You did the same thing here (in reverse), and-as an economist–you should be held to a higher standard! You’re an experts at reminding people that everything involves trade-offs. Minimum wages raise living standards, but cause unemployment. Taxes cause deadweight losses but give us … (lower mortality, peace of mind, more equity?).

(You did admit “maybe $300 billion . . . is a price worth paying for the benefits . . .” in the last paragraph. But that’s burying the lead.)

Thanks for the extra information regarding deadweight costs. As I said, I think we can take it there are *some* deadweight costs to taxation of whatever form. Whether it is 30% 2% or 100% is perhaps a red herring. We are comparing the costs of an accidental (negligent?) oil spill with two out of hundreds of federal programs. Why pick on theses two? The reason given is that they are occurring at approximately the same time. Why not pick on the deadweight cost of military spending, or roadbuilding, or the oil tax to pay for the liability fund, or policing, or prisons? Oil spills are the unavoidable consequence of oil drilling. Taxation is the unavoidable consequence of Government spending. The true comparison is not with Obamacare and stimulus package, but with taxation, or spending.

Suddenly the argument looks much stronger – why all the angst over $10 billion oil spill when the deadweight cost of taxation is about $800 billion each and every year? Or is it only $80 billion? That is the debate worth having, and the media does not have it. By picking on just 2 of the hundreds of federal programs, the argument is diverted into the benefits of those policies, which has already been discussed extensively.

Steve may be right to raise the issue, and try to make “seen” some of the unseen costs, but in my opinion wrong to single out just these two programs, which are not different in kind from hundreds of others.

In 1993 Joel Waldfogel, then an economist at Yale University, sought to estimate the disparity in dollar terms. His results put the dismal in the dismal science: on average, a gift was valued by the recipient well below the price paid by the giver.

The most conservative estimate put the average receiver’s valuation at 90% of the buying price. The missing 10% is a waste of resources that could be averted without making anyone worse off. In other words, if the giver gave the cash value of the purchase instead of the gift itself, the recipient could then buy what she really wants, and be better off for no extra cost.

If the results are generalized, a waste of one dollar in ten represents a huge aggregate loss to society. The study suggests that in 1993 America, where givers spend ~$40 billion on Christmas gifts, $4 billion is being lost annually in the process of gift-giving (actually the estimate was between $4 & $13B but I don’t want to be accused of inflating the figures). Add in birthdays, weddings and non-Christian occasions, and the figure is out of control. Once this oil spill has paid for, it’s done. This Christmas thing just goes on and on and on.

Clear water, functional ecosystems, and Christmas presents are for inefficient sentimental fools.

Here’s the study:

http://graphics8.nytimes.com/images/blogs/freakonomics/pdf/WaldfogelDeadweightLossXmas.pdf

1. Steve is referring to this paper: Feldstein, “Tax Avoidance and the Deadweight Loss of the Income Tax,” Cambridge, MA: NBER Working Paper W5055, March 1995.

2. The BP spill is just as unique as Obamacare and the Obama “stimulus” package.

3. There have been other studies such as, Charles Stuart, “Welfare Costs per Dollar of Additional Tax Revenue in the United States,” American Economic Review, June 1984, that show a dead weight loss of over 50% tax revenue and Charles J. Ballard, John Shoven, and J. Whalley, “General Equilibrium Computations of the Marginal Welfare Costs of Taxation in the United States,” American Economic Review, March 1985, that show a range between 15% and 50% of tax revenue.

4. All studies, however, have shown that taxes impose a deadweight burden on society. Steve, in choosing the Feldstein paper, has reference one of the most comprehensive studies and one that also falls somewhere in the midpoint of other studies that have been conducted.

5. Steve has, in my opinion, made an excellent observation that the deadweight loss of taxation from the additional spending under Obama completely outweighs the economic damage that is being done by the oil spill. If you would like to criticize Bush for the additional tax burden he had imposed during his years with runaway spending, such as the prescription benefit entitlement, I would welcome such criticism. But don’t stick your head in the sand when your guy is running the show.

The link says:
“*Published: Published as “The Income Tax and Charitable Contributions”, Econometrica, Vol. 44, no. 6 (1976): 1201-1222. Published as “The Income Tax and Charitable Contributions: Part I – Aggregate and Distributional Effects”, NTJ, Vol. 28, no. 1 (1975): 81-100.”

You have to pay to get the full text, but it looks rather like it is based on a 1976 paper.

Steve says “widely quoted”, which seems to intended shorthand for “widely accepted”. We saw earlier that a respected economist’s estimate of the “cost” of the stimulus package was based on almost laughably biased estimate of the “multiplier”, so it is possible for these things to be got wrong, even if they are widely quoted. I have no idea how widely accepted this finding is, possibly economists debate over it endlessly. I think it likely that it is accepted that there is some deadweight cost to taxation, so the question why do we not display more angst over the stimulus package and Obamacare, when we do over the lesser costing oil spill?

There is a very simple reason – the deadweight cost is an issue relating to taxation generally, and has nothing specifically to do with the issues mentioned. We would have to devote 30% of “angst” to each and every government measure. The fact is we have these debates about how we fund Government separately. Taxation occurs constantly and continuously – it would be absurd to raise these issues about one specific tax raising mesasure. The oil spill is a unique (so far) event. It makes complete sense to debate the issues relating to this event.

Steven has also conflated the stimulus package and Obamacare, with Obamacare put first. This creates the erronious impression that Obamacare is the bulk of the assumed $300 billion.

Did you even read the entire publication? Either of them? Or the most recent version published in 1999? Why would you fail to mention the parts where he very plainly explains that his deadweight estimates apply only to those with very high labor incomes. That people making less will incur little or no additional deadweight from a rise in income tax rate. And that the deadweight is a result of rise in availability of tax differed and non-taxed labor income (like employer healthcare).

Or how about the fact that his calculation is an admitted prediction based on (and this is a precious term for someone who calls themselves a scientist) “empirically estimated” figures. And how about investing the 10 minutes of research that shows his conclusions to be empirically false.(Feldstein, Martin. 1999. “Tax Avoidance and the Deadweight Loss of the Income Tax.” The Review of Economics and Statistics 81(4): 674-680.)

Like the 1993 rise in taxes under Clinton did not result in a net loss of revenue. Tax revenue rose steadily through the 90s. Where as in response to drastic tax cuts under W. Bush during the 2000s tax revinue often fell substantially. (http://www.cbo.gov/budget/data/historical.shtml).

You took a paper with clear self-defined limitations on its applicability. It says that a rise in incremental tax can have UP TO a 30% deadweight cost. And you apply the maximum end of the spectrum to a case that is clearly outside of the intent of the original paper.

If one of your students answered a question with “this answer is an extremely rough guess based on a 10 year old paper, based on 30 year old research, that doesn’t really say everything that I claim it does, nor support my argument in anything other than a tangential sense” how much red ink would you commit to that page? Or would it depend on whether that students answer (regardless of the quality) supported your pre-determined ideology?

And when you list something as a lone source for your argument you are putting it forward as authoritative. This is remedial rhetoric 101. If it was not authoritative then it does not belong as a source. If it is not authoritative then your argument is not authoritative and if that is the case you are wasting peoples time. If all you have is a source that is not authoritative then you have a weak argument and we deserve better research. If you cannot find better research to support your position than it simply may not exist or your position may be wrong. The BLS numbers, in this case, seem to indicate the latter.

My scholarship is thorough, I have put forward no information that I know to be false. I have supported my position (that this paper does not support your conclusions) with strong arguments.