The Dead Zone: The Implicit Marginal Tax Rate(mises.org)
mises.org
The Dead Zone: The Implicit Marginal Tax Rate
http://mises.org/daily/3822
5 comments
Like the "left-liberal do-gooders" who were in power up to January 2009?
The article makes some very valid points, but trying to put all the blame on the writer's political opponents is silly. I would be very surprised if both the Republican and Democratic parties don't share the responsibility.
Incidently, exactly the same effect occurs in the UK, and has done for decades under both Labour and Conservative governments.
The article makes some very valid points, but trying to put all the blame on the writer's political opponents is silly. I would be very surprised if both the Republican and Democratic parties don't share the responsibility.
Incidently, exactly the same effect occurs in the UK, and has done for decades under both Labour and Conservative governments.
He's still got a valid point - negative incentives to work are undeniable.
Unfortunately, his point would be stronger if he had made it more in terms of a practical problem to be solved, not as an excuse to get in shots against The Evil Other Guys.
Partisan feuding is for people who want political power, not solutions.
Partisan feuding is for people who want political power, not solutions.
Or who are simply bitter. But yes, it would be better. The actual income tax is progressive yet it is continuous so you never have to ask your boss to lower you salary by $2 in order to save $20 on taxes.
The same negative incentives to work are also, incidentally, not exactly "noticeable" to the general public. It is not as if people go around wearing signs around their neck indicating which government-subsidized programs they are eligible for.
Imagine, for the moment, if they did.
Imagine, for the moment, if they did.
These numbers are really disturbing. I think something like Charles Murray's "The Plan" ( http://www.amazon.com/Our-Hands-Replace-Welfare-State/dp/084... ) where each citizen just recieves a $10,000 check every year has a lot of merit. The poor are still helped, but it eliminates the disincentives to do work. Since it's just shuffling dollars, it also minimizes the amount of money lost in the bureaucracy. Another idea is to turn the U.S. government into a joint stock corporation and simply give every citizen dividend paying shares. That way the pie is divided equally, once and for all, and then government can simply concentrate on growing the pie.
Economic critics tend to present things as 'Here. This is simple. Policy makers are sooo stupid that they haven't noticed.'
While the current policy may be wrong, this issue exists because the problem is hard. Subsidies & assistance for the poor create perverse incentives. That is true. But they are there for a reason. Most people consider it morally important. We have two things we need to do that conflict with each other.
How do we subsidise to a minimal level without destroying incentive to work? It's not an easy question to answer. Creating an incentive that puts more people in employment but also more people onto the street is not a solution, at least no to the problem as it is implied.
While the current policy may be wrong, this issue exists because the problem is hard. Subsidies & assistance for the poor create perverse incentives. That is true. But they are there for a reason. Most people consider it morally important. We have two things we need to do that conflict with each other.
How do we subsidise to a minimal level without destroying incentive to work? It's not an easy question to answer. Creating an incentive that puts more people in employment but also more people onto the street is not a solution, at least no to the problem as it is implied.
While the current policy may be wrong, this issue exists because the issue is hard.
You make it sound as if the policy makers are talented engineers who made the design decision because it was the best compromise on how to deal with the various trade-offs. That's simply not the case.
In reality, these welfare policies are a result of a chaotic process of various factions battling to get their hands on dollars. This process is not designed, and the welfare law has simply evolved into a giant mess over the course of many decades.
That said, politicians and policymakers are not idiots. They are simply controlled by events larger then themselves. It's the incentives of the political system that are at fault. ( See Government's End by Jonathan Rauch )
How do we subsidise to a minimal level without destroying incentive to work? It's not an easy question to answer.
Roll up all the welfare programs into one program - give every American over 21 a check for $10k a year. For people without a job, give a guaranteed government job for $6 an hour. For people who need hands on help, go back to relying on local charities and local government aid. They are closer to the problem and have the right incentives to actually fix things (and empirically, the local welfare systems of the late 1800's worked far, far better than our national system today).
You make it sound as if the policy makers are talented engineers who made the design decision because it was the best compromise on how to deal with the various trade-offs. That's simply not the case.
In reality, these welfare policies are a result of a chaotic process of various factions battling to get their hands on dollars. This process is not designed, and the welfare law has simply evolved into a giant mess over the course of many decades.
That said, politicians and policymakers are not idiots. They are simply controlled by events larger then themselves. It's the incentives of the political system that are at fault. ( See Government's End by Jonathan Rauch )
How do we subsidise to a minimal level without destroying incentive to work? It's not an easy question to answer.
Roll up all the welfare programs into one program - give every American over 21 a check for $10k a year. For people without a job, give a guaranteed government job for $6 an hour. For people who need hands on help, go back to relying on local charities and local government aid. They are closer to the problem and have the right incentives to actually fix things (and empirically, the local welfare systems of the late 1800's worked far, far better than our national system today).
> You make it sound as if the policy makers are talented engineers who made the design decision because it was the best compromise on how to deal with the various trade-offs. That's simply not the case.
Indeed; what policy-makers are optimising for is getting themselves re-elected, not helping the economy.
> give every American over 21 a check for $10k a year. For people without a job, give a guaranteed government job for $6 an hour.
Eminently sensible proposals. The first would be a vote loser because lots of stupid voters would say "but that means giving it to the rich, who don't need it". The second would be resisted by LOSV who would say "but that's socialism!!! it's eeeeeeeeeevil!".
Indeed; what policy-makers are optimising for is getting themselves re-elected, not helping the economy.
> give every American over 21 a check for $10k a year. For people without a job, give a guaranteed government job for $6 an hour.
Eminently sensible proposals. The first would be a vote loser because lots of stupid voters would say "but that means giving it to the rich, who don't need it". The second would be resisted by LOSV who would say "but that's socialism!!! it's eeeeeeeeeevil!".
You are right. Political systems are not in a good position to design policies in the best possible way. I am completely willing to accept that. But there is some design going on, it is not complete chaos. It's not like neither of these goals has ever had any sort of influence on policy. It isn't as if this is just some big, obvious & uncontroversial policy mistake that everyone would see if they only visit reason.org that politicians have just overlooked.
The system, flawed as it is, is "trying" to solve the problem as I articulated, more or less.
Take your solution as an example. Don't you think these sort of blog posts could easily criticise it's consequences too? First, the same criticism of perverse incentives applies. It takes more compensation to motivate a person take a job if he already has $10k + $6h/hr. Second, you'd have a lot of people in guaranteed 'make work jobs' that are probably more expensive to run then just giving away money.
I'm not yours is a bad idea, but only because the problem is hard. Pretty much every proposed solution is messy & ugly with lots of loose ends & perverse incentives.
The elegant solutions can be found on either extreme of the political spectrum where you don't have to worry about one of the conflicting goals. They are also conveniently excused from reality because neither socialism nor capitalism has ever been truly applied.
The system, flawed as it is, is "trying" to solve the problem as I articulated, more or less.
Take your solution as an example. Don't you think these sort of blog posts could easily criticise it's consequences too? First, the same criticism of perverse incentives applies. It takes more compensation to motivate a person take a job if he already has $10k + $6h/hr. Second, you'd have a lot of people in guaranteed 'make work jobs' that are probably more expensive to run then just giving away money.
I'm not yours is a bad idea, but only because the problem is hard. Pretty much every proposed solution is messy & ugly with lots of loose ends & perverse incentives.
The elegant solutions can be found on either extreme of the political spectrum where you don't have to worry about one of the conflicting goals. They are also conveniently excused from reality because neither socialism nor capitalism has ever been truly applied.
It isn't as if this is just some big, obvious & uncontroversial policy mistake that everyone would see if they only visit reason.org that politicians have just overlooked.
Well, all I can say is this. I've spent too much of my time in life studying politics. I've worked in multiple levels of government ( U.S. Congress, city government, state senate), worked in non-profits trying to help the homeless, tutoring inner city kids, etc. I used to browse my college's social library for fun to read journal articles, and on almost every single issue I've read the top books and articles.
My conclusion is that, actually, yes, there is almost always a much, much better, solution, that would make most people much better off, that the political system has simply overlooked.
Note, I do not feel this way about things outside of politics and government. At the company I work at, I think the management generally makes the very reasonable decisions given the trade offs involved. But when I worked in government, I thought the process was insane.
For a few examples:
On the healthcare issue, see my blog post: http://intellectual-detox.com/2009/09/10/the-perfect-healthc...
Or consider Iraq/Afghanistan. If you believe that the U.S. should just get out, then you probably already believe that our current policy is insane. If you believe that the U.S. should stay in and build a workable government/economy, our policy is also insane. For comparison, Britain once ruled Egypt, which at the time had 1/3rd of Iraq's population, with a mere 5,000 soldiers, ruled it so well that Cairo was a notable international destination, and actually turned a profit. The tactics the British used are well documented, and in the end resulted in far, far less bloodshed and collateral damage than our current tactics. Yet we ignore them, and everyone loses. Iraq and Afghanistan remain in chaos and both the Iraqi civilians and the American taxpayer bleed red. Again, insanity.
Or consider education: http://steve-olson.com/how-the-public-school-system-crushes-... and http://www.paulgraham.com/nerds.html Again sheer insanity. And again, if you actually study the history and politics of the educational system, you'll find that the system is not the result of balancing hard tradeoffs. It's the result of an insanely dysfunctional political system.
And don't even get me started on economics and the financial crisis.
Again, I spent a lot of time in the political world and it only slowly grew on me just how insane the system was. I basically went from believing the mainstream academia/NYTimes view ( ie. the American system is flaws, but generally arrives at a workable solution given the constraints) to being legitimately scared at how badly everything is being run.
First, the same criticism of perverse incentives applies. It takes more compensation to motivate a person take a job if he already has $10k + $6h/hr.
There is still a bit of a disincentive, but it's much, much, much better than a 110% marginal tax rate.
Second, you'd have a lot of people in guaranteed 'make work jobs' that are probably more expensive to run then just giving away money.
$6 an hour is still a lower wage than ~98% of the jobs out there, so people would still have the incentive to switch to a higher paying, not-make work job.
Well, all I can say is this. I've spent too much of my time in life studying politics. I've worked in multiple levels of government ( U.S. Congress, city government, state senate), worked in non-profits trying to help the homeless, tutoring inner city kids, etc. I used to browse my college's social library for fun to read journal articles, and on almost every single issue I've read the top books and articles.
My conclusion is that, actually, yes, there is almost always a much, much better, solution, that would make most people much better off, that the political system has simply overlooked.
Note, I do not feel this way about things outside of politics and government. At the company I work at, I think the management generally makes the very reasonable decisions given the trade offs involved. But when I worked in government, I thought the process was insane.
For a few examples:
On the healthcare issue, see my blog post: http://intellectual-detox.com/2009/09/10/the-perfect-healthc...
Or consider Iraq/Afghanistan. If you believe that the U.S. should just get out, then you probably already believe that our current policy is insane. If you believe that the U.S. should stay in and build a workable government/economy, our policy is also insane. For comparison, Britain once ruled Egypt, which at the time had 1/3rd of Iraq's population, with a mere 5,000 soldiers, ruled it so well that Cairo was a notable international destination, and actually turned a profit. The tactics the British used are well documented, and in the end resulted in far, far less bloodshed and collateral damage than our current tactics. Yet we ignore them, and everyone loses. Iraq and Afghanistan remain in chaos and both the Iraqi civilians and the American taxpayer bleed red. Again, insanity.
Or consider education: http://steve-olson.com/how-the-public-school-system-crushes-... and http://www.paulgraham.com/nerds.html Again sheer insanity. And again, if you actually study the history and politics of the educational system, you'll find that the system is not the result of balancing hard tradeoffs. It's the result of an insanely dysfunctional political system.
And don't even get me started on economics and the financial crisis.
Again, I spent a lot of time in the political world and it only slowly grew on me just how insane the system was. I basically went from believing the mainstream academia/NYTimes view ( ie. the American system is flaws, but generally arrives at a workable solution given the constraints) to being legitimately scared at how badly everything is being run.
First, the same criticism of perverse incentives applies. It takes more compensation to motivate a person take a job if he already has $10k + $6h/hr.
There is still a bit of a disincentive, but it's much, much, much better than a 110% marginal tax rate.
Second, you'd have a lot of people in guaranteed 'make work jobs' that are probably more expensive to run then just giving away money.
$6 an hour is still a lower wage than ~98% of the jobs out there, so people would still have the incentive to switch to a higher paying, not-make work job.
Lets not get too caught up in the specifics of particular policy. I was just trying to point to the fact that there is a genuinely hard problem with inevitably messy solutions. Your solution is also messy. Maybe it is better. but it is not uncontroversially better & it does not give a solution with no perverse incentives.
I also agree that the political system does not produce optimal decisions. I agree with you. But there is a big gap between sub optimal & random.
I also agree that the political system does not produce optimal decisions. I agree with you. But there is a big gap between sub optimal & random.
For people without a job, give a guaranteed government job for $6 an hour.
This sounds good but in practice would probably be a bad idea, for multiple reasons. The main problem is that government work programs would (by necessity) have to involve jobs that almost anyone is capable of performing, with minimal oversight required. This would be very susceptible to gradually becoming pointless busy-work, variations on the "one person digs a hole, next person fills it back in" pattern.
The net result would likely be money spent wasting people's time to do work that creates no value. The ideal goal is to get people into jobs where they're actually creating value, and spending time doing a useless "job" is actually counterproductive because it's time they can't be spending to gain skills or look for other work.
We'd be better off paying people $6/hr to get training in a marketable skill, or to search for work matching skills they already have.
This sounds good but in practice would probably be a bad idea, for multiple reasons. The main problem is that government work programs would (by necessity) have to involve jobs that almost anyone is capable of performing, with minimal oversight required. This would be very susceptible to gradually becoming pointless busy-work, variations on the "one person digs a hole, next person fills it back in" pattern.
The net result would likely be money spent wasting people's time to do work that creates no value. The ideal goal is to get people into jobs where they're actually creating value, and spending time doing a useless "job" is actually counterproductive because it's time they can't be spending to gain skills or look for other work.
We'd be better off paying people $6/hr to get training in a marketable skill, or to search for work matching skills they already have.
Of course it would be make work jobs. But the pay is aimed to be lower than ~98% of the jobs out there. Even McDonald's pays more than $6 an hour. The idea is that this would be a job of last resort. A way for people who can't even hold down a job at McDonald's to at least learn what it means to work. The other point is that it allows people who can't hold down normal jobs not to starve, will not giving them an incentive to go on welfare just because they would rather not work at all.
We'd be better off paying people $6/hr to get training in a marketable skill, or to search for work matching skills they already have.
Government job training programs have a long history of not working at all. For entry level jobs, the best training is on the job. At a low level, the basic skills needed are: getting to work on time, being reliable, not dropping the f-bomb on your boss, etc. The point of a guaranteed job program is to be that very basic step into the workforce.
We'd be better off paying people $6/hr to get training in a marketable skill, or to search for work matching skills they already have.
Government job training programs have a long history of not working at all. For entry level jobs, the best training is on the job. At a low level, the basic skills needed are: getting to work on time, being reliable, not dropping the f-bomb on your boss, etc. The point of a guaranteed job program is to be that very basic step into the workforce.
You are arguing for a make-work equivalent of dole queues.
mises.org is to Austrian-school libertarians what Redstate is to conservative Republicans. Make your own call about whether we ever want posts from here on Hacker News, or posts that include the words "left-liberal do-gooders". I made my choice, and flagged this.
A pity, because the article makes an interesting point otherwise, when not drifting into deranged partisan territory.
I'd rather choices be made per article, and not avoided because of a domain name.
Likewise with choice of phrasing. I'd be almost happy to block every article that used the words "awesome" or "douchebag" (and variants), but I realize that's an awfully blunt ax to wield.
Is there a term for besmirching an article because of the domain and not the content? I suggest ad domaininem, analogous to ad hominem. (Latin scholars, please correct me here ...)
Likewise with choice of phrasing. I'd be almost happy to block every article that used the words "awesome" or "douchebag" (and variants), but I realize that's an awfully blunt ax to wield.
Is there a term for besmirching an article because of the domain and not the content? I suggest ad domaininem, analogous to ad hominem. (Latin scholars, please correct me here ...)
It'd probably be ad principatum.
(-em is the accusative of hominis, the stem of which is "homin").
(-em is the accusative of hominis, the stem of which is "homin").
jaiwithani(1)
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