Showing posts from 2011

What bothers me about Keynesians

I keep reading these blogs talking about Keynesian economics and NGDP, etc...What bothers me most is that it seems like Keynesian solutions can be be applied regardless of the underlying reality. That is, the solution is always more spending and more inflation, without regard to what is actually going on.
For instance Matt Yglesias talks about Italy's debt issue: Since your debt is denominated in nominal terms in your own currency, all you need is for your nominal GDP to grow fast enough to ensure that your debt:GDP ratio shrinks. And since shrinking debt:GDP ratio reduces the interest burden on your budget, if you can hold that primary surplus flat soon enough you’ll be making enormous progress. Alternatively, your central bank might be so stingy as to insist on NGDP growing so slowly that your debt:GDP ratio rises despite the primary surplus. That means your interest burden rises and your situation spirals into disaster. Except no country’s central bank would be that insane. If…

Thinking about tax share

Kevin Drum posts this showing tax share by income in 1979 vs 2007.

This purports to show that: 1) Our tax system is not progressive (i.e. the rich don't pay outsized tax rates) 2) Tax rates on the rich have declined.
The biggest differences between this graph and graphs favored by the right: 1) "Average" is probably a very misleading way to present a comparison. 2) This graph includes state/local taxes. 3) This graph includes payroll taxes (Medicare, Social Security)

Thinking about "Average" tax share It's not clear what "average" mean here. I'm presuming it's the simple mathematical average: tax rate = sum(all taxes) / sum(all income) If that's the case, then it's a highly misleading way to try and show the progressiveness of a tax system. The average almost by definition cannot show the progressiveness of a distribution. Consider the most progressive tax system imaginable: Top 1%: 50% of income, 100% of all taxes, with 30% ef…

Taxing the harder working

Instead of thinking of increasing marginal rates as "taxing the rich", think of it as "taxing the harder working".Here's a graph showing hours worked by income quintile:

Russel Sage Chartbook
The top income quintile household works more the 2x hours per year. And their reward for all that hard work? Higher marginal taxes!