Carpe Diem

Comparing Income Taxes: Clinton vs. Bush

Despite all of the political rhetoric about “tax cuts for the rich” and the “middle class squeeze,” a recent analysis by the Tax Foundation shows that federal income taxes have fallen for groups at all income levels as a result of the Bush tax cuts, compared to the 1999 tax rates under Clinton (see chart above). And in fact, the group in the chart above that experienced the largest percentage decrease in taxes were the married taxpayers with $50,000 of household income (clearly middle class by most definitions) – they paid 21% less in taxes under the Bush tax rates compared to the Clinton rates. By contrast, “rich” single taxpayers with income of $125,000 paid only 10% less in taxes. In other words, some middle-class taxpayers received twice the tax cut on a percentage basis as some of “the rich.” …..So much for the claim that “the Bush Administration and Congressional policies are failing middle-class Americans.”

Both Hillbamas want to extend the tax cuts for the middle-class but not for “the wealthy.”

Here’s my challenge to Hillbama: Both of them are clearly part of “the wealthy,” and pay federal income taxes at the highest current marginal income tax rate of 35%. Obama’s income in 2007 was about $1 million, and just one or two speeches by Bill Clinton at $200,000 puts the Clinton household income into the top tax bracket (in 2006, Clinton earned $10 million in speaking fees).

If they want to end the tax cuts for “the wealthy,” they don’t have to wait for the Bush tax cuts to expire at the end of 2010, they can voluntarily pay taxes right now at the old 1999 rates under Clinton. In other words, if the highest marginal rate of 35% is too low for the wealthy Hillbamas, they could make a strong, personal statement right now by voluntarily paying their 2007 taxes at the old highest marginal rate of 39.6%. In fact, Hillbama, Warren Buffet and anybody else opposed to the Bush tax cuts, can voluntarily pay taxes this year under the 1999 Clinton tax rates, instead of the current tax rates (see chart below, click to enlarge). If higher taxes on the wealthy in the future are good, shouldn’t they also be good right now?

Here’s an idea: Why doesn’t TurboTax introduce tax preparation software based on previous years’ higher marginal tax rates, to easily allow people like Hillbama, Warren Buffet and other anti-Bush tax cut advocates to pay at their preferred higher rates, instead of the new lower rates. Alternatively, The Tax Foundation has historical income tax rates back to 1913 here. If 39.6% from 1999 is too low, Buffet et al. could file under the 1960s highest marginal tax rate of 91%, the 1970 tax rate of 70%, or the 1980s tax rate of 50%.

(HT: Juandos)

Carpe Diem

Initial Jobless Claims Fall for Second Week

WASHINGTONThe number of U.S. workers filing new claims for unemployment benefits fell more sharply than expected last week, a rare sign of resilience in the labor market this year. The four-week average of new claims, which economists use to smooth out weekly volatility, fell by 1,500 to 359,500, the second-straight decline (see chart above).

However, claims for benefits lasting longer than one week rose to a fresh two-and-a-half-year high. The data suggest that while labor markets are clearly softening, there is no sign of the kind of collapse that would deepen the economic downturn.

Carpe Diem

Moscow Now Has More Billionaires Than NYC

The world’s 25 richest billionaires:

Forbes released its report today on the world’s billionaires, see the top 25 above (click to enlarge). Note that Indians represent three of the six richest people on the planet, and four of the eight richest people, compared to only two Americans. Of the top 25 richest people in the world, Russia has almost twice as many billionaires (7) as the U.S.

Here’s the full list of the World’s Billionaires.

According to another report on the Forbes list, Moscow has overtaken New York City as home to the most billionaires, with 74 of the super-rich elite now counting the Russian capital as their home. By contrast, 71 billionaires live in New York, according to the magazine’s annual list, which placed London in third place with 36.

Russia now counts a total of 87 billionaires, ousting Germany in second place but still trailing the first-placed United States, which has 469.

“Russia is again the dominant story in (Europe) this year. Its billionaires are just fast and fearsome. What’s fascinating is that every single one of them is self made,” said Forbes senior editor Luisa Kroll.

“We’re not going to get into exactly how they got it but none of them inherited it and their average age is 46,” she added.

Carpe Diem

Title IX Gender Equity Applied to Science & Math?

Math 55 is advertised in the Harvard catalog as “prob­ably the most difficult undergraduate math class in the country.” Math 55 does not look like America. Each year as many as 50 students sign up, but at least half drop out within a few weeks. As a former student told The Crimson newspaper in 2006, “We had 51 students the first day, 31 students the second day, 24 for the next four days, 23 for two more weeks, and then 21 for the rest of the first semester.” Said another student, “It’s like an episode of ‘Survivor’ with people voting themselves off.” The final class roster: 45% Jewish, 18% Asian, 100% male.

Women now earn 57% of bachelors degrees and 59% of masters degrees. According to the Survey of Earned Doctorates, 2006 was the fifth year in a row in which the majority of research Ph.D.s awarded to U.S. citizens went to women. Women earn more Ph.D.s than men in the humanities, social sciences, education, and life sciences. Women now serve as presidents of Harvard, MIT, Princeton, the University of Pennsylvania, and other leading research universities.

But elsewhere, the figures are different. Women comprise just 19% of tenure-track professors in math, 11% in physics, 10% in computer science, and 10% in electrical engineering. And the pipeline does not promise statistical parity any time soon: women are now earning 24% of the Ph.D.s in the physical sciences—way up from the 4% of the 1960s, but still far behind the rate they are winning doctorates in other fields.

Departments of physics, math, chemis­try, engineering, and computer science have remained traditional, rigorous, competitive, relatively meritocratic, and under the control of no-nonsense professors dedicated to objec­tive standards. All that may be about to change. Following years of meticulous planning by activists, the era of academic détente is coming to an end.

Reason? There is a movement by some to apply the gender equity provision Title IX to science education, just like it has been applied to college sports.

Read more of the article “Why Can’t A Woman Be More Like a Man?” here.

Carpe Diem

U.S. Productivity Rises 1.9% in QIV 2007

The BLS reported today that productivity in the nonfarm business sector increased by 1.9% in the fourth quarter of 2007 (see chart above), and was up by 2.9% compared to QIV of 2006. Productivity increased by 6.3% in the third quarter of 2007.

From the Wall Street Journal:

On balance, the data should provide some relief to Fed officials that economic fundamentals remain strong.

Though down from the third quarter, productivity held up quite well considering the slowdown in the overall economy. And there are signs that productivity should hold up this year as well. Companies are shedding workers in response to the slower economy, judging by recent monthly employment and weekly jobless claims data. And much of the economy’s growth is now being generated by exports, which tend to be more productive than the economy-wide average.

That could provide a key disinflationary offset to higher energy and food prices and the falling dollar. The downside, though, is if greater efficiency comes at the expense of payrolls, which could in turn hurt consumer confidence and spending, which makes up the bulk of economic activity.

Carpe Diem

About That Middle-Class Squeeze

From today’s IBD:

Democrats seem unable to stop themselves from promoting higher taxes for the wealthy and lower taxes for the poor. But if the public knew the facts, their rhetoric would have no resonance.

As the chart above shows (click to enlarge), the effective tax rate for middle-class Americans has fallen since the late 1970s. While that was happening, the median after-tax household income jumped by more than a quarter. Taxes down, incomes up. No question — we’re all doing better.

Despite this news, readily available, the two remaining Democratic presidential candidates talk as if the rich are the only group getting tax breaks, while support from Washington for the poor has fallen and the middle class is being crushed out of existence.

What more do the Democrats want? Under the Bush tax cuts, the top 1% paid 39.4% of federal income taxes in 2005, up from 37.4% in 2000 and 30.3% in 1995, when the Clinton administration was in charge and had pushed a tax hike through a Democratic Congress.

As for the bottom 50%, they paid 3.1% of federal income taxes in 2005, down from 3.9% in 2000 and 4.6% in 1995. You can see the decline in tax rates under Bush for yourself (see chart below). The Bush tax cuts have been good for every taxpayer in the country, not just the rich.

Carpe Diem

“Reproductive Outsourcing” Booming In India

Mumbai, India India’s lucrative outsourcing sector is not limited to back office jobs. It is now emerging as a major supplier of “back bedroom jobs” as an infant outsourcing hub as well.

Reproduction is the newest addition to the Asian tiger’s outsourcing industry. Couples from the United States and Europe are asking Indian women to serve as surrogate mothers (pictured above), leading to a boom in the number of clinics offering the procedure.

Commercial surrogacy is prohibited in a number of European nations and is subject to strict regulations in the U.S., but has been legal in India since 2002. The cost of $25,000, which covers the medical procedure, plane tickets and accommodation for two, is just one-third of what it would cost in the United States. The double fare and hotel bills covers both fertilization procedures and taking back the baby.

See a previous CD post on this topic here.

Carpe Diem

Case for Foreclosure:Law of Conservation of Homes

One family’s sorrow (the one moving out of this house) is another family’s joy (the one moving into this house).

University of Rochester Steven E. Landsburg presents the “case for foreclosure” in his new Everyday Economics column:

If you’re facing foreclosure, Treasury Secretary Henry Paulson wants to help. “If someone is willing to make a call to reach out,” says Paulson, “there’s a chance we can save their homes.” But Paulson can’t save these homes because the homes are not endangered in the first place. They stand to change hands, not to vanish. There cannot be more homeowners than there are homes, and if one home becomes vacant, then there can be one new homeowner. Call it the Law of Conservation of Homes.

None of these foreclosed houses is going to disappear. After a foreclosure, one family moves out, and another moves in. We see the sad faces of the people moving out, but we don’t as often see the happy faces of the new homeowners moving in. Nevertheless, those happy faces are out there, and we should not discount them.

That’s important, and it’s important in a larger context. Often when it comes to economic policy, some effects—in this case, the genuinely moving stories of good people who can’t afford to live where they’ve been living—are highly visible, while others—the genuinely moving stories of good people who can now achieve their dreams of home ownership—are less well-publicized. That doesn’t make them any less real.

Landsburg analysis on foreclosures reminds me of Bastiat’s essay “What Is Seen and What Is Not Seen”:

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

This difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

I think Landsburg falls into the “good economist” category.

Carpe Diem

What’s Love Got To Do With It? Economic Growth

Don’t Tell Mom She Has a College Degree

From the abstract of an interesting research paper “What’s Love Got To Do With It? Parental Involvement and Spouse Choice in Urban India,” by a University of Chicago economics graduate student Divya Mathur:

“Arranged” marriages, characterized by strong parental control over mate choice, are the norm in India, although there is a steady transition towards autonomous “love” marriages, especially within the urban middle class. I construct a novel dataset by surveying 6,030 parents and adult children in Mumbai, India, to study selection into arranged marriage and its effects on spouse choice. I consider the choice between an arranged and a love marriage as the outcome of bargaining between parents and children, when agents have different preferences for spouse attributes. I find that stronger financial and kinship ties between parents and sons increase the likelihood of an arranged marriage. Furthermore, when parents are involved in mate choice, sons are significantly less likely to marry college-educated women and women engaged in the labor force, after controlling for individual and family characteristics. I show that these effects are driven, at least in part, by parental preferences. These results suggest that lowering the incentive for parental control in mate choice may improve investments in women’s human capital in India.

From the Conclusion:

My results also suggest that a movement from arranged marriage to love marriage may be instrumental in promoting growth. I find that parental control in the selection of a daughter-inlaw results in brides with lower levels of human capital. In equilibrium, this lowers the return on women’s education and thus adversely affects the incentive to invest in women’s human capital. This suggests that developing infrastructure for the care of the elderly, improving social security, encouraging retirement planning, and thereby lowering the incentive for parental control over son’s marital choices, may be an effective mechanism for increasing investment in women’s human capital.

The Altantic has a report on the paper here.