Wednesday, November 13, 2019

A Soft Drink Tax Is Hardly A Sweet Policy Idea

Sugary drinks, and sodas in particular, are tasty. popular among people in the United States. About half of Americans drink a soda every day. The catch is that they are some of the unhealthiest drinks out there. In response to the unhealthy nature of sodas, municipalities have enacted soda taxes. The purpose of such a "sin tax" is to levy an excise tax in order to produce healthier outcomes for Americans.

Mathematica Policy Research, a nonprofit research firm, released a study a few weeks ago about the effects of such taxes in four cities: Oakland, Philadelphia, San Francisco, and Seattle (Cawley et al., 2019). The study's main finding is that a beverage tax rate of 1¢ per ounce, it translates into a reduction of 53 ounces consumed per month (or a 12.2 percent decrease).

I want to take the Mathematica finding at face value and find the impact of the soft drink tax. Let's walk through a back-of-the-envelope calculation of mine. The average American consumes 38.87 gallons annually, which is about the equivalent of eight 12-ounce cans in a week. With the average can of soda having 150 calories, that amounts to 1,200 calories a week (or 171 calories a day). The average American consumes 3,600 calories, which means that means sugary drinks account for 4.8 percent of daily caloric consumption. The soft drink tax reduces consumption by 21 calories per diem, which is 0.6 percent of calories consumption.

Asking what optimal caloric consumption is tricky to determine since it depends on sex, height, current weight, level of activity, and metabolic rate. Plus, the quantity is different if you are trying to maintain current weight versus if you are losing weight. Even with the assumption that the average woman needs 2,000 calories to maintain and the average man needs 2,500 calories to maintain (and that's for maintaining weight, not losing weight), it illustrates how little the soft drink tax has done to cut caloric intake adequately to reduce obesity.

None of this factors in what economists refer to as the substitution effect. The substitution effect is when a change of prices of one good results in the increased consumption of another good, typically because the alternative good is cheaper. Much like I asked with trans fats, my question here is "When the tax is implemented, what gets replaced with soda?" As the Left-leaning Urban Institute points out:

While sugar is consistently identified as contributing to obesity, it is not the only factor. And the health effects and medical costs of obesity are not uniform. Some consumers with no risk of harm or medical cost will pay the tax. Meanwhile, others may substitute equally or more unhealthy options (such as  alcohol) to avoid the tax.

I bring up these questions and points because the truth of the matter is that the primary goal of the soft drink tax is not to reduce soft drink consumption per se, but rather to reduce obesity. This line of thought corresponds with the past research that has shown that taxing sugary products does not a) cause significant weight loss (Fletcher et al., 2014Fletcher et al., 2010Sturm et al., 2010), b) greatly shift overall caloric consumption (Epstein et al., 2015; Fletcher, 2011), or c) does not automatically cause consumers to purchase healthier options because they might be driven to purchase unhealthier options (Seiler et al., 2018; Wansink et al., 2012). Another fun finding with the Philadelphia soft drink tax is that enough people went to neighboring areas to purchase soft drinks, which offset the decrease of sugary drinks attributed to Philadelphia's soft drink tax by 56 percent (Roberto et al., 2019). And if that weren't enough, here is a literature review conducted for New Zealand's Ministry of Health. After examining 47 studies on sugar taxes, the conclusion of the authors was that "we have yet to see any clear evidence that imposing a sugar tax would meet a comprehensive cost-benefit test."

I am not here to cast doubt on Mathematica's methodology or its findings because Mathematica is a reputable research organization. What I would like to remind us is that we need to have a fuller understanding of the effects on a policy such as a soft drink tax, not simply one aspect that sounds nice but in reality has little to no bearing on the primary goal of obesity reduction.

Tuesday, November 5, 2019

Warren's "Medicare for All" Math: A Lot of Wishful Thinking Plus Avoiding Her Tax on the Middle Class

There has been a major push for single-payer healthcare vis-à-vis Medicare for All (M4A), one that was most prominently started by Senator Bernie Sanders (I-VT). Other Democrats have followed suit, especially Senator Elizabeth Warren (D-MA). Much like so many proponents of single-payer healthcare in the United States, Warren has not able to answer the ever-elusive question of "How to pay for it?" Warren has been so evasive of the question that Saturday Night Live made fun of it this past weekend.

This past week, Warren finally released a response as to how she would pay for M4A. As the memorandum points out, Warren anticipates six forms of funding for M4A:

  1. Employer Medicare Contribution. Instead of making employer-sponsored healthcare contributions, Warren would have employers make the contributions to the government for M4A. Total amount: $8.9 trillion
  2. Additional Take-Home Pay. Employees would no longer pay their part of salary to their health care premiums or health savings accounts (HSAs), hence the additional take-home pay. Total amount: $1.4 trillion
  3. Taxing the 1%. Combine taxes on financial firms, on corporations, and 1% of individuals. Total amount: $6.8 trillion
  4. Improved Tax Enforcement. Attempts to fight tax evasion and improve tax compliance. Total amount: $2.3 trillion
  5. Immigration reform. Under a Warren presidency, she would allow for greater immigration, which would mean more taxpayers. Total amount: $400 billion
  6. Eliminate the Overseas Contingency Operation Fund. Total amount: $800 billion
In total, Warren expects these six policy prescriptions to generate $20.5 trillion over the next decade to fund M4A. Much like I have criticized Sanders' math when he made his proposal in 2016, I am now going to do the same for Warren.

  • Warren underestimates the costs of M4A. Warren estimates that M4A is going to cost an additional $20.5 trillion over the next decade. According to the bipartisan Committee for a Responsible Fiscal Budget (CRFB), ten-year estimates of M4A range from $13.5 trillion to $36 trillion. The tricky part of the range is that the rosy $13.5 trillion estimate was conducted for the Sanders campaign. Independent estimates put the amount ranging from $25 trillion to $36 trillion, with the most recent estimate (coming from the Left-leaning Urban Institute) at $34 trillion. What this means is that even if her calculations are correct (which they are not...see below), Warren's estimation is still about $10 trillion short of being able to pay for M4A.
  • Warren's plan includes a middle-class tax. What Warren calls an "employer Medicare contribution" is in fact a tax. What else would you call a payment to the government to finance government programs? That's what a tax definitionally is. More to the point, this "contribution" would be a payroll tax. Much to Warren's dismay, general economic consensus is that incidence of the current payroll tax for Medicare is largely borne by the employee, which means that the "employer Medicare contribution" is de facto a multi-trillion-dollar tax on the middle class. The Biden campaign is taking a shot at Warren for this exact reason.
  • Warren has rosy projections for improved tax enforcement. Through increased tax enforcement, Warren calculates she could acquire an additional $2.3 trillion over the next decade. This is in considerable distinction to previous estimates. The Congressional Budget Office (CBO) calculated what would happen if the IRS increased appropriations for enforcement initiatives by 35 percent. The CBO calculated that this policy alternative would generate $55 billion over the next decade. Warren's calculations are whimsical enough where she thinks she could get 40 times CBO estimates.  
  • Savings from "comprehensive payment reform." Warren credits itself for $2.9 trillion in savings from comprehensive payment reform relative to the Urban Institute study. As former public trustee for Social Security and Medicare Charles Blahous points out in his analysis on Warren's Medicare for All calculations, has already taken credit for these credits, which makes it tantamount to double-counting the savings. 
  • Warren's wealth tax is impractical. Warren would like to impose a 6 percent wealth tax on billionaires, and estimates that it would generate $3 trillion in revenue over 10 years. Forgetting the constitutional barriers, a wealth tax would be impractical (see my past analysis on the wealth tax here). No country has ever imposed a wealth tax that high. Countries that had lower wealth taxes repealed them because, as the OECD states, "[the repeals were] justified by efficiency and administrative concerns and by the observation that next wealth taxes have frequently failed to meet their redistributive goals (OECD, 2018, Executive Summary)."
    • Warren has already stated that she plans on using wealth tax revenue for other initiatives.
    • Warren's previous wealth tax estimate had overstated what it would acquire in revenue. Per OECD data, the average European wealth tax raised 0.27 percent of GDP, with Switzerland raising 0.98 percent. Warren thinks she can pull off 1.4 percent of GDP. How is Warren going to succeed where so many other countries have failed? 
  • Skepticism on Warren's payment cuts to providers. One of the ways that Warren attempts to keep costs low is to pay physicians at Medicare rates and hospitals at 110 percent of Medicare rates. Per Warren's calculations, it would save $4.2 trillion over ten years. The closest system that the U.S. has is Maryland's all-payer system, which means that every price is the same, whether private or public. While private systems are 13 percent lower, the public-sector hospitals are 40 percent higher for inpatient services and 60 percent higher for outpatient services. The rates under this system are much higher than average Medicare costs (Pope, 2019). Additionally, the state of Washington could not handle smaller provider payment cuts with its public option. The federal government also could not overrode Medicare physician payment cuts, and eventually did away with the Sustainable Growth Formula (SGF) [see Congressional Research Service report here]. Combined with other countries' inability to keep costs down once single-payer was implemented, it provides enough reason to pause and wonder if Warren could actually implement such payment cuts.
  • Warren is going to need to impose additional taxes, including taxes on the middle class. Shortly before Warren released her calculations, CRFB released their findings on whether funding M4A would require a tax on the middle class. Even with high taxes on the 1 percent, financial institutions, corporations, and other policies not included in Warren's calculations (e.g., closing corporate tax loopholes), CRFB calculated that the government could raise $11 trillion over a decade. The CRFB makes caveats with this $11 trillion estimate, the foremost being these are aggressive policy prescriptions that might not be technically or politically feasible. A wealth tax would have constitutional challenges. Additionally, these aggressive policies would likely reduce incentive to work and save, thereby stifling economic growth, which would also have indirect effects on tax revenue. CRFB's conclusion was that we would need to increase taxes on the middle class. 
Postscript: Not only is Warren making unreasonable assumptions about her cost savings, but she is also imposing a tax on the middle class without being honest about the nature of her "employer Medicare contribution." Additionally, she is using an unrealistically low cost estimate to avoid the criticism that single-payer critics are all too right about: single-payer health care is an insolvent payment mechanism and something the people of the United States can ill afford.

11-7-2019 Addendum: If you want another good read on Warren's budgetary manipulation, read this piece from the Federalist. 

Friday, November 1, 2019

California Provides an Argument Against Mandated Paid Family Leave

At least in a U.S.-based context, California is known as a state that is at the forefront of trying policies that are heralded by the Left. One such policy is that of mandated paid family leave. Under the California Paid Family Leave (PFLA), employees are provided partial pay to take off of work for up to six weeks to either tend to the serious illness of a close family member or to bond with a new child. Essentially, the premise behind paid family leave is work-life-balance vis-à-vis providing employees to take on a variety of family caregiving obligations without work getting in the way or needing to quit one's job to meet said obligations. If you want more information on paid family leave, please see my analysis on paid maternal leave from five years ago (see here), my analysis on Family and Medical Leave Act (FMLA), this policy report from the Cato Institute, or you can read this primer from the Congressional Research Service.

Having recently come back from a trip to France and see how they better manage work-life-balance than in the United States in the sense that they work to live (instead of the increasingly common practice in the United States to live to work), it got me thinking about whether it's an important value. Nevertheless, the tricky thing about public policy, especially when it has good intentions, is that it all too often comes with unintended consequences. Looking at the latest study on the PFLA, it seems that paid family leave is no exception. Last week, researchers from the University of Michigan, University of Utah, Middlebury College, and the U.S. Department of Treasury released a study showing that there is little evidence towards the benefits of paid family leave (Bailey et al., 2019). To quote the report:

We find little evidence that PFLA increased women's employment, wage earnings, or attachment to employers. For new mothers, taking PFLA reduced employment by 7 percent and lowered annual wages by 8 percent six to ten years after giving birth. Overall, PFLA tended to reduce the number of children born, and by decreasing mothers' time at work, increase time spent with children.

This finding is significant because one of the arguments used for legally mandated paid family leave is that at least for new mothers, it helps with labor force attachment. Based on these findings, reducing annual wages by 8 percent sure doesn't help with the gender wage gap that liberals are vehemently against (see my analysis on the gender wage gap here, here, and here). And I imagine that reduced employment doesn't do any favors when it comes to trying to get greater female representation in the workforce, nor does it help with make new mothers more likely to stay attached to employers, as proponents predict. While increased time with children is important, there is also the tradeoff of a lower fertility rate, which is problematic for a country that already struggles with a fertility rate below replacement rate.

Yes, this study draws upon robust tax data, has a large sample size, and does so over a relatively long period of time, all of which helps make it methodologically superior to previous paid family leave studies. While case studies have a role in discovering the efficacy of new ideas with little previous empirical data, there are limits to trying to draw general conclusions from this study. For one, PFLA lasts for six weeks. One could argue that six weeks is not long enough (or that it could be too long). Another issue is that PFLA provides 60-70 percent of a worker's wages. Perhaps providing a different amount would create different incentives. Perhaps an automatic enrollment would change the interactions. There could also be other elements within either the culture or economy of California that could make paid family leave less effective than it could be otherwise.

By itself, using this study to rally against mandated paid family leave is inadequate. Nevertheless, it does add to the empirical research showing the unintended consequences of mandated paid family leave. With that being said, here are a few points to consider when thinking of the tradeoffs of mandated paid family leave:

  • Paid family leave lowers women's wages. The latest study is not the only one to confirm this point. One study analyzing 21 countries showed that paid parental leave is more effective when the time period is moderate, as opposed to being long (Misra et al., 2011). On the other hand, the same study showed that the same policies contribute to lower wage levels for women relative to men (ibid.). There are also older studies showing the same effect, including those from economists well-known on the Left (e.g., Ruhm, 1996Gruber, 1994Summers, 1988).
  • Paid family leave affects women labor participation rate. A study from the National Bureau of Economic Research came to the conclusion that paid parental leave was responsible for about 28 percent of the drop of women labor participation between 1990 and 2010 (Blau and Kahn, 2013).
  • Paid family leave makes it more difficult for women to receive promotions. A study of paid leave expansions in the United Kingdom not only resulted in fewer female managers, but also exacerbated gender inequality (Stearns, 2017).
  • Support for paid family leave is in the details. Much like with so many policies, they sound nice in concept or in theory. That is why support for many Left-leaning proposals has higher support in the abstract. When you ask survey respondents about the details of the Left's latest and greatest policy ideas, support declines (see my analysis on that survey data here). Mandated paid family leave is no different. People assume that paid family leave is a wonderful thing, assuming they don't have to pay for it. When confronted with costs they would have to shoulder (e.g., lower salary, fewer benefits, less promotional potential for women), the support for federal paid family leave diminishes to the point where a majority are opposed (2018 Cato Institute survey).

I will leave you with this thought: whether we are discussing minimum wage, menstrual leave, or other rigid employee protections, they unquestionably come with a tradeoff. That is the economic nature of labor laws, and more specifically, employee benefits. If mothers want to prioritize more time bonding with their newborn children, that's fine. That is a decision they have to make for themselves. But let's not ignore the fact that that choice all too often comes with the tradeoff of less career development potential, a shift in career choices, and lower wages for women. While paid parental leave is becoming more popular, it comes with a price, a price that employers are too happy to ultimately pass either to the customer or their employees. The question is whether the price of a policy such as mandated paid family leave is worth the cost.

Thursday, October 24, 2019

Democratic Party Policy Ideas Not Popular Enough to Win 2020 Presidential Election

I have to love the optimism of my self-identifying progressive friends when it comes to them thinking that "progressivism" will win the hearts of Americans and win the 2020 presidential election. While I find that sentiment to be cute, I really do have to wonder if my country is that liberal. On such issues as same-sex marriage and marijuana, I would agree that Americans have become more open and accepting on these topics. When it comes to immigration, Trump has become belligerent and ridiculous enough where Americans have become overall more supportive of immigration (Gallup). In spite of some issues being in the Democrats' favor, what I am going to argue that when it comes to the major issues, the United States is by and large not ready for a Left-leaning agenda.
  1. Medicare for All. When asked about whether they support Americans, 51 percent support it, according to a Kaiser Family Foundation (KFF) poll. Support drops when asked about particulars. If Medicare for All is to result in delayed treatment (which other single-payer systems have experienced), then support for Medicare for All drops to 26 percent (KFF, 7/2019). Support hovers around 37 percent if Medicare for All raises taxes and eliminates private health insurance (ibid.).  
  2. $15 Minimum Wage. Generally speaking, 63 percent of Americans support a $15 minimum wage. What changed was when they were told about the economic impact as found in the recent Congressional Budget Report (see my analysis here). When they were told that 27 million people would get a pay bump while 1.3 million would lose their jobs, support dropped from 63 percent to 37 percent (Business Insider).
  3. Abortion. On the one hand, 60 percent think that Roe v. Wade should not be overturned. On the other hand, support for abortion drops to 28 percent for abortions performed in the second trimester, and down to 13 percent for abortions performed in the third trimester (Gallup).
  4. Reparations. Especially during the Democratic primary debates, there has been a shift on discussing reparations for the descendants of enslaved men and women. While the idea is gaining traction amongst Democrats, two-thirds of Americans are opposed to giving cash reparations to descendants of slaves (Gallup, 7/2019). Rasmussen had a similar finding in April
  5. Universal Basic Income. Andrew Yang has been a particular proponent of a universal basic income, although other candidates are starting to catch on. It might not sit so well with voters: 52 percent are opposed to the idea (Gallup, 2/2018).
  6. Political Correctness.  While this could have some economic effects, the concerns here are primarily cultural in nature. 52 percent of Americans, along with a majority of independents upon whom the Democrats would have to depend on to win in 2020, are against political correctness (NPR, 12/2018). 
  7. Climate Change. Climate change has become an increasingly large concern amongst Americans. A Washington Post poll found that 64 percent think fighting climate change is very or extremely important. In terms of solutions, 25 percent support a 25¢ increase in a gas tax and 27 percent support a $10 increase in electric bills (Washington Post). Another poll confirms this notion: 68 percent of Americans would not want to pay an extra $10 a month in utility bill payments to fight climate change (AP/NORC, 1/2018). In short, people feel that climate change is important, but they don't want to have to foot the bill in any significant way. 
  8. Providing Health Care to Illegal Immigrants/Undocumented Workers. All 10 candidates at the second night of the first round debates back in June said they would provide health care to illegal immigrants. The issue is that 58 percent of Americans do not think that should happen (CNN, 6/2019).
  9. Student Loan Forgiveness and Free College Tuition. Elizabeth Warren has a plan for student loan forgiveness and free college tuition. Only 38 percent are in favor of student loan forgiveness (Rasmussen 7/2019), whereas 52 percent oppose making college free (Quinnipiac, 4/2019). 
  10. Taxation Levels. Democratic presidential candidates have proposed multiple initiatives, whether it is the Green New Deal, Medicare for All, or free college tuition. One of the major blind spots of proposing these initiatives, however, is how they are going to pay for it all. Candidates such as Sanders love to cite Scandinavia as an example, but he ignores how they pay for their large government programs. Over there, it is not only the one percent that pay forty-plus percent in taxes. It is everyone, including the poor. 45 percent of Americans think that they pay too much in taxes, whereas an additional 48 percent think they pay the right amount (Gallup). Getting Americans to pay more in taxes will be a hard sell, and it wouldn't be at all surprising if the Republicans played that fear to their advantage in 2020.  
  11. General Trust in Federal Government. Trust in the federal government is key because so many of the Democrats' ideas involve the federal government as the solution. What is interesting is that trust of the federal government is at a twenty-year low. 41 percent of Americans think that the federal government can solve problems, whereas 35 percent believe that the government can solve domestic issues (Gallup, 1/2019). 23 percent think that the government is the most pressing issue to resolve (Gallup, 7/2019).
  12. Democratic Party Preferences. Another factor is the direction in which Democrats would like to see their party shift. From the looks of the presidential primary debates, you would think that Democrats unambiguously want their party to become more Left-leaning. However, polling suggests that only 41 percent of Democrats want the party to lean further Left. 54 percent would rather have a more moderate party (Gallup, 12/2018). This puts the Democratic party at odds with its own base. If a majority of Democrats don't want their party leaning further to the Left, if would stand to reason that the majority of the country doesn't want policy to lean more to the Left.  
When asking general questions about certain policy issues, one might think that the citizens of the United States lean more to the Left. It's when surveys ask about the details about the implementation about policy when we start to realize that the United States does not lean anywhere far to the Left, certainly not enough for Democrats to win the 2020 presidential elections based on issues. Can sentiments change? Yes, although historically, they do not typically shift that quickly. Do people vote solely on issues? No. For one, this country has become more polarized and is more likely to vote based on party lines than they did (e.g., Pew Research). To that point, there are a myriad issues not having to do with policy ideas that influence election outcomes, including the state of the economy, media, approval of the current president, and potential scandal. I'm not here to say who will win the 2020 election, but I can say that for the most part, having a "progressive"/Leftist agenda is not a sound campaign strategy. 

Friday, October 18, 2019

Is the One Percent Finally Paying A Smaller Percentage In Taxes Than the Poor in the U.S.? Probably Not.

Income inequality continues to be a rallying cry for the Democratic presidential candidates. Whether it is the idea of raising the estate tax or creating a wealth tax, the Democratic candidates want to soak the rich with taxes. A study by two economists give additional fodder for the "soak the rich" platform. According to economists Emmanuel Saez and Gabriel Zucman in their latest book "The Triumph of Injustice," we have reached the point where the billionaires are paying a smaller percentage in taxes than the poorest 20 percent when factoring in federal, state, and local taxes. The New York Times had a field day with this finding (see figure below).

If Saez and Zucman's (herby referred to as SZ) findings are true, it would strengthen, at least in a political sense, the Democrats' arguments for higher taxes on the rich. Rather than give into knee-jerk reactions about the Tax Cuts and Jobs Act (TCJA) that the Republicans passed, let's actually take a closer look at what went behind SZ's findings:

  • Where are the 2018 federal income tax figures coming from? Normally, such figures would come from the IRS. However, the IRS has not released the 2018 figures. If that's the case, how could SZ possibly assert that the rich paid a lower percent than the poor? They took 2017 figures and extrapolated. As the Left-leaning Tax Policy Center points out, that is no easy feat because the TCJA made such changes to the tax code. Any findings on the TCJA have been preliminary, and as such, SZ's findings are premature at best. While I cannot be certain until we receive those figures, I would bet (if I were a betting man, that is) that the richest are not paying a lower tax rate than the poor, so let's get into why I would make that assertion, shall we?  
  • The U.S. tax code has been progressive, and most probably remains so. Historically, the U.S. tax code has been more progressive than its European counterparts (see 2016 CBO figures as an example). What is even better is that the TCJA made the tax code more progressive, not less. That is not just based on the estimates from Joint Committee on Taxation, but also the Tax Policy Center. In response to SZ's book, JCT economist David Splinter wrote a response with an alternative estimate to SZ showing how the tax code remains progressive (Splinter, 2019; see Figure below). Obama's former Chair of the Council of Economic Advisers, Jason Furman, also takes issue with SZ's claim about tax progressively. With these estimates from Left-leaning sources and the JTC, it becomes more difficult to accept SZ's thesis. The federal tax code seems to remain progressive, even with the TCJA. Perhaps state taxes are the thing causing the increase in the tax rate for the poorest.

  • Skepticism on state and local tax calculations. I'm not only skeptical of SZ's estimates on the federal figures, but the state figures as well. For one, I have to question why SZ include state- and local-level consumption and property taxes. Everyone pays the same tax percentage. There is no "tax injustice" going on here, only a recognition that lower-income households pay a higher percentage of their income on these taxes because they spend a higher percentage of their income on the goods and services upon which the taxes are assessed. If you remove these taxes from the equation, it's unsurprising how the richest manage to have a higher tax rate than poorest, thereby diminishing SZ's argument. 
  • Skepticism on state and local tax calculations, Part II. But for argument's sake, let's give SZ this assumption and include state- and local-level consumption and property taxes. It's still problematic. Why? The Left-leaning Institute on Taxation and Economic Policy releases its studyWho Pays?, on state tax levels. ITEP found that the difference in state taxes between the Top 1 Percent and the Bottom 20 Percent is 4 percent (ITEP, p. 4), which is nowhere what it would need to be for the poor to pay a higher tax rate than the rich. What is even better is that ITEP estimated what taxes paid and total income would be. It turns out that in terms of tax rates and shares of total federal, states, and local taxes, the rich still pay more. Figures from Left-leaning sources show that the higher the income, the higher the tax burden, which serves to imply that SZ's estimates are simply over the top. How is that the case?

  • Omission of Earned Income Tax Credit (EITC) and other means-tested welfare. What SZ are measuring (or in this case, not measuring) is affecting their numbers. SZ consider the EITC as a transfer of income rather than a negative income tax. As the Tax Policy Center argues, while the EITC and the Child Tax Credit (CTC) feel like spending, they are features of the federal tax code to offset the burden of the regressivity of the payroll taxes. Since the EITC and CTC are administered through annual tax filings and contribute to net tax rate, the Congressional Budget Office has included them in their calculations. By treating the EITC and CTC the way they did, SZ raised the effective tax to a rate much higher than otherwise would exist. When those tax credits are accounted for, the Tax Policy Center has the effective federal tax rate for the poorest 20 percent at 2.9 percent, and not the 20-plus percent that SZ have calculated.
  • Addition of health care premiums. Not only do SZ omit aspects of the tax code explicitly created to ease the burden of the poor, but SZ highlight something else peculiar on their website: they consider private health care premiums as a "health insurance poll tax." If that ends up playing out in the data they used for their book, it is a peculiar choice indeed. While there are aspects of health care premiums intertwined with the tax code, it is equally true that private health care premiums are not taxes. Treating private health care premiums as part of taxation while excluding the EITC and CTC as part of taxation (when they are de facto negative income taxes) only serves to exaggerate the tax rate of the poor. 
  • Treatment of Corporate Taxes. When analyzing the incidence of corporate taxes, some of the incidence falls on shareholders and part of it is passed through other forms of capital (e.g., disbursement through the non-corporate sector). SZ toss aside that assumption and transfer the entire incidence to shareholders, which is contrary to reality and standard economic practice (e.g., Smith et al., 2019Splinter, 2019). This heterodox approach is significant because using this assumption attributes an excessively high amount of wealth to the rich, thereby giving the appearance of a lower tax rate than they actually have. 

Postscript: When looking at the tax data with reasonable assumptions, the U.S. tax code has not become overly regressive, certainly to the point where the rich pay a lower rate or amount than the poor. The best-case scenario is that SZ are using unconventional means and assumptions to arrive at their numbers. Combining the spurious assumptions with how they frame the issue in a "politically slanted narrative" (e.g., their website promoting the book has an interactive data simulator with tax proposals from the Democratic presidential candidates, boasting on their university website how it will affect the Democratic primaries), it becomes more difficult to accept the best-case scenario, thereby casting doubts on their intentions since they blur the line between scholarship and politics. These severe methodological flaws do not take away the need for debates about what tax policy should like (e.g., simplify the tax code to remove tax avoidance mechanisms, adapt to the increasingly global nature of firms) or what to do about income inequality. At the same time, Elizabeth Warren, Bernie Sanders, and others who are of similar ideological mind should base their policy ideas on reality, not on what they would like for reality to be.

Thursday, October 10, 2019

Why Vegans and Environmentalists Should Cut Back on the War on Meat

In efforts to fight climate change, there have been multiple proposals to cut back on carbon emissions, including carbon taxesgeo-engineering, or the infamous Green New Deal. A crusade to make for a healthier citizenry has seen similarly ambitious recommendations with soda bans, Medicare for All, or e-cigarette regulations. There is an issue that caught my eye that combines the environmental and health policy angles: a ban on meat. During one of the Democratic presidential debates, Kamala Harris called for reducing meat consumption. And with the recent FDA approval of selling Impossible Burgers in supermarkets, it seems like meatless meat is trending upward. With the increased demand of plant-based substitutes for meat and louder calls to do something about climate change now, meat has become a target, both on health and environmental levels. I want to take the time here to bring some skepticism to the war on meat.

Health Concerns with Meat-Eating
Most of the empirical evidence on meat-eating told us that eating red meat is bad, that it will shorten average lifespan. It was one of the reasons I decided to go vegetarian a decade ago (I have since reverted back to eating meat). It made sense at the time, although I did learn from my own eating habits while I was vegetarian that vegetarian did not automatically translate into healthy eating. That notion was upended last week with the release of five systematic reviews published in the journal Annals of Internal Medicine (Zeraatkar et al., 2019) found that the effects of meat-eating on one's health are negligible. As the Left-leaning Vox explains in its coverage on the meat study, this recent study was able to overturn previous research through better science and sounder methodology. This is not confined to nutrition science. It happens in psychology frequently, and it is something that has been going on in the minimum wage debate. This is a good thing: as we gain better information and better methods, we get closer to the truth. That might be fine and dandy for an individual's health, but what about the health of the planet?

Environmental Concerns with Meat-Eating
"What about the planet?," indeed. What would happen if every human being stopped eating meat and did not use the resources (e.g., water, corn) that are used for meat production? How would that affect carbon emissions? Would that greatly stop the rise in global temperatures? After all, the Intergovernmental Panel on Climate Change (IPCC) released a report in August explaining how we should greatly decrease meat consumption to avert climate change disaster. The World Resources Institute shows how animal-based diets create more greenhouse gases (GHG) than plant-based diets (Ranganathan et al., 2016).

First is realizing that there are bigger causes of GHG emissions than meat production, such as fossil fuels and deforestation (Skeptical Science). Animal agriculture accounts for 13 percent of GHG emissions, although it is lower in developed nations. As an example, animal agriculture only accounts for 2.6 percent (White and Hall, 2017) to 2.8 percent (Pitesky et al., 2009) in the United States. Reason Magazine did a back-of-the-envelope calculation, and found that even if every citizen of the United States went vegan and stopped all livestock production, it would only reduce U.S. emissions by 3.6 percent. Based on Union of Concerned Scientists data, the United States is responsible for 16 percent of global emissions, which means that ceasing U.S. meat consumption would only reduce global carbon emissions by 0.58 percent. One could counter by saying that every bit helps, but even if the world went vegetarian, it would only reduce GHGs by 4 percent (Grabs, 2015). Reducing meat consumption might do something to mitigate anthropogenic global warming, but we should stop pretending that veganism or vegetarianism can be the silver bullet to save the planet.

Thursday, October 3, 2019

A Simpler Solution to Address Corruption Than Elizabeth Warren's Anti-Lobbying Tax

Much like with her other policy prescriptions, Democratic presidential candidate Elizabeth Warren wants to show that she means business. It is why her unofficial campaign slogan has become "she's got a plan for that." Lobbying seems to be no exception. Earlier this week, Warren proposed an anti-corruption measure in the form of a lobbying tax. What are the tax rates? Any company that spends between $500,000 and $1 million will get hit with a 35 percent tax. If the entity spends anywhere from $1 million to $5 million, they will be levied a 60 percent tax. Anything above $5 million and they will get hit with a whopping 75 percent tax rate. Warren's goal is to ultimately curb corporate influence, especially Big Pharma, Big Oil, insurance companies, Defense contractors, electric utilities companies, and Wall Street. She wants government to work for everyone, not just the corporations.

One thing that Warren has going for her on this proposal is that lobbyists are not well-liked in this country (see Gallup polling). That would certainly explain the populist appeal for the lobbying tax. It also has the ability to bring in some revenue. Warren's own proposal estimates that there would have been $10 billion over the past ten years, which averages to $1 billion per annum (see above). It's not exactly a ton of revenue, but it seems like Warren's lobbying tax is more for deterring certain behavior than it is revenue collection.

That is where I see the benefits of Warren's lobbying tax ending. Even if it had the effect of reducing what she deems "excessive" lobbying, her tax would not just affect the corporate world. Yes, it would hit the National Rifle Association or the Chamber of Commerce, which Warren would deem adversarial. But it would also hit such organizations as Planned Parenthood and the ACLU. Her lobbying tax is such a blunt instrument, not too dissimilar to that of Trump's tariffs, that she would undermine democracy by targeting many advocacy groups.

This segues into another issue with her proposal, which is that the courts would likely deem it a violation of the First Amendment, especially that part about the right to "petition the Government for a redress of grievances." If Warren can say what is excessive petitioning, that means she would also have the right to say what is "excessive" speech or "excessive" practice of religion.

If Warren really wants to address corruption and stop "excessive" lobbying, I have a really simple solution for her that she's not going to like: shrink the size of government. AARP wouldn't feel the need to lobby if the behemoths known as Social Security and Medicaid didn't exist. Big Oil wouldn't throw as much money at lobbying if the government didn't give them subsidies and tax breaks. Blue Cross Blue Shield wouldn't care so much if they knew they could help to get such bills as Obamacare passed, which de facto acted as a subsidy to health insurance companies. In short, if government policy did not have such an overreaching and expansive role in our lives, corporations would not care nearly as much. Yet they do and here we are.

As Lord Acton once said, "Power corrupts and absolute power corrupts absolutely." The reason why "excessive" lobbying exists is that over time, we the people have allowed for the government to become too big and too powerful. The $3.4 billion that was spent on lobbying in 2018 is a drop in the bucket compared to the $4.1 trillion the federal government spent in 2018. If Warren were at all sincere about anti-corruption measures, she would be fighting to make the government smaller, not larger.