself who can afford to buy the very best lawyers, accountants, lobbyists, and congresspeople?

“We are and will always be a values-driven company"

"Sasan Goodarzi, the CEO of Intuit, says the company’s efforts to make its free tax-filing software harder to find on Google were part of the software giant’s commitment to educating taxpayers."

In an 11-minute video sent to Intuit employees, Goodarzi said the company was trying to help consumers by steering them to “educational content” instead of TurboTax’s free filing website. 

The company promised the IRS it would offer a free option to tens of millions of taxpayers earning less than $34,000. 

Responding to our reporting, which shows that Intuit, H&R Block and other for-profit tax software companies were steering low-income customers to their paid products, Goodarzi said the company’s marketing practices “had been misinterpreted to signal that we were trying to hide the product we offer in the IRS program. That is inaccurate.” 

“Our choice around search was intended to be [in] the best interest of taxpayers so they were more fully informed about their options and could choose what they felt was best for them,” Goodarzi said in the video, which was marked “Intuit Confidential” and was sent to staff on May 3.

The story and links to ProPublica's ongoing investigation can be found here. One of my favorite installments dug into the HTML code and showed how the customer steering sausage was made. Perhaps Intuit's good intentions were indeed "misinterpreted," but it is noteworthy that since the story appeared Intuit has changed the code on its Free File page.

Trump tax reform

The working stiff's friend. If you count golf as work.

Trump tax reform best case scenario?

From John Cochrane's blog. I'd give it this side of a snowball's chance in hell.

Kotlikoff's preferred tax plan... a) eliminates the corporate income tax, the personal income tax, and the estate and gift tax, b) introduces a value added tax (VAT), a progressive personal consumption tax on top consumers that exempts consumption financed by labor income, an inheritance tax that kicks in after the receipt of $5 million, and a Co2 emissions tax of $80 per ton, c) eliminates the ceiling on the FICA payroll tax, and d) provides a $2,000 annual payment to each U.S. citizen.

Fungible

One important implication of the standard consumer choice model in economics is that in-kind transfers should have the same effect on spending as giving cash, at least if the transfer is small enough relative to the overall budget.

The logic is simple: If I give you $200 per month in food stamps, and you were already spending at least $200 in cash on food, you can use the food stamps to free up the $200 in cash that you were spending on food, and spend it on what-you-will. I may as well have given you the cash. In particular, there is no guarantee that your spending on food will increase by a single penny, although most likely it will go up by at least the portion of an additional $200 in cash that you would have devoted to buying more food.*

This logic applies to targeted grants from the federal government to local jurisdictions as well, and the case of federal funding for schools is an interesting and rather sad example. Best of luck, Secretary King, getting those federal tax dollars to the poor schools and deserving students that really need the help. Shame on the lobbyists, and shame on the school districts for diverting the grants to the rich kids. Still, as an economist, what else could I expect?

* I don't deny here the finding of behavioral economics that people don't always treat cash and in-kind transfers as completely fungible. The basic principle is still important.

Untaxed household labor

Here's an excellent post from Josh Barro on Obama's proposed childcare tax credit for "working" parents... in quotes because of course all parents work, inside and/or outside the home. Barro's point is that we don't tax home labor, so in fact the tax system provides an incentive at the margin for parents to stay at home. A perfect little lesson in Beckerian economics, and even with some back-of-the-envelope data analysis. Nice.

Why are state and local taxes more regressive than federal?

You might think democracy favors redistribution toward the median voter, and the smaller numbers in small jurisdictions might strengthen democratic outcomes. Not so: in most states, state and local are incredibly regressive. But I am happy to see that California is less regressive than most...

Econ 1 pop quiz

OK kids, what's wrong with the logic of Joe Nocera, respected NY Times columnist?

On Monday, I finally spoke to [climate change expert James] Hansen. His knowledge and sincerity are easy to admire, even if his tactics are not. He told me he would like to see oil companies pay a fee, which would rise annually, based on carbon emissions. He said that such a tax could reduce emissions by 30 percent within 10 years. Well, maybe. But it would also likely make the expensive tar sands oil more viable. If you really want to eliminate expensive new fossil fuel sources, the best way is to lower the price of oil, which would render them uneconomical. But, of course, that wouldn’t exactly lower demand either.

Hint: Key terms for your answer include tax wedge, consumer price, producer price.

Conclusion: Nocera is clueless on the most basic economics of environmental policy. Depressing.