This is Absurd

It is folks like this who continue to want to score the stimulus solely based on employment created by stimulus projects, without considering the fact that someone was using the money for some productive purpose before the government took or borrowed it.

David Brin at the Daily Kos via the South Bend Seven

There is nothing on Earth like the US tax code. It is an extremely complex system that nobody understands well. But it is unique among all the complex things in the world, in that it's complexity is perfectly replicated by the MATHEMATICAL MODEL of the system. Because the mathematical model is the system.

Hence, one could put the entire US tax code into a spare computer somewhere, try a myriad inputs, outputs... and tweak every parameter to see how outputs change. There are agencies who already do this, daily, in response to congressional queries. Alterations of the model must be tested under a wide range of boundary conditions (sample taxpayers.) But if you are thorough, the results of the model will be the results of the system.

Now. I'm told (by some people who know about such things) that it should be easy enough to create a program that will take the tax code and cybernetically experiment with zeroing-out dozens, hundreds of provisions while sliding others upward and then showing, on a spreadsheet, how these simplifications would affect, say, one-hundred representative types of taxpayers.

South Bend Seven have a number of pointed comments, but I will just offer the obvious:  Only half of the tax calculation is rates and formulas.  The other half is the underlying economic activity (such as income) to which the taxes are applied.  Brin's thesis falls apart for the simple reason that economic activity, and particularly income, are not variables independent of the tax code.  In fact, economic activity can be extremely sensitive to changes in the tax code.

The examples are all around us -- the 1990 luxury tax tanked high end boat sales.  The leveraged buyout craze of the 80's and housing bubble of the 00's are both arguably fed in part by the tax code's preference for debt.  The entire existence of employer-paid (rather than individual-paid) health insurance is likely a result of the tax code.  And of course there are all the supply-side and incentives effects that Kos readers likely don't accept but exist none-the-less.

  • TomB

    Many subsidies and tax deductions are explicitly designed to affect behavior, e.g., clean energy. The purpose is to encourage people to take those deductions or make those expenditures.

    I think checking the models can still have value, but the results obviously are far from exact.

    Also, I like the anonymous appeal to authority "I'm told (by some people who know about such things)..."

  • me

    The clue to designing efficient large processes is to stick with simple rules to govern emergent behavior. A 15% tax on everyone, no exceptions would be simpler to process and yield more predictable results. Of course, there is the question of if we could continue to afford paying bankers bonuses out of tax payer money, or spending the odd 3 trillion or so hunting down a guy in Pakistan by invading Iraq.

  • Sol

    Bravo, Warren.

  • Don

    Warren, these are the same folks that take the results of a Climate model as proof of AGW. I think that explains a lot :^).

  • Another guy named Dan

    All you'd have to do is solve a system of around a hundred million (based on number of taxpayers) non-linear differential equations on an iterative basis, parameterized over each of the rules in the tax code. And of course you'll need to run it on an iterative basis to ensure that you don't sub-optimize in any one year. Then of course you'll need to take a Taguchi or design of experiments approach to the number of sample runs to ensure that you don't get any unforseen multivariable interaction effects that will skew the output.

    Then you also have the boundary conditions that in order to produce meaningful results, you will need to be able to complete all of the simulation runs in less than one year, on a computer with a mass less than that of the Earth, consuming less power than the output of the Sun.

    Once you've completed your simulation runs and created your solution data set, you will then need to come up with a reporting/visualization system to allow a single human being the ability to determine which of the solution sets is optimal given the success criteria that have of course been agreed to by all parties before the simulation is run.

    For an illustrative example, let's assume a simple economic transaction: How much am I going to tip my waitress tonight at dinner? That depends on a number of factors, like how much money do I have in my wallet, how much of my income I budget for dining out, the price of the mean (infulenced by the tax rates on every producer of the ingredients), how much I think I'm going to earn in the next week, month, and year, whether or not the service was good, whether I'm trying to impress somebody, etc. And then remember that the waitress' taxable income is affected by dozens of these transactions every week.

    I think his people who know about such things either don't reall know about such things or else had to dumb down their explanations of the difficulties involved to the point where all meaning was lost.

  • Dr. T

    David Brin is a good science fiction writer but a mediocre commentator on modern society and expected changes. His comments about tax modeling display his lack of knowledge about both economics and computer models. The latter rarely stand up to scrutiny because too many factors are omitted and the data for included factors often is incomplete, misleading, or biased (as we have seen with the IPCC's climate modeling).

  • IgotBupkis, President, United Anarchist Society

    Brin's Transparent Society (excerpt here) is really quite brilliant.

    That he cannot grasp that if these mathematical models were all that reliable we'd have a perfect economy is really surprising.

    That he fails to understand that economics is a chaotic system with "butterfly effect" inputs is downright startling.

    > or spending the odd 3 trillion or so hunting down a guy in Pakistan by invading Iraq.

    Yeah, that was the ENTIRE PURPOSE of that. Uh-huh. OW! Dammit, it hurts when people make my eyes roll that far back!

    One word for ya:

    Clue < ------ Get one, they're absopositivolutely FREE!

  • IgotBupkis, President, United Anarchist Society

    > I think his people who know about such things either don’t reall know about such things or else had to dumb down their explanations of the difficulties involved to the point where all meaning was lost.

    AGND: I think "his people" are, unfortunately, among those people who class Paul Krugman as an "economic genius".

  • IgotBupkis, President, United Anarchist Society

    From the SB7 piece:
    >> Then there is the meta-problem: assuming you can find a significant number of loopholes and eliminate them, how will you keep them from re-arising?

    What, you mean, like, oh, Wool and Mohair Price Supports?

  • Hunt Johnsen

    I think Brin, who is a pretty smart cookie, realizes that it's hopeless. Current politics treats the world as a zero-sum game, and his proposal would attempt to change that, however his final comment reflects reality.

    "... Ah well, I wrote all of the above back when it was at least possible to imagine negotiated positive sum politics. But let's be plain. That is not the case today, amid the outright treason called "culture war," which has so desperately weakened the United States of America. We must face the fact that normal politics is dead. There is only one analogy for the state of simplistic, imbecilic rage that we are currently experiencing.

    We are in Civil War part III."

  • Hunt Johnsen

    By the way, Don, I'd be really surprised if David Brin or many other serious science fiction writers take global warming models seriously. Most have a bit of a scientific education and many are practicing scientists as well.

  • Val

    Apparently David Brin doesn't understand that the economy IS the computer.

  • T J Sawyer

    Well, every year around April 1, there emerges a story of the relatively straightforward family of four with a bit of investment income and a bit of business income. Ten tax-preparers apply their best efforts to "model" the family's tax bill based on current tax laws.

    And what do they get? At least ten different answers.

    Why would anyone think that the entire current tax code could be modeled in its entirety with any greater accuracy? Oh, I know, modelers always think they are much smarter than accountants and lawyers. But just see Dr. T's comment above for where that leads.

  • dave smith

    Absurd, indeed. Beyond that. Downright stupid. The guy needs to read Robert Lucas' critique.

    Or better yet, he needs to pick up Steve Landsburg's "Armchair Economist" and read about corn flakes and punting in football.

  • ArtD0dger

    Huh. Haven't we been hearing ad nauseum that market fundamentalists who argue for the rationality (and tractable modeling) of homo economicus are the naive fools?