Monday, October 7, 2013

Soylent Taxes Are People.

From Casey Mulligan, via N. Greg Mankiw & Peter Boettke, a snapshot of average statutory marginal tax rate hikes since 2007.

Taken from an NBER paper here (gated, I think). If you are able to access the paper, please do. It's much better than this oversimplification. Mulligan is very careful to point out costs, benefits, and transfers. More to the point, he generates estimates for both employer and employee responses to statutory requirements. 

Think of this in terms of Munger's recent podcast on rules and norms. The ACA is a brobdingnagian alteration of the rules of medical insurance and labor alike (both of which, we've argued on this blog are not euvoluntary). When the written rules are tuned without reference to the informal norms,discord and unpredictability prevail until the new ways of doing business are assimilated. In this case, the very point of the individual mandate is that the median healthy household is supposed to subsidize the elderly, the ill, the infirm. That the indigent and the lazy also end up cross-subsidized is a piffling moral concern, a small price to pay for (allegedly) universal coverage. Distortions to the labor market (more part-time labor, marginal firms electing to refrain from expansion, & al.) are similarly petty when placed side-by-side with that warm, fuzzy feeling you get in your belly from achieving something as great as Medicine For All.

But Sam, you cry, that's delusional. You can't ignore those costs. That's real suffering, real destruction of human capital when recent college graduates can't get a job for all these new labor market frictions. Real working parents forced to make ends meet holding down a trio of disjoint part time jobs scattered across town. Real retirees shoehorned back to work so they don't end up chowing down on Fancy Feast brand cat food.

To which I say, take public choice seriously. Constituents have chosen to uncheck the box that says, "constitutional constraints on majoritarian whims." Every time a principled candidate for high office seeks your vote, she is hindered, stymied, blocked, mocked, and exposed to all manner of fretful attack. When it comes to basic economics, the median voter is not trained to think past stage one. And even if he were, the inaccoutable nature of decision-making by voice runs afoul of the concentrated benefits, diffuse costs problem. If it costs me nothing to vote for unicorns that fart strawberries and piss lager, you can bet that's exactly what I'll do even if what I get is an ordinary donkey with a papier mâché horn stuck to its forehead.

By the same token, take public morality seriously. Try to avoid being surprised when your friends and family end up unswayed by your economically literate arguments against O-care. Even when they're willing to look past the political kayfabe that is the name of the statute, they're sure to keep its intent well in mind. Indeed, Mulligan's chart up above isn't Cassandra for regular people, it's reassurance that someone will be footing the bill for sick kids. It's justice.

When you take these concerns seriously, the scope of the problem becomes a bit more daunting. How do counter a BATNA desperation argument with marginal tax rate increase projections? How do you put a human face on tax accountancy? Suggestions are welcome.

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Do you have suggestions on where we could find more examples of this phenomenon?