Thursday, October 25, 2012

Thursday Morning Links

This and that for your Thursday reading.

- Richard Thaler criticizes Mitt Romney's obsession with upper-end tax cuts by pointing out the factors which actually serve to encourage innovation and entrepreneurship:
Romney wants to cut top rates by 20 percent, maintain the favorable treatment given to capital gains and dividends, and completely eliminate the estate tax, which currently only kicks in on estates in excess of $5 million for an individual or $10 million for a (heterosexual) married couple.

In other words, this is a strategy that emphasizes maximizing the after-tax returns if and when you hit it big. Yet if you think about the way most new businesses are started, it should be clear that these tax incentives have very little to do with the decisions facing most new entrepreneurs.

The typical business startup (think Joe the Plumber) begins with an initial stake that has been saved or borrowed, and 97 percent of small-business owners make less than $250,000 a year. It is a good bet that when Bill Gates, Steve Jobs and Larry Page were creating their new businesses in their proverbial garages, they weren’t giving much thought to the tax rate they would have to pay if they struck it rich. Rather, they were hoping their startups would survive, something that less than half of new businesses succeed in doing.
Research in behavioral economics shows that when people consider risky propositions, they are especially concerned about the downside. Roughly speaking, people weigh losses about twice as heavily as gains, a phenomenon called “loss aversion.”

So if we really want to encourage risk takers and job creators, we should concentrate on what will happen to them in the all-too-likely event that their brilliant idea doesn’t pan out and the new venture flops.
Cutting taxes on high-income earners is unlikely to be the most cost-effective way of stimulating new business startups. If entrepreneurs who hit it big have to pay the same tax rate on their capital gains as on their ordinary income, they are unlikely to give up on their dreams. When people are contemplating starting a new enterprise, the last thing they are worried about is the tax rate their heirs might have to pay if they die as billionaires. But if they aren’t sure they can provide health insurance and a home to live in for their family should they fail, they may play it safe. 
- Meanwhile, Rebecca Leber discusses the return on investment in tax breaks for the oil industry - with the main effect of handing free money to already-profitable businesses being to ensure that they lobby for even more freebies.

- John Geddes documents the long-standing link between water protection and the environment which the Cons are apparently determined to write out of existence.

- But while the Cons are obviously still determined to read from predetermined scripts with no regard for any connection to reality, I'd think it's noteworthy that they're barely able to keep a straight face while spouting their most prominent (and farcical) set of talking points.

- And finally, for those who haven't yet seen them, Regina's unofficial election results are here - featuring more than a few disappointments, but some reason for optimism based on both some far closer races than we've seen recently and a few strong new voices within the city's representative bodies.

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