Without going back for details, let me recall that earlier this year Goldman Sachs and a client that I believe was a Portuguese bank got in a little bit of trouble for a deal they did. The Portuguese bank needed to improve its capital ratio, and one way of doing that would have been to sell some assets it owned; for various reasons, it didn't want to technically do that, but it did something economically equivalent. Its regulator, to its surprise and dismay, told it that this economically-equivalent-to-sale was not regulatorily-equivalent-to-sale, but there was a third economically-equivalent-to-sale arrangement that had even more closely related precedent to being regulatorily-equivalent-to-sale, so Goldman Sachs helped the bank convert its interim arrangement into the new one. The criticism to which the banks were then subject was that this conversion from the interim structure to the new structure was done for no economic purpose; it was solely an attempt to affect regulatory treatment.
Thursday, November 13, 2014 :::
Now, of course, that was true; it was more or less an attempt to help the regulators get the right answer, since they were previously making a distinction where there was no distinction to be made. One certainly gets the impression that going from the full, true ownership of the assets to the final state without the intermediate states wouldn't have raised any eyebrows. Further — wait, isn't the point of regulations that they're supposed to be complied with? There's no question here that the bank was, the whole way through the process, attempting to comply with the spirit of the regulation; the criticism seemed to be that, having satisfied the intent but not, according to the regulator, the letter, they then proceeded to satisfy the letter as well without any substantive change — but, again, that's because the substance had already been there. So this is just nuts.
Now, Jonathan Gruber, who has been an unwitting and bountiful source of delight for opponents of Obamacare this year, was recently found to have commented that some of the structure of the Obamacare legislation was not what he would have preferred, but was done for political reasons. He used words like "stupid" that are hard to cast as normatively neutral, but I kind of feel like, had he avoided that, he could have made points very similar to the points he made in a way that would have been more sympathetic, for reasons similar to the preceding bank story. If he had said, "You and I and John Roberts consider this to be equivalent to a tax, but there are people to whom it seems to be importantly different, so we had to cast it as a penalty," or "You and I consider the 'community rating' as equivalent to taxing young people and giving the money as a subsidy to old people, but there are people who get much more upset about one set-up than the other, so we used the set-up that they preferred rather than the one that seemed equivalent to us but more objectionable to them," there's some level on which that looks like common sense political horse-trading; if B gets you most of what you really want, and B is far preferable to other people than A is, you go with B over A, even if — especially if — they seem equivalent to you.
::: posted by dWj at 12:16 PM
Tuesday, November 11, 2014 :::
This in some ways is old news, but Vox has a write-up on a new working paper about charter schools in Texas, which finds that
exits from the sector, improvement of existing charter schools, and positive selection of charter management organizations that open additional schools raised average charter school effectiveness over time relative to traditional public schools.
There are states in which charter schools are, on average, better than traditional public schools, and other states in which they are not; to a large extent the schools that succeed do so for different reasons, and those that fail do so for different reasons, and details of what makes a good school depend on local contexts. What works well as far as state-wide institutional rules, then, are allowing a lot of charter schools to open, especially where public schools have not been doing well, and closing them down if they don't do well. The reason they help public education in those states is because they make it easier to try something genuinely new when what is being done isn't working than do most traditional public school institutions. If they become a new way of trying something and not responding to the results, their benefits are at best severely circumscribed.
Shortly before the recent election, an organization asked school board candidates in my area a set of binary questions, among which was a question like "Do you support charter schools?" I have the impression that knee-jerk supporters of charter schools in states in which they are allowed to continue to fail are in fact the problem there; when a charter school is to be shut down, they rally to its defense, because they are pro-charter school. Other states miss out on potential benefits because the powers that be are knee-jerk anti-charter school; they insist that failing schools continue to fail in the same ways, or occasionally to fail in ways imagined by people with the same prejudices that led to the original failure.
When I see people arguing that we should raise or cut taxes for which the individual doesn't know the current tax levels, or who always support or always oppose management in every labor dispute, I become skeptical that this is a well thought-out position, and assign higher probability, in most contexts, to this person's having made a midbrain-level association between one thing as "good" and another as "bad". What I tend to dislike about asking politicians yes/no questions, or even putting too much stock in a Congressman's voting record (where, especially in the case of junior members of the House, yes/no decisions are a lot of what they get to do legislatively), is not merely that they ask the candidates to oversimplify, but that they have at their epistemological root the assumption that one should adopt a fixed answer to them, and that the actual content of actual questions is inessential.
::: posted by dWj at 12:34 PM
We all instantly recognize that it would be a disaster if we collectively decided that the way all cars should be purchased would be by having a job with a company that will provide you a car (with a tax break, and if you lose your job, you lose your car), and an insurer that will pay for gas and oil. Should you not be able to get a car that way, the government will buy you a car.
That point is, I would think, sufficiently obvious that you wouldn't read an article whose sole contribution is that, but I kind of liked this analogy for some reason.
Readers here may also be aware that
As the economist Robin Hanson wrote, "It has long been nearly a consensus among those who have reviewed the relevant studies that differences in aggregate medical spending show little relation to differences in health, compared to other factors like exercise or diet."
The reason for reading the article — or at least the first half or so of it — is for the case studies.
How can Singapore accomplish what must be referred to as, insofar as such things exist in the public policy realm, a miracle? The central design principle of the Singapore system is that it puts as many health decisions as possible in the hands of the consumer — and this includes having the consumer pay for his own decisions.
It is, to be sure, not a fully hands-off system; people are required to save money for health expenditures, Robin Hanson's point notwithstanding; it sounds, in fact, far more politically possible in the United States than a more hands-off system would.
::: posted by dWj at 7:56 AM
Monday, November 03, 2014 :::
Most Senate seats on the ballot this year were last contested in 2008, an extraordinarily strong Democratic year. House seats were last contested in 2012, a pretty good Democratic year. Most governorships were last on the ballot in 2010, an awful Democratic year.
So if the election goes about as polls predict, it would suggest that 2014 was way worse for Democrats than 2008 and somewhat worse than 2012 but somewhat better for them than 2010.
::: posted by dWj at 12:18 PM
Thursday, October 30, 2014 :::
I'm not, at this point in my life, particularly interested in staying up late on election night obsessing over returns; on top of that, I live on the east coast, and it gets late early here. Something could perhaps change between now and Tuesday, but right now I'm providing my rubric for next Tuesday night:
Update (Monday, 11:20 EST): Kentucky no longer even seems to be on the table; a McConnell loss at this point would be more seismic than anything I'm really considering above. I'm increasingly thinking it's unlikely that news sources will be "declaring" control of the Senate before I wake up Wednesday morning. If Kansas, Georgia, or North Carolina is called for the Republican, that would probably do it; if Democrats win Iowa and Colorado, that would probably do it for them. I think the best bet for a timely declaration is that voters in Georgia gravitate toward the major party candidates (or, more particularly, toward one of them or the other). I'm sure there's less correlation between senate races than between different states' electoral college races in a Presidential year, but I'd still be surprised to see someone exceed 50% in Georgia by enough of a margin for it to be called within hours of polls' closing and see enough other states break toward the other party to determine control of the Senate.
- If Kentucky goes to the same party as either North Carolina or New Hampshire, that party will control the Senate.
- If a winner (not a run-off) is declared in Georgia, the new Senator from Georgia will be in the majority party in the Senate.
- Iowa, Colorado, and Alaska all close their polls after (or at least very close to) my bedtime, and my staying up late at night will do very little to affect the outcome in any of those states.
::: posted by dWj at 11:19 AM
Thursday, October 02, 2014 :::
This is essentially trivia, but I'd like to note three candidates who perhaps should be in the conversation for the Economics Nobel Prize but, at least so far as I've seen, haven't been, along with speculations as to why:
- Avinash Dixit
- Part of what is impressive about Dixit is that he has contributed to a lot of fields; I wonder whether he hasn't received it yet in part because they can't decide what to give it for. A strong case has been made that he should have shared the 2008 prize with Krugman, much of whose work rested on some of Dixit's early work; it may be that politics played a role in his not being included.
- Jean Tirole
- I will admit to having thought he was a woman until a few hours after I learned that he is French — it occurred to me that he was likely male at the moment I realized I had been mispronouncing his first name. It's possible his work is too closely related to that of (really) the last three years' worth of prizes [edit: for some reason I forgot about the 2010–2011 prizes, and had in mind the winners from 2009, 2012, and 2013 when I wrote this], whose only real common thread is "fields on which Tirole's work impinges"; it's not so much the case, as with Dixit, that his contributions are so diffuse as that they sit in the middle of IO, markets, governance, and finance. In years past I've seen people suggest him for the prize, and cheer for it on the grounds that it would be fun to watch the media try to explain his work to laymen; that prospective source of entertainment for those of us in the know might hurt him a little bit with the committee.
- Ben Bernanke
- This is another case, as with Tirole, of the timing being wrong, not so much for the last few years' prizes as for his recent retirement from a high-profile non-academic job that might make politics a factor, to some extent forever but especially this year. He would never have been a shoo-in, but certainly would have been a credible candidate ten years ago based on his previous work on the effects of the finance and banking sector on what economists and populists alike sometimes call "the real economy". His theoretical work preceded his historical work on the Great Depression, and one can see evidence of his work at times in his performance of his more recent job, but one can also see his management style and the effects of the institutional setting in which he was working. No doubt were he to receive it much of the popular media coverage would imply, almost certainly incorrectly, that it was an endorsement by the committee of his actions in the last eight years, and the committee may want to avoid that for a while.
::: posted by dWj at 1:04 PM
Friday, September 19, 2014 :::
It's my understanding that one of the reasons the Bush administration wanted to eliminate the inheritance tax was because there are so many other strange rules and taxes (gift taxes, "generation-skipping" taxes) that really only exist to catch people who are trying to get around the inheritance tax. Similarly, it's worth noting that a certain amount of labor regulation moonbattery seems to exist in support of minimum wage laws; if you could garner a consensus to replace the minimum wage with an enhanced EITC, you might be able to get some follow-on regulatory benefits as well.
::: posted by dWj at 12:02 PM
Wednesday, August 27, 2014 :::
I'm scheduled to meet with my advisor, and appear to have given up on any hope of being prepared for that, so I'm reading Matt Levine instead. If you don't know about the difference between the way the US taxes income and the way every other country does — i.e. that basically every country taxes economic activity within its borders, but the US taxes a lot of economic activity outside its borders as well — then Welcome to our blog! and maybe go read his synopsis of the international corporate tax system. The upshot as it concerns the Tim Hortons deal is that, if BK and TH join to become a Canadian company, BK will pay somewhat less in taxes (viz. on its non-US operations), while if they join to become a US company, TH will pay a lot more in taxes (viz. on its non-US operations), and this is a legitimate merger for non-tax reasons, but TH kind of doesn't want to volunteer for all those new taxes. What I want to address is more
This seems fair to me if the R&D work behind the patent is done in Bermuda. Since (If?) it's not, at least in theory you might tax the value of the patent minus its R&D "cost-basis" as it leaves the country; in practice, it probably wouldn't be easy to value the patent. I'm not sure whether making expatriation of capital a taxable event is workable or not.
- Your U.S. subsidiary makes a pill for $1.
- Your U.S. subsidiary licenses the patent on that pill from your Bermuda subsidiary for $9,995.
- Your U.S. subsidiary sells the pill for $10,000.
- Your U.S. subsidiary has $4 of net income, which is taxable.
- Your Bermuda subsidiary has $9,995 of net income, which is not.
I will add that "eliminate corporate taxes" is another idea I like in theory more than in practice; my practical objection is that it's hard to say what is an expense incurred in the production of revenue. If I'm a traveling salesman, maybe I need a car for work as a legitimate business expense, so I go find myself a Maybach and write off its depreciation on my taxes. Well, I am not a tax lawyer, so this isn't tax advice, but the IRS is going to see through that. In actual practice, a lot of expenses are going to necessarily be a combination of employee perk and unavoidable expense, and there are going to be rules of varying levels of arbitrariness and well-foundedness to try to keep evasion to a minimum without screwing people too hard, or at least let's suppose that's an IRS goal. A lot of that complexity can be kept out of individual income taxes only to the extent that it can be shoved into corporate taxes, where I think complexity is likely to be easier to bear (and easier for those who can't bear it to legitimately avoid it at lower cost). So ultimately perhaps you can (should?) have a corporate tax rate of 0, but you still might want corporations filing forms that clarify whether some of the employees or clients are receiving in-kind income that can be taxed at some other level.
::: posted by dWj at 11:31 AM