Wednesday, November 20, 2013

one more thing about that

UPDATE: Feel free to read this post, but disregard all its numbers and therefore possibly its conclusions. Commenter Erik Hetzner points out fatal problems with the way me and Matt used these data. Two problems: first, "net cost of attendance," the measure Matt used to indicate out of pocket tuition cost, is not the right number. The right number is net tuition. Second, I didn't realize that when the College Board divides families into quartiles they are not evenly sized quartiles, but rather based on arbitrary cutoffs that the CB makes up. This means the calculation I tried to do here is basically impossible with publicly available data, at least as far as I know. Conclusion for now: de omnibus dubitandum.

Just a quick addendum. In that last post, I said you can't argue that making college free would be a windfall for rich kids, because it all depends on how it's paid for. That led to a back and forth in comments and on twitter about how progressive various kinds of state and federal taxes are.

But let's make this simpler and ask: how progressive would a new free-college tax have to be (in a strict bean-counting sense) to make it a better deal  for poor families than the status quo? And the answer is: it wouldn't have to be progressive at all.

That's because the status quo method of college financing, in which poor students have to pay for college but get a discount compared to rich kids, is itself highly regressive, notwithstanding the discount. Let me show you, using some calculations I've done based on Matt B. own numbers:

As you can see, every income group except the richest -- including the poorest -- currently contributes a bigger share of out-of-pocket tuition than their share of total income. What that means is that even if tuition were eliminated and replaced by an absolutely flat income tax levy -- say, a flat 0.5% surcharge for everyone, or a figure slightly higher but with the poorest exempt -- it would still represent a more progressive financing system, in dollars-and-cents terms, than the status quo.

And, I would argue, a more progressive system in lots of other ways too.

Let's not play hard hat versus hippie

Matt Bruenig has been on a jihad about free college. The subject annoys him. I’m not going to speculate about his motives, even though he does a lot of speculating about other people’s motives. His work is generally great, and I think I actually sympathize with some of the basic impulses behind his crusade.

I’m just going to point out as briefly as possible why he is wrong on his central point.  

I take Matt’s central point to be this:
If the class composition of college will not change in response to college being free (which I think historical and contemporary evidence suggests is the case), then making college free will primarily be a windfall for the disproportionately rich kids who will still be the ones in these college spots.

My simple observation is this. Whether or not that claim is true depends entirely on how such a policy is paid for. Rich kids will undoubtedly get a disproportionate share of the free college seats, but they’ll also probably pay a disproportionate share of the taxes.

Let’s be specific. Here is Matt’s chart:

The numbers are a little dated, but the reddish bars show college attendance rates for the generation of kids that was college-aged around the year 2000 (the “79-82” birth cohort). In that generation, 37% of kids from the highest-income families (the top quarter) attended college, but only 13% of those from the poorest families (the bottom quarter) did. In another chart, Matt shows that the net cost of college attendance is almost twice as high (1.85 times as high) for high-income students as for low-income students.

OK, so all of that definitely means if college were made free and there was no change in relative attendance rates, higher-income kids would get a disproportionate share of the benefits.

But what proportion of the costs would they pay?

The only source I know of that estimates the distribution of tax burdens for all levels of government (federal, state, local) is Citizens for Tax Justice. Here is their updated chart for 2013:

According to this chart, the highest-income quintile (the top fifth) pays 65% of all taxes, while the lowest-income quintile (the bottom fifth) pays 2%. (The numbers are about the same if you just look at federal tax data from the better-known Tax Policy Center.) These numbers aren’t strictly comparable with Matt’s college data since they divide the population into fifths rather than fourths.

But it doesn’t really make any difference, because the conclusion is clear. The total amount currently being paid out-of-pocket by the top quartile of college-going families is about five times the total amount currently being paid by the bottom quartile. But the top quintile is paying well over thirty times as much in taxes. (An apples-to-apples comparison of quartiles might knock that figure down to maybe 25 times.)

In other words, unless free college were paired with new taxes that were  far, far  more regressive than the current tax structure, it would represent a clear redistribution from rich to poor.

But that wouldn’t be the only benefit of free college. In fact, the reason I bring this up isn’t solely to cavil over statistics. The general style of Matt’s approach leaves me cold. He has a tendency to strip every question down to a single criterion: how many net consumption-units will the lowest income group have relative to higher-income groups. That’s an important question. But it’s only the overriding question when we're operating in the realm of an Internet Fantasy Policy game.

God knows I have nothing against talking about government policy. But let's not forget that writing out a policy proposal to squeeze out the maximum number of consumption-units for the benefit of the poor doesn’t actually benefit the poor at all -- any more than writing out a proposal for free college does, or, for that matter, having a Twitter flame war about privilege.

If consumption-unit-maximization for the poor is what interests you, the only way to get it is through a real-life politics in which the poor can create some social power for themselves. It should be obvious that systematically casting the interests and grievances of the poor in opposition to the interests and grievances of everyone else is exactly the wrong way to accomplish that.

UPDATE: For some further important points about taxes, see the comment below and my reply.

Wednesday, September 18, 2013

Obamacare: Don't Believe What You Read (first in a series?)

The liberal MSM would have the sheeple believe that Obamacare is, or will be, producing miraculous cost savings in health care. See a million slippery, suggestive blog posts like this or this.

Now, it's true that health care costs have been rising more slowly than normal as of late. But it's not clear how Obamacare could possibly be the cause. Obamacare contains no serious cost control mechanism. And there's a simple reason why it doesn't.

As Our President said countless times, the Obama-Heritage plan is rooted in the eternal verities of choice and competition. Yet choice and competition are precisely why US health inflation is so high in the first place. Every other country uses some form of price control to control costs. The uniquely American solution of the "Demo-plan" was concocted specifically to avoid that scenario.

Why? Because, as a senior Democrat involved in drafting the law explained: “There was no way we had the votes in either the House or the Senate if PhRMA was opposed — period.” And the same went for the hospitals, the insurers, and so on.

The meta-theory behind Obamacare was that since a good law didn't have the votes, it was more realistic to pass a bad law and pretend it was good. Now we are engaged in a great experiment, testing whether that law, or any law so conceived, can long endure; we are met on a great battlefield of that experiment.

So anyway, it turns out that Obamacare did not control U.S. health care costs. As the chart below demonstrates, it did way better than that: it controlled health care costs in the U.S. and the rest of the world at the same time. And it started working before the law was even passed. (This is what is known as a wonkblague.)

The remainder of this post consists of a graph. Please click on the graph for full enjoyment: