Readers may remember French economist Thomas Piketty from an earlier Belmont Club post. He’s the intellectual I heard being interviewed on the radio by a journalist who admired his economic views. Wikipedia has a summary his main beliefs:
He is the author of the best-selling book Capital in the Twenty-First Century (2013), which emphasizes the themes of his work on wealth concentrations and distribution over the past 250 years. The book argues that the rate of capital return in developed countries is persistently greater than the rate of economic growth, and that this will cause wealth inequality to increase in the future. To address this problem, he proposes redistribution through a progressive global tax on wealth.
Today Matt O’Brien of the Washington is happy to announce that president Obama has finally decided to put Piketty’s ideas into action in his proposal to raise taxes. “President Obama finally has his Piketty moment,” O’Brien writes.
The state of the union is pretty good, actually, but President Obama has an idea to make it better: taxing Wall Street and the super-rich to make middle-class work even more worthwhile. It’s Piketty with an American accent.
Okay, that’s a little bit of an exaggeration, but not a huge one. Obama’s State of the Union, you see, will call for $320 billion of new taxes on rentiers, their heirs, and the big banks to pay for $175 billion of tax credits that will reward work.
Wait a minute, you might say. “I don’t work for the government, so why is the administration giving me a raise through the tax system?” Well, the answer O’Brien says, is to make amends for wage stagnation. The president wants to “subsidize middle-class work” because “wages still aren’t rising and people are still dropping out of the workforce.”
So the answer wage stagnation is to raise taxes and send all deserving individuals a check. It’s genius, O’Brien says, “helping people who are already helping themselves, either by going to school, working, or saving for retirement. It’s just acknowledging that growth alone hasn’t been enough to do that for a long time now.”
Wage stagnation according to both the Heritage Foundation and the World Socialist Website is the side effect of all the underemployment the administration has been piling up. As Heritage puts it, “millions of Americans no longer count as unemployed because they have become so discouraged, they’ve stopped looking for work. Analysts have paid much less attention to another problem—anemic wage growth.”
Growth, according to the World Socialists, draws on this “reserve army of the unemployed” which is willing to work for cheap. So when jobs are added, they just pick up the people who’ll work for peanuts.
How did the undermployment build up? Heritage names three factors, Reduced Labor Demand, Increased Labor Supply and Obamacare . Think the 29ers. All three are to a greater or lesser extent, of the administration’s doing. It’s only fair that having caused the problem the administration should try to fix it. So to the question: why is the president subsidizing work the answer is “because he previously penalized it”.
It makes sense in a way even if it doesn’t. Consider what is already happening in Obamacare. “According to the Wall Street Journal, many of the subsidy recipients could be in for an unpleasant surprise. Millions of them will be getting smaller tax refunds than they had expected or finding out that they owe the IRS because the subsidies they received to offset their Obamacare premiums turned out to be too generous. … According to an estimate by the tax firm H&R Block, as many as half of the 6.8 million Americans who received subsidies ‘may have to refund money to the government'”.
All redistribution is the process of taking money with one hand and giving it away with the other. H&R Block doesn’t mind. It’s going to make $104 million more this year charging people to deal with the Obamacare rigamarole.
(Reuters) – H&R Block Inc expects a boost from new U.S. tax forms required under President Barack Obama’s healthcare law and from new clients seeking the company’s help, Chief Executive Officer Bill Cobb told Reuters on Wednesday.
Cobb said the Kansas City, Missouri, company expected about 25 percent of its clients to file one of two forms newly required on 2014 returns by the 2010 Affordable Care Act.
While Cobb would not disclose specific pricing figures, he said Wedbush Securities analyst Gil Luria had offered estimates in the right ranges. Luria has suggested H&R Block could charge anywhere from $5 to $30 to fill out each of the new forms.
Luria estimates about 13.9 million clients will visit H&R Block’s retail locations. If 25 percent of them pay $30 to file one of the new forms, that would yield as much as $104.25 million in additional revenue for the company this year.
Having fixed health insurance, the president figures he will similarly improve the economy by subsidizing work. But the problem with this, apart from the fact that it entails the IRS in health insurance system just as the agency’s budget is being cut, is that it may create unforeseeable distortions in the job market. All the problems inherent in subsidies will come back to haunt one in refunds. Once you start moving income around, you’ve got to keep shuffling the dollars to take account of changes in come. For example: just who are these middle class who will receive subsidies? And what happens after getting a raise?
Simple, they give the money back. Just how much exactly will depend. Why not hire H&R Block to figure out how much of the free money to return?
President Obama’s Piketty binge probably includes his free community college plan. The chief executive is playing offense and he’s got all these freeby programs he wants to propose.
“Take it. C’mon, take it. It’s free.”
The problem with all of these schemes is that nothing in this world is actually free. Thermodynamics forbids it. At best it can only be apparently free, because somebody’s got to pay for it eventually, although this little detail always appears to escape the president somehow. The trouble usually starts when voters discover it isn’t free after all.
Piketty and president Obama are apparently devotees of additive public policy. They believe one ‘builds’ things by depositing layers of laws and subsidies on society so at some point, after a sufficient deposition of rights and subsidies and regulations, nobody has to pay for anything any more. They use addition to the exclusion subtractive public policy, which can be likened to machining away metal shavings to form a product.
That’s a shame because subtractive public policy is quite useful. One example is Eric Holder’s recent decision to bar “local and state police from using federal law to seize cash, cars and other property without warrants or criminal charges”. Holder’s subtractive action is arguably the most useful form of public policy reform there is. Many people might be saying, why not do more things like this? After all, getting government off people’s backs provides much more direct relief than all the taxes and subsidies that the president and Piketty are so fond of imposing.
But subtraction has one drawback. It reduces bureaucratic power. So even though it increases economic efficiency and probably consumer welfare it remains the second best choice of policy makers. When in doubt about a policy, add weight and specifications. Add enough weight and eventually it will fly.
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