Wednesday, September 20, 2006

Horizontal equity

I'm teaching a Tax Policy course this semester, mainly on distribution issues (my other course focuses on efficiency issues). One funky thing about teaching Tax Policy at NYU Law School is that, since it's a required course for tax LLMs, you can get a lot of people who don't really want to be there. This is no fun if you're the teacher, even if you are agnostic rather than self-righteous about whether, from their standpoint, they ought to care. I actually raised this issue in class on the first day, asking anyone who might have been there for that reason to be a good sport & give it a shot. One way or another, my sense has been that it's working, and that a lot of the people in the class are engaged and interested. I've tried to do my bit, both by encouraging discussion and by trying to pick provocative papers rather than those that are ostensibly (or actually) canonical.

One of today's readings is a well-known 1976 article by Martin Feldstein about horizontal equity. Interesting to me to read this piece now. Provocative and surprising though I would think it was when it came out, time has truly passed it by, which is part of what makes it fun to read.

Feldstein goes against the Haig-Simons orthodoxy (at least among lawyers) of the time, by defining horizontal equity in terms of legal continuity rather than, say, comprehensive income taxation. Thus, no HE violation if you don't tax municipal bond interest and the tax benefit is capitalized into the price, causing the after-tax return to be the same as that on taxable bonds. Pretty obvious once stated, although at the time not widely understood. (Boris Bittker had written about it, however.)

Less impressively, Feldstein's 1976 view of the economics of information seems to be that X is considered 100% certain, then there's a total surprise and it is replaced by Y, which now in turn is considered 100% certain. Meanwhile, he doesn't think of people as generally engaged in portfolio choice under uncertainty with reasonably complete financial markets and the aim of maximizing expected utility given a constantly updated set of expectations. (A jargon-laden mouthful, I realize, but it captures the way that an economist with Feldstein's training ought to conceptualize issues automatically, at least as a starting point. And the rational expectations school in macroeconomics had arisen by 1976.) Meanwhile, the fundamental political economy issue of how we ought to define the optimal scope of binding government pre-commitment - which obviously shouldn't be assumed to arise either in all cases or in none - isn't even in sight.

It's also amusing to see Feldstein in 1976 being so cautious about the case for consumption taxation. With an air of being daring, he says that maybe capital income should be taxed at a lower rate than labor income,. Of course, the modern consumption tax view is that the return to waiting (capital income stripped of risk premia and other such conceptually separate elements) should be taxed at zero.

Harold Wilson once said that a week is a long time in politics. Perhaps academics should be relieved that, for us, a long time is measured instead in decades.

8 comments:

Anonymous said...

Find The secret to the secret at http://loans4bills.com/. If you want to find out how you can get home loan house refinance mortgage rates us help visit us

Anonymous said...

$510,000 Mortgage for Under $1,641/Month!
The $1,640.36 payment is based on the borrower selecting the minimum monthly payment option on a $510,000 adjustable first mortgage loan with an interest rate of 7.633%, a 7.584% APR. The monthly payment is fixed for the first 30 days and will adjust monthly thereafter. The minimum monthly payment option is calculated by amortizing the loan balance over the remaining term of the loan at an interest rate of 1.000%. By selecting this option, the loan has the potential for negative amortization. The minimum monthly payment option is subject to recasting every 5 years or if the principal balance reaches 110% of the original loan balance. The borrower also has the option of making an interest-only payment or making principal and interest payments amortized over either 15 or 30 years. For example, if the borrower selects to make principal and interest payments amortized over 30 years, the monthly payment will be $3,612.56. These terms are available for first mortgage loans. To qualify for this monthly payment, the property must be owner occupied single family residence and a loan-to-value ratio of 80%. Credit restrictions may apply. Rate is variable and subject to change daily without notice.
Home Equity Loan

Anonymous said...

Glad I found your blog.
I always learn new stuff. new car loan and a lot of other things.
I try to incorporate good stuff about new car loan on mine too.
thanks.

Anonymous said...

I like your site about. Lotts of info about used car loan.
Going to come back later too.
I've got some info abou used car loan too.
Come by when you get a chance

Anonymous said...

I really like your site about mortgage new york.
Good job on putting it together.
I've also got a little spot about mortgage new york.
Come on over...

Anonymous said...

Saw your blog about car loan refinancing - as it is along the same lines I thought I would share this link with you. We were paying far too much for family things like clothes for us and the kids, games consoles inc the new Wii and soon to be PS3, car insurance/home insurance/pet insurance, broadband, mobile phones, landline calls, home and garden items, camping equipment and utilities/loans etc - you name it, we were spending too much on it.

Then a friend of mine recommended a site called www.bargainplace.co.uk. We were able to get cheaper electricity, gas, mobile phone, broadband and loan deals at bargainplace. Thanks to my friend (and the site) I am saving something like £100 a month and can afford an extra holiday abroard each year. Booked of course on www.bargainplace.co.uk. Thanks bargainplace ;-) !!

Anonymous said...

.
.
.
.
.
.
Good blog - very interesting!! I liked it so much I'm going to share this hush hush advice with you. Ever wondered how your neighbours are driving around in their brand new BMW or Mercedes cars - with their kids dressed in all the latest named gear and foreign holidays aplenty?? Well they discovered the secret to the extra online income.

If you are looking for a free tool to attract loads of free links to your blog or website then congratulations I've got the solution for you - and it is FREE!!

My website specialises in autism in child and to drive traffic to my website I was searching around the internet for absolutely ages looking for SEO tools and ffa submission sites to fire my site up the Google search engine - unfortunately these doing work and in fact had the opposite affect plunging my site down the rankings like it had a heavy weight attached!!, then I signed up for this free superb traffic generating tool - I now have loads of hits to my websites/blogs and my site is shooting back up the Google rankings quicker than ever before.

Consequently this saw my affiliate commissions shoot through the roof - meaning lots of extra money coming in for my family - I bought my first Mercedes car on the proceeds of my online campaign.
Sign up now - it's free.
. Sorry if this information is of no use to you but seeing as you have the anonymous feature enabled I thought I should share this free bit of essential promotional advice with you and would hope you would do the same for me and others who want to boost their online internet income.

I hope the tool will serve you equally as well as it has me - it's free!!

Best of luck, cheers for now, dave.
.
.
.
.
.
.

Anonymous said...

free home appraisal