The Irrational Regret of Automatic Withholding

Ladies and Gentlemen, I present you the following:

Today, I found out that my tax filing status was never changed after my divorce. This means I haven't been paying enough and now the government wants its money. FML

source

 A proletarian gripe, yes. But it's a sentiment pretty widely shared. If you have ever taught a principles course, ask yourself how often you've had to explain the permanent income hypothesis to students. Consider how much effort you've expended trying to shoo away the notion that IRS withholding is pretty close to the worst sort of savings scheme outside of payday lending. Now consider how many students out there never bothered to show up to your classroom in the first place.

Now take a moment to think just how easy it might be to hoodwink a democracy.

I am curious how stubborn a tick this automatic withholding it. Some programs cannot easily be dislodged once in place, thanks to popular support. IRS policy seems at first blush to lack popular support, yet I think it enjoys just enough indifference among the people that multipartisan support by elites is sufficient to ensure its longevity.

A Song of Fire and Rope

Madison's jurisprudence is dead. Long live Madison's jurisprudence.

This document was evidently filed three days ago in the Atlanta US District Court.

As They Say, Do Please Read The Whole Thing, From Start To Finish; You Won't Regret It.

Or idk, maybe you will regret it. Still, it's better to regret something you have read than to regret something you haven't read.

Federal income taxes would be a lot more euvoluntary if they paid for things most Americans wanted. Judging my work with polling data, most Americans haven't the first idea what their tax dollars fund. It's tough to say whether or not you're getting your money's worth if you don't even know what you're buying.

But this kind of response? Yikes, people.

Who's Afraid of the Big Bad Unfunded Liabilities?

What's the right way to think about tax dodging?

It isn't always that easy for me to think about public finance. The combined US budget at local, county, state, and federal levels easily tops a trillion bucks, and that's without any "temporary" spending. That sure seems like a lot, but I'm not sure what to compare it to. I have a similar problem thinking about budget shortfalls. Is the FY 2014 budget deficit of $564B too much? Too little? Just right? Compared to what? Moreover, how can the typical taxpayer know that she's getting her dollar's worth out of the spending done on her behalf?

Making it more complicated is that a lot of the projects (defense spending especially) conducted on behalf of US constituents notionally generate value well into the future. What's the PDV (present discounted value) of a new carrier group? And how about debt service? At very low interest rates, service costs are extremely sensitive to small rate changes, meaning that the cost of debt financing is hostage to the myriad forces that dictate borrowing costs (it ain't just the Federal Reserve, in case anyone's told you otherwise). Heck, debt service problems are for money that's already been borrowed. What about money that the political elite has only promised to borrow?

Since I have trouble thinking about these things as they are, I've made it a habit to disregard the linguistic fluff and use a common word to describe public spending not covered by current taxes. That word is "promise." Debt is a promise, one backed by the weight of the common law. You are contractually obligated to pay your debts. Congress is constitutionally obligated to pay the debts of the nation. Debt takes precedence over all other obligations in bankruptcy (unless politically favored constituents can jump the queue under the aegis of a duly elected government that proves comfortable disregarding the rule of law). But debt is far from the only promise you (or Congress) can make. You can promise to walk the dog, to take the kids out for pizza, to buy your wife a new car after a fallen tree destroyed the old one, or to replace the batteries in your smoke detectors (when was the last time you checked yours?). Congress can promise to pay for your retirement, buy your prescription drugs, care for your wounded veterans, or secure your borders. These are also promises, but they don't have the same common law support that debt enjoys. They're statutory promises; statutes can be overridden or repealed. There's no stare decisis in the legislature.

But that doesn't mean that they're not credible promises. It's bizarrely hard to cut government programs. Unfunded liabilities are, for all practical purposes, as good as actual debt obligations. Maybe more so, since programs like OASDI and Medicare are far more of a political third rail than, say, making Treasury bondholders take a haircut.

But something else occurs to me as well: there are a number of shadow promises that haven't even been made yet that make it yet harder for me to think clearly about public finance. The looming geriatric tsunami will bring with it lots of new clamoring for things that'll make Boomers' retirements more pleasant. Add to that the very real probability of new programs to tackle ballooning student debt issues, and it shouldn't take too much imagination to conclude that the standard metrics of Debt/GDP ratios (which is a dumb metric anyway, what with the comparing stocks to flows) and the like grossly misstate the nature of the problem: an over-extension of promise, explicit or otherwise.

Hedging against a future of Promises Gone Wild is either prudent or paranoid, depending on whom you ask. Either way, the disquiet that tends to accompany broken promises is unpleasant whether or not you've pinched your pennies and stitched in time. In the language of EE, each of the three types of promises (debt, unfunded liabilities, and shadow spending) threatens to impose a fairly substantial negative externality on citizens, particularly way out in the tails of the distribution. It is quite natural to conclude that there exist some people who would prefer not to subject themselves to the hassle.

So here's the bit that's been bothering me. I have the impression that the typical voters considers people who avoid the inevitable costs of zealous promise-making to be cowardly, unpatriotic cheats. FATCA legislation stands next to no chance of being struck down, and for all the noise partisan Americans make about renouncing their citizenship and packing their bindle for Canada should their guy lose the election, if someone actually up and does it (particularly if he's wealthy), scorn inevitably follows.

So the question: is emigration euvoluntary? Do the reasons for emigration matter? Rather, do the reasons for emigration matter more than the consequences? The treasury is still out the same receipt whether or not someone leaves because she married a foreigner or if she left in protest of a Republican in the Oval Office. How important is the cheap fluff talk in determining the moral intuitions? Is tax dodging different than routine emigration? Why or why not? What does this imply for strategic public talk?

Taxes Are Not A Recap

"That's what taxes are: a recap." Please. No. Just stop.

Whatever your particular position on the morality of the 16th Amendment might be, few people are willing to swallow the camel that the tax code as written is particularly efficient. Firms like TurboTax exist simply because the legislature has decided to use the tax code to remake the galaxy of private production and exchange in an image that suits its members' political or private business interests. The US tax code is an unwieldy juggernaut, and tax prep software is an industry that extracts rents from this criminal complexity.

The little Aristotelian in my foot locker is hopping mad at this grotesque commercial-et-political kayfabe. This is an expropriation of private joys to feed the maw of Congressional logrolling, institutionalized corruption, and telescopic moral engineering. You got married, you had a kid, and guess what? The maze of incentives in your IRS Form 1040 means that you too get to support corrupt farm subsidies, import tariffs, tanks the Army doesn't want, Predator drones buzzing the night sky to rain fiery death abroad, and a raucous jostling of nudge after tax-fueled nudge to individuals and firms. Save here, spend here, defer defer defer. Buy bonds, sell stocks, get yourself an IRA... no wait, don't hoard cash, we need to stimulate the ecooooonomy.

It's already maddening enough without adding syrupy insult to injury. And this sort of contemptible advertising that hocks a goober right in the eye of eudaimonia is hateful in a way that convinces me more than ever that the grotesque collaboration between the second and the third estates is the great public sin that rose from the putrid ashes of the collusion between the first and the second. It is the phoenix whose corpse must be interred in the gut of the kraken, never to rise again.

TurboTax, you and your confederates are a great, shaggy chancre on the neck of euvoluntary exchange. At least have the tact to reflect that in your advertising.

If taxes are the price we pay for living in a civilized society, then why should we feel comfortable paying part of that price to a house-boggart?

h/t TGP

Differential Capital Gains Taxes and Euvoluntary Institutions

In yesterday's post, I floated the absurd proposal that progressive taxation on Treasury securities was isomorphic to progressive taxes on house-rents as described by Adam Smith in Book V of WoN.

To the best of my knowledge, nobody bit. I guess I should, since it gnawed at me a little this morning.

A surtax on interest income means that anyone liable for the tax would only be willing to buy at a discount. The weighted cost of Treasury capital would rise. But that's only for folks with the tax liability. At auction, Treasuries would first go to small cap and foreign (of any size) buyers and then to the large institutional investors. Hedge and mutual funds would divest. Pension funds would divest. Bond "vigilantes" and zero hedgies would earn enough to buy several archipelagos in comfortable climates. To call my tax proposal "disruptive" is a hilarious understatement.

But is it inflationary? Deflationary? I'm not that kind of economist, so I find myself perpetually agnostic on the interaction between interest rates, the quantity of money in circulation, and the price level. Indeed, I'm not entirely sure I quite understand what each of those things truly mean beyond the flickering shadows they cast on the gneiss that surrounds me. Interest rates can be modeled by ad hoc equations, approximated by regressions, but the yield curve itself doesn't jump off a blackboard, it comes from the uncrackable eggs of investors' minds. And sure, there's money in circulation, but like I mentioned yesterday, money is just a proxy for underlying stuff-n-junk. I find M2 measures and the various die fleders similarly epistemologically troubling.

Macro no giod P, I guess.

Still, flights of fancy about tax policy is a fun (pursuant to a very liberal definition of the word) exercise in thinking about the nature of public finance and its relation to monetary and tax policy. How would my proposal count? It certainly affects the ability of the Treasury to issue bonds, and it's not wholly unreasonable that changing borrowing costs should count as fiscal policy, right? But the relative price change domestic-to-foreign would release a bunch of foreign-held liquidity back into the US, increasing the cash in circulation. But that cash could be stowed away as excess reserves, or put back into munis or commercial paper or whatever, so that might be a wash. But also the FOMC loses a hell of a lot of discretion if they're competing with the IRS for control over real yields. See how quickly this scenario gets just absurdly complicated?

I think my observation yesterday was a good one: interest income is an idle rent. But to reason from this directly to a policy position elides necessary reasoning. How great would it be if economists would retain the rigorous circumspection needed to avoid this type of logical error in general? A boy can sure dream.

Some transitional gains traps are mouse-sized, snapping shut on the necks of cab drivers and dairy farmers. Others are wrought from steel bars and can trap village-menacing, man-eating tigers. Luckily, the Second Law of Public Finance is (probably) true: with enough time, all spending is discretionary. And discretion is a virtue. And statesmen are virtuous.

Right?

It's sort of funny anyway. The underlying asset of a Treasury instrument is tax revenue. Taxing tax revenue has a certain ironic elegance to it, don't you think? It's a self-stirring bowl of porridge. Eh.

Local Man Reads Enlightenment Scholar. You Won't Believe What Happened Next!

Adam Smith, (1776). "An Inquiry into the Nature and Causes of the Wealth of Nations." Book V Ch.2 ¶71

The inequality with which a tax of this kind might fall upon the owners of different ground-rents would arise altogether from the accidental inequality of this division. But the inequality with which it might fall upon the inhabitants of different houses would arise not only from this, but from another cause. The proportion of the expence of house-rent to the whole expence of living is different in the different degrees of fortune. It is perhaps highest in the highest degree, and it diminishes gradually through the inferior degrees, so as in general to be lowest in the lowest degree. The necessaries of life occasion the great expence of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expence of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable. It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in that proportion.

House-rents are idle incomes. They are useful in their role as information, directing tenants towards frugality and landlords to improvement, but contrasted with profiteers, rentiers need direct no productive activity to maintain the luxuries and vanities which they possess.

My undergraduate training is in finance, so I carry with me an affinity for the 'underlying asset', the thing that is represented by a contract. My graduate training is in economics, so my affinity extends well down the rabbit hole, bobbing somewhere in the murky depths of, ugh, 'utility'. This is only to say that paper assets like financial instruments are puppets that stand in for freight cars full of coal, which in their turn hold the potential to create crayons, which in their turn are pointless sticks of colored wax until a toddler scribbles a likeness of the dog inside daddy's Fundenberg and Tirole Game Theory textbook.

Once that picture is there and daddy sees it and smiles outwardly while fuming inwardly, the tiny sliver of the mutual fund that contained a small proportion of that futures contract written against that coal delivery to the power plant that supplies the grid that the crayon factory draws from to process its raw materials finally delivers its modest contribution to human flourishing. Once you wade through the clacking reeds of finance, you end up with something actually delivered: people dig rocks out of the ground so that my kid can deface my textbooks. So capital gains taxes applied to common stock, corporate bonds, or derivative instruments thereon tax productive activities.

But what of capital gains taxes on government debt? Well, let's check with the US Treasury Department. From the outlay report for 2013:

Most of these are transfer payments. "Health" is probably productive. "National defense," even when it's not a total misnomer is still perhaps only marginally productive. "Other" includes line items like the Farm Bill, which are actively destructive. On net, after the reeds, holding Treasury instruments is a lot closer to Smith's House-Rentier than to being a productive factory owner or etsy shop curator.

A tax upon T-Bills, therefore, would in general fall heaviest upon the unproductive rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable. It is not very unreasonable that the rich Treasury bondholders should contribute to the public expence, not only in proportion to their interest income, but something more than in that proportion.

Towards a more euvoluntary tax code.

World Cup Woe

To get more of something, subsidize it.

An easy enough platitude, yes? Subsidies sound great when the thing subsidized is something everybody wants. Or something enough people want to justify the burden slung on the shoulders of the unwilling. Isn't that the purpose of taxation? To get the free riders to start pedaling? And hey, who doesn't like futbol? What are you, a Yanqui?


 

TANSTAAFL. There Ain't No Such Thing As A Free Lunch. Subsidies aren't free money. They are transfers, often from poor to rich. If professional sports aren't euvoluntary enough to survive on their own merits, then maybe more of us should hit the big orgs like FIFA, the NFL, and the NCAA where it hurts: right smack dab in the pocketbook. We may not have favelas in the States, but we do have a large, nearly unanimous literature that clearly states: "independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development." (Siegfried & Zimbalist, JEP 2000)

We're paying for this through taxes why, exactly?

The Euvoluntarity of Your Feet

Charles Tiebout wrote a very influential paper in the 50s concerning a way to rein in local political elites' tendency to overgovern. It's called "A Pure Theory of Local Expenditures" and it's in the 1956 JPE 64(5).

In the frictionless world of the chalk-smear'd tweed jacket, if constituents find policy odious, they can pack up their ol' kit bag and pike it to the next borough. Ditto firms: given good mobility of capital, attempts to impose a heavy burden of taxation (by any means) will be met with a Galtian shrug towards low-tax jurisdictions.

Naturally, just as we don't live on an atmosphere-free planet, we don't work in a frictionless economy. Even an intuition-based review of the empirics of Tiebout reveals that some people are willing to put up with a lot from their elected officials. Human beings are not atomic: we live in webs of family, of friends, of professional relationships. We are averse to risk, wary of change, alert to the grass-is-always-greener fallacy (even when it's not fallacious).

People still live in Detroit.

When I think of issues like tax and regulatory competition, I try my best to keep simple models in mind so that I can change one thing at a time an imagine what the outcome looks like. For example, suppose we've got a 2-jurisdiction area with folks within the each jurisdiction following a power law income/wealth distribution (that is to say there are a few really rich people and a lot of relatively poor people). There are no nominal barriers to migration, but suppose there's a fixed cost to moving. At $100, the fixed cost doesn't have that much of a bite, but if the fixed costs are closer to $10,000, this implies that households with lower wealth may be constrained when it comes to pulling up stakes. More so even when they can't borrow. The implication here is that if one jurisdiction tries bullying its constituents, the flush will flee and only the fortuneless will find fit to feel the flogger's flench.

You should find similar results when you look at interconnectedness. As the important connections needed for a functional existence extend geographically, moving costs drop. When you compare families and firms, it should be as plain on the nose on my face that much of the tech innovation, while very nice for folks to stay in touch, has a proportionally greater benefit to larger organizations. Email is nice when your mom wants to send you a funny story about cats, but think about what it means to a company that previously had to rely on long distance telephony, courier, and saints preserve us, the US Postal Service.

Ditto lots of other stuff. Think about disproportionalities in regulatory impact, land use restrictions, tax incidence, and ethnic enclave effects. Intentionally or not, there's a lot going on that makes firms more mobile compared to workers, particularly marginal workers. It seems weird and perverse for policy to exacerbate these issues by erecting barriers to mobility.

Ordinary human beings in their daily lives benefit greatly from an expanded scope for specialization and trade. We get a hint of this when we see jurisdictions attempt to lure businesses with promises of tax breaks or kickbacks or whatever. What we see comparatively seldom is an attempt to issue this same sort of chum to workaday folks (and those places that do, like Hong Kong end up subjects of unkind photojournals). It seems to me that almost everyone benefits from greater mobility and the associated increases in opportunities to trade. Everyone that is except folks who directly benefit from geographical monopoly.

Hm.

Meta-EE and the Constitution Part 12: Sixteenth Amendment

Amendment XVI:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

From Riker (1964), federalism requires (a) a hierarchy of governments and (b) [de facto, not merely de jure] autonomy at each level. Weingast (1995) adds the following to make federalism market-preserving (i.e. meta-euvoluntary, or close enough for our purposes here) (c) subsidiary governments rather than the national government retain regulatory authority (this helps with Tiebout competition) (d) a de facto and ideally de jure common market exists and (e) sub-national governments face a hard budget constraint (no bailouts for spendthrifty municipalities, no free credit, no hand on the lever of the printing press).

Another way to look at Weingast is that the role of the sovereign authority, the national government is to act as sort of a meta-manager for the subsidiary governments, to keep the rule of law intact. When this is done right, we have one necessary ingredient for baking the cake of economic development. When it's done wrong, it's like someone put too much icing on Jimmy's 10th birthday confection.

Bad metaphors aside, the point of regulatory restrictions is to say "no" to transactions. Sometimes it makes very good sense to say "no" to transactions. Dumping poisons upstream of residential areas is something it makes sense to say "no" to. Clearcutting unowned land is (maybe) something it makes sense to say "no" to. These things may be true, but from this premise does not flow a truism that the central government is either best equipped in terms of knowledge or incentive to utter yon nay.

The 16th might be seen as a leader for the lightning strike that was the 18th, particularly considering Wilson and Harding's peccadilloes, but its effects have proven more pernicious than prohibition. Consider that there is no accidental language in the tax code. Every exemption, every credit, every deduction, every sentence, paragraph, comma jot and tittle represents some vested interest enjoying a nice "conversation" with elected officials on or about the vicinity of Capitol Hill. Instead of turning their talent towards increasing the scope and volume of euvoluntary exchange, firms have every incentive under the 16th to influence tax policy to throttle upstart challengers and jigger the sluices of wealth their way. The amount of political kayfabe needed to support this is perfectly astounding, no matter what your moral axis. That the tax authority has branded itself as being on the right side of the oppressed classes as well as a force for civilization is a simply astounding accomplishment.

Simply astounding.

Pygmalion Shrugged

Cypriot depositors set to "pay" a "surprise tax" on bank holdings (more here) are being offered a curious incentive to keep their cash in Cyprus: equity in future revenues from gas.

As Tyler Cowen says, solve for the general equilibrium.

Take Cyprus as a small-scale experiment. Suppose it works as the political elite predict and they grab the €5.8B they're after, forking out enough IOUs to placate customers. Suppose further that tax-pinched sovereignties elsewhere discover this gravid cash heifer and heave-to a-milkin'. Would a worldwide confiscation of wealth expose the itchy truth that modern money and banking isn't particularly euvoluntary?

The fiat currencies in use today are popular because they beat the pants off the alternatives. As I've pointed out before, not-unforced barter is for children and the destitute, and truck is a dirty word burned into a cracked shingle under the awning of  BATNA disparity. Gold as currency has been pronounced verboten by diktat, and electronic currencies are still in the "adorable curiosity" stage. Sure, some international firm might be able to credibly issue good private scrip that would run parallel to national currencies, but really, without the good faith of government backing, it's awfully hard to imagine a big issuer not facing a substantial expropriation threat, even in relatively free zones like the UK or the US. The collapse of Bretton-Woods (and heck, the hijinks of John Law and Louis XIV while we're at it) should be all the alarum bells we need to mind what happens when political elites catch whiff of what they can do with all the guns at their disposal.

The alternatives to banking often offend. If you want capital-intensive production (and yes, this includes modern agriculture, which is pretty much the only way possible to feed a planet of seven billion people), you can't get there with money stuffed into a mattress. If you want commercial, home, student, auto, or whatever loans, you're limited to a healthy banking sector, some sort of public option, or subterranean lending.

Western governments have sworn constituents a galaxy of promises that may be challenging to keep. Judging by the tone of the political kayfabe, they seem to be fond of making many more such promises. As Cyprus is busy showing us, the risk of expropriation may be quite severe indeed. Banking is not euvoluntary, which is exactly why politicians must take great pains to avoid threatening deposits: the consequences are too awful to tolerate.

Automatic (Withholding) For The People

My masochistic streak compels me to browse through the General Social Survey every now and again to remind myself what folks' attitudes are towards government spending. If, like me, you're skeptical of surveys thanks to the wonders of signaling theory or experimenter effects, try to take heart that the GSS gauges opinion rather than reports of activity. The voting process really isn't all that different, except perhaps that voters appear to be influenced even more strongly by the personality of candidates than they are by anonymous survey researchers. So perhaps it's wise to temper the interpretation of GSS data, but we probably needn't disregard it completely.

Anyway, you can browse government spending variables for the 2006 survey here. With a few exceptions (and the partisan bias is strong, often swamping race, gender, SES and age variables in regressions), respondents overwhelmingly favor either current or higher levels of government spending. We've also known for some time that the median survey respondent (in the GSS and other surveys) systematically errs about the size and the distribution of federal budget. I encourage you to review your copy of Bryan Caplan's Myth of the Rational Voter and remind yourself that respondents believe foreign aid to be a significant portion of the federal budget. I also encourage you to ask friends and family to a) explain the differences between the budget deficit, the current account deficit and the national debt and b) describe the difference between "mandatory" and "discretionary" spending and to estimate the relative proportion between the two in a typical fiscal year. Unless the people you know make a living working with this stuff, their answers may surprise you.

You might also be surprised that most folks don't know offhand what their tax burden is. I'm not talking about tax incidence here, since even professional economists can only provide statistically-generated estimates of labor supply elasticities; no, I mean the tax burden in the plain accounting sense. Try this: ask your friends and family what their tax bill is and watch the mental cartwheels. Most folks I've talked to know very well what their bi-weekly take-home pay is and they know their gross annual salary, but they've got to unthread their navel fluff to get at their actual tax obligation. One of the chief architects or automatic withholding and perhaps the most famous economist of the 20th Century Milton Friedman recognized this and in a 1995 interview with Reason remarked: "I have no apologies for it, but I really wish we hadn't found it necessary and I wish there were some way of abolishing withholding now." He understood the dangers of a functionally absent price system: voters could get a bunch of goodies from politicians without ever having to closely examine the price tag. If you want a way to get the public to sign on to higher levels of government spending, I can't imagine a more effective strategy.

This is important for euvoluntarists because it may be plausible that voters feel as if they're making something that walks and quacks a bit like a euvoluntary trade when they back spendthrifty candidates, but they may be doing so under terribly warped pretenses. Abolishing automatic withholding may not fully restore a rational cost calculus to the median voter, but it's probably a good step in the right direction. It might even be a good idea for voters to have to cut separate checks for each department they're financing. And to knock it off with the peacetime deficit financing.

Debts and deficits are symptoms.

Laws 1 and 2 of public finance: Deficits are future taxes; given enough time, all spending is discretionary. If Ricardian equivalence were an empirical phenomenon, economists would never have to point these out. Taxation and government spending are never euvoluntary, but good, sensible policy can steer us more in that direction. What a pity there are no political incentives to make it so.

Follow-up on gifts and obligations

Interesting follow-up from good friend W.H., on the (previous on EE) gifts and obligations question.  Not surprisingly, the law has anticipated something very like this problem, and there are lots of points to be made.  He writes:

"Dr. M:  Unified Gift and Estate Tax system allows for the rejection of a gift. Not that the concept is exactly what you are discussing, BUT it's interesting that the concept of "refuse the gift" has clearly been examined/studied at length -and- examined by tax law as it may create a form of "reciprocal obligation."
 
Then he sends this:

Disclaimers: When Rejecting an Inheritance is Actually Beneficial
 http://estateplanninginfoblog.com/2012/02/disclaimers-when-rejecting-an-inheritance-is-actually-beneficial/

31 USC 3113 - Sec. 3113. Accepting gifts

"The Secretary and the Administrator each may reject a gift under this section when the rejection is in the interest of the Government."
 http://us-code.vlex.com/vid/sec-accepting-gifts-19220713


Estate Tax Planning

"Almost any property can be disclaimed, including joint interests in bank accounts, real estate, or community property. The law also allows partial disclaimers."
 http://www.legal-forms-kit.com/freelegaladvice/willandestates/10.html

Felted Holes

The 2012 Summer Olympics are a nice time to reflect on the euvoluntarity of sports. Since this is sort of a big topic, I'll try to limit myself to the following points:

1. Scale and its relevance to euvoluntary questions
2. The relationship of schooling and sport
3. Incentives and the perversion thereof

I also think that each point is detailed enough to break up into its own post, so I'll start with the first one today.

A word on my priors. I can't under any common definition be considered a dedicated sports fan. I get a kick out of going to baseball games in person when I get the chance, but I don't watch televised matches and I can't tell you anything about any of the teams or the players. I'm familiar enough with most of the major rules of the major sports to know the difference between a ground rule double and a leg bye (that's from cricket for those readers insufficiently Anglophilic). When younger, I confined my penchant for memorizing irrelevant statistics to characteristics of the creatures found in the Monster Manual. When I elect to exercise of my own volition, I strongly prefer solitary pursuits--I completed a 200 mile bicycle ride from Seattle to Portland a few years back, for example. With that in mind, take my comments as coming from someone who is friendly to the notion of sport, someone who is friendly to large, successful businesses, but someone who is skeptical of overspecialization and downright distrustful of cozy relationships between business owners and state officials.

Old Country Rules

I don't think I quite fully grasp the moral intuition behind the so-called "Buffett Rule" (a moniker so godawful that the only way I can mentally salvage it is to imagine tiny parrots mobbing a caricature of a man on a beach who just blew out his flip-flop after stepping on a pop-top). It seems to me that there are at least two components, and I'm not sure which one is more relevant to the morality of taxation. Note that in both cases, the warrant appears to be that taxes provide public goods where MB > MC. Questioning this assumption is ill-suited to the mission of EE, so I won't waste much time on its consideration.

The consequentialist reason:
The wealthy among us attach lower marginal value to income (or wealth). In terms of utility, they can afford to pay more in taxes.

The deontological reason:
Income inequality is bad for society. A high GINI coefficient, even devoid of context breeds social unrest. Poor people are demoralized and seething resentment grows, perhaps exacerbated by crass displays of idle wealth by the spoiled children of titans of commerce. Add to this an assumption that wealth is earned illegitimately, perhaps by coercion or by the rents generated by cronyism to bake a superb cake of "soak the rich".

I'm sure I'm missing plenty here. The fairness heuristic is frequently invoked, or social justice or simple indignance. This is all fine, all good and wonderful, but the EE hook is this feeling I think people have that wealth is often illegitimately earned.

And indeed, this is where I have much in the way of common cause with many of my more conventionally left-leaning friends. It's a fairly plain fact that lots of wealthy people have earned their fortunes by currying political favor rather than conducting euvoluntary exchanges. Not all, of course, but enough that I share some sentiments of pique. I propose however that the failing lies primarily in the metastasis of Congressional activity. Taxing the lampreys that cling to the flanks of leviathan cannot be done without poisoning the entire bay (how's that for a terrible metaphor?). Starving the beast of Big Government strikes me as a more appropriate policy response.

I think the EE questions are in yonder clam beds: just how much of America's accumulated wealth was generated by non-EE methods? Is the answer to this question relevant to tax policy? To Constitutional limits on the power of the Congress? Is it morally appropriate to treat non-EE political-rent-holders the same as euvoluntary market participants? Who should be held accountable for the scope of the corporate welfare-warfare state? Do the incentive effects of taxation change depending on the strength of a firm's presence on K Street?

By the by, the reason I make so many nautical references (since nobody asked anyway) is because I'm a former Sailor.