Monday, March 22, 2010

Robn Hood Rides again

In the spirit of not overly irritating one party or ideology over the other -- let's agree that Robn (Reid, Obama, Biden, Nancy) succeeded to do what some have wanted to do for years -- legislate a bill that attempts to change the distribution of income in the USA -- or as the President frequently says, "Spread the Wealth Around."

Forget that what was passed in the House yesterday is called Healthcare -- just notice what the bill did in terms of redistributing income from the rich to the poor. If you want an analysis with some of the specifics and some numbers, go to Bloomberg ( ).

While almost every aspect of the bill has implications for redistributing income away from richer people and corporations -- here are a few of the key ones --
$103 billion Medicare Payroll Tax increase for families with incomes above $250,000
$88+ billion excise tax on insurance companies and brand name Pharmaceutical companies
2.3% tax on medical device companies (no dollar amount estimates) -- notice this is on all revenues -- not levied against profits.
$70 billion on premiums for expensive healthcare insurance
$466 billion in subsidies for health insurance for poor families

Isn't this amazing that they were able to make such large and permanent changes in income distribution (after taxes and subsidies)? So if you believe that income redistribution is important -- then you are very proud of ROBN. They accomplished what few other governments have been able to do. Of course, if you are on the other side of the issue then you are going to have a different set of feelings.

One more point before I let my friends nibble me to death. We all know there is a difference between tax changes and tax incidence. The REAL question, whether it relates to income redistribution or health care, is how this bill will IMPACT us in the coming decade. I won't extend this single post with the hundreds of impact issues because I know the next year will be filled with lots of good articles. I will throw out one tidbit -- to what extent has the CBO estimated the number of the 4 million households who might have earned $250,000 or more who will suddenly report income of $249,000 when the taxes are due. And how will this tax avoidance impact the macroeconomic system in the USA?


  1. I got an email from a dear friend who pointed out that Robin Hood was a thief. While technically he and his merry men were outside the law, the reality is that he was thought of as a hero. In my attempt to be even-handed I was thinking of Robin Hood more as a hero than as a common thief. I leave it to my friends and time, however, to decide if ROBN was a hero or a heel.

  2. Tax avoidance is quite an interesting issue. As usual wiki is your friend with this blurb on Hauser's Law

    along with several links to additional blurbs about tax rates verses tax revenues. Basically Hauser's Law states that since the early 1950s marginal tax rates have ranged from over 90% to a low of around 28%; but tax revenues have remained constant at around 19.5% of GDP. Hauser claims this is due to shifting, hiding, or under reporting income; and notes that this is easier for rich peeps than poor peeps. It is also common for capital to flee to areas with lower tax rates.

    Another issue normally raised when tax rate increases are discussed is how inflation is a hidden tax on every one, regardless of income. The problem of tax creep is also an issue when inflation can put low or middle class wages in a higher tax bracket.

  3. I like the joke that is relevant to the tax issue. Three guys go drinking every Friday night. Since Joe is richer than his two friends, he usually pays more. He pays $8.00 and his two friends usually pay the remaining $2.00 despite the fact that they all imbibe equally. One day the proprietor reduces the price of beer and charges them a total of $9 -- a reduction of 10%. Joe throws in his usual relative amount -- this time $7.20 expecting his friends will kick in the remaining $1.80. But they don't and complain that Joe would have benefited by $1.80 while they only gained by 20 cents. Joe said okay and that was the last time he drank with his friends. How much did they pay for drinks on their next outing?

  4. And now for Mike's point about inflation. It is true that inflation acts as a tax -- and one that bites the worst for people whose incomes are not rising as fast as the general price level. In a world of indexed wages, social security benefits, and tax brackets, the bite might not be very severe at relatively low inflation rates. What worries me more is the general havoc and uncertainty that arises when inflation increases in a permanent way. We remember the 1960s and 70s when the general trend of the inflation rate had it rising from less than 1% per year to double digit rates. That's the kind of inflation that causes real problems. Once rising inflationary expectations get embedded in everyday decisions it get much harder to ring out. Recall 20+% interest rates in the USA in the early 80s...we definitely don't want to go there again...