Lance Armstrong
Today a middle-aged yinzer chick shouted "Lance Armstrong's dying!" as I biked past her house. Odd, that.
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Today a middle-aged yinzer chick shouted "Lance Armstrong's dying!" as I biked past her house. Odd, that.
It's tax season so there's a lot of tax talk going on at school. One colleague revealed that he believes in a flat tax. He's a scientist, which means he's got a quantitative mindset and strong math skills, and yet he believes that a flat tax will work. I haven't met anyone like that before, and it made me wonder if maybe my anti-conservative bias had made me think the flat tax was a bad idea. I decided to investigate, but I didn't let my ignorance of economics, tax law, or social policy stop me. Nope, I delved right in with back-of-the-envelope calculations. Here's what I found...
For our purposes, there are three main differences between a progressive and flat tax: First, the tax rate is lower with a flat tax. Much lower. And second, the theory goes that because people are going to have much lower taxes, they'll invest some amount of their additional income (and proceeds from those investments will generate more tax revenue). Third, because the tax code is dramatically simpler with a flat tax, the assumption is that there will be less tax evasion.
To start off, I've tried to use the simplest model of taxation that I could get away with: total revenue (R) is equal to the average tax rate (T) multiplied by the average income (I). For the progressive tax, R_prog = T_prog*I, where the "_prog" suffix denotes we're talking about the progressive tax. What's the flat tax equation look like then?
R_flat = T_flat * (I + (T_prog - T_flat)*I*ROI)
Which means that the revenue from the flat tax is equal to the flat tax rate multiplied by the average income (of course), along with the amount of taxes that come from investing the money they saved by not paying a progressive tax. That second term is the amount of money saved (I times the difference in tax rates) multiplied by the rate of return on that saved money (ROI), which finally is multiplied by T_flat again to compute the tax revenue. This is actually much less complicated than it looks.
So I wondered: at what point does R_prog equal R_flat? In other words, for a given progressive tax rate and a given flat tax rate, what does the typical ROI have to be for a flat tax to raise just as much money as a progressive tax? A bit of algebra later, I had this:
ROI = (T_flat + T_flat * T_prog + T_prog) / (T_flat * T_flat)
For instance, if the average progressive tax rate was 30% and the flat tax rate was 15%, the ROI would have to be... 400%. That means that if the rich people who save scads of money from going to a flat tax were to just quadruple their money by investing it, we'd be even. That sounds impossible, but in fact it's not if you're patient. Historically, the stock market has earned about 10% per year (on average), which means that an investment in the market will double every 7 years. Two doublings (or 14 years) later, you've got your 400% return. And after those 14 years were up, hey, the flat tax would pull in more revenue than the progressive tax!
At this point, I was pretty amazed: It looked like this flat tax could work. Sure, the government would have to borrow some money for the first 14 years or so, but eventually, the flat tax would be sustainable. (Actually, the government would have to pay maybe 5% interest on the money it's borrowing, so in fact maybe the period of government borrowing would have to last more like 30 years.) Still, in government terms, a few decades is nothing. A blink of the proverbial eye.
Except I found a bit of a problem with my model: I assumed that all of those tax savings would go toward investments. What would happen if people invested less? It seemed as long as they invested enough money in the market to stay ahead of the interest payments on the government borrowing, the math would work. In this case "enough" turns out to be 50%. Ok. So how much do people save, anyway?
Finally, we come to the part of the story where I do real research, sort of. I refer you to page 26 of this Federal Reserve study from 2001. Optimistically, people save 10% of their income on average. Unfortunately for the flat taxers, the people least likely to save are those in the highest income brackets (the very ones we most need to save in order to make the flat tax work). Even worse, as this 2001 study shows, if you dump a bunch of money on people (as happened during the boom in the late 1990's), those in the highest tax brackets save less not more.
So all of this was a long-winded way of saying: According to my highly dubious back of the envelope calculations, a flat tax just won't work.
In this NYTimes article about Apple's new OS, code-named Tiger, one Apple VP had this to say about his company's relationship to Microsoft: "We're becoming a tiny dim red light in their headlights." Oddly enough, it turns out that the very first page of the Public Relations Handbook says "never describe your company as a tiny dim red light."
(And about the title: The OS is called Tiger, so I thought of Tony the Tiger. And I happen to be eating Frosted Flakes right now. So sue me.)
Can anyone offer advice about how to configure MT so it doesn't send a trackback every single time I edit a blog entry? Anyone accepting trackbacks is likely to get like 6 pings for each post I write, effectively spamming their blog. In MT's web-based interface, I've tried clearing out the "URLs to ping" box before I save my edits, but that doesn't seem to help.
In his review of the "Who Owns the Culture?" event, A VC mentioned that the costs of Internet radio are daunting, even for the likes of David Byrne. I have no idea how to fix the copyright fees, but I think a good way to decrease bandwidth costs would be a commercial version of End System Multicast, which distributes content via p2p. The technology is a bit like BitTorrent's, but ESM has additional intelligence to support live streaming. It's an open question whether users would be willing to donate bandwidth, but there's a good chance since the bandwidths are low and people are often passionate about music.
Oddly enough, years ago there was a startup, ChainCast that was trying to do this, but it looks like they've abandoned the p2p approach(also, it looks like they're out of business). Why did they fail? Maybe because they were trying to sell this stuff years ago, way before broadband was widely available. Regardless, I have to believe that p2p streaming is going to happen one day. We just need to find a killer app.
When I retire, I will write short stories. One of these stories will be about a landlord who sleeps with a carpenter so that she can get discounts on repairs. Specifically, she needs to repair a hole in the hardwood floor for one of her tenants. Tragically, the carpenter will break up with the landlord before the repair is performed. The entire story will be narrated by the tenant of the apartment with the hole in the floor.