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Tax Rumination

Let me offer a few simple, cranky, thoughts on taxes today.

(1) I like to believe I am not the dumbest person on the planet. I also happen to be a professional economist. And I have absolutely NO IDEA going into the year how much in tax obligations I owe to the government at all levels. If I get within 10% I would be incredibly impressed with myself. I find that to be “problematic.”

(2) In terms of tax incidence, it is well understood that at all levels, but even just at the federal level, the rich pay much larger shares of their incomes as taxes than the non-rich, despite the rhetoric. The table below, from the CBO, shows it for the federal level. But what I’d like to see, but cannot find from a cursory search, is a distribution of tax payments by household. For example, if you paid $10,000 in taxes last year, what percentile of the tax paying distribution does that put you in?

Average Federal Tax Rates, by Income Group, 2010

(3) Just for those of you who know me and my extravagant and unseemly lifestyle, my estimate is that Rachel and I, whose combined income puts us nowhere near the 1% (not that it should matter), paid a total of about SIXTY THREE THOUSAND dollars in taxes last year. Are we doing our share? And let’s ask simply, does that make us more or less likely to give to charities in a given year? Given that I am told that government is supposed to provide for my health and retirement security, does this make me more or less likely to save for my own health and retirement? Does this make us more or less likely to spend time in the community in a given year? Does this make us more or less likely to be sympathetic to all of the “hard work” our elected officials do? We can ask many more questions. But I’d like to do this exercise one day (were in not impossible due to Friedman’s stupid recommendation that we have tax withholding). I want to take $63,000 worth of cash. And I want to go to a research lab investigating basic disease pathways. And I want to go to a single mother in the inner city who is struggling to find work and feed her kids. And I want to go to a piece of state or national forest that is threatened by some development or other encroachment. And I’d like to ask, “are you better off with me handing some of this to you or by me sending it all to Albany and DC first and having their experts take care of you?” Note that this is not committing the “voluntarism fantasy” (more on that in a future post) but rather me committing the $63,000 to the causes that we support. Is there ANYONE, regardless of political affiliation, who would say,”yah, you know, I don’t think we want that money from you, better to funnel it through the political sausage grinders in DC and Albany, that way we can make sure it is spent properly!”

No reason to go on. I’ll just leave with my annual takeaway point. I think my family is upper middle class at best, and we pay $63,000 every year in taxes. My bet is half of this is totally wasted and funneled to politically favored interests. My bet is that half the remaining funds are used to supply services that we take advantage of (this is not to say they couldn’t otherwise be provided” and the remaining quarter maybe goes to do things we otherwise couldn’t do on our own. But the larger point I will beat on until I am in the grave … at all levels of government we spend DIRECTLY over $6 trillion. That government spending is equivalent to the second or third largest country on Earth if we relate that to GDP. And people are still screaming that we can’t get basic infrastructure provided. We can’t get adequate schooling provided. We can’t get enough funds for basic scientific research. Our military is squeezed. Our state budgets are squeezed.

Well, as they say, (insert mean words here). That’s pathetic. There is simply no case to be made that we are undertaxed, that we underspend, or can’t get done what needs to get done. Every time I hear that, (remember yesterday’s post) this is a gigantic admission that the entire apparatus is incompetent and failing, and yet that is proudly pronounced by supporters of big government each and every time this sort of an issue comes up. There is no reason for me to be charitable to that view. If there is a case to raise taxes more, or spending more, it’s NOT on the grounds that we’re not doing enough now. Not … at … all. That case can only be supported by arguing, however crazy I think it is, that we should do more, that families like mine should “contribute more”, that retirees “deserve” more, that all of our “obligations” to all of the millions of people with hands in the cookie jar must be met in full. Give me a break.

Finally, just to kick us in the nuts a little harder than normal, after I paid $90 to Turbotax to do my taxes (a racket if there ever was one), I was greeted with a sales tax on the software on top of it. Thugs.

Update: the first article I read today is this one from Vox …

Yes, they are calling the lack of movement on infrastructure a “tragedy.” Quiz time everyone: how much of the federal gas tax dollars have actually been funneled to toy transit projects and away from roads? Question #2 is this really a “tragedy?” Question #3 so 6 years into the crisis we’re still in a depression? Can I just ask someone to tell me when it’s over? Finally … well … I think Vox is doomed. This particular author used to write far more nuanced pieces than this. Tragedy? … $6 trillion. Repeat it …$6 trillion and one of government’s most fundamental jobs is being deemed a tragedy. Emperor? Clothes?

Here is some unsolicited advice for my students. My university, like many I am sure, offer students the opportunity to take a class with a Pass/Fail option (S/F in our university lexicon). The stated reason for this, like all things in education, sounds quite reasonable: to allow students to explore a wider and more challenging array of classes than they otherwise would have. As you probably realize, there is quite the chasm between what we say about the pass-fail option and what it actually ends up looking like.

From my experience teaching, advising majors and advising first year students, my sense for the pass-fail is that it is either chosen to “take it easy” in a course irrespective of whether the student is trying to extend her horizons, or more likely that it is not chosen ex ante but rather an ex post decision declared in courses only after students realize they are doing poorly. We allow students to select this pass-fail option well into the semester (after 10 weeks for most students, and even later for first-year students). The problem with doing this should be obvious, and not just to my intermediate micro students.

What is this problem? Well, there is information embedded in ANY signal you let out there – from the way you dress, to the choice of words you use, to the college you attend, the car you drive and yes right down to the pass-fail option. Think about how prospective employers and graduate schools interpret a transcript with an S on it, especially if it is in a course that seems to have a topic similar to the others you have taken (in other words, it is clear that you did not take an arcane music history course for fun all the while being preMed)? If you expected an A, and they expected you to get an A, you’d be better off showing the A instead of the pass-fail grade. Indeed, anyone with an A would end up revealing their pass-fail grade anyway. This would leave people to believe that ANY pass-fail grade can be no higher than a B. But if people know this, and they surely do, then there is an incentive for any student with a B to reveal that grade so that people don’t mistakenly think their “hidden” grade is worse than it really is. And so now all people with an A and a B reveal their grades. That means that anyone with a remaining S on their transcript is either a C or a D student. If students realize this, then they will reveal if their grade is a C (and many do, since they need the actual grade to count toward major or other distribution requirements), leaving all students with S grades being all students with D grades. I can imagine the situation where the Cs don’t reveal.

But the point is this – if you have an S on your transcript, for WHATEVER reason, people gain valuable information from it. First it tells people that you are the kind of person who, when doing poorly, takes this option instead of bearing down and seeing the full consequences. Second, it suggests that if you were surprised by the class, that you at least were not prepared enough on the way in so that you were NOT surprised by it. But third and most important, what it tells people is that if you have the S on your transcript, it is no different than having a D on your transcript. In other words, just as in the “old days” the “For Sale” sign on a car was a pretty good indication that the car was a “lemon” you putting the S sign on your car is a pretty good indicator that you are a lemon, at least in that course. 

I am pretty sure that is not a signal folks want to send to employers or graduate schools or parents. None of this post is to suggest that there are not reasons for colleges to offer the pass-fail option, or for students to take it, it is intended to demonstrate albeit simply, what the signal embedded in that choice is for students and that this information is quite clear given the many other things students and colleges try to do in order to help students scrub their transcripts a little cleaner. I have two of my own children, and should they find themselves in a situation where they wanted to pass-fail a course, I would strongly inveigh upon them to NOT choose such an option, regardless of the grade they might ultimately get, but that’s just me. Finally, given the basic lessons of the economics of information, we can have a nice discussion about what information comes out of my mouth in general as a teacher and adviser, and what of that information is to be believed or whether it is even possible to convince someone to believe it. But that’s for another day.

Yesterday I suggested that the articles on both Picketty’s super-duper-mega-important book of the century on capitalism as well as the Yglesias piece on the gender wage gap were deserving of a fine toothed comb. Here, Matt Rognlie (whose blog I used to follow but for some reason I can’t get his feed to work for me), makes a particularly detailed critical observation about the book (i.e. the entire thing may be built like a famous Don McLean song).

Now for the (sort of) lament. About 10 years ago I started taking a strong interest in environmental issues and in particular trying to get up to speed on how climate modelers do their business, on how economists estimate damages from global warming and a whole host of related issues. As I peruse various research papers and journals on the topics and especially the punditry’s reporting on papers I do not have in front of me, from time to time I find myself wanting to have an “academic oracle” of sorts to both help me clarify some questions but most of all to have them help me know when I am being duped, or a about to be duped. When one enters the academy, the expectation is that this is the sort of place where such oracles exist. But the climate in the academy doesn’t actually seem to be amenable to these sorts of things. Granted, I’ve only reached out explicitly to have questions answered about a dozen times since I started here (and in some of them I did get some suggestions for reading, in others just a quick “I’ll get back to ya!” sort of response), but I certainly have never once in my time fielded a call or an e-mail from someone asking me to clarify an economic comment that was read or a view that they may have held. I find this regrettable, and truly sad. One reason I put my old student groups together was at least to try to find a group of people committed to such an exercise and to be able to at least ask hard questions “within the tribe” … but I’ve since pulled the plug on that.

I’d suggest the culture is not really amenable to open inquiry, especially given my impressions (OK, they’re more than impressions) of how us racist, sexist, baby-seal clubbing, paid lackeys of corporate America economists are thought of on campus. That said, I truly did want to ask someone the following question, because I feel like I am being bamboozled by a “denier” … I just read a piece talking about the “green-housiness” of methane. For those of you who follow the fracking debate or the global warming question in some detail, you are surely familiar with the argument that CH4 is something like twenty-times more “powerful” a GHG than CO2 is … and that although it has a shorter half-life in the atmosphere, should any considerable amount of methane be released due to leaky fracking pipes, or worse yet from warming permafrost, then we’re toast – any impacts of CO2 are small in comparison. Hence, we already know that a huge chunk of current warming is attributed to agricultural practices, and some folks argue that fracking is actually carbon positive because so much methane leaks from wells (though my understanding of both the economics and the science of fracking suggests this is massively overstated).

So I’d LOVE to have someone help me understand the gist of the argument I read about today (and yes, I was a physics major for most of my college life). The claim was this: that YES it is true that methane is much more “green-housy” than carbon dioxide. But since it absorbs energy at similar places in the electromagnetic spectrum as a FAR MORE abundant molecule in the atmosphere, that being water vapor, that both water vapor and methane cannot both be absorbing the same energy from the sun. And if that is the case, then while technically in a glass jar methane is indeed a greenhouse gas, in effect since so much water is already in the atmosphere then the additional methane we’d get, even if all of the permafrost on Earth laid a massive perma-fart into the atmosphere, then we wouldn’t see much, if any, radiative absorption from it.

I just truly want to understand the chemical-physics here. Do any of you know? I’m going to give it one more shot and pluck a faculty member out of the blue on campus to see if they can help me understand it. If this is in fact true, wouldn’t this have had to been known for a long time and been written into an IPCC report at least? If it has not been understood, then how is it possible that it either has been misunderstood for so long, or that we have been so “confident” in much of climate modeling. And yes, I’ve read a lot on climate modeling – and this does not have to make anyone into a denier … the fact is, the way we model the climate is extremely primitive. I recommend reading the work of Daniel Botkin (who seems to be living the life I always imagined for myself when I was a kid in Queens) for good intuitive explanations for what those models do. I recommend this book, which I’ve worked through a couple of times, to learn about global warming forecasting.

Have a nice weekend.

I recommend to all of you to read Vox, which is Ezra Klein’s new enterprise. It is definitely a progressive site, but if all you do is read sites you agree with a priori I’d suggest you’re not understanding the full picture of the ideas you care deeply about. The folks who write for Vox are very smart (in a smart-sense), seem to appreciate the value of the academic literature on topics, they speak to an audience that is influential and they pretty much have all of the talking points down pat, among other things.

In any event, I am not sure Vox will survive, and I’ll leave it as an exercise for you to think about why. Part of it is the way each article brandishes itself in a sort of, “We’re so smart and you’re going to be surprised by !!!!” attitude, which can be gleaned from the headlines. Generally I find the articles at least pay a modicum of attention to “the other side” even if they are dismissed, and generally I find the articles implying that in fact the authors themselves are right, even when they are trying to present ideas and arguments objectively.

But, this piece on the new and important book by Thomas Picketty and this piece on the recent dust-up on the gender wage-gap are worth going through with a fine toothed comb. I can’t, but let’s just point out a couple of things to chew on.

First, the review of Picketty’s book. This is a book that is going to be the new bible of the left. But I would urge all non-lefties to take the arguments and data seriously, even if you don’t jump into the same bathtub of policy prescriptions (e.g. a coordinated global wealth tax among them, yikes!). Here is one slice:

Why does this matter?

Capital in the 21st Century essentially takes the existing debate on income inequality and supercharges it. It does so by asserting that in the long run the economic inequality that matters won’t be the gap between people who earn high salaries and those who earn low ones, it will be the gap between people who inherit large sums of money and those who don’t.

Piketty’s vision of a class-ridden, neo-Victorian society dominated by the unearned wealth of a hereditary elite cuts sharply against both liberal notions of a just society and conservative ideas about what a dynamic market economy is supposed to look like. Market-oriented thinkers valorize the idea of entrepreneurial capitalism, but Piketty says we are headed for a world of patrimonial capitalism where the Forbes 400 list will be dominated not by the founders of new companies but by the grandchildren of today’s super-elite.

What is to be done?

Piketty wants the major world economies to band together to assess a modest global wealth tax. Global cooperation is desirable to prevent the wealthy from simply shifting assets into other jurisdictions. But short of intense global cooperation, he thinks larger economic units-the United States, say, or the European Union-should move ahead with wealth taxes, estate taxes, and other efforts to curb the power of wealth.

Here is another:

Since r is usually larger than g, the wealthy get wealthier. The poor don’t necessarily get poorer, but the gap between the earnings power of people who own lots of buildings and shares and the earnings power of people working for a living will grow and grow.

All I would say about this (and you should read more) is that it is yet another prediction. And no, the history of horrible past predictions of doom and gloom do not mean this one will be wrong, but predictions as such must be taken with the appropriate grains of salt. There is a lot of speculation on what new technology will do to “the middle class” and the role of labor income versus capital income in the future. But I think something missing from this review (and we’ll see when my book is delivered) is the democratization of capital today as compared to the past. Even the concentration of the top 1% or higher slices of the income distribution are not the same today as they were 50 years ago.  But I think the MAJOR observation that does not get ANY airplay in all of the reviews of this book is the unhidden assumption that the reason to care about the persistence of capital in the future is because of ??? What, exactly? Are those who inherit big piles of wealth, even as the “poorer” themselves are also getting fabulously rich, going to do more damage to us in the future? How is that so? Will they buy up all the property, leaving us peasants to sleep in the open seas? Or is it that they are going to wield an enormous amount of political power? Well you know what, if it’s the latter there are actually some pretty simple solutions. I know they are as unlikely as a coordinated global wealth tax, but nonetheless it shows a real shallowness of intellectual sincerity or depth to not suggest it: shrink the power of the government. Absent the ability of the “landed rich” to control the levels of coercive power, for them to be able to do damage the rest of us requires a fairly elaborate series of imaginary hobgoblins to make me scared, at least. But no such proposal is forthcoming. I’d be more amenable to reading these guys sympathetically if EVERY SINGLE proposal any time there is a “problem” doesn’t involve the wheeling out of larger cannons and missiles than previously prevailed. Again, this is of course my ideology at play, but I can assure you I do no such things. I don’t see every problem out there and just knee-jerk answer, “aha! we just need to see a market emerge there!” … it may look like I say that, but I can assure you that is not the case, as anyone who has spoken to me about lean-tos, water, or the safety net can attest. There’s much more to say on it. My urge to you though is NOT to dismiss the arguments, they rightly ought to be addressed head on.

And here is an exerpt from Matt Yglesias’ brief “take-down” of the “take-down” on the gender wage gap dust-up. Actually, before the slice, a very brief background. Looking at raw data, it looks like the “typical” female earns 23% less than the “typical” male in the labor market. A crude argument made by a lot of folks is that this is evidence of discrimination, or that women are not being paid the same thing for doing the same work as men. But of course this truly is nonsense. And I mean that sincerely. Looking at the raw data tells us nothing about the age, experience, cognitive skills, educational attainment, occupation, and much, much more about the typical persons in the data. So, the point of any “argument” about this is that one needs to do some pretty basic statistical analysis to control for these differences, and then ask the question, “if a woman were in all respects the same as a man, how would her earnings for doing the same job for the same number of hours and years compare to the male counterpart?” Now, when careful statistical studies are done, the findings are that most of the differences disappear. That is relatively uncontroversial, or so I thought. Of course, this does not mean that there is not discrimination against women (maybe they should be earning MORE once we control for all of those other factors) or maybe there are discriminatory factors that lead to choices that make women’s wages lower than men’s … that’s fine, and we can all scream at each other about that and of course never resolve it. But recognizing that the raw data on wage and earnings differences is nearly useless is a requirement to have any reasoned discussion. But this is not possible in the world where we simply need to herd ourselves into our tribes. Here is Yglesias:

The skeptics are wrong — the gender pay gap is very very real

You can see what I mean by the tone and types of articles that prevail on Vox (it’s the same style as existed on Wonkblog previously). In any case here’s a bit more:

The commonly cited statistic that American women suffer from a 23 percent wage gap through which they make just 77 cents for every dollar a man earns is much too simplistic. On the other hand, the frequently heard conservative counterargument that we should subject this raw wage gap to a massive list of statistical controls until it nearly vanishes is an enormous oversimplification in the opposite direction. After all, for many purposes gender is itself a standard demographic control to add to studies — and when you control for gender the wage gap disappears entirely!

Of course that’s completely trivial. The question to ask about the various statistical controls that can be applied to shrink the gender gap is what are they actually telling us. The answer, I think, is that it’s tellinghow the wage gap works.

He then goes on to actually confirm what the research on the gap shows. So, the gender pay gap is real in much the same way that the adult-child pay gap is very very very real. And when we add controls for things like age and education the impact goes away. Understanding that is important, but the title of the piece is I argue extremely misleading. Finally, after recognizing several of the important controls (and reminding readers that these controls themselves are possibly subject to discrimination, such as sorting into occupations or even pre-market discrimination that makes it harder for women to do well in school, be a particular major and so on, etc.) I see no discussion of perhaps another huge reason for the pay gap: job risk. And I see no discussion of the evolution of this pay  gap over time, and how it looks for today’s millenial generation and the new cohorts of college grads. And I see no discussion of the impacts of recessions on men versus women. Or the difference in college and grad school attendance and completion by men versus women.

Why is this missing? I don’t know. Maybe Vox is rightly trying to keep its articles short and readable. But then the air of impartiality is certainly nothing more than air if points as such are at least not given space in a footnote. As I said, I am retired from blogging or engaging in these “debates” so these stories deserve a far richer and more thoughtful treatment than the above implies.

It was very sunny and pleasant there. Anyone who knows Rochester …


…a new paper appropriately titled “Demographics, Weather and Online Reviews.” The study analyzed 1.1 million online reviews of 840,000 restaurants, looking for exogenous — or external — factors in the data. In other words, they wanted to figure out what makes us like or dislike a restaurant, beside the restaurant itself.

The results can be surprising. The diners’ education levels? No effect on actual ratings. Population of the area? Again, not so much.

But reviewers consistently gave worse ratings when it was raining or snowing outside than when it was clear. And reviewers usually liked restaurants better on warm and cool days, rather than very hot or very cold ones.

In researcher Saeideh Bakhshi’s words: “The best reviews are written on sunny days between 70 and 100 degrees … a nice day can lead to a nice review. A rainy day can mean a miserable one.”

Not surprisingly, restaurants in California and Hawaii are popular.

This week I have a question for the readers. Much has been written recently on how racist and horrible people like Charles Murray are, for merely asking the question of whether in fact there are differences in innate “ability” across different groups of people. Since I am sure to have my classes protested if I actually manage to write something interesting, I’ll eschew from that and merely ask some questions.

1. Is there some measure of “ability” that people can objectively agree matters? And should the answer be yes, is there an agreement on how one might actually measure it?

2. Is it OK to ask such questions WITHIN different subpopulations of people? For example, among us short, fuzzy, Italian-American men, clearly some score better on standardized tests than others. Surely some have quicker hands and feet than others. Surely some have more endurance than others. Are these differences innate? Are they OK to point out? Are they OK even to question?

3. OK, the real reason for today’s post: suppose “we” have all come to the conclusion that redistribution (again, a terrible word that implies that there was some distribution in the first place) is justified on the basis of there being observable differences in life outcomes for different people. Is the case for redistribution stronger if:

- the reason people have different outcomes is due to pure luck and chance (i.e. so that we are all born innately equal)

- the reason people have different outcomes is due to the fact that even with the same life circumstances, some folks are just better than others at stuff.

Again, the point of the question is not even to tread NEAR the empirical question above. Rather, it is a metaphysical one – is redistribution more justified when differences are due to luck or ability or is there no reason to distinguish the two? Remember again that I’m begging the question of whether we ought to permit redistribution in the first place, and that someone above the fray could determine the answer to such questions. I am curious to hear your takes on this.

The April Fools

That would be people like my wife who continue to work. Here is how her income is taxed:

  • Federal tax rate of 28% (her wage puts us in this bracket)
  • State tax rate of 6.5%
  • Social security – her “share is 7.65%, her employer pays 7.65%, but since we know that the incidence of this tax is mostly on workers, this is closer to 15% on her)
  • Since she is married to me, and I have health benefits with my job, she is not able to claim health benefits from her job. Nor does her job permit her to receive the equivalent, or any amount of compensation that is paid for every worker’s health insurance. Estimated value: $1,000 per month, or $12,000 per year. So, this is an annual margin to pay attention to, though it is not unreasonable to convert this to a wage equivalent.

These are wholly aside from the taxes she pays on almost anything she buys. Now in what follows I am playing fast and loose with the numbers else I bore you with fancy pictures and imagined income, but to consider a typical $50,000 salary:

  • she’s liable for $14,000 in federal income taxes (that’s more than I am technically liable for despite my larger salary – what’s that about gender equality?)
  • she’s liable for $3,250 in state income taxes
  • she’s liable, directly for roughly $3,800 in payroll taxes
  • she’s liable, indirectly, for roughly $3,500 in payroll taxes
  • she’s liable for $12,000 in lost compensation since her company pays everyone health insurance benefits as part of the compensation package yet does NOT pay workers who do not take such benefits. In other words, her true compensation (ignoring other benefits) would be $62,000 if she were not married to me and did not already have health insurance via me. While there is very little good reason for companies to be paying workers in kind for a particular good/service we like to consume (ignore the historical tax reasons), I see no reason why otherwise identical people should get paid differently. How’s that for gender equality?

Now, from a practical perspective, the reason why her employer does not pay her for the value of unpaid health benefits is that the employer does not actually see lower health premium costs if she does not accept the policy, or so I suspect. My understanding (not articulated by her employer to her of course) is that when you are part of a group health insurance policy, the global premium from the employer to the insurer is fixed and is a function of expected number of employees covered and their relative risks. So, though her dropping out of the insurance pool should reduce the costs to the insurer, it does not, for now, reduce costs to the employer. That said, if every employee opted out of health coverage it would be hard to take seriously any justification for not paying out the value of the benefits (or some fraction thereof) in cash.

Taking the very simplified information from above, on a salary of $50,000, she ends up walking home with $28,950. But that salary of $50,000 actually captures the net payment to her from the employer, which should be $65,500 (the employer share of payroll taxes and contributions to health premiums included now but which do not have state and federal income taxes deducted from). Putting this all together, each year my wife’s “supposed” compensation should be $65,500. And each year she walks home with $28,950.  This is an effective marginal tax rate on her annual work effort of 56%.

Say what you will about the 1% and how privileged both myself and my wife are to have been born to the United States (both to rather poor families in poor circumstances, but ignore that for now), that’s a pretty hefty marginal tax rate on her work effort, especially given the type of work she does (maybe more on that in a future post), which includes wiping the asses of complete strangers. A lot. 

And then of this $28,950 that she is so blessed to keep, she pays 50.6 cents per gallon of gas in NYS excise taxes and 18.4 cents in federal – so just driving each year (600 gallons of gas burned) costs her another $414. And I’d estimate that 2/3 of her spending ends up being taxed at the 8.25% sales tax rate, meaning she dishes out another $2,354 in sales taxes to the state/county each year. And then of course is the embedded higher prices she must pay for almost anything else she consumes because of the various regulations that businesses must adhere to (not all bad of course and things we’d happily pay for if priced a la carte) such as FCC taxes on the phone plan she has, taxes and fees and licensing on the car she drives, and so on, which I’d estimate easily at 10% of her gross salary, but to be generous we’ll call it less than 5% of her take-home salary – meaning about another $1,000 in costs she pays. 

Putting this all together, for a pretty tough job that required $50,000 in debt to obtain schooling to train for (and several years of lost wages), my wife ends up taking home and obtaining about $25,000 worth of goods and services, or an implied annual tax burden of 62%.  Now, $2,000 per month of extra take home free income is, ipso facto, nice. But not given the effort one must make to obtain it. No reason to comment much more here, aside from the following:

  • if women tend to be second earners, as they sadly are in our house right now (I’d LOVE to have her be the big time breadwinner!), then we have a tax and regulatory system that is entirely biased against them. A woman earning $50,000 faces, in this example, nearly a 2/3 tax burden. On what planet is this intended? 
  • given the way our finances and life is set up, we may actually be better off divorcing, though I am sure divorce lawyer fees have been driven up to arbitrage the difference
  • we are not really very near the 1% (as if that should matter anyway)
  • you can see that we are questioning whether we want to work this hard for this kind of reward. Again, you may say these are first world problems, but they have far larger repurcussions that I think are obvious. I already gave up a fairly lucrative consulting gig because I was tired of working at tedious tasks at 2 in the morning just to keep half of what I was being paid – i.e. it wasn’t worth it. 
  • No amount of carve outs, exemptions and the like can “fix” this, assuming anyone wants it fixed.
  • We are at an income and life stage where there aren’t great ways to reduce this tax burden, unlike perhaps, people who are far wealthier and have far more income than we do. 

Much more to say of course, but as I look at it, we are complete suckers. 

I’m not in the mood to rant and rave about this silliness, especially since we here at the Wintercow Brewing Company partake in a very “small scale” version of the same:

In Maine and across the country, brewers and farmers have formed handshake agreements: Brewers brew beer, producing barrels or truckloads full of heavy, wet spent grains. These grains have been heated up to extract sugars, proteins and other nutrients that go on to make beer. The process is called mashing. The spent grains are a byproduct — with no real usefulness purpose left for the brewer.

To the farmer, spent grains are a valuable dietary supplement for their livestock. It’s common for breweries to reach out to local farms to offer up their spent grains as animal feed. Most often, farmers are happy to oblige, picking up the spent grains themselves a few times per week. Little or no money exchanges hands during these deals. Brewers are glad to get rid of the grain, and farmers are glad to take it off their hands.

“FDA understands that many breweries and distilleries sell spent grains … as animal food. Because those spent grains are not alcoholic beverages themselves, and they are not in a prepackaged form that prevents any direct human contact with the food, the Agency tentatively concludes that subpart C of this proposed rule would apply to them,” according to the FDA rule.

Most small and medium-sized brewers wouldn’t be able to follow these rules without significant investment. Breweries that want to send their spent grains to farmers would have to dry, package and analyze the grains, all without it touching human hands. These efforts would cost brewers money, time and resources, making it too much of a hassle for some to continue partnerships with farmers, according to critics.

Actually, there’s no reason to rant and rave. I am pretty sure people are doing their jobs. We have a statute that is intended to protect the feedstock of animals, and I can see no reason why some feedstocks ought to be treated differently than others. Where you ought focus is not on whether brewers should get an exemption, but in general the overall principle about whether feed needs to be regulated in this particular way in the first place. I don’t have an opinion on that right now, believe it or not – I am sick of living in a world where everyone is trying to get something carved out for themselves, get their little slice before everyone else does, and so on. My point is that it’s a bit of a red herring to get worked up about the silliness of not being able to feed spent mash grains to the cows.

The point I’d like to make instead is not even about the absurdity of the rules in some places, but rather that I am sure that when the FDA animal feedstock regulations were initially written that no one had any idea that the relationship between brewers and farms would be threatened. Yet here we are. And this is the way that the thousands of laws and regulations that are on the books are structured. Each unto themselves you may or may not be critical of – but there is simply no way to know at all how these rules interact with one another, and even if we are willing to make carve-outs and exceptions on a case by case basis, and each seems reasonable, it’s certainly not in accordance with the rule of law and certainly there is no way to know whether or not they can actually be carved-out anyway, even if we wanted to.

So think about the need to convert the entire energy sector into one that is less carbon intensive – a sector that took 50-60 years to put together in a far less strict regulatory environment and with far simpler and mature technologies. And think about rebuilding that entire sector with new technologies with myriad state, local and federal rules and regulations in place in a more populated, more litigious, more cantakerous country, and there is no way that we will see any kind of major transformation in the energy or other sector in our lifetime (for those of us born before 1980 or so).  And this is assuming that every person working for every regulatory agency and every new technology firm is NOT trying to get while the getting is good – in other words, in a polite world.

When someone sends me a note, for example, asking me “what do you think about the future of hydrogen cars” I don’t think of technical challenges or how much carbon or fossil fuels they may save, I first think of the spent mashing grains … and the time it took the “Freedom Tower” to get rebuilt … and how the “Cape Wind” project is going …

POSTSCRIPT: Every time I try to write a post calling for a bit of calm reflection, someone sends me this stuff.

My inbox this morning greeted me with two things. First this:

University Sets Tuition Rates for 2014-15 
Tuition for undergraduates in the College and the Eastman School will be $46,150 in the 2014-15 academic year, a 3.5 percent increase from 2013-14. Read more…

Then this:

Does Classroom Time Matter?  A Randomized Field Experiment of Hybrid and Traditional Lecture Formats in Economics
by Theodore J. Joyce, Sean Crockett, David A. Jaeger, Onur Altindag, Stephen D. O’Connell

We test whether students in a hybrid format of introductory microeconomics, which met once per week, performed as well as  students in a traditional lecture format of the same class, which met twice per week.   We randomized 725 students at a large, urban public  university into the two formats, and unlike past studies, had a very high participation rate of 96 percent.  Two experienced professors taught one section of each format, and students in both formats had access to the same online materials.  We find that students in the traditional format scored 2.3 percentage points more on a 100-point scale on the combined midterm and final.  There were no differences between formats in non-cognitive effort (attendance, time spent with online materials) nor in withdrawal from the class.  Comparing our experimental estimates of the effect of attendance with non-experimental estimates using only students in the traditional format, we find that the non-experimental were 2.5 times larger, suggesting that the large effects of attending lectures found in the previous literature are likely due to selection bias.  Overall our results suggest that hybrid classes may offer a cost effective alternative to traditional lectures while having a small impact on student performance.

Where to begin? The CPI increased by about 1.1% over the last 12 months, so our tuition rates are increasing at triple the “average” price increase. Of course, this is not Lake Woebegone, someone HAS to be above average just as someone has to be below average. This continues a trend where the sticker price of universities has increased at more than twice the rate of inflation going on 40 years. 

  1. This is sticker price. The “right” figure to focus on is what the “net price” (i.e. price you actually pay after financial aid awards) has done over the same period. I’ll leave it to my readers to imagine. I will note however that the net price of community colleges has been flat for nearly two decades.
  2. Almost no one has an incentive to keep college sticker prices down who is currently affiliated with the university, including yours truly. I suppose my “strategy” is to hope  the whole thing doesn’t blow up before I decide my time is up. 
  3. Let me give readers a flavor for how these tuition dollars are spent. It’s a flavor addition by omission if you will. For example, I teach about 600 students per year in my classes. Folks probably think I am overworked in my teaching load, and maybe that’s true in some relative sense, but to be quite honest I could teach one more full blown class with no problem, and probably several more. Indeed, I’ve offered to do so in the past and have been politely turned down (even when I offer to do it for no money cost, but that’s another story for another time). For arguments’ sake, suppose the “all-in” cost to have me teaching, including the indirect costs associated with my use of the library, office space, the direct and indirect cost of benefits, salary and a whole lot more, are somehow up at $150,000 per year. At $46,000, spread across 8 classes a year, a typical “full-pay” student pays $5,750 per class. So, it would take me only 26 student-classes to fully cover the costs of having me teach here at the University. This means that the tuition revenues generated by the other 574 students goes elsewhere. I will not here elaborate on the elsewhere, I just want you to focus on: 96% of the tuition dollars that “I generate” go somewhere other than me (which is fine by me by the way, I happily signed my current contract) – so in a universe filled with people claiming that labor markets are really exploitive, then it’s a bit striking that so much of “my” surplus is extracted each and every year. I bet that this is “worse” than even the most “extractive” Walmart and its “ilk” do. Again, we can lecture you on wage determination and exploitation at some other point. Another point is that despite this, tuition fees still increase, despite the fact that folks like me can both teach more, and given results like the paper above – that we can deliver our teaching in far more cost-effective ways than we currently do. 
  4. Among the other puzzling facts about university life, and there are many, is that the places are really like little islands of anarchy in a sea of  typical governance. Yet I would bet a decent pile of cash that most people who are drawn to university life would be quite vehement in their opposition to anarchy.  

Vance Fried has written on how he could deliver the same sort of education that we currently deliver for less than 20% of this cost.

Alex Tabarrok reports today:

Excellent piece in the Washington Post on the FDA and sunscreen:

…American beachgoers will have to make do with sunscreens that dermatologists and cancer-research groups say are less effective and have changed little over the past decade.

That’s because applications for the newer sunscreen ingredients have languished for years in the bureaucracy of the Food and Drug Administration, which must approve the products before they reach consumers.

…The agency has not expanded its list of approved sunscreen ingredients since 1999. Eight ingredient applications are pending, some dating to 2003. Many of the ingredients are designed to provide broader protection from certain types of UV rays and were approved years ago in Europe, Asia, South America and elsewhere.

If you want to understand how dysfunctional regulation has become ponder this sentence:

“This is a very intractable problem. I think, if possible, we are more frustrated than the manufacturers and you all are about this situation,”

Who said it? Janet Woodcock, director of the FDA’s Center for Drug Evaluation and Research! Or how about this:

Eleven months ago, in a hearing on Capitol Hill, FDA Commissioner Margaret A. Hamburg told lawmakers that sorting out the sunscreen issue was “one of the highest priorities.”

If this is high priority what happens to all the “low priority” drugs and medical devices?

The whole piece in the Washington Post is very good, read it all. I first wrote about this issue last year.

Or in other words, we’re doomed. And what of the FCC? And the trade commission? And …

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