Thursday, October 26, 2017

Thinking about Tax Cuts (Part 1): Growth and Prosperity


Tax reform season is upon us. The White House and Congressional Republicans promise that their unified framework for tax reform will “fuel unprecedented economic growth.” The President has touted numbers as high as 6 percent. His more cautious advisers suggest 3 percent, a full percentage point or more above recent long-run forecasts. But even if faster growth were a sure thing, we need to ask whether that would bring real prosperity. Just what is real prosperity, and what would it take to achieve it?

Growth and prosperity are not the same thing

Economists use GDP as a measure of a country’s total output of goods and services that compresses output of steel, radishes, and flu shots into a single number. Although they are less widely known, it is also possible to measure the broader concept of prosperity by aggregating the many dimensions of human flourishing, including health, education, personal freedom, and living conditions, into one indicator. We expect GDP and prosperity to be positively related, but how closely? 

Let’s look at some numbers. For this post, I will use the Social Progress Index (SPI) as a measure of prosperity. According to Michael Porter, Professor at the Harvard Business School and a member of the Advisory Board of the Social Progress Initiative, the SPI is “a practical tool for government and business leaders to benchmark country performance and prioritize those areas where social improvement is most needed,” and “a systematic, empirical foundation to guide strategy for inclusive growth.” (The Legatum Prosperity Index, an alternative that I have used elsewhere, would yield similar conclusions.)

The SPI is constructed from some 50 individual indicators, covering things like longevity, school enrollment, homicide rates, environmental quality, protection of property rights, freedom of religion, and many more. Despite the “progress” in its name, there is nothing especially “progressive” about it in the political sense. The great majority of its components measure aspects of human wellbeing that are equally valued by progressives, libertarians, and conservatives. 

Here is a scatter plot of the SPI against GDP per capita.* The solid black trendline shows a reasonably close fit between the two variables, with an R2 of 0.82. The fit is best for a logarithmic trendline, indicating that for any given starting point, a 1 percent gain in income yields a roughly the same gain in SPI score, although a $1 gain in income has a much stronger effect for low-income countries. 



The United States ranks fifth in terms of GDP per capita among the 128 countries covered by the SPI and eighteenth in terms of its social progress score. It lies exactly on the black trendline, which is plotted from data for all countries. However, that trend is pulled down by the poor SPI scores of countries like Saudi Arabia and Kuwait (conspicuous outliers in the lower right of the scatter), which suffer from the curse of riches. Compared to its real peers, the wealthy democratic countries of the OECD, the United States is an underperformer. 

There does not appear to be any one group of indicators that pulls down U.S. performance down relative to global or OECD trends. We can see that by looking at some sub-groupings of the SPI indicators.

The creators of the SPI organize their indicators into three groups. Basic Human Needs includes survival-related indicators like nutrition, clean water, child mortality, and violent crime. Foundations of Wellbeing includes education, access to information, life expectancy, and environmental quality. Opportunity includes political rights, property rights, tolerance, and higher education. Compared with all countries, the United States is below the trend for basic human needs and opportunity, and close to the trend for foundations of wellbeing. Within the OECD, the U.S. is below trend in all three categories.

Instead of the SPI’s own groupings of indicators, which I find a bit quirky, we can instead reorganize them into more straightforward categories of health, education, living conditions, and personal freedoms. Among all countries, U.S. indicators are above the GDP-adjusted trend for education, on the trend for personal freedoms, and below the trend for health and living conditions. Within the OECD, U.S. performance is above trend for education and below trend for all of the other three. (Note that the education indicators in the SPI are mostly quantitative measures, such as primary, secondary, and college enrollments, rather than qualitative measures, like test scores.)

Where do we go from here?

By a variety of measures, then, the United States does not do a good job of converting raw GDP into the elements of true prosperity. Where do we go from here?

One option would be to prioritize more rapid GDP growth, as does the GOP’s unified framework for tax reform. If everything worked out for the best, growth would pick up to about three percent per year. After five years of growth at that rate, assuming no change in the position of the United States relative to the GDP-SPI trend, we would catch up with the point that Ireland occupies today. The next chart, which zooms in on the upper-right-hand corner of the preceding one, shows that outcome as Arrow A, which points to the right, parallel to the OECD trendline.


There is a possible catch, though. Backers insist the unified framework will produce enough growth to pay for promised rate reductions without increasing the deficit, but critics dispute that. The liberal-leaning Tax Policy Center estimates that the plan would reduce federal revenues by $2.4 trillion over ten years. The more conservative Committee for a Responsible Federal Budget estimates the revenue loss at $2.2 trillion.

Suppose the critics are right, and deficits widen. Suppose Congress gives in to pressures to cut support for education, public health, clean water, and environmental quality. If those programs were slashed, then, even if the promised 3 percent growth materialized, Arrow A would swing to a more south-easterly direction, significantly undershooting Ireland.

A second option would be to increase spending on social and environmental programs without fundamental structural reforms. Conservative critics would, no doubt, warn that doing so would put the brakes on growth. For the sake of discussion, suppose they were right, and GDP growth slowed to 1 percent per year. Under such a policy, the U.S. economy would travel along a path like Arrow B, with slower growth but larger gains in social prosperity. After five years, we might end up somewhere near the point representing today’s Switzerland.

Could we do even better?

If the only choices were Ireland or Switzerland, I would be tempted to aim for Switzerland. To choose otherwise, one would have to value GDP itself more highly than the better education, health, environmental quality, and personal freedom that go into the Social Progress Index. But could we do better still?

We could, if we pursued reforms that enhanced the inherent dynamism of the U.S. economy while also strengthening social and environmental protections. That combination could send our economy forward along Arrow C in the chart, aiming to the right of Switzerland and higher than Ireland. In bare outline, such a policy package might usefully include the following elements:

First, it would include genuine tax reform, as opposed to the simple tax cuts that are the likely outcome as the proposed unified framework works its way through Congress. Real tax reform would be revenue neutral. It would fully fund any cuts to top corporate and personal rates with elimination of loopholes, and without pie-in-the-sky dynamic scoring. Adding carbon taxes or consumption taxes to the mix could allow a sharp reduction in payroll tax rates, which, according to the Tax Policy Center, is a bigger burden than the income tax for three-quarters of American households.

Second, the package would include reforms of the social safety net to minimize the egregious disincentives to work that are built into today’s welfare system. I have sometimes suggested a Universal Basic Income as one way to increase work incentives, but there are many other ideas. A universal child benefit, an enhanced Earned Income Tax Credit, or an old-fashioned negative income tax also hold promise.

Third, the package would lift barriers to labor mobility that are built into our healthcare system. One critical step would be to end “job lock” by decoupling health insurance from employment. Reforms that made healthcare more portable from state to state would also help. Such reforms would simultaneously boost GDP and SPI scores. 

Fourth, a comprehensive reform package would include a strong free trade policy combined with reforms that enhanced economic resilience in the face of trade and technology shocks. Healthcare and safety net reforms would contribute to shock-proofing the economy, but other measures would help too, including a rollback of excessive occupational licensing, measures like “Ban the Box” that aim to improve the job market success of ex-offenders, and measures to combat the opioid epidemic.

Tax cuts alone are not enough

The lesson here is that the even if the tax cuts in the GOP’s unified framework performed as promised, growth of GDP alone is not enough to guarantee prosperity. Instead of using growth as the be-all and end-all metric for tax policy, or any other area of policy, our primary goal should be to improve the ability of the U.S. economy to transform raw GDP into real social prosperity as measured by indicators of health, education, environmental quality, and personal freedoms. 

Rather than forcing economic growth for its own sake, we should focus on structural reforms that would enhance economic dynamism through improved labor mobility, reduction of work disincentives in the social safety net, and creation free markets for jobs, goods, and services both within the country and among nations. 

This is not, after all, asking the impossible. Just moving up to an average level of performance, as represented by the social prosperity trendline for other wealthy, democratic countries, would be a great step forward. In fact, why be content to shoot for an Ireland or a Switzerland, which themselves are underperformers? Why not aim for the above-trend standards of a Denmark, a Finland, or a New Zealand? Why not try, at least?
____________________
*The SPI data are from the 2017 release of the index, which contains the most recent available value of each variable for each country. The average data year for the 2017 release is 2015. Accordingly, I have used 2015 values of GDP per capita, measured at purchasing power parity, downloaded from the IMF data base.

Reposted with permission from NiskanenCenter.com

Wednesday, October 25, 2017

Intra-governmental Dispute on Class Actions Poses Dilemma for Trumpian Populism


In today’s New York Times, Jessica Silver-Greenberg reports on a dispute between two federal agencies that pits Steven Mnuchin’s Treasury Department against the Consumer Financial Regulatory Commission (CFRC), headed by Richard Cordray, an Obama appointee. The controversy centers on a proposed CFRC rule that would prohibit financial institutions from enforcing fine-print clauses that mandate private arbitration and prohibit class-actions in contracts governing credit cards, car loans, and the like.

Class actions play a key role in resolving disputes in which a deep-pocket corporation is alleged to cause small harm to many individuals. Air pollution cases often fit that mold. Similar cases arise in the financial world, for example, when a credit-card issuer unfairly imposes excessive late charges of a few dollars each on thousands of customers.

Libertarians often defend both private arbitration and class actions in principle as desirable features of a free-market system of dispute resolution. For example, in a discussion of air pollution in his 1973 manifesto For a New Liberty, Murray Rothbard wrote,
Obviously, if a factory pollutes the atmosphere of a city where there are tens of thousands of victims, it is impractical for each victim to sue to collect his particular damages from the polluter (although an injunction could be used effectively by one small victim). The common law, therefore, recognizes the validity of "class action" suits, in which one or a few victims can sue the aggressor not only on their own behalf, but on behalf of the entire class of similar victims.
However, in practice, free-market thinkers have sometimes tempered their enthusiasm for class actions with fine-print clauses of their own. In another more technical and detailed article on Law, Property Rights, and Air Pollution, Rothbard piled on procedural limitations, including restrictions on joinder of both plaintiffs and defendants, uniformity of interests, and proof of causation, that would render the actual use of class actions impractical. (See here for more on the role of class actions in pollution cases.)

Evidently, Trumpian populists are caught in the same dilemma Rothbard was when it comes to class actions. In their public rhetoric, they pose as defenders of the little guy, a stance that should, logically, favor broad use of class actions. In behind-the-scenes actions like the Treasury’s attack on the CFRC rule, however, the administration more often comes down firmly on the side of party with the deeper pockets.

Friday, October 20, 2017

The Senate's 'Budget Hoax' is Nothing New (Sad)




The Senate is getting ready to pass a budget resolution, six months behind schedule. On the eve of a final vote, Senator Bob Corker calls the resolution a hoax, but plans to vote for it anyway. As quoted in The Hill, Corker says,
The only thing about this that matters is preparation for the tax reform. Other than that, these amendment votes, everything about this is a hoax. A hoax. It has no impact on anything whatsoever.
He goes on to say,
Unless we create a real budget process, which this is not, our country’s fiscal situation will continue to go down the tube, and we have no mechanism to control real spending, 70 percent of which is mandatory, that’s not even covered by this.
Sadly, this is not a new problem. Decades ago, Herbert Stein, then chairman of President Nixon’s Council of Economic Advisers, wrote, “We have no long-run budget policy—no policy for the size of deficits and for the rate of growth of the public debt over a period of years.” Each year, according to Stein, the president and Congress make short-term budgetary decisions that are wholly inconsistent with their declared long-run goals, hoping “that something will happen or be done before the long-run arises, but not yet.” (Quoted in AEI Economist, Dec. 1984.)

It would be fair to say that our fiscal policy has been “going down the tube,” as Corker puts it, for a long time.

Reposted from Niskanen Notes.

Tuesday, October 17, 2017

Winners and Losers from the Mortgage Deduction in Latest GOP Tax Plans

A few weeks ago, I wrote a post titled “Time to Repeal the Mortgage Deduction.” One of the big arguments against the deduction is that, far from being a break for the middle class, households earning $125,000 a year and higher get 87 percent of the benefits. Now, according to an analysis by Laura Kusisto of the Wall Street Journal, Congress is floating a tax reform plan that would keep the deduction but make it even more lopsidedly favorable to the rich.

The latest proposal would preserve the mortgage deduction, at least on paper, but narrow the appeal of itemizing by doubling the standard deduction. According to data from Zillow, cited by Kusisto, it now pays to itemize, on average, only for homeowners with houses worth more than $305,000, or 30 percent homes. If the standard deduction were doubled, the breakeven point would rise to $801,000, or about 5 percent of homes.

Who would be the winners and losers from these changes? To answer, we need to consider the effect on home prices as well as the effect on taxes. Kusisto cites a study by PricewaterhouseCoopers that says average home prices would fall by 10 percent without the mortgage deduction, with most of the effect felt by lower-priced homes. In that case, the effects would break out as follows:
  • Middle-class homeowners who stay in their current homes would not be greatly affected. What they lost from the mortgage deduction they would gain back from the higher standard deduction.
  • Middle-class first-time home buyers would be winners. They would gain both from the higher standard deduction and from lower prices on starter homes.
  • Middle-class families who sell their homes without buying another (for example, to move to assisted living) would be the biggest losers. Loss of the mortgage deduction would erode gains from the higher standard deduction, while the sales value of their homes would drop.
  • High-earners with expensive homes and enough deductibles to itemize would be little affected one way or the other.
  • Realtors and mortgage lenders who earn a percentage on the price of each new home would be losers.
Reposted from NiskanenCenter.org

It's Time to Deregulate Adult Autism Care


The Centers for Disease Control and Prevention has been tracking the prevalence of autism spectrum disorder (ASD) since 2000. As the following chart shows, the identified prevalence of ASD among American children especially boys has been rising steadily. No one seems to know how much of the increase is due to greater prevalence of the disorder itself, or greater awareness and better diagnosis. It probably is a little of both. In any case, the number of people who were diagnosed with ASD in childhood and who now are entering adulthood is rising and will continue to increase.


Unfortunately, too many of those now entering adulthood with ASD are running into regulatory barriers that prevent them from getting the kind of care they need. This post explains the nature of those barriers and outlines changes that would help ensure appropriate care for all adults with ASD. 

Origins: Deinstitutionalization

The widespread deinstitutionalization of people with mental illnesses has been one of the most dramatic changes in social policy in the United States since World War II. According to  Dominic Sisti, Ph.D., an assistant professor of medical ethics and human policy at the University of Pennsylvania, the number of patients in state psychiatric facilities decreased from 560,000 in 1955 to just 45,000 in 2014, a 95 percent decrease in the per-capita institutionalization rate. (The linked article by Sisti and colleagues is behind a paywall, but a summary is available here.)

The deinstitutionalization movement was driven, in part, by new therapies that could be delivered outside an institutional setting and also by well-publicized abuse in mental institutions. There is no doubt that many people benefited, but for others, deinstitutionalization brought unintended consequences. For some, it resulted in “transinstitutionalization” to prisons, homeless shelters, and emergency rooms. For others, it has meant living on the street.

Friday, October 13, 2017

Help Save SlideShare! Bring Back Reupload

SideShare, the popular slideshow hosting service, has 38 million registered users and gets 70 million unique visitors a month. If you are one of those users or visitors, you can help save SlideShare from itself by bringing back REUPLOAD, an essential feature that has recently been removed.

What is Reupload and Why is It So Important?

Reupload is (or was) a feature that allowed users to repost a revised version of a slideshow without changing its URL. Now that it is gone, the only way to revise a slideshow is to delete the original version and repost a new version with an new URL. Why does that matter?
  1. Short-term error correction: We are all human. (Well, at least I am). We make mistakes. After you have posted your slideshow, you, or one of your readers, notices a typo, a wrong number in a calculation, or a broken link. You want to fix it, but meanwhile, you or your readers have bookmarked the original version, or Tweeted the link, or posted it on Facebook. When anyone follows those links or bookmarks, they will be taken to the original version with the error, not your corrected version. If you deleted the original when you made the correction, they won't find anything.
  2. Long-term revisions: Sometimes I publish a slideshow on a topic of lasting interest, say, the economics of a soda tax. I posted this version of my soda tax slideshow in 2010. Last year, soda taxes were back in the news, so I posted this revised version. At the same time, I added the little yellow box on the front page of the original so that anyone who had the old link could find the new version. This week, I wanted to update it again to include the news of the failure of Chicago's soda tax, but with reupload gone, I can no longer steer anyone who finds one of the old versions to the newest version.
  3. Classroom use: College professors and high school teachers use slideshows in their classrooms all the time. They include links to the slideshows in the printed or on-line curriculum materials they give to their students. What if the creator of the slideshow fixes an error or makes an update? Doesn't the teacher want them to find the latest version, not the old one? Without reupload, this won't happen.
What you can do

When I first contacted SlideShare about reupload, I got this non-responsive response:
Hi Ed,
Thank you for your email and I am sorry for any inconvenience this may have caused. We're always looking for ways to improve the SlideShare experience for our members. This sometimes means removing features that aren’t heavily used to invest in others that offer greater value.  Please know we continuously evaluate how features and products are used, and make adjustments accordingly to focus our resources on providing the most value to our members. As a result, we have removed the ability to re-upload documents to SlideShare.
As a workaround, you can upload a new file to SlideShare and delete the current one. Please be aware that this means we will not be able to transfer any views/likes/URL's to the new presentation.   Again, I apologize for the inconvenience and we greatly appreciate your feedback. We have documented the issue in order to track additional reports of the problem and for consideration to be addressed in a future release.
If there's anything else I can help you with, please don't hesitate to let me know. All the best,
Allison LCS Support Specialist - Mobile
This was a boilerplate response that other users have also gotten. It has been posted and reposted several times on discussion boards. I reopened the case and pointed out to "Allison" that it is nonsense. Reupload is not a feature that is "not heavily used." It is an essential feature that people use all the time. It offers great value.

"Allison" sent back this new reply that gave me a tiny bit of hope:

Thanks for your feedback about removing the re-upload feature and I wish I was personally able to do something myself however, please know I've sent your concern to our product team for consideration. Taking member feedback into account, we're always looking for ways to improve the SlideShare experience. When many of our members ask for the same improvement, we try our best to get it done. Though immediate action may not be possible, your feedback will be incorporated into our ongoing discussions about the direction of our design and development.


Again I apologize for any inconvenience this may have caused. If you need anything else, please let me know and I will gladly assist. 
So, if one of us complains, nothing happens, but if a lot of us complain, something might happen. Let's see if "Allison" is right. Let's send lots of requests to bring back reupload and see if they bring it back.

How to send a request to bring back reupload

SlideShare makes it pretty easy to ask for help. Here is how you do it:
  1.  Go to the SlideShare home page: https://www.slideshare.net/
  2. Scroll down to the very bottom and click on "Support" 
  3. Type "Reupload" in the search box at the top of the main support page
  4. Next, you will get a page that says, "Sorry, we couldn't find any information about 'Reupload' (unless, by the time you do this, they have added some information).
  5. Go to the bottom of that page and click on the "Contact us" link
  6. That will take you to a page where you can send a message to SlideShare help. Ask them to bring back reupload, and tell them why you care.
Thanks! If we all work together, we can save SlideShare from self-destruction!

Update: Matleena Laasko,a freelance trainer in Finland, is, like myself, a heavy user of SlideShare. She has written an extensive post lamenting the loss of reload and also other features, like the ability to download in ppt and failure of links to work when viewing on line. Her original post is in Finnish, but here is a link to a Google Translate version, which, despite the usual limitations, is good enough to give the general idea.


Further update (10/23): Here are more responses from SlideShare:

With regard to reupload:
"I understand your frustration and we did look at the usage of this feature compared to the usage of other SlideShare features and found that it wasn't as heavily used and we have currently removed the feature due to the support cost.

However, we realize that this is a useful feature for some power users and we are actively working on making foundational improvements to our platform, which will make building and supporting a feature such as re-upload much easier in the near future.

Again I apologize for any inconvenience this may have caused."
So, it looks like a lot of casual users don't bother to update and reupload their posts, but it maybe is sinking in that those of us who are "power users" find it important. So far so good.

With regard to the inability to download ppt versions of the slides:

Thanks for reaching out about not being able to download the original ppt file. What you've encountered is a known issue and I'm very sorry for the inconvenience. Our engineering team is working on it but there's no estimate as to how long that might take. We'll do our best to keep you posted.
Since they used to allow downloads of ppts, it shouldn't take their engineering team all that much effort to put this ability back, you would think.

So, some progress, but I think it is worth keeping the pressure on. Anyone who has not yet sent their comments to SlideShare should still do so, rather than just being satisfied with these answers. We don't want this just to become a stalling tactic.

 




Who are the Biggest Obamacare Losers?

In a post on Kaiser Health News, Julie Rovner discusses the plight of a forgotten slice of the population who are the biggest losers from the ACA. These are people who buy insurance in the individual market but earn too much to qualify for premium subsidies.

And no, these are not all millionaire lawyers in private practice and billionaire day-traders who work from laptops in their beach-side condos. The upper income limit for ACA subsidies is 400 percent of the poverty line, which comes to just $64,000 for a family of two. That hits ordinary working couples who would like to take early retirement, people working part-time who have outside income, and self-employed professionals. Even Uber drivers can make $64,000 a year if they work hard enough.

Rovner’s post highlights the case of a married couple from Raleigh, N.C., both in their late 50s, who work as private consultants to the energy industry. When their premiums reached $1,600 a month, with $7,500 deductible for each of them, they decided to forego insurance altogether.

Rovner calculates that there are about 7.5 million such people. That is less than 3 percent of the population, but they constitute 43 percent of those who buy insurance in the individual market.

These same 43 million who are the big losers from the ACA would be among the big winners from Universal Catastrophic Coverage. UCC, as I have explained elsewhere, has potential appeal to both conservatives and liberals. As premiums rise ever higher for unsubsidized shoppers in the individual market, the constituency for UCC can only grow.

Reposted from NiskanenCenter.com