Want to tax capital and income equally? Try the Buffett rule

Posted by Dylan Matthews on November 27, 2012 at 10:09 am

Warren Buffett (Daniel Acker — Bloomberg)

Enthusiasm is building for a “minimum tax” for the wealthy, in which millionaires would have to pay, say, 30 percent of their income in taxes, no ifs or buts. Republicans in Congress have floated taxing the entire income of high-earners at 35 percent, while Warren Buffett has renewed his call for a minimum tax of 30 percent for millionaires.

Five Myths about the Chinese Internet

The Great Firewall is neither great, nor a firewall. Discuss.

BY EVELINE CHAO | NOVEMBER 20, 2012

Last week, Xi Jinping's chairmanship of the Communist Party was announced, and collectively, the Chinese Internet breathed a sigh of relief. Netizens rejoiced as the web returned to its normal speed, while censors, government officials, and Internet companies finally allowed themselves to stop fretting about making any missteps during the highly sensitive week-long, once-in-a-decade political meeting -- the 18th Party Congress -- which decided China's new leadership structure. 

Paul Krugman: Life, Death and Deficits

Related: The Costs and Benefits of Raising the Retirement Age

Raising the eligibility age for Social Security and Medicare is *not* the answer:

Life, Death and Deficits, by Paul Krugman, Commentary, NY Times: America’s political landscape is infested with many zombie ideas... And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare... — and we shouldn’t let it eat our brains. ...

Now, life expectancy at age 65 has risen... But the rise has been very uneven..., any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security. ...

While the United States does have a long-run budget problem, Social Security is not a major factor... Medicare, on the other hand, is a big budget problem. But raising the eligibility age, which means forcing seniors to seek private insurance, is no way to deal with that problem. ...

What would happen if we raised the Medicare eligibility age? The federal government would save only a small amount of money, because younger seniors are relatively healthy... Meanwhile, however, those seniors would face sharply higher out-of-pocket costs. How could this trade-off be considered good policy?

The bottom line is that raising the age of eligibility for either Social Security benefits or Medicare would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction. Democrats ... who even consider either alternative need to ask themselves what on earth they think they’re doing.

But what, ask the deficit scolds, do people like me propose doing about rising spending? The answer is to do what every other advanced country does, and make a serious effort to rein in health care costs. Give Medicare the ability to bargain over drug prices. Let the Independent Payment Advisory Board, created as part of Obamacare to help Medicare control costs, do its job instead of crying “death panels.” (And isn’t it odd that the same people who demagogue attempts to help Medicare save money are eager to throw millions of people out of the program altogether?) ...

What we know for sure is that there is no good case for denying older Americans access to the programs they count on. This should be a red line in any budget negotiations, and we can only hope that Mr. Obama doesn’t betray his supporters by crossing it.

Only 43% of Countries Disclose Public Officials’ Financial Assets, Says World Bank

Public officials’ asset disclosure insufficient

Financial disclosure is a powerful anti-corruption tool

WASHINGTON, November 8, 2012– Financial disclosure laws requiring public officials to file a statement of their assets, liabilities and interests can make corruption easier to detect. However, a new World Bank database finds that although 78 percent of countries covered by the database have financial disclosure systems, only 36 percent systematically check public servants’ disclosures for irregularities and inconsistencies.

To support countries in their fight against corruption, the World Bank is launching the Financial Disclosure Law Library to help policymakers and practitioners establish strong financial disclosure systems. The Library compiles over 1,000 laws and regulations on financial disclosure and restrictions on public officials’ activities from 176 countries.

Financial disclosure by public officials provides law enforcement with information and evidence for the prevention, investigation and prosecution of corruption, illicit enrichment and tax crimes. It also gives citizens the information they need to hold public officials accountable for their actions.

The Library shows that not all public officials are obligated to declare their assets and interests. High-level officials are generally included; 93 percent of covered countries require disclosure for cabinet members, 91 percent for Members of Parliament and 62 percent for high-ranking prosecutors. However, only 43 percent of countries provide the public with open access to public officials’ financial disclosures.

“Financial disclosure systems make it harder for corrupt officials to hide their criminal activities or ill-gotten wealth,” said Jean Pesme, Manager of Financial Market Integrity at the World Bank. “Civil society and corruption fighters should back the G20’s call for asset disclosure systems, because they can be an effective tool for bringing thieving public servants to justice.”

A World Bank analysis published earlier this year, Using Asset Disclosure for Identifying Politically Exposed Persons, noted that as much as 93 percent of countries in Latin America and the Caribbean have disclosure systems, while the percentage drops to 53 percent in Middle East and Northern African countries. While significant variations in implementation and access exist across the world’s financial disclosure systems, stakeholders agree that such systems are essential.

“Financial Disclosure is key in the fight against corruption,” says Navil Campos Paniagua, Manager, Complaints and Investigations Area, General Comptroller of the Republic of Costa Rica. “Until now, countries have been unaware of each other’s efforts when it comes to asset disclosure laws. The World Bank law library will certainly help practitioners and policymakers from different countries learn from one another and boost financial disclosure in their own countries.”

The World Bank’s work in Financial Market Integrity supports transparent and inclusive financial systems, and the fight against illicit financial flows.

The library can be accessed at http://publicofficialsfinancialdisclosure.worldbank.org/fdl/

Reference

When do Participatory Development Projects Work?

Building the water reservoir on the mountain 2006

Washington, November 14, 2012 – Involving local communities in decisions that affect their lives is central to making development more effective, and it has the potential to transform the role that poor people play in development by giving them voice and agency. But inducing civic engagement in development is not easy, says a new World Bank report, which covers community development and decentralization projects supported by the Bank and other donors.

Localizing Development: Does Participation Work?, a new Policy Research Report analyzing participatory development efforts, shows that such projects often fail to be sensitive to complex contexts – including social, political, historical and geographical realities – and fall short in terms of monitoring and evaluation systems, which hampers learning. Citing numerous examples, the authors demonstrate that participatory projects are not a substitute for weak states, but instead require strong central support to be effective.

The report shares evidence-based lessons on the challenges donor agencies face in inducing participation, including the need for a responsive state and a strong awareness of local context, and it recommends several steps to ensure that financiers support projects effectively, such as flexible, long-term engagement and participatory monitoring.

“Genuine efforts at inducing civic engagement require a sustained long-term commitment and a clear understanding of the social and political forces at all levels of society,” said Ghazala Mansuri, a lead economist in the World Bank’s Poverty Reduction and Equity Group who co-authored the book with colleague, Vijayendra Rao, lead economist in the World Bank’s Development Research Group.

“Rarely is much thought given to the possibility that it is no easy task to effectively organize groups of people to act in a way that solves market and government failures,” said Rao, “In fact, such efforts face multiple challenges, such as lack of coordination, inequality, lack of transparency, corruption, free-riding, and low capacity. Participation works best as a sandwich with bottom-up participation supported by top-down supervision. ”

Given that the World Bank itself invested $85 billion over the past 10 years on local participatory projects, with other donors adding billions more, Mansuri and Rao had rich material to examine when participatory projects work and when they do not. They conclude that while community participation has had some success in improving outcomes in health and education, it has been less effective in reducing poverty, or in building the capacity for collective action. 

There are some common features among community-based programs that have done well in reaching the poor and improving services. One is strong engagement by the state, as in Brazil’s Programa Saude da Famılia, which provides free health services and is managed by municipal governments under the supervision of the Brazilian Ministry of Health. Assessments of this program reveal substantial health effects, especially for newborn babies and young children. In addition, the program is cost effective, at some $30 per capita. Another key to success is significant effort in building capacity at the local level, as was the case with Ghana’s Community Health and Family Planning Project. It is also vital to pay a great deal of attention to context and to commit strongly to transparent monitoring systems, as in Indonesia’s Kecamatan Development Program.

The report points to three main lessons that emerge from distilling the evidence and thinking about the broader challenges in inducing participation:

1)     Induced participatory interventions work best when they are supported by a responsive state. The state does not necessarily have to be democratic—though being democratic helps a great deal. But in the sphere in which the intervention is being conducted—at the level of the community or the neighborhood—the state has to be responsive to community demands.

2)     Context, both local and national, is extremely important. Outcomes from interventions are highly variable across communities; local inequality, history, geography, the nature of social interactions, networks, and political systems all have a strong influence. The variability of these contexts is sometimes so large, and their effect so unpredictable, that projects that function well usually do so because they have strong built-in systems of learning and great sensitivity and adaptability to variations in context.

3)     Effective civic engagement does not develop predictably. Instead, it is likely to proceed with fits and starts where long periods of seeming quietude are followed by intense, often turbulent change. Donor-driven participatory projects often assume a far less contentious trajectory. Conditioned by bureaucratic imperatives, they often declare that clear, measurable, and usually optimistic outcomes will be delivered within a specified timeframe. There is a danger that such projects set themselves up for failure that derives not from what they achieve on the ground, but from unrealistic expectations.

The World Bank and other donor agencies need to take several steps to ensure that it supports projects with these characteristics:

• Project structures need to change to allow for flexible, long-term engagement. Patience is a virtue.
• Project designs and impact evaluations need to be informed by political and social analyses, in addition to economic analysis.
• Monitoring and evaluation needs to be taken far more seriously. The use of new, more cost-effective information and communications technology (ICT)-based tools, could help enormously.
• Clear systems of facilitator feedback as well as participatory monitoring and redress systems need to be created.
• Most important, there needs to be room for honest feedback to facilitate learning, instead of a tendency to rush to judgment coupled with a fear of failure. The complexity of participatory development requires a high tolerance for failure and clear incentives for project managers to report evidence of it. Failure is sometimes the best way to learn about what works. Only in an environment in which failure is tolerated can innovation take place and evidence-based policy decisions be made.

This Policy Research Report (PRR) is the latest edition in a series managed by the World Bank’s research department. PRRs aim to contribute to the debate on appropriate public policies for developing economies. This year’s edition lays out a conceptual framework and empirical underpinning on participatory development.  The report is the result of an in-depth review of about 500 studies undertaken to date.

Reference

How Would We Implement A Carbon Tax? (Almost) Everything You Need To Know

By Climate Guest Blogger on Nov 14, 2012 at 5:00 pm

by Richard W. Caperton

If you had told me on Tuesday morning that I was about to spend my day at a standing room only event that had nothing to do with the election, I would’ve said, “But, I’m not planning to go to a David Petraeus news conference!”  Ah, but it turns out that there are other topics that bring out the masses.  I did, in fact, spend the day at a standing room only event that had nothing to do with the election.

The topic?  Carbon taxes, of course.

Yesterday, the American Enterprise Institute hosted a conference to talk about anything and everything related to the economics of carbon taxes.  Normally, a full-day conference with more than a dozen speakers on a tax issue in DC will be lucky to get more than a few dozen attendees, even with a free lunch.  Carbon taxes, though, are different.  The enthusiasm for this issue is such that there were over 200 attendees, many of whom stood for half the day.

What makes carbon taxes different? Simply put, people across the political spectrum now know that putting a price on carbon is an indispensable tool for dealing with our climate and budget problems, and that a carbon tax is the most politically viable path forward.  This dynamic has created an exciting amount of momentum that now needs to be turned into policy.

Not only is the political situation ripe for a carbon tax, but yesterday’s AEI conference demonstrated that the thought leadership is ripe as well.  That’s not to say that there’s agreement on the best way to design a carbon tax; the ultimate design will likely be about political decisions as much as policy ones.  But, the implications of different policy choices are largely known, which was the focus of the conference.

The benefits of a carbon tax would be tremendous.  According to the Brookings Institution’s William Gale, the amount of money a carbon tax could raise is roughly comparable to the size of the Bush tax cuts, indexing the alternative minimum tax for inflation, or the budget sequester that’s part of the upcoming fiscal cliff.  Instituting a carbon tax would make it much easier to deal with our country’s budget crisis, because it would give us another tool for solving the problem.  And, a carbon tax can get significant reductions in greenhouse gas pollution.  Allen Fawcett presented findings from the Energy Modeling Forum that show a multitude of technology development scenarios that get to 50 percent reductions in greenhouse gases with a carbon tax.

Broadly speaking, there are two questions about designing a carbon tax: how to collect the money, and what to do with the money?  Neither of these is simple, and virtually every option involves tradeoffs.

First, let’s talk about collecting the revenue.  Do you want to cover the entire economy, just the energy sector, or even a smaller subset of industries?  As Rob Williams of Resources for the Future pointed out, most of the greenhouse gas reductions with a modest carbon tax will come from the electric power sector, which would seem to indicate that you could only deal with a small part of the economy and get almost all of the benefits at much lower political cost.  At the other extreme, you could cover things like agricultural-related methane emissions, although the mechanics of this are much more complicated.

After deciding how much of the economy to cover, you also need to decide where to assess the tax, which Jack Calder of the International Monetary Fund discussed.  You can assess the tax very far upstream, where fossil fuels enter the economy (at the mine mouth or wellhead, for instance).  This is relatively simple and gets at every use of fuels, but the problem is that it puts a tax on fuels that ultimately don’t get burned and contribute to climate change.  Oil used as a feedstock for plastics production, for instance, doesn’t add to greenhouse gas pollution, nor does coal burned in a hypothetical power plant with carbon capture and storage technology.  All things being equal, Calder’s ultimate recommendation is to make a carbon tax as similar as possible to our existing tax system, which should minimize administrative challenges and unintended consequences.

What about complementary policies?  That is, what should happen with the state renewable energy standards, federal incentives, and EPA regulations after a carbon tax is put in place.  While the conventional wisdom among economists is that these other policies simply make a carbon tax more expensive, Karen Palmer from Resources for the Future argued that these policies often deal with externalities – including positive externalities – that a carbon tax doesn’t fix.  And, the lesson from the acid rain program is that EPA needs to have the authority to go above and beyond a carbon tax based on up-to-date information about the costs and benefits of further pollution reductions.

Second, after you collect the revenue, you need to do something with it.  The biggest issue is that a carbon tax is most likely to be regressive; that is, it has a disproportionate impact on poor people.  Modeling by Aparna Mathur at AEI finds that a $15 carbon tax is effectively a tax of 3.54 percent of the income of the poorest decile of the population, but just .63 percent for the wealthiest.  Terry Dinan, a senior advisor at the Congressional Budget Office, has studied seven different ways to deal with this problem, and found that while there is no perfect solution, doing some sort of income tax or payroll tax rebate has a very positive effect.

Of course, once you have a pot of money (which will still be large even after fixing the regressivity problem), you want to spend the money wisely.  RFF’s Williams proposed three uses: cutting pre-existing taxes, reducing the deficit, and valuable public spending.  In the short term, it’s worth noting that simply reducing the deficit is probably not as valuable as spending on infrastructure, including clean energy infrastructure.

This is just a small sample of the issues that will come up in designing a carbon tax, and many of these choices don’t have options that are immediately obvious as being the “best” way to design the system.  But it’s clear that we know the implications of different policy choices.  After yesterday’s conference, no one should ever say that we don’t know how to design a carbon tax.  The bigger issue is that politicians need to decide what they want a carbon tax to achieve and then plug in the right policy tools.

And this is where the slowdown begins.  Of the standing room only crowd at AEI, there was almost certainly no consensus on any of the important questions.  Is the primary goal of a carbon tax to reduce the deficit?  Or to offset corporate income tax reductions?  Or to raise money for clean energy investments?  Or to simply cut pollution, with all of the money going back to consumers?

This issue will come to a head in 2013, and Climate Progress and CAP will have recommendations for building a progressive carbon tax.  Be on the lookout for new work on this issue in the coming weeks.

Richard W. Caperton is Director of Clean Energy Investment at the Center for American Progress. 

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