"The Rising Tide Tax System"

En particulier pour le concept, cité à la fin, de "equal marginal sacrifice", qui est une justification moralement intéressante de la progressivité de l'impôt

"The Rising Tide Tax System"

via Economist's View de Mark Thoma le 14/12/08

This is one of the entries in the NY Times Magazine's annual Year in Ideas:

The Rising-Tide Tax System, by Stephen Mihm, NY Times: In the last 20-plus years, overall economic growth in the United States has come at a cost: rising income inequality, which in the past few years has hit levels not seen since the late 1920s. A more progressive income tax, introduced during the New Deal, helped mitigate the problem, and it remains a likely prescription today. Yet a team of economists that includes Robert Shiller of Yale University and Leonard Burman of the Tax Policy Center recently released a paper in which they propose another way of "spreading the wealth"...

Under the proposal, the tax code would automatically be rewritten at the end of each year to reflect any changes in the relative share of national income earned by each income bracket. For example, if one year the nation's top earners saw their share of national income rise while people at the bottom saw their share grow at a slower rate (or decline), the following year's tax rates would be automatically rewritten to compensate for the new inequality. This would keep everyone's share of after-tax income at the earlier level.

The ... proposal would work both ways: if the rich saw their share of the nation's income grow more slowly relative to people lower down the economic ladder, the tax system would become less progressive...

The name of the proposal — the Rising-Tide Tax System — is an allusion to John F. Kennedy's claim in 1962 that "a rising tide lifts all boats," a promise that general economic growth would benefit all members of society. Shiller argues that it's still possible to turn Kennedy's vision into a reality. "It's something we can engineer," he says.

This has attractive properties, and it may help us to avoid the concentration of bubble-inducing excess liquidity in the hands of relatively few people, but how do we know which baseline level of inequality to target?

Also, this approach leads to the idea that the only reason for progressive taxation is redistribution, but that's not the case. Concepts such as equal marginal sacrifice can be used to support a progressive structure, so even if there is no redistribution at all we may still want to have progressive taxes. Thus, before we can use this approach we'd have to decide (at least) two things - what is the level of inequality we are targeting, and what is the base level of progressiveness that we use. For example, if there is no change in inequality from previous years, does that mean taxes should be flat?

Sur l'impact de la taxation des gains en capital

Au détour d'un allumage par Brad de Long de la NR, qqes arguments intéressants sur l'impact des variations de l'imposition sur les plus values.

Thomas Sowell Is the Stupidest Man Alive

via Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong de Brad DeLong le 14/08/08

Someday the writers of National Review will realize that the incompetence of their economic coverage is one reason for the shredding of their own professional reputations. But that day is not yet.

Thomas Sowell

Thomas Sowell on Obama on National Review Online: The question, incidentally, was why Senator Obama was advocating a higher capital-gains tax rate when experience has shown that the government typically collected more revenue from a lower capital-gains tax rate than from a higher rate.... Economists may say that higher capital-gains tax rates can translate into lower levels of economic activity and fewer jobs, but Obama will leave that kind of analysis to the economists...

Congressional Budget Office:

Congressional Budget Office: Because taxes are paid on realized rather than accrued capital gains, taxpayers have a great deal of control over when they pay their capital gains taxes. By choosing to hold on to an asset, a taxpayer defers the tax. The incentive to do that -- even when it might otherwise be financially desirable to sell an asset -- is known as the lock-in effect. As a consequence of that incentive, the level of the tax rate can substantially influence when asset holders realize their gains, as can be seen particularly clearly when tax rates change.... For instance, the Tax Reform Act of 1986 boosted capital gains tax rates effective at the beginning of 1987. Anticipating that increase, investors realized a huge amount of gains in 1986. Then, in 1987, realizations fell by almost as much, returning to a level comparable to that before the tax increase.... The sensitivity of realizations to gains tax rates raises the possibility that a cut in the rate could so increase realizations... in the short run.... [A] stock of accumulated gains may be realized shortly after the rate is cut, but once that accumulation is "unlocked," the stock of accrued gains is smaller and realizations cannot continue at as fast a rate as they did initially.... The potentially large difference between the long- and short-term sensitivity of realizations to tax rates can mislead observers into assuming a greater permanent responsiveness than actually exists...

Justin Fox:

"Serious" economists and capital gains taxes - The Curious Capitalist - Justin Fox - Economy - Markets - Business - TIME: on this particular topic I tend to rely on professors at fancy universities who have served in the current Bush administration, because I figure it's hard to dismiss their verdict as political. The current consensus of this crowd is pretty well reflected in a 2004 paper by Greg Mankiw, the former chairman of Bush's Council of Economic Advisers, and Matthew Weinzierl, which concluded that "for standard parameter values, half of a capital tax cut is self-financing." That means half of the tax cut is not self-financing--so the overall result of the cut is a revenue loss. And those "standard parameter values" include spending cuts to make up for the revenue loss from the tax cuts. If you simply do as the Bush administration has done, and make no commensurate spending cuts, you get less than half of the tax cut back...

A quibble: without offsetting spending cuts, you get less than zero of the tax cut back. The dynamic revenue loss is greater than the static revenue loss.

Pigouvian Taxes and Equity

Mark Thoma introduit la notion d'équité dans le débat sur la taxation des biens à externalités négatives. Je n'avais jamais pensé à cet aspect des choses, qui rejoint cependant mon interrogation plus générale sur les points où le politique et l'économique se confrontent dans la définition de ce qui est acceptable :

Pigouvian Taxes and Equity
In the debate over global warming and what to do about it, we often hear arguments such as:
In particular, we could go to Greg Mankiw, founder of the Pigou Club. He would no doubt argue that the proper way to handle the negative externalities ... would be to tax them. Then, there's no need to stamp out industry... Rather, we simply give the market an incentive to reduce the bad effects.. The idea is that larger social goals are perfectly compatible with the preservation of individual choice...
But yet, despite the economic superiority of taxes over mandates in terms of the efficiency properties, there is substantial public support for mandates such as CAFE standards over taxes, and mandates continue to garner enough votes in the legislature to pass and be signed into law.
Why might that be? In thinking about efficiency as the primary reason for promoting one policy over the other, I think we might be missing something important: equity. More choice is best most of the time, but when it's a matter of being constrained, of not being able to do something you want or need to do, people want that constraint on behavior to be shared equally - especially when it involves something as essential to daily life as energy. If we impose an energy tax (carbon tax), the wealthy will pay more for their fuel, but the jets will still fly. We know that if the price of gas goes up a dollar or two due to a carbon tax, many people at the upper end of the income distribution will hardly notice, they won't be constrained in the same way the average or poor household will be. They can still drive their cars, heat their pools and houses, and so on. Their savings might not accumulate quite as fast, but to what extent are they really paying the same cost as a poor person?
Progressive carbon taxes anyone?
That might work, but even with a progressive carbon tax many people toward the upper end of the income distribution would not be very constrained in what they can do. With CAFE standards at least there's a chance that the cost of the policy action will be shared more equally. I realize that people have found a way to evade the CAFE standards (e.g. classify an SUV as a truck and make trucks subject to different standards), and evasion is always a problem, but that's largely a matter of will and closing loopholes. With mandates, at least the perception that we are trying to distribute the costs more equally is there.
I don't think policies that allow certain segment of the population to "buy out" of the constraint will find much popular support. If the poor are passed by roaring, gas guzzling, sports cars on the freeway as they drive their gas saving, small hybrid, they won't feel that is fair, not unless our transportation infrastructure changes dramatically. We can promise that with a carbon tax the proceeds will be redistributed to the poor so they are left harmless, but credibility over the long-run is a problem (what if the next administration cuts the government transfers to the poor?), people won't necessarily believe it will be fair to them individually, and there remains the problem of certain groups buying their way around the constraint and the public perception that comes along with that.
Maybe I'm wrong about this, but I do think we should spend more time thinking about the equity of these proposals and how fairly the (utility) cost is distributed across the population. A mandate, done properly, may have poor economic properties, but I think people support them because at least there's a chance that a mandate will force the luxury cars to abide by the same mpg restrictions as the lower price cars driven by the typical household. If we are going to go the carbon tax route, touting the efficiency properties won't be enough, I think we will need to find a way to convince people that everyone will share the costs (approximately) equally before it will find popular support.
Posted by Mark Thoma on Monday, February 11, 2008 at 03:16 PM in

Progressive tax reform

Au moment où sarkozy s'attaque à la progressivité de l'impôt, la réflexion sur le sujet fait rage aux US. Une intéressante contribution au débat du Hamilton project (centre gauche US, Rubin & Co)