Trump’s Huge Tax Cut for the Rich — of Course

Donald TrumpWell, Donald Trump has a new tax plan out that he claims “is going to cost me a fortune.” And apparently, a lot of news outlets are buying that, because hey, it’s easier to just listen to him than it is look at the tax plan. But even looking at the bullet points shows what a sham it is. He’s lowering everyone’s tax rate. Well, that won’t work. And then he says individuals making less than $25,000 per year will pay no taxes — but most of them already don’t. But the crowning achievement in the plan is that it eliminates the estate tax.

Think about that for a moment. No one even argues that the estate estate tax limits investment. So why is it even part of this plan? And under current law, there is no estate tax when money is transferred between spouses. And there is no estate tax on amounts given to individuals up to $5 million. So this change is not meant to help the rich; it is meant to help the super rich; it is meant to help people like him. His line that it “is going to cost me a fortune” is so much nonsense, and it is outrageous that we have such an incompetent press that it reports this stuff seriously.

Jeb BushLuckily, there are people who actually look at the policy. CNN did a pretty good job of summing up what some of those people had to say, Donald Trump Unveils Plan to Slash Taxes for the Poor — and the Wealthy. For example, according to the Tax Policy Center, this year, 45% of Americans will own no Federal income taxes. All Trump’s plan does is push that number up to about 50%. Alan Cole of the Tax Foundation said, “Some of what Mr Trump has done in his press conference is just sell us on one of the better features of what our income tax already does.”

But the biggest news is that the top tax rate would go down from just shy of 40% to 25%. As Donald Trump might say: that’s huge. What’s more, he wants to get rid of the alternative minimum tax. And he wants to cut the capital gains tax rate. That’s always presented as a way to spur investment, but it’s done to decrease the taxes on the very richest people. There are better ways to encourage actual investment, but people like Trump aren’t interested in that.

Dylan Matthews put together, Donald Trump’s Massive Tax Cut for the Top 1 Percent, in One Chart. You may remember recently I wrote, The Narrative of Jeb Bush’s Tax Cut Plan. It was one of a couple of articles I wrote about how Bush’s tax plan is a huge tax cut for the rich. Well, as you will see, Trump’s “populist” tax cut, is far worse:

Trump and Bush Tax Cuts

Yes, Trump’s tax cut does provide more to benefit to those at the lowest levels of the economy — but not much more. And it totally explodes at the top — exactly where tax cuts are unnecessary. The people are the top have been doing great since 2008. It’s not the upper class — much the less the top 1% — that needs help. Here’s how the numbers break down. Those in the lower class (lowest quintile), would get less than 2% of their yearly income in tax breaks. The middle class would get 5%. And the top 1% would get a bit more than 10%. Progressive tax cuts!

One of the better moments at the last debate was when Trump told Carson that we have always had progressive income taxes and that it isn’t socialism. But when it comes down to it, Trump’s tax plan is regressive — making the tax system less progressive. Almost 70% of the tax cuts go to the upper class (top quintile). Republicans just can’t help it. They can’t seem to think any other way about these kinds of things. But that doesn’t mean we have to believe their rhetoric.

Dean Baker on “This Hedge Fund Guy”

Dean BakerThis is an old drug. It’s a generic drug — there’s no patent on it. Ordinarily, we’re looking at high priced drugs because you have a drug company like Gilead Sciences owning a patent on Sovaldi — the hepatitis C drug. They did develop that — or played a role in it (that’s an issue) — but they played a role in developing it — they brought it to market. They’re ostensibly recovering research costs. There’s at least some truth to that. In this case, what they discovered — this hedge fund guy discovered — was that you have an old generic drug that is not widely used, but it is very important for the people who need it. It’s a life and death proposition — no easy substitute. [The company that makes Daraprim] is the sole producer. They have a de facto monopoly.

Now, someone else could get into the market. But it wouldn’t be worth it to them to take the time to get FDA approval because it’s a very small market. So he found this little niche, and he’s able to jump in there and charge outlandish prices because there is no one else there. That’s actually happened with several other generic drugs over the last three, four, five years. And this is just a failure of antitrust regulation. That’s really what that’s about.

The more typical story has to do with how we finance research more generally. And I meantion in the case of Sovaldi — the hepatitis C drug — from Gilead Sciences. There’s charging $84,000 a year for a treatment. The generic price for that would be less than a thousand. Now that speaks to how we finance research and I think that’s very, very problematic. But it’s at least a very different question than what this hedge fund guy did. Which is really just basically price gouging — pure and simple.

—Dean Baker
Interviewed on CounterSpin

Stop Talking About Equality of Opportunity

Dylan MatthewsOver at Vox last week, Dylan Matthews wrote a great article, The Case Against Equality of Opportunity. It’s somewhat long, but I recommend reading it. He showed that “equality of opportunity” is just not possible. This should be understood by everyone at this point. We simply don’t have the kind of society that would say to rich people, “You can’t spend your money on your kids!” And that is what it would take. In fact, we don’t even have the kind of society that provides equal funding for all children in public school. Even that kind of “equality of opportunity” is a bridge too far.

But the meat of Matthews’ article is that we shouldn’t want equality of opportunity. His quote of Thomas Nagel sums up the point, “When racial and sexual injustice have been reduced, we shall still be left with the great injustice of the smart and the dumb, who are so differently rewarded for comparable effort.” Take it to extremes: do we provide the same “opportunity” to get ahead to a child born without arms and legs as we do to other children? It’s a ridiculous notion when put in such stark terms, but that’s what we are saying. It just isn’t as obvious because someone who is intellectually slow would probably struggle through life. But that’s hardly fair.

The problem is both genetic and environmental. People who have a natural gift for trading stocks are more likely to have children with a similar gift. And, as Matthews pointed out, “We know, for example, that lead paint is more prevalent in poor neighborhoods. We also know that lead poisoning hurts children’s IQs, their ability to pay attention, and their school achievement, and that its effects on cognition last through adulthood.” Offering such children “equality of opportunity” is obviously just a sick joke.

“The desire isn’t egalitarian, but humanitarian.” —Dylan Matthews

But a sick joke is exactly what many conservatives would like to offer. A couple of years ago, reformish Republican Avik Roy wrote an article where he laid out what Republicans mean by “equality of opportunity.” And it was truly vile. According to him, equality of opportunity means only the lack of explicit laws. So as long as there were no laws stopping African Americans from having certain jobs, there was equality of opportunity. Note what’s happened here. First, Republicans said they believed in equality. Then it was equality of opportunity. Then even that “reformer” Avik Roy defines out of existence.

When we liberals talk about equality, we aren’t requesting that everyone have the same thing — all that Harrison Bergeron nonsense. The funny thing is that not even the communist countries pretended to have that. All we are really talking about is the safety net. The truth is that we are far too wealthy a country not to provide a basic level of care to our citizens. I would go far beyond that. Since I’m no fan of the idea of “free will,” I believe in great limits to how far one can rise economically. But we are at a point where we still have to argue about whether poor children should be given school lunches.

Matthews’ main point is directed at liberals. He pointed out that we want people’s lives to be better, “The desire isn’t egalitarian, but humanitarian.” And that means we care about outcomes. To me, the politics of this are pretty simple. And it goes back to what I’ve long been saying about how the New Democrats destroyed America. The Republicans and the Democrats talk about “equality of opportunity.” But it is meaningless. It is just a way of avoiding doing those things that would improve the lives of the ever increasing share of Americans who are struggling. The fact that the numbers are increasing should be all that we care about.

Fixing Our Broken Pharmaceutical System

Alex TabarrokAlex Tabarrok at Marginal Revolution wrote something interesting, Generic Drug Regulation and Pharmaceutical Price-Jacking. It’s about the recent price rise of Daraprim from $13.60 to $750. He noted that the drug is not under patent, so this, at least, is not an issue of our broken intellectual property system. It is just that the the company that makes it is the only company that makes it, and Martin Shkreli is using that fact to price gouge. It is an example of our broken pharmaceutical system generally.

Tabarrok is a libertarian, and he has a bit of an ax to grind — although not like his partner, Tyler Cowen. Regardless, he did note two things that are important. One is that FDA approval for getting a license to produce a generic drug is costly. The other is that we aren’t able to just import drugs from other countries. In an incredible comparison, this drug is available in India for 5¢ per pill. This is the drug that Shkreli has gone around telling people the company was losing money charging $13.60 — and which he now sells for $750.

The main point is that we should allow reciprocity in drug purchases, “All that we would be doing is allowing import of any generic approved as such in Europe to be sold in the United States.” I agree with that. In fact, I would go further, Tabarrok is a bit of a protectionist when it comes to this issue — claiming that allowing patented medicines to be imported might have a “effect on innovation.” I’m getting kind of tired of the “innovation” line when it comes to the pharmaceutical companies. They mostly seem to be providing us with more and more diverse drugs for erectile dysfunction.

I would like to see far more government involvement in the markets for healthcare needs. As it is, the US government already spends a huge amount of money on drug research, but then allows private companies to get all the rents on them. It’s madness. What’s more, I don’t see why the government doesn’t just go into the business of making generic drugs. Clearly, our market system is not working in the case of Daraprim. But personally, I don’t think we need various sources of generic Vicodin.

One thing is certain: this is not a situation where all we need is for the government to get out of the way. It’s true that Shkreli is abusing the existing system. But any system we have will be abused by the likes of him. And I find it interesting that we arrest people for price gouging during a hurricane — charging ten dollars for can of peaches. But when Shkreli does it on a massively larger and more damaging scale, all we get from people is a shrug: that’s just the way our economy works. Well that’s the problem! We need to stop thinking that the way things have been is the way they must be or or that they are the “natural” way.

Work by the Center for Economic and Policy Research has found that our drug patent system costs us many hundreds of billion of dollars per year. Given this, I think we have to ask if the current system is the best that we can do. As it is, pretty much all economists believe that patents are a really bad for the economy. They cause enormous distortions in the market. The only point to having them is if they provide great benefits. Clearly they do provide some benefits. But I think we could do much better for our money through collective action.

Morning Music: Red Bacteria Vacuum

Roller Coaster - Red Bacteria VacuumToday we have something very interesting, Red Bacteria Vacuum. It is an all woman band that formed in 1998. What I like about them is that their music hearkens back to a lot of earlier music. For example, “Gimme Culture” sounds very much like Richard Hell & The Voidoids. The song I’d really like to share with you is listed as “恋愛ミュージック,” which means “love song” and is almost certainly not the name of the song. It is very much like Ramones. And a more recent song, “San Francisco,” while good reminds me rather too much of early Nirvana.

In early 2006, Red Bacteria Vacuum released what appears to be their most successful effort in the west, Roller Coaster. In fact, “Gimme Culture” is from that album. But let’s just listen to the title track because it is much more in the hardcore tradition. But it has some interesting elements that make it greater than that — like its use of syncopation and some standard pop elements:

Anniversary Post: Battle of Matewan (Kinda)

MatewanI’ll admit this is a bank-shot. John Sayles is 65 today. And in 1987, he made the film Matewan. I wrote about it last year, John Sayles and Matewan. And so I figured that I would write about the actual event today: the Battle of Matewan, which took place on 19 May 1920.

So it’s 1920, and mining is an even more dangerous profession than it is today. And they were paid very little. In this particular case, the workers living in the Stone Mountain Coal Camp in West Virginia were being paid in script that could only be used at the company store. Basically, these miners were slaves. But things were happening in other areas not far away. Union miners had earned large pay increases by going on strike. So when the United Mine Workers of America came to town, thousands of miners signed up. The coal company responded the same way companies do today: they harassed the workers that they didn’t just fire.

The workers then had a great advantage that workers in most times — including very much today — don’t: the mayor and the chief of police of the local town of Matewan sided with the workers rather than the coal corporation. The way it was supposed to go was that the mayor and the police chief would work together to brutalize the workers. But when that didn’t work, the coal company hired thugs from the Baldwin-Felts Detective Agency.

On the morning of 19 May 1920, a group of “detectives” arrived by train with the stated intent of evicting some mining families from the camp, but more generally to brutalize the workers. This is something that continues to bug me to this day: the idea that unions are violent. This is pure corporate propaganda. Certainly workers have been violent — no group is perfect. But the business community has used every tool available to them to keep workers in line, and that included huge amounts of violence both private and with the help of the state. Yet it’s the workers who we constantly hear about being violent.

The “detectives” went to the police chief to serve what turned out to be fraudulent warrants. A shootout ensued. The mayor and two miners ended up dead, as did seven of the “detectives.” It would be nice to think that this all led to the coal companies accepting the union and everyone getting along. It would be more than a decade later that some amount of fairness came to the region. And that was due to New Deal policies. So those of you who think it doesn’t matter who gets election, pay attention! It’s like the advice I gave to young Carey Wedler: it’s not about one election or one candidate. We have to push and win battle after battle. There is no other path to justice.

Oh, and: happy birthday John Sayles!