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Warning: I’m ranging far afield from my area of expertise, but in the current environment where nearly all news seems to be coronavirus news, whether the underlying subject is sports, business, entertainment or whatever, I couldn’t resist. So here goes …

In my former job, I spent some time ranking states or evaluating others’ ranking of the states, typically on various tax or fiscal measures. A simple component of these rankings is to scale each state’s numbers by some common denominator that puts states on equal, relative footings. Typical denominators are population, income, and similar. One frustration for me is that the news media publishes a lot of state-by-state coronavirus numbers, but rarely scales them. I suppose that is because the general public relates more to absolute, rather than scaled, numbers. They want to know how many people have the disease or have died, not how many per capita. But that makes it hard to judge how severe the situation is in each state or how well public health responses are working by state.

When I discovered a couple of weeks ago that a volunteer project of journalists, covidtracking.com, was compiling, posting, and regularly updating COVID-19 data from state health departments and that they were doing it in a form that allowed easy download into Excel, I decided to start regularly calculating scaled numbers for the 50 states and the District of Columbia. That allowed me to more easily judge the progress of the disease across states and (maybe – subject to a host of caveats) to get an impression of how state governments and their public health departments were responding to the challenge. It also allowed me to easily compare Minnesota’s situation with that in other states.

I thought I never would post this info on my blog, because I don’t know what I’m doing and I might be misleading or outright wrong. But after doing this for awhile and given that the absolute numbers are very basic information that a lot of people are looking at, I changed my mind – especially since (other than a few random articles) I still rarely see scaled numbers in the general news media that I look at.

The table below shows the ten states with the lowest number of confirmed cases per capita (actually per 10k of population so the numbers are not small decimals) – determined by the number of positive tests reported by state health departments, as complied by the covid project. That is obviously a flawed or limited measure because it is sensitive to the testing protocols which vary from state to state (e.g., how many tests are run and who is selected to be tested). To help get at that issue, the table also shows the number of tests (again per 10k of population) each state has run and the number of tests that were positive. Finally, the table shows the number of deaths per million of population. This, I presume, is the number that is least subject to reporting and testing differences among the states. Of course, some people who die from COVID-19 may be reported as dying from pneumonia or flu, I suppose. It takes a good while for COVID-19 to result in death, so there is lag in this number. States hit earlier will have higher death rates, while other states catch up as the virus runs its course through those infected. This is mainly an issue for the hot spot states (Washington, New York, Louisiana, and so forth) which do not appear in the table (they would in a table of the bottom 10 states).

The numbers suggest that so far Minnesota (for whatever reason) is doing well relative to other states – it has the third lowest number of cases, while running proportionately more tests than other high ranked states. So, its relative low number of cases is less likely a result of low testing rates, which may be the case with some of the other states (e.g., Texas and Nebraska). Not sure what to make of any of this, but watching the data did highlight to me that both Louisiana and Michigan were likely to be future hot spots, as they are now, before the national media seemed to be on the case.

Note on the table: the top 10 states are shown (ranked by the lowest number of cases), cases are reported per 10,000 of population, as are total tests, while deaths are per million of population. Data is as of 4/2/2020 @ 10AM.

I’m sure that will be the question of the hour/day/week/month. Janet Holtzblatt has an excellent post at TPC that provides useful historical context and a reality check. She goes through the parallel experience with the various direct payments made in the oughts and how long they took. Those, of course, were made before Congress cut and starved the IRS budget and when the agency and its workers were not themselves dealing with the effects of the coronavirus personally.

Realistically, I would guess getting the payments out in April is optimistic. I’m guessing that the staffers that actually have to do the work and/or supervise the people that do so have advised their political appointee bosses of the hard reality. That likely explains why Secretary Mnuchin says he wants banks to make “same day” loans to individuals in anticipation of their receipt of the payments. How likely is that for the people who really need the dough – i.e., the out of work waitress or bartender? Not very likely in my view. Mnuchin is thinking like a Goldman Sachs banker or an academic economist, not someone who has ever helped low income people get loans from banks, I’d guess.

There are enough limits (income, whether you actually filed a return, were you claimed as a dependent by someone else, etc.) on the right to receive these payments, that I will be surprised if banks routinely advance the money to their customers. These will not be their high income customers, by and large. Moreover, the experience with refund anticipation loans (RALs) is that if they do, a good number of them will take a hefty cut for themselves. With RALs most financial institutions insisted on a notification from the IRS or DOR that the return had been accepted and there was a presumptive entitlement to the refund. Maybe in a patriotic gesture they won’t insist on the equivalent for these payments, but I wouldn’t hold my breath. They’re running businesses, not charities.

This is another in my series of high-school quality book reports on nonfiction books that I have read recently.

Name of book:

The Federal Estate Tax History, Law, and Economics by David Joulfaian (MIT Press 2019)

Why I read it:

I regard David Joulfaian as the preeminent national expert on the economics of the federal estate tax. He has worked for many years (decades) at OTA, specializing in estate taxation.  Over the years, I have read many of his articles and working papers and found them to be insightful as to how the estate tax works and how it may affect behavior.  In addition to providing background information to feed my intrinsic interest in this quirky but important tax, I figured that the book would a useful overview of the details of tax from an expert in whom I have a very high level of confidence. 

To provide more context, the Minnesota tax is a constant flash point in legislative tax debates, even though it applies only to a narrow group of taxpayers and raises a modest amount of revenue.  I found that when estate tax bills were heard in House Taxes Committee (mostly GOP proposals to cut or eliminate the tax), the debate was consistently the most animated and passionate of any.  DFLers seem to regard the tax as a symbol of their core value of progressivity, since it applies only to a small number of individuals with the very highest net worths and incomes.  It probably also galls them to see proposed tax reductions going to taxpayers who they regarded as the “rich.”  By contrast, GOP members seem to despise the tax more than any other, largely (I think) because they view it as profoundly unfair – a second tax on income that has already been taxed, a success penalty (implicit disincentive for work and risk taking), and (maybe most importantly) a way DFLers can claim to raise revenue from the rich.

I found this debate disconcerting from several perspectives – mainly because many of its premises were often ill founded and because the assertions made often seemed disproportionate to the tax’s real role as either a revenue raise or an effective counter to inequality.  The Minnesota debate mirrors the federal debate and what is more interestingly to me is why passions about the tax run so high, particularly on the right.  Perhaps more importantly, why does that passion seems to resonate so much with the general public, most of whom will never be touched by the tax (either as someone leaving or receiving a bequest) and do not have many firm political values (i.e., they’re not tribal R’s or D’s)?  I didn’t really expect the book to help me figure any of that out (e.g., unlike Mike Graetz’s books), but assume that knowing more about the tax would be helpful.

What I found interesting in the book or worth writing about:

• The first half of the book (about 100 pp) provides a very good outline of the basics of the federal tax – its history, how this complicated tax actually works and has changed over the years, who pays it, how much revenue has been collected, profiles of the composition of taxable estates, beneficiaries, and so forth.  Most of this stuff was pretty familiar to me, but I also found interesting new stuff (or equally likely at my age stuff that I once knew and had forgotten).
• The striking behavioral responses to the changes in the law – particularly the acceleration of lifetime gifts to avoid pending estate or gift tax increases – always leap out of the data when you look at the history of collections as Joulfaian’s tables conveniently provide. His dicussion highlights this effect as well.
• He provides a nice summary of the now-repealed credit for state death taxes.  Jeffrey Cooper’s law review article provides a much more detailed and nuanced history.
• The most interesting and useful contributions of the book (to me anyway) are its last three chapters which summarize the research by economists of the effects of the tax – on labor supply and savings behavior (chapter 7) and on charitable giving, lifetime giving v. bequests, capital gain realizations, portfolio composition, and purchases of life insurance (chapter 8), as well as Joulfaian’s own conclusions (chapter 9).  Chapters 7 and 8 summarize the best evidence to evaluate the myriad of claims for and against the tax made during political/policy debates.  Much of this research and analysis was done by Joulfaian himself or with coauthors (Holtz-Eakin and Rosen in multiple cases).
• The evidence for many assertions is ambiguous, at best, and often counter to the anti-tax assertions.  I think it is fair to characterize many/most of the assertions made by opponents that the tax dampens work effort or reduces savings (viewed globally) to not be based on evidence but just the claimant’s favorite piece of economic theory (e.g., focusing on substitution effects and ignoring income effects, considering the effects on decedents’ behavior but ignoring them on beneficiaries, and so forth).
• It does seem safe to say that repeal of the tax would have some very real negative effects on charitable giving; the size of that effect and which charities it will be hit the hardest is what is at issue.

What disappointed me about the book:

The book could have used better copy-editing.  I guess that is not surprising for an academic press, which is likely operating on a shoestring budget.  Copy-editing errors seem concentrated in the first part of the book, which covers basic background and history.  I noticed few errors in the last three chapters on the behavioral and economic effects of the tax, much of which summarizes the author’s and others’ scholarly work on complicated economic issues, probably because Joulfaian spent much more time reviewing this to make sure it was right, as compared with the first half which just describes the basics of the tax, recounts its history, and presents basic statistics.

I was disappointed with Joulfaian’s two-page summary of the literature on the effects of the tax (state level) on interstate migration (pp. 156 – 157).  Given the title of the book, I didn’t expect the book to cover that topic.  But when he chose to do so, I thought he should have been more comprehensive.  For example, he discusses the Conway and Houtenville’s article without citing or discussing later articles by Conway and Rork which use more sophisticated methods and caveat the conclusions in Conway and Houtenville.  In fact, I think their research undercuts his implication that state taxes are most likely to affect migration decisions by individuals with more modest estates (i.e., those below the level at which the pre-EGTRA federal tax applied).  My instinct is that the effects on migration are most likely to occur for larger estates (say $3 million and up), but not so large that the tax averse can easily use lifetime gifting to avoid state estate taxes.

SALT connection:

All state estate taxes, as well as their sibling inheritance taxes, rely heavily on the federal tax concepts and enforcement in imposing and collecting tax.  In fact, without a federal tax, I expect that states would need to spend more resources to collect less revenue.  In fact, I wonder if TCJA’s large increase in the exemption amount will not erode state tax revenues somewhat.  A secondary effect is that the federal tax’s deduction for state tax paid reduces the implicit burden of state taxes, making them easier for those affected to stomach.

The obvious SALT question raised by the the book is the absence of state gift taxes (Connecticut being the lone exception, putting aside provisions related to gifts made shortly before death) and what effect that has on the incidence and revenues collected by state estate and inheritance taxes. I briefly discussed this issue in a Tale of Two Billionaires and the MN Estate Tax.

I think this book is a must have for anyone doing research or providing policy advice on states estate taxes – it provides good basic background information on the history and application of the federal tax, as well as a summary of the economics literature on the potential effects of the tax – on labor supply, savings, etc.  It is easy to read and well organized.  While still working, I would have used it as a reference book or encyclopedia of the economics literature on this quirky tax, especially chapters 7 and 8.

I’ve taken to writing down some of my thoughts on the books I’m reading – mainly to be more disciplined in thinking and remembering something about the books. This is partially a response to my fumbling to recall when asked about the books I have recently read.  Now that I’m retired, I’m reading more and (seemingly) forgetting more.  These posts will be the equivalent of a bad high school book report.  I’m only doing this for nonfiction books. My daughters instigated a family book club to compel me to read fiction and I’m not writing anything about those books. Any effort on my part to analyze fiction would be a waste of time of all concerned.

Name of book:

The Hundred Years War – The English in France 1337 -1453 by Desmond Seward (Penquin Books 1978).

Why I read it:

I discovered it on Seth’s (my son’s) bookshelf and since my knowledge of medieval history and particularly of the 100 Years War is limited, I considered it as an opportunity to learn something, as well as to provide historical context for the 2020-21 Guthrie production of the Henriad plays.

What I found interesting:

There are too many to list; the following are the ones that now stick out after finishing the book a few weeks back:

• I had thought total war (essentially attacking civilians, ravaging farms, industry and so forth as a general tactic) was a modern invention. The armies in the 100 Years War as recounted here were waging close to the equivalent of total war, if only as a financing mechanism (see below).  The incongruity of that while simultaneously upholding chivalry as an ideal (limited, of course, to nobles) is breathtaking.
• More thought reveals the economic and psychological rationales for chivalry: Many of the top leaders on both sides were related by blood or marriage, as Seward’s family tree charts reveal, and shifting alliances meant one could end up fighting a current ally or allied with a current opponent. In addition to the economics of ransom (see below), that naturally leads to a reluctance to kill or maim leaders who may be relatives, potential relatives (by marriage), or future allies, I guess.
• The English had better weapons (long bows were superior to cross bows), tactics, generalship, and soldiers.  This, along with a measure of luck, allowed them to prevail for a very long time.  Polarization and division of the French also played a role.  It took a very long time for the much richer and vibrant French economy (and their ultimate development of superior artillery, i.e., better cannons) to prevail and to push the English back across the Channel.
• The demands on top military leaders were much more strenuous then, compared with later periods. They participated directly in the hand-to-hand fighting of the most brutal sort, in addition to setting and implementing strategy and tactics and providing leadership.  Modern generals mainly must exhibit the latter – setting strategy and tactics and providing overall leadership – and don’t need to be deft and powerful with a sword or poleax, etc.  (Seward points out that wielding a poleax was much more effective against armor than a sword. Wielding either while wearing 50 lbs or more of metal armor is hard to imagine.) The only saving grace, I suppose, was that if you were a prince, duke, count, etc., a smart opponent would be careful to spare your life, rather than forfeit the ransom potential (see below).  That wouldn’t mean you’d avoid being maimed or injured, though. Or inadvertently killed in the heat of battle, as happened occasionally.
• The agony the French people in the affected areas went through for six or more generations seems unimaginable to me.
• I hadn’t realized that the Scots periodically had allied with the French. I guess that shouldn’t have been a surprise given their antipathy for the English. It allowed them to fight the English on the continent as well as on their home turf (a fair amount of that was going on during the war too). Doing so didn’t turn out very well for either them or the French who apparently found them to be less than helpful allies. Seward reports one of the silver linings in the French loss at Verneuil, which ended the Scots’ involvement, was that the French were “rid of the Scots whose insolence was intolerable.” (p. 202)
• A lot of interesting names – “Black Prince” (referring to the color of his armor, not his mood or other qualities), “Bastard of Orleans,” etc.
• I now have a firmer fix on the Joan of Arc story (lots of mythology has been woven around that), who Lord Talbot and Duke of York really were, and lots more bits of historical trivia.
• Falstaff as portrayed by Shakespeare is quite different than his real life version, Sir John Falstolf, as Seward describes him. I guess there is some debate about who Shakespeare was using as his model, if anyone.

What disappointed me about the book:

It’s drily written, almost like a textbook.  To be fair, that probably goes with the territory of a short book (under 300 pp) covering 116+ years of war.  There simply isn’t space for colorful writing and the necessary detail. I also would have liked him to spend a little more time and effort on how the Black Death interacted with the war.

SALT connection

Seward spends a fair amount of space on tax and finance issues.  That’s not surprising, since wars put immense strains on governmental finance and demand both borrowing and taxing.  This one was no exception.  The fact that it was funded by primitive economies compounded the challenge.

Taxation in those days was basic, at best, and brutally enforced.  The French were more effective and sophisticated than the English, but that didn’t help them much or at least not until later in the war.

Typical instruments – hearth tax (I assume that this was like the more famous window tax, imposing a fix amount per fireplace in a castle or lesser buildings), head taxes; and export duties.  The English resorted to the latter.  At the time, the English economy was much more backward than the richer French (much larger both in terms of population and land area, and the French soil was much more fertile than in England).  The English mainly exported wool, while the French wine and food.  The English controlled Bordeaux during virtually the entire period, so they control some wine production.  The export duty on wool hurt English farmers and merchants. Seems hard to fathom now – they hadn’t even gotten to the point of a mercantilist perspective, flawed as that is – but the warlords did whatever was necessary to raise funds to pay for the war.

The really brutal element of public finance was frankly just plunder and pillage – mainly by the invading English, although not exclusively.  This can be broken down into two separate styles or mechanisms: One where plundering army/government did not formally control the territory (i.e., hold the walled cities and castles) and the other where it did.

• For the first Seward uses the term chevauchee, a term I was unfamiliar with, but which essentially means invading and stripping the countryside of anything of value and often burning or destroying the rest to deprive those in control of access to resources.  The government that technically was in control (i.e., one of the factions of the often-divided French aristocracy) would be holed up in their walled cities, reluctant to come out and defend the farmers, villagers, and etc. – they were concerned that in the open they would be beaten by the superior English fighters.  By contrast, the English forces did not have the wherewithal to lay siege to and take the cities and castles. So, it was a sort of stalemate.  Given that, they would go on a chevauchees through the countryside to self-fund their armies and war effort through plunder.
• The second method was patis or protection when one (usually the English in the early years – first 100 year or so – of the war!) took over new territory from the other.  Seward describes it: “Every village and hamlet had to pay the troops from the local stronghold dues in money, livestock, food and wine; failure to pay was punished by arbitrary executions and burnings. Travelers had to pay dearly for safe conducts, road-blocks and toll-gates being set up.  Profits from patis were pooled; the soldiers paid one-third of their booty to the garrison commander, who remitted one-third to the King, together with a third of his own profits.” (pp., 80 – 81).  Profits from chevauchees were similar divvied up.

One can easily see the poor villagers, farmers, and peasants were between a rock (an invading army on a chevauchee) and a hard place (the powers in control of the city extracting patis).

Another typical financing method was ransom, an earlier and more personal version of reparations.  The nobles were fine with butchering lesser soldiers (archers etc.), but they preferred to capture, rather than kill, knights and other higher ups, since this provided ransom opportunities.  The nobles were held (often for years if they were dukes or better and their governments were unable or unwilling to pay – the English held the Duke of Orleans for 25 years) for ransom. This enriched the victors.  A trade or secondary market (?) in ransoms developed – markets in everything, of course. 

Seward gets into some of the details of the contractual arrangements that knights and others entered into with each other.  Soldiers of fortune – this was a like a business enterprise.  Apparently, a fair number of castles and country homes in England were built with the fortunes made from plundering the French countryside and ransoms paid.

All this gives new meaning to the term kleptocracy.  Most of these efforts were self-defeating, in the long run, of course.  You can only plunder a countryside profitably once every few years.  Doing so demoralizes the citizenry and saps efforts beyond subsistence living, I would assume.

Final Takeaway

Reading this makes one appreciate living in a modern society and just how much better things are now.  I guess it makes Steven Pinker’s case.  Also, it provides useful perspective on complaints about the communal costs of modern society, in particular taxes, when you consider what earlier generations have endured.  It will just make me grit my teeth more when people equate what can only be consider benign taxes as “theft” or “stealing.” If only they could be sent backward in time to see what arbitrary governmental finance rising to the level of thievery really looks like.

The February forecast was essentially a nonevent, which is no surprise given that only three months had passed since the November forecast with few economic events of note happening in that interval.  The projected surplus rose by $181 million. However, most of increase in revenue was attributed to a category that I’ve been watching, corporate franchise tax revenues.

The forecast reversed the situation that I had observed in my earlier post.  Corporate revenues for this biennium (FY 2020-21) are now forecast to be higher than in the last biennium (FY 2018-19).  The increase is modest ($140 million), compared with the drop of $78 million forecast in November.  This is more in line with the underlining GII forecast of corporate profits.  I had thought it odd that revenues were forecast to drop in November, even though corporate profits were forecast to continue growing modestly and TCJA conformity should have increased revenues.  That anomaly has been wiped away, well mostly.

The forecast write-up explains that the change in forecast corporate revenues is due to the higher payments (both decs and miscellaneous) in the additional quarter of actual data that MMB economists have.  I don’t think there is much of anything to make of this.  The change that this translates into is due to the power that actual collections have on rebasing MMB’s models.  (As an aside, I have always suspected that that is a slight flaw in the construction of the models; they may be too sensitive to the base year data that they use.  That is based on the swings that I observe in the estimates resulting from substituting new base year data.  The MMB folks disagree with me and they certainly have a stronger basis for that than my intuition, so I have always assumed they are right. But I still have lingering doubts – my stubborn nature or skepticism, I guess.)

A few thoughts:

• I’m still trying to figure out whether TCJA is having a noticeable effect on Minnesota corporate tax revenues.  One more quarter of collections and a reforecast (that moves the numbers by a not insignificant amount, though) doesn’t really provide much information on solving that puzzle.
• Refunds appear to still be running higher than forecast, one of the weird things I had observed to be going on in November. The forecast writeup says that refunds were lower, but the data in the tables show that they were higher by $6 million.  Since the writeup says historic credit refunds, all of which are booked as corporate refunds, were down $4 million, the regular refunds must have been up by $10 million above the forecast.  At least, I assume that the numbers in the table are correct, rather than the writeup’s assertion.
• The big issue for legislators in making supplemental budget decision is whether we’re on the cusp of a recession because of COVID-19 or other factors. This small change in corporate revenues is meaningless in that context.  If the economy trips into a recession, corporate revenues are likely to drop by 20% or more even if it is the shallowest of recessions.  That would wipe out the forecast increase in corporate revenues ($217 million) and reduce revenues by a least that much in addition.  In a deep recession, corporate revenues typically drop by 40%+, knocking revenues back by a lot more.  Corporate revenues are a very small piece of the pie, but they’re very volatile.
• Even without a recession, I would think corporate profits will decline as a result of the supply disruptions from the efforts to slow the spread of the virus, that is, compared with the levels GII forecast at the end of January.  Prudence says to ignore the increased corporate revenues and to go easy on new commitments.
• The big exception to that would be to accelerate commitments the state is going to pay no matter what – e.g., conformity on section 179, which is simply an issue of when depreciation deductions are taken – immediately or stretched over six years.  Best to get it out the way sooner rather than later, if it can successfully be substituted for permanent commitments.

Not much too see here, folks. Move on.