Negative wealth effect
Has anybody seen any work done on negative wealth effect ie effect on consumption as wealth/networth goes down? Do positive and negative changes in wealth have the same magnitude effect on consumption ? Do these effects kick in with same lag i.e. does a drop in wealth lead to a lower consumption, (if any !) after a longer period than an increase in wealth would increase consumption? Koushik - Original Message - From: Fred Foldvary [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Friday, January 10, 2003 8:51 AM Subject: Re: FW: History shows paths to market crashes, but lessons seem forgotten In a few years, this movement of baby boomer money into safe havens should drive down both the price of stocks and the yield on bonds. ~Alypius Skinner No, for two reasons: 1) Many who retire will not sell all their stocks. If they get an annuity, the stocks are just transferred to the insurance company. The reality of p=r/i will in the long run prevail. 2) Stock markets are increasingly global, and if there is good value in US stocks, Asians and Europeans will buy them. Fred Foldvary = [EMAIL PROTECTED]
Re: Tax cuts and US citizen responses
In a message dated 1/13/03 7:33:09 AM, [EMAIL PROTECTED] writes: Can anyone explain why ordinary Americans are not objecting to tax cuts (such as dividend tax cuts) that will only favour the top percentiles of the wealthy ? Koushik In absolute terms, the tax cut would favor those with higher incomes (rather than the wealthy) because those with higher incomes pay much larger absolute amounts of actual taxes. The top half of the income distribution in the US pays almost 100% of the taxes. If the government cuts the amount by which it taxes everyone by the lesser of his or her actual tax and, say $1,000 to simplify, the people paying $1,000 and above will obviously get much larger tax cuts than those paying less than $1,000. Proprotionally, however, everyone playing $1,000 or less gets a larger percentage tax cut (100%) than everyone paying more than $1,000. Someone paying $100,000 a year gets only a 1% tax cut. With my low income--let's say I'd have to pay $200 in tax otherwise--I get a 100% tax cut, which pays for weeks of groceries for me, I don't care that someone who pays $100,000 in taxes get times as large a tax cut as I do. Someone might say, hey, the rich got a tax cut five times as large as yours to try to get me angry, but meanwhile I get my100% tax cut and buy my groceries. I'm reasonably happy. If I compare myself at all with the person paying $99,000, I'm envious not of his or her 1% tax cut, but of his or her ability to earn so much income that he pays more in taxes than I earn in income. As a CPA tax-professional at the now-imfamous Arthur Andersen back in the 1980s I often prepared tax returns for clients who paid more in taxes than I earned in salary. :) David Levenstam
Re: Tax cuts and US citizen responses
Can anyone explain why ordinary Americans are not objecting to tax cuts (such as dividend tax cuts) that will only favour the top percentiles of the wealthy ? Koushik Dividend tax cuts also favor retired folk whose income comes from dividends and interest. Some ordinary Americans also recognize the unfairness of taxing corporate profits twice. They also favor that corporations will borrow less and be less vulnerable to a collapse. They also think that paying more dividends will make give the shareholder more of the profits and make the company less vulnerable to looting by the directors and executives. Some believe that lower marginal tax rates will lead to more investment. Fred Foldvary = [EMAIL PROTECTED]
RE: Tax cuts and US citizen responses
Perhapssome feel the double taxation of corporate profits is inherently unfair. At least that is my feeling on the matter. Lynn -Original Message-From: Koushik Sekhar [mailto:[EMAIL PROTECTED]]Sent: Monday, January 13, 2003 6:04 AMTo: [EMAIL PROTECTED]Subject: Tax cuts and US citizen responses Can anyone explain why ordinary Americans arenot objecting totax cuts(such as dividend tax cuts)that will only favour the top percentiles of the wealthy ? Koushik
Taxes direct and indirect, was: Dividend Tax cut
In the 1796 Hylton case the Supreme Court accepted Hamilton's view that the only direct taxes are the poll tax (a tax on heads, not on voting), and taxes on real property and slaves constituted direct taxes. Taxes on other items were indirect. (They didn't use the current distinction that economists often use of direct taxes refering to taxes which the taxpayer pays directly to the government.) David Levensam Hamilton was incorrect, as was the Supreme Court. There is no logical reason why if a tax on a slave is direct, a tax on a horse is not also direct. If a tax on a house is direct, why not on a carriage? It seems to me that the Supreme Court reasoned illogically that since the 1790s tax on carriages was not proportioned by population, it was thus indirect. I can see the 18th century argument that only a tax on land is direct, as all other taxes ultimately get shifted to rent (cf. John Locke on taxation). But once a tax on slaves and on buildings is designed as direct, then so too must be taxes on a horse and carriage or any other property. Fred Foldvary = [EMAIL PROTECTED]
Re: Tax cuts and US citizen responses
Koushik Sekhar wrote: Can anyone explain why ordinary Americans are not objecting to tax cuts (such as dividend tax cuts) that will only favour the top percentiles of the wealthy ? Perhaps because they recognize that to be cut the tax had to have been imposed in the first place, and they don't think it vital to lay special taxes on the wealthy. Or perhaps they've bought into the Republican line that tax cuts for the rich (let's face it, the left will paint *any* change in tax policy that doesn't make it more punitive^W progressive as a handout to the rich) make us all richer in the long run. -- Anton Sherwood, http://www.ogre.nu/
questions about dividend tax cut
Howdy,
I have some questions about the dividend tax cut
(elimination). Let's suppose that the elimination of
taxes on dividend income to stock holders is
instituded and it is a complete suprise to the public,
so that no adjustment can take place either in
expectation of it being passed, or after it is passed
but before it takes effect. Let's also assume that
growth opportunities are not an issue, so the price is
wholly dependent on dividends.
If the price of a stock is the PV of the dividend
stream into the future, then should there merely be a
one time jump in the value of a stock as a result?
More concretely, if the tax rate was T, then a
dividend was worth (1-T)D, where D is the amount of
the dividend. And the present value of the
perpetuity, i.e. the dividend stream, would be
(1-T)D/r, where r is the interest rate (right?). So
the price of the of the stock would be P=(1-T)D/r.
Now the suprise tax cut comes into effect. The price
of the stock should jump to P'=(1-0)D/r=D/r. Thus,
there should be merely a one off jump in the share
price by the amount P'-P=[D/r]-[(1-T)D/r]=(D+T)/r.
Is this correct? Should the tax rate on dividend
income be included in the pricing of the shares, and
should we see a jump in prices? I suppose that
intstead of T:=tax rate on dividends, I could have
used T:=Td-To, where Td is the tax rate on dividends
and To is the tax rate on some other investment.
Would that be correct?
Okay. Assuming the above is correct, then the rate of
return on a stock should increase from (1-T)D/P to
D/P'. The increase in the rate of return then is
=[(1-T)D/P]-[D/P']
=[D/(D/r)]-[(1-T)D/{(1-T)D/r}]
=r-r
=0.
So the increase in the rate of return on stocks should
be equal to zero. Stocks are no more profitable after
the tax cut than before--it shouldn't help the market
at all.
If dividend income tax is not priced into the stock,
then again, there should be no change in the
profitability of stocks, because P=P' and 1-0=1.
The same should be true if T:=Td-To, correct?
Is my conclusion that the dividend tax cut should have
no impact on the rate of return of stocks correct? Is
the only effect of such a tax cut to provide a once
off permanent increase in the wealth of stock holders
as the price jumps from P to P', thus stimulating the
economy solely through the wealth effect of that
change?
If this conclusion is correct, how will loosening the
two assumptions, first that the cut is publicly known
before it takes effect and second that the present
value of growth opportunities are taken into account
in share pricing, affect the conclusion? Will
loosening the second assumption change corporate
behavior viz. investing in growth vs. paying
dividends? What should we expect that change to be?
Has this question already been asked on this list and
I missed it?
Curiously yours,
jsh
__
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Re: Tax cuts and US citizen responses
Koushik Sekhar wrote: Can anyone explain why ordinary Americans are not objecting to tax cuts (such as dividend tax cuts) that will only favour the top percentiles of the wealthy ? Among other things, this assumes that people's views on tax policy are driven by self-interest. Most of the empirical evidence finds that this is false. For a good summary, see Sears and Funk's chapter in Jane Mansbridge, ed., *Beyond Self-Interest*. Koushik -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] Mr. Banks: Will you be good enough to explain all this?! Mary Poppins: First of all I would like to make one thing perfectly clear. Banks: Yes? Poppins: I never explain *anything*. *Mary Poppins*
Re: questions about dividend tax cut
--- john hull [EMAIL PROTECTED] wrote: If the price of a stock is the PV of the dividend stream into the future, then should there merely be a one time jump in the value of a stock as a result? No. There is also a supply-side effect from cutting the marginal tax rate, from less uncertainty about the company as it shifts to less debt and more equity, as well as more investor confidence when the profits are sent to the shareholders rather than retained by possibly theiving executives. Fred Foldvary = [EMAIL PROTECTED]
Re: questions about dividend tax cut
--- john hull [EMAIL PROTECTED] wrote: Now the suprise tax cut comes into effect. The price of the stock should jump to P'=(1-0)D/r=D/r. Thus, there should be merely a one off jump in the share price by the amount P'-P=[D/r]-[(1-T)D/r]=(D+T)/r. Mistake #1, (D+T)/r is greater than the price itself. I don't think the rest depends on that. Back to the drawing board for that part. Sorry about that. -jsh __ Do you Yahoo!? Yahoo! Mail Plus - Powerful. Affordable. Sign up now. http://mailplus.yahoo.com
Accountancy vs Entrepreneurship
Classical liberal authors such as Bastiat or Mises teach us that the costs that matter (or should matter) to people who take decisions are the opportunity costs of that decision -- i.e. the relative costs/benefits of the many options open to choice --, as opposed to accounting costs, that describe the transfers that actually happen. What is the right technical name for what I call accounting cost? What papers/books/works should be read/cited for the invention and clarification of this distinction between opportunity costs and accounting costs? If this isn't the right place to ask, where is the right place? Thanks for your attention. [ François-René ÐVB Rideau | ReflectionCybernethics | http://fare.tunes.org ] [ TUNES project for a Free Reflective Computing System | http://tunes.org ] Democracy is but government of the busy, by the bully, for the bossy. -- Arthur Seldon, The Dilemma of Democracy
Re: questions about dividend tax cut
On Mon, Jan 13, 2003 at 01:44:59PM -0800, Fred Foldvary wrote: There is also a supply-side effect from cutting the marginal tax rate, from less uncertainty about the company as it shifts to less debt and more equity, as well as more investor confidence when the profits are sent to the shareholders rather than retained by possibly theiving executives. Any idea why the dividend tax, instead of the corporate income tax, is being proposed for a cut? If we want to end double taxation of dividends, it makes more sense to me to eliminate the corporate income tax instead of the dividend tax. Cutting taxes on dividends while keeping taxes on capital gains seems to provide a perverse incentive for companies to retain as little profits as possible, leading to a higher rate of corporate bankruptcy in the future. I predict we'll also see companies issue new stock and then immediately distribute the capital as dividends in order to dilute their stock value - the opposite of the stock buy-back programs that companies undertake today to avoid paying dividends.
Re: questions about dividend tax cut
Would any company give dividend then? Wei Dai [EMAIL PROTECTED] To: [EMAIL PROTECTED] om cc: Sent by: Subject: Re: questions about dividend tax cut owner-ARMCHAIR@g mu.edu 14/01/2003 08:40 Please respond to ARMCHAIR On Mon, Jan 13, 2003 at 01:44:59PM -0800, Fred Foldvary wrote: There is also a supply-side effect from cutting the marginal tax rate, from less uncertainty about the company as it shifts to less debt and more equity, as well as more investor confidence when the profits are sent to the shareholders rather than retained by possibly theiving executives. Any idea why the dividend tax, instead of the corporate income tax, is being proposed for a cut? If we want to end double taxation of dividends, it makes more sense to me to eliminate the corporate income tax instead of the dividend tax. Cutting taxes on dividends while keeping taxes on capital gains seems to provide a perverse incentive for companies to retain as little profits as possible, leading to a higher rate of corporate bankruptcy in the future. I predict we'll also see companies issue new stock and then immediately distribute the capital as dividends in order to dilute their stock value - the opposite of the stock buy-back programs that companies undertake today to avoid paying dividends.
Re: questions about dividend tax cut
--- Wei Dai [EMAIL PROTECTED] wrote: Cutting taxes on dividends while keeping taxes on capital gains seems to provide a perverse incentive for companies to retain as little profits as possible, leading to a higher rate of corporate bankruptcy in the future. My recollection from reading about it is that the proposal does indeed cut the tax on capital gains to the extent it is due to retained earnings, as the attempt is neutrality with repect to paying dividends or not. However, to truly do capital gains right, it needs to be indexed for inflation. Fred Foldvary = [EMAIL PROTECTED]
Re: Accountancy vs Entrepreneurship
--- Francois-Rene Rideau [EMAIL PROTECTED] wrote: What is the right technical name for what I call accounting cost? These are often called explicit costs in contrast to implicit costs. Fred Foldvary = [EMAIL PROTECTED]
RE: Tax cuts and US citizen responses
Despite what you may read in the press, the overall effect of the President's previous round of tax cuts was to make the tax system more progressive, not less progressive. In other words, those with high incomes end up contributing a higher percentage of tax revenues after the cuts than they did before the cuts. Regarding the current round of tax cuts, I would like to see an analysis of the expected net effect on progressivity (not that I am advocate for progressivity). While some provisions make the system more progressive, others make it less progressive, but what is the net effect on progressivity? Walt Warnick -Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]] Sent: Monday, January 13, 2003 8:51 AM To: [EMAIL PROTECTED] Subject: Re: Tax cuts and US citizen responses In a message dated 1/13/03 7:33:09 AM, [EMAIL PROTECTED] writes: Can anyone explain why ordinary Americans are not objecting to tax cuts (such as dividend tax cuts) that will only favour the top percentiles of the wealthy ? Koushik In absolute terms, the tax cut would favor those with higher incomes (rather than the wealthy) because those with higher incomes pay much larger absolute amounts of actual taxes. The top half of the income distribution in the US pays almost 100% of the taxes. If the government cuts the amount by which it taxes everyone by the lesser of his or her actual tax and, say $1,000 to simplify, the people paying $1,000 and above will obviously get much larger tax cuts than those paying less than $1,000. Proprotionally, however, everyone playing $1,000 or less gets a larger percentage tax cut (100%) than everyone paying more than $1,000. Someone paying $100,000 a year gets only a 1% tax cut. With my low income--let's say I'd have to pay $200 in tax otherwise--I get a 100% tax cut, which pays for weeks of groceries for me, I don't care that someone who pays $100,000 in taxes get times as large a tax cut as I do. Someone might say, hey, the rich got a tax cut five times as large as yours to try to get me angry, but meanwhile I get my100% tax cut and buy my groceries. I'm reasonably happy. If I compare myself at all with the person paying $99,000, I'm envious not of his or her 1% tax cut, but of his or her ability to earn so much income that he pays more in taxes than I earn in income. As a CPA tax-professional at the now-imfamous Arthur Andersen back in the 1980s I often prepared tax returns for clients who paid more in taxes than I earned in salary. :) David Levenstam
Grade inflation - an easy explanation?
Has anybody tested the hypothesis that professors assign easy grades because it sucks up too much time? Consider the costs of tough grading - spending more time correcting papers, extra time spent arguing grades with students and the extra effort it takes to design challenging tests and assignments. Fabio
cost of changing a govt allocative decision
Every advantage which is appropriated, or even under certain circumstances one which has not been formally appropriated, may have the effect of stereotyping existing forms of social action. That is lifted straight from Max Weber's Wirtschaft und Gesellschaft (Economy and Society) Part One, Chapter II Section 40. But it seems this is popularly attributed to Mancur Olsen. Olsen cites Weber in Logic of Collective Action, but for an entirely different point. I dont know how to account for the lack of credit to Weber, can anyone offer any insight? Patrick McCann GMU undergrad
