I confess that the incomes of the super rich is astounding.  By super rich I mean those with consistent salaries and incomes above $5,000,000 per year and liquid assets of at least $50,000,000.  My blog- my definition.

It is easy to get distracted by the growth among the super wealthy.  Regardless of the reasons and the merit for their wealth,  the push to be more fair is fraught with difficulties.

First is the frank admission that there are relatively few of these people and even substantially raising their taxes will yield very little revenue relative to the enormous deficit.  The proposal floating would reduce the deficit less that ½ of 1%.

The very rich are truly global in their scope and have many more opportunities to avoid taxes than the rest of us.  States and countries that have sought to soak the rich have often seen a decline in revenues as they simply move elsewhere.  There is a global competition for capital that places a very real cap on what you can tax and collect.

The Buffet Rule may  double the rate on capital gains and become a strong incentive to invest elsewhere.  Where the capital goes the jobs go.

The Buffet Rule is based on a myth that the very rich pay less than the lower income.  This is true in only the most isolated cases.  Most working rich pay substantially higher income taxes than the lower income.

Does this administration seriously propose to limit the tax free treatment of municipal bonds?  This will increase the borrowing costs of municipal projects such as sewers and utilities.  Does he seriously expect to equalize the treatment of capital gains with earned income?  I doubt that few Democrats would agree with either position.

If he does not propose either of these then he is at the minimum being very disingenuous about this class warfare nonsense.  If he is serious about either proposal then he is an economic fool.

But most important is that there is not a widespread agreement on what is fair.  To many taxpayers it is unfair that half the taxpayers pay so little.  It is unfair to speak of millionaires and then use that to raise taxes on those who make $200,000.  It is unfair to work and save and then see fellow capable and healthy  citizens draw unemployment for 99 weeks.

Stephen Moore wrote an excellent piece in the Wall Street Journal which many more people can relate to than the Buffet Rule Ruse:

In A Fairness Quiz for the President (read the whole thing- please) Moore noted:

Is it fair that the richest 10% of Americans shoulder a higher share of their country’s income-tax burden than do the richest 10% in every other industrialized nation, including socialist Sweden?

Is it fair that those who work full-time jobs (and sometimes more) to make ends meet have to pay taxes to support up to 99 weeks of unemployment benefits for those who don’t work?

Is it fair that federal employees receive benefits that are nearly 50% higher than those of private-sector workers whose taxes pay their salaries, according to the Congressional Budget Office?

Is it fair that nearly four out of 10 American households now pay no federal income tax at all—a number that has risen every year under Mr. Obama?

Is it fair that the three counties with America’s highest median family income just happen to be located in the Washington, D.C., metro area?

Does the president really want to have a conversation about fairness?  If he does then he should start to address these questions.  They will probably be on the mind of more voters that the tax rates of Warren Buffet and his secretary.

If he really wants to address fairness here is another place to start:

36 Obama aides owe $833,000 in back taxes

Chris Berg writes an interesting perspective on the anniversary of the sinking of the Titanic in The Real Reason for the Tragedy of the Titanic, The Wall Street Journal, 4/12/12.

Excerpt:

In the Board of Trade’s post-accident inquiry, Carlisle was very clear as to why White Star declined to install extra lifeboats: The firm wanted to see whether regulators required it. As Carlisle told the inquiry, “I was authorized then to go ahead and get out full plans and designs, so that if the Board of Trade did call upon us to fit anything more we would have no extra trouble or extra expense.”

So the issue was not cost, per se, or aesthetics, but whether the regulator felt it necessary to increase the lifeboat requirements for White Star’s new, larger, class of ship.

This undercuts the convenient morality tale about safety being sacrificed for commercial success that sneaks into most accounts of the Titanic disaster.

The responsibility for lifeboats came “entirely practically under the Board of Trade,” as Carlisle described the industry’s thinking at the time. Nobody seriously thought to second-guess the board’s judgment.

This is a distressingly common problem. Governments find it easy to implement regulations but tedious to maintain existing ones—politicians gain little political benefit from updating old laws, only from introducing new laws.

And regulated entities tend to comply with the specifics of the regulations, not with the goal of the regulations themselves. All too often, once government takes over, what was private risk management becomes regulatory compliance.

It’s easy to weave the Titanic disaster into a seductive tale of hubris, social stratification and capitalist excess. But the Titanic’s chroniclers tend to put their moral narrative ahead of their historical one.

At the accident’s core is this reality: British regulators assumed responsibility for lifeboat numbers and then botched that responsibility. With a close reading of the evidence, it is hard not to see the Titanic disaster as a tragic example of government failure.

HKO comments:

There was a similar point made year back in a book called The Death of Common Sense. The more we depend on the government to regulate the less we use our own judgment.

This point stands in the shadows of the financial meltdown.  There was an alphabet soup of regulatory agencies supervising the financial sector but were unable to keep up with or understand newer financial products.  There is much more political glory issuing new regulations than in adapting and updating old regulations.

Compliance becomes the focus rather than the purpose of the regulations.  Judgment requires flexibility, regulations discourage flexibility.  Often the complexity of regulations adds to the complexity of the systems being regulated. Instead of avoiding problems it often fosters them.

Brian Gaines and Douglas Rivers write in the Wall Street Journal 4/10/12, What’s a ‘Fair’ Tax for the Mega Millionaires?

Excerpt:

It turns out that most Americans do not think that 35% or anything close is a fair tax rate, even for bizarre windfalls such as winning a lottery. In February, the online pollster YouGov asked a representative sample of 3,500 American adults what they thought would be a “fair amount of tax” to pay on lottery winnings. The survey specified different amounts of winnings, ranging from $1 million to $100 million. (The amount shown to each respondent was selected at random from a set of seven possible values.) Respondents gave their answers in dollars, and YouGov computed the implied percentage tax that they thought was fair.

Less than a quarter of respondents chose a tax rate of 30% or higher on any level of lottery winnings. The vast majority thought that a reasonable amount to pay was much lower, with the average being only 15%. Democrats and Republicans differed only a little: The average rate preferred by Republicans was 14%, compared with 17% for Democrats.

There was no evidence that respondents thought rates should be any higher on a $100 million prize than on a $1 million prize. Differences across prize amounts were mainly too small to be regarded as statistically significant. For all of our hypothetical lottery prizes, over half the respondents chose a tax that amounted to 10% or less of the lottery winnings.

HKO comments:

1. The president’s case to raise taxes on the rich is a ruse to deflect attention from the irresponsible growth in spending under his leadership.  Higher taxes on the rich will not reduce the deficit even 1%.  How much easier it is to blame the rich rather than face the difficult choice of realizing the limitations of government resources.
2. Is he proposing to eliminate the tax free status of municipal bonds?  That may increase the tax payment of the wealthy, but it will also increase the borrowing costs of cities and states to build the infrastructure they need.
3. Is he proposing to increase the taxes on capital gains?  It is already slated to increase from 15% to 23.8%.  A Buffet Rule of a minimum of 30% will in effect double the capital gains rate. This is a sure way to reduce the job growth that comes from capital investment, and it is a sure way to send investment capital overseas. The capital gains rate in China is 0%.
4. That attack on the wealthy is selective.  Talk is cheap and this article unveils the lack of consensus on what is to be considered excessive.  Rarely is anyone specific.  When you attempt to reach clarity the argument falls apart.
5. Wealth serves social purposes even when it is not in the hands of the government.
6. High taxes begets more loopholes to keep the taxes from doing the social damage that will follow (see 2. and 3. above).  We would be wiser to lower taxes and close the loopholes. This, however would prevent the destructive social tinkering and political favoritism that infects this Congress and Administration. (and many before it)
7. The solution to our deficit must come from economic growth. This administration’s policies and rhetoric, including this Buffet rule, greatly hinders economic growth. We must compete is a world economy where we have the highest corporate tax rates and one of the most progressive income tax rates. Yet the administration claims it is not enough.

Also in the same issue of the Wall Street Journal,   The Obama Rule.

Excerpt:

The Obama Treasury’s own numbers confirm that the tax would raise at most $5 billion a year—or less than 0.5% of the $1.2 trillion fiscal 2012 budget deficit and over the next decade a mere 0.1% of the $45.43 trillion the federal government will spend. When asked about those revenue projections, White House aide Jason Furman backpedaled from Mr. Obama’s rationale by explaining that the tax was never intended “to bring the deficit down and the debt under control.”

Okay. So what is the point?

Further HKO comment:

Who made this President the King Solomon of Fairness?  When two women claimed to be the mother of a child, King Solomon offered to cut the child in half and give each woman half of the child. The woman who quickly declined proved to be the mother of the child, preferring to keep the child alive even if it could not be with her.  If neither woman came forward would Solomon have made good on his threat?

There is much more to social justice than fairness.

Amity Shlaes

Amity Shlaes writes in the 4/9/12 Wall Street Journal, Tax Policy is About Competition, Not Fairness, What John F. Kennedy understood that today’s politicians forget.

Excerpt:

Heller’s successful plan to combat the recession of the early 1960s was the Kennedy-Johnson tax cuts, which pushed the unemployment rate below 5% and the growth rate above 5% from 2%. Crucially, the administration’s marketing pitch didn’t talk about “fairness” but about competition. In the 1963 State of the Union Address, for example, Kennedy spoke about obstacles that “undercut our efforts to compete with other nations.” He called “one step, above all, essential” to solve the problem: “the enactment this year of a substantial reduction and revision in federal income taxes.”

Heller and Kennedy recognized that taxation (not only growth) is all about competition. Cities compete with cities, counties with counties, states with states, and nations with nations. These natural experiments run in real time.

Legislators at all levels of government are beholden to data sets that contain little material about states, even less about other countries, and scarcely any easy-to-follow comparisons. Yet while everyone here at home was recrafting the earned-income tax credit or the Alternative Minimum Tax, the United States this month became the country with the highest corporate tax rate in the entire developed world.

HKO comments:

Raising taxes without concern for the competition for labor and capital is like a business raising the price of his product or service without consideration of competitors.  In an effort to raise revenue you will see them decline.  This is what happens when we staff government with political drones with no private sector experience.

Not only must our businesses compete with businesses from other countries with different tax structures, but the individuals who must add the higher friction costs of regulation and taxes, can find alternative sources for their capital than putting it in the path of confiscation authorities.  The richer Americans, the very ones targeted for higher taxes, have the most alternatives to avoid the taxes.

I also like the article because it addresses the successful tax policies of Kennedy:  good tax policies do not have to be the domain of one party.

Pamela Hartzband and Jerome Groopman write Rise of the Medical Expertocracy Both Democrats and Republicans want to introduce the paternalism of ‘best practices’ into health care in the Wall Street Journal, 3/31/2012.

The crux of the excellent analysis is that health care is both too complex and too personal to be reduced to a set of best practices that can be determined by a remote elite.  The only difference between the Republicans and the Democrats is that the Democrats thinks government bureaucrats are able to make these decisions and Republicans thinks that insurance companies can better make these decisions. Both parties are wrong.

Excerpts:

For patients and experts alike, there is a subjective core to every medical decision. The truth is that, despite many advances, much of medicine still exists in a gray zone where there is not one right answer. No one can say with certainty who will benefit by taking a certain drug and who will not. Nor can we say with certainty what impact a medical condition will have on someone’s life or how they might experience a treatment’s side effects. The path to maintaining or regaining health is not the same for everyone; our preferences really do matter.

For much of the 20th century, the model of medical care was paternalism: A doctor dictated what was to be done and the patient complied. This model has largely been abandoned, but now Democrats and Republicans are offering a new form of paternalism, based on the assumption that Americans are not receiving “quality” care. A lucrative industry has grown up to generate ever more medical metrics, to give report cards to doctors and hospitals, and to base payments on compliance with “best practices.” Yet beyond safety protocols, there is scant evidence that such measures improve our health.

Patients and doctors can differ with experts and not be ignorant or irrational. Policy makers need to abandon the idea that experts know what is best. In medical care, the “right” clinical decisions turn out to be those that are based on a patient’s goals and values.

HKO comments:

Markets allow for the high degree of incrementalism that consumers want.  Central control does not.  Many proponents of centralized health care blatantly state that most Americans are too ignorant to make their own health care decisions.  How utterly arrogant and demeaning.

For example.  Pretend two different patients with a brain tumor face a choice of  certain death or surgery that has a 25% chance of permanent brain damage and a 75% chance of a compete cure.  One patient has had a long agonizing experience with a loved one with brain damage and the other has not.  The first may choose not to have surgery because of his or her experience and the latter lakes the odds and seeks the surgery.   People make decisions for many reasons well beyond the reach of best practices.

Steve Jobs elected to delay treatment of his treatable pancreatic tumor to try a strict vegan diet for several months.  It may now seem foolish, but should he have been forced to accept a best practice that dictated otherwise?

The kind of reform medical care needs is to return control to the patient, and to increase transparency in treatment and billing.  Democrat ex Congressman Jim Marshall, who voted against the health care bill, noted the need for doctors to provide the lowest price for payment at time of service.  This at least inserts an element of true market pressure that is currently missing in health care.