Tax Policy Wins!

    FDRAfter I boasted during my show a couple of days ago that I'm the best talk show host on the air, one of my listeners retorted: “You have virtually no guests. You talk about the same things almost every day. You have one of two solutions to every problem….raise taxes or limit freedoms.”

    It didn't take much reflection to conclude Jeff in Columbus has a point when he decries my predictability. There's an old saying if your only tool is a hammer then every problem looks like a nail. Based on Jeff's criticism, you can probably guess that the goto tool in my kit is tax policy.

    This is the case whether I'm contemplating what should be done about the attractiveness bonus or, less improbably, the recent surge in sales of nearly all cars except for hybrids and electric vehicles.

    It's not that I reject out-of-hand more complex cures to what ails us. It's just that I don't see any need to invent a new wheel since tried and true solutions like higher top marginal tax rates and a fossil fuels tax solve both little and big problems.

    Salon's Erin Coulehan attributes to professorial bias the slightly better grades that pretty women get. Interestingly, both men and women teachers give higher grades to more attractive females. While handsome men are not more likely to get As, studies do show that taller men make more money than height-challenged bros.

    Whether you view either of these dynamics as a problem depends to some extent, I suppose, on how pretty or tall you are. Regardless, both militate strongly in favor of higher top marginal tax rates. Take two ridiculously successful (albeit fictitious) 35-year old Harvard grads who together rake in well over a million each year.

    Her beauty helped her to a Phi Beta Kappa key which, in turning, led to a succession of ever-more prominent and highly compensated positions at Apple. The former Crimson basketball star she married now sits in a corner office at a major law firm. Sure they worked hard for what they've got but given the added value of her smooth skin and tawny hair and his six foot two frame, it's pretty tough to claim the two “earned” every last one of their millions solely by dint of hard work and sacrifice.

    Admittedly, the handicap under which less attractive women labor when teachers hand out grades is relatively modest. Sociologists concluded that one standard deviation above the mean is worth about .024 points. The difference between the most attractive and least attractive 3% of women is four standard deviations. This equates to less than .1 points on a 4.0 scale.

    Still, it has an effect. Leveling the playing field slightly through higher taxes on the fortunate few who have won life's genetic lottery - good looks, good brains, the right parents - seems eminently reasonable.

    Perhaps more problematic than lookism in our high schools and colleges is the recent news that of the record number of cars Americans bought last year less than 1% of them are hybrids or electric vehicles (EVs). In light of the looming ecological disaster due to anthropogenic global warming, we must do everything reasonably possible to cut down on fossil fuel consumption. But falling fuel prices have led to demand for gas-guzzling vehicles not cleaner greener hybrids or electric vehicles - which are close to emission-free when run on electricity generated by the sun or wind.

    With gasoline at $2 per gallon, the owner of a 50 mpg Toyota Prius C who drives 12,000 miles per year spends about $480 on gasoline annually. The car retails for about $25,000. You can get a comparable Toyota Corolla for $18,500 which averages 30 mpg. Annual gasoline costs will be in the range of $800. Assuming gas prices remain super-low, the Prius owner who spends about $320 less on gasoline annually than the Corolla purchaser probably will never recoup the $6,500 hybrid premium . No wonder individual auto buyers are almost unanimously rejecting the importunities of environmentalists to buy low-emissions vehicles.

    The Washington Post's Charles Lane points out that hybrids and EVs are only as cheap as they are because of massive government subsidies to EV manufacturers like Tesla and tax credits for buyers of hyper-efficient vehicles. Yet still gas-fueled vehicles rule the car lot. Needless to say rewarding good behavior hasn't worked very well and is costing taxpayers billions of dollars.

    What about punishing bad behavior? What if Congress enacts a massive increase in the federal excise tax per gallon from 18.4 cents to $3? What if the feds commit further to steady increases in that excise tax and to comparably high taxes on other fossil fuels in one omnibus Fossil Fuels Tax (FFT).

    Now all those sober calculations that counseled against hybrids and EVs go in the other direction. Buying the Prius instead of the Corolla results in cost savings of $800 in the first year. As the gasoline tax rises, annual savings grow. The Prius owner will see a lower total cost of ownership than the Corolla owner in well under eight years.

    EV owners, who rarely drive beyond their cars' electric range before recharging, will save even more as the gasoline tax rises. That's one reason it's imperative to impose comparable taxes on natural gas and coal. Otherwise, utilities will fill the growing demand for electricity to power cars by burning relatively cheap coal and natural gas.

    Indeed this exact scenario is playing out in the Netherlands where very high gasoline costs have led to the desired surge in demand for EVs. But because coal is not taxed heavily in Netherlands, three new coal-fired power plants opened in 2014-15 to satisfy the surging demand for electricity. Air pollution in Amsterdam is as bad as ever. Only when consumers must pay much more for all fossil fuels will we turn en masse clean green alternatives.

    Sure, we might be able to reduce consumption with federally regulated cap and trade markets and constantly evolving credit schedules governing the purchases of various vehicles depending on whether they sip gasoline or guzzle it. But there's no need to experiment and tweak and tinker until we've built a Rube Goldbergesque carbon-trading pollution-penalizing system that rivals the Affordable Care Act in its breath and complexity. Instead, all that's necessary is to slap a very high and ever-rising tax on all fossil fuels.

    Because higher prices at the pump would otherwise harm poor, working, and middle-class Americans, all revenues generated by the FFT should be rebated in equal shares to every citizen. Since the rich consume more energy than everybody else, the ultimate effect of the FFTs will be reduced wealth disparities. Additionally, the rebates will provide needed resources for the less affluent to transition towards a cleaner greener lifestyle.

    Jeff's right when he complains that when it comes to solutions to apparently intractable problems, I'm something of a Johnny two-note. Thing is those two notes - higher taxes on the rich and higher taxes on fossil fuels - are so elegant and would accomplish so much to reduce economic injustice and anthropogenic global warming, there isn't much need to hunt around for other answers.


    If this was about taxes, I missed it.  Of course, I stopped here:

    Her beauty helped her to a Phi Beta Kappa key which, in turning, led to a succession of ever-more prominent and highly compensated positions at Apple.


    "Admittedly, the handicap under which less attractive women labor when teachers hand out grades is relatively modest. Sociologists concluded that one standard deviation above the mean is worth about .024 points. " - well that's good to know - that means the unattractive ones will be able to graduate and go on to the real world, where they'll find out a) there are lots of professions where women need not apply, b) a lot of professions where unattractive women need not apply, c) if she manages to make partner in a law firm, she'll still be bringing in coffee and cleaning up after the client meeting, and d) her career advancement will largely depend on how much men want her around to try to get her in bed. Oh, and then there's doing her job & whether she's effective and knows her stuff, an impressive 5th place in consideration - perhaps only 3 or 4 standard deviations down the road to to irrelevance.

    It matters PP and there's no way to square better grades - hence higher pay - based on looks with a meritocracy.  That's why higher taxes on the wealthy is called for.  They're not richer just because they're somehow better or more deserving.  They're also luckier.

    Hmmm... a luck tax. Good luck with that.

    We can determine who's luckiest by how much money they have.  I agree this is far from a perfect metric but net worth is based to a significant degree on luck. 

    And net poverty is based to a significant degree on laziness and apathy. Depending on what we want "significant" to mean.

    I'm not sure that poor people work less hard than other people or are lazier.  I'd need to see evidence but I will concede that there is a correlation between how hard and smart you work and how successful you are.  In my high school class, the valedictorian, who now makes a very good living as an investment banker, was not the smartest - at least if you go by SAT scores - but she makes a lot more money than the one who was.  She also worked then and works now a lot harder. 

    That's why I don't support confiscatory tax rates.  Hard-working accomplished people do deserve to live better and have more than lazy feckless ones.  The former just shouldn't live that much better and have that much more than they do now. 

    Very good post Hal! 

    Thanks Danny!

    I'm curious: who and/or what determines the criteria for determining "tall" and "attractive"? Certainly the metric for an average versus above average height for men is easily obtained, but a woman's attractiveness appears far more subjective. As does a male's.

    I don't disagree that in our society pretty people who appear superior (white, tall, nice teeth and hair) are given preferential treatment - with a caveat that the female gender is an inherent aggravating factor. But what that has to do with taxing the rich eludes me. What does seem clear is that you're "pulling a Bernie" by attempting to explain away all of our societial ills by blaming them on the lack of taxation on the wealthy. A group, by the way, that as yet remains unspecified.

    I think I recall that "placing beer can on head" was in some circles considered the perfect height, but that was before the age of supermodels.

    Perhaps Sociology (or proper taxation) can help us assess a broader standard.

    BTW, is this term "pulling a Bernie" a common phrase on the innertubez, or one you came up with?

    Though I wish I could blame it on someone else, it's mine. ;-)

    I don't blame all of societal ills on not nearly progressive enough taxation nor have I ever said or written that.  I do believe that most can be alleviated by it.  I'd probably start making the code more progressive at above $500K per annum and then stair-step it up so that income above $2-3 million would be taxed at 90%+.  But I'm happy to reconsider these numbers.  In terms of estate taxes, the 50% rate kicks in on estates above $5.5 million, I think.  That seems fair but again I'd stair-step it up so that assets over $100 million left by decedent would be taxed at well over 90%.  This would mean no more billionaires by inheritance.  Again I'm happy to discuss any or all alternatives.

    While your numbers are interesting as a blogger's opinion, it's the Sanders tax plan that I need to see. The candidate has said it may or may not be offered prior to Iowa; his campaign manager says definitely before the caucus. We'll see. But it seems to me that backing up your statements and proposals should preceed asking voters to accept them.

    I agree it would be good if Bernie put out more specifics.  OTH - more specifics would lead to immediate attacks rather than a conversation about the ultimate wisdom of returning to the rates that helped us build the strongest economy in the world and the largest middle class.

    "We can determine who's luckiest by how much money they have.  I agree this is far from a perfect metric but net worth is based to a significant degree on luck."


    I call BS on that one.  Got any hard data to back the up Hal?

    The Kochs, the Waltons, the Rockefellers, the Kennedys.

    Sam Walton built up an innovative hub-and-spoke operation for large scale merchandising. Joe Kennedy illegally bootlegged liquor. Hard to see how they even compare. List some other rich families for us please - it's almost like you're proving a point. The Gandhis, the Medicis, the Rothschildren, the Guggenheims, the Borgias, the Jackson Five, the Flying Wallendas, the Trapp Family, Beau & Jeff Bridges with Michelle Pfeiffer, the Branch Davidians, the Kardashians, Billy Graham Ministries, Downtown Abbey Miniseries, Leona Helmsley, Sergey Brin, the Spinks Brothers, Paisley Park, Sylvester Stallone, Sly Stone, Emma Stone, Stone Temple Pilots...

    Wouldn't you call Sam Walton's grand and great grand-children lucky? How about the great great grand children of John D. Rockefeller who are each worth $100s of millions solely because they are direct descendants of the old robber baron?  The same dynamic is in play for many many of the richest Americans today.  Even many, like Chelsea Clinton who reportedly brought $15 million into her marriage to a $15 million dollar hedge-fund manager, "earned" their nut because they enjoyed very fortunate connections to the rich and powerful not by dint of hard work, effort, and innovation.  Wouldn't you call that luck PP?

    Shifting goal posts, Hal - "We can determine who's luckiest by how much money they have."  Well, Bowie just died a fairly wealthy man, yet he spent almost 10 years before Ziggy trying to define his "luck", and then he took a lot of chances to parley that into new styles and new "luck". Sam Walton built his "luck" - sure, any success has a bit of luck to it, along with tons of work. Yes, children often inherit that "luck", and I'm all for the estate and inheritance and gift taxes, but don't get the high tax on fortune without figuring out how to encourage enterprise and taking chances.

    So how much should Bill Clinton or Sam Walton or David Bowie or Sergei Brin and Conrad Hilton be taxed on their inventiveness? And then how much should they be allowed to pass to their kids and at what rate? They're 2 different questions - conflating them doesnt help address a significant issue. And of course for every Bill Clinton or Sam Walton, there are thousands of lesser successes who likely couldn't withstand the 95% taxation the Beatles once had to put up with, which probably didn't help the decaying greyness of England's cities of the 60's & 70's that inspired Bowie's dystopian lyrics of "5 years".

    In Hal's eyes anyone whom he imagines has more than he does is "lucky".  Anyone who is "lucky" doesn't deserve their windfall so Hal believes he is justified in confiscating their windfall and giving it away to someone else.  Hal imagines himself as a modern day Robin Hood but he isn't stealing anything...he calls it a tax so he can sleep at night.  While not stealing from the "lucky" Hal wants the recognition of being a Robin Hood and someone who cares about the plight of others.  Hal's compassion is limited, however, into how deeply he can reach into someone else's pockets.

    Jeff, you simply don't understand the compassionate psychological makeup of a true Socialist.

    To be honest I don't think they understand themselves either.

    Hal and Bernie Sanders are little more than Social Democrat Capitalists with fantasies of top down redistribution of some small fraction of the monstrous wealth held by the few and fortunate. This illusion of fairness and faux equality was used in Europe and somewhat in the US to protect Capitalism and destroy the Socialist movement. This Liberal Stateist solution even at the margins is doomed to fail because many of  the less but still fortunate population will go to war to protect those who have accumulated massive wealth as illustrated by comments here.

    As we are seeing in Europe when push comes to shove the Capitalist Class has dismantled much of the Social Democrat's gains when they threatened profits and neoliberal austerity is the future social plan there.

    Socialism in its ideal form would avoid these problems  and roadblocks because wealth would be distributed fairly at the source of its production not after it was accumulated by the fortunate and turned into power that maintains the class system and the wealth it  produces.

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