Why not tax dead people - they are dead, after all?

Supporters of inheritance taxes do love to argue that we really should tax dead people. After all, they are dead so aren't going to squeal about it. Such taxation does therefore at least pass one test, the maximisation of feathers plucked with the least hissing.

However, this idea does meet one major obstacle, which is that the major economic unit among humans is not the individual but the family:

Ageing parents are drawing up legal documents to make clear that they would rather die than allow excessive care home fees to eat into their child’s inheritance.

The rising cost of elderly care is leading the middle-aged to create powers of attorney enshrining their desire to refuse treatment should they become incapacitated, a leading law firm said.

True, that is a piece of puffery from a law firm advertising, through he kind editors at The Times, their ability to write such legal documents. But even puffery has a basis in truth - why bother to advertise what no one is interested in? 

Which brings us to that family thing. Marriage, or at least pair bonding, are essential to the continuation of the species. We don't do that because sex is fun - it's because those for whom sex was fun bonded and thus raised more children through those decades human children need. There are indeed other species which take longer to reach sexual maturity than we do. But none that require such parenting for so long.

All of which has made the family that basic economic unit of us humans. At which point the detestation of inheritance tax makes sense. The aim and purpose of our travails in the vale of tears is the production of grandchildren. Passing on money rather than J. Corbyn getting to spend it on diversity advisers accords with our deeper instincts. Those rationalisations about how taxing dead people harms no one notwithstanding.

There's a larger point to this. We can build abstract arguments for many things just as sandcastles in the air are entirely possible. But we do have to recall, at least occasionally, that we're dealing with Homo Sapiens here. And he and she can be contrary little buggers at times. We must therefore check that our grand abstractions accord with what humans actually do.

Sure, it would be great if everyone would work flat out to create the perfect society, sharing everything equally as they did so. We've also tried that and it didn't work - because humans. So too with inheritance tax. There are all sorts of logical reasons why it's a stunningly good idea. But that people would seemingly rather pop their c logs rather than not be able to pass on inheritances would seem to indicate that this is one of those times when logic and humans don't mix well. Or perhaps that the wrong logic about humans is being deployed.

Some people still aren't getting these finer distinctions of private property

It's quite obvious that out there in that political world there are people who don't get even the basics of this idea of private property. Those who insist that shareholders cannot pay their managers what they wish for example, or that someone else must be prevented from utilising their own land in their own manner because, you know, the view or something.

But there are also those who miss some of the finer distinctions in this area:

Taxpayers saved the Royal Bank of Scotland. Now it’s time we owned it

Gareth Thomas

That's interesting, not sure we agree, but it is interesting. Maybe the taxpayers should buy out the remaining private shareholders of this dog's dinner. And when put that way we definitely disagree with it. That isn't what is being suggested:

Together as taxpayers we saved the Royal Bank of Scotland – now we should each be allowed to own it. It should become a people’s bank, which every tax-paying British citizen would have the right to become a part-owner of.

Every taxpaying Briton is a part owner right now. For the government, which we fund with out taxes, owns some ungodly percentage of the shares in RBS.

More than £45bn of taxpayer funds have been injected into the Royal Bank of Scotland. This was the right thing to do, but neither keeping it as a state bank nor a fully privatised bank offer the same advantages as turning it into a mutual.

We can have private stock companies, public and even state. RBS is an odd little blend of those last two at present. A mutual is something different, it is owned by (usually at least, in the case of banks or building societies) the depositors. Who gain a slightly better rate of interest on their savings from the absence of that outside capital which would like to get paid a dividend or two.

So the demand here is that all of us taxpayers, who currently own however much it is of the bank, should make a free gift to the future depositors with RBS of £45 billion? Or at least whatever the current diminished value of that investment is?

You know, we really do think that's a deal we can reject. It might even be a good idea that RBS becomes a mutual - again, not that we think so ourselves. But we really are very certain indeed that if that is to happen it should happen with other peoples' money, not ours, us long suffering taxpayers.

We the heck should all of us gift such a thing to some subset of us?

How Britain should fix its fisheries

Over at Brexit Central, Madsen has written about his plan to restore Britain's fisheries using property rights and market mechanisms – the Icelandic model, essentially:

Having seen its fish stocks depleted by over-fishing, Iceland instituted a quota system to restore and sustain them.  Each year its scientists estimate the biomass within Iceland’s waters.  They measure the amount and size of a variety of different species and calculate the quantity of each that can be fished sustainably.  Quotas of different types of fish are assigned to every boat, quotas which belong to the owners and which, crucially, can be traded.

Every catch is recorded, and no dumping is allowed.  All catches must be landed, and if a boat exceeds its quota for a type of fish, its owners must buy quotas from others to stay within the law. All catches and quota trades have to be made public, and are put online so that any vessel can inspect the current state of the market, and decide what and where to catch based on public information.

Read his post here, and his recent paper on these proposals here.

The Marijuana Transmogrification

'It was all Mrs. Bumble. She would do it,'

'That is no excuse,' replied Mr. Brownlow. 'You were present on the occasion of the destruction of these trinkets, and indeed are the more guilty of the two, in the eye of the law; for the law supposes that your wife acts under your direction.'

'If the law supposes that,' said Mr. Bumble, squeezing his hat emphatically in both hands, 'the law is an ass—an idiot. If that's the eye of the law, the law is a bachelor; and the worst I wish the law is, that his eye may be opened by experience—by experience.'

Oliver Twist, Charles Dickens

In Dickens’ story, Mr. Bumble, Oliver’s corrupt guardian, tosses the boy’s identifying heirlooms into a river. When questioned about the act, he blames it on his wife, only to be informed that the law views his wife as his agentless servant, rendering him guilty. While Mr. Bumble may be a villain, his ruin results not from the smooth functioning a justice seeking law, but the exploitation of its absurdity by Oliver’s friend. Oliver is glad of the man’s fate, but unlikely to gain much respect for the law from the episode.

Mr. Bumble’s claim holds weight not because he is innocent, but because in convicting him, the law reveals itself to be operating on an incorrect set of assumptions about the world. While Bumble hopes that the law’s eye will be opened by experience, the early 19th century provided the law with many examples of female agency. In the face of this reality, the law blinked, continuing to indulge a fiction, and depriving itself of a basis for respect. The ongoing prohibition of marijuana blinks similarly in the face of reality and experience, placing needless strain on the rule of law.

The law is not merely the specific statue in question, but the rule of law, an institution respected, in principle, as a set of constraints necessary for the enjoyment of ordered liberty. We are not expected to pick which laws we ought to obey, but to follow them all because they are equally law. This works only when the law is applied impartially, and corresponds to a set of broadly accepted moral norms. Each statue gains the binding power of law, but, with great power, comes great responsibility; each regulation’s individual legitimacy reflects back upon the law as a whole. A small number of bad laws can do great damage to the rule of law; only a donkey’s head is necessary to make a man Bottom.

Marijuana use, while not healthy, simply does not have the deleterious effects long promised by prohibitionists. Marijuana users are not generally regarded as particularly deviant, or antisocial. Prohibition affects poorer urban users more than others, both because of racial discrimination, and the relative ease with which densely populated spaces can be searched. As a result, the ongoing to prohibition of marijuana begs us to understand the law as scientifically ignorant, discriminatory, and a least an amoral restraint.

When marijuana use is both normalized and illegal, breaking the law becomes a normal act. Would-be law abiding marijuana users regularly interact with criminals, or delve into the dark web. We shrug when passing marijuana smokers in the park, seeing something illegal, but certainly not worth arresting anyone over. Police are distrusted as enforcers of an erroneous order, or begin selectively enforcing the law. A century of prohibition has made an ass of our law with little to show for it, the sooner we can open its eyes, and begin to reverse this spell, the better.   

On the subject of Google's search results

A complaint that searching Google for "Did the holocaust happen?" leads to, as its first result, something from Stormfront. Deluded idiots that they are they deny that it did. This is, apparently, an outrage. That we live in a society which has freedom of speech to the extent that people are allowed to say things which are wrong.

And, according to Google, it’s the most authoritative source on the internet on the “question” of whether or not the Holocaust actually happened. Sceptical, educated people will of course look for other evidence. These are the searches that Google lists at the bottom of the page as suggestions for what to search next: “Holocaust never happened theory” “proof the Holocaust happened” “Holocaust fake proof” “Holocaust never happened movie” “Holocaust didn’t happen conspiracy” “did the Holocaust happen during ww2.”

On our search, to replicate this outrage, we found that the second entry was the BBC explaining why the holocaust did happen, the third Wikipedia's entry on holocaust denial, the fourth and fifth from the United States Holocaust Memorial Museum (not known to  be a hot bed of deniers) and so on.

We're not overjoyed about Stormfront's placing either but that line from the play about Voltaire comes to mind, we disagree with what they say but we're damn certain that they should be allowed to say it - we are though ambivalent about whether we would put our lives on the line for that particular grouping even though it is traditional that we should claim we would.

A search for Fidel Castro produces the BBC on Cuba's revolutionary leader, The Guardian on how he corrected Gabriel Garcia Marquez's manuscripts, the NYT on some called him a hero, some a despot. A search for Mao Tse Tung gives us the History channel which notes that people died under his rule but is remarkably coy about apportioning any blame.

And no doubt further investigation will find more such "errors" in such search results. All of which is, we would maintain, the price of that liberty and freedom we have. That people are not only allowed to say, subject only to the laws of libel and incitement to violence, what they believe to be true, but even if it is wrong. And to prevent the presentation of this, these views, by the law is indeed censorship.

And that, of course, is where this is going:

This is hate speech. It’s lies. It’s racist propaganda. And Google is disseminating it. It is what the data scientist Cathy O’Neil calls a “co-conspirator”. And so are we. Because what happens next is entirely down to us. This is our internet. And we need to make a decision: do we believe it’s acceptable to spread hate speech, to promulgate lies as the world becomes a darker, murkier place?

Because Google is only beyond the reach of the law if it we allow it to be.

The case is very simple indeed. Do you believe in freedom of speech or not? If you do then Stormfront gets to have a website detailing whatever it is that it misunderstands about the world. As does every other vile and hateful group from left and right. There is no shortage of sites insisting that Stalin had nothing to do with the Holodomor, that it was disease not starvation, that the starvation was just bad weather, that there was no campaign against Ukrainians and anyway, it never happened did it?  

There is amusement here as well though:

Our problem too: because do we let these multinational corporations own us and all aspects of our lives? Is that the plan? The Google Transparency Project has documented how the company has become one of the biggest spenders on government lobbyists in the US.

Traditionally the Silicon Valley firms spent little to nothing on lobbying. They just got on with life and business. Then politicians noted that there was lots of money out there. So, they started to regulate the sector - a Danegeld, pay the political process or we'll regulate some more. Which is why they all now have lobbying operations because people are trying to use the political system to gain what they cannot through the normal market processes, control of those Silicon Valley giants.

And it is amusing that the very people arguing for political control use the evidence of resistance to said political control as the reason why control must be imposed.

Let's face it here, wouldn't you send someone to Washington DC to explain to politicians why Carole Cadwalladr should not gain political control over the free speech of billions? Yet that you have done so is evidence to Ms. Cadwalladr that she must have that power. And if you can't laugh about that then why not cry instead?

As we might have mentioned, idiocy is still idiocy even if it's political

Correct, a lot of you disagree with our solution to climate change - stick on a carbon tax and we're done. But given the head of steam that the idea has, rightly or wrongly, something is going to be done. Thus let's try to make sure that it's the right thing which is done, not the wrong.

For example:

Jeremy Corbyn’s Labour Party is considering radical plans to ban the sale of new petrol cars in the UK, The Independent can reveal.

The bold proposal would mean only zero- or low-carbon vehicles being sold after a set cut-off date, dramatically reducing air pollution and potentially saving thousands of lives.

Or, of course, kill tens of thousands as people cannot afford the transport that enables them to live and work. Then there are the people who get it right:

The Canadian government has agreed a deal with eight of the country’s 10 provinces to introduce its first national carbon price, Justin Trudeau has told reporters.

...

Under his plan, carbon pollution would cost C$10 (£6, US$7.60) a tonne in 2018, rising by C$10 a year until it reaches C$50 in 2022. The provinces can either implement a carbon tax or a cap-and-trade market.

That's a bit steep as a ramp up, something a little more gentle would be a better idea.

But the basic understanding is correct. And again, please, let's not say that it's all a scam. That doesn't matter - these people are going to do something so let's insist they do the right thing. Which is, of course, that some things are just too important to not use markets. If we really do have an externality about emissions then that one crowbar into market prices, that Pigou Tax, is the correct solution. Rather than politicians deciding that they're going to ban the greatest contribution to social freedom yet invented, the internal combustion engine powered car.

But there are those who argue differently:

One party source said: “It’s got nothing to do with whether the technology is there now. It is there, and this is already happening elsewhere in the world. It is only the political will that is lacking in this country.”

The European record of the Triumph of Political Will is just so inspiring, isn't it? But then Fascism always was a movement of the left....

To put Thomas Piketty's worries to rest

You might recall that Thomas Piketty told us all that capitalism was on its last legs, again, and that we needed to have that glorious revolution, again.

The particular worry this time was that capital was growing in relationship to GDP. Instead of said societal capital being 200%, or 300%, of GDP it was rising to ever higher multiples, perhaps 400% and so on. This could only mean that inherited capital was going to become ever more important as a determinant of positions in life, as was true in the 18th and 19th centuries, so tax the capitalists now and tax 'em good.

It's possible that we missed a little of the nuance there but that's a reasonable outline of his worries and his policy solutions. At which point we've this information from the OECD:

The 2016 OECD Pensions Outlook analyses how the pensions landscape is changing in the face of challenges that include ageing populations, the fallout from the financial and economic crisis, and the current environment of low economic growth and low returns.

The report shows that there were 13 OECD countries in which assets in funded pensions represented more than 50% of GDP in 2015, up from 10 in the early 2000s. Over the same period, the number of OECD countries where assets in funded private pension arrangements represent more than 100% of GDP increased from 4 to 7 countries.

We're living longer lives these days, we're working for fewer decades of them and thus people are rationally saving for their expected golden years. Thus capital as a percentage of GDP rises - not to produce inheritances, but to produces incomes in retirement. And rises by potentially at least more than 100% of GDP.

We can't see that this is a problem and we most certainly cannot see that this is an argument for greater taxation of capital. Quite the reverse in fact, people saving for their old age should be encouraged, not specifically taxed.

So much for the most recent French call for revolution then, eh? 

Will our Corporate Tax Cuts get Trumped?

Theresa May's decision to pledge that Britain will have the lowest Corporate Tax Rate in the G20 is undoubtedly good news. If we're to make a success of Brexit (another thing Theresa May has pledged), then preserving and building upon Britain's competitive tax code is essential. But, I suspect Theresa May hasn't quite grasped just how significant Trump's tax cuts will be.

Most of the media has focused on the headline tax cut from the absurdly high 35% to 15% in the tax plan on Trump's campaign website, but this is misleading. First, very few US corporations actually pay that 35% rate. There's a labyrinthine set of exemptions and deductions that mean the average US corporation pays a much lower effective rate of 12.6%. Trump's plan funds his headline tax cut through eliminating almost all (except the R & D tax credit) of these distortionary exemptions from the current system. This means in effect US corps won't be paying substantially lower taxes, even if they'll benefit from less distortionary and more efficient tax code.

Second, and more significantly Trump's tax plan isn't necessarily the tax plan that'll be put forward in the House of Representatives (where Speaker Paul Ryan and Ways and Means Chairman Kevin Brady hold the cards). The Ryan-Brady plan dubbed "A Better Way" differs from Trump's framework in a few key ways (for even more detail read Cameron Arterton and Lisa Zarlenga's excellent overview).

First, they cut the headline rate by much less. Under the Ryan-Brady plan, the headline tax rate only falls to 20%.

Second, they border adjust it. That means that imports are taxed, but exports aren't. To readers of this blog, that might sound worryingly mercantilist - but as AEI's Alan Viard points out it won't have this effect. Such a reform does however resolve some of the transfer pricing problems that plague modern corporate taxes.

Third, and this is the big one, the Ryan-Brady plan proposes unlimited immediate expensing of all wages and new capital investments (tangible and intangible). This turns the Corporate Income Tax into what economists call a business cash-flow tax. This isn't just tinkering with rates, this is fundamentally changing the structure of business taxation in the US. It removes entirely the tax burden on capital and shifts it to consumption. Economists generally believe that taxes on capital are excessively harmful because capital is incredibly mobile and even low capital tax rates translate to incredibly high taxes on future consumption. As my colleague Ben Southwood points out, even though it's meant to raise taxes from wealthy investors, it ends up leading to much lower wages for ordinary workers.

In essence, the Ryan-Brady plan turns one of the most inefficient taxes into one of the most efficient. Typically, Republicans (and libertarians) oppose such moves because they think making taxes more efficient will encourage the Government to spend more and only a painful, inefficient tax code will put the brakes on out of control spending. As Will Wilkinson points out, that's bunk. The Ryan-Brady plan breaks with that dogma.

What does that mean for Britain? Well, cutting corporation tax just ain't good enough. Theresa May and Phillip Hammond need to be more radical if they don't want to be Trumped by the Donald. Let's abolish corporation tax and replace it with a simpler, more efficient business cash-flow tax.