The non-bogus conservative argument against Obamanomics, part II

Mark Zandi, the co-founder and chief economist of Moody’s Economy.com, stopped by on Thursday afternoon. He was here to promote his new book, Financial Shock: A 360° Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis, and Barbara and I will get to that later. But he also moonlights as a John McCain adviser, and had something interesting to say about how he thinks government ought to tackle income inequality:

Is it better to raise taxes on high-income households or cut their benefits? It’s probably more efficacious to cut their benefits.

The benefit-cutting example he gave was health care, where if you put a limit on the tax deduction for employer-provided health insurance (as McCain wants to do), you wouldn’t be subsidizing high-income people with super-high-end health plans. There you have it: That class warrior John McCain wants to soak the rich. At least a little bit.

Doing away with, or capping, the home mortgage interest tax deduction would have a similar impact. Although I don’t seem to remember seeing that in either candidate’s platform.

Apple CEO Cook Gives Up $75M in Stock Dividends

NEW YORK — Apple CEO Tim Cook is giving up $75 million in dividends on restricted stock that the company is awarding to all of its employees.

In a filing with the Securities and Exchange Commission on Thursday, Apple Inc. said that Cook requested that his restricted stock units not receive dividends. The dividends that Apple workers are getting amount to $2.65 per quarter for each restricted stock unit held. The shares are not normally eligible to receive dividends, so Apple’s decision is a perk for its employees.

tegwar

The difference is a higher tax rate continues to work as income goes up whereas a simple lopping off of benefits (and curtailing deductability options) has a limited effect. We already do elements of this – limiting child tax deductions and other exemptions as income crosses certain high thresholds. But where is the marginal effect of that once the threshold is crossed? If there’s none, how does that address the incentives contributing to inequality growth?
Justin Fox

I think the idea is that you don’t want to rein in the incentives contributing to inequality growth, because they’re also contributing to economic growth. But you want to at least do what you can to make sure government policy isn’t exacerbating the inequality growth.
Corey

I’m having a little trouble with that argument, Justin.

In the US, the economy is driving by consumer spending. If you were plot spending by income, you would tend to find that the percentage of income put back into the economy falls as income rises (i.e., the poorer you are the more likely you are to spend money on goods and services). That would mean that taking an extra million from that billionaire won’t affect the economy all the much because that million tends to not go into goods and services anyway.

Moreover, it seems like market forces stop working on income after a certain point. Even CEOs who fail at leadership receive handsome paycheck. Capital gains also receive a lower tax rate than income and much of the wealthy obtain income via investments rather than actual work.
True Conservative

Those are okay ideas, Justin, but c’mon: you’re picking up dimes in front of a steamroller.