October 24, 2016

Why does The New Yorker's endorsement of Hillary Clinton praise something it recently published a piece rejecting?

John Althouse Cohen writes:
The New Yorker's endorsement of Hillary Clinton praises her for planning to "increase the tax rate on short-term capital gains for high earners, with lower rates for longer-term holdings." Why wasn't the New Yorker convinced by its own article against this plan?
Here's the editorial endorsing Hillary Clinton. This is all there is on the topic, with the proposal lumped together with a handful of things:
Clinton’s tax plans are also designed to promote broader-based affluence. She would increase the tax rate on short-term capital gains for high earners, with lower rates for longer-term holdings; close the “carried-interest” tax loophole that favors hedge-fund managers; and levy fees on banks with high debt levels....
Here's the James Surowiecki article — published by The New Yorker in August 2015 — "The Short-Termism Myth":
The political appeal of [Hillary Clinton's] plan is clear. It targets wealthy investors, is friendly to executives, and is aimed at getting companies to spend more money. Unfortunately, it almost certainly won’t work. The simplest reason for this is that the plan would affect only a small slice of the market. Len Burman, a tax expert at the Urban Institute, told me, “The plan’s unlikely to have a major impact on stock prices, since most of the money in the market is controlled by institutions that don’t pay capital-gains taxes, like endowments and pension funds.” Burman also made the point that pushing people to hold stocks they would rather sell is hardly conducive to productive investment. “Even if short-termism is the problem, locking people into unprofitable transactions for long periods of time doesn’t really seem like a great solution,” he said.

Aside from these practical problems, the plan rests on two common but ultimately questionable assumptions. The first is that corporate decision-makers care only about the short term. The second is that it’s the stock market that makes them think this way. These assumptions are widely shared and long-standing, in both business and academe...
I'm just putting this problem out there, not expressing an opinion. Who am I to disagree with "assumptions... widely shared and long-standing, in both business and academe"?

34 comments:

lgv said...

Who am I to disagree with "assumptions... widely shared and long-standing, in both business and academe"?

As noted, they are questionable. Change disagree to challenge. The science doesn't support these widely shared and long-standing assumptions. Just like the food pyramid, breakfast is the most important meal, salt causes high blood pressure, Head Start increases long-term outcomes.

Tommy Duncan said...

Hillary's proposal is simply what her campaign thinks sounds good to voters at this moment in time. She has no serious economic policies. Hillary is all about focus group policy making.

Jim Gust said...

The problem really can be traced back to early in the Clinton administration, when deductible corporate pay was capped at $1 million. The only way to compensate top corporate players above that level is with stock options and stock awards. Very quickly, stock became the biggest component in pay. The theory was to align the interests of management with shareholders. The outcome was a stampede to today's remarkable inequality.

David Begley said...

1. Hillary Clinton gets ZERO of her legislative proposals through Congress. Add this to her free college idea. All non starters.

2. The New Yorker endorsed Hillary? Dog bites man. Not news.

rehajm said...

Recently some fop from The New Yorker was making the rounds on the financial news networks berating Trump for not having a 'mastery of the economy'. In the distorted New Yorker View of the World From 9th Avenue central planners with a 'mastery of the economy' improve living standards by pulling all the right strings at the right time.

Brando said...

Don't think of it as policy, think of it as politics. A sop like this will (presumably) satisfy the Sanders-loving OWS crowd, who think any tax nuance that only the rich could take advantage of is some sort of evil piracy on the working man. Thing is, it won't satisfy them and they're gearing up for a big fight when Clinton takes office. Don't expect anything like that to happen while the GOP has either house of Congress.

Of course, if Pelosi becomes our next Speaker (an outside chance) the Dems will feel enough pressure that they may take action on taxes. That'd change the equation.

rehajm said...

...close the “carried-interest” tax loophole...

For people who earn a living with language The New Yorker certainly fails the 'mastery of language' test. A tax loophole is an unintended consequence of poorly written tax code that allows those intended to be subject to a tax to avoid it. The tax rate on carried interest is not a loophole but a rate deliberately established by law.

Hagar said...

We are overdue for another stockmarket meltdown. These riches will then quickly evaporate by themselves.

rhhardin said...

Treating capital gains as ordinary income and a flat income tax is the only thing that will make sense in all cases.

Once the income tax isn't flat, bad side effects come up all over and can't be fixed.

Flat means starting at zero income.

Brando said...

"For people who earn a living with language The New Yorker certainly fails the 'mastery of language' test. A tax loophole is an unintended consequence of poorly written tax code that allows those intended to be subject to a tax to avoid it. The tax rate on carried interest is not a loophole but a rate deliberately established by law."

To the populist Left, anything that lets a rich person benefit is a loophole.

rehajm said...

Larry Summers has had no problem besmirching economics by publicly endorsing Clinton's tax and economic proposals including higher marginal tax rates, price controls and wage controls even though every one of these proposals is criticized in Harvard's Ec10 textbook...

For widely shared and long standing policies shared by 673 economists, including 6 Nobel laureates, turn here...

tds said...

A tax loophole is an unintended consequence of poorly written tax code

mathematician Kurt Gödel proved at the beginning of the XXth century that it's impossible to have a fully consistent system based on logical or algorithmic rules. It is impossible then to have a tax system without 'loopholes', just like there always will be car crashes, when both drivers formally have right-of-way.

PS I hope my slight butchering of Kurt Gödel's theorem will not trigger anyone

Left Bank of the Charles said...

Since that piece was published more than a year ago, they obviously discounted it by the lower rate for long term capital gains.

MayBee said...

The problem with forever trying to "punish" the undesirable behavior with tax codes (or health care regulations) is you are inevitably going to hurt people they aren't trying to target.
So yeah, people who don't need a long term investment might be selling their stocks quickly. But you know who else might be doing that? People who need the income. People who are paying for their kid's college or people who let a job and need the income
So you tax them at a higher rate than people who could hold on to the investments longer?

Bob Ellison said...

The New Yorker's endorsement of Hillary Clinton praises her for planning to "increase the tax rate on short-term capital gains for high earners, with lower rates for longer-term holdings."

Umm...

Short-term capital gains for individuals are already taxed at regular income rates (39.6% if you earn a lot). Long-term capital gains are taxed at 20% for high earners.

Hillary's plan, which I could not divine from the NY article or her web site, is to LOWER the LT rate and RAISE the ST rate?

That is regressive and stupid in so many ways. Too many to post in a blog comment.

I suspect that neither Hillary nor the New Yorker author understands tax rates and policy enough to figure this stuff out.

rehajm said...

John is correct in pointing out the New Yorker's inconsistency here. It's generous to assume The New Yorker is open to presenting multiple viewpoints. More accurately, they presented the 'established' viewpoint in August 2015 before they know their future candidate would endorse an opposing policy.

Bruce Hayden said...

The problem with Crooked Hillary here is that we really don't know what she will do. She says one thing to Goldman Sachs, etc, and something quite different when trying to woo the Berniebots. In the end, I expect to see her stayed bought. The money is on Wall Street, and she isn't going to piss that away.

Michael K said...

"salt causes high blood pressure"

Salt is probably associated with high blood pressure but not in a simple way,

It is genetic and there are two populations.

It has been known that salt-sensitivity of blood pressure is defined genetically as well as can be developed secondary to either decreased renal function or by influence of other environmental factors.

About 50 to 60% of people are salt sensitive

Blacks may be more sensitive because Africa is hot and salt loss in perspiration may have selected for have seletced for salt retention in evolution.

Brando said...

"The problem with Crooked Hillary here is that we really don't know what she will do. She says one thing to Goldman Sachs, etc, and something quite different when trying to woo the Berniebots. In the end, I expect to see her stayed bought. The money is on Wall Street, and she isn't going to piss that away."

I think the thing about Hillary is her one consistency is that she'll do whatever she thinks will benefit her politically. She has no ideological core. So to determine whether she'll go populist or centrist, read the tea leaves of popular opinion and congressional makeup. That will show what she'll do.

Sebastian said...

"pushing people to hold stocks they would rather sell is hardly conducive to productive investment" Right. But pushing people to do x when they would rather do y even though it is hardly conductive to productive z is the very essence of progressivism. Good to see the the endorsement reverting to type.

@tds: "PS I hope my slight butchering of Kurt Gödel's theorem will not trigger anyone" Careful. Better add a trigger warning about sarcasm aimed at trigger warnings. Which may require its own trigger warning. And so on.

William said...

The proposed merger between AT&T, Time-Warner, and the Clinton Presidency will bring economies of scale and thorough market penetration to government, propaganda, and the distribution of government-propaganda that were never before possible. I suppose there will be a few outliers who question Hillary's tax policies, but on next season's Veep and SNL, they will be made to look so silly that the public at large will laugh them out of town.

lgv said...

Michael K - I am aware of the current research. Salt as cause and high blood pressure as effect just isn't as simple as portrayed, but we still have government actually trying to regulate salt content in food as if it were a universal truth.



rhardin:

Treating capital gains as ordinary income and a flat income tax is the only thing that will make sense in all cases.

It doesn't have to be flat. Terms like ordinary income are created by government. The government uses the tax code to get people to do what they deem preferable. Some call them tax incentives. If all income were ordinary, you wouldn't have "loopholes". Not only would you eliminate loopholes, wealth would be better allocated to create more wealth, rather than directed to inefficient government programs. Instead, the tax code is used to get people and businesses to do things they ordinarily they wouldn't do. While a flat rate may have merit, a progressive structure can get rid of a lot of stupid deductions and credits.

Bruce Hayden said...

Actually, we really do know what Crooked Hillary will do - she will do what she has been paid to do. She will, for the most part, stay bought. The problem is that she says one thing publicly, and something quite different privately, to her paymasters. Not really that different, except maybe in degree, with a lot of other long term politicians. The difference, maybe, this time, is that the mask has slipped a bit. The problem is that she and her family were just a little too blatant in the monies that they took in, esp. through their foundations, and maybe just a little too greedy for their own good. They went beyond the mere campaign contributions (though she has reputably broken the billion dollar mark there), and collected over a billion dollars in vehicles that allow them to live the good life at taxpayer expense, and a hundred plus million in their own pockets. Much of it while "serving" as Secretary of State.

John Althouse Cohen said...

It's generous to assume The New Yorker is open to presenting multiple viewpoints. More accurately, they presented the 'established' viewpoint in August 2015 before they know their future candidate would endorse an opposing policy.

Do you mean they ran the article without knowing they'd endorse Hillary Clinton, or they ran it without realizing that she had proposed the policy? The former is technically true, but it wasn't a huge surprise for the liberal New Yorker to endorse Clinton, who was the clear frontrunner throughout the Democratic primaries. The latter is not true: the whole article is framed as a critique of Clinton's campaign proposal.

AprilApple said...

she is going to tax rape us.

Give her Buffet Goldman cronies a loophole. then destroy the 1st amendment.

Michael K said...

"Salt as cause and high blood pressure as effect just isn't as simple as portrayed, but we still have government actually trying to regulate salt content in food as if it were a universal truth."

Yes, they did the same thing with carbs in the diet and Atkins is still hated on the left , probably because he was a meat eater.

The racial aspect of salt effect is, of course, unmentionable.

Darrell said...

Extrapolating on Iowahawk's observation, every article and cartoon in the New Yorker would be better if it started "I'm thinking of committing suicide."

Darrell said...

They were talking lovingly about the "peaceful disappearance of the White race" at a Hillary gathering recently. I can't wait.

rhhardin said...

While a flat rate may have merit, a progressive structure can get rid of a lot of stupid deductions and credits.

Progression introduces timing advantages into economic decisions, which screws up economic efficiency.

rehajm said...

The former is technically true, but it wasn't a huge surprise for the liberal New Yorker to endorse Clinton..

Really? Bernie was very popular with New Yorkers at the time. How soon we forget...

rehajm said...

Do you mean they ran the article without knowing they'd endorse Hillary Clinton, or they ran it without realizing that she had proposed the policy?

They contradicted their earlier story to promote their candidate was my point.

n.n said...

Extra. Extra. Newspaper endorsement isn't worth the paper it's printed on. Read all about it.

BJM said...

It's generous to assume The New Yorker is open to presenting multiple viewpoints.

Generous? It's laughable, the New Yorker is simply reaffirming their membership in the elite media/ruling class. Did anyone expect them to do otherwise?

JamesB.BKK said...

There is not much need for arguments on causes and effects of parts or aspects of the current Federal Income Tax system. It is the source of much mischief in the world and internally has destroyed the much needed separation of powers and eviscerated the sovereignty of the States. The Federal Income Tax should be abolished. Let the States tax their inhabitants - and discover whether they stay or go - and decide how much to contribute to the Federal Government beyond what it can capture via excise taxes and tariffs. Control of the Senate should also be returned to the States.