Archive for February, 2014

Bitcoin

I’m fascinated by Bitcoin, but not as a currency. I enjoy it’s mathematical underpinnings, its algorithms, its self-enforcing decentralization (I like torrents for the same reason). It is pretty ingenious with its block chain record of transactions and its use of cryptography, which I love.

As a currency, though? It’s absurd. Ignoring the fact that every major exchange eventually seems to go under, as a currency it has a lot of limitations. It’s incredibly volatile: any merchant that accepts Bitcoin for payment for something like a TV has to contend with the fact that in a week that Bitcoin may be two TVs, and a week later just half of one. Foreign currency exchange risk is a huge factor for even the most languorous of currencies, such as the USD/EUR exchange rate; I can’t imagine keeping the books on something as insane as Bitcoin.

Also, I find it hilarious that it seems the most avid haters of fiat currency such as the U.S. Dollar are most in love with Bitcoin, which is the ultimate in fiat currency. Maybe it’s the anarchic rejection of any centralization, or maybe because Bitcoin’s inherent deflation is in line with what contemporary goldbugs want. In any case, seeing people cling to Bitcoin and reject the major reserve currency that can be used in nearly every country on Earth is pretty funny.

I have no idea what the future of Bitcoin will be, but I think it’s much more likely to be a fundamental case study in a math or crypto class than a fundamental part of our economy in the future.

Tax Brackets

I’m with Atrios here (warning: profanity). The easiest part of computing your taxes is the calculation of tax from Adjusted Gross Income (AGI) facilitated by the tax tables. You could have one bracket, ten brackets, a hundred brackets, or an elliptic curve; the lookup tables make that computation simple, and the fact that most people use computers to e-file means that it takes a fraction of a second to compute even the most complex of tax brackets. Even my most favorite calculation in all of government, Minnesota’s transportation sparsity formula, is a cinch to calculate in no time:

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No, the complexity of the tax code comes from all the random deductions and credits that exist. Those are the million questions that are asked of your when you use a computer program to fill out your taxes; those are questions 8 through 61 on your friendly 1040 form; those are the countless other forms you need to fill out to calculate your true AGI. That’s the real time-sink, and if you eliminate all those adjustments, deductions, and credits, you will save real time and make the tax code much simpler.

So why don’t we get rid of all that extra stuff? Well, for one thing, most of those deductions are credits are very popular: the 401(k) exclusion, the mortgage interest deduction, student loan interest deduction, capital gains exclusion on the sale of homes, charitable contribution deduction, local tax deduction…lots of people (including me) take advantage of them. Plus, you have an asymmetry of incentives here: if a tax loophole that I can’t take advantage of ultimately costs the vast majority of American’s only $1 but enriches a select few to the tune of $1,000 a year, who is going to be more vocal in terms of deciding that deduction’s fate?

Of all the reasons to reduce the number of tax brackets in our tax code, simplification is not a legitimate one.

Healthcare Agonistes Redux

It’s been a few months since the launch of the health care exchange, one of the biggest remaining pieces of Obamacare. It’s been rocky, but the numbers are not too far off from projections. As the exchanges and the other pieces of the law become status quo, however, that has not stopped the doom and gloom stories. Obamacare will cut two million jobs (or maybe not)! Obamacare is the cause of AOL’s decision to cut 401(k) benefits for its workers! As much as people try to blame Obamacare for the latest business decision or news story, it’s true that the law has started changing our economy. However, these changes are for the better.

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2013 Tax Incidence

Hey, it’s time for my now-annual blog post on tax incidence! Graphs below…

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