Greg Mankiw Argues for a Financial Transactions Tax to Improve Health Care
Okay, that's not exactly right, but there is an important link. In his column in the NYT today, the former chief economist to President Bush warns that a public health care plan could in the long-run lead to lower pay for doctors and therefore fewer doctors. Of course one of the reasons that we pay twice as much as everyone else for health care is that our doctors get paid twice as much as in places like Canada, Germany, and England, so one part of controlling costs will probably involve making doctors' pay more internationally competitive.
Greg warns that this will lead to fewer doctors in the long-run. While there is surely some truth to this (we could remove the protectionist barriers that limit the flow of qualified foreign doctors), there is the obvious question of what else these would be doctors could do. After all, physicians are the most highly paid profession.
One obvious answer is that they would go to work for Goldman Sachs, Morgan Stanley and the rest and get really really rich. Surely some would be doctors who are especially driven by money will opt for this route.
One way to prevent this loss of "talent" from the medical profession would be to reduce the number of ultra high-paying Wall Street jobs. Here is where the financial transactions tax comes in. A very modest tax (e.g. 0.25 percent on a selling a share of stock, like what is charged in the United Kingdom) could substantially reduce the money going to Wall Street. Reducing the number of multi-millionaire bankers, will make the option of becoming a doctor relatively more attractive.
A financial transactions tax would also be a relatively painless way (for most of us) to raise more than $2 trillion over the next decade. Of course, as we say in Washington, the banks own this place. So Congress will instead tax the rest of us to pay for health care or let the health care industry grab the money directly.
Though we should exempt transcations related to retirement, right? Like, I shouldn't pay to rebalance the funds in my 401(k) or, when I retire, to cash out the shares so I can buy an annuity.
I like your creative idea here and that you're smashing too disparate concepts together. But seems to me that the real benefit here will be to get the big institutions to think twice before churning their prop accounts, or their client accounts, before .25% can add up fast.
On question: presumably Goldman Sachs pays these taxes when its London operations trade there on those exchanges. They don't pay such taxes here in the US since we don't have them. So... far as you know, does the existence of the London tax change the behavior of Goldman's London traders?
June 28, 2009 10:20 AM | Reply | Permalink
Excellent idea, Dean Baker. Here is another good idea, Let's introduce Propiska quota
http://en.wikipedia.org/wiki/Propiska_quota
Another good idea is "diploma tax".
In 1972, the Brezhnev government imposed the so-called "diploma tax" on would-be emigrants who received a higher education in the USSR.
http://en.wikipedia.org/wiki/Jackson-Vanik_amendment
June 28, 2009 11:07 AM | Reply | Permalink
I love the idea of additional revenue but I don't think a progressive party should shy away from the progressive income tax. Oops, I forgot. The US doesn't have a progressive party.
But in any case Democrats are not responsible for the healthcare plan. Really. Tune in to CNN and Carville will tell you it is the Republicans who are designing the plan and they are going to tax our health benefits. The Democrats are going to follow orders from Republicans who still run this country, according to Carville since we are required to do their bidding, progresssives go back in the closet and shut up.
So it's a done deal Dean. We do what Republicans tell us to do and maybe we even tell the Republicans to tell us what to do so we are never ever responsible for anything. Accountablity is not centrist. Besides, it's the unipartisan right wing way. Of the corporation, by the corporation and for the corporation.
June 28, 2009 11:24 AM | Reply | Permalink
Taxes are only meant to be imposed on the middle class. Surely everyone knows that. It is downright socialism to expect wealthy people to pay taxes, and communism to expect them to pay progressive rate taxes, and fascism to expect them to pay taxes that don't come back to them in spades in the form of government benefits.
So, perhaps we middle class folks can find a few pennies more to support the wealthy, without having to insult them with a massive 0.25% tax on their stock transactions.
June 28, 2009 11:35 AM | Reply | Permalink
I think that's a great idea. I think it would also be important to tax capital gains income at the same 35% top marginal rate as wages, salaries, interest and dividends, instead of privileging capital gains with a 15% rate.
That huge disparity distorts incentives and encourages everyone to transfer their savings from banks to securities. It had precisely the intended effect of making securities traders richer, at the expense of workers whose jobs were eliminated for the sake of an extra penny per share.
June 28, 2009 1:44 PM | Reply | Permalink
yeah, a massive 0.25 percent on the stock trades of the middle class. First, most middle class people have almost no stock to trade including mutual funds in retirement. Second, almost no one in the middle class is an active trader.
So yeah -- let's get really worried about taxing a few middle class families $100 a year -- that will put them all into poverty.
If you look at the data on stock ownership, this is about the most progressive tax that you can imagine. And it can make the economy more efficient by eliminating an enormous amount of wasted resources in the financial sector.
June 28, 2009 2:05 PM | Reply | Permalink
I'm afraid the idea's a non-starter.
Goldman Sachs would never approve it.
June 28, 2009 10:26 PM | Reply | Permalink
A liquidity brake sold as a jump-start for health care?
Last fall I was in favor of such a transaction tax. I think it probably needs tweaking from the simple .25% flat tax. Destor questions whether retirement accounts should be taxed; I don't see why they should get an exemption -- aren't they already exempt from capital gains taxes on trades within the account?
Killing two birds with one stone has its appeal but these two things are so weakly related it seems only ad hoc.
June 28, 2009 5:06 PM | Reply | Permalink
Here's a tangential observation and question. I'm a Roosevelt baby (Franklin, not Theodore). During my lifetime the population of this country has more than doubled.
Question: Has the number of medical schools and teaching hospitals also doubled? How about the size of the entering class of would-be doctors training in the United States? Does the medical establishment which accredits such institutions and licenses their graduate act more like a medieval guild than perhaps it should? Do these questions sound a bit rhetorical? I'm guessing that the answers to them would make them sound even more rhetorical. I remember wee bits of economics...one can raise prices by either increasing demand or reducing supply, or perhaps a bit of both.
June 28, 2009 9:40 PM | Reply | Permalink
I think it's important to start seeing more public discourse that would be answers to your questions. I think you're going to see it, too, because I saw some GOP talking points person today mentioning the length of the wait to see a primary care doctor in Massachusetts (for those who don't know, it's important to mention, it's where some "universal" health care reform has taken place.)
June 29, 2009 12:14 AM | Reply | Permalink
Yes, the government has helped the AMA to cartelize the medical industry.
June 29, 2009 1:29 AM | Reply | Permalink
Couple that with more public funding of MD's education/medical schools, and you reduce the incentive, a bit anyway for money to be the prime motivation for entering the field of medicine.
June 29, 2009 1:34 AM | Reply | Permalink
One of the things that will have to change in the long terms to get physician salaries back down to sensible levels is physician training. The impossible hours and constant hazing of a stereotypical medical education, particularly during residency, serve as an initiation ritual that leave many doctors thinking they're fully entitled to charge whatever they choose for their services.
June 29, 2009 10:30 AM | Reply | Permalink
"The more we do to you, the less you seem to believe we are doing it." -Dr Josef Mengele
The Sweden experiment says this proposed stock transaction tax will generate negative revenue. Sweden got rid of their trans tax after only a few years of devastating results. They were warned, but it was what the people wanted. They did not want it for long.
Sounds like even a non-trader that owns a mutual fund will pay this tax four times. Once on the initial purchase, once on the exit to sell, and two more times as the cost will be passed on to you through reduced yield as the fund manager buys and sells stock and is taxed.
Consider most people and fund managers buy and sell only once per year. Consider trading volume will drop 90% and move overseas as it happened in Sweden. There will be huge inefficiencies that investors will have to pay including increased management and purchasing fees because of severely reduced competition. With severely reduced liquidity, the spreads will substantially widen, you will be paying 50 cents per share instead of 2 cents.
Anyway, thanks to severely reduced compounding from reducing yield 2% annualized over a lifetime, your retirement account will be reduced by about one half.
Enjoy!
June 30, 2009 11:46 AM | Reply | Permalink