Sunday, December 30, 2012

The labor incentive effects of raising income taxes--a personal view

I like the stuff I buy.  If you raise my taxes, I will probably consult a little more so I can keep buying that stuff. This is the income effect being more important than the substitution effect.  I know that it is for me, and I am pretty sure it is for lots of others, as well.

"We are all in it together," and benefits taxes.

Tyler Cowen says that the Republican Party should propose raising taxes on everyone because, "we are all in it together."

To some extent, this is a benefits tax view--a view that we should pay to society our fair share of what we get from society.  But the implication of this is not necessarily that everyone should sacrifice in order to put us all on a sustainable fiscal path.

With Ronald Reagan's election in 1980, the US saw a sea change in tax and regulatory policy.  While the policy was suppose to benefit everyone, it clearly hasn't.  For the bottom quintile of the income distribution, income has risen about 5 percent since 1982 (the first year in which Reagan's policies bit); for the next quintile, it has risen 8 percent; for the next, 11 percent, for the next, 20 percent, and for the highest, 45 percent.  But most of the highest quintile didn't do so well--the top 5 percent has seen average household income rise by 68 percent.

These data are before tax, and come from the US Census, Table H-3.  Before anyone suggests that this means that everyone has benefited, I should point out that average income in the lowest quintile of the income distribution is $11,239, which is right at the Federal Poverty Level for a single person household.  In a benefits tax view of the world, people who haven't sufficient income to live should not be taxed (they are living at subsistence levels as it is, and taxing them makes thing worse).

So let's begin by holding the bottom quintile harmless in doing any kind of deficit reduction.  But what of the remaining quintiles?  If we look at the share of income growth by quintile (excluding the meager income growth of the bottom quintile), we find that 3 percent went to the second quintile from the bottom; 7 percent to the next; 18 percent to the next, and 73 percent to the top quintile.  So little has gone to the second and third quintile from the bottom that one could make a case that they should be left along as well.

The fourth quintile, though, has seen a material improvement in incomes, so it is probably OK to ask this group for something--this includes people who nearly everyone would consider middle class.  Nevertheless, the lion's share of the benefits of the policy changes of the early 1980s has appeared to go to the top quintile, and so the top quntile should pay the most to put us on a sustainable fiscal path.

One last calculation--the top 5 percent got 57 percent of the income growth within its quintile.

It is true that households move in and out of quintiles, but as Dalton Conley shows, not as much as we would like to think,  In any event, we have not been all in it together when it has come to benefitting from the policies of the past 30 years.

Less and More in 2013

I've got a lot on my mind for 2013.  I began jotting down some ideas of what I want more of in my life and what I want less of.   The list started off with "less sugar" as I came down from my Christmas sugar coma and felt so blah- yucky skin, lower energy, and a feeling that I needed a sugar detox.  But the list immediately grew into deeper things.  The older I get, the more I find we all want these deeper things.  We all crave inner peace, a full life, and true love.

I'm hoping to keep the momentum of slowing down, keeping priorities straight and spending time purposefully going throughout the year.  I want peace and beauty.  Life and joy.  The promise of hope and a fresh start that a new year brings.  

I really think it's going to be a beautiful year.

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Friday, December 28, 2012

Honey We're Home 2012 Recap

One of the things I like best about home blogging is that it's a chronicle of your life, a record of what you've been up to on the home front.  As the year comes to an end, it's fun to look back and see the visual reminders of what happened throughout the months.  2012 marked the second year in this house and we definitely made some improvements.  I picked one post from each month to show some of the progress/projects throughout the year.  You can click on the picture to read the entire post.


I stared the year by restyling our media cabinet in the living room.  I painted the back Jamestown Blue when we first moved in, but the shelves were mostly monochromatic until January when I added in more books (some for $1 at Half Price books), and some other decorative objects and photos.

I get a lot of questions about the media cabinet, where we got it, etc.  This unit was built in with the house and designed by our builder.  I plan to show you behind the doors and drawers in the near future.  Handy things like diapers, crayons/paper, and television equipment lives in there.  Hopefully, diapers will be obsolete around here in the near future.  Tips anyone??


In February, our master bedroom got a whole new look with new upholstered bed and bedding.  The bed is from Overstock and I still love it- although a taller headboard would be more dramatic.  We previously had a dark brown leather headboard and this change makes the whole room feel lighter and brighter.  

(Surprisingly, this was one of the most popular posts on my blog this year.) 


I was feeling a little crafty in March and punched out about 400 mini hearts and made some paint chip art on canvas.  These boards hung on my office wall for many months, but have since been replaced by a large silver mirror.  


One of my favorite new additions to our home was the fiddle leaf fig.  It was so pretty and looked so good in the living room.  Sadly, the tree died.  I had one in my old office that thrived (the office got a ton of natural light and there was a professional to water it).  If you've kept your fiddle leaf fig alive, I'd love to hear how!


I added a cowhide rug to the living room after eyeing it for months.  I liked the layered look, but have since moved the rug to my office.  


In June, I showed you our master bathroom.  I like to keep the counters pretty bare and use the drawers and cabinets to store everything. 


I updated our summer mantle with a large aqua and white chevron vase from Kirkland's that people really liked.  I also changed out the mirror from a heavy wooden square to this larger gold one.   


One of my favorite projects of 2012 was painting our kitchen cabinets dark grey (Urbane Bronze by Sherwin Williams) after being inspired by Emily A Clark.  The dark paint and white accessories made such an impact in the kitchen. I only wish I'd done it sooner!


Being passionate about healthy eating, I launched a health and fitness blog, Honey We're Healthy.  The blog features recipes and workouts, including the routine I'm currently doing and my progress.  The most read post this year was actually a post from 2011 "My Eat Clean Meals" and another top post was  also from 2011 "Losing the Baby Weight".  Having seen such interest in these posts helped me decide to start a second blog so I could develop those topics more and keep Honey We're Home mainly about home/decor.  


A favorite room makeover this year was my home office.  The simple act of turning my desk to face the window made a huge difference and then I painted the walls white, changed out the drapes and rug, and lined the Ikea Expedit bookshelf with a flat sheet.  


Another quick update to our home was achieved when I painted our interior door dark grey.  I love the result.  


Finally, I showed you how to make your own Christmas card with the free online photo editing tool, PicMonkey.  It's so easy and fun to use- I'm always playing around on their site. 

I also wanted to thank my top ten blog referrers of 2012:

Most of all, I want to say THANK YOU to Honey We're Home readers!  A few months ago, I mentioned I might have deleted some reader emails before responding when I intentionally cleared out my inbox in an effort to simplify my personal life.  I have felt terrible about it ever since and have begun to filter emails so I don't miss any of your messages from now on.  Thank you for sticking with me and supporting this blog with your readership.  

I appreciate you. 

To FOLLOW Honey We're Home, go HERE.


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Wednesday, December 26, 2012

Christmas Tree Inspiration

We had a wonderful Christmas with a house-full of friends and family keeping things merry and bright.    Did you have a good day?  I cherish the holidays, but also enjoy the start of a new year and I'm really looking forward to 2013!  Before we pack up Christmas and start celebrating the new year, I wanted to highlight some of your beautiful, carefully decorated, and memory-filled Christmas trees.  Thank you to everyone who linked up at our Holiday Cheer link party this year.  We had such great participation, I'm sure we'll bring it back next year. :)

One thing I like about these link parties is that it introduces me to new blogs!  When I clicked on the links to read the posts about the tress, I often found myself browsing around older posts, peeking into people's homes and admiring how lovely each of you live.  Thank you for giving me a glimpse into your life.  That's the beauty of the home blogger! :)  

Here are some of the trees I found intriguing, but you can see them ALL

Chelsea's jewel toned tree really wows.

This branch tree is really stunning- so creative.

I found the book page garland really cute.

I loved getting to people's holiday decor complimenting their trees too.

This red heart ornament was knitted with a wooden heart during a blog ornament exchange.  I think that is so sweet!

How cool is this tree sitting atop an old galvanized tub?!  The sled in the background is great too. 

How pretty is this?!  It looks even better between those two chairs and against the backdrop of the minty walls and window. 

Don't underestimate the beauty of a tiny tree!  I love how she wrapped the ribbon.

There's something so sweet about a baby's first Christmas.

Rustic glam at its best!

At Wills Casa, Amber showed how she DIYed Polaroid photos into Christmas ornaments.

Oh wow, an ombre tree!  I had never seen this before!

I was crazy for this sewn bunting on this baby's tree.

I loved the shape of Amanda's tree.

Jennifer's tree is as gorgeous as her entire home.

Thank you again for linking up!  Merry Christmas to you!

Sunday, December 23, 2012

Wishing You a Merry Christmas

Hi friends!  As we approach the final days before Christmas and make our last-minute preparations, I hope you are finally getting to sit back, relax, and enjoy it all.  The last few days around here have slowed waaaaay down and we're just chilling, making meal plans/grocery shopping, wrapping the last gifts (debating on Instagram (@honeywerehome) whether Santa delivers wrapped presents), and tidying the house for guests on Christmas.

I'm super excited to share Christmas this year with our almost 3-year old son.  At this age, he understands more what Christmas is about.  Having him around makes everything so much sweeter!  He's singing Christmas songs nonstop, enjoys the "beautiful" tree, and identifies Jesus, his mother and father in the Nativity.  We'll be heading to visit his cousins on Christmas Eve to decorate cookies for Santa and I can't wait to get cooking on Christmas morning.

I wish you a day filled with family, friends, and love. Thank you so much for reading, it really means so much. 

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Friday, December 21, 2012

California leads

From California's Legislative Analyst's Office:

The 18th annual edition of the LAO's Fiscal Outlook--a forecast of the state's budget condition over the next five years--shows that California's budget situation has improved sharply. The state's economic recovery, prior budget cuts, and the additional, temporary taxes provided by Proposition 30 have combined to bring California to a promising moment: the possible end of a decade of acute state budget challenges. Our economic and budgetary forecast indicates that California's leaders face a dramatically smaller budget problem in 2013-14 compared to recent years. Furthermore, assuming steady economic growth and restraint in augmenting current program funding levels, there is a strong possibility of multibillion-dollar operating surpluses within a few years.
The voters of California raised taxes on themselves. Most of the revenue will come from income taxes on the top 3 percent of the income distribution; there is also a small hike in the sales tax.

Will Google, Apple, Intel, Disney, etc. run away because of this?  I rather doubt it.  And comparisons to Greece now look particularly ridiculous.

Thursday, December 20, 2012

Metallic Holiday Party Dresses

Today is the final day of our Holiday Cheer link party at Michaela Noelle Designs.  Michaela is the purest, sweetest, (youngest!) blogger out there and a big thanks goes to her for spearheading our party the past two years.   She's wrapping it up today with your holiday apparel, hair, makeup, accessories, and style ideas.

Being into metallics and sparkly things right now, I put two super shiny holiday looks together.  Because I'm so short, I like short dresses, but when showing a lot of leg, I typically keep the top more covered.

MICHAEL Michael Kors Sleeveless Sequin Dress is 50% off right now for just $79.98.

Eliza J Long Sleeve V-Back Sequin Sheath Dress is $178.

I'd pair the dress with some sparkly barely there strappy heels to not detract from the dress.  The taller the better for me!

The top ones are Ivanka Trump Hara Sandal ($134).

The bottom are Pelle Moda 'Gleam' Pump ($149).

And since the dress is so showy, I'd keep the earrings more subtle. 

This post is making me wish I had a fancy party to go to this year!  


See you over at Michaela Noelle Designs!  Please grab a button!

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Wednesday, December 19, 2012

John Griffith on why Gretchen Morgenson should not trust Edward Pinto

He writes in American Banker:

The onslaught began last month after the agency released a sobering financial report, then accelerated last week when the New York Times reported on an alleged "pattern of risky lending" in the agency's mortgage insurance program.
The Times piece, penned by columnist Gretchen Morgenson, relays the findings of a controversial new report from Edward Pinto of the conservative American Enterprise Institute. Pinto's study takes on an important issue—the performance of FHA-insured home loans—but draws conclusions based on ideology rather than a cold appraisal of the facts. By relying entirely on one man's misleading data and unfounded opinions, Morgenson has done a grave disservice to a critical federal program.

The report in question argues that the FHA is "financing failure" for working-class families by peddling high-risk loans to unworthy borrowers, based on an analysis of loans insured in 2009 and 2010. Pinto concludes that the agency's basic business model—insuring long-term, low-down-payment loans to borrowers with less-than-perfect credit—puts homeowners at an unacceptably high risk of default with negative consequences for communities.
Nothing could be further from the truth....

.... Pinto focuses on the cost of foreclosure without considering the FHA's contribution to these neighborhoods since the crisis began. If FHA insurance weren't available under reasonable terms, it would have been much more difficult for low- and moderate-income families to get mortgage credit since the crisis began. As a result, home prices would have declined precipitously beyond already-depressed levels – by as much as 25%,according to one estimate from Moody’s Analytics – leading to far more foreclosures on all homes, not to mention additional job loss, lost household wealth and a far deeper or more prolonged recession.

That counter-cyclical support is a key part of the agency's mission, and it understandably comes with some costs. If the foreclosure crisis were a fire, Pinto would be blaming the firefighters for getting the house wet.
In the coming months, we hope there is a serious debate about the FHA's role in the housing market and the overall role of the government in housing finance. That will require us to sort facts from partisan nonsense, and here's hoping this report doesn't make the cut.

Tuesday, December 18, 2012

Matthew Yglesias says weather doesn't matter

I just caught up with his Valentine to Minneapolis:

People appear to be deterred from moving to Minneapolis on the grounds that it's very cold, but David Schkade and Daniel Kahneman have found that people's thinking about weather and happiness is dominated by "focusing illusion" in which "easily observed and distinctive differences between locations are given more weight in such judgments than they will have in reality." They specifically looked at the weather gap between California and the Midwest and found that while Midwesterners thought the good weather in California would make a huge difference in people's lives, it doesn't in reality.
OK, maybe I am idiosyncratic.  But as a person who lived most of his life in Wisconsin (not as cold as Minnesota), and who now lives in California, I can tell you the three reasons I will most likely never leave this place:

(1) My wife does cool and useful things here.
(2) I like the people I work with very much.
(3) Weather.

George Bittlingmayer on Buffet v Asness

From comments:

Under this theory, if gross-of-tax discount rates are 10% and an investment promises $10 per year, I'll plunk down $100 for it if tax rates are zero, and $100 if tax rates are 50% and I get only $5 per year. "To be tested." Recall also, if tax rates are on nominal returns, with even moderate inflation, the tax falls on what is a compensation for inflation. The effect of higher taxes seems like an empirical question, with all due respect to both Buffett & Asness, and Richard.

I agree, it is testable.  One thing that makes testing tough, though, is trying to figure out how the market discount rate change as a result of tax policy.  IN any event my principal criticism of Asness is that if you are going to change the numerator, you also need to change the denominator.

Christmas Dining Room

Our Holiday Cheer link party continues today with Courtney (A Thoughtful Place) featuring vignettes (tablescapes and decor are okay too) and I wanted to go ahead and show you our dining room with splashes of red, white, and black.  The inspiration began with the black and white pillow covers I found on etsy back in August.   I dig the geometric pattern and felt they worked with our drapes and could be used in other rooms in our house (living room/guest room/or my office) later.  Things have a way of moving around pretty often here.  Do you do that too? 

In the dining room, I arranged a collection of things we already had on hand like the Hobby Lobby lanterns, mercury glass candleholders, and birds on top of a black cabinet.  

I'm also loving wreaths hung on mirrors this year.  You can see in the picture below we used a suction cup hook  ($2 at WalMart for the large) to hold the wreath and it hasn't budged.  

I made an advent calendar last year with the tags below, but this year just put the tags out in a glass bowl.  I like seeing them piled up this way with the cute washi tape and baker's twine.  We have been terrible this year at keeping up with each day, instead just doing things at random.  Decorating that Gingerbread house still needs to happen . . .

These little birds have gone from black (originally) to gold and now bright red. We'll see what color they end up next.   The fun polka dot fabric is the same one I used in the Pottery Barn challenge.  

The swag was already assembled with the pinecones and berries, I just added in a couple of red ornaments. 

And a single "snowflake" hangs from the chandelier.  Sweet simplicity. 

I'm looking forward to seeing your Christmas vignettes/tables/decor at A Thoughtful Place.  Please grab a button!

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Monday, December 17, 2012

Hannah Green in Think Progress on trash

She writes:

In India, there is a thriving market for trash. People make lives for themselves collecting it, sorting it, buying it, selling it: making it useful once again.
While the community of trash workers occasionally gets attention from the American media, the focus often revolves around the initial realization that people can earn a living from garbage piles, and what this says about poverty levels.
Katherine Boo’s recent book related to the subject, Behind the Beautiful Forevers, went deeper, exploring the mechanisms of entrepreneurship and exploitation in India. However, there is also a more positive side to this story that often goes uncommented on. An efficient recycling system has a long-term positive effect on society as a whole, and is also something that North America and Europe generally lack. That is a significant part of what the trash economy in India is- an informal recycling system.

Who is right: Clifford Asness or Warren Buffet?

In a Wall Street Journal piece this morning, a man named Clifford Asness says that Warren Buffet is wrong when he says the impact of taxes on investment decisions is very small.  His argument:

Consider how every business-school student, investment banker and investment analyst on Earth has been taught to choose whether to invest in a specific project or company. You make a spreadsheet (a napkin will do sometimes). You put in your best guess of the future cash flows, and you discount those cash flows back to the present at some required rate of return you believe reflects the risk entailed. Of course, opinions about the future cash flows and the proper discount rate can vary widely, but the essential methodology is ubiquitous.
Now here's the kicker: Nobody who pays taxes and has ever done this exercise has failed (while sober) to use after-tax cash flows in this calculation. Somewhere in the spreadsheet there is a number, say 20%, or 28%, or a Gallic 75%, representing the taxes you'll pay on the assumed cash flow—and you only count the amount you'll get after paying this tax. If you turn the tax rate up high enough, projects or companies that looked like good investments become much less attractive and vice versa.

Here is the problem with this argument--it focuses on the numerator of the discounted cash flow calculation, but not the denominator.  The denominator contains the discount rate, which is the opportunity cost of capital.  One can do an analysis based on before tax cash flows, in which case the denominator is the before tax OCC.  The formula for before tax cash flow valuation is

Where CF is cash flow subscripted by time t,  r is the discount rate, and E is the expectations operator.

But if one is going to take taxes out of the denominator, he must also take it out of the numerator.  This means the ATDCF formula needs to be

The greek letter τ is the marginal income tax rate.  If we examine this formula, we see that for small t, value does in fact decline with an increase in taxes.  But now let us approximate a long term investment by looking at the perpetual annuity formula--one that has a constant cash flow for infinite t.

Now the formula for before tax valuation becomes:

Analogously, the formula for after tax valuation becomes:

Of course, the (1-τ) divides through, so the after tax and before tax values are the same.

But here is where I will add a kicker of my own: if it is really true that fiscal issues as creating uncertainty, resolving those issues should reduce the discount rate, and thus encourage investment.  People such as Mr. Asness should welcome greater certainty, and the investment opportunities it will doubtless induce.

Oh Come Let Us Adore Him

I know we all have heavy hearts and are likely to for a long time given the unimaginable tragedy in Connecticut.  It's hard to be merry and bright when your heart is breaking for so many families so close to Christmas.   I take breaks from the news because with each piece of new information about the children and adults who lost their lives and the people who loved them, it stings.  I do think there is comfort in understanding that we grieve together.  My son is too young to know what's going on and this weekend we spent some good time just being together.  He's at such a magical age and it's sweet to find joy in him.   

Many of us, me included, are back at work today, keeping on keeping on.  I didn't get much accomplished around the house this weekend, but did print out and frame this free printable from AKA Design.  You can visit their site to print one for yourself.

We will continue our Holiday Cheer link party on Tuesday with Courtney (A Thoughtful Place) featuring vignettes (tablescapes and decor are okay too).  I'll be sharing how I decorated our dining room and I'm looking forward to seeing your spaces too.  Hugs to you all today. 

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Saturday, December 15, 2012


I think we're all holding our loved ones a little tighter today.  I hope Connecticut feels the world's love and prayers.