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Understanding Higher Taxes and Rent Control: Insights from Miller's Textbook Chapters 9 and 10

This presentation delves into Chapters 9 and 10 of Miller's textbook, offering insights on higher taxes and rent control policies. Chapter 9 explores the (dis)incentives associated with higher taxes, including the implications of the 1991 Luxury Tax Blunder and the elasticity of demand and supply. Chapter 10 discusses the consequences of rent controls, such as shortages of rental units and negative effects on landlords and low-income tenants. We examine the dynamics of tax rates and rental market regulations to uncover hidden economic truths.

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Understanding Higher Taxes and Rent Control: Insights from Miller's Textbook Chapters 9 and 10

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  1. ECON 104 Week 7

  2. Plan for Week 7 • This PowerPoint presentation will provide a few insights on Chapters 9 and 10 of the Miller textbook. • Chapter 9: The (Dis)incentives of Higher Taxes • Chapter 10: Bankrupt Landlords

  3. Miller TextbookChapter 9 The (Dis)incentives of Higher Taxes

  4. The 1991 Luxury Tax Blunder • Politicians are always looking for ways to raise taxes. • The luxury tax brought in very little revenue. • Laws of supply and demand apply to everyone—including the rich.

  5. Two Reasons for the Blunder • Elasticity of Demand • Elasticity of Supply • Static vs Dynamic Analysis

  6. Income Tax Rates • Up to 7% in 1913 (Book has it wrong.) • Up to 91% in 1964 • Up to 35% today

  7. What About Incentives? • Do lower rates mean more revenue? • Why? • Elasticity of Supply?

  8. And At the Bottom? • What about the incentive to take a job for low-income people? • Two Things Happen: • They lose welfare benefits. • They are taxed on their earnings.

  9. The Case of Ireland • Until about 1990: • 120% Effective Tax Rate at the bottom • Economy was is bad shape. • Today: • Maximum top corporate rate of 12.5% • Economy is booming.

  10. Summary • Perfectly Inelastic curves are a myth. • Rich and Poor alike are sensitive. • Higher tax rates no NOT equal Higher tax revenue.

  11. Miller – Chapter 10 Bankrupt Landlords

  12. A Shortage Situation P S Price Ceiling D Q Demand is greater than supply at the price ceiling.

  13. Consequences of Rent Controls • Shortage of rental units • Deterioration of existing units • Less construction of new units • Black market activity • Discrimination (non-price rationing) • Political maneuvering • Subletting

  14. Three Functions of Price • Allocating existing housing. • Promotion of efficient maintenance. • Stimulation of production. ---------------------------- • Price cannot do its work if it is not free to do so.

  15. Other Matters • What about moving under rent controls? • Are there incentives for landlords to make life unpleasant for tenant? • Laws that make evictions difficult? • What are the likely consequences of this?

  16. Who are the Losers from Rent Controls? • Landlords • Low-income people • People with pets • Elderly

  17. Are there any winners? • How do rent controls get approved? • What happens to the future supply of low-rent units of housing?

  18. Extra Reading: • For more reading on this issue, here is a nice piece from economist William Tucker http://www.cato.org/pubs/pas/pa-274es.html

  19. Thank you for viewing. • Dr. Glen Tenney • gten@gwmail.gbcnv.edu • 775-727-2009

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