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Suspicious Discontinuities

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Re: Suspicious Discontinuities

#141

Post by Dylan16807 »

peteretep wrote: post #138
Dylan16807 wrote: post #129

Earlier quoted context omitted.

The exact same way as the new system, except instead of 63% it's a much smaller number. Edit: Why are people downvoting this? I don't understand what's so confusing about SilasX's argument. Removing cliffs and changing it to a smooth dropoff is good. But that dropoff doesn't have to be £.63 in benefits per £1 earned. That's a pretty big effective marginal tax rate! Why not £.50 or £.30? It should be extremely easy to…

> The exact same way as the new system, except instead of 63% it's a much smaller number. If it's less than 63%, you "unilaterally extend benefits to a whole bunch of people who don't currently get them". Let's say benefits for the unemployed are £1,000 a month (chosen to be an easy number to work with). You lose 63p of benefits per extra pound you earn. The government gives you (some) benefits up to the first £1,587…

The people making between £1,587 and £2,000 are getting £206 or less though. That's not an unsolvable expansion, especially because those people probably do in fact need the help.

Re: Suspicious Discontinuities

#142

Post by chillacy »

kauffj wrote: post #53

At least to me, the discontinuities in things like TANF, Medicaid, CHIP, etc. are some of the greatest signs of political dysfunction. There's nothing remotely partisan about these being a bad thing. _Everyone_ should agree that these make no sense and mis-incentivize behavior. Yet these flaws remain for decades despite being known and discussed for approximately the entirety of their existence.

It always seems like these programs being attackable is a benefit because it lets you continuously rally passionate donors to always fight for the programs and fund campaigns. Conversely, stable universal programs don't draw as much attention and fundraising.

Re: Suspicious Discontinuities

#143

Post by peteretep »

Dylan16807 wrote: post #141
peteretep wrote: post #138

Earlier quoted context omitted.

> The exact same way as the new system, except instead of 63% it's a much smaller number. If it's less than 63%, you "unilaterally extend benefits to a whole bunch of people who don't currently get them". Let's say benefits for the unemployed are £1,000 a month (chosen to be an easy number to work with). You lose 63p of benefits per extra pound you earn. The government gives you (some) benefits up to the first £1,587…

The people making between £1,587 and £2,000 are getting £206 or less though. That's not an unsolvable expansion, especially because those people probably do in fact need the help.

> That's not an unsolvable expansion

So your solution is "spend a lot of extra money on social security", which is fine, but it doesn't satisfy the constraints.

Re: Suspicious Discontinuities

#144

Post by scott_w »

akvadrako wrote: post #134
crooked-v wrote: post #118

Earlier quoted context omitted.

With this system you're guaranteed to never end up with less total money than you started with by getting a better-paying job, which makes it definitionally not a cliff. It's just a gradual reduction in benefits as you earn more.

It’s not a cliff and sounds like a step in the right direction, but it’s still effectively a 63%+whatever marginal tax rate.

I can’t remember the exact benefit numbers (they might overlap with National Insurance) but you don’t pay income tax until you’re earning over £11,000 so you shouldn’t pay marginal tax while on benefits.

Re: Suspicious Discontinuities

#145

Post by PhantomGremlin »

raviolo wrote: post #62

Would creating, say, online marketplace to help people lose desired amount of money with certainty - for example, via some sort of specially crafted financial instrument - violate any applicable rules & regs? Idea for the next YC batch?

You don't need to do anything special for this. I don't see the need for a startup to "help" with this. Existing options are already sufficient. It would take a financial professional less than a day to write up a comprehensive guide to such a strategy.

E.g. if you want to lose $5,000 just buy a bunch of options that are way out of the money, that have a perhaps 1% chance of paying off.

99% of the time you lose $5,000, which is what you wanted.

1% of the time you win $500,000, which is a nice problem to have. That payoff will probably dwarf the financial penalty of whatever discontinuity you were trying to work around.

Re: Suspicious Discontinuities

#146

Post by tqi »

wahern wrote: post #131
tqi wrote: post #15

Earlier quoted context omitted.

I do not have access to the original paper, but author's assessment that the bunching is due to prosecutorial discretion is a little puzzling to me. If it is true that prosecutors are choosing to prosecute cases that are above the cutoff at a higher rate than those below, I would have expected everything above 280g to increase, rather than a solitary spike at 280g?

From Note 1: > prosecutors can charge people for amounts that are not the same as the amount seized and then notes If someone is caught with 500g you can simply charge 280g and make your life easier. If you charge 500g the defendant will argue it was just 450g, which even if irrelevant makes the case seem weaker to the jury--death by a thousand cuts. But if you charge 280g and present evidence of 500g, it makes the c…

Ah interesting/makes sense - thanks for the explanation!

Re: Suspicious Discontinuities

#147

Post by cma »

Balgair wrote: post #107
kauffj wrote: post #53

At least to me, the discontinuities in things like TANF, Medicaid, CHIP, etc. are some of the greatest signs of political dysfunction. There's nothing remotely partisan about these being a bad thing. _Everyone_ should agree that these make no sense and mis-incentivize behavior. Yet these flaws remain for decades despite being known and discussed for approximately the entirety of their existence.

Not to belittle the lives that depend on this stuff, but these issues go back to flippin Rome . The Grain Dole was a huge part of Roman politics and it's history is fascinating reading: https://en.wikipedia.org/wiki/Cura_Annonae#Politics_and_the_... These issues are not very complicated: give people free stuff and they support you, let the next consuls/emperor worry about the revolts in Sicily (or whatever) that the…

The problem he is pointing to isn’t the free stuff, it is the discontinuity from hard cutoffs instead of gradually fading out.

Re: Suspicious Discontinuities

#148

Post by PhantomGremlin »

junar wrote: post #57
myself248 wrote: post #54

Earlier quoted context omitted.

What's eye-opening is the author's point about _how_ many people go about ditching some income at the last minute -- by buying a particular type of financial product whose value is likely to go to zero. Which has the effect of transferring their wealth to someone else (the vendor of the financial product) who just sold something that was effectively worth nothing, for a great deal of money. It's the most bizarre sort…

You can't necessarily do it last minute. You have to realize the loss by the end of the tax year (Dec 31), which may be months away from the day you file taxes. On the other hand, if you can deduct traditional IRA contributions, you can make prior-year contributions up until the tax filing deadline, and keep your money. If you're eligible for an HSA or solo 401k, you can also use those to similar effect.

The devil is in the details. (When isn't it?)

For example, regarding health insurance subsidies (mentioned in the article), deductible IRA contributions must be added back when calculating your income. As are other sources of income. E.g. tax-exempt municipal bond income doesn't count for Federal taxes but it does count for income limits for the health care subsidy.

Offhand, I'm not familiar with income limits for an HSA. It's quite likely that allowed income sources and deductions vary for these various programs.

Re: Suspicious Discontinuities

#149

Post by jennyyang »

Losing money on put options won't adjust your income very much. You can only claim up to $3000/year on capital losses against income. So the example wouldn't work unless some of the income was also capital gains.

Re: Suspicious Discontinuities

#150

Post by Dylan16807 »

peteretep wrote: post #143
Dylan16807 wrote: post #141

Earlier quoted context omitted.

The people making between £1,587 and £2,000 are getting £206 or less though. That's not an unsolvable expansion, especially because those people probably do in fact need the help.

> That's not an unsolvable expansion So your solution is "spend a lot of extra money on social security", which is fine, but it doesn't satisfy the constraints.

You said you didn't want to "unilaterally extend benefits to a whole bunch of people", not that the cost couldn't increase even the tiniest amount.

But even so, smoothing out the curve some might be better overall even if the max amount drops.

Also you could extend the curve so that 'benefits' go negative at the high end. Now your budget is fine...

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