Sunday, November 26, 2006

Death Tax

Keith and I did another Sunday debate, this time on the estate tax. You'll find my piece here and Keith's here.

And here is my piece for posterity:

Estate tax fails to meet standards of a ‘good tax’
As I write this, I’m looking at a Web cam image of my parents on a cruise ship in the Mediterranean. They are busy spending my inheritance on expensive trips like this one. My father, an accountant by training, tells me he is just trying to avoid the estate tax. A tax which I oppose on principle, even though my dad is making sure it will never affect me.

Afew confessions to make: In 2006 you won’t need to file an estate return unless your gross estate exceeds $2 million. Even then, you may not pay a tax if you qualify for certain deductions. Estimates are that only the wealthiest 2 percent of Americans will be subject to the estate tax, but that doesn’t mean the other 98 percent of Americans shouldn’t care.

Because, as economists are often wont to say, who pays the tax (as in from whom the tax is collected), is not necessarily the same as the person who pays (as in who is affected by) the tax. Not only are the heirs affected, but so is everyone else in our economy, through slower economic growth.

I am not arguing that we should not pay taxes. Rather I’m arguing that this particular tax does not meet the standards of a good tax. I know “good tax” sounds like an oxymoron, but a good tax is simple, easily understood, seldom changes, is neutral to different choices and promotes economic growth.The estate tax fails at least the last two principles since it treats saving and wealth accumulation differently depending on how much you have saved. It does not treat the savings over $2 million as it does the first $2 million. And in so doing it discourages economic growth by discouraging capital accumulation.

Let’s say I had another set of parents, a more austere couple, they eschew the globetrotting for a life of ramen noodles and coupon clipping so that they can provide me and my future family with a financial safety net. Why should the government impose a tax on them that they will not impose on my actual parents?Why would a fair tax system penalize someone for self-sacrificing behavior intended to make their children and grandchildren better off? Why are we penalizing those who live frugally and through their frugal behavior are laying the seeds of economic growth for the rest of us to enjoy? Not only should we not discourage that behavior, we should probably do more to encourage it.

As anybody who has noticed the rising amount of U.S. debt held by foreigners should realize, it is not occurring because typical Ameri-cans save too much, but because they are saving too little. So let’s not penalize people for saving more.

If it’s the deficit that worries you, find somewhere else to raise revenue or, better yet, cut spending. I offer the expenditures in Iraq as a starting place because I know Keith would agree with me on that one.

Keith argues that private wealth accumulation is due to our public institutions and markets and therefore should be taxed more heavily. Keith is confused. I’d like to point out that our system of progressive taxation will not be affected by eliminating the death tax, in fact it will be improved as there will be more incentive to accumulate wealth for your children rather than pass your current income on to them now when they are likely to be in a much lower tax bracket.

It’s not clear that the tax is very effective at raising revenue either. Wealthy Americans can afford to hire accountants, lawyers, and estate planners to figure out ways to avoid paying the estate tax. Even though this might be one of the nicer things lawyers do for people, it isn’t a very productive use of society’s resources. So, Keith, please join me in setting those lawyers free — and encouraging economic growth for all — by ending the estate tax.

Taggert J. Brooks teaches economics at the University of Wisconsin-La Crosse.

Monday, November 20, 2006

A Simple Crush

How can you not love a woman like Emily Oster? Her work is featured in Esquire here. To think, I actually had her lined up to present in a session I organized for the AEA, but the powers that be decided against the session. How could they turn us down?

And how is this not hot?

I consider a world where individuals live a maximum of two periods. All individuals live for certain in period 1, and there is a chance, p, of surviving until period 2. Each individual receives utility from certain income, y, in each period, as well as their choices of number of sexual partners in each period: sigma1 and sigma2. Total utility in period i is u(y, sigmai), and we will assume that u(.) is concave in both y and sigmai. In a world without HIV, total lifetime
utility can be written:

Utot = u(y, sigma1) + pu(y, sigma2) (1)

Income is fixed in each period so the only choices individuals make are about sexual behavior. The first order condition defining the choice of sigmai is usigmai(y, sigmai) = 0. Note that optimal choice of sigmai can vary with y, even in the framework without HIV. The direction of this relationship will depend on the sign of usigmay. If the cross partial is positive, richer people will have more sexual
partners; if it is negative, they will have fewer. For example, if sexual partners cost money, this will deliver a positive cross partial, which would imply that richer people have more partners.

How is that not hot? I mean, sex, partial derivatives and utility maximization. I defintely have a crush.

Sunday, November 12, 2006

Quad S

Blogging a sex conference. The Quad S, stands for the Society for the Scientific Study of Sexuality. Their annual meeting was held in Vegas over the weekend. I was the only economist in attendance.

Wow. Interesting people, and quite the change of pace from my normal econ nerd conferences. These people had personality. Some rather quickly, but not much more than normal. Some of the differences I noticed:

Friends greet each other with a hug and a kiss, even straight male friends.

There are few straight males under the age of 40 here.

People are friendlier. I met more people in one conference than I've met in all of my Econ conferences in the last 10 years.

People research their interests. The hippies study polyamory, the gay guys study HIV transmission and masculinity among Brazilian men, and the lesbians study erotic plasticity in college females.

But I exaggerate. A little.

They rely primarily on bivarate analysis, some on ANOVA and MANOVA.

All of their samples are convenience samples, which they always acknowledge, but then calculate significance levels for anyway.

Some interesting things I heard this weekend:
Women have much more diverse interests than men, and are more likely to have had or like to have a same sex encounter or an encounter different than their usual preference.

Females are aroused while watching ANY erotica, while males are aroused when watching their preferred erotica. That's not to say there aren't some baseline increases in male response to erotica that does not fit their preference, but it is to say that when you match their preference there is a VERY large spike.

Gambling addiction is frequently found in people who have also had or have sexual addictions. They tap the same brain chemicals.

Some people can say masturbation, anal stimulation, cunnilingus, blow job in the span of 30seconds, and no one bats an eye, except the snickering economist. I felt like bevis..."ahh..ahh.ahh, she said masturbation."

The best book on sex: The Guide to Getting it On.

Sunday, November 05, 2006

Weather as Instrumental Variable

The Freakonomics duo has an interesting column on the use of weather by empirical economists. It has been used as an instrumental variable in several cases. It is likely to be correlated with the included variable but uncorrelated with the error, or the excluded variable.

It was used in the autism study.

I'm thinking the weather might be a good instrument for some sex research. Under the assumption that bad weather leads to staying indoors, and more sex among married couples and cohabitants, but fewer matching opportunities for single people.