ECS on Operation Varsity Blues

I, like many of you, have already reached peak saturation in the “Operation Varsity Blues” college admissions scandal. With celebrities, and other members of the elite 1%, paying up to $1.2M to help their children gain admission to their school of choice, it has all the makings of a Hollywood movie. Personally, I am eagerly awaiting the Ben Mezrich book that will eventually come from this story. However, I came across an interesting article by Tyler Cowen that was worth a read. I have included my favorite excerpt below.

First, these bribes only mattered because college itself has become too easy, with a few exceptions. If the bribes allowed for the admission of unqualified students, then those students would find it difficult to finish their degrees…What does that say about standards at these august institutions of higher learning?…Alternatively, you might think it is rather arbitrary who is admitted to any given university, and that many of those denied admission could get through the program competently, even if classes and grading were made harder. 

Personally, I cannot fathom admission to a desired college is worth $1.2 million over State U. Also, the people who can afford to pay this ransom probably have strong personal networks that can be leveraged to help their children. I imagine that former PIMCO CEO Doug Hodge could help his child get a competitive summer internship with a simple phone call. I also imagine that Lori Loughlin, or her agent, could get her daughter an audition without a degree from the USC School of Cinematic Arts.

Please use the comments to share any other novel/interesting opinions on the story. I am hoping somebody will read the entire FBI investigation and come up with an article discussing the market based price of a degree from institutions involved in the story. So far, $1.2M for a degree from Yale seems to highest valued degree.

Taxing Peter to Pay for Paul

Several members of Congress, and individuals aspiring for higher offices, tout higher marginal tax rates on high income earners as an effective tool to address income inequality and fund additional government spending programs. Individuals of this persuasion often point out that marginal tax rates were around 90% during the 1950’s and 1960’s and GDP still grew between 4-5% per year. Joe Nocera’s recent Bloomberg article discusses the often omitted story of the great American past time, tax avoidance. He highlights how high earning entertainers like Frank Sinatra and Bing Crosby used loopholes in the tax code to shield large portions of their income and reduce their effective tax rate to about half of their 90% marginal rate.

My inner-cynic thinks that talk about raising marginal rates on high earners is more about scoring political points with a voting base and a means to usurp power by making/protecting tax loop holes for preferred special interest groups more valuable. If the goal was to actually increase the tax revenue collected from high earners and create a more equitable tax code, the focus would be on closing and/or capping the value of loopholes in the tax code.

I think the optimal tax code would be a single tax rate for all filers with an exemption on the first $X of income (i.e. 1-1.5x the poverty line). This would significantly lower the effective rate for low income earners and high earners’ effective rates will approach the actual tax rate. I would treat all entities as pass though entities so all income is taxed at the individual filer level. This would simplify things and eliminate the need for an additional tax rate for capital gains and dividends. The single tax rate also eliminates the ability to selectively (punitively) raise taxes on specific groups of individuals/corporations.

I am not a tax policy expert, but I agree with Joe Nocera’s parting shot below.

I’m not saying we couldn’t do with more taxes on the rich. But let’s be careful. When Bing Crosby won’t give a concert, it’s safe to say that the marginal tax rate is too high

Please use the comment section to criticize my tax plan or share any interesting articles or opinions on improving tax code.

Taxi Reform by Uber

To commemorate the 7 year anniversary of Uber's launch in New York City, Barry Ritholtz pens an op-ed claiming that the NYC Taxi and Limousine Commission created the market opportunity for Uber to enter and thrive in NYC. By using its regulatory moat, the TLC was able to restrict the number of drivers through its medallion system. 

I wonder if Uber would have had the same success if the TLC had been more focused on meeting the needs of their riders rather than its medallion holders.

I have included an excerpt from the article that shows how the entrance of Uber impacted the price of taxi medallions. 

All of these failings would be much less likely to take place in a competitive market. We know this is an artificial monopoly because of the price behavior of medallions after market competition began: prices for medallions peaked shortly after Uber came to town, but before it had much of an impact. Bloomberg Businessweek reported that medallion prices, which peaked at $1.3 million in 2013, were already sliding, falling below $900,000 in 2013. Just two years later 2015, prices had fallen another 40 percent.

And it got worse: By 2016, the lowest reported price was $250,000. Last year, medallions sold for as little as $241,000. They are still falling. Axios noted a recent transaction that went for just 8 percent of the peak value, or about $100,000. Other cities, such as Chicago, have seen similar declines in medallion prices.