Quantitative tax modeling?
Yes, it’s true. I’m going to talk about taxes. Don’t leave! Wait! I promise I’m going to keep it sexy. Buckle up for the most titillating tax convo of your life. Or at least the most bizarre.
Think of us as Murakami characters. I am a young woman, symbol both of purity and of unearthly sexual power, and I’ve taken your hand and led you down a well. We are crawling in underground tunnels looking for an exit, or perhaps an entrance. This is where taxes live, down here, along with talking animals and Bob Dylan recordings.
Do you know what I hate? I hate it when people say stuff like, the Cain 9-9-9 tax plan is bad for rich people. Or that it’s good for rich people. I hate both, actually, because you hear both statements and they both seem to be backed up with numbers and it’s so confusing.
But then again, this stuff is pretty confusing. Even when I think about the most ridiculously stupid questions about money I get confused. Even just the question of “what is the 1%?”, which has been coming up a lot lately, is hard to answer, for the following reasons among others:
- By income? Or by wealth? This matters because most rich people have most of their wealth in savings. They may not make any salary! Living off dividends or some such.
- Measured by individual? Or household? This matters because people with good jobs tend to marry each other.
But you know what? Just give me the answer in any of the four cases above – they are all reasonable choices. And tell me exactly how you’re doing it – which reasonable choices exactly? Better yet, write an open-source program that does this computation and give it, and the data you’re using, to me so I can tweak it.
As I write about this I realize I should confess here and now: I know nothing about taxes. However, I do know something about modeling, and I think in a certain way that makes it easier for me to imagine a tax model. And to critique the way people try to talk about taxes and tax plans.
Here’s my point. Let’s separate the measurement of a tax plan from the tax plan itself- it’s too easy to find a pseudo-quantitative reason to hate a tax plan that you just happen to disagree with politically (for example, by finding a weird theoretical example of a rich person who doesn’t benefit from a given tax plan, without admitting that on average rich people benefit hugely from that tax plan). If we already agree on a model for measurement then we could try to resist the urge to spin, even to ourselves.
Of course we’ll never agree on a model for measurement, so instead we should have many different models, each with a set of “reasonable choices”.
Characteristically for Murakami characters, we do not shirk from the manual labor and repetition of creating a million mini universes of tax scenarios, like folding so many tiny origami unicorns. We write down our thoughts in English and translate back to Japanese, or python, which gives it an overall feeling of alien text, but it has internal consistency. We can represent anyone in this country, under any tax situation. We may even throw in corporate tax structure models while we wait for our spaghetti water to boil.
Once we have the measurement machine, we feed a given tax proposal to the machine and see what it spits out. Probably a lot, depending on how many “reasonable choices” we have agreed to.
Average them! Seriously, that’s what you do in your head. Right? If you hear that so-and-so’s flat tax plan is good for rich people if you consider one year but bad when you take into account retirement issues, or some such thing, then overall, in your head, you basically conclude that it’s kind of a wash.
So by average I mean a weighted average where the weights depend on how much you actually care and believe in the given model. So someone who’s about to retire is going to weight things differently than someone who’s still changing diapers.
What could the end result of such a system be? Perhaps a graph, of how taxes in 2009 (or whatever time period) would have looked like under the putative new plan, versus what they actually looked like. A graph whose x-axis is salary and whose y-axis indicates relative change in tax burden (by percent of taxable income or something like that) of the new plan compared to what actually happened.
It’s nice to use “what actually happened” models since the current tax code is impossibly difficult, so we can duck the issue of writing a script that has the same information just by pretending that nobody cheated on their taxes in 2009. Of course we may want adjust that once we have a model for how much people actually do cheat on their taxes.
If we have decided to build a corporate tax model as well, let’s draw another graph which compares “what happened” to “what would have happened” based on the size of the company. So two graphs. With code and data so we can see what the model is doing and we can argue about it. We’re at the bottom of the well looking up and we see hazy light.