From Daniel Davies:
Posted by DeLong at January 07, 2003 08:32 PM | TrackbackThere are three issues here:
- The general level of taxation
- The degree of progressivity of the tax system
- The distortions caused by the tax code.
The current Bush proposal is arguably wrong in terms of the first, seemingly certainly bad in terms of the second, but potentially good in terms of the third. There is a quote from "Yes Minister" which seems apropos; it is a principle of the British Civil Service to advise "If You Must Do This Bloody Silly Thing, Minister, Please Don't Do It In This Bloody Silly Way". If one took it as given that the objective of giving a big present to the rich had to be met, then at least doing it in this way helps to cure a quite important distortion. It's better than a cut in the top rate of income tax with similar fiscal impact.
A note for the confused; I said this on a mailing list, so if you can't find it on my weblog, that's because it's not there. I do have a comment on my blog about the dividend cut plan, but it's a bit longer and more bizarre.
Posted by: dsquared on January 7, 2003 11:14 PMIn the book, it was actually "if you must do this damned silly thing, please don't do it in this damned silly way"
For my money, the most appropriate quote concerning the Bush administration is this one:
"We [Arnold & Humphrey] agreed that the ideal candidate for PM must have the following qualities: he must be malleable, flexible, likeable, have no firm opinions, no bright ideas, not be intellectually committed, and be without the strength of purpose to change anything. Above all, he must be someone whom we know can be professionally guided, and who is willing to leave the business of government in the hands of the experts. . ."
Posted by: roublen vesseau on January 7, 2003 11:57 PMRoublen,
According to Peggy Noonan, these are precisely the qualities that make George Bush so endearing to 'ordinary' Americans (See her latest OpinionJournal article...)
Funny how satire'predicts' reality...
Posted by: Suresh on January 8, 2003 07:28 AMWhat is this mailing list that dsquared and Brad are on, and that I'm not on?
Posted by: Seth Gordon on January 8, 2003 10:23 AMPlease do consider -
Does elimination of the tax on stocks dividends received by individuals, distort the value of bond or cd dividends? Many older persons rely on interest from bonds and cds. Will these people be set at a further disadvantage to wealthy stock investors?
From a philosopher trying to understand....
Dear DD -
Please do comment further on any relative problems the stock dividend tax cut may cause bond holders. We are quite concerned. The S&P dividend is about 1.7% after mutual fund expenses. So, for each 100,000 dollars in stock owned in a taxable account there would only be 1,700 dollars in income. Great accounts will benefit much, while for the rest there seems little to be gained.
Am I being foolish in worrying?
Posted by: on January 8, 2003 01:52 PMI personally am not particularly worried about this issue. There is enough scope for arbitrage in the equity market, particularly for any stock where the cashflows are stable enough for a meaningful comparison to muni bonds, that "clientele effects" like this are pretty minimal. Nobody was able to find them in the UK, though there is no equivalent to the muni market there.
This does not extend to the Treasury market, btw; there are enough big investors there for which (for regulatory reasons) there is *no* substitute for certain kinds of treasury bonds that clientele effects can be big and persistent.
Posted by: dsquared on January 10, 2003 07:31 AM