Scott Adams on Taxing the Rich

Dilbert cartoonist Scott Adams says in "How to Tax the Rich: Try giving them perks and privileges (an extra vote?) in return," (Wall Street Journal, January 29, 2011):

When you are poor, you are willing to trade your time to earn money. When you are rich, you trade your money to get more time. For example, the rich hire people to clean their homes, and they don't waste time shopping for bargains. In business school I learned that when people have different preferences, you can usually find a way to engineer a deal.

Suppose we change the tax code so that in return for higher taxes on the rich, we figure out a way to give the rich some form of extra time. The bad version is that anyone who pays taxes at a rate above some set amount gets to use the car pool lane without a passenger. Or perhaps the rich are allowed to park in handicapped-only spaces.

Another suggestion is this:

Suppose the tax code is redesigned so that the rich only pay taxes to fund social services, such as health care and social security. This gives the rich an incentive to find ways to reduce the need for those services, which would in turn keep their taxes under control. Perhaps you'd see an explosion of private investment in technologies that make it less expensive to provide health care. You might see rapid advances in bringing down the cost of housing for seniors.

Would both of these be more value-maximizing than simply an increase in the tax rate?

Inframarginal and Extramarginal Workers

Ike Brannon says in "What is a Life Worth?" Regulation, Vol. 27, No. 4, pp. 60-63, Winter 2004:

If I make $40,000 and my twin brother makes $42,000 at a job that is identical to mine in all respects except for a 1 percent greater chance of death, then an economist assumes that the $2,000 difference is a premium my twin brother requires to accept the riskier job. If he requires $2,000 for a 1 percent greater risk, then I can infer that he is placing a value on his life of $2,000 x (1 ÷ 0.01), or $200,000. There are problems with this approach. University of Wyoming professors Jason Shogren and Tommy Stamland argue that nearly all revealed preference studies are biased upwards to some degree. They observe that the wage at a particular job is just enough to entice the marginal worker. The other workers require less some limit money to accept the risk.

On the other hand, a downward bias is that there are lots of people who did NOT take the job because they require even more money to accept that risk.

Negative Interest Rates?

"Inflation Bonds Are Sold With Negative Yield for First Time" said the New York Times in 2010.

The $10 billion auction of the five-year bonds sold at a negative yield of 0.550 percent, according to the Treasury Department....Bond prices rose, with the yield on the 10-year Treasury down to 2.53 percent from 2.56 percent late Friday.

How could this happen?

A Successful Lobbying Campaign--- The Connecticut Education Reform Bill Watered Down

The second biggest teacher's union is the AFT, the American Federation of Teachers (the biggest is the National Education Association, made up of state unions such as the CEA, Connecticut Education Association). They put a powerpoint presentation, "How Connecticut Diffused The Parent Trigger" on their website (in pdf) explaining in detail how they gutted a bill that would have given parents more power over poorly-performing schools. Rather than kill it, they purposely kept it alive but made it empty of meaning.

This is standard stuff, and a good case study for how a business can affect legislation, but the webpage "The AFT’s Real Feelings about Parent Power" criticized it, and it didn't look good that prominent on the slide "What Helped Us" was "Absence of charter school and parent groups
from the table". As I said in class, though, that's central to politics--- if you're unorganized or rationally ignorant, your surplus is weighted less heavily or not at all in politics.

Should Judges Be Appointed, Elected, or Chosen by a Nonpartisan Commission?

"Missouri: Trial-Lawyer Heaven" at National Review's Bench Memos blog says:

Late last week Missouri’s judicial-nominating commission selected the three nominees from which Gov. Jay Nixon must choose the state’s next supreme-court justice. ...
Three of the commission’s seven members have extremely strong ties to the state’s trial lawyers, and the chairman, Chief Justice Richard Teitelman, is on the board of the Soros-funded American Judicature Society. So it shouldn’t surprise anyone that the commission came through with a trial lawyer’s wish-list.

The Missouri Plan was designed to produce precisely this sort of result. The progressive legal reformers who came up with the idea saw it as the surest way of placing control over judicial selection in the hands of “experts,” left-leaning bar apparatchiks. ... It does so by allowing a commission, usually lawyer-dominated, to make the judicial nominations. Not surprisingly, this structure benefits the special-interest group that dominates the state bar: trial lawyers. Textbook agency-capture.

Justice O’Connor and her allies in various Soros-funded groups have been campaigning across the country on the argument that the Missouri Plan is a non-political method for selecting judges. ... They argue that, unlike the federal model or contested elections, the Missouri Plan removes partisanship and money from the equation and forces “merit” ahead of philosophical considerations.

As the Wall Street Journal documented (see here and here), former Republican governor Matt Blunt was repeatedly sent lists of trial lawyers and Democrats. And Professor Brian Fitzpatrick’s empirical study of the Missouri Plan nominees demonstrates that it would probably be impossible to tilt judicial nominations further to the left without actually having the Democratic party itself pick the judges.

"The Dog Ate My Homework" Bill

In "A Late Addition Worth $214 Million: Amendment to the Patent Reform Bill Last Week Would Benefit Powerful Law Firm, Drug Company," Roll Call magazine writes about what is known in the blogosphere as the "The Dog Ate My Homework" bill:

The House might have sworn off earmarks, but that didn’t stop the chamber from essentially passing one last week that would allow a single drug company to avoid generic competition while saving a powerful law firm from paying out $214 million in a malpractice suit.

The amendment, authored by Rep. John Conyers (D-Mich.) and added to the patent reform bill Thursday, would have a direct benefit for the Medicines Co. by essentially ensuring it retains control of the patent for Angiomax, a blood-thinning medication and MDCO’s flagship product.

The provision would also be a financial boon to WilmerHale, which since February has had a malpractice settlement with MDCO hanging over its head that would require the firm to pay $214 million to the drug company — $115 million out of its own pocket and $99 million from malpractice insurance — if a generic drug is introduced before June 15, 2015.

Here's how the saga started:

At issue is MDCO’s 2000 application to maintain its patent over Angiomax. Following approval of the sale of the drug by the Food and Drug Administration in December 2000, the company had 60 days to file for a patent extension, which under the law would have precluded the sale of generic versions of the drug until 2014.

WilmerHale attorneys handling the application for MDCO technically filed the extension 61 days after the approval, and because the Patent and Trademark Office does not have authority to give applicants wiggle room in filing, the application was denied, meaning generics would hit shelves in 2010, costing MDCO an estimated $500 million to $1 billion in profits.

Here's the business strategy:

To regain control of the patent, MDCO opened up a three-pronged offensive. It filed suit against the PTO, arguing that because the FDA used a different interpretation to calculate the 60-day permit trigger, its 61-day filing time actually fell within the PTO’s definition.

MDCO also began malpractice proceedings against WilmerHale over its handling of the patent extension, while both MDCO and WilmerHale launched an aggressive effort to pass legislation overturning the extension rejection.

Over the next several years, MDCO and WilmerHale spent millions of dollars lobbying Congress, and several ultimately unsuccessful efforts to pass the legislation were attempted.

The amendment was sponsored by the Detroiter who I think is the longest-serving current member of the House, John Conyers:

In a floor statement before Thursday’s vote, Conyers, the Judiciary Committee’s top Democrat, called the language a “bipartisan amendment” that would make a “technical — but important — revision” to federal patent law.

“It addresses confusion regarding the calculation of the filing period for patent term extension applications,” Conyers said, adding that, “By eliminating confusion regarding the deadline for patent term extension applications, this amendment provides the certainty necessary to encourage costly investments in lifesaving medical research.”

For reference (you don't have to read it): Medicines v. Kappos, 731 F.Supp.2d 470 (2010).

The Canadian Government Wheat Monopoly

Canada Is Taking Aim at Its Wheat Monopoly says the WSJ:

The Canadian Wheat Board is poised to lose its monopoly grip on the country's wheat sales. Canada's Conservative Party captured a parliamentary majority this past spring, and newly elected government officials took that as a mandate to end the wheat board's reign.

The ripple effects from eliminating—or even weakening—the board's power would be widespread. Wheat prices, which already have experienced extreme highs and lows over the past three years, could become more volatile, some analysts say....

Farmers who favor the board, including its current chairman Allen Oberg, contend the benefits far outweigh the cross-border price differences that can emerge. By controlling the whole crop, the board has considerable power in global commodity markets to ensure Canadian farmers get the best price. Farmers also get an up-front payment that is backed by the government, and the board doesn't aim for a profit, so more money goes back to farmers than under an open-market system....

The board basically sells the grains and then divides the returns among the wheat and barley growers in western Canada.

So farmers get the average price over the course of a year, never capturing the top of the market, but also never selling at annual lows.

The board has added other pricing options over the years, including allowing farmers to sell their crop up-front for a fixed price.

The estimated return for a Canadian farmer in the board's traditional sales program is estimated at $7.19 to $7.48 a bushel for the spring wheat coming out of the fields now. That compares with Wednesday's U.S. cash price of $8.85 a bushel, according to MGEX.

The wheat board cautions against trying to compare the price Canadian farmers are expected to receive against current market prices in the U.S., saying the timing, location and system of sales are all different.

Poor Information about Borrower Quality

The New York Times writes in "U.S. Is Set to Sue a Dozen Big Banks Over Mortgages" that

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks,...

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

It seems the claim is that the banks purposely refrained from checking whether the borrowers were lying about their creditworthiness, since the banks intended to resell the loans to Fannie and Freddie anyway.

Should the Rich Pay a Lower Tax Rate?

"Court strikes down Obwalden tax break for rich" says

The Swiss Federal Court has ruled that canton Obwalden's degressive tax system, aimed at attracting wealthy residents, is unconstitutional.

The country's highest court said on Friday that degressive income taxes ran counter to constitutional measures designed to ensure taxation according to economic performance.
...

Obwalden had adopted a degressive income tax system which meant that the richer you are, the less you pay. Those earning over SFr300,000 ($233,000) per year, for example, had a tax rate as low as one per cent.

It was introduced in 2006 following a cantonal vote as a way of boosting the fortunes of Obwalden, one of the poorest cantons located in Switzerland's mountainous centre.