Ideas have consequences

The NYTimes:

...about 5,000 babies, of the 70,000 or so who would otherwise be born during the first week in January, may have their arrival dates accelerated partly for tax reasons.


They found that people who stood to gain the most from the tax breaks were also the ones who gave birth in late December most frequently. When the gains were similar, high-income parents who, presumably, are more likely to be paying for tax advice produced more December babies than other parents.


Induced births and Caesarean sections are considerably more expensive than natural births on average. There are clearly cases when labor needs to be induced for a baby's health or the mother's. It's much less clear, however, that the health care system should be subsidizing parents' desire for a smaller tax bill.

The health effects of scheduled births are also murky. A big study led by a researcher at the Centers for Disease Control and Prevention found that voluntary Caesareans increase the risk of infant mortality. Another study found that weekday births are slightly more risky than weekend ones, all else equal, suggesting that a drug-induced birth can also cause health problems. The differences are small, but the stakes are big enough to take any change seriously.

I liked this article, because it clearly showed so many economic truths.

1. People respond to incentives. The most basic principle of economics. It shouldn't surprise us that people are inducing labor in order to save money.
2. Ideas have consequences. It's simple fact that when the government tries to do something, there are unintended ramifications.
3. Social engineering is complicated and should generally be avoided. "Targeted tax cuts" (Al Gore's phrase in 2000, you might recall) are rarely as clearly and cleanly targeted as they sound. They usually benefit the rich (as the article notes), who are much more likely to do tax planning. I've never seen any empirical data, but I would surmise that "tax loopholes"/"targeted tax cuts" are probably about as loaded to upper incomes as rate cuts are (the ones that Democrats deride as "tax cuts for the rich"). But of course, if you ever want to cut tax rates, then upper incomes will always save the most in gross dollar amounts. That's because the rich pay most of the income tax revenue.

Ok, the second half of part 3 was a normative opinion. The rest weren't.

I do hope that the legislature keeps incentives in mind when it considers appraisal caps. I am not confident.

Hat tip to Greg Mankiw.

Posted by Evan @ 12/20/06 01:52 PM


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