How could changing capital gains taxes more revenue? Grace Enda and William G. Gale. 2020 1 14. Brookings. The rich benefit as Democrats retreat from tax on unrealized capital gains Greg Iacurci. CNBC. 2021 12 29. https://www.cnbc.com/2021/12/29/the-rich-benefit-as-democrats-forgo-tax-on-unrealized-capital-gains.html The Many Problems With Taxing
“As part of Biden’s plan to rein in carbon emissions, the bill contains a provision which would provide a $7,500 tax rebate to any consumer who purchases an electric vehicle (EV), including both all-electric and plug-in hybrids. However, that amount increases by $4,500 if the car was manufactured in a unionized U.S. factory, as well as by an additional $500 if the vehicle contains a U.S.-made battery.
Ostensibly, this provision is part of Biden’s “Buy American” policy of incentivizing or mandating purchases to be made domestically. In practice, the order has simply carried over the protectionism of the Trump trade policy and increased costs to taxpayers. The EV credit proposal, though, is much more egregious, in that it not only incentivizes a particular type of product, but incentivizes particular brands, as well.
If enacted as written, the bonus $4,500 in EV credits could only apply to cars made by Ford, General Motors, and Stellantis (formerly Fiat Chrysler). In other words, a driver who wants to purchase a hybrid Toyota Camry, which U.S. News & World Report ranks as having “Great” reliability, does not qualify for the extra money, even though the car is manufactured in Kentucky. But if that same shopper elects to purchase a Chevrolet Bolt, which recently halted production because the batteries were catching fire, they would receive the extra rebate. As a matter of fact, out of more than 50 EVs currently on the market, the only vehicles which currently qualify for the extra money are two variations of the Bolt.
This is what is most pernicious about this policy: Rather than simply a blanket advantage for American companies (which would be bad enough), it is a clear giveaway to the United Auto Workers (UAW).”
“The current system of social hierarchy in the United States is of course not a perfect meritocracy (nothing is ever perfect), but it’s genuinely pretty successful on its own meritocratic terms. The problem is that those terms are bad. American society will not get better if we try to make it more genuinely meritocratic along any dimension of possible understanding of what the term means. What we need to do is relax our level of ideological investment in the idea of meritocracy and be more chill.”
“If you want a story about the problem with meritocracy, I would read Dylan Scott’s recent article about what researchers have found about the consequences of private equity takeovers of nursing homes:
“The researchers studied patients who stayed at a skilled nursing facility after an acute episode at a hospital, looking at deaths that fell within the 90-day period after they left the nursing home. They found that going to a private equity-owned nursing home increased mortality for patients by 10 percent against the overall average.
Or to put it another way: “This estimate implies about 20,150 Medicare lives lost due to [private equity] ownership of nursing homes during our sample period” of 12 years, the authors — Atul Gupta, Sabrina Howell, Constantine Yannelis, and Abhinav Gupta — wrote. That’s more than 1,000 deaths every year, on average.”
Why do private equity takeovers kill so many people? It’s not because the Wall Street boys are dimwitted. The people who work in private equity are very smart. Their job is to look for companies that, for whatever reason, are not being managed in a way that maximizes shareholder value. Then they take them over with borrowed money and rejigger operations so as to increase profits. In the case of nursing homes, it turns out that basically, if you give patients more drugs, you can get away with lower staffing levels, and then you can drain the resources that are freed up by that in various ways”
“The healthcare sector poses these kinds of questions in droves. To become a medical doctor, you generally need to get into a good college, have decent grades there, get a good score on a pretty hard standardized test, and then put in a bunch of time into a challenging graduate education program. So doctors are quite a bit smarter than the average American, which seems reasonable. Nobody wants a dumb doctor. But you also don’t really want a shrewd doctor who is putting his smarts to use figuring out how to take advantage of his asymmetrical information vis-a-vis his patients to buy unnecessary services. You want healers who, yes, earn a comfortable living, but also comport themselves according to a code of honor and offer legitimate medical advice.
But this concept of honor and virtue is consistently at odds with the merit principle.”
“The whole point of George Washington isn’t that he had penetrating insights into public policy — it’s that he provided character and ethical leadership under circumstances that lead a lot of countries to become military dictatorships. You don’t want people who are extremely stupid running everything. But in both government and the economy, it’s just not the case that putting the “best and brightest” in charge of everything is a good idea. And crucially, that’s not because the “best and brightest” secretly aren’t really the best and brightest. It’s because just assigning all power and responsibility and economic reward to the best and brightest is a genuinely bad idea.”
“Back in 2019, Rafael Nadal earned $16 million in prize money playing tennis. Gael Monfils, in ninth place, earned $3 million.
These are the kind of sharp income disparities that lead Elizabeth Warren to say the economy is rigged. But of course pro tennis isn’t “rigged” in any normal sense. Fair, tournament-style competitions just tend to produce this kind of outcome where modest differences in ability lead to wild disparities in earnings. It’s honestly just more fun that way. We like to see high-stakes competitions, and we also like to see ability win out, and that’s what you get.
For the purposes of generating an entertaining spectacle, there’s nothing wrong with that. Indeed, there’s a reason why pro-inequality people almost always use examples that involve rich athletes or entertainers since it helps you get around questions of system-rigging.
But the basic reality is that it is not great for material resources to be distributed so unequally. The marginal dollar taken out of Nadal’s hands and given to someone in need will greatly increase human flourishing. There are lots of valid questions to ask about the macroeconomic impact of various kinds of taxes and the optimal design of welfare state programs. But the benefits of an egalitarian economic order are clear, real, and don’t fundamentally hinge on the idea that Nadal or anyone else did anything “unfair” to get where they are.
It takes hard work to be the champion, of course, but it’s equally obvious that the vast majority of people would never be as good as Nadal no matter how hard they tried. Almost everyone who’s successful works hard to get where they are. But they have also lucked into abilities that most people don’t have. And beyond that, they have meta-lucked into being alive at a time and place where the abilities they lucked into are valuable. Apparently, the highest-earning distance runner is just the one who happens to be American. An American can get better sneaker endorsements than a Kenyan or Ethiopian whose results are as good or better.
He’s great at what he does. He’s the beneficiary of dumb luck. It’s both, not either/or, and the sooner we accept that everything is like this, the saner we can be.”
“My read on a lot of what’s happening in elite cultural institutions in the United States is that we are currently living through a desperate scramble to make certain kinds of social justice goals and egalitarian commitments fit into a fundamentally unsound meritocratic framework.
What you need to do is actually change the framework — have a society that’s less based on sorting and ranking, and more based on equality.”
“The facts are pretty clear that poor ethics can frequently be rewarded. To have a healthier society, we need more emphasis on fair play, “an honest day’s work for an honest day’s pay,” and creating an atmosphere in which people would be ashamed to tell their parents that their well-paid finance job involves identifying ways to make patient care worse. That’s not a simple switch we can flip. And while it obviously includes a regulatory component, it’s fundamentally not a regulatory issue. It’s a question of social values and getting away from celebrating tournament winners and being “the best,” and a shift to celebrating other kinds of virtues including humility, restraint, fairness, and a belief that some things just aren’t worth it.”
“If limited government is what you’re after, neither political party is your friend, since government expands under both. What’s more, the rate at which it expands depends less on which big spenders are in power than on whether we have divided government.
For evidence, consider President George W. Bush’s presidency, when, for a time, Republicans controlled both the House and Senate. During that time, we saw the creation of a new department (Homeland Security) and of a new entitlement (Medicare Part D), and spending exploded. We didn’t see any restraint during the two years when Republicans were fully in control under Trump, either. Further data confirm that unified government does not keep government restrained, even if the controlling party is supposedly the enemy of big government.
Divided government, on the other hand, encourages more restraint, no matter who is in power or who controls which branch of government. Divided government doesn’t stop the government from growing; both parties are always happy to spend more money on defense, infrastructure, and education, just to name a few favorites. However, the Democrats tend to limit the Republicans’ hunger for wars, and Republicans prevent the worst of Democrats’ fantasies about foisting greater government control on the economy.”
“the incentives for good management in government are very weak, because politicians make decisions using other people’s money. As a result, their exposure to the risk of a bad decision is limited, while there’s rarely any reward for spending taxpayers’ money wisely or providing a service more effectively or efficiently.
Furthermore, each individual voter bears a very small part of the costs of bad government decisions. Politicians can thus shower special interest groups with subsidies at our collective expense, grant costly tariff protection to politically powerful producers, and generally waste our money for their individual political advantage.”
“In politics, decisions aren’t driven by the profit motive like they are in the marketplace. Instead, they’re overwhelmingly driven by the desire to get reelected. Special interests can help with that. In fact, public choice economists have shown that government officials receive more benefits when they act on behalf of special interests than for the public good. This finding doesn’t depend on who is in power.”
“the attention and resources dedicated to repurposing old drugs detracts from the pursuit of new therapies that would be true breakthroughs, exponential advancements in science. Feldman describes such innovation as “value beyond pearls.”
“It’s rare, it’s beautiful, it’s startling, it’s a thing of beauty,” she said.
But that kind of innovation takes time and money with no certain payoff. It’s simpler and cheaper to modify existing products to somewhat improve their efficacy or to tweak them to treat a different condition.
“I worry that our system is not well primed for it,” she said. “It’s all about the incentives. Our incentives aren’t directed properly.”
She pointed to the shift away from antibacterial resistance research and drug development, even though researchers anticipate millions of global deaths annually within the next few decades because bacteria have become resistant to the drugs that we already have to fight them.
Drug makers currently devote a lot of their attention to end-stage cancers, because they can benefit from “orphan drug” designation and other competitively advantageous policies, while Feldman argued that chronic conditions have been underserved. Looking at it from a societal perspective, the latter obviously has more value than the former — and yet that is not necessarily what our innovation system has been designed to reward.
Or look at the antiviral space, which is the most relevant to the coronavirus response.
Antiviral research investment historically has not been a priority for the major drugmakers. The Wall Street Journal reported Pfizer had to reestablish its antiviral research department for its Covid-19 work because the unit was disbanded in 2009. Novartis ended its antiviral and antibacterial research in 2018. One systemic review of the past 30 years of antiviral research found “only a few drugs were approved to treat acute viral infections” in that time.
“Antibiotics and antivirals are both areas that haven’t seen a tremendous amount of new drug development because the economic incentives haven’t justified significant R&D in this area,” Caroline Pearson, senior fellow with NORC-University of Chicago, told me recently.
So long as these incentive structures remain in place, Feldman warned, we will never be ahead of the curve in fighting off the next pandemic. She said that the US should be asking: “What’s of value and what should we incentivize people to do?””