Economist Channel

China builds a railway station in 9 hours (HT Marginal Revolution).

Yes, it's basically a propaganda video, but interesting nonetheless as a reflection on infrastructure.  The video does not say how long China spent on environmental review -- did it disturb wetlands, threaten various species, what's it's carbon footprint -- legal review -- is it paying prevalining union wages, was it bid with proper female and minority headed construction company set asides -- did it have community input, consistency with planning targets and so on. I doubt it was the oh, 10 years or so that takes in the US.

To be clear, I am not saying all that is useless. China has awful pollution,  and our reviews accomplish something.  China doesn't bother with the niceties of private property ownership, eminent domain proceedings, and legal challenges when they want to build a railway. These don't just triple or more the cost of projects, send vast sums of money to well-connected companies and lawyers and lobbyists, and delay projects for decades. But they also have that effect.

It's also interesting as a pin factory visit.  With that many people on a job, I would have thought they would be getting in each other's way. This video seems to deny the Q theory of investment! Some are standing, but a remarkable number are working hard. Of course, the video is edited.

When I watch US infrastructure projects, I see a lot of people standing around or "supervising" the one poor sob who is actually doing the work. That ratio seems a lot lower here.

There are a lot of machines.  The days of China substituting lots and lots of labor for capital are gone. The Chinese have taken Milton Friedman's advice. (On a visit to a dam, Friedman noticed people using shovels. He asked why they didn't use bulldozers. The answer was to give more people employment. Friedman responded, why then don't you make them use spoons?) This is not a new observation, but the video is a good reminder from afar.

Derville Rowland will speak on "Financial Conduct Regulation: Why Understanding Behaviour Matters.". The talk takes place on Wednesday 7th February at 930am in the UCD Geary Institute seminar room. The talk will be followed by a Q+A session ending at 1030am.

Speaker Biography: Derville Rowland was appointed Director General (Financial Conduct) in the Central Bank of Ireland on 1 September 2017 and is responsible for consumer protection, securities and markets supervision, enforcement and policy and risk. Derville is a member of the European Securities and Market Authority (ESMA).Prior to this appointment, Derville was the Director of Enforcement in the Central Bank, where she established and developed the Enforcement Directorate. Previous to this, Derville gained extensive litigation and regulatory experience while practising law at the bar and working as in-house regulatory counsel. Derville is a qualified barrister having being called to the bar in 1996 (Inns of Court School of Law; Inner Temple) and subsequently in 2003 (Kings Inns Dublin).

The tariff and the wall were the big news this week, with some lessons for looming infrastructure.

The Tariff

30% on solar cells, 20-50% on washing machines. Since the ill effects of tariffs have been know for, oh, about 250 years, said again eloquently by the Wall Street Journal in Trump starts his trade war,  Let me try to offer some comments beyond the usual economist response -- comparative advantage, trade must balance, follow the money anything that goes overseas must come back, imported products are inputs too, solar cell installers need jobs too, blahdah blahdah blahdah.

Washing machines, a device unknown to the inside the beltway types, is how the rest of us clean clothes. So raising the price of washing machines is one more little sucker punch to people who wash their own clothes.

Solar panels are supposed to save the planet. Our government already subsidizes them heavily via tax deductions, credits, Solyndras, renewable mandates, and so on, with the purpose of lowering carbon emissions. If that is the purpose, then we want the cheapest panels around to compete with fossil fuels. If that means made in Malaysia, great. The planet does not care where they are made.

If the Chinese government wants to tax its citizens to send us artificially cheap solar panels, we should thank them for their generosity in helping us to save the planet. It's absolutely hilarious to see complaints that China is subsidizing its solar cell industry so merits retaliation, given how much subsidy they receive here.

Yet even Al Gore agrees that the tariff is a good idea and wants solar cells made in the US.

What's going on? I think there is a good lesson in political economy. Once a government starts subsidizing something, everyone lines up at the trough. If taxpayers are going to be on the hook, then every interest wants its share. So potentially sensible carbon policy ends up as one more boondoggle.

Related, this week I saw the brilliant post Solar panels cost twice as much to install in the US as in Australia. (HT marginal revolution.) The answer, as usual in what Mark Steyn calls the Republic of Paperwork, is the paperwork.

I loved the flowchart on what it takes to get solar installed. In particular, you see here a real person who has really done it. The rules just say ``get a permit'' but the actual process, laid out in the picture, takes many trips back and forth and negotiations with the permit granters, all on someone's paid time.


This is a lovely detailed example of a larger question -- just what is the cost of regulation? I've been having this back and forth with some liberal economist friends, who pooh pooh the idea that regulations cost a lot. And here the official paperwork act disclosures, pages of the federal register, and so on would not add up to much. Yet, it does add up, to double. And installing residential solar is pretty simple, and something governments say they want. If this example scales, than GDP is half what it could be with a simper regulatory system.

Back to tariffs. Just why is it so hard to grasp that tariffs are a bad idea? Well, it must be because it is hard, and illustrates perhaps why economics really is useful, and why "business experience" is not generally a good qualification for policy. Anything that reduces competition and drives prices up is good for an individual business. Business leaders know this. Take that business leader to Washington and he or she will quickly conclude that what's good for my business is good for yours. A tariff on everything! Reduce harmful competition everywhere! We call it the fallacy of composition. What is good for one business is not good for all businesses, because that one business is profiting at the expense of everyone else. Business or banking experience does not generalize to good policy.

(Update:) But it's not just the administration that is to blame. The trade law that the administration applies specifies that tariffs are to be imposed if  domestic companies are hurt by imports. That's an absurd blatantly protectionist standard. We have relied for years on the trust that  administrations would not be so stupid as to actually enforce the law as written."Well, if one comes along that is, perhaps it's time to rewrite the law. If the law said only that tariffs are imposed if american consumers are hurt by imports, or even the american economy as a whole is hurt by imports, much of this mischief would go away.

Congress can, and should fix this. Perhaps as with DACA, the Trump Administration actually executing the law as written by Congress will spur Congress to fix its absurd law. Get rid of the Jones act (all shipments to/from American ports on US built, operated, and staffed ships) while you're at it.

The Wall and infrastructure

A deal seems to be emerging, one that I advanced almost as a joke at faculty lunches. But it may happen. Give him his Wall, and get pretty much whatever you want in return.

From Trump's immigration offer

White House floated a proposal on Capitol Hill late Thursday that would offer legalization and a path to citizenship for some 800,000 so-called Dreamers in return for funding for President Trump’s wall at the Mexico-U.S. border and other changes to U.S. immigration law.

And arguments for taking the offer. From William A. Galston (One of WSJ's liberals)

In all, only 37% of Americans think adding a substantially expanded wall on the southern border is a good idea. But we have reached a point at which the sentiments of the majority are politically secondary. It is unimaginable that Mr. Trump will break faith with his supporters on this matter. Any deal, broad or narrow, will have to acknowledge this reality.

Such is infrastructure in the US today.

Can you imagine what will happen with the Wall, even if Congress appropriates $25 billion? It will instantly be in court. Start with environmental challenges. It will of course interrupt the migration path of the Eastern Arizona accelerati incredibilus. It will disrupt holy native lands and archeological sites. Mexicans are largely catholic, so suits will claim the wall is religious discrimination. Heck, infrastructure has to pass cost benefit tests, and good luck with that one.  The contracting was improperly done. State attorney generals busy suing the Trump administration will quickly add to this one.

As with solar cells, as with the second avenue subway, as with the high speed train, as with the Keystone pipeline, good luck building any infrastructure in America today -- and especially good luck building one that makes little sense and is a highly politicized hot potato.

If they gave the President all he wanted, tomorrow, this thing would not be out of court for decades, long after a democratic congress or administration kills it.

They can afford to give him a symbolic victory. If, well, they decide that they can afford politically to give him a symbolic victory. For that is all it will ever be. And frankly, even $25 billion of waste to fix immigration would not be a bad tradeoff. The waste to our country in the current immigration system is on the back of my envelope orders of magnitude greater than that.

Looking forward to infrastructure. 

As reported in the Wall Street Journal

U.S. Chamber of Commerce President Thomas Donohue last week was nearing the end of a speech urging Congress to rebuild the nation’s infrastructure when he offered another option: At least make it easier to build things when the money can be found.

“If we just fix the permitting thing this year, you would create an extraordinary enthusiasm about moving forward,” Mr. Donohue said,  

...Mr. Trump and his aides have cited studies suggesting that environmental review can often take a decade,  

 A Government Accountability Office study of the environmental review process in 2014 cited third-party estimates that reviews average 4.6 years. Outside experts say actual review times vary widely based on the scope of a project and other environmental factors.

If the average review time for, I guess, building a freeway cloverleaf, is 4.6 years, and often takes a decade, this makes my point -- don't worry about the wall!

The point of the article was that the Administration would like this to be reduced to two years. Good luck with that. The other point of the article is environmental groups lining up to fight any streamlining of the permitting process. Strategic delay rather than policy outcome is vital to them, apparently.

But the administration is right. If infrastructure is going to be built in the US, it strikes me that reforming the process for building infrastructure is the key. If home zoning and inspection requirements double the cost of residential solar cells, if prevailing wage, union work rules, and a hundred other impediments mean that subways cost billions of dollars per mile, many multiples of what they cost in France let alone China, and if permits take decades, and billions more of consultant and legal work, our problem with infrastructure is not finding the money to pay for it.

In the meantime, I offer a final suggestion to the Trump team: Offer to build a high speed train along the border instead! Just forget to put in any crossings.

(Update: I am just now reminded by a story on NPR that President Trump had, as a candidate, suggested coating the wall in solar cells. Truth is stranger than fiction.)

Speaker: Professor Neil Stewart

Venue: ESRI, Whitaker Square, Sir John Rogerson’s Quay, Dublin 2

Registration: There is no fee to attend this event but please register your attendance HERE.

Seminar Topic

Professor Stewart will discuss three papers on behavioural science with mass transaction data.

Paper 1: Gathergood, J., Mahoney, N., Stewart, N., & Weber, J. (2017). How do individuals repay their debt? The balance-matching heuristic (available at SSRN: https://ssrn.com/abstract=3000526)

We study how individuals repay their debt using linked data on multiple credit cards from five major issuers. We find that individuals do not allocate repayments to the higher interest rate card, which would minimize the cost of borrowing. Instead, individuals allocate repayments using a balance-matching heuristic under which the share of repayments on each card is matched to the share of balances on each card. We show that balance matching captures more than half of the predictable variation in repayments, performs substantially better than other models, and is highly persistent within individuals over time. Consistent with these findings, we show that machine learning algorithms attribute the greatest variable importance to balances and the least variable importance to interest rates in predicting repayment behavior.

Paper 2: Quispe-Torreblanca, E., Stewart, N., Gathergood, J., & Loewenstein, G. (2017). The red, the black, and the plastic: Paying down credit card debt for hotels not sofas (available at SSRN: https://ssrn.com/abstract=3037416)

Using transaction data from a sample of 1.8 million credit card accounts, we provide the first field test of a major prediction of Prelec and Loewenstein’s (1998) theory of mental accounting. The prediction is that consumers will pay off expenditure on transient forms of consumption more quickly than expenditure on durables. According to the theory, this is because the pain of paying can be offset by the future anticipated pleasure of consumption only when money is spent on consumption that endures over time. Consistent with the prediction, we found that repayment of debt incurred for non-durable goods is an absolute 9% more likely than repayment of debt incurred for durable goods. The size of this effect is comparable to an increment in 15 percentage points in the credit card APR.

Paper 3: Sakaguchi, H., Stewart, N., & Walasek, L. (2017). Selling winners or losers: Two-stage decision making and the disposition effect in stock trading (available at SSRN: https://ssrn.com/abstract=3053331)

Current methods for estimating the disposition effect implicitly assume that all stocks are evaluated simultaneously in a single decision stage. Here we propose a two-stage model where investors first decide whether to sell a stock in the domain of gains or losses, and only then choose a stock to sell from within their chosen domain. As evidence, we show that the probability of individual gains being sold is inversely proportional to the number of gains in the portfolio, but is not associated with the number of losses. Similarly, the probability of individual losses being sold is inversely proportional to the number of losses in the portfolio, but is not associated with the number of gains. There are two consequences for the disposition effect: First, sell decisions are about the domain of gains versus losses, not just about individual stocks. Second, current regression methods must be refined to avoid substantial bias.

Speaker Bio

Professor Neil Stewart is the Professor of Behavioural Science at Warwick Business School in the University of Warwick. He works in the field of behavioural and economic science, and applies this research to problems in the real world. He is currently working on consumer decision making using credit card transaction data, on criminal and other bad behaviour using crime and incident records, and on a mathematical model of consumer decision making called decision by sampling. He uses a mixture of laboratory experiments, field experiments, and data science techniques applied to large data sets.

About the ESRI Seminar Series

The ESRI organises a public seminar series, inviting researchers from both the ESRI and other institutions to present new research on a variety of public policy issues. The seminar series provides access to specialised knowledge and new research methodologies, with the objective of promoting research excellence and facilitating productive dialogue across the policy and research fields.

Venue: Institute of Banking, Main Auditorium. Details of how to get to the venue are available here

Time: 1115am to 1pm.

Overview: We are delighted to invite you to a joint event being run by the Geary Institute for Public Policy and Amarach Research on well-being and decision making in Ireland. The use of well-being data in business and policy has attracted substantial international attention over the last decade but far more work is need to ground such data in practical applications in the Irish population. Similarly, the area of behavioural economics has become a major topic of interest, evidenced by the recent Nobel award. Yet the creation of data to develop applications of this area in Ireland is lacking so far. At the event, Professor Liam Delaney from UCD and Dr. Leonhard Lades EPA Research Fellow in Behavioural Economics will present findings on well-being and daily decision making in a representative sample of 1,000 people in the Irish population. The results display fascinating patterns of well-being and decision making across areas such as diet, work, social media, and many other areas of interest. It will be followed by a panel discussion addressing the potential uses of well-being and everyday diary decision data in Ireland. Some key topics include: how to use such data to evaluate well-being initiatives in workplace settings, how to measure the role of policy in shaping health and well-being in the population, how to evaluate the extent to which social media and smartphone use is contributing to positive and negative well-being and productivity outcomes. The event will be of interest to anyone involved in developing or consuming market research data and academics and professionals evaluating projects across a wide range of sectors.

Please register on this link. Registration is free but spaces are limited.

1115: Start

1115 - 1130: Overview: Liam Delaney (15 minutes)

1130 - 1200: Results: Leonhard Lades (30 minutes)

1200 - 1245: Discussion: Panel Chaired by Gerard O'Neill, Amarach Research

Sometimes it is not good to get to the right answer for the wrong reasons. This thought comes to mind reading to recent WSJ articles, Walmart raises wages and Tax reform releases the bulls.

"Wal-Mart Stores Inc. said it would raise starting hourly pay to $11 for all its U.S. employees and distribute one-time bonuses, doling out some of the windfall it expects from the U.S. tax overhaul as it competes for store workers in a tight labor market." 

"Only 15 market days have passed since the Senate passed the tax bill, ensuring it would become law, and Wall Street analysts have already upgraded their consensus forward earnings for the S&P 500 by an unprecedented 4.6%. Is it any wonder that stocks have rallied?"

Two narratives compete for how corporate tax cuts might spur the economy: cashflows vs. incentives.  Washington and most pundits like to talk about cashflows, "trickle-down" if you will. Corporations (existing, large) don't have to give so much money to the government. So perhaps they will benevolently pass it on to their workers -- or perhaps political pressure is important to force them to this magnanimity.

Economists see the world through incentives. In this narrative, a lower corporate tax rate increases the incentive to invest, broadly construed -- to buy new investment goods, sure, but also to invest in worker skills, organizational improvements, new opportunities, and for new companies to spring up. That investment raises the productivity of labor and hence demand for labor. Competing to hire good workers, companies drive up wages. But companies no more voluntarily give workers bonuses out of extra cash than they voluntarily send money to the electric company on top of the bill.


The Walmart headline falls distinctly into the first category. If so -- if this is how the corporate tax reduction raises wages -- an economist would say it's pretty fragile. Benevolence fades quickly.

Fortunately the rest of the article, if you read it with these views in mind, supports more the economists' view of what's really going on.

"On Thursday, the company also announced plans to cut roughly 10,000 jobs by closing about 10% of its 660 U.S. Sam’s Club warehouse stores.... 

Chief Executive Doug McMillon cited the tax overhaul for the pay increase, which the Trump administration praised at the White House."

In our politicized economy, it is a good time to offer some worker-friendly PR! More deeply "investment" to "productivity" is the same thing as finding ways to do things with fewer, since competition means they must be higher-paid, workers.

"But the wage boost also comes as many U.S. businesses are contending with tight labor markets and rising wages. Retail rival Target Corp. recently lifted its starting pay to $11 an hour and Costco Wholesale Corp. starts hourly staff at $13."

So, Walmart is just catching up to the competition, really.

The labor market is tight and getting tighter,” said Mark Zandi, ...

To combat wage pressures, Wal-Mart has tried to save on labor costs by adjusting the number of workers per store and more recently by automating many rote tasks. It is adding more self-service registers and using robots to scan shelves for items that are out of stock. Last year, Wal-Mart had around 15% fewer workers per square foot of store than a decade ago, according to an analysis by The Wall Street Journal.

I.e. productivity-raising investments. Let us also remember that labor is not a spot market and keeping good workers is a good idea. It does make sense for wages to rise in advance of capital improvements if firms know they want to keep their good workers and know wages must rise in the future from competition.

In the PR battle, it will likely be hard to admit that the kind of productivity raising investments the tax reform is supposed to induce can reduce demand for labor for each unit of output at individual companies. It will read like automation scare. Where overall demand for labor rises is that output rises and new companies come in to being.

Stocks. 

We (readers of this blog) all understand that every cent of corporate taxes comes from higher prices, lower wages, or lower payments to shareholders. There is a bit of debate about which, and my previous reviews concluded that lower wages and higher prices were much more important than payments to shareholders.

Opponents of the tax cut claimed it would just be a windfall to profits, which would create a windfall to stock prices, which would benefit wealthy shareholders. This is the prime argument that the corporate tax cut benefited wealthy people. (Note, stockholders get no permanent rise in rate of return. They just get a one time windfall when the tax cut becomes reality.)

Again, cash flows vs. incentives; static vs. dynamic economies. If companies are just money machines, faxing fixed prices, wages, customers, and workers, and shareholders get to keep 80% rather than 65% of the money, then indeed the price should go up. But if companies respond to incentives, they invest, expanding capital, expanding output, and thereby quickly driving wages up, prices down, and profits back to normal. There should be a small bump in stock prices as these investments take time, but competition and entry drive profits back to normal quickly. (I'm describing the Q theory of investment with taxes here.)

As evidence, I pointed to the fact that stock prices seem to have very little historic correlation with corporate tax rates. That's good. It means that tax cuts are not just passed to shareholders, and do result in higher wages and lower prices.   So if indeed this time the tax cut is just a boon to profits driving the stock market up, it will mean its antagonists were right, at least on the first of three links of their dubious chain to inequality.

I've done lots of work on P/E ratios, and I remain of the view that today's PE ratios reflect a low risk premium on top of a very low real interest rate. I also remain of the view that low risk premiums have nothing to do with central banks, QE, and the rest, but are perfectly normal in the eighth year of a very quiet expansion with very low volatility. Like all academics, I am fondly attached to my past papers, but habits does seem to do a pretty good job.

Are you a young economist or other professor, and would you like to spend a year at Stanford with no teaching? The Hoover National Fellows program may be for you. Information and application instructions here. It's ideal for someone from a few years after PhD to a few years after tenure who wants a break to bring a research project to fruition.  Hoover prefers research with policy implications and people who will benefit from and contribute to the intellectual environment here.  Applications due Jan 30.

Call for Papers: Irish Economics Postgraduate and Early Career Conference 2018
The Irish Society for New Economists (ISNE) workshop for postgraduate and early career researchers will take place in University College Dublin Geary Institute for Public Policy on Friday May 4th. The event is aimed at PhD students and early career researchers across the Irish universities. It will take the form of thematic sessions with faculty discussant input at each session, along with keynote talks, and engagement with policy and industry. We welcome submissions of papers from PhD students and early career researchers in institutions on the island of Ireland.

The ISNE was formed to encourage research, information and social links among economists at the early stages of their careers in Ireland. From 2001 to 2013, the Irish Society for New Economists (ISNE) held eleven workshops in Ireland for postgraduate and early career researchers. The events were run mostly by PhD students in the Universities, including events hosted by UCD, TCD, Limerick, Maynooth, Cork, and Galway. The conference is intended for advanced Masters students, PhD students, and young professionals in the early stages of research working in the Republic of Ireland and Northern Ireland. We strongly encourage those working on economics-related research to submit. Eligibility to present is not related to age. The meeting will feature the work and findings of scholars in economics and related fields, and will provide an excellent opportunity to present your own research results and work in progress.

As the conference is free to attend, no financial assistance for travel or accommodation can be provided. Researchers wishing to submit their work for consideration are advised to submit an extended abstract (300-500 words) at this link. Applicants are asked to include their name, institute or affiliation, current academic status (PhD, Young Professional, Masters) and JEL code(s) for their research on submitting an abstract. All of the above information should be attached in a /single PDF or Word File/. The deadline for the abstract submission is Friday, 30th March 2018. Applicants will receive notification shortly afterwards. The organising committee consists of Dr. Lisa Ryan, Dr. Benjamin Elsner, and Professor Liam Delaney at UCD, and Dr. Michelle Queally at NUI Galway. Please direct inquiries to liam.delaney@ucd.ie

Every now again in writing a blog one puts down an idea that is not only wrong, but pretty obviously wrong if one had stopped to think about 10 minutes about it. So it is with the idea I floated on my last post that property taxes are progressive.

Morris Davis sends along the following data from the current population survey.


No, Martha (John) property taxes are not progressive, and they're not even flat, and not even in California where there is such a thing as a $10 million dollar house. (In other states you might be pressed to spend that much money even if you could.) People with lower incomes spend a larger fraction of income on housing, and so pay more property taxes as a function of income. Mo says this fact is not commonly recognized when assessing the progressivity of taxes.


Part of this is a bit misleading, because  income is a poor concept. Many people with low incomes have temporarily low incomes -- see my S-corp owners with losses from the last post -- and don't move every year to accommodate that year's income. Retired people have less income and own houses. Permanent income or consumption would be much better divisors. On the other hand, I would guess (despite just proving how dangerous it is to guess anything) that housing as a fraction of wealth is even smaller for people with high wealth than is housing as a fraction of income or consumption. There are just so many houses you can buy.

The full list FYI.


Mo's website  has a treasure trove of data by the way.

Let us hope that this does not set a pattern for the year. Now I have my resolution -- stop to think before posting!

I think most of the debate misses an important point about the state and local tax deduction -- incentives.

Suppose you are in the top, (roughly) 40% marginal federal tax bracket.  If you pay an extra $100 in state taxes, you deduct $100 from income, and pay $40 less in federal taxes. So, you really only pay $60 in state taxes. The federal government effectively transfers $40 to the state from taxpayers in other states.

That's a big incentive to raise money as deductible taxes from high-bracket tax payers! This incentive doesn't work if the state raises taxes from lower bracket taxpayers.

California's tax system, for example, seems to respond heartily to this incentive. California's income tax rate is highly progressive, topping out at 13.3%.  As reported in the Sacramento Bee

Nearly 90 percent of the money [income tax receipts]  comes from one-fifth of the taxpayers – those making $91,000...Forty-five percent of the state’s income tax money comes from the top 1 percent of filers – those with adjusted gross income of at least $501,000.

and, therefore, in the highest Federal tax bracket, and also likely to itemize deductions.


The state of California relies a lot on income taxes. The state of California gets 65% of its revenue from individual income taxes, 22% from sales taxes, and 8% from corporate taxes.

The usual stories about California rest on its progressive, redistributionist politics, and there is certainly much of that rhetoric around. But it also happens to be responding perfectly rationally to a strong incentive.

Conservatives have long objected to governments that spend other people's -- taxpayers' -- money unwisely.  But money raised from taxpayers from other states, who do not vote in your elections, provides doubly bad incentives.

This strikes me as a potent economic argument against deductibility of state and local taxes, that hasn't been made loudly enough. Of course no argument (pro or con) based on incentives has been made loudly enough!

This strikes me as theme of many things needing reform America. The New York Times  report on astounding infrastructure costs rang a nerve. Most infrastructure is directed by state and local officials, who spend Federal money.  Medicaid remains a matching fund -- the state spends a dollar, the federal government chips in a dollar.  The move to turn it in to a block grant, which failed last summer, would have removed this incentive.  Federal money and state control is a common pattern in social programs, and John Cogan explains well the legal and institutional reason for this separation in our history. But it leads to atrocious incentives.

Perhaps a general reform lesson is that states should have to raise the marginal dollar for anything from their own voters.

PS. I was long for the deductibility of SALT on the grounds that it keeps down the total tax rate. If both federal and state charge 50%, with deductibility you keep 25% of your income (Federal takes 50%, state takes 50% of what's left, so you have 25%.) With hundreds of different taxes, it is possible to exceed 100%! However, I've been persuaded these incentives are more important. Moreover, if paying twice is such a problem, dear California, you can make federal tax payments deductible from state income. I do not hear a groundswell for this solution.

Update 

A few commenters (and by email) claim that California pays more to the federal government than it gets back. The point is not the overall subsidy, the point is on the margin. A marginal $100 leads to a marginal $40 cross subsidy, no matter who pays who on average.

Also do not confuse margins and levels for people. The loss of SALT deductibility hurts a lot less on average than on the margin. Someone paying 13.3% marginal state tax in California only pays that rate on income over $1,000,000. So their total loss from the loss of SALT is not equivalent to paying federal taxes on the full 13.3%.

Update

The original post contained the following paragraph, which was wrong, so I took it out.

Property taxes in California raise about $60 billion, roughly equal to the total raised from personal income taxes.  Since the state is home to extremes of housing values, thanks to land use and building restrictions, property taxes are also raised largely from people in high tax brackets, and therefore benefiting from the 40 cents on the dollar subsidy from the rest of the country. (This is a guess. If you know of data on property tax by income brackets, I'd like to see it.) 

It occasioned the following updates and the  next post which really shows how wrong it is.

Update

A reader sent me links to two wonderful resources, "real estate taxes paid by income bracket, and by state, available as part of the IRS Statistics of Income:

California here: https://www.irs.gov/pub/irs-soi/15in05ca.xlsx (Lines 74-75)

All states and national summary here: https://www.irs.gov/pub/irs-soi/15in54cm.xlsx (Lines 75-76)

Individual state files and additional data: https://www.irs.gov/statistics/soi-tax-stats-historic-table-2

From the California analysis:


The row "real estate taxes, amount" and following addresses the question I asked in the blog -- to what extent is the apparently flat property tax actually progressive? It's not as much as I thought. The top two categories pay 37% and 14% of real estate taxes, though they bay 72% and 49% of income taxes. (The table verifies the state numbers on how concentrated California's income tax receipts are.) In retrospect, even overpriced real estate is a normal good -- people don't pay larger fractions of their income on real estate as they get more income -- so a flat real estate tax will raise more money from people with higher incomes, but not a higher fraction of income.

The table is fascinating, and a clear mine for blog posts. One big lesson that sticks out to me (ok, confirmation of something I've been mulling for a while) is just how meaningless income is as a social yardstick. Our policy discussions talk about "low income people" as if that is a permanent caste distinction. Yet look how many people with million dollar incomes are taking unemployment compensation! In the next row, just who are people with under $1 of income? You imagine homeless people roaming the streets of San Francisco. Well, of the 286,000 such people in California 51,000 are s-corporation owners who lost money, collectively $5 billion.


Update 2 

Morris Davis sends along the following data on property tax / household income.

Just how much are property taxes as a fraction of income? It's interesting for a lot of reasons. For one, total taxes  matter to the economy. Too many commenters decide that the top federal rate of 42% (last year) is low and we ought to tax people more. They forget state and local income taxes, sales taxes, excise taxes, corporate taxes, etc. etc. And property taxes.

Granted, we're veering off topic here, but here is the table. New Jersey, where Morris lives, has the highest tax rates. California is up there, but proposition 13 and a lot of low-priced inland areas must offset ridiculous house prices in the coastal areas.

Below are some potential routes to study and work in this area with our group in UCD.

a) Our MSc in Behavioural Economics is recruiting for the 2018/2019 round. This is one-year programme covering core economics modules and a wide range of modules and engagments in behavioural economics.

b) Those considering a PhD in the area should look at the PhD scholarships in the UCD School of Economics. I can speak to people who are interested in doing a PhD in the area of behavioural economics.

c) See this link for a wide range of funding calls forthcoming from the main Irish government research funder, the IRC. There are calls that suit PhD applicants, early career researchers, and external partners.