26 Comments

This might sound crazy authoritarian but why don’t we just pay poor women in poor countries money to breed the babies of the smartest and best individuals we can find. Best = most desirable traits, raise them in government child care and have super adults who are really productive later on. Kind of more efficient if you ask me

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I like my idea I might write my own article on substack to get credit for it 😂😂😂

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This incentivizes parents to prevent their children from moving abroad, avoiding taxes (at least for non-US citizens). Not that this is per se bad, some prevention of emigration mechanisms might actually be necessary for proper stimulation of investment in human capital. In football there is some rule that every time a player transfers, some % goes to the academy that he got trained at, which is actually a cash cow for smaller clubs from Croatia, Portugal, Netherlands, etc.

However, I do think you underestimate, in your calculation of unfunded liabilities, the ability of wealthy, Western countries to attract foreign workers, to (partially) cover these liabilities. Of current US debt + other unfunded liabilities, a significant share will be paid by people who at this moment live abroad.

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This could incentivize parents to raise children to be very career-focused at the expense of having grandkids. Might be advisable to give parents an X% PTA for their kid and an X/4% PTA for each future grandkid when the kid is born.

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Selling PTAs won't work unless future tax rates are fixed; at least, the government must pledge not to *reduce* rates. The present instantiation of the government would not want thus to bind future instantiations: political circumstances might change in a way that made lower/higher tax rates seems desirable, and the government wants continually to tweak the tax code to deal with novel methods of legal tax avoidance. Also, I am not sure, not being a lawyer, that the present government has the legal authority thus to bind future ones.

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author

If future tax rates are not fixed, then investors have to estimate and then accept such risks. But they already do that re govt bonds and inflation.

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The more PTAs the government sells, the greater its incentive to reduce tax rates (especially targeted reductions for the sort of people whose PTAs have already been sold). There is no comparable perverse government incentive regarding inflation.

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author

Not true. The more bonds the govt sells, the more it is tempted to inflate to cut that debt.

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Oct 2, 2023Liked by Robin Hanson

OK, you're right. Bond-buyers estimate future inflation, but the govt. can always surprise them. PTA-buyers similarly estimate future tax rates, with no assurance what the actual rates will be. The govt. is in the driver's seat.

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Nonexistent people cannot sign contracts or enter into any obligation.

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author

Did someone say they could?

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Do you have a writeup of the basic/fundamental PTA proposal? Specifically, how are PTA prices determined, and how is adverse selection avoided? The claim "PTAs are worth more when held by their target taxpayer than when held by others" seems to be based on the idea that someone could underpay for their PTA in order to free themselves up to be more productive. This would SEEM to just be equivalent to lowering income tax rates in the first place. Revenue is lower, productivity is higher.

I mean, reducing income tax impact is a good thing, but this seems a complicated way to achieve it.

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author

The description of an asset doesn't include how it is traded, that is a separate choice. For cutting tax rates, it would work to have an auction to sell a large chunk of PTAs all to a single buyer. The most that someone else is willing to pay will be less than what the target taxpayer would be wiling to pay.

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The description of an asset must be specific enough to reason about how it'd be traded under changing conditions. The ability to alter rates and exemptions on future earnings is a LARGE part of why tax revenue is materially different from other future cash flows, not just the uncertainty and payer-influence of annual taxable earnings. My mental model is that only the constant and predictable part can be sold, but that eliminates most of the advantage of asset-ization in the first place.

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author

A great many assets are traded now with hard to estimate and control risks. These include real estate and firm stock.

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The key difference, which is the primary thing which confuses me about this proposal, is that those risks are not under the control of the securitizing/selling agent. Tax policy is under the control (loosely speaking) of the agency which is selling the product of future tax collections.

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author

The value of a firm stock is very much influenced by risks that no one associated with the firm controls.

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Can PTAs be applied to corporations?

Initial thoughts:

-trickier to track through time as assets trade

-obviously PTA value is correlated with stock value so it loses benefit of balancing risk

-crafty state governments might want to buy as stationary bandit

-harder to estimate beforehand, but that’s why there’s secondary markets

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author

Sure, that could work.

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Oct 1, 2023·edited Oct 1, 2023

Seems like the key difference is that today governments borrow against all citizens by printing money and buying those bonds while PTAs would be borrowing against specific citizens. This seems like great optionality for the citizen, but it's unclear why gov would want to be on the hook for recruiting individual investors instead of just borrowing against the whole.

Two asides:

1. It may end up looking like a "vote" where citizens can choose to invest in a current government when they feel strongly about the current party's platform.

2. They'd make us be accredited investors to reap any of these benefits, likely making this another way for the richest to avoid taxes!

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author

I'm not sure you understand the proposal.

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Oct 2, 2023·edited Oct 2, 2023

I understand you are proposing:

- Tom is expected to pay $100 per year in taxes

- Third party pays $900 today to earn the next 10 years of Tom taxes

- Gov benefits by receiving $900 today

- Third party can interfere to increase Tom’s annual taxes to >$100, increasing 10 year investment value beyond the starting rate of return.

I don’t see why an individual couldn’t also be the third party. You still deal with the gov<>agent problem of gov thinking it’s better to pawn off it’s future finances at set terms with each individual investor who fronts the upfront payment.

If this is reading comprehension problems on my side then i) apologies and ii) maybe you could add a more explicit example to your article to make it easier (for dummies like me) to understand.

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author

Govt bonds are sold at auction, and so can PTAs. No need to be "accredited"; you just have to have the money to pay for your auction bid. Bond investors have always reacted to the existing govt regime and PTA investors probably would as well. Not clear why that is a problem.

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Should the gov offer same terms to each individual?

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author

Not sure which terms you have in mind here.

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The financial terms.

how I understand your prop:

- a pta is for the taxes of a specific person

- if there are ptas sold for ME I expect them to reflect a POV on my future earnings

- this could mean I want different terms on returns from my pta than Joe down the street

- individuals could also outbid an initial bid on my PTA based on their ability to influence my future taxes

Then, does my boss promote me simply to arbitrage the current returns on my taxes vs future?

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