Is the Buffett Rule Supposed to Solve Everything?
Ruth Marcus in the WaPo raises the first argument I’ve heard against the Buffett rule that maybe makes a little sense, though I’m not sure (she labels the rule “irrelevant”). Her concern is:
If the Buffett Rule were magically to pass, raising taxes on millionaires alone risks making it harder, not easier, to hit others later. Leading voters to believe that the biggest problem in the tax code is the inequitable treatment of millionaires seems less likely to pave the way for a larger solution than to reinforce the conviction that debt reduction can be achieved pain-free, by taxing the other guy.
Maybe. The White House has been careful to point out that this is part of a much more comprehensive revenue raiser—Marcus should have pointed out that the President’s budget raises $1.5 trillion in new revenue over 10 years. But “ding the other guy” is always a problematic theme in tax policy.
Still, I doubt anyone who thinks about this, even low-information observers, thinks the Buffett rule is supposed to solve everything. It’s a band-aid on a part of the tax system that’s bleeding, and the problem it targets—certain high-income households with mostly capital incomes (vs. wages) pay much less in taxes than their economic peers, or than is fair—is particularly egregious in an era of such high inequality.
More Gas Pains
The WaPo also makes a point I’ve been stressing for months around here: consumers have responded to higher gas prices by driving less and using more fuel efficient vehicles. And this is a good thing.
Go ahead and call me graph-happy—I welcome your attack! But I think the piece—any piece about this–should include this graphic which shows just how different drivers’ behavior is this time around.
Source: Federal Highway Administration
BTW, for the econo-wonks in the audience, I ran some simple regressions to try to figure out if, conditional on income losses, the underlying elasticity of gas consumption with respect to gas prices had changed. I hypothesized that consumers were becoming more elastic in their price response. But, alas, it was not the case. Controlling for income, I wasn’t picking up a behavioral change (i.e., the price elasticity of demand hasn’t changed), but I took a fairly quick pass at it. I encourage any econometric students to take their own swipe at this question.
There also a piece right next door to the one above on the role of speculation in futures markets in the current gas-price spike. While one’s instinct may be to blame speculation, this is trickier than it sounds.
First, it’s unequivocally good, as the administration is proposing, to increase the budget and personnel of the Commodities Futures Trading Commission, the agency that oversees trading on futures markets (their chairman, Gary Gensler, is an excellent cop on this beat, but he needs more patrolmen and women).
But here’s the thing: futures markets speculate. That’s what they do. Often that speculation feeds back into higher prices, as speculators add a risk premium to the future price of the commodity. And in the case of oil right now, given global supply/demand conditions and Middle East politics, such a premium makes sense.
When does that become “excessive” or “price-manipulative?” There’s no rule, but with gas, apparently it does so when it starts really pinching consumers. It’s also the case that the majority of those who take positions in oil futures never intend to buy any oil, like pension funds. But neither of these factors provide useful guidelines for regulators; if anything, the underlying problem of high and volatile oil prices is a function of the uniquely tight, global market for oil, not to mention the presence of a dominant cartel (OPEC) and geo-politics.
Still, it’s good policy to beef up the CFTC and ensure that they’re scrutinizing this part of the market.