Friday, September 28, 2018

Four Possible Pieces of Government Action: Are They Worthwhile Now?

While we all know that private companies create the vast bulk of jobs, public policy can influence how many there are.  Over the past year, people have proposed four changes which may, or may not, help us have more of them.  Would they be effective?

Ann Tergesen and Richard Ruben, in the October 21 MarketWatch, told us that “There’s talk of capping 401(k) contributions at $2,400 per year.”  A bad idea.  Saving is good, and we should be using tax policy to promote positive things, not discourage them.  As well, $2,400 is a tiny amount.  An annual limit of, say, $10,000, could be reasonable if members of the House Ways and Means Committee truly wanted to “generate revenue to support broad reductions in individual tax rates,” but not less.

There were times when the headline “US employers desperately need workers.  Let’s help millions of adults stuck on food stamps move into jobs” (Sam Adolphsen,, January 3rd) would have been appropriate, but now is not, on multiple counts.  First, we are over 16 million jobs short, and if companies were more willing to raise pay and provide training, they would have all the workers they need.  Second, given that, enough jobs aren’t out there for people wanting to be paid market rates to “move into.”  Third, not providing enough to eat for citizens of this agriculturally bountiful country is not the way to “help” them.  True, there are some who would just like to survive with minimum effort, but when surveys consistently show how many would prefer to fully support themselves, they are clearly a small minority.  This is 2018, not 1950.

The August 11th Economist discussed a better proposition, land-value taxes, in “On firmer ground.”  What the unbilled authors called “an enticing prospect to those harmed by high land values today” would be especially effective, as while “typically, taxing a good lowers supply and raises prices,” that could cut back land development but not its physical quantity.  A chart with the article showed remarkably little correlation between house replacement costs and their values, with average dwellings in Pittsburgh and Houston worth little more than their rebuilding amounts, but those in San Francisco and San Jose, while half again the replacement cost, worth, due to their land, three and four times that amount.  The idea of owning land itself is only a societal invention, the authors point out, not allowed in the high seas and not the same as having possession of things people have created or bought from those who did.  Land-value taxes are, indeed, worthy of consideration.

With income an increasingly unrepresentative source of government revenue, we need to consider others.  That is the thesis of “Stuck in the past,” also in the August 11th Economist.  This piece also mentioned “expensive housing, often the result of a shortage of land,” which “has yielded windfall gains to homeowners in big, global cities,” and called for, “to stop companies shifting profits,” governments to “switch their focus from firms to investors,” with corporate taxes only as “a backstop, to ensure that investors who do not pay taxes themselves, such as foreigners and universities, still make some contribution.”  We do need to look at an overall tax-system makeover, and implement others, such as on financial transactions, as existing revenue sources, such as income taxes, shrink.  The World War II of implementing that, though, would make partisan Supreme Court nomination battles look like skirmishes.  Likely?  No.  Impossible?  Not quite.  Necessary, within the next 20 years?  Yes. 

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