Six Policy Changes Economists Love and Politicians Hate
- Eliminate the mortgage tax deduction.
- End the tax deduction companies get for providing health-care to employees.
- Eliminate the corporate income tax. Completely.
- Eliminate all income and payroll taxes…Instead, impose a consumption tax.
- Tax carbon emissions.
- Legalize marijuana.
From NPRs Planet Money via John Cochrane.
1-4 and especially 6 are all changes that need to happen NOW.
Five is problematic because there really is no way to tax carbon emissions other than to have government monitor how many miles people are driving, what speeds they are driving, and where people are driving & at what hours.
Sorry, but there are too many privacy issues with that.
I think Cochrane is right.
The mortgage interest deduction is very popular. But it drives up the cost of housing (just as student loans drive up the cost of college). This is probably especially true in high income regions that have high state and local income taxes and a scarcity of housing (think New York City).
The deduction for employee health insurance should be replaced with a tax credit. You could argue that regulations which encourage employee health coverage have actually harmed American’s health. This is because the deduction for employee health coverage encourages third-party payment, which caused health care delivery to become bureaucratic. Medical prices also skyrocketed. These factors ultimately reduced access to health care – especially for those of limited means.
Matthew Yglesias over at Slate.com has correctly pointed out that if doobies were legalized, the price would fall in less than a quarter per cigarette. The production would become just another agrabusiness.
The reason to tax carbon emissions is…..? So do we tax breathing? And if one goes jogging you should be taxed greater than just being a couch potato?
1) Houses are the only source of wealth creation for most poor people. I’m not sure which economists want this to happen, but I imagine it’s the ones being paid by Wall Street bankers, who build THEIR wealth with financial assets that drive up the cost of housing and make bubbles. That’s what really drives up housing costs, not mortgages, @Devon, but god forbid we take a little wealth generation ability from the rich while we take it away from the poor.
2)This was originally designed to reduce spending in WWII. I’m all for getting rid of it so long as it’s replaced with better healthcare options.
3)The United States is not going to be a tax haven. What matters is how you spend the money, not whether you take it. A better plan would be to eliminate corporations’ ability to move money around the globe like it’s air. This would particularly benefit developing countries, not that we care about them.
4) Only if that includes “consumption” of financial products (which I’m guessing your plan wouldn’t include). We need a tax on those anyway.
5) Environmental standards have done quite a bit of good. Make them stronger, and go after the biggest cause of human carbon emmissions, which is third-world poverty.
6) A) What would the unemployment rate be if all those in jail for marijuana possession were out? B) “Doobies,” @Devon? The 60s called…
We could go to a consumption tax, but we ought to get rid of the the 16th Amendment before doing so.
David,
Why should a house appreciate in value over time? The land it is on might become more valuable as similar parcels become scarce, but why should 30 year old bricks and boards appreciate in value? Your home should be something that serves you for shelter and pleasure to the extent you can afford it, but it should not be a wealth creation investment.
Even in the distorted tax environment we have had it is not really a good investment allowing for inflation. A house is not a good use of capital. It is not producing anything. Also the tax policy disproportionately favors the wealthy over the poor or middle class and the renter really gets the shaft.
Make sure you don’t give financial advice to poor people, Steve. You’re obviously not qualified.
A house doesn’t have to appreciate in value over time for it to build wealth. As far as “consumer products” go, a house is the only thing that doesn’t become worthless in less than a decade. Because of that, payments made on a house contribute to equity. Renters don’t have that privilege.
So, if a person is going to be getting shelter from a house (though I doubt you care if people are homeless or not), then buying it builds wealth so, yes, a house is a good use of capital since you’re going to be spending that money anyway (unless you’re homeless).
The only better uses for capital are business investments. Maybe poor people would be encouraged to invest in that type of capital if our public welfare systems were of comparable quality to our corporate welfare systems. As it is, poor people can’t afford to take the risk of business investment. Look at Scandinavia for a good example of welfare contributing to investment.
But poor people wouldn’t be able to get capital anyway because however a profitable business idea they have, it’s unlikely to be as profitable as financial speculation–which is why real investment (along with real income for everyone but the richest people in our country) has gone down over the last 30 years.
David,
It is interesting you can assign characteristics to my personality and define my empathy from my name.
A house, shelter, does not create personal wealth, it may warehouse your money, but it really should not appreciate in a free market. Again, why should a 30 year old building for your personal shelter appreciate in value? Only because our federal reserve has determined we should have inflation in order for the government to be able to pay it’s debt in the future with dollars of less value.
Sound business investment does in time create wealth, but there is no assurance. Still, in a free market that would be a better use of capital for those with something to invest. For others, renting until they can accumulate capital may be necessary.
Speculative investment is how those with good ideas get a chance. It is a good use of capital and when loaned wisely all benefit. Unless you don’t believe in profit.
If “real investment” has declined it might just be ever increasing disincentives from taxes and regulations, many of which can change the investing environment between the time a business plan is initiated and the product or service is delivered. It has been called regime uncertainty and it is rampant today.
Also one needs to distinguish between “income” and total compensation. The total compensation of the bottom quintile has been reported in some studies to be a much better reflection of standard of living. But then again I don’t give a damn according to you.
I see the mortgage interest deduction as a sort of detent mechanism that serves to keep the homeowner class in their homes, and others from becoming homeowners. Renters are taxed more heavily, making it harder to save for that down payment.
That said, I think now would be a poor time to abolish the deduction.
On the other hand, I can’t think of a better time than now to abolish the Clinton/Gingrich tax breaks for residential capital gains and go back to the previous one-time exclusion.
Again, @Dr. Steve, I never said housing values have to appreciate in order to build wealth. Warehousing your money is better than tossing it down the drain.
It’s also difficult to believe that I’m reading someone say speculative financial investments are a good thing in the year of 2012. Are you getting your news from the archives section!?
Real investment has declined because something like 90% of “investments” are currency exchanges. As it relates to housing, mortgages were once the only tradable assets that could earn a profit. But in the last 30 years, we’ve added MBS’s, CDO’s, CDO^2’s, CDO^3’s, and CDS’s. Those assets are not “real” in the sense that they are only valuable if their composite assets are valuable individually (composite assets leading back to the original mortgages). Interest rates might make it cheaper for the initial mortgages, but all the additional fecund assets offset the purpose of an interest rate–they made a defaulted loan profitable for the bank.
Investment is down because we’ve allowed ROI for financial assets to exceed ROI on real assets. The only relation that has to taxes and regulation is that it became possible with lower taxes and deregulation.
@Bart, be careful to use relative ease of buying in absolute terms.