Another topic I have discussed before - see How Good Intentions Lead to Crushing Marginal Tax Rates on the Working Poor.

FreeExchange wonders if effective marginal tax rates of above 100% really do create a poverty trap:

Here is what I'd like to see CBO, or someone, put together: a statistical investigation into whether or not the trap actually traps. It's not that I don't understand the negative incentive effects at work here, it's just that those aren't the only factors being considered by individuals deciding how much to work.

If the line shown above ended with the dip just below the $40,000 level, the effects of the change in implicit tax rate would be clear. But it doesn't. Notably, it continues to the right, on a steady upward slope. And one assumes that the only way to move from a point to the left of that dip to a point on the right of that dip, which is where you want to be, is to go through the dip. Any worker opting to return to a lower income level would essentially be cutting off the possibility of moving to the fat part of the line with the next raise.

I do not find it particularly plausible that someone earning $10,000 a year would accept above-100% marginal tax rates because it is the only way they will be able to earn $40,000+ levels of income in the future. I suspect that an income level that high would be seen as too far off.

That being said, I think there are reasons to wonder how much the poverty trap actually traps. Because the tax and transfer system is so unbelievably complicated, I suspect that ex-ante people do not realize exactly how high marginal tax rates are. They only discover, ex-post that their 'take' would have been higher had that not attempted to increase their market income.

From CBC News:

Fast food, coffee and newspapers are some of the items the Ontario government says will be exempt from a controversial blended sales tax the province will implement next year.

"It's important for Ontarians to know that today's announcement is about far more than not raising coffee prices," Ontario Finance Minister Dwight Duncan said in front of the backdrop of a Tim Hortons franchise in Toronto's west end.

Taxing everything else but excluding fast food is a de facto subsidy on fast food, which contributes to a rise in chronic diseases such as Type II diabetes. A Starbucks tall cafe mocha, with 25 grams of sugar, will be exempt from taxation. Is this really the kind of thing governments anywhere should be promoting?

I have said it three times this week (see here, here and here) - if we want the government to be improving the health of the population, and obvious first step would be for the government to get rid of the laws that contribute to poor health!

A continuation of Inflation as an Arbitrary Concept.

Peter G. Klein left a comment that indicates that Scott Sumner and I are not the only economists leery of the concept of inflation:

Mike, you and Scott have some distinguished predecessors. Gottfried Haberler made
the same argument in his 1927 book _The Mean of Index Numbers: An Inquiry in the
Concept of the Price Level and the Methods of Its Measurement_. E.g.: "The relative
position and change of different groups of prices are not revealed, but are hidden
and submerged in a general index. Not the movement of the general price level, but
the chronological succession of special price and price combinations ... are regarded
as significant for the waves of business life.... Such a general index rather conceals
and submerges than reveals and explains those price movements that characterize and
signify the movement of the cycle."

I have to admit, my knowledge of the history of thought in economics is quite limited, so I quite enjoyed learning this (it was new to me). I decided to do some additional research (a.k.a. a Google search), and found Gottfried Haberler: A Centenary Appreciation, a summary of the man's work. I found it quite enlightening.

I figure there have to be more economists to take this view - any other names to add to the list? I still suspect, though, that we are in the minority. Too many textbooks treat the concept of inflation as an objective concept that we try our best to estimate. It is not, because our basket of goods changes over time and any attempts to account for this are based on subjective 'judgment calls'.

A continuation of How the U.S. Government Can Increase Health Without Spending More Than a Cent and The Ongoing Ridiculousness of the Health Care Debate.

I tend to look at the problem differently than 'controlling cost' - to me, the problem is more 'How do we get the healthiest population possible at the lowest cost?' (which is related, but different). The New York Times brought out 9 experts to give their ideas. Of those, I believe two of the nine recommendations would work as intended. First, Arnold Kling:

The key to containing health care costs is to reduce spending on medical procedures that have high costs and low benefits. In order to do that, you have to increase the share of spending that is paid for by patients and reduce the share that is paid for by third parties, so that consumers will think twice about high-cost, low-value procedures.

Prof. Kling recognizes that the problem is a demand-side one as much as a supply-side one. My recommendations have been to reduce demand by promoting healthy living and lowering pollution. This is another way of reducing demand.

Secondly, Prof. Herzlinger:

There is a way to raise revenues and also control costs: Congress could simply extend the present tax exclusion of employer-sponsored health insurance to a cash-out of those costs as additional salary that employees could use to buy their own health insurance. This approach would motivate insured employees to treat their health insurance as if they paid for it directly and appeal to taxpayers.

I have always found the tax treatment of health care plans odd. As an employer in Canada, if I give a worker an extra $200 a month in salary, the employee is forced to pay income and payroll taxes on that amount. However, if I give an employee $200 worth of health care insurance, no taxes are paid on that by the employees (provided that certain conditions are met). As an employer, either form of remuneration counts as an expense, so the tax implications for the firm are the same. Thus the tax system is biased in favour of giving employees expensive health care plans.

Overall, though, I find it frustrating that so many of the proposed policies are expensive 'supply side' solutions to what is, at least in part, a demand side problem.