36 Comments

The risk premia might be avoided if the auction were denominated in a risk asset, such as an S&P500 index fund.

Expand full comment

The main problem I see with this scheme is that such tax-rights would be financial assets with a very long maturity, hence they would be very volatile in reaction to any policy changes. This could be an incentive to avoid the kind of changes affecting wages negatively, but it also implies that tax-rights can be expected to trade heavily discounted. The more uncertainty there is in a debt contract, the more costly it will be as an instrument to get funding. I'd say that's the reason for governments all around the globe to issue debt in USD (instead of local currency), or even TIPS in the US, but not so much century bonds or perpetuals. https://uploads.disquscdn.c...

Expand full comment

It's a good idea. It seems worth a try on a small scale at first.

It might be useful for some audiences to present it as just another way for the government to borrow money - one that has useful side effects.

I presume that if there was a change in tax rates or thresholds, agents would be insulated from such changes. But what about from effectiveness of collection efforts. One potentially profitable approach would be for agents to spy on their tax sources and report any tax evasion. But if the government only has to pay agents what they collect why would the IRS care? Presumably to protect the value of future contracts. Could the agents have rights to collect directly? They may want this right in the contract just in case the government abandons the program. Would people then object to the program? Wouldn't people whose taxes have been sold be in a legally different tax position than people whose taxes haven't been sold?

Currently the government is everybody's agent, and indicrectly everybody is everybody's agent. There is an incentive for agent like behaviour to occur, and govrrnments do provide education and other things to enhance future income earning abilities of its citizens. But currently those incentives and agent type activities are diffocult to untangle from all the other incentives affecting the government.

It may be the case however that it is a big part of what governments do, depending on how you see things. I can't see exactly right now how to classify police, defence , health, education, libraries etc. in terms of government acting as agent. Perhaps due to their coercive powers governments are more effective as agents e.g. making kids go to school, stopping people driving recklessly etc. Is there a way to work this out?

Expand full comment

There are more taboos against borrowing to spend than spending money that one already has. Political pressures to spend surpluses or refund them as tax rebates seem stronger than pressures to deficit spend so I would be wary of booking auction proceeds as current year revenue (which would be incorrect accounting for private corps anyways but might be how government does it). I have more confidence in the endowment, given that universities seemed reluctant to spend down endowments during the pandemic crisis.

Expand full comment

"What stopped the Publicani from collecting more taxes than they had a right to"

Nothing. They did collect more taxes than they had a right to. They took as much as they could get, and no rule limited them.

This is one of the main reasons the New Testament includes this in lists of immoral professions.

Expand full comment

"assuming they have a way to sustain themselves otherwise"

With that assumption I would already be doing that to the government, except that it would be refusing to work period, regardless of being taxed or not.

So that is meaningless as an objection; it is *already* the case that if you don't have to earn money you don't have to pay taxes.

Expand full comment

ALL of your associates have substantial conflicts of interest with you. Including career agents. Doesn't mean isn't worth listening to the advice of associates.

Expand full comment

An analogous situation is startup founders who have investors. Startup founders sometimes complain that their investors push for higher-variance strategies than they would choose themselves, ie sacrificing a sustainable business in exchange for a small chance of massive growth. This makes sense given the incentives; an individual founder cares about their income on something like a log scale, while the investor is scoring it closer to linear.

Expand full comment

The main downside to having this sort of agent is they can't be trusted on any issue that bears on the tradeoff between income and other values. For example, they would consistently push people towards working in better-paid but lower-fulfillment professions, having fewer children, and moving to higher-cost-of-living areas. It is not obvious to me that having advisors incentivized in that way is better than not having advisors at all; the paths with the highest social value tend to involve sacrificing some of one's earnings potential.

This might still be better than what people currently get--schools which barely try to give life advice, and which are incentivized according to worse metrics like college attendance rate.

Expand full comment

"You might not think the government entitled to such income taxes, but you gotta admit the odds of changing this situation anytime soon look slim."

Yes, but the odds of your proposal being adopted seem equally slim, perhaps even slimmer, since there are already people who argue that "taxation is theft" and would like to repeal the amendment allowing income tax.

Not saying that because it is a bad proposal: it seems clearly better to me than the current system. But so does zero income tax, and I doubt either one will happen.

The fundamental problem is this : the government does not believe it owns a percentage of your future income. It believes it owns ALL of it, and it is only from generosity that they let you keep any of it. What would actually happen under this system is that they would find it politically easier to raise other taxes even more, and yes that would affect auction revenues, and might even ultimately result in lower government revenues as a whole. Irrelevant. The government does not in fact care much whether they are maximizing their revenue as a whole or not.

Expand full comment

But then their auction revenue dries up. And voters get unhappy as they look down the game tree.

Expand full comment

Your endowment fund proposal seems a plenty adequate solution, though probably not necessary. I don't see why this problem is worse than the over-borrowing problem, which seems to be managed.

Expand full comment

Love the idea from a human capital standpoint. Btw, I would refer to the "agents" as (human capital) equity investors, which I think is more clarifying. The right to receive a fraction of a person's future wages is a share of their human capital. Robin's proposal is that the government sell that equity right to private investors, who will have more skill and incentive to maximize the value of that equity. Like venture capitalists, but for individuals instead of firms. Both the person and the investor own shares of the person's human capital so their interests are quite aligned. Of course, the person has other, non-pecuniary interests too, so the person and investor are not perfectly aligned.

I don't like the idea from the perspective of government fiscal discipline. If we allow government to receive its income tax revenue as one lump sum (from the auction) rather than as a stream over time, then I worry it will spend it all at once. Government can already do this somewhat --- and does probably too much --- by borrowing against future tax revenues. However, I think political constraints on spending auction proceeds immediately would be even less than the already too-small constraints (nowadays) on running up debt. (On the other hand, perhaps putting auction proceeds into an "endowment fund" and limiting spending to a percentage of endowment assets might work.) Finally, we have the problem that @disqus_hmi4iu4CLr:disqus mentions which is that, once government overspends auction proceeds or limits its own access to them, it will look to raise additional revenue through other types of taxes. Again, the issue is how popular perception shapes political constraints. It seems politically harder to levy a sales tax if the government is currently also collecting an income tax than if the government sold off the income tax rights in the distant past. In the latter case, people may not perceive the payments going to the investors as a tax levied by government.

Expand full comment

you don’t just «become» a hedge fund manager

Expand full comment

Step 2: government slashes tax on wage/salary income and jacks up sales tax, dividend tax, property tax, etc.

Expand full comment

This would introduce agents whose incentives would push people to work in high-income fields, rather than high social benefit fields. Do you feel that the world needs more hedge fund managers and less elementary school teachers?

Expand full comment