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October 1, 2012

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Links for 09-30-2012

Posted: 30 Sep 2012 12:06 AM PDT

'For the Wealthy, a 28 Percent Solution'

Posted: 29 Sep 2012 09:39 PM PDT

Richard Thaler likes the number 28:

For the Wealthy, a 28 Percent Solution, by Richard Thaler, Commentary, NY Times: Everyone knows that America's tax code is a mess... But there is a possible solution. ...
I can state my idea in just one sentence: All income above $1 million a year for a household will be taxed at 28 percent. There are no deductions, and all income, including capital gains and dividends, is included. President Reagan favored something like this...
While we're at it, let's make the corporate tax rate 28 percent, too, because our current rate is high by international standards. Oh, and the estate tax exemption? On amounts above $3.5 million for individuals, the rate would be, of course, 28 percent. ...
But what about the argument that taxing capital gains and dividends at the same rate as ordinary income will discourage investment? I don't find this claim convincing. ...
Of course, I haven't said what would happen to the households in the middle, or what the taxes would be on the first $1 million for the rich... One possibility is to scale back deductions smoothly, starting at household incomes above $250,000, and completely eliminate them for incomes above $1 million. ... A more radical plan, curtailing deductions for this large group, is probably politically infeasible...
And what if the resulting revenue falls a bit short...? I suggest that we get our gasoline tax more in line with those of the rest of the world. Gradually raising it to something like $1 a gallon would both bring in revenue and help reduce emissions. In the long term, we could set the rate as a percentage of the price at the pump. Maybe 28 percent?

Paul Ryan's View of Social Insurance as a Socialist, Collectivist System That Must Cease to Exist

Posted: 29 Sep 2012 10:55 AM PDT

Brad DeLong says Paul Ryan's view of social insurance should get more attention:

Paul Ryan: Socialism Must Be Destroyed, and by "Socialism" I Mean Things Like Social Security, Medicare, Food Stamps, and Unemployment Insurance by Brad DeLong: The Paul Ryan audiotape did not get the same attention as the Romney videotape. Yet I find it as damning:

Paul Ryan:

Social Security right now is a collectivist system. It is a welfare transfer system…. And so what we have coming now at the beginning of this century is a fight…. [A]ll they have to do is to stop us from succeeding. Autopilot will get them to where they want to go. It will bring more government, more collectivism, more centralized government if we do not succeed in switching these programs and reforming these programs from what some people call a defined-benefit system to a defined-contribution system--and I am talking about health-care programs as well--from a third-party socialist-based system to an individually-prefunded individually-directed system. We can do this. We are on offense on a lot of these issues…

In Paul Ryan's eyes, Social Security, Medicare, Medicaid, Unemployment Insurance, SNAP, etc. are all socialist, collectivist systems that must cease to exist in anything like their present form.

And let me stress that shifting health care to an "individually-prefunded individually-directed system" means that poor people die in the gutter outside the hospital when they get sick: if you are unlucky and get seriously ill, then unless you are rich there is no way that you can have individually-prefunded enough to pay for your treatment. ...

Leaving social insurance to the marketplace -- for example assuming that individuals will rationally prefund their future needs -- has never worked. It didn't work in the US before we had a broad social insurance program, and it hasn't worked in other countries either. Are markets suddenly so much better than they used to be that we can now expect them to function in instances where they have always failed in the past? I don't see any reason to believe that's the case. There are good reasons why countries choose to institute social insurance programs, and those reasons haven't gone away.

Fed Watch: Is Low Inflation Always Good?

Posted: 29 Sep 2012 10:03 AM PDT

Tim Duy:

Is Low Inflation Always Good?, by Tim Duy: I was intrigued by something Scott Sumner wrote last week:

I'd also point out that the US has experienced 3 major equity or residential real estate bubbles in periods of relatively low inflation and NGDP growth (1929, 2000, 2006) and zero major bubbles in periods with high inflation and NGDP growth (1968-81). The 1987 stock market bubble was an intermediate case (which did zero harm, as NGDP continued growing after the bubble.)

I was further intrigued when I saw this chart from the IMF (h/t FT Alphaville):


This was from a chapter covering the history of all situation in which public debt rose above 100 percent of GDP. See the gap in the timeline? The relatively high inflation late 1960's and 1970's. Another reason to at least think about the possibility that while high and variable inflation is not ideal, perhaps neither is very low inflation.

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