Differences in total compensation—the sum of wages and benefits—between federal and private-sector employees varied according to workers’ education level.
-Federal civilian employees with no more than a high school education averaged 36 percent higher total compensation than similar private-sector employees.
-Federal workers whose education culminated in a bachelor’s degree averaged 15 percent higher total compensation than their private-sector counterparts.
-Federal employees with a professional degree or doctorate received 18 percent lower total compensation than their private-sector counterparts, on average.
Overall, the federal government paid 16 percent more in total compensation than it would have if average compensation had been comparable with that in the private sector, after accounting for certain observable characteristics of workers.
Post published for http://gregmankiw.blogspot.com/, January 25, 2012
1. Last night President Obama continued his misleading claims about Warren Buffett’s tax rate. David Leonhardt recalls that I rebutted those claims several years ago.
David usefully asks for a response to my rebuttal from the Center on Budget and Policy Priorities, a liberal-leaning research group in Washington. Chuck Marr, the center’s director of federal tax policy, emailed David back. Click through the link above, and read carefully what Mr Marr has to say. Does it respond to my arguments? No, not at all. Mr Marr just changes the subject. He follows the age-old advice for politicians: Don’t answer the question they asked, answer the question you wish they had asked. This might work for some voters, but I am sure it won’t for the careful analysts who read this blog. One might reasonably take Mr Marr’s non-response as an admission that President Obama’s claims about the taxes of Mr Buffett and his secretary don’t hold up under closer examination.
2. I was disappointed, and even a bit surprised, that the President adopted the xenophobic approach to outsourcing and international trade. Usually, on issues of international trade, the President plays the role of grown-up and leaves it up to Congress to gin up populist ire. That is true of both parties. Recall that President Clinton pushed NAFTA through.
When President Obama bragged that his administration had substantially increased trade cases against China compared with his predecessor, it made me proud to be one of President Bush’s advisers. (Not that the Bush administration was perfect on trade issues. It is just good to know we were better.) These trade cases include such things as anti-dumping claims, which in many cases are just the modern face of protectionism. Phill Swagel and I wrote about anti-dumping laws here.
Published for the www.nytimes.com, January 21, 2012
IT’S that time again. Start filing all those W-2s, 1099s and scraps of paper you’ll need for your annual tax return. No doubt, this isn’t your favorite activity. At some point, you may ask yourself whether there’s a better way.
There is. Economists who study public finance have long agreed with William E. Simon, the former Treasury secretary, who said that “the nation should have a tax system that looks like someone designed it on purpose.” Here are four principles of tax reform that most of those economists would endorse:
BROADEN THE BASE AND LOWER RATES The United States tax code is filled with deductions and exclusions that shrink the basis of taxation. The smaller base in turn requires higher tax rates to raise the revenue needed to fund government. The starting point of reform is to reverse this process.
This principle was endorsed both by President George W. Bush’s tax reform commission in 2005 and by President Obama’s deficit reduction commission in 2010. Neither report had much impact, because eliminating deductions and exclusions is politically treacherous. Yet each made a good case on the merits.
Post published for http://gregmankiw.blogspot.com/, January 20, 2012
Several readers have asked me my opinion of SOPA, the Stop Online Piracy Act. I fear that in this case, the devil is in the details, so I find it hard to reach a strong view. But I have been disturbed by the relatively knee-jerk reaction of the anti-SOPA crowd. This is a hard issue, and when someone makes it sound easy, I feel like they haven’t thought it through very thoroughly.
The anti-SOPA crowd argues that this is a matter of basic liberty. But it’s not. In a free society, you don’t have the freedom to steal your neighbor’s property. And that should include intellectual property. Moreover, it is the function of the state to enforce those rights. We don’t leave it up to civil litigation to protect property rights (although that is part of the solution). We give the state substantial powers to stop theft. Just as owners of tangible personal property have good cause to call for a police force and a system of criminal courts, owners of intellectual property have good cause to ask the state to stop those who would infringe on their rights.
This is an important economic issue for the United States. We are large producers of intellectual property: movies, novels, software, video games, TV shows, and even economics textbooks. If offshore websites find a way to distribute this intellectual property without paying for it, it is as if organized crime were stealing merchandise from a manufacturing firm at the loading dock. It is neither efficient nor equitable.
Maybe SOPA goes too far. As I said, I am not knowledgeable enough about the details to judge. But we need something along these lines. Believers in free enterprise, property rights, and economic liberty should be among the most vocal advocates of laws to stop intellectual piracy.
Post published for http://gregmankiw.blogspot.com/, January 19, 2012
There has been a lot of discussion recently about tax progressivity. A few observations on the topic:
1. The U.S. personal income tax is generally progressive, and substantially so. Click here to see the numbers. The average tax rate for tax returns with over $1 million in income is 25 percent. The average tax rate for returns with income between $50,000 and $75,000 is 7 percent.
2. It is arguably better to use an average tax rate that is all-inclusive. That is, we should include not only personal income taxes but also payroll and corporate income taxes. CBO analysts regularly do that. They find a substantially progressive tax system, as I have pointed out before.
3. If we added transfer payments (which are essentially negative taxes), we would find an even more progressive fiscal system. Those data are harder to come by, as data on transfers are rarely integrated with data on taxes.
4. It make little sense to aggregate payroll taxes with personal income taxes and ignore corporate income taxes. A corollary: Paul Krugman should be more careful when reproducing graphs from partisan think tanks.
5. All of these calculations are static. They ignore the general-equilibrium effects that arise as the true burden of taxation is shifted by behavioral responses. In essence, these calculations are made under the implicit assumption that factors of production are supplied inelastically, so the tax stays where legislators put it. Of course, that assumption is implausible, especially in the long run. True general-equilibrium tax incidence is very hard, and as far as I know, reliable estimates on it are not readily available.
Published for www.gregmankiw.blogspot.com, January 10, 2012
About a decade ago, I wrote a paper on monetary policy in the 1990s (published in this book). I estimated the following simple formula for setting the federal funds rate:
Here “core inflation” is the CPI inflation rate over the previous 12 months excluding food and energy, and “unemployment” is the seasonally-adjusted unemployment rate. The parameters in this formula were chosen to offer the best fit for data from the 1990s. You can think of this equation as a version of a Taylor rule.
Eddy Elfenbein has recently replotted this equation. Here it is:
The interest rate recommended by the equation is the blue line, and the actual rate from the Fed is the red line.
Not surprisingly, the rule recommended a deeply negative federal funds rate during the recent severe recession. Of course, that is impossible, which is why the Fed took various extraordinary steps to get the economy going. But note that the rule is now moving back toward zero. As Eddy points out, “At the current inflation rate, the unemployment rate needs to drop to 8.3% from the current 8.5% for the model to signal positive rates. We’re getting close.”
Published for www.gregmankiw.blogspot.com, January 4, 2012
Bryan Caplan quotes a passage from Daniel Kahneman’s Thinking, Fast and Slow (which I have not read, but plan to):
A large-scale study of the impact of higher education… revealed striking evidence of the lifelong effects of the goals that young people set for themselves. The relevant data were drawn from questionnaires collected in 1995-1997 from approximately 12,000 people who had started their higher education in elite schools in 1976. When they were 17 or 18, the participants had filled out a questionnaire in which they rated the goal of “being very well-off financially” on a 4-point scale ranging from “not important” to “essential.”…
Goals make a large difference. Nineteen years after they stated their financial aspirations, many of the people who wanted a high income had achieved it. Among the 597 physicians and other medical professionals in the sample, for example, each additional point on the money-importance scale was associated with an increment of over $14,000 of job income in 1995 dollars!
In other words, one reason that people differ in their incomes is that some people care more about having a high income than others. To put it in geekspeak, preferences over pecuniary goods (say, consumption) and nonpecuniary goods (say, leisure) are heterogeneous. Bryan goes on to suggest that to the extent this is true, it weakens the case for income redistribution.
Published for www.gregmankiw.blogspot.com, January 3, 2012
One of the odd things about the blogosphere is that I often find myself being surprised by positions that are attributed to me. For example, Matthew Yglesias says:
Many proponents of low taxes on high-income individuals are “supply-siders” who claim that such a tax policy will maximize overall welfare. But other proponents of low taxes on high-income individuals such as Greg Mankiw deny that this is the relevant consideration, and simply say that progressive taxation is immoral.
If you follow the link that Mr Yglesias gives here, you will find it is to my paper “Spreading the Wealth Around: Reflections Inspired by Joe the Plumber.” Does this paper say that progressive taxation is immoral? No. In fact, while advocating what I call a “Just Deserts” approach to taxation, it says the following:
Public goods and Pigovian subsidies lead naturally to a tax system in which higher income individuals pay more in taxes. Surely, those with higher income and greater property benefit more from a governmental system that protects property rights. Moreover, the monetary value attached to other public goods (such as parks and playgrounds) and to positive-externality activities (such as basic research) very likely rises with income as well. Indeed, if the income elasticity of demand for these services exceeds one, as is plausible, a progressive tax system is perfectly consistent with the Just Deserts Theory.
Published for www.gregmankiw.blogspot.com, December 10, 2011
This is a talk from a few days ago, as part of the “Occupy Harvard” movement. Steve says a lot of interesting things here, and I agree with more than many in the audience might suppose. A main disagreement I have with Steve is pedagogical. I believe his critiques of mainstream economics should be presented after students have had a standard course like ec 10. That is, I would suggest Steve aim his course at sophomores rather than freshmen. If he did, he could attract a lot of economics majors who had just finished ec 10, rather than nonmajors who are avoiding it.
