Mankiw on business taxation

Gregory Mankiw, despite being a professor of economics at Harvard, tends to be interesting. His “I Can Afford Higher Taxes. But They’ll Make Me Work Less.” (2010) may explain our lack of economic growth (the most productive workers in our society face a 90 percent marginal tax rate).

Now he’s written another nytimes piece: “How Best to Tax Business.” Let’s look at this…

Mr. Hassett finds that corporate taxes depress wages for manufacturing workers. In a world where capital is mobile and labor is not, capital escapes from high-tax nations, leaving workers behind to bear the burden of lower productivity and reduced incomes.

Most nations aim to impose taxes on economic activity that takes place within their borders. Such a system is called territorial. By contrast, the United States has a worldwide corporate tax. If a company based in the United States produces a product abroad and then sells it abroad, our Treasury takes a cut of the profits when they are brought back home. The House tax bill would move our system toward international norms. American companies would be able to compete abroad on a level playing field with companies based in other nations. The tax incentive for corporate inversions would be eliminated.

Consumption taxes would do less to discourage saving and investment and would thus be more favorable to economic growth. In addition, consumption taxes are arguably fairer: They tax the standard of living people enjoy rather than the value of what they produce. The House plan moves toward a consumption tax by allowing businesses to deduct their investment spending immediately, rather than depreciating it slowly over time. By exempting the income that businesses reinvest, the government would essentially be taxing consumed profits.

The corporate tax system is now origin-based. It levies taxes on the profit from goods produced in the United States, regardless of where they end up. An alternative, proposed in the House bill, would be to tax all goods consumed in the United States, regardless of where they are made. This destination-based approach would tax imports and exempt exports, which is sometimes called a border adjustment. In this way, the business tax would resemble many of the value-added taxes used in Europe. … The main advantage of destination-based taxation is that it is easier to determine where a good is consumed than where it is produced. In a world where multinationals produce goods using parts from around the world, origin-based taxes invite firms to game the system with transfer pricing schemes. Destination-based taxation is less easily gamed.

Now, firms can deduct interest payments to bondholders, but they cannot deduct dividend payments to equity holders. This treatment encourages firms to rely on debt rather than equity, making them more financially fragile than they would otherwise be. The House plan fixes this asymmetric treatment of debt and equity by no longer allowing firms to deduct interest payments. A business’s taxes would be based on its cash flow: revenue minus wage payments and investment spending. How this cash flow is then paid out to equity and debt holders would be irrelevant.

There are a lot of weighty issues above, but Professor Mankiw doesn’t come down strongly on any side. The summary is even more wishy-washy:

While I like the policy choices proposed by the House bill, not all economists agree. Some view the bill as too radical, risking too many unintended consequences. Others worry that transitioning from the old system to a new one is not worth the cost, even if the new one is better. Without a doubt, the coming debate will involve immense politicking. Any large tax change creates winners and losers, and the losers are sure to make their voices heard. But what matters most is whether the changes are better for the United States over all, not for special-interest groups. The more voters understand, the better off we all will be.

Mankiw says that economists can’t agree on whether these proposed changes are good or bad, presumably because they can’t understand all of the implications. Then Mankiw pins his hopes on the average voter understanding all of the implications.

From this I infer that we are screwed.

Readers: What do you think? How does a country with $20 trillion in debt squeeze cash out of companies that have the ability to move most operations to more efficient and less indebted nations?

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Tell your kids to work for the government!

One of my Facebook friends linked to “EPA staffer leaves with a bang, blasting agency policies under Trump” (Washington Post):

When Mike Cox quit, he did so with gusto. After 25 years, he retired last week from the Environmental Protection Agency with a tough message for the boss, Administrator Scott Pruitt.

What was this guy’s job?

Cox was a climate change adviser for EPA’s Region 10, covering Alaska, Washington, Oregon and Idaho.

In other words, if watching grass grow is too much excitement for you, the federal government will pay you to watch a process that proceeds on a geological time scale!

How tough is this job?

he’s been very involved in Bainbridge, Wash., coaching youth sports and serving on local boards and commissions. For two decades, the fit 60-year-old rode his bike eight miles to the ferry, then uphill to his Seattle office.

The Bainbridge ferry takes 35 minutes to cross. If there is 10 minutes of waiting/boarding/unloading time that’s 45 minutes per trip or 90 minutes per day on the ferry. Plus he had to bike 16 miles round-trip on the Bainbridge side and also do some biking in Seattle. Assume 3 hours per day of commuting? If he started from his house at 0700 and had to be back to coach “youth sports” at 3 pm, that’s a solid 5-hour work day.

Item 1 in Mr. Cox’s speaking truth to power is a complaint that the Trumpenfuhrer is “denying fundamental climate science.” What kind of educational background is necessary to start a debate regarding atmospheric physics on a planetary scale? Mr. Cox “holds a BS from Huxley College at Western Washington University” (source).

After 25 years of work, he’s retiring with a full pension at age 60. Having done at most 5 hours of desk-work per day (sitting is the new smoking!) and biked 100 miles per week, let’s assume Mr. Cox lives to be 100. So the taxpayers will be paying him for 40 years.

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America’s greatest minds on display

“What ‘Snowflakes’ Get Right About Free Speech” (nytimes) is interesting because it shows how one of America’s greatest minds (a professor of comparative literature at NYU who has been selected by peers to be “vice provost for faculty, arts, humanities, and diversity”) restates the sentence “Everyone who disagrees with me is wrong and I don’t want to hear from them.”

[The sheer length of the piece is fascinating, as though the professor had entered a contest for who could use the most words to restate “Everyone who disagrees with me is wrong and I don’t want to hear from them.”]

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Home-schooling efficiency explained by an 8-year-old

Two second-graders were discussing home-schooling, which one child had recently started.

  • Home-schooled girl: “I study from 9 to 11:30. It’s a half day every day, basically. After that, I read or sometimes watch a show.”
  • Public school girl: “How can you learn everything?”
  • Home-schooled girl: “You have boys in your class, right? And you know how they delay everything. In home school there are no boys.”

[The parents’ explanation is a little different. Their daughter is a full grade level ahead in a rich suburban school district that has a good reputation. “Massachusetts has zero funding for gifted and talented,” said the mother. “They figure that if you’re smart you can go to private school.” The schedule is actually a bit longer than 9-11:30, especially on those days when art and music are taught. Things do go fast: “It took us about 1.5 months to finish the first half of 3rd grade Singapore math.” In the parents’ opinion, the bureaucracy required to take a child out of public school was minimal. It seems that the main obstacle to home-schooling in Massachusetts is parents who would rather be doing something else, not red tape. Will these parents keep it up? Perhaps not. Their daughter is “motivated by competition in the classroom.”]

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FAA punches a hole in the U.S. economy today

Today is the day that FAR 135.160 goes into effect. This requires a radar altimeter (“radio altimeter” in the FAA’s parlance or “radalt”) for most U.S. helicopters. The device will display the number of feet the aircraft is above the ground. Every airliner that was ever crashed into a mountain had one of these. What stopped the crashes was the terrain awareness and warning system (TAWS).

Radalt was useful in the old days because it could ring a bell for the pilots when the aircraft was, e.g., 200′ above the ground on an instrument landing system approach. If neither the runway lights nor approach lights were in sight at that point it was time to add power and fly back up into the air (“missed approach”).

Even in 2014 when this rule went into effect it was unclear why it would be a good idea to stuff a radalt (cost range: $17,000 to $100,000 depending on aircraft and whether installed new or retrofitted) into a helicopter rather than GPS+database TAWS system that can say “There is a big radio tower ahead!” or “Climb because you are about to crash into the ground.”

The new rule applies even to helicopter operations that are limited to visual flight. The chance that the pilot is looking down at the instrument panel is small (10-20 percent) because the aircraft is being controlled by reference to the natural horizon. Combine that with the chance that the pilot would be looking at the radalt number and I would say that there is a near-zero chance that a pilot in a dangerous situation would ever become aware of the radalt value.

The measured GDP may not have declined too much as a result of this rule, but we’ll have spent a bit slice of it on something that has no value and may actually reduce safety (the extra weight of the radalt reduces the safety margin of reserve power for maneuvering out of bad situations).

[Note that a kind of successor and cousin to TAWS is the flight simulator view of the world presented to pilots in a synthetic vision system. This has been standard on cheap airplanes (home-builts, four-seaters, etc.) since 2010 and maybe it will be common on commercial airliners by the year 2025 or 2030 (see this Aviation Week article from 2015). I wrote about this in 2005 with the subhead “How a 10-Year-Old Will Outfly You in 2010”]

When all of this is done, of course, the typical $10 million Sikorsky or Airbus helicopter will still have less collision-avoidance capability than an $800 drone from DJI.

Related:

  • the FAA’s 2014 rule, in which they estimated $311 million in total costs for a range of changes, with $21 million devoted to radalts
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Amazon’s American Playboy: The Hugh Hefner Story

Amazon has produced a dramatized version of the rise of Playboy magazine and its founder, Hugh Hefner: American Playboy: The Hugh Hefner Story. Like everything else Amazon does, it is pretty awesome in my opinion!

Why should anyone care about this? The social issues and conditions that enabled Playboy to thrive are no longer relevant. Even if you don’t care about what might have interested men back in the early 1950s, I think the series is rewarding for its coverage of a rapidly growing startup company. Though he didn’t do it all while wearing a bathrobe (that came later?), Hefner did an amazing job of managing growth, extending the brand into television and physical clubs, and achieving his vision.

The series is interesting also for a seamless blend of documentary footage and modern dramatized footage. A lot of cameras were rolling back in the 1950s and there are also some interesting retrospective interviews from the early 1990s.

If you’re interested in a genetic basis for success, as explored in The Son Also Rises, the story is kind of interesting. Hefner was a remarkably successful person and his children, notably former Playboy Enterprises CEO Christie Hefner, turned out to be remarkably capable as well. (Young Cooper Hefner has recently taken over as Chief Creative Officer.) The practical genius behind the Playboy Clubs, Arnie Morton (later founder of Morton’s steakhouses), had a son who co-founded the Hard Rock Cafe chain and additional children and grandchildren who have been successful in the notoriously challenging restaurant business.

Students of cultural change will also be interested in the series. Footage from the 1950s shows a nation (well, at least hundreds if not thousands of Americans as the cameras panned around) of thin people. Americans who were out dining and drinking every night were as slender as today’s Hollywood actors. Lay off the Cheetos when watching…

What about economic change? Detroit and Baltimore were thought to have sufficient promise, in the 1960s, that Playboy developed Clubs in both cities. How about real estate? The company supposedly paid $2.7 million for a 37-story skyscraper, the Palmolive Building, in downtown Chicago! (Wikipedia makes it sound as though Playboy bought only “the leasehold of the building”.)

Some things haven’t changed as much as we might think. As covered in The History of Divorce, the big no-fault revolution in family law statutes happened in the 1970s. But Playboy’s first issue, December 1953 (available on archive.org), describes a system in which divorce can be easily obtained by a plaintiff (i.e., a de facto no-fault system). Pages 6-8 contain an article “Miss Gold-Digger of 1953.”:

subtitle: when a modern-day marriage ends, it doesn’t matter who’s to blame. it’s always the guy who pays and pays, and pays, and pays.

[unlike in the old days when only rich defendants paid] alimony has gone democratic. .. Even the simplest wench can make a handsome living today. … The wife may be a trollop with the disconcerting habit of crawling in and out of bed with the husband’s friends. … When the judge grands the divorce, he will also grant the little missus a healthy stipend for future escapades and extravagances.

it’s important to remember that the modern gold digger comes in a variety of shapes and sizes. She’s after the wealthy playboys, but she may also be after you.

As in today’s family courts, judges 64 years ago were calculating a plaintiff’s profits according to a hypothetical theory of what a defendant might be able to earn:

a wife asked for an allotment that exceeded what her ex-husband was earning. … [The judge] ordered the man to “stop fooling around [with a commission-based sales job] and get a regular job.”

As with nearly all U.S. states (see Real World Divorce for the specifics), alimony profits varied with the judge:

there are very few actual laws regulating alimony. Most states don’t have statutes that set requirements for alimony payments. That leves each case in the hands of the presiding judge.”

The alimony deck is heavily stacked against any man in the game.

The economic incentives around divorce, custody, and child support haven’t changed…

The courts aren’t interested in whether a woman is capable of earning her own living. In fact, their decisions discourage any thoughts an ex-missus may have of returning to work. They penalize the girl who is willing to earn her own way by reducing or eliminating her alimony payments. It doesn’t take a very sharp sister to figure it’s a lot easier to stay home afternoons and play Scrabble with the girls and let the ex-hubby pay the bills.

Elizabeth Warren and Hillary Clinton’s narratives of women being victimized in the workplace counterbalanced against statistics showing that many women actually do work was being played out in 1953 more or less word for word:

The whole concept of alimony is a throwback to the days when grandma was a girl. A couple of generations ago, this was a man’s world, and a nice young woman without a husband had a difficult time making her own way. Nothing could be further from the truth in 1953.

In other words, the 1950s that we look back on as a period when women stayed home was perceived by at least some contemporaries as a time when women were peers in the office! (The series actually shows that Playboy depended heavily on women in creative and managerial roles, though top managers were mostly men until Christie Hefner took over.)

The series shows Hef being challenged by interviewers as a smut peddler. His mind was in the gutter while well-bred American men were occupied with loftier topics than sex. Hef’s standard reply seems to have been “I am making a magazine that covers the interests of men today and men are keenly interested in sex.”

It is pretty obvious that the Hefner family leaned on the scale during the production. At times, the magazine is portrayed as being primarily about social justice. Hef and associates were colorblind and working practically hand-in-hand with Martin Luther King, Jr. If true, why did the first black Playmate appear in the Centerfold in 1965, 12 years after the magazine’s founding? Wikipedia(!) says that the first Asian Playmate was in 1964. The bias is so obvious, however, that it doesn’t really take away from the series. You know that you’re getting the founders’ and insiders’ view of the project. It is a bit wearing to see Playboy’s quest to free Americans from the horror of having sex with the same person day after goddamn day aligned with Dr. Martin Luther King, Jr.’s quest to free Americans from race-based discrimination. And sometimes it is misleading. For example, the series implies that the assassination of Robert F. Kennedy by Palestinian immigrant Sirhan Sirhan had something to do with a reaction against the civil rights movement.

Politics and government control the company’s fortunes to a large extent. Playboy has to pay a $100,000 bribe to New York officials to get a liquor license, without which its $7+ million investment in a Manhattan club would have become worthless. The magazine is nearly shut down by local officials in Chicago and Hefner is tried on obscenity charges. He doesn’t exactly beat the rap; the jury was deadlocked 7 to 5 in favor of acquittal.

The series proves that nobody cares about aviation. In a long segment about the company’s private jet, the type (turns out to be a DC-9) is never mentioned. It sure look as though Hef had more fun in his converted airliner than did Donald Trump!

If the series covers the decline of Playboy I haven’t gotten that far yet. I don’t think it is fair to blame Hef for the fact that Playboy had only 20-30 years of being culturally significant and commercially vibrant. The company was an expression of one person’s vision and when Hef got older it wasn’t reasonable to expect that young men would want to adopt his vision. Perhaps more significantly, Playboy set itself up in opposition to the conventional-in-1953 idea that every American adult should aspire to be part of a married couple with kids in a suburban fortress. In the 1960s, however, the Federal government began a multi-trillion-dollar assault on this idea with a welfare system that made single motherhood a smarter economic choice at the low end of the income spectrum. By 1980, nearly every state had adopted no-fault divorce. By 1990, many states had adopted child support guidelines that made single motherhood a potentially smarter economic choice at the high end of the income spectrum (e.g., because a brief sexual encounter with a high-income partner was more lucrative than a long-term marriage with a middle-income partner). Once the government opened its treasury and courthouses for the purpose of destroying traditional ideas of family, how would it have been possible for any private individual to have a significant ongoing impact?

Another way to measure Hef’s success as a thinker is to consider that Friedrich Nietzsche‘s views on religion shocked contemporaries, but only a few decades later they made people shrug. Hefner’s ideas remained fresh for about as long as Nietzsche’s. That’s not a bad run for anyone.

One interesting question is why there isn’t a successor to Playboy. Perhaps today’s young men wouldn’t be interested in the same things that Hef found interesting circa 1953, but why isn’t there a mass-market magazine catering to men in general? Aren’t we kind of back to where things were in the early 1950s, with Esquire and a bunch of hunting, fishing, and sports magazines? Playboy peaked at roughly 7 million issues sold in 1972. These circulation figures show that no men’s magazine today comes close to that, despite more than 50% growth in U.S. population. Is today’s population more fragmented? More androgynous? More static so that there is no point in learning about changes in the social environment?

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Watching Comcast cable TV on a set that is in a different room?

Our Harvard Square apartment has quality Comcast Internet and TV service in a bundle (I convinced myself this was cheaper than Internet alone). The cable box sits on a shelf partly because the actual cable comes into the office, not the living room or bedroom where there are Samsung TVs (used as digital picture frames and computer displays; they are hooked up to Ethernet).

Right now we have a professor from Germany staying there. He was unhappy about the lack of TV service.

  • me: What do you want to watch?
  • him: CNN
  • me: I will send you an email message every morning reading “Donald Trump is a rich, white, guy and the people who didn’t vote for him don’t like him.” Then you’ll have learned everything that you would have learned from watching CNN.

He still wants CNN. Is it easy to have the cable box in the office and for the TV somehow to grab the show over the CAT5 wire? Or do I have to call Comcast and have them drill holes through the exterior walls to bring in more coax feeds? (and then have a cable box right next to each TV)

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What happened at the March for Science?

I was too busy doing a 200-piece jigsaw puzzle with a 3-year-old to join the March for Science (plus I would be afraid that someone would rat me out as a mere engineer or, far worse, flight instructor). Can readers fill me in? What happened? Who marched? What did their posters say? Were there speakers? Who were they and what did they say? Amidst the complaints about the flow of tax dollars being reduced (an “attack on science” if Americans decide to spend more of their money on other things), was there a discussion of “Why Most Published Research Findings Are False”?

The web site says “Inclusion, diversity, equity, and accessibility are central to the mission and principles of the March for Science. Scientists and people who care about science are an intersectional group, embodying a diverse range of races, sexual orientations, gender identities, abilities, religions, ages, socioeconomic and immigration statuses.”

If there are actual scientists marching, can this be true? We can agree that science is one of the least diverse fields in terms of employment, right? And the people who make hiring decisions in science are scientists? So if women and certain minority groups have been excluded from science then it has to be scientists themselves who have done the excluding? Therefore we have the phenomenon of a group of demonstrated sexists and racists marching, at least in part, to denounce sexism and racism.

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Recreation for soldiers in a war zone

Here’s part of an interview with an Air National Guard Pave Hawk helicopter search-and-rescue pilot:

What was your favorite video game while deployed in Afghanistan?

That’s easy. We were addicted to Halo. It was amazing: We had a bunch of computers linked together, and we could play capture the flag with 16 or so people. You could hear people yelling out tactical info like “Help! Johnson is sniping us from the waterfall!” and such. So much fun.

I didn’t see that one coming!

(Separately, who has read the interviewee’s book, Shoot Like a Girl? Does the pilot of a Pave Hawk actually do any shooting in real-world operations? I would have thought that was the door gunner’s job.)

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iPhone 7 Plus camera has no clothes

After an epic struggle with the U.S. government’s dreaded eAPIS system and two phone calls (the elaborate web-based system for advising the government of people leaving and entering the U.S. was layered on top of the old one, so you have to call the customs agents on the phone even after you’ve entered all of the information about an inbound flight into a web site), we managed to connect with the U.S. Customs agent at the Burlington, Vermont airport. The light was hitting our tired 12-year-old flight school Cirrus SR20 just right so it was time for a photo. Here is the same scene with the basic camera and with the fancy “telephoto” lens that is the big innovation of the iPhone 7 Plus:

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