Debate Feedback

We covered tax incidence in micro the other day. One of the examples I use is the luxury tax that congress imposed on yachts during Bush I. In that case, congress thought that they could tax the rich by taxing things rich people bought. The actual result was taxing the boat building companies out of business. I also pointed out that the luxury tax experience was the reason that President Obama's proposed tax on private jets never went anywhere.

During the debate, President Obama mentioned almost as an aside that he still thought taxing private jets was a good idea because "they can afford it." Several of my students picked up on that and wondered why the President didn't understand tax incidence.

Taxes and Recessions

A tweet from Mark J. Perry got me interested in looking at the IRS data on tax returns. We are just getting the 2009 data so we can see how things changed from the business cycle peak in 2007 to the trough in 2009. Looking at the 400 tax returns with the largest AGI some interesting things show up.

To make it into the top 400 in 2007 you had to have an AGI of $138.8 million. In 2009, only $77.4 million. That is a decrease of 44.2%.

Total AGI for the top 400 was $137.9 billion in 2007 and $81.0 billion in 2009. A decrease of 41.3%

Total AGI for all returns fell 12.2% from $8.688 trillion in 2007 to $7.626 trillion in 2009.

Total taxable income for the top 400 fell 42.5% from $118.5 to $68.1 billion. For all returns total taxable income fell 16.1% from $6.063 to $5.088 trillion.

Total income tax payments from the top 400 fell 29.7% from $22.9 billion in 2007 to $16.1 billion in 2009. For all returns total income tax payments fell 22.3% from $1.115 trillion in 2007 to $866 billion in 2009.

From a tax policy standpoint what this tells us is that high incomes are very pro-cyclical. They go up faster than the economy grows and fall faster than the economy contracts. If you skew your tax payments with a very progressive income tax then your tax revenues do the same thing.

A Geography Digression

The EPA has come out with some new proposals on what Arizona needs to do with three different power stations. In selling their proposal, they use the following:

EPA is also proposing additional pollution controls for nitrogen oxide at those plants.  These actions will improve visibility and human health at 18 national parks and wilderness areas, including the Grand Canyon, Saguaro National Park and the Petrified Forest.

More than 11 million people visit national parks in Arizona every year. Yet for many visitors the spectacular vistas are veiled in haze, dulling the natural beauty. Ninety percent of the time, the Grand Canyon’s air is impaired by pollution. On average, pollution reduces the Grand Canyon's pristine natural visual range by more than 30 percent.

Since we clearly don't want to impair the view of the Grand Canyon we must submit to their wishes.

However, let's have a look at their map.

Note that the Grand Canyon is at the far western edge of the "impact area" of two of the plants. Since the wind blows from west to east here in Arizona, the chance that any of the airborne pollution from the plants would make it to the Grand Canyon is essentially zero - but the EPA has to hype the potential impact on the Grand Canyon.

I've been in marketing and understand what you are temped to do sometimes to try to sell something. What I don't understand is why the EPA thinks anyone looking at their own map would believe them.

Priceline for Medical Tests

A family Doctor here in Arizona has set up a company that mimics Priceline,but for medical tests.

So Hastings took a routine part of his job -- negotiating rates with labs and medical imaging offices -- and launched a startup business. His Internet-based company, BidOnHealth.com, is modeled after the consumer-travel website Priceline.

It allows consumers to shop for discounted rates for routine blood tests or medical-imaging services such as MRIs and CT scans.

I always knew that you could negotiate prices for medical care. (Especially if you are paying real live cash money now as opposed to an insurance payment at an uncertain date in the future.) But this service would seem to simplify the process as well as provide you with some baseline prices.

Counter Cyclical Companies

Twenty years ago, when I worked for DEC in Dallas, one of my customers was Mary Kay. As you work with a company you have to get to know how, when and why they make money - otherwise you can't sell them anything. What was interesting about Mary Kay was that their sales went up during a recession. The IT folks I worked with attributed this to an increase in independent sales reps during hard times and a subsequent decrease when times were better.

I found this argument persuasive, but perhaps we were wrong.

Although consumer spending typically declines in economic recessions, some observers have noted that recessions appear to increase women’s spending on beauty products—the so-called lipstick effect. Using both historical spending data and rigorous experiments, the authors examine how and why economic recessions influence women’s consumer behavior. Findings revealed that recessionary cues—whether naturally occurring or experimentally primed—decreased desire for most products (e.g., electronics, household items). However, these cues consistently increased women’s desire for products that increase attractiveness to mates—the first experimental demonstration of the lipstick effect.

As they say, read the whole thing.

Summary article here.

HT: Marginal Revolution

Coase Theorem in Practice

Mark J. Perry explains.

Taxing College Tuition

Looks like the minimum tuition bill is dead. However, I found this interesting.

Kavanagh said, though, that ignores the other problem he wants to address: some students subsidizing others.

Written policy of the Board of Regents requires that at least 14 percent of what students pay in tuition be set aside for need-based financial aid. But the regents have currently set that figure at 17 percent.

“It’s the middle and upper-income students who pay full or almost full tuition, part of which is being diverted for the more needy students,” Kavanagh said.

I knew this was happening, but I didn't know it was a specific Board of Regents policy.

From an economic perspective, this is a tax. It is a tax on students used to subsidize other students.

What surprises me is that from a political perspective we allow an appointed board to levy a tax and engage in income redistribution.

Limits

Apparently there are limits to Moore's Law.

Types of Entrepreneurs

We hear a lot about small business and entrepreneurs whenever we talk about employment growth. However, there are a lot of different types of entrepreneurs. Steve Blank explains the differences.

There are six distinct organizational paths for entrepreneurs: lifestyle business, small business, scalable startup, buyable startup, large company, and social entrepreneur. All of the individuals who start these organizations are "entrepreneurs" yet not understanding their differences screws up public policy because the ecosystem in supporting each type is radically different.

The scalable startup represents what most local governments want - rapid and large employment gains. Yet it's small business "feed the family" startups that employ most of the private sector workforce.

HT: Points and Figures

Test Tube Beef

Whenever we cover complements in production in class, I like to point out that we get an increase in leather whenever the price of beef increases. This is because we don't yet know how to produce beef without getting a hide. Well, they're working on it.