As I understand the current tax debate, Team Obama’s policy argument is largely based upon a 2011 Journal of Economic Perspectives paper by Peter Diamond and Emmanuel Saez entitled “The Case for a Progressive Tax: From Basic Research to Policy Recommendations” (available from http://www.aeaweb.org/articles.php?doi=10.1257%2Fjep.25.4.165). It all comes down to a rather technical discussion concerning the reliability of econometric estimates of the elasticity of taxable income (ETI), which refers to the sensitivity or responsiveness of taxable income to changes in marginal tax rates. If taxable income is indeed not all that sensitive to increases in marginal tax rates (Diamond and Saez claim an estimate for ETI = 0.25 in their paper), then you can obtain (as Diamond and Saez do) so-called “socially optimal” tax rates of 73%-83% on the top 1% which would raise tax revenues while having a neutral effect on overall economic growth. On the other hand, if ETI is higher than .25, then the Diamond-Saez marginal tax rate recommendations could have the exact opposite effect – i.e., they could potentially cause substantial losses in tax revenue while reducing economic growth.
Compared with other public finance academic studies, the Diamond-Saez ETI of 0.25 represents a “lowball” estimate. In fact, other studies indicate ETI estimates ranging from 0.62 (from a 2004 paper by Saez) to 1.99 (from a 2000 public finance book edited by Michigan economist Joel Slemrod). Selecting the midpoint of this range (1.3), the application of the Diamond-Saez methodology would then imply a substantially different policy recommendation – in that case, the so-called “socially optimal” tax rates would be more like be 33.9% for all taxes, and below 27% for the federal income tax.
Also the AEI’s James Pethokoukis just posted an article at the AEIdeas “New study shows why heavily taxing the rich won’t work” which summarizes a new AEI paper by Aparna Mathur, Sita Slavov, and Michael Strain which casts further doubts concerning whether “…the [Diamond-Saez] model can be used prudently as the basis for the real-world public policy problem of determining the socially optimal top marginal income tax rate.”
The Story of the Recent Election, as told by David Warsh, a retired journalist who had a long and storied career covering economics and business for publications such as The Boston Globe, The Wall Street Journal, Forbes, and Newsweek. Mr. Warsh’s essay tells the story of the recent election within the context of the ebb and flow of American presidential politics dating all the way back to the 26th POTUS (Teddy Roosevelt, who held office from 1901-1909).
“So long as effective freedom of exchange is maintained, the central feature of the market organization of economic activity is that it prevents one person from interfering with another in respect of most of his activities. The consumer is protected from coercion by the seller because of the presence of other sellers with whom he can deal. The seller is protected from coercion by the consumer because of other consumers to whom he can sell. The employee is protected from coercion by the employer because of other employers for whom he can work, and so on. And the market does this impersonally and without centralized authority.”
“Indeed, a major source of objection to a free economy is precisely that it does this task so well. It gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.”
The Grumpy Economist: Debt Maturity. Excellent financial advice for the US Treasury Department concerning the importance of taking advantage of (historically) low long term interest rates by lengthening the maturity structure of the federal government’s massive debt. As University of Chicago finance professor John Cochrane notes, “Our Government has taken the opposite tack. When you include the Fed (The Fed has bought up most of the recent long-term Treasury issues, in a deliberate move to shorten the maturity structure) the US rolls over about half its debt every two years.”
How to Fix the Debt Ceiling (A Bigger Threat than the Fiscal Cliff)
Quoting from this article from the The American (the online magazine of the American Enterprise Institute), “A default by the U.S. government is more potentially damaging than the fiscal cliff — and more easily avoidable, if Congress modernizes the debt ceiling.”
This article discusses the ongoing experimentation by elite colleges and universities with online education. However, unlike previous efforts by the likes of Coursera and Udacity, this latest effort by a consortium of 10 prominent universities (including schools such as Duke, the University of North Carolina at Chapel Hill and Northwestern) called “Semester Online” is fully monetized. While students from consortium member institutions do not have to pay any additional tuition in order to participate, apparently non-consortium students have to apply, be accepted, and pay tuition of more than $4,000 a course.
‘When God Talks Back’ To The Evangelical Community : NPR.
This is a very interesting and informative Fresh Air episode in which Terri Gross interviews Stanford University anthropologist T. M. Luhrmann about her new book entitled “When God Talks Back“.]]>