The CBO just released its report on Historical Effective Federal Tax Rates for years up to 2005 (latest available data). It shows several interesting things:
- The top quintile of Americans is getting richer much faster than the bottom (Paul Krugman). In terms of calculus, the first derivative of income growth increases with income. You must go to sheet 2C to see this.
- The top quintile is paying the majority of the income tax (Greg Mankiw, Wall Street Journal).
- The regressivity of Social Insurance payments has increased since 1979. Bottom quintile taxpayers have seen a 53% increase; top quintile taxpayers have only had an 11% increase (my analysis).
So in other words, the narratives of both John Edwards – who says workers are paying most of the taxes – and Mitt Romney – who says this is the greatest economy ever – are wrong.
Wall Street Journal Editorial page nemesis Bill Lerach may be headed to the slammer for his misdeeds – but that doesn’t mean we don’t still need aggressive class action lawsuits to rein in misbehaving corporations. Disagree? Check out the cover story of the Nov 12 issue of Business Week – it’s about credit card companies who are trying to collect debts that have already been canceled by bankruptcy courts. The article is called Prisoners of Debt (here’s the podcast on the story). Egregious doesn’t begin to describe the behavior of these people.
Of course, a separate but equal helping of scorn should be doled out to our esteemed Congress who could end this travesty in a heartbeat, if only they weren’t so bought and paid for by Mastercard and Visa. But who knows – perhaps as restitution, Fred Phelps will be required to demonstrate in Delaware carrying signs saying “God hates usury.” It could happen!
In healthcare spending.
The big brains over at McKinsey Global Institute have come up with an analysis of our healthcare spending (free registration required). Even if you’re not a US resident, it’s worth spending some time reading it just for the mental stimulation that thinking about large, difficult problems provides. Unlike the presidential candidates of both parties, they feel that there’s no silver bullet – and there’s not even a whole lot of low-hanging fruit.
Some of the key points:
- They developed a metric called Estimated (healthcare) Spending According to Weath (ESAW), and found that the United States was 30% above where it should be. So the argument that we spend more because we’re richer doesn’t hold water.
- The US system doesn’t deliver objectively better quality and access despite the higher cost.
- Disease mix and burden does not explain the higher cost.
- Excess administrative expenses are the chief component of higher cost; the comprise a quarter of the excess spend.
- Drug costs are 70% higher in the United States than in peer nations.
- Outpatient centers are taking away high margin procedures from hospitals, and leading an increase in testing, since many of these facilities are physician owned.
- Only 4% of excess spend is attributable to malpractice insurance costs.
Thinking about healthcare spending, especially as a trend over time, is fraught with false comparisons because the basket changes over time. We can have a meaningful conversation about the price change from 1967 to 2007 of, say, the food budget of a family of four. But it’s incredibly difficult to talk about the price changes from 1967 to 2007 in health care costs for that same family because many things that are common now simply were not available at any price in 1967.
The McKinsey synthesis is only 17 pages and is incredibly readable. In fact, even Paul Krugman liked it.
I report, you decide.
Krugman: the money’s in the vault.
Mankiw: no it ain’t!
Whether you agree with Paul or Greg, one thing’s for sure: although money is a scarce resource in Washington, blame and mendacity are not. I just wish we had put the Social Security trust fund into something sound like tech stocks or baseball cards.
Think business is tough for you? The day Stanley Fischer started his job as Israel’s Central Banker, Israel was suffering hyperinflation of 400% per year. He got it down to 1%. Here’s his story.
China has announced plans to create a virtual world for e-commerce. This could be trouble for e-Tailers selling Chinese goods:
… every “Made in China” label eventually could include a Web site where customers could order more — and Chinese factories would produce custom-made goods and send them directly to consumers’ homes, mused Chi Tau Robert Lai, chief scientist of the virtual world.
I saw this article on Valleywag that quoted a New York Times analysis of the effect of small fees on e-commerce transaction size and volume. It seems that reducing small fees can greatly increase revenue. Money quote:
Overstock.com has found other, somewhat puzzling, behavior among its customers. The company has for years offered $2.95 shipping fees on all sales. But according to Patrick Byrne, Overstock’s chief executive, the site will occasionally drop the fee to $1, “and suddenly people start ordering $400 bookcases and beds,” he said. “The average order size goes up unbelievably.”
Seth Godin argues that anything other than free shipping will deter customers, particularly repeat customers.
… Amazon has taught millions that free shipping is the way the world should work. As a result, anything more than free just feels wrong.
This article from FastCompany.com about firms charging customers for bags is also instructive:
The Swedish retail giant encourages customers to use fewer bags by charging shoppers 5 cents for each disposable bag they take. … In the United Kingdom, the policy, which started in June 2006, cut bag use by 95%.
Are people so loss-averse that a nickel will factor into their decision making process? Apparently so.