ajzinsbwbs (u/ajzinsbwbs)

ajzinsbwbs commented on Tax hike on California millionaires would create 54% tax rate cnbc.com/2020/07/30/tax-h... · Posted by u/onetimemanytime

bhupy · 5 years ago

> You also need to include inflation. Tax receipts actually fell on an inflation-adjusted basis in 2018. Absent any changes in government policy, you’d expect expenses to roughly follow inflation plus population growth, and revenues to roughly follow GDP.

Great point, but it increased again in 2019. In fact, inflation adjusted tax revenue has been increasing (with minor transient dips) throughout history[1]. You'll definitely find one-off variations, but the trend-line for inflation-adjusted Federal tax revenue is up-and-to-the-right.

> No, that doesn’t mean when cutting taxes we can ignore the resulting increase in the budget deficit...As I pointed out, the chart is not really flat. The line actually goes up and down.

It's complicated because the ups and downs don't perfectly correlate with tax policy. You can find moments where a decrease in tax revenue as a % of GDP coincide with a tax cut, but you can also find moments where a decrease in tax revenue as a % of GDP coincides with a tax hike and vice versa.

It's important because if you zoom out and look at Federal tax brackets over time since WW2, the US's inflation adjusted tax brackets went from 22%-92% in the 1950's[2] to 10%-37% in 2020[3], but Federal tax receipts as a % of GDP is flat / moderately increased over that period.

[1] https://www.taxpolicycenter.org/statistics/federal-receipt-a...

[2] https://taxfoundation.org/us-federal-individual-income-tax-r...

[3] https://taxfoundation.org/2020-tax-brackets/

ajzinsbwbs · 5 years ago

I think the long-term historical drop in the ratio of [top marginal rate on individual income] to [tax as a % of GDP] is mainly the result of these factors:

1) increased tax compliance

2) more tax deductions

Overall, you’d need to use a more comprehensive “area under the curve” analysis of every tax to predict the impact of tax policy on total tax revenue, and it would be surprising if it could be predicted based only on the top marginal rate.

A major source of short-term noise is the business cycle, where capital gains and corporate profits fluctuate much faster than GDP, and some automatic stabilizers decrease revenue.

ajzinsbwbs commented on Tax hike on California millionaires would create 54% tax rate cnbc.com/2020/07/30/tax-h... · Posted by u/onetimemanytime

bhupy · 5 years ago

Right, everyone knows about the Laffer curve. It's hilariously simplistic.

> I think lawmakers supporting tax cuts try to claim that tax revenues are not sensitive to tax rates because it would be convenient if true when trying to pass a tax cut.

The point of the chart going back to WW2 is to show that it's a little more complicated and we can't draw conclusions either way.

And circling back to the original point of contention, spending is not function of GDP, or in theory it shouldn't be. Spending is a function of population. So if federal tax revenue increases even after a tax cut, but deficit increases, then the culprit isn't necessarily the tax cut, the culprit is the spending increase.

ajzinsbwbs · 5 years ago

You also need to include inflation. Tax receipts actually fell on an inflation-adjusted basis in 2018. Absent any changes in government policy, you’d expect expenses to roughly follow inflation plus population growth, and revenues to roughly follow GDP.

> The point of the chart going back to WW2 is to show that it's a little more complicated and we can't draw conclusions either way.

I don’t think this is correct. Yes, the economy is complicated. No, that doesn’t mean when cutting taxes we can ignore the resulting increase in the budget deficit. A claim that cutting taxes won’t increase the deficit constrains you to make other claims according to the GDP = C + G + I + X equation, and we should demand that lawmakers be specific about those claims.

As I pointed out, the chart is not really flat. The line actually goes up and down.

ajzinsbwbs commented on Tax hike on California millionaires would create 54% tax rate cnbc.com/2020/07/30/tax-h... · Posted by u/onetimemanytime

bhupy · 5 years ago

Oh yeah it's definitely debatable if tax revenue would have grown faster in a counterfactual without the cuts, but that debate is orthogonal to the point you were making about "blowing up the federal budget", which is strictly a function of receipts and outlays. If the receipts increased, then the budgets woes are clearly a result of increased outlays.

Federal tax receipts as a % of GDP has been largely flat since WW2:

https://fred.stlouisfed.org/series/FYFRGDA188S

ajzinsbwbs · 5 years ago

Your link shows the ratio decreasing from 16.97% to 16.16% in 2018 when the bill went into effect. That’s a 5% decrease, which agrees with my above math.

Overall your chart shows the ratio has a range of 19.75% to 14.42% in the past 20 years, tracking changes to the tax code and business cycle, exactly in the way you’d expect. That’s a 36% difference between the min and max ie. not flat.

I think lawmakers supporting tax cuts try to claim that tax revenues are not sensitive to tax rates because it would be convenient if true when trying to pass a tax cut. The facts don’t bear it out, however.

I think the roots of this argument are in the theory of the Laffer Curve: https://en.m.wikipedia.org/wiki/Laffer_curve The Laffer Curve was used to argue for tax cuts when the top marginal rate was 70%. People are still trying to make this argument, but I think they missed the part where it’s supposed to be a curve, so the result of cutting taxes from 70% is not the same as cutting them from 35%.

ajzinsbwbs commented on Tax hike on California millionaires would create 54% tax rate cnbc.com/2020/07/30/tax-h... · Posted by u/onetimemanytime

bhupy · 5 years ago

> This is why tax cuts under Bush and Trump blew up the federal budget - tax rates were already pretty low, so quite deep cuts to revenue were required to deliver any notable benefit to high-rate taxpayers

I just want to point out that after the Trump tax cuts went into effect, revenue increased[1].

[1] https://www.thebalance.com/current-u-s-federal-government-ta...

ajzinsbwbs · 5 years ago

GDP was growing before and after the Trump tax cut, so growth in tax revenue year over year was expected. The Trump tax cuts went into effect in 2018, and according to your link tax revenues increased from 3.32 to 3.33 trillion that year, which is a 0.3% increase. This was during a year when GDP grew by 5.2%. In other words, revenues fell behind GDP by 4.9%.

Note that I used nominal GDP growth because the linked article used nominal tax revenue. To adjust for inflation we subtract the inflation rate from both sides and we’d get the same 4.9% fallback in tax growth relative to GDP growth.

ajzinsbwbs commented on Tax hike on California millionaires would create 54% tax rate cnbc.com/2020/07/30/tax-h... · Posted by u/onetimemanytime

coldpie · 5 years ago

> I think a max 3.5% decrease in income

It's not a 3.5% decrease in income. It's a 3.5% decrease in income over $5,000,000. The 3.5% rate does not apply to the first five million dollars, only the money after the first five million.

ajzinsbwbs · 5 years ago

To be more correct, it’s a 7% decrease in income over $5,000,000 (if the total tax rate on that income was 50% before and went to 53.5%, the amount remaining dropped by 7%).

I think this point is under-appreciated. As the top federal tax rate has dropped over the decades, each additional percentage point drop has given less proportional value to top-rate-payers, while costing proportionally more of remaining federal revenue. In that sense, the lower the tax rate already is, the more expensive a tax cut is to the government. The higher the tax rate already is, the more expensive a tax increase is to taxpayers.

This is why tax cuts under Bush and Trump blew up the federal budget - tax rates were already pretty low, so quite deep cuts to revenue were required to deliver any notable benefit to high-rate taxpayers. It’s hard to make rich people much richer by cutting taxes when they are already keeping most of their income. In the case of the Trump tax cut, rates were already so low it required raising taxes on some to cut for others.

On the other hand, you can go back and find times when after-tax income of top rate payers doubled because the top rate dropped from eg. 91% to 77%, which delivered a lot of relative value to those taxpayers while fitting more easily into the federal budget (although as always, it’s probably more complicated as tax bills make changes to deductions when they change rates).

ajzinsbwbs commented on Facebook reports second quarter results reuters.com/article/us-fa... · Posted by u/amin

Shish2k · 5 years ago

So is the lesson here “the media will destroy any social network that doesn’t feed the clickbait-outrage machine”? :(

ajzinsbwbs · 5 years ago

I’m not sure. If Facebook had been more surgical to send less traffic to clickbait listicles, but more to Prestigious Investigative Journalists, would the outcome have been the same? Did the unemployed listicle authors find their passion and become serious journalists working the tech beat?

ajzinsbwbs commented on Apple reports Q3 results apple.com/newsroom/2020/0... · Posted by u/danceparty

ajzinsbwbs · 5 years ago

Wow, iPad revenue up 31% YoY after being down ~10% in the last few quarters. Similar numbers to a Q1 (holiday season). I guess it makes sense that the tablet form factor is popular when so many people are indoors.

Also, services revenue grew YoY but it’s the first time it didn’t grow QoQ in a long time, so it seems to have stagnated. Services include a lot of recurring revenue so they should be consistently growing QoQ.

Wearables growth also slowed, this may be the other side of the coin when people are indoors and don’t want to buy a watch for fitness tracking.

ajzinsbwbs commented on Facebook reports second quarter results reuters.com/article/us-fa... · Posted by u/amin

victorvation · 5 years ago

The original goal of reducing news prevalence was to show less outrage/clickbait and show more friends and family content. Of course, hindsight shows that the move was of limited efficacy, but it's disingenuous to suggest that it was done in order to 'squeeze journalists'.

ajzinsbwbs · 5 years ago

I don’t think harming journalists was the motive, but it was the outcome, and in hindsight it seems predictable. At least it should serve as a lesson to anyone who faces a similar decision in the future.

ajzinsbwbs commented on Facebook reports second quarter results reuters.com/article/us-fa... · Posted by u/amin

dcolkitt · 5 years ago

Personal opinions aside, it's amazing how little credit Zuckerberg gets as an executive. At least compared to Bezos, Gates, Jobs, Musk, even Larry&Sergei.

I think it's pretty hard to identify even a single major strategic decision that Zuckerberg didn't get right given enough hindsight.

ajzinsbwbs · 5 years ago

Modifying the news feed algorithm to send less traffic to traditional news sites contributed to a lot of layoffs and general turmoil in the industry. This resulted in major animosity toward Facebook among journalists, which has encouraged them to highlight the negative effects of Facebook. These narratives encourage regulatory action against Facebook, which is now one of the main risks facing the company. I’d go so far as to say this little revenue-optimizing move may be a major cause of the media’s turn from fawning over big tech to trying to take it down. Similar story with the fights over payment for Google News previews in Europe. Squeezing journalists financially is a great example of a penny-wise, pound-foolish move.