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Happy Tau Day

Blogging’s been very light of late, but I couldn’t let June 28th slip by without commemorating Tau Day.

Math aficionados often celebrate March 14 as Pi day, since Pi starts 3.14. All good fun. But as Michael Hartl argues over at the Tau Manifesto, Pi was likely a mistake. If we could rewrite math history, we’d do better to venerate tau, which equals 2 times pi, or about 6.28. So Happy Tau Day!

tauism

Hartl marshals multiple arguments in his manifesto. But the best reason is likely the simplest. The two most interesting things about a circle are its radius and its perimeter (aka circumference). If you divide the perimeter by the radius, you get tau. Nice and simple, without that pesky 2 that pops up through math and physics when pi rears its head.

Today I had the chance to testify before the House Small Business Committee on the many tax issues facing small business. Here are my opening remarks. You can find my full testimony here.

America’s tax system is needlessly complex, economically harmful, and often unfair. Despite recent revenue gains, it likely will not raise enough money to pay the government’s future bills. The time is thus ripe for wholesale tax reform. Such reform could have far-reaching effects, including on small business. To help you evaluate those effects, I’d like to make seven points about the tax issues facing small business.

1. Tax compliance places a large burden on small businesses, both in the aggregate and relative to large businesses.

The Internal Revenue Service estimates that businesses with less than $1 million in revenue bear almost two-thirds of business compliance costs. Those costs are much larger, relative to revenues or assets, for small firms than for big ones.

2. Small businesses are more likely to underpay their taxes.

Because they often deal in cash and engage in transactions that are not reported to the IRS, small businesses can understate their revenues and overstate their expenses and thus underpay their taxes. Some underpayment is inadvertent, reflecting the difficulty of complying with our complex tax code, and some is intentional. High compliance costs disadvantage responsible small businesses, while the greater opportunity to underpay taxes advantages less responsible ones.

3. The current tax code offers small businesses several advantages over larger ones.

Provisions such as Section 179 expensing, cash accounting, graduated corporate tax rates, and special capital gains taxes benefit businesses that are small in terms of investment, income, or assets.

4. Several of those advantages expired at the end of last year and thus are part of the current “tax extenders” debate.

These provisions include expanded eligibility for Section 179 expensing and larger capital gains exclusions for investments in qualifying small businesses. Allowing these provisions to expire and then retroactively resuscitating them is a terrible way to make tax policy. If Congress believes these provisions are beneficial, they should be in place well before the start of the year, so businesses can make investment and funding decisions without needless uncertainty.

5. Many small businesses also benefit from the opportunity to organize as pass-through entities such as S corporations, limited liability companies, partnerships, and sole proprietorships.

These structures all avoid the double taxation that applies to income earned by C corporations. Some large businesses adopt these forms as well, and account for a substantial fraction of pass-through economic activity. Policymakers should take care not to assume that all pass-throughs are small businesses.

6. Tax reform could recalibrate the tradeoff between structuring as a pass-through or as a C corporation.

Many policymakers and analysts have proposed revenue-neutral business reforms that would lower the corporate tax rate while reducing tax breaks. Such reforms would likely favor C corporations over pass-throughs, since all companies could lose tax benefits while only C corporations would benefit from lower corporate tax rates.

7. Tax reform could shift the relative tax burdens on small and large businesses.

Some tax reforms would reduce or eliminate tax benefits aimed at small businesses, such as graduated corporate rates. Other reforms—e.g., lengthening depreciation and amortization schedules for investments or advertising but allowing safe harbors for small amounts—would increase the relative advantage that small businesses enjoy. The net effect of tax reform will thus depend on the details and may vary among businesses of different sizes, industries, and organizational forms. It also depends on the degree to which lawmakers use reform as an opportunity to reduce compliance burdens on small businesses.

 

How big is the underground sex economy in the United States and how does it work? The Urban Institute is out with a big study today that offers some answers. Here’s a brief summary of the full study (see also the accompanying feature).

Our study focused on eight US cities— Atlanta, Dallas, Denver, Kansas City, Miami, Seattle, San Diego, and Washington, DC. Across cities, the 2007 underground sex economy’s worth was estimated between $39.9 and $290 million. While almost all types of commercial sex venues—massage parlors, brothels, escort services, and street- and internet-based prostitution—existed in each city, regional and demographic differences influenced their markets.

Pimps and traffickers interviewed for the study took home between $5,000 and $32,833 a week. These actors form a notoriously difficult population to reach because of the criminal nature of their work. Our study presents data from interviews with 73 individuals charged and convicted for crimes including compelling prostitution, human trafficking and engaging in a business relationship with sex workers.

Pimps claimed inaccuracy in media portrayals. Most pimps believed that the media portrayals exaggerated violence. Some even saw the term “pimp” as derogatory, despite admitting to occasional use of physical abuse for punishment. Although pimps may have underreported the use of physical violence, they did cite frequent use of psychological coercion to maintain control over their employees.

Pimps manipulate women into sex work. From discouraging “having sex for free” to feigning romantic interest, pimps used a variety of tactics to recruit and retain employees. Some even credited their entry into pimping with a natural capacity for manipulation. Rarely, however, were pimps the sole influence for an individual’s entry into the sex trade.

Women, family, and friends facilitate entry into sex work. Female sex workers sometimes solicited protection from friends and acquaintances, eventually asking them to act as pimps. Some pimps and sex workers had family members or friends who exposed them to the sex trade at a young age, normalizing their decision to participate. Their involvement in the underground commercial sex economy, then extends the network of those co-engaged in the market even further.

Unexpected parties benefit from the commercial sex economy.  Pimps, brothels, and escort services often employed drivers, secretaries, nannies, and other non-sex workers to keep operations running smoothly. Hotel managers and law enforcement agents sometimes helped offenders evade prosecution in exchange for money or services. Law enforcement in one city reported that erotic Asian massage parlors would purchase the names of licensed acupuncturists to fake legitimacy. Even feuding gang members occasionally joined forces in the sex trade, prioritizing profit over turf wars. The most valuable network in the underground sex economy, however, may be the Internet.

The Internet is changing the limitations of the trade. Prostitution is decreasing on the street, but thriving online. Pimps and sex workers advertise on social media and sites like Craigslist.com and Backpage.com to attract customers and new employees, and to gauge business opportunities in other cities. An increasing online presence makes it both easier for law enforcement to track activity in the underground sex economy and for an offender to promote and provide access to the trade.

Child pornography is escalating. Explicit content of younger victims is becoming increasingly available and graphic. Online child pornography communities frequently trade content for free and reinforce behavior. Offenders often consider their participation a “victimless crime.”

The underground sex economy is perceived as low risk. Pimps, traffickers, and child pornography offenders believed that their crimes were low-risk despite some fears of prosecution. Those who got caught for child pornography generally had low technological know-how, and multiple pimp offenders expressed that “no one actually gets locked up for pimping,” despite their own incarcerations.

Policy and practice changes can help combat trafficking and prostitution.

  • Cross-train drug, sex, and weapons trade investigators to better understand circuits and overlaps.

  • Continue using federal and local partnerships to disrupt travel circuits and identify pimps.

  • Offer law enforcement trainings for both victim and offender interview techniques, including identifying signs of psychological manipulation.

  • Increase awareness among school officials and the general public about the realities of sex trafficking to deter victimization and entry.

  • Consistently enforce the laws for offenders to diminish low-risk perception.

  • Impose more fines for ad host websites.

Jonathan Schwabish has just published a wonderful guide to visualizing economic data. If you produce charts, you really ought to study it.

Here’s one example, transforming a default Excel “spaghetti” chart into something more tasty:

Schwabish Spagheti

In a lengthy piece on “The Future of Jobs“, the Economist cites some estimates of the risk that IT will eliminate jobs over the next 20 years:

Bring on the Personal Trainers - Economist

So Keynes was right: Economists should aspire to be like dentists.

P.S. Actual Keynes quote: “If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.”

Because macroeconomists have messed it up for every one else , says Noah Smith at The Week:

To put it mildly, economists have fallen out of favor with the public since 2008. First they failed to predict the crisis, or even to acknowledge that such crises were possible. Then they failed to agree on a solution to the recession, leaving us floundering. No wonder there has been a steady flow of anti-economics articles (for example, this, this, and this). The rakes and pitchforks are out, and the mob is ready to assault the mansion of these social-science Frankensteins.

But before you start throwing the torches, there is something I must tell you: The people you are mad at are only a small fraction of the economics profession. When people in the media say “economists,” what they usually mean is “macroeconomists.” Macroeconomists are the economists whose job is to study business cycles — booms and busts, unemployment, etc. “Macro,” as we know it in the profession, is sort of the glamor division of econ — everyone wants to know whether the economy is going to do well or poorly. Macro was what Keynes wrote about, as did Milton Friedman and Friedrich Hayek.

The problem is that it’s hard to get any usable results from macroeconomics. You can’t put the macroeconomy in a laboratory and test it. You can’t go back and run history again. You can try to compare different countries, but there are so many differences that it’s hard to know which one matters. Because it’s so hard to test out their theories, macroeconomists usually end up arguing back and forth and never reaching agreement.

Meanwhile, there are many other branches of economics, doing many vital things.

What are those vital things? Some economists find ways to improve social policies that help the unemployed, disabled, and other vulnerable populations. Others design auctions for Google. Some evaluate development polices for Kenya. Others help start-ups. And on and on. Love it or hate it, their work should be judged on its own merits, not lumped in with the very different world of macroeconomics.

A tribute to Ben Bernanke, sung to the tune of Rudolph the Red-Nosed Reindeer. University of Chicago professor Anil Kashyap unveiled this Friday at economists’ big annual conference.

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