Happy Tax Day!

Wednesday, April 15, AD 2015

“This is a question too difficult for a mathematician. It should be asked of a philosopher.”(when asked about completing his income tax form)”  

Albert Einstein

 

 

Justice Oliver Wendell Holmes, Jr. once opined that taxes are the price we pay for civilization.  As usual Holmes was being more glib than wise.  Some taxation is needed for civilization;  taxation that becomes oppressive is usually a sign of a civilization in decline.  In the beginning most taxes are instituted for some more or less necessary purpose, at least that is what is claimed.  Over time they simply exist to feed an ever growing government.  Unlike most associations we develop in our lives, government is completely involuntary and always has compulsion at its beck and call to ensure compliance.  It is all too easy over time for government to simply become a mechanism to transfer funds to favored political groups.  Until governments master this technique usually they stay small simply because taxpayers hate paying taxes.  This taxpayer resistance is overcome when government is able to claim the allegiance of large groups that view themselves as net beneficiaries from taxation.   When sufficient funds are not available, governments simply wish them into being through borrowing and the printing press.  The best argument against big government is to closely watch how the funds taken and manufactured are used by the government each fiscal year.  63 % of the federal budget consists of transfer payments from collective Peters to collective Pauls.  Christ noted that we should render unto Caesar the things that are Caesar.  It is instructive that He never breathed a word about the care of the poor being a responsibility of Caesar, instead making it the duty of each of His followers.  Relying upon Caesar to do this task is rather like using an army to provide day care services.  Thus we have the modern welfare states that attempt at great cost to do what people should do for themselves or what should be the province of private charity.  Government thus becomes ever larger and eventually begins to kill its host, the private sector.  So here is to Tax Day, that monument to human hubris, chicanery and avarice! 

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10 Responses to Happy Tax Day!

  • Bigger government…smaller lives.
    Unless your in the government!

    I agree with all of your wisdom Mr. McClarey. Especially; “When sufficient funds are not available, governments simply wish them into being through borrowing and the printing press.”

    Hyper inflation on the forecast?

    You can only devalue the dollar for so long. Who cares if the nation has a hundred billionaire’s…if the cost of a loaf of bread is $1,500. Oh…the billionaires don’t mind. They make the bread.

    “Taxation that becomes oppressive is usually a sign of a civilization in decline.”
    Hummmm.

  • Justice Oliver Wendell Holmes, Jr. once opined that taxes are the price we pay for civilization. As usual Holmes was being more glib than wise

    Oh, I think it can be saved!
    Sure, it’s more a matter of interpreting sense into it than getting sense out, but… if you read it as the form of taxes reflecting the form of gov’t, then it kind of works. A gov’t that targets isolated groups of unpopular and punishes then greatly via direct taxes to give goodies to the loudest while simultaneously taking massive amounts from those getting “goodies” in ways that they don’t notice (an exaggeration of our current system) is going to reflect a specific type of civilization, after all….

  • This got posted over at Creative Minority Report in a knocked down, dragged out exchange, i will not call it a conversation, amongst some atheists, about Ted Cruz.
    .
    Sixty million sovereign souls are being scraped from the womb and
    “Return to Sender”, “their Creator” is being stamped on them by their procreators.
    Jesus Christ has a rational soul. Man, being created in the image of God, has an immortal, rational soul. The devil has no soul. The devil is a person who is a pure spirit with no soul. The devils, like the angels, are pure spirits, except that the devil is a perfectly evil spirit, with no soul. Man on the other hand cannot be perfectly good, nor perfectly evil. Man relies on God for his perfection for body and rational soul. The devil gives man nothing but hell…absence from God, corruption and chaos.
    Sixty million sovereign souls are being scraped from the womb and
    “Return to Sender”, “their Creator” is being stamped on them by their procreators.
    Your tax dollars at work.

    I always feel it is a good thing we pay people to tell us how to live…not.
    You are free to remove this comment.

  • @Philip,
    In traditional economics, inflation is what would happen. It’s more difficult in America’s case in a world economy because our printing presses give license to other countries to do the same. If we all devalue our currency, is it really devalued? It’s a race to the bottom. In addition, other countries help fuel our debt by buying it. They need a healthy customer buying their goods. The eggheads have figured a way to abdicate fiscal responsibility.

  • Every politician who wants to raise your taxes and claim the revenue is for the poor is simply another Judas Iscariot. John Chapter 12:
    .
    1 Six days before the Passover, Jesus came to Bethany, where Lazarus was, whom Jesus had raised from the dead. 2 There they made him a supper; Martha served, and Lazarus was one of those at table with him. 3 Mary took a pound of costly ointment of pure nard and anointed the feet of Jesus and wiped his feet with her hair; and the house was filled with the fragrance of the ointment. 4 But Judas Iscariot, one of his disciples (he who was to betray him), said, 5 “Why was this ointment not sold for three hundred denarii and given to the poor?” 6 This he said, not that he cared for the poor but because he was a thief, and as he had the money box he used to take what was put into it. 7 Jesus said, “Let her alone, let her keep it for the day of my burial. 8 The poor you always have with you, but you do not always have me.”

  • Happy tax day? When the forms are submitted and there is not thought about the spending from treasury, maybe.

  • Kyle Miller.

    Your “race to the bottom” is a good metaphor. When the “winners” hit bottom I hope my interest remains with the losers. Greece? My guess is Greece will look good compared to the future collapses.

  • I am some kind of an accountant and know enough about the code to be annoying. So, I actually know what “they” are trying to get to with the schedules, but the way they run (add this; subtract –% of that; take ##% of that-there;. . . .) you around. You know Einstein was correct, again.
    .
    I hand-write my Fed and NYS returns, which include eight or ten (AMT, rental property, etc.) schedules over and above than the minimum number of schedules. Generally, they are neater than your example.
    .
    One, I am too cheap to buy the software (b/c I earn more – AMT!!!) than allows me to get it gratis (all men are created equal . . . BS!) .
    .
    Two, some ‘dreamer’ will not steal my identity.
    .
    Three, the rats can read my chicken-scratch.
    .
    Four, I have the papers. Every other year I get a letter telling me I owe a % or two of total tax. “Funny” how I always err in my favor – not enough to ruffle their feathers, incur a fine or interest. If I was on their (dark) side, I’d call me in and hand me a strongly-worded letter of reprimand.

  • “I hand-write my Fed and NYS returns”

    As do I T.Shaw. I also provide more documentation than is required.

  • I own a piece of ground, about 18 acres of winter pasture, which is known locally as “the ten shilling land.” [The shilling is an old British coin, 20 to the pound, abolished in 1971]

    As a child, I was intrigued by the name and so I asked the old shepherd about it. He looked after the sheep on the common grazings and he knew everything. He told me that there was once a wicked king, who charged the poor people money, just for living on their own land.

    Years later, I had occasion to check the progress of title in the Register of Sasines and, sure enough, the piece of ground was described as being “ten shilling land of Old Extent.” Now, the Old Extent was a survey of rental values, carried out by King Alexander III in 1280, in connection with a proposed land tax. The New Extent was carried out in 1365-1366 for a tax to pay David II’s ransom under the Treaty of Berwick of 1357.

Schadenfreude

Tuesday, June 3, AD 2014

8 Responses to Schadenfreude

  • “Don’t tax you, don’t tax me, tax that fellow behind the tree!” – Russell B. Long

  • Let’s tax the hell out of our neighbors so we can build monuments that depict our greatness and kindhearted spirit. I know. A cultural center embracing the spirit of Satan and call it good.
    God doesn’t know how to create.
    I will have the taxpayers pay for Gods mistake of making Tom a boy, when indeed she is a woman. Taxpayers to the rescue of gender confused Tom’s….meanwhile the Gretchen’s of the nation see their dreams vaporize.

  • Austin’s liberal tradition has also caught up to them with ongoing traffic nightmares. Back in the early eighties, the city mayor was a former flower cart salesman (I kid you not). The city council along with the Whole Foods hippies refused to allow the necessary growth of the city’s infrastructure, and now they are paying the price big time. They still have plenty of hippies though, they’re just cleaner versions called hipsters.

  • This reminds me of the protest sign I saw at an “occupy Wall St.” protest. It said something to the effect: “I spent $120,000 getting a masters in gay, lesbian and transgender identity issues, and now I can’t find a job!”
    Seems like “life 001” (that’s a remedial course) might have taught either of them the rudiments of cost/benefit analysis.

  • One needn’t worry too much about Ms. Gardner going homeless. If she
    purchased her Bouldin neighborhood bungalow back in ’91, then with
    our real estate market here being what it is, she’ll likely be selling it for
    about 10x to 12x her purchase price. I live in Austin and I’m not exaggerating.
    .
    I do think that Ms. Gardner’s closing remark, “someone needs to step in
    and address the big picture”, is very telling. Who is this mysterious ‘someone’
    that’s going to show up and put things the way Ms. Gardner would like?
    Ms. Gardner spent the last 20+ years congratulating herself for her generosity
    with taxpayer dollars, voting for every bond package that was proposed.
    She was that ‘someone’, and she refused to address the big picture. It’s
    childish for her to dodge her own responsibility for her predicament, and
    childish to wish for someone else to appear who’ll suspend the laws of economics
    and clean up her mess.
    .
    I’d say that her sort of childish hankering for a magical authority figure to
    spring up out of nowhere and make one’s consequences disappear is the sort of
    cluelessness that destroys republics.

  • Clinton.

    Thanks for the local clarity.
    Good points.

  • This really points out the importance of local involvement of conservative people. Leadership is needed in our own towns and counties.

  • Clinton: “I’d say that her sort of childish hankering for a magical authority figure to spring up out of nowhere and make one’s consequences disappear is the sort of cluelessness that destroys republics.”
    Yes, Gretchen would probably like a strong central, magical authority to take care of her and make it all right. Like Napoleon. Or Napoleon III. Or “Papa Joe” Stalin. Or Mao. Or Fidel. Trade freedom for “security”, if you can call it that under those Big Daddies..

Happy Tax Day!

Tuesday, April 15, AD 2014

Happy Tax Day!

The late great Jeff MacNelly reminds us above of just how much joy it is making our way through a maze of arcane tax regulations to determine just how much of our money BigGov will generously allow us to retain.  We can all console ourselves that in just six more days we will observe Tax Freedom Day, which comes three days later than last year.  The average member of the middle class in this country shells out one out of three dollars for taxes of all types.  Oliver Wendell Holmes once said that taxes are the price of civilization.  He should have added a coda:  over taxation is often a sign of civilizations in decline.

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11 Responses to Happy Tax Day!

  • Just to annoy them, I write out my tax returns.

    ” . . . taxes are the price of civilization.” I demand a refund!

  • Starch, no, please. I am getting stiffed enough. Thank you. I needed to laugh. This is really funny. The economy will not improve until it is based on integrity and virtue, indispensable and inseparable. It is repugnant to know that hard earned money is being used to afford sex-changes for transexuals and or abortion to destroy another human being. Hobby Lobby will have those abortaficients wrung out of them, the human embryos, riced and diced and spliced, and hemorrhoid lubricant for the practicing gays. Well, what does the illiberal left have left? “What me worry?” in the White House with “What meme worry?” in the wings?
    .
    Government against the people is taxation without representation. Clearly, the Greens and Hobby Lobby have paid their taxes only to have their taxes used against them in court, to extort more than just their money. The Greens and Hobby Lobby are not being represented as constituents composed of body and soul. Their conscience is not being represented by Obama. This equals Taxation without representation. The Greens and Hobby Lobby, not you, nor I, we did not get to vote on the HHS Mandate. More taxation without representation.
    .
    Denying conscience and extorting taxes will not balance our economy.

  • Someone should spoof page two.

    In order to supplement income, there was a time when I worked as a tax preparer.
    This happened at the end of the era of written, mailed tax returns. (I still do my own with the ingrained black ink, no cross outs, and careful penmanship, although have changed to rounding the cents for Federal and following this rounding for State as mandated.) I stayed on for the conversion to e-filing and then, shortly, for its becoming The Way to file. What I found was the abominable give away on page 2 called the EIC or Earned Income Credit – abominable because most of the people who availed themselves of the $5,000 or $6,000 free cash ‘refund’, fondly called ‘my taxes’ blatantly used the chart of how much to ‘make’ with two children on hand to order their chosen employment. Morality took a big hit on this giveaway.

  • “Someone should spoof page two.”
    .
    Pat: It is not funny. I know of a guy collecting $7,000.00 of EIC.

  • Mary: Must be some kind of inflation/’cost of living’ increase. Haven’t looked at the page in the Instruction Pub. for many years. It isn’t funny, that’s why I wonder what a spoof would entail. It seems that the government rolls have dependents receiving the equivalent of over $50,000 yearly.

  • “the abominable give away on page 2 called the EIC or Earned Income Credit”

    Say what you will about EIC, it sure came in handy for us for several years when our income took a big nosedive due to my losing a well-paying job. We used to regularly get refunds in about the $2,000 range due to EIC and the child tax credit (which I no longer receive now that my child is too old to qualify). It was a nice little “windfall” to have once a year, but hardly enough to be worth choosing a job or career around it, and it did nothing to discourage me from trying to better my circumstances (as I eventually did). I could have gotten a bigger credit, of course, if we’d had more children but that obviously did not prove to be enough of a motivator 🙂

    Bear in mind that it is called the Earned Income Credit because you have to have EARNED money from wages, and not *just* be living on food stamps, welfare/TANF, disability, etc., in order to claim it. Yes, I realize there are probably ways around that which people who are experts at gaming the system know about, but the basic idea behind EIC — which I believe was instituted under Reagan — is to provide a lift to the WORKING poor.

  • “is to provide a lift to the WORKING poor.”

    And a considerable lift it can be. I recall a bankruptcy I did where a couple had several kids and they got eleven thousand dollars. Their actual Federal income tax withheld was around $2,000.00. As a welfare program that encourages work, it is probably the best of a bad bundle of policies, but it basically turns topsy turvy the whole concept of tax refund.

  • In the UK, the tax year begins on 6 April.
    Traditionally, it began on Lady Day (25th March, Feast of the Annunciation), which was the beginning of the Civil Year, too. When the Calendar Act 1751 introduced the Gregorian Calendar, it provided that the day following 2nd September 1752 should be 14th September 1752, eliminating eleven days. Accordingly, it postponed the end of the tax year to 5th March 1753. So it has remained. The Act also changed New Year’s day to 1st January.
    Similarly, the Lord Mayor of London’s year of office traditionally ended on the Feast of SS Simon & Jude (28th October); whether this has anything to do with St Jude being the patron saint of hopeless cases, I could not say. It now ends on 9 November (28th October Old Style)
    In my part of Scotland, we still use the old dates for the opening and closing of the common grazings and for the entry and removal dates of agricultural tenancies. Even parliament cannot change the climate.

  • It has occurred to me that all taxes and government run programs ought to be used only for legitimate purposes. Legitimate purposes must be defined by people voting for what they know is legitimate and would not include abortion or euthanasia.(or transgenderism or transhumanism or embryonic cell transfer) Abortion destroys a voter as does euthanasia. The vote of the people is: “The voice of the people of God is the voice of God” How can it be otherwise?
    .
    I know of a doctor who wrote a prescription for his friend for a swimming pool. Social Justice being the giving to the people what the people need to survive in life, not what the people demand, or would like to have.
    .
    “Similarly, the Lord Mayor of London’s year of office traditionally ended on the Feast of SS Simon & Jude (28th October); whether this has anything to do with St Jude being the patron saint of hopeless cases, I could not say.”
    .
    Smile

  • Fun facts about taxes:

    Taxes are the prices we pay so that seven of the ten richest US counties can be within commuting distance of Washington, DC.

    Since January 2009, Obama proposed 442 tax hikes.

    Today, 86,000,000 private sector workers support 148,000,000 benefits recipients.

    The IRS is an organ of the democrat party: both of which are criminal enterprises.

    There simply is an unacceptably deficient supply of ammunition.

  • Here’s a leg up: Legislators may only legislate legitimate legislation. Condoms and alternate lifestyles are not legitimately taught to innocent, minor, un-emancipated and un-informed children.

Tax Dishonesty

Tuesday, August 7, AD 2012

I’ve been listening to music via Pandora a lot recently (while writing) and the result is that although I’ve been hearing more than my usual share of political ads. (Since I don’t watch television or listen to commercial radio, I’m normally exempt from these despite living in Ohio.)

One thing that particularly struck me is the rampant dishonesty in regards to tax policy that’s going around, in part due to the both party’s bad habit of making tax breaks look more affordable by enacting them only for short terms, thus necessitating frequent renewal.

The first bone of contention is the “Bush tax cuts”. These tax cuts, which affected taxpayers all across the income spectrum, are estimated to have a “cost” of $3.3 Trillion over ten years (this “cost” is the combination of foregone theoretical tax revenues and the cost of servicing the debt resulting from federal spending not going down by a similar $3.3 Trillion.) Democrats like to refer to the “Bush tax cuts” as “tax cuts for the rich” and to quote the full “cost” of $3.3 Trillion as being the cost of those cuts. What this ignores is that two thirds of that $3.3T actually went to what President Obama refers to as the middle class (families making less than $250,000 per year.) So while it’s true that the “Bush tax cuts” had a “cost” of “over three trillion dollars”, the attacks against this ignore the fact that two thirds of that total is “tax cuts for the middle class” which Democrats support.

Just to make it even more confusing, Democrats like to call extending the Bush tax cuts “massive tax cuts for the rich”, despite the fact it is simply an extension of tax rates which have already been in place for some time. Republicans, on the other hand, like to refer the potential expiration of the tax cuts as a “massive tax increase.” This is accurate, to the extent that people would indeed experience their taxes going up, but it ignores the inconvenient fact that Republicans wrote the tax cut in such a way as to expire (in order to avoid having to make hard budget decisions to ‘pay for’ the tax cut.)

As if one set of expiring tax cuts that everyone talks about in different ways were not confusing enough, there’s also the Obama payroll tax cut: a cut of 2% in the payroll tax that pays for Social Security. This was never meant to be a permanent tax cut, but rather a short term economic stimulus. Social Security has financial problems to begin with, it doesn’t help to make a significant cut in its funding. (And that’s ignoring the fiction that the money you put into Social Security is the money you’re get out again.)

However, even though both parties have signaled that they’re essentially willing to let the temporary payroll tax cut expire at the end of this year (though both parties hope to see this done as part of a broader overhaul of taxes suited to their own priorities) that hasn’t stopped some commentators and advertisers from characterizing Republican support for letting the cut expire as “a tax increase on the middle class”.

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6 Responses to Tax Dishonesty

  • We are running 1.6 trillion deficits annually and we think taking 330 billion out of the private sector is going to improve things? Let me see real cuts in spending, say 1.3+ trillion annually, and I will accept a tax hike. i

  • “I can be influenced by what seems to me to be justice and good sense; but the class war will find me on the side of the educated bourgeoisie.” – John Maynard Keynes

    We are all “Keynesians.”

  • Here’s a metaphor (I think from Ron Paul).

    You arrive home and find that the septic system has backed up and is filling the living room.

    It’s about six-feet deep (eight-foot ceiling).

    What do you do? Obama will raise the ceiling. He’s done it before.

  • Let me see real cuts in spending, say 1.3+ trillion annually, and I will accept a tax hike.

    That would be north of a third of current annual federal expenditures. Again,

    1. About 12% of current expenditures are devoted to debt service; you do not want to experiment with stiffing bondholders;

    2. Around about 35% or so of current expenditures are devoted to benefits for the elderly and disabled, who have a limited capacity to adjust to changes in financial circumstances.

    3. Around 3.5% are devoted to veterans’ benefits. Taking a cleaver to these would be less than tasteful at this time.

    4. Close to 25% are devoted to military expenditures, reduction in which are the occasion of some skepticism in Republican circles.

    The sum remaining is less than the $1.3 tn you want to cut.

    People need to think this through.

  • The numbers in this article are not what I’ve come across. More middle class people were affected. Each saving small amounts. Fewer rich were affected, yet saved great amounts. This is due to two facts. First, there are more middle class people. Second, most of the money is made by a small number of rich.

  • Proteios1,
    Seems like you are getting bad information. Feel free to post a link.

The Oft-Repeated Lie About Warren Buffet’s Secretary’s Tax Rate

Wednesday, January 25, AD 2012

For last night’s State of the Union Address, President Obama invited Warren Buffet’s secretary, Debbie Bosanek, to sit in the First Lady’s box during the speech and specifically promised in that speech to support tax changes in order to mend the injustice Buffet claims occurs allowing him to pay the lowest tax rate of anyone in his office, including his secretary. This line of attack is doubtless partly designed to pave the way millionaire Barrack Obama to make populist attacks on multi-millionaire Mitt Romney during the upcoming presidential campaign. Romney is, after all, very, very rich, and his income comes primarily from investments.

David Leonhardt at the NY Times asks both right-leaning economist Greg Mankiw and the left leaning Center on Budget and Policy Priorities to comment on this alleged tax injustice. Mankiw makes a fairly reasonable case that the reason capital gains are lower is that investment income is based on corporate profits and corporate profits have already been taxed. Companies would have more profits to pass on to investors (either as dividends or in the form of being worth more) if they didn’t pay corporate taxes, and so the tax on investment income is set lower to avoid this “double taxation”. Chuck Marr of the Center on Budget and Policy Priorities must know the facts aren’t on his side, because instead of answering the question he provides a canned response about income inequality and how tax rates are lower than in the ’70s. The column is worth a read.

However, there’s another issue here which I think is worth pointing out. Progressives writing on this issue usually act as if billionaire investors such as Warren Buffet are all paying right around 15% (the capital gains rate) in taxes — Buffet claims that he pays 17.4% — and that “middle class Americans” are paying the top marginal income tax rate of 35%.

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40 Responses to The Oft-Repeated Lie About Warren Buffet’s Secretary’s Tax Rate

  • I am tired of hearing about the rich paying “their fair share” when almost 50% of the country pays nothing in income taxes. I am all in favor of everyone doing their fair share and, in my mind, that obviously means setting a minimum tax. Even if it is just $100 a year, everyone should throw something in the pot. We should also stop administering welfare through the income tax system. It encourages people to accept benefits they would never dream of going to the welfare office to get.

  • Darwin,
    As a tax lawyer I must say your post is spot on correct. And I would add a few more points.

    * Capital gain rates should be lower in order to accomodate the fact that some gain is illusory inflation gain. A person buying shares of Company X in 1980 for $10,000 may well be able to sell those shares for $20,000 today, but much of the nominal $10,000 gain is just inflation and does not represent income in a true economic sense.

    * Capital gains are only taxed when they are recognized as a consequence of a sale. Selling investments is usually a matter of choice, and capital gains taxes act as a toll charge on a a voluntary sale. Accordingly high rates serve to encourage investors to stay “locked in” rather than liquidate their investments. In fact all tax scholars agree that high rates will result in reduced tax revenue for this very reason, but what they do not agree on is the tipping point. Personally, I think that there is some room to raise the rate without revenue loss, but I do not believe that one can remotely raise the rate to match with current ordinary rates without actually losing revenue. It would be a lose/lose — investors would be locked into unwanted investments while the government would get less tax revenue — all in the name of fairness.

    Buffett is a hypocrite. He can and should pay himself a high salary taxed at ordinary rates, but instead deliberately keeps his gains in his investments in order to benefit from lower capital gain rates.

  • Jenny,

    For a very long time I agreed with the point you make about everyone paying at least some taxes, but I think I’ve been gradually modifying my views on it.

    Part of my reason for change there is that (as the CBO numbers I linked to point out) basically everyone has some degree of federal tax liability, if they work at all, it’s just that they may have a negative income tax liability (a subsidy) which reimburses them for some of the payroll taxes that they pay for social security and medicare. Even for the bottom 20% of earners, they end up paying some positive amount of federal taxes. One could “solve” this weird appearance by scaling the payroll taxes instead of having them be a flat rate, but that’s comparatively hard to do, so instead we end up with this weird thing of charging some people payroll taxes while “giving back” money on their income taxes.

    Another element is that it seems to me that one of the things which conservatives have (rightly) won a lot of support for is lowering people’s taxes — and it seems to run totally counter to that to turn around and say that we should raise taxes on the half of people who pay no income taxes currently.

    Finally, and this is the thing I feel most mixed about, giving people subsidies through tax credits is a very “clean” way of trying to help out those who earn less. On the face of it, it seems like we shouldn’t throw money at people who don’t ask for it, and I find that argument persuasive in some ways. But on the flip side, the various forms of subsidy that people go down and apply for often end up reinforcing bad behavior and penalizing the hard working poor who don’t ask for help. They also lend themselves to all sorts of nanny state interference where bureaucrats say, “We’ll help you buy food, but only if you buy these things,” etc. In this sense, if we’re going to help people through financial subsidies, it seems to me that doing so through something like the earned income tax credit or the child tax credit in some expanded and more frequent form would actually be more conservative and less prone to government abuse than most of the other modes of assistance which are pushed.

  • I have heard that the idea behind the earned income tax credit was to reimburse lower income workers for their payroll tax contributions. It is a reasonable goal, but I do not believe we should completely erase a citizen’s entire tax obligation. I think it changes the relationship between the citizen and the government in an undesirable way.

    I also question if it is really true that most everyone actually has a tax liability. I know that my anecdote is not data, but for tax year 2010 I paid $0 income tax, ~$2900 payroll tax, and received ~$6200 in a “tax refund.” Now we have three children and one income, so that might change the math, but I do not consider us low income. We do not have a lot of budget leeway, but we are definitely not poor. If I make as much as I make and still get that kind of money from the government, how much more are other people getting?

    We also qualify for reduced lunch at school, but I do not take that government money. I can afford to feed my daughter lunch! The difference is to receive that benefit, I would have to fill out a form that basically declares I need the government’s help to feed my children. That declaration would be a falsehood so I do not fill out the form and no one requires me to do it. However I am required to file taxes, so, even though I do not *need* the money, I take all the deductions and credits I am allowed and get a fat check. It definitely feels like dirty money, and yet I take it anyway. I’m not sure what that says for my moral fortitude.

    I agree it is politically untenable. I hear folks calling the talk shows complaining about those ‘no-goods’ that don’t pay taxes and I wonder how many of the complainers actually pay income taxes themselves. Odds are that 50% do not.

    I understand your thought that the earned income tax credit helps the people who would not ask for help. I am a prime example of that logic. I would be more sympathetic to it if the country were not driving off the debt cliff. It is a moral hazard to set up government assistance through programs–be it from manipulative citizens or nanny state bureaucrats–but we cannot afford to allow 50% of the country to free ride anymore.

  • I hear what you say, Darwin, but don’t think I fully agree. Social security is basically a pay as you go defined benefit retirement plan. Folks receive retirement benefits imperfectly based on what they contributed to the pot during their working life. In truth the plan is a hybrid — part retirement plan and welfare plan since those who pay in the maximum get a bad deal while those who pay in smaller amounts (i.e., low and moderate income earners) get a good deal. I don’t think these taxes can fairly be characterized as contributions to the common good, which is a different pot altogether, except perhaps in part the taxes paid by those who consistently contribute the maximum since they are subsidizing others.

  • Mike,

    Fair point. I guess I tend to look on Social Security as being more of a welfare program conveniently masquerading as a defined benefit retirement plan — but I readily admit this is in part a result of my own crank-iness.

    In all honestly, I’m not sure I fully buy the “tax credit as reimbursement for payroll tax” argument, especially as there’s not a fixed relationship between the two. Few people end up getting more subsidy via income tax then they pay in payroll tax, but I’m sure that some do, and my support for the idea of using refundable tax credits in place of other forms of subsidy isn’t necessarily related to the amount of subsidy being less than one has paid in payroll taxes. On the other hand, I think one of the problems with this approach, though it appeals to me in other ways, is that offends people’s common sense. And that’s not something to be taken as lightly as many policy wonks seem to think.

    Jenny,

    Fair points. I don’t remember comparing how much I got back via income taxes to my payroll taxes, but I do definitely recall that 7-8 years ago when we had two kids and our family income was under 50k we got back about a thousand dollars on our tax return more than we’d paid in. And I think the child tax credits are higher now than they were then. Things were tight (given we lived in California and paid the sort of rents one can expect there) but I certainly didn’t consider us “poor” and would never have applied for government aid.

    This, actually, is my main source of self questioning as I’ve come to see the refundable tax credit as a better way of applying government subsidies than traditional welfare programs: it’s simple and fair, sure, but back when I actually qualified for that kind of thing it drove me up the wall and I was firmly in the camp of thinking that everyone should pay at least some taxes. I’m not really comfortable with the fact that this is something I’ve only come to like the idea of as my income has increased, though I’m not sure if this is the result of cause and effect or just that I’ve got into reading a lot of economic policy analysis over the last decade.

  • I agree it is politically untenable. I hear folks calling the talk shows complaining about those ‘no-goods’ that don’t pay taxes and I wonder how many of the complainers actually pay income taxes themselves. Odds are that 50% do not.

    Some numbers here. 47% of households have no “liability”– they can claim deductions sufficient to only be paying SS and Medicare tax; those who hit the black when you include their side of the payroll taxes is half that. (still depressing, but not as much)

    Things to keep in mind is that this is a matter of HOUSEHOLDS– from memory, being married and being a bit older are both things are associated with being conservative, and one of the major causes of poverty in children is being a single mother; it’s very believable that those calling in are paying taxes, contributing, etc, even if the “50%” statistic would imply otherwise.
    Oh, that reminds me– some of those “households” might be college kids of the sort that I went to high school with– they’re on every program possible, are supported by their parents and get part-time jobs while they’re in college basically so they can game the system. (I didn’t really realize this until one mentioned the free birth control program for Washington State was being “threatened.” Guess I should’ve known, almost everyone at the school was on reduced lunch, even though my family was one of the lower income ones!)

  • I will attribute your changing opinions to reading economic policy rather than the pity you have for us down the income chain. 😛

    If our goal is to help those who would not normally ask for help, we could keep the credits if we dramatically cut the income requirements to get the credits. For tax year 2011 you can still get a credit with an AGI of $50,270. That’s adjusted income higher than the country’s gross median. This is pure insanity.

    I do not mind government subsidies helping the poor and even those teetering on the edge, but that is not our current policy. We are throwing money at solidly middle class people who would never ask for the money on their own. We cannot afford to do it anymore.

  • I will attribute your changing opinions to reading economic policy rather than the pity you have for us down the income chain.

    Thanks. 😉 I guess what makes me mildly suspicious of myself is that I’m pretty sure that my 25-year-old self would have thought my 33-year-old self is just out of touch. And while having five kids and large old house adds a lot of responsibility, compared to two kids and a tiny new house, I can’t help wondering if my 25-year-old self was right at a gut level.

    I do not mind government subsidies helping the poor and even those teetering on the edge, but that is not our current policy. We are throwing money at solidly middle class people who would never ask for the money on their own. We cannot afford to do it anymore.

    There I think you get at the heart of the matter. Middle class voters turn out much more reliably, so I think both parties have been a party to buying off the middle class by cutting taxes very, very low for many of them, without actually helping those desperately in need all that much. To the extent this has resulted in virtually putting the middle class on welfare, that’s a big problem. That kind of help should be reserved for those who desperately need it. (Perhaps part of the problem is that a lot of these beltway types imagine that making 50k is “poor” when it fact it’s the median income out here in real America.)

  • Excellent comments, Darwin and Jenny.
    It seems to me that one persistent theme, even if perhaps somewhat subtextual, is the unwillingness of our elected officials to be truthful about the *character* of government benefits. It is true that social security is in part a welfare program. As long as its dominant characteristic, however, is that of a defined benefit retirement program, the welfare component remains disguised. Many Americans are comfortable with this, including those who don’t want to admit that they are receiving welfare (i.e., those whose payouts compare favorably to their contributions) as well as those who view welfare as social *justice* rather than taxpayer *charity* — the latter frankly bristle at the word.

    When we employ tax credits, especially refundable tax credits, all too often they are not properly understood as welfare when they may well be exactly that . This is particularly true of refundable credits to compensate for social security contributions that are conceptually and financially necessary to fund future retirement benefits. This is no accident. Politicians do not want to wound the pride of their voting base. Truth is the victim.

  • St. Warren’s secretary’s tax rate is huge but not because we evil rich S.O.B.’s don’t pay a high enough taxes.

    St. Warren’s virtuous, long-suffering secretary’s taxes are about to become even more onerous. And, he will not raise her salary to cover the harsh increases in food and fuel prices he (profiting for the keystone denial) and Obama (raising fuel costs to get green votes) are laying on working class Americans.

    At least he hasn’t laid her off, yet.

  • In my view, the “everyone should pay some taxes” idea leads inevitably to bigger government for two reasons:

    1) If everyone had to pay something in taxes, the poor would have to rely more on welfare programs like food stamps, Medicaid, etc.

    2) To be politically viable, marginal rate cuts have had to be coupled with rate cuts across the board. But if you aren’t allowed to cut anyone’s taxes to zero, then you very quickly end up with a situation where you can’t cut taxes for a large segment of the American population. So no more tax cuts.

  • Thank you Darwin Catholic!!

  • BA,

    I think it is wrong to tax away anyone’s necessities or ability to pay for necessities. To the extent what we call the “poor” includes this group then I think we should not tax them. If we accomplish this by taxing and then paying rebates, that is fine with me — such an approach arguably has the virtue of greater transparency — i.e., truthfulness.

    The idea that almost one-half of American households should not contribute to the common good is untenable. Aside from those whose necessities are at stake, all should contribute to the common good, even if in varying amounts computed at graduated rates.

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  • Annual income = $27K
    Taxes (state + local) = 29%
    Single tax rate

  • St. Warren is correct! Among Obama aides, 36 owe $833,000 in back taxes.

    Taxes are for the little people.

    Salary of St. Warren’s secretary: $200,000 to $500,000.
    Her second home with pool in AZ: $144,000.
    Playing prop for Obama lies: Priceless!

  • Why not ditch the income tax all and all? One of the things I like about the flat tax is that it removes the gov’ts power to tinker on income, and– in theory– would cut down on the amount of work needed to keep track of all that information.

    Total pie-in-the-sky, since the entire setup is built around federal knowledge of exactly how much and where your money comes from, but I can dream….

  • Foxfier,

    I accept your point about the audience make up of conservative talk shows, but it is likely that many getting welfare tax refunds do not realize it is happening. It is easy with tax prep software and companies do think that your refund is just a refund. Unless you are knowledgeable about the tax code or do the math by your own hand, you may not realize you are getting back more than you paid, and I wonder how many of those are complaining.

    Darwin,

    Here is the spot that your 33-year-old self has forgotten about your 25-year-old self:

    When you realize you are getting welfare from the government, it makes you feel poor. When you know you are not poor, but either someone else thinks you are poor or is trying to buy your vote, you get angry. When your finances are such that, even though you don’t really need it, it would be very foolish to turn down the money, you feel worthless.

    So you are now far enough away to see the wisdom in the overall policy without feeling the sting of having bribe money waved in your face.

    BA,

    You are probably right that making everyone pay taxes would make more people dependent on government programs. Perhaps the real problem is the qualifications for these programs. The income requirements need to be severely cut back. The argument made by the current administration that nearly 50% of the country is poor and in need of assistance is laughable on its face.

  • Dulce taxatio inexpertis.

  • Worse yet. Consider Buffett’s motives for promoting a new tax on high income earners. He owns a significant stake in life insurance companies, which offer tax sheltering and avoidance strategies for the rich. The end result of his proposal? More clients, more revenue, more profits. And he’s since structured his assets that he wouldn’t even be effected. Just call him what he is: a corrupt crony capitalist lobbying for a law that he will substantially benefit from

  • Jenny-
    Maybe if you have a company where you just drop off your paperwork and they do it, but I just filled out our taxes this morning (With H&R Block! /advertisement) and blocks 2, 4 and 6 are really obvious– “Tax withheld.” When you look at the return before filing it, it lays it out: Federal withholding, EIC, additional child credit. The first one, natch, matches the “tax withheld” total.

    I’d be really, really hesitant to suggest that someone did not notice that they’re getting more back than they paid in; folks respond poorly to implications that they’re stupid.

    The argument made by the current administration that nearly 50% of the country is poor and in need of assistance is laughable on its face.

    Not half of the country– half of the households that file taxes. If I’m reading this right, the average individual income is $45,559. (I know, average, not median– yell at them!)
    I know I keep beating that same drum, but given how many more single-adult households there are these days, it’s important….

  • Foxfier,
    I don’t know about stupid, but certainly ignorant and lazy. Many people, including the college educated, are completely flummoxed about income taxes. This is exactly why outfits like H&R Block are in business. The vast majority of the returns the prepare as so simple a cave man could do it — but we live in a nation of people who don’t know the difference between income and a bank account — and that is just a fact.
    Ask any VITA volunteer.
    This is not to say that our income tax rules could not be made easier, but the complications are not really related to low income earners.

  • Mike-
    I helped do taxes when I was in the Navy; NONE of those folks were unaware of the difference between the amounts of their withholding and refunds, whatever way it tilted. True, that’s a select group– but so is the “Low-Income, Elderly, Disabled and Limited English” population! I’d suggest that the average IQ person does sort of what I did– used H&R because they make it so incredibly painless to do your taxes, even making efiling a matter of clicking the “next” button twice. (/advertisement)

    No volunteers needed.

    Heck, even my moron, thug former-brother-in-law could figure this stuff out, although he was gloating about “free money.”

  • Foxfier,

    I did not imply that people are stupid. I flat out said they do not pay attention. Since we are exchanging work experiences, I worked at a bank in the era before direct deposit for tax refunds became widespread. The rapid refund loan checks outnumbered treasury checks probably four to one. It is not hard to imagine that those people had no idea how much money they had actually paid in taxes.

    I’m not sure what you are suggesting by pointing out the average employee income is $45,559. Are you saying that is poor or not poor?

  • Jenny-
    You keep talking about “half the country” when you’re talking about tax paying households instead of individuals. I didn’t say it was poor or not, since income divorced from all other factors is a pretty cruddy way to figure out “poor”– what’s poor in Coronado, CA is not poor in, oh, Reno NV. I did find it interesting that the average individual income was so close to the median household income, which may hint at the root problem.

    You said:
    I accept your point about the audience make up of conservative talk shows, but it is likely that many getting welfare tax refunds do not realize it is happening. It is easy with tax prep software and companies do think that your refund is just a refund. Unless you are knowledgeable about the tax code or do the math by your own hand, you may not realize you are getting back more than you paid, and I wonder how many of those are complaining.

    I am not knowledgeable of the tax code, nor did I do my tax-math in my own hand, I just looked over the form as required and am not so dumb that I notice a thousand dollar difference. When you’re getting to that level of cash in your own pocket, it’s beyond “not paying attention.”
    As for treasury checks vs “rapid refund” ones, it’s hardly surprising that people are willing to pay to get money faster– especially with the well-known speed of government!
    I don’t know what the tax code was like for real households, but I remember when I first started working, I adjusted my deductions so that I didn’t get a check at the end of the year. If a dumb high school kid knew to do that, it probably wasn’t odd for adults who actually have to live on the money to do it.

  • Foxfier,

    I bring up the rapid refund checks not to point out that they wanted the money faster, but to say it is likely that these people indeed went to “a company where you just drop off your paperwork and they do it.” I understand that you are supposed to look over the return before signing, but a lot of people do not, which is why the ‘innocent spouse’ provision exists. We are also supposed to read the ‘terms and conditions’ on websites, but most people do not. It is in our nature to trust and accept what is presented to us at face value. And you do not give yourself enough credit for adjusting your withholdings in high school to avoid a refund. A lot of people prefer the check from Uncle Sam, not understanding it is a loan without interest.

    So, approaching half of tax filing households do not pay income tax and have been deemed ‘poor’ by the government. Is this a precise enough statement for you? Does it seem reasonable to you that half of tax filings are from poor households? I think the point you are making is that a married couple making 80K is counted as one household, but a divorced couple each making 40K is counted as two households. It does tip the numbers in the wrong direction.

    My argument is that 40K is not poor in the majority of the country and should not be treated as if it were. If the average individual income is ~45K in the richest country on earth, it would seem that 45K is not poor and yet our current government policy is that it is.

  • It isn’t being treated as “poor”– the IRS site says that the EITC is supposed to encourage low to moderate income folks to work; the child tax credit is for households that have under 100k/year to defray child costs.

    Basically, they’re not charity type things, they’re just straight social engineering– we want people to have kids, buy houses and have jobs. (Possibly vote buying too, but that’s neither here nor there.) I vaguely remember the EITC was partly because they figured out people had stopped working because going over some amount would leave them with less in their pocket. Nobody wants to take away a tax break, so there are layers and layers of incentives… no wonder the “burn it all and build over” approach is getting so popular.

    Speaking of being deemed poor by the gov’t, I’m sure you’ve seen those surveys on what the average “poor” have… the government is simply not set up to effectively figure out what constitutes poor, even before you look at the whole twisted incentives thing!

    I think the point you are making is that a married couple making 80K is counted as one household, but a divorced couple each making 40K is counted as two households.

    And a woman who is not married and gets either formal child support or under the counter support (what’s it called, the “gray” economy?) is going to have low on-paper income, and both parents in a divorce are going to have less chance to make money– it’s more likely to be something like an $80k household becoming two $35k households, or even less if it’s a nasty split and the non-custodial deliberately avoids making money to keep from being dinged for more.

  • I am very much in favor of burning it down and starting over, but I do not see much chance of that happening as long as the government promotes the idea that 45K is ‘low-income.’ It may be driven by social engineering goals, but we cannot afford these delusions any longer.

    http://www.usatoday.com/news/nation/story/2011-12-15/poor-census-low-income/51944034/1

  • Oh, goodie, yet another yard-stick– median income for a family of four. $67k for ’08.

    Assuming that the definition of “low income” is constant, http://www.acf.hhs.gov/programs/ocs/liheap/guidance/eligibility.html low income is 60% of the state median or 150% of poverty, whichever is higher. The bottom third is a defensible definition of “low income”….

    That said, the USAToday article looks like a re-heating of this sort of thing, with an amazing unwillingness to wonder why nobody is hiring when it became more expensive to do so and there’s the whole unknown upcoming regulations factor….

  • Darwin – Where is the exact quote that you are calling a lie? Did Warren Buffett state that he paid a lower tax rate than the average tax rate of the middle class? And did he also define middle class in terms of a dollar income range? It is not at all unbelievable that the secretary to the richest man in the world (she probably is a well paid secretary but still arguably in the middle class) would pay a tax rate higher than 17%. We don’t know what rate she paid so how can you say he is lying?

  • http://www.forbes.com/sites/paulroderickgregory/2012/01/25/warren-buffetts-secretary-likely-makes-between-200000-and-500000year/

    Buffet himself declares that he pays a 17.4 percent rate on taxable income. His staff, like Bosanek, pay an average of 34 percent. The IRS publishes detailed tax tables by income level. The 2009 results show that the average taxpayer paying Buffet’s 17.4 rate earns an adjusted gross income between $100,000 and $200,000. But an average taxpayer in Bosaneck’s rate (after downward adjustment for payroll taxes) earns an adjusted gross income of $200,000 to $500,000. Therefore Buffett must pay Debbie Bosanke a salary well above two hundred thousand.

  • Thanks for the article Foxfier. I don’t see a lie here. Even if the secretary does make between 200k and 500k it still speaks to the point Obama is making. Warren made AGI of $62 million and paid 17% tax rate and the secretary made up to 500k and paid a higher tax rate. Why can someone who lives off of his great-great-grand-daddy’s fortune pay a lower rate than someone who actually works? (I undertand Warren actually made his fortune but his kid didn’t and his great-great-great grand kids wont be able to say the same.)

  • Toll:

    Buffett’s secy paid a tax rate becuase unlike Buffett she could not elect to not pay herself and cash in long term capital gains.

    Buffett paid taxes on the long term capital gains rate, which is 15%. He elected to not be pay himself a salary of $6,000,000 because he knew he would pay 39% income tax on most of it. Buffett has control over his company pay. His secy does not.

    It’s the tax code and Buffett playing with it.

    In fact, Buffett’s companies are in tax court because he refuses to pay billions in federal taxes. Buffett’s LT cap gains are the chief profiteers in Obama’s ban of the Keystone oil pipeline.

    Pharaoh and Buffett are lying. And, you, Toll, are a pharaoh-worshiping ignoramus.

  • John Toll,

    What I’m calling a lie here is comparing two completely different tax rates: the top marginal rate and the effective tax rate.

    Buffet it talking about his effective tax rate, which given that he pays himself a salary well below market rates for a successful CEO and takes most of his income in the form of long term capital gains instead (a tax dodging tactic which certainly belies his claim to be concerned about the rich not paying their share). He’s probably also throwing in his payroll taxes, which don’t amount to much since they only apply to his salary and not to his millions in investment income. This is how he gets his effective tax rate of 17.4%. He is not, however, including the impact of corporate taxes on his investment income. Arguably, he should, because corporate taxes come out of corporate profits before profits are distributed to investors, and corporate taxes reduce the profitability of a company and thus reduce it’s market capitalization. If you looked at the effect of corporate taxes on his income, his effective tax rate is arguably more like 30-40%.

    Now comes what I very strongly believe is straight up deception: Obama claim’s that while Buffet pays 17.4% in taxes, his secretary pays 35.8% in taxes. Here’s the thing: the top income tax rate is 35%. There is absolutely no way that she can be paying an effective income tax rate of 35.8% percent, because no one pays that much in income tax.

    Now, the way I think they’re getting to this deceptive number is by taking her top marginal income tax rate which could be anywhere from 25% to 35% and adding to that some amount of her payroll taxes.

    However, her actual effective tax rate is doubless below Buffet’s. According to Congressional Budget Office data (linked to in the post) the top 5% of earners pay an average effective income tax rate of 17.9%. Those are people earning $326,100 to $457,400. So even if Buffet’s secretary is making 300k+, he effective tax rate is no higher than his. It is absolutely not 35.8% as is claimed, that’s pretty much impossible. Even if she had no mortgage, no kids and no charitable donations and made over a million a year, her effective tax rate (even including payroll taxes) could not total an effective rate of 35.8% of her gross income. It’s just not possible.

    And it’s because Obama (and Buffet) and choosing to be so blatantly deceptive in their claims that I’m calling it (accurately, I think) “a lie”.

  • It would not surprise me if the President was unaware of any deception. I doubt he is a detail man.

  • I agree the phAresident is not being deceptive. He is fabricating that which supports the agends.

  • Hit “enter” my accident.

    I meant, “For the pharaoh, The truth is that which advances the agenda.”

  • In for a penny, in for a pound. Planting seeds of confusion and mistrust in the minds of his people he swore a oath to serve, he tends the growth of evil.

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Why Doesn’t Warren Buffet Pay Extra Taxes?

Monday, May 16, AD 2011

This WSJ editorial caught my eye, because it makes a seemingly valid point about wealthy people who call for higher taxes on the rich.

I wish I had a dollar for every time a wealthy liberal has declared he thinks he should pay more taxes. That list includes Warren Buffett, George Soros, Bill Gates Sr., Mark Zuckerberg and even Barack Obama, who now says that not only should rich people like him pay more taxes, they want to pay more. “I believe that most wealthy Americans would agree with me,” he said of his tax-hike plan. “They want to give back to the country that’s done so much for them.”

So why don’t they? There is a special fund at the Treasury Department for taxpayers who want to make “gift contributions to reduce debt held by the public.” But very few do. Last year that fund and others like it raised a grand total of $300 million. That’s a decimal place on Mr. Zuckerberg’s net worth and pays for less than two hours worth of federal borrowing.

I understand the basic satisfaction of saying, “Look, mister, if you really want to pay more taxes, no one is stopping you,” but I don’t think that it’s actually a very good argument. The reason why people like Bill Gates and Warren Buffet advocate for higher taxes but don’t voluntarily pay higher taxes than the law requires is pretty obvious:

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21 Responses to Why Doesn’t Warren Buffet Pay Extra Taxes?

  • As Walter Williams and others have noted, higher tax rates on the rich, even rates of 100%, will not eliminate annual budget deficits and do nothing to address the cumulative national debt. Reduced spending is the only feasible mechanism for addressing the national debt.

  • Total commie lib Dem idiot BS………….

    Is this the type of educational thought comming from Catholic schools?

    No wonder the brain washed Catholics tend to vote Democrat.

  • Miller,

    Agreed. Federal spending is currently above the norm in relation to GDP (a little of this is due to GDP shrinkage during the recession, but not all of it) and the US has no history of collecting vastly higher percentages of GDP in tax revenues, so spending has to go down. (Some European countries succeed in getting much more of the GDP in taxes, but they do this by taxing the heck out of the middle class as well as the rich, and we in the US middle class won’t put up with that.)

    My point here is pretty modest: That it’s not really shocking that Warren Buffet doesn’t voluntarily pay higher taxes even though he advocates that everyone have to pay higher taxes, so long as one makes the reasonable and obvious assumption that he’s basically a self interested party who doesn’t want to reduce his standing in society. Or in short, he’s selfish.

    The mistake that liberals make is in thinking that there’s anything selfless about Buffet’s high tax advocacy.

  • “Buffet is clearly willing to give money away, but when he makes a direct donation to a non-profit he has a pretty good say in how that money will be used. If he simply writes a check to the Feds, he has very little.”
    So Warren Buffet wants to direct his charitable gifts to organizations that will use the money as he wants it to be used but feels others should be taxed so that their monies will be used as the government decides and dictates.
    The Obama administration is considering reducing or eliminating deductions for charitable donations which will make his ‘what is good for me but not for thee’ reasoning obsolete.
    As a taxpayer and one who contributes to many charitable organization, both religious and secular, I want to control how my contributions are spent,just as mr. Buffett and not how and to whom the government supports which support or fund practice which I oppose on moral, ethical or religious grounds.

  • “They are, clearly, willing to pay more (thus the advocacy) but only if they can do so in a way which doesn’t reduce their standing versus other rich people (and the rest of the country).”

    Actually, they want to reduce their standing compared to the less wealthy but not compared to the equally wealthy. They’re worried about income inequality. Or so I’ve been told.

    I hate it when Warren Buffet says he’s taxed at a lower rate than his secretary. Bershire pays taxes on his income but not on his secretary’s.

  • Consider this instead of a gift contribution: a bonfire. Burn a million, cold hard cash.
    What gives a product, any product, value: supply. Reduce supply, value goes up. Burn up a million, take a million out of circulation, and its worth goes up.

  • RR,

    Actually, they want to reduce their standing compared to the less wealthy but not compared to the equally wealthy.

    I guess sort of yes, sort of no. There are a couple million people in the top income bracket, and Buffet sits at the very top of that stack. If he gave more in taxes voluntarily, he’d effectively cede that place a bit, and since he doesn’t do that one assumes that he wants all of those couple million people (who virtually all make much less than he does) to take the same relative hit in high taxes that he does. But it’s true that compared to the other 98% of us, he’d be less unequal than before.

    I hate it when Warren Buffet says he’s taxed at a lower rate than his secretary. Bershire pays taxes on his income but not on his secretary’s.

    Yeah, no kidding. I’m but a lowly amateur econ wonk, but it’s downright disgraceful for someone of his stature to be going around acting as if he didn’t know that capital gains rates are lower than income rates on the theory that corporate profits are already taxed. You’d think someone like Buffet would be in a good position to advocate abolishing the corporate tax and setting capital gains to the same rate as income taxes, but no…

  • Buffet and Gates of course merely gain cheap good publicity by these statements. They have set up their vast fortunes skillfully enough, using the most able attorneys and accountants that money can buy, that any tax increase on them would be de minimis. As partisan Democrats, Buffet and Gates can make these type of statements all the time realizing that the taxes would hit people other than themselves. If they were doing this out of simple patriotism I think they would write out huge voluntary checks to the Treasury, but the last thing they want is for the US government to get more of their money, as opposed to more of the money of other people.

  • I think the point here: Buffett and Gates are talking about the government taking more of other people’s money.

    Up in the Bronx, they would say, “Talk is cheap.”

  • FWIW, I find it very hard to imagine that Buffet imagines a tax increase on the rich could be crafted that truly only taxed “other people” and not him. So I suspect he would expect to pay more taxes in the scenario he’s advocating. He’s just unwilling to do it unless everyone else in his class takes the same hit.

  • “FWIW, I find it very hard to imagine that Buffet imagines a tax increase on the rich could be crafted that truly only taxed “other people” and not him.”

    I do not. The tax code is one of the more byzantine productions in the perverted annals of the ingenuity of the tax man, and an individual with Buffett’s vast holdings can find plenty of legal ways to reduce his income to avoid paying taxes. His estate planning certainly indicates that he does not intend for the Feds to get much from his estate in regard to estate tax even though he is supposedly a big fan of the estate tax. When it comes to his theoretical love of taxes, Buffett is a fraud.

  • so spending has to go down.

    I think expenditures on the military & foreign relations, the federal police and courts and regulatory inspectorate, unemployment compensation, and benefits to the elderly currently exceed 15% of domestic product. If we are optimistic, the ratio of federal debt held by the public to domestic product will reach a plateau at about 0.9, meaning we are looking at service charges in the range of 4-5% of domestic product when interest rates return to historically normal levels (provided we retain our AAA credit rating). Military expenditure &c. has external drivers, fewer police means more disorder, unemployment compensation has external drivers, and reduction in benefits to the elderly is properly undertaken on a slow cohort-by-cohort basis. If you welsh on servicing the federal debt, country go blooey.

    So, you have miscellanous federal services (currently about 1.5% of domestic product) and grants to state and local government (currently about 4% of domestic product if you factor out the portion of nursing home charges ultimately satisfied by federal expenditure) to play around with freely. Have a nice day.

  • Art,

    Unless I’m much mistaken, however, federal spending is only a couple percent of GDP above it’s norm, while taxes are running a percent or two below their norm. There’s not a need for some massive change here. Cutting federal spending by around 2% of GDP in the long term (if it’s actually done) would pretty much re-stabilize the budget, although it wouldn’t pay down the debt with any great speed.

    The issue is, of course, that as you point out it’s not like there’s huge amounts of spending that can be cut without anyone noticing, and far too many voters currently support not cutting any real spending, while also not increasing taxes. (Whether they also support the tooth fairy and the Easter Bunny remains unclear.)

  • Most voters really are not opposed to tax increases as long as they are increases on someone else, especially the “rich” which is what we now call high income earners — “high” being more than what they expect to earn anytime soon.

    Buffett could easily pay more taxes if he just paid himself a market salary which would be taxed at ordinary rates.

  • Since there is no law that allows the feds to collect an income tax and all ‘tax payers’ are engaging in ‘voluntary compliance’ under threat of property confiscation and imprisonment your argument holds no water. Buffet is free to ‘volunteer’ more to the Treasury if he likes. He won’t. Buffet and other uber-wealthy libtards like him are totally aware that the federal government operates by debt alone. It is debt acquired through the usurious alchemy of the Federal Reserve scheme that funds government. Our taxes merely service the debt and are also used as wealth transfers to other nations, often our enemies.

    The income tax scheme is designed to ensure that other ‘wealthy’ Americans can never acquire enough wealth to rival the uber-wealthy like Gates and Buffet. The income tax scheme is nothing more than social engineering and granting of monopoly privileges to the uber-wealthy, who tend to be America-hating progressives and Marxists. Like all Communists, they expect to live in ultra-luxury and command all the political and economic power while the rest of us proles live in controlled squalor. Of course, they don’t want us revolting, so we need to be medicated and entertained, so we will be happy with our servitude. Notice also that both Gates and Buffet and the rest of their ilk are always in favor of tax-subsidized ‘charitable’ giving to ‘population control’ tax-free NGOs and foundations. The whole thing is sick and frankly a discussion about why or why not they will volunteer more in taxes or not is a distraction from the fact that the actions of these men and men like them are sheer evil.

  • Whoa. I didn’t realize the shark looked so small as you sail by up here…

  • I’ll get your shark!

  • Now the shark, Gates and Buffett are playing Monopoly! (Or is that Class Struggle? I can’t quite make out the game board.) 🙂

  • I believe it is the tax code edition of Twister.

  • I prefer to play Marxopoly. It is a neat little game. I am the banker, no one else can be the banker. I print as much money as I want and I let some of the other players have some, of course, they owe me. I sit back and let them buy property, collect rent, etc. They have to make interest payments to me on the money I loaned them. I am always wealthier than all of them combined and every so often I will bankrupt one of them and take their property by crashing the market, of course I only take the choicest properties and I bail out some of the others so that they are even more indebted to me.

    They think they are engaged in a free market game and I just sit back and control everything through debt. if any of them catch on, I have the others wage war on the recalcitrant. Of course, they have to borrow more from me to wage the war and I make sure it lasts for a long time by funding both sides.

    We should play sometime. I always get to be the shark. 😉

  • I like the American Knight’s Marxopoly. I wonder if the lay staff at the USCCB (the ones with Obama stickers on their cars in the USCCB parking lot in Washington, DC) and the liberal Catholics who vote Democrat (do they ever in their partisanship vote for anything else?) realize that that’s the game they are playing. Probably not. Sheep can sometimes be so blind.

Do The Wealthy Pay Their Share?

Monday, April 25, AD 2011

Having linked last week to some discussion on whether the US is really becoming “Of the 1%, by the 1%, for the 1%”, I was struck by this chart, which I saw a link to this morning, over at Carpe Diem, showing top marginal income tax rates versus percentage of income tax paid by the top 1% of earners since 1980.

However, I thought it would be a lot more interesting if the chart showed the percentage of total income earned by the top 1%, and also showed the total federal tax liability (including Social Security and Medicare) rather than the just the income tax. Luckily, all this information is available easily on line. (Percent of taxes paid. Percent of total income. Historical tax tables.)

Here’s the chart I produced with that data:

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6 Responses to Do The Wealthy Pay Their Share?

  • I thought only SS had a cap. Medicare does too?

  • Medicare does not have a cap — but it’s only about a third of what SS withholding is, so the amount of payroll tax on income above the SS cap is pretty low. (I should have been clearer on that.)

  • Employers (small businesses/rich people) match-pay employees’ SS taxes, probably also medicare taxes. Is that in the lines above?

    Here’s a tax where the (evil) wealthy are not paying their share: food/fuel inflation.

    Bastiat: “All taxes ultimately fall on the consumer.”

  • I don’t think 2.9% (Medicare tax) is pretty low. it may be relatively low, as compared to the 12.4% (10.4 in 2011) for so-called social security (OASDI), but it is still substantial. I am using the full amount, employee and employer confiscations, because that is the only honest way to look at it – this is the total cost of confiscation, whether or not it shows up on a paycheck or not.

    That is significant. There is absolutely no moral stance in charging people different rates for any reason. This is blatant discrimination! It is an outrage. It does not respect diversity. It is totally intolerant. it is unfair, unjust and just plain mean. In other words, it is the antithesis of the stated, so-called ‘liberal’ (progressive) dogma.

    When you go to a grocery store do they ask for your citizen identification number, aka SSN? Do the want a disclosure of your income, assets, liabilities, etc.? No. They don’t care. All they want to know is do you have $4 to purchase a gallon of milk or not. They don’t change the price or anything else based on your quintile. They just charge for the milk and if you want to leave with it, they expect the same exact payment they would from anyone else. Fair, non-discriminatory.

    If government is necessary, if it is good, if it is just, then it should cost us all the same. A flat fee, not a percentage.

    Does that mean I think the wealthier should not contribute more to their communities and for the benefit of those less materially fortunate than they? No. But that is Charity and not state taxation.

    So, do the wealthy pay their share? Some pay WAY MORE! Others, through political manipulation, like George Soros and Barack Obama, pay much less than they appropriate. Thieves can be very wealthy and even very poor, either way, they are violating God’s commandment against appropriating someone’s private property.

  • The top 1% of earners pay 40% of Federal income taxes. It seems some believe the top 1% steals 18% of aggreagte national income from undocumented migrants; poor, unwed mothers with three to six half-brothers/sisters who never met any one of their three to six fathers; ex-convicts; et al.

    You may gain graces through charitable (Corporal Works of Mercy) works paid with your money and your time. You may not gain graces by confiscating/taxing someone else’s money and giving it to your dependent voting blocs, sanctimonious Robin Hoods.

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Tax and Spend Impasse

Tuesday, March 8, AD 2011

Reading a rather cursory opinion piece this morning (calling for federal spending to be decreased) it occurred to me that there’s an interesting symmetry to what the more aggressive advocates of tax increases and spending cuts suggest:

The most passionate tax increase advocates frame their calls for tax increases in terms of some prior level of taxation: “We should roll back all the Bush tax cuts and return to the tax rates people payed under Clinton. We all remember the ’90’s; the world didn’t end when the top marginal tax rate was 39.6%” or “By golly, we should go back to the tax tables that were in force under that ‘socialist’ Eisenhower. 91% top marginal rate. That’ll teach those corporate fat cats to vote themselves bonuses.”

Similarly, when passionate spending cutters explain their plans, they tend to phrase it in terms of rolling back to a previous level of spending: “These ‘draconian’ cuts in fact only represent a return to 2006 spending levels. Did we starve in the streets then? Did the world end?”

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7 Responses to Tax and Spend Impasse

  • The dilemma (or one of them) is that any plan to phase in spendings cuts or tax increases to lessen the shock is dependent upon our elected representatives actually abiding by the phase-in. Possible. But likely? Not when Democrats in the Senate are unable to find more than $10bn to cut in discretionary spending.

  • That’s the thing about government spending: every dollar goes into someone’s paycheck. (Some go into overseas paychecks, and that should stop, but that’s a tiny percentage of the whole and cutting it to zero wouldn’t change the problem.) Even the “waste and corruption” that they’re always promising to cut — every dollar of that goes to pay someone to be wasteful or corrupt. So every spending cut means someone somewhere takes home less money.

    But the debt-fueled money tree is running out, so now the battle will be over who takes home less. Government workers have made it clear that they don’t intend to share in the pain; and they write the rules, so it seems like a stacked deck. But they’re still outnumbered (barely) and the client class that they’ve teamed up with in the past may not sit quietly while its own benefits are cut to fund lavish pensions for others.

    It’s going to have to come from somewhere.

  • “Not when Democrats in the Senate are unable to find more than $10bn to cut in discretionary spending.”

    How can you say that. That is 0.28% of the 2011 budget. What are we going to do with only 99.72% of the budget? Imagine if I had to cut my personal spending that much.

  • Phillip,

    Every. Dollar. Is. Essential.

    Don’t you get it?

    😉

  • Hah, another conservative seeking to starve the poor, make homeless the widow, oppress the workers, etc. etc. etc. 🙂

  • That’s the thing about government spending: every dollar goes into someone’s paycheck.

    I suppose this is true in a certain sense, in that wherever money goes it arguably eventually ends up in someone’s paycheck, but it’s certainly not directly so.

    So, for instance, if the Feds did not subsidize sugar prices, it’s not necessarily the case that sugar farmers would end up out of work, they might simply raise prices, which would cascade through the economy, raise a lot of prices, result in some consumption re-adjustments, create a larger market for corn syrup, and mostly be absorbed without anyone in particular losing their jobs. More to the point, if jobs did get lost over it, it might be next to impossible to figure out who and how the chain of events had caused it.

    I don’t have the numbers handy, but to my understanding most federal money does not go directly to any particular federal worker’s salary.

  • It really doesn’t matter whether it’s direct or not. If the sugar farmer raises his prices because his subsidy got cut, that just means the dollar comes out of his customers’ pockets instead of his own. The point is, if the government stops spending on something, that’s money someone no longer gets. If it buys fewer fighter jets, that means fewer people get paid to build them. If it stops funding midnight basketball courts, someone no longer gets paid to build them.

    I also said “someone’s paycheck,” not “a federal worker’s paycheck.” The “client class” which will soon be in a conflict with the government worker class includes those sugar farmers, as well as SSI recipients, people who build munitions, etc. Whether they get a check directly from the US Treasury or not, they’re dependent to some extent on continued government spending, and they’ll vote (and perhaps assemble into angry mobs) accordingly.

    Don’t get me wrong; I’d cut federal spending to the bone, and in the long term we’d be better off. But it’s going to hurt in the short term, because we’ve become so dependent on it.

Rewinding Taxes to the Good Old Days

Friday, January 28, AD 2011

For decades, progressives tended to accuse conservatives of wanting to bring back the ’50s, but in recent years the shoe is on the other foot, with some prominent progressives saying they yearn for the good old days when unions were strong, manufacturing was the core of the economy, and the top marginal tax rate was over 90%. I wanted to see what the real tax situation was for people in a number of different income situations, so I decided to pull the historical tax tables and do the math.

Luckily, the Tax Foundation publishes the income tax tables for every year from 2010 back to 1913. I decided to compare 2010 and 1955. Here are the 2010 tax tables:

I then got the 1955 tax tables and adjusted the income brackets to 2010 dollars using this inflation calculator. (For those interested, the inflation factor from 1955 to 2010 is 713%) The result is as follows:

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19 Responses to Rewinding Taxes to the Good Old Days

  • So our tax burdens are all lower today, but the federal government is spending more in constant dollars (presumably).

    No big surprise, but it is a reaffirmation of why we’re running huge deficits.

  • To an extent, yes. But it’s also a factor that the population is much larger than it was in 1955 and real incomes have also grown quite a bit.

  • In 2010, standard deduction for married filing jointly was $7,300. In 1955, adjusted for inflation, it was $9,764.

    So the poor paid less in 1955. The middle class paid a little more. The rich paid much more. Overall, it was more progressive back then.

    There are huge fluctuations depending on the year. In 1942, when the insanely high 50’s era brackets were introduced, the deduction was $16,053, adjusted for inflation. In 1981, the last year of >50% tax brackets, the deduction was $4,798. So everyone was paying more taxes during the Carter years. Interestingly, I see the Kennedy tax cuts went almost entirely to the wealthy.

  • RR,

    I think you’re confusing the standard deduction with a tax credit.

    If you take $9,764 off 40k, that gets you $30,236 in adjusted gross income, which with the 20% tax bracket (on income up to 32,544) in 1955 makes for $6,047 in tax.

    If you take $7,300 off 40k, that gets you $32,700. You hit the bottom two tax brackets and pay a total of $4,067 in 2010 taxes.

    So it looks like even assuming the standard deduction you’d pay a lot less in 2010. And that’s ignoring the per child income tax credit, if you have kids, which can be a huge deal at that level. The last year when I made 40k we had two kids, and once we did deductions and tax credits I had a net tax liability of negative four hundred dollars — as in, they paid me rather than me paying them.

    That’s way more progressive than anything in 1955. (In part because the country was a lot poorer then than now, making 40k in 2010 inflation adjusted income was much more middle class then than it is now.)

  • Wow, now I try it, it looks like even with the $16,053 standard deduction of 1942, you still would have paid $4789 in 2010 dollar taxes on an income of $40k in 2010 dollars — versus the $4067 you would pay with the $7300 standard deduction in 2010. It must just be really hard to have enough of a deduction to make up for that 20% bottom tax bracket versus the 10% and 15% brackets for 2010.

  • Oops. I forgot to apply the deduction to 2010. Still, it might affect your multiples enough to make taxes today no more progressive than it was in 1955.

  • Now, I only applied the deduction on the 40k, I didn’t try it on the others.

  • It really is surprising how big a deduction you need to make up for lower brackets. I graphed a 33% flat tax and found that for it to look more or less like our current system, we’d need a $30K deduction for single filers! And yet, I’d prefer that. Or an ever higher flat tax and deduction so that only half the country even files.

  • Okay, I graphed all the incomes I’d tried, and you always pay less in 2010, but the difference in progressiveness mostly goes away with a blip in the low 100k range:

    At 40k you pay 1.5x more in 1955
    At 80k you pay 1.4x more
    At 120k you pay 1.26x more
    At 1.2M you pay 1.9x more

    I want to say the flat tax proposals I’ve seen have had 30k+ standard deductions — though I think there’s also an extent to which people would be willing to pay a bit more if the tax code were just simpler.

    Frankly, if my taxes were something I could fill out simply on one sheet of paper, I’d happily pay a bit more than I do now. As it stands, I always spend a whole weekend with TurboTax and still worry that I got something wrong and the IRS will come after me. (After moving to a state and city with income tax, I may break down and hire a tax guy this year. Sucks.)

  • I always do my own taxes, as with two businesses they tend to get fairly convuluted, and I think I understand the Code as well as most accountants, although my math skills are appalling. (I have my wife, who has excellent math skills, check everything.)

    I am not a big fan of flat tax proposals. I have never seen any proposed that I think would keep the virtue of simplicity for more than a few years, before the tinkering of politicians would destroy that key feature. I certainly am also not a fan of the current system either. The problem though is not really the tax code, but the fact that we simply have far more government than most people are willing to pay for, and too many politicians eager to spend money in order to ensure their re-elections.

  • I am curious – do the differences between the 1955 and 2010 tables also reflect other payroll deductions, such as FICA (SS and Medicare – 7.6% of paycheck up to $108,000, if my research is correct)?

    “So while the rich pay less in taxes in 2010 than in 1950, the middle and working classes pay much less as well. And overall, we have a significantly more progressive tax code now than we did then.”

    It seems to me that one would have to take into account sales tax and spending habits as well in order to make a true comparison of this (in addition to FICA deductions, etc.). Indiana, for instance, levied its first state sales tax of 2% in 1963.

  • Any idea how much they paid into Social Security back then? I don’t pay that much in actual income tax today, but being self-employed, SS really hammers me. And you can’t deduct any of it away with charitable giving or anything like that; the only way to pay less is to make less.

  • Ah, that’s a really good point about social security. (And Medicare, which didn’t even exist in 1955.)

    According to this table, it looks like the difference is pretty big.

    In 1955 the rate for employees was a total of 2% (just SS, there was no Medicare) while in 2010 the total rate is 7.65%

    It’s far worse for the self employed. In 1955 they paid only 3% total, now they pay 15.3%.

    Since the entitlement taxes are not progressive at all, that pretty much evens up the field on tax progressiveness between 1955 and 2010.

  • And the non-self-employed still pay that 15.3%. Half of it doesn’t show up on their pay stub, but their employer has to pay it, so it comes out of their productivity one way or another.

    That does far more than even up the progressiveness. On 40K, assuming the standard deductions you mentioned earlier, I get:

    1955: 40K – $9,764 = $30,236 * .03 = $90.71
    2010: 40K – $7,300 = $32,700 * .153 = $5003.00

    So you might be paying half as much income tax now, but 50 times more FICA. And that money is for the programs that even the Tea Partiers don’t want to cut.

  • You slipped a digit there, the 1955 social security taxes would have been $907.10, not $90.71, but the point is dead on. (Actually, it would be a little more than that, because in 1955 the self employed effectively got a discount, for those who were employed it was 2% from the employee and 2% from the employer, so 1208.)

    Also, that underlines how the supposed era of fiscal responsibility in fact (though arguably unknowingly) was no such thing. The social security tax rates have gone up so much because the structure of social security was based on bad demographics, and so those of us paying 15.3% now are effectively subsidizing the low tax rates which people working in the 50s and 60s paid.

  • There’s more to the story than that. In 1955 they didn’t have the Earned income tax credit. This is particularly helpful for lower income families and making the current tax brackets more progressive than they appear compared to 1955. Also, a big part of Reagan’s tax package was to close many tax loopholes that were widely used by and only beneficial to those with very high incomes. Despite how many leftists like to characterize it, the rich didn’t receive as huge of tax decrease as the tables would indicate. It was just a more straightforward approach and shift in emphasis regarding where taxes were paid – relaxing capital gains to encourage investment, was the largest relief the rich saw. However, many middle class folk benefit from that as well.

  • There is no question that the able producers and earners (those who can invest and work and do) are paying much higher taxes now than in the 1950s. The ‘poor’ and by that I mean the able unproductive (those who can work and choose not to) are paying far, far less or are actually net receivers of wealth transfers thanks to LBJ’s New Deal on steroids from the 60s.

    We can discuss rates of taxation, deductions, capital gains, etc.; however, the fact is that we have to count FICA (payroll taxes) as ordinary income taxes. FICA is not a separate account funded like a pension, FICA taxes are general revenue – there are no segregated funds. FICA is just a ploy to collect more in taxes while allowing people to think they are being taxed less. This also increases the entitlement mentality to the middle-class. By making people think their money is being held to be paid out as an annuity, people who otherwise disdain ‘welfare’ begin to defend it. This was also foisted on senior citizens (who have more time to be politically active) in the 60s with Medicare. It was intended by Roosevelt that people feel that they are ‘owed’ their OASDI benefits in order to keep the program alive forever (at least politically speaking, it was economically dead from the get go) and to make it untenable for politicians to repeal it – the so-called ‘political suicide’ of unprincipled politicos.

    When you factor ordinary income, FICA and capital gains (taxes that affect many more in the middle class today than in the 50s) we are paying more in taxes now and for far less of anything except more government, more that is not enumerated in the Constitution.

    The biggest tax of all though is unseen. The devaluation of the dollar by the political spending addicts and their drug dealer the Fed has cost ALL, but the small clique of connected bankers and corporatists, more than any other tax.

    The real question is how much of the taxes from all sources, and there are many more today, now go to service the usurious debt than in the 1950s. Taxes are supposed to fund the general purpose of government for the common good within the Constitutional constraints. This is not why we pay taxes now. We are all debt-slaves and more so now than in the 1950s. People are always regarding themselves as ‘taxpayers’ or exclaiming their loyalty to the country by stating that “I pay my taxes so I am entitled to such and such” – this is a slave mentality. Americans prior to 1913 would NEVER have referred to themselves as such, in fact, they would have likely killed the tax-farmer than call themselves a taxpayer. We have been conditioned to think our taxes pay for ‘necessary’ services, yet so-called services are funded by debt and we are servicing the debt. We may as well live in Goshen.

    I know this seems dramatic, and the reality is this is not as bad as I am presenting it, yet – but, we are on a path that will make all of us wage-slaves to cover taxes that only serve to service debt. Since wages represent time working, we become slaves rendering our tribute to Caesar by servicing ‘our’ debt. If we are rendering all of labors to Caesar, what do we render to God?

    The primary culprit here is that despite the fact that the 50s were not the Utopia ‘conservatives’ paint it to be, as a people, we Americans, were far more moral then than we are now and that is why we are slaves. It is as St. Augustine told us centuries ago, as many vices as a man has, he has masters.

    We can say as many government handouts, subsidies, programs, tax-incentives, etc – basically debt for perceived benefits as we have, we have a master and that master is our Federal (feudal) overlord and his banker (the Fed).

  • Your analysis is interesting, but why do you stop at a mere 1.2 million? All the action in the last half century has been in the stratospheric range. Today’s hedge fund managers would have paid much much more under the 1950’s system. Here’s a little food for thought, courtesy of a commenter at the NYT:

    “In 1968, the largest American corporation was General Motors. The CEO of GM made 66 times more than the average GM worker. He paid a top marginal federal income tax rate of 70%. By 2005, the largest American corporation was Wal-Mart. The CEO of Wal-Mart made 900 times more than the average Wal-Mart worker. He paid a top marginal federal income tax rate of 35% (and probably really only paid about 15% if he was paid mostly in “dividends”)

    I would like to see a more thorough analysis than what you have presented here.

  • Doug,

    The 1.2M figure was semi-arbitrary, but also because the standard tax rates are on salary-type income. As you point out, executives and hedge fund managers and such often make much of their income in some other form than salary income.

    For instance a CEO may be given a stock grant or set of stock options worth $40M, but not be able to sell those shares (or exercise that option) for a certain amount of time. The taxes on those kind of earnings work differently, so it was simpler to not deal with them.

    Similarly, hedge fund managers get much of their money via getting a share of the profits of their fund, which is taxed as capital gains rather than salary.

    But my question here is in whether a regular guy actually paid less in taxes back in the “golden age” of the 1950s, not how much CEOs pay. After all, it’s not really any skin off my nose if some other guy I never meet makes more than me.

Divided Thoughts over the Tax Deal

Friday, December 17, AD 2010

I find myself with oddly divided feelings about this whole tax deal making its way through congress. On the one hand, while extending the tax cuts which we’re already experiencing seems prudent, especially in a recession, piling additional tax cuts on top of those (especially the across the board 2% reduction in social security withholding) seems seriously unwise when our deficit is already the size that it is.

On the other hand, I could certainly use the extra $150+ per month in take-home income. As I look at moving bills and such, I keep thinking, “Well, if this passes my paychecks will go up soon.”

We routinely scorn politicians for being easily bought, but I’m feeling rather hungry for my pot of lentils myself about now.

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9 Responses to Divided Thoughts over the Tax Deal

  • The reduction of the SS tax is insane and incredibly irresponsible. SS is in trouble as it is due to demographic and economic changes coupled with politicians doing things with it they shouldn’t. If the objective is to reduce taxes by two percent it should be done with income tax. If anything I’d like to see the the cap on SS tax removed in order to increase the sustainability of the system. I’d also like to see some creative ways of easing the SS burden like those Bush advocated. I’m not sure his suggestions were quite right, but I’d like to see something done in that regard.

  • There really is no actual difference in the nature of income taxes and payroll (FICA) taxes. FICA taxes are NOT segregated in order to provide Social(ist) Security benefits so they are really just general taxes given the impression of being retirement savings managed by the general government. Does anyone with any intelligence think that the feds have behaved as proper stewards of the American people’s retirement accounts? If an insurance company were to run its general account in this manner it would have gone bankrupt a long time ago and its principals and directors would be in prison.

    Any tax cut is a good thing because people get to keep the fruits of their own labor; however, basic accounting dictates that if revenue’s go down, expenses must be reduced by an equal or greater amount. You should never spend more than you bring in. The problem with debts, deficits and unfunded liabilities (promises impossible to keep) is the spending. Only God’s grace stopped another 1.2 trillion from being tacked onto to the already impossible debt, which has been created by the power-hungry politicians and the easy money of the bankers. Of course, we the people with our unending appetite for free stuff have to accept the blame as well. We get the leadership we deserve.

    The mere fact that government thinks that our wealth belongs to them and they allow us to keep almost half of it and consider it a ‘cost’ is ridiculous. Government is supposed to serve at the pleasure of the people, within proper moral constraints, not the other way around.

    Isn’t it odd that God only asks us to return 10% to Him and the government demands more than half? Something is terribly wrong here. We are being treated as slaves and now we are given the impression that master has given us a gift of one third of our payroll tax. Whose buying this?

    It is time for government to be reduced to pre-WWI levels and for us to tighten our belts, write off the fabricated debt owed to the Fed and make good on the actual loans (bonds) we have sold to legitimate investors. Unleash the power of innovation by becoming a business-friendly country and stop the corporate welfare.

    The solutions are pretty simple, the price to pay is high, but we have to pay for that which we have already collected if we are ever going to get out of this mess. Otherwise we will collapse and very, very soon.

    This so-called tax deal is bad. Tax rates should be set by Congress and made permanent until changed by a future Congress within the confines of the Constitution, which should be amended to limit how much Congress can spend as a function of how much real wealth we produce.

    This ‘deal’ is designed to put the responsibility on Republicans and following a short spring-time, the economy is going to crash and crash hard (your equity mutual fund 401(k) will lose half its value in 2011). Then Obama can say, see we tried the failed ideas of the Republicans, they forced me to compromise in order to extend unemployment benefits and we are now worse off. it is time to reject free-markets and opt for a command-economy, we have no choice. Socialism works if you have the right people running it, we’ve just never had the right people before and we are the people that we’ve been waiting for.

    Bye-bye Republic, welcome to the New World Order, one world, one government with no Western Superpower and that pesky remnant of Christendom. Now where is that Pope who is a thorn in our sides?

    Dramatic! Yes, sadly, that is were we are, but it is not too late to fix it, but time is short.

    BTW – with inflation (devaluation of the money unit) running higher than 20%, the ‘savings’ in the payroll tax and ‘extension of tax-cuts’ is illusory. We will all be less wealthy in 2011, in real terms.

  • A 4 point reduction (2 employer, 2 employee) is larger than an equal income tax reduction because there are NO deductions against FICA and there are deductions against income tax.

    This does not hurt the OASDI Ponzi scheme, it was broke as soon as it began. Let the people have their money now before it becomes worthless.

  • I agree with AK: it is simply criminal and outrageous that the government considers tax cuts as an “expense”, and wags the finger at those who want lower taxes as if they’re adding a burden to the budget. That is sociopathic madness.

  • I have a more favorable view of the payroll tax cut. Given that unemployment is hovering around 10%, anything you can do to decrease labor costs is worth it. I would have preferred a reduction in employer-side payroll taxes to the employee-side reduction contained in the bill, but even that is likely to have a positive effect.

  • I wouldn’t classify this tax deal as “bad” but less than ideal. Been thinking – Can idealism get in the way of compromise and politicians doing what is good for the American people? Or can politicians strive for their ideals while compromising at the same time, without compromising their principles? Maybe, the GOP should have waited until the beginning of the new year to undertake the issue of taxes with the new congress? I believe that if the GOP had waited they would have been in a much better position to make the Bush tax cuts permanent and that they could have stopped the increase in the estate tax, which was increased from 0 to 35% because of this tax deal. That in itself is mindboggling to me how anyone could think that it was okay to tax a person’s property twice. PLus, this is another case of penalizing and discouraging wealth.

  • Obama promised to give us 5 days to look over any bill before he signed it. Another broken promise from the Prevaricator-in-Chief.

Elections Have Consequences – Tax Cut Edition

Thursday, December 9, AD 2010

I’ll leave it up to others on the blog to discuss the merits of the compromise on taxes and unemployment benefits recently reached between President Obama and Congressional Republicans.  For what it’s worth, I’d probably vote for it were I a member of Congress (shudder), but I do think that the Republicans could have pushed a little harder on certain measures.

What fascinates me as a student of American history are some of the reactions, and also some of the reactions to the reactions.  First of all,  Congressional Democrats have rejected the measure in a non-binding caucus vote.  This has caused Jim Geraghty to ponder:

I understand the White House line is that today’s rejection is part of the “normal process.” Really? Is it normal for a majority of the president’s own party to vote against deals he makes?

Normal?  No.  But I think this is a positive development in a way.

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4 Responses to Elections Have Consequences – Tax Cut Edition

  • Actually, I do have one idea: Bring ALL the troops home, cut military spending in half, close 700 bases around the world and raise the draw bridges.

    Without getting into the merits of this idea, do you really believe that this would save $5 trillion?

  • Paul, “compromise” may be de riguer in politics and “another example of the Constitution in action,” as you put it, but in other spheres of life it is an ugly word.

    The Irish poet Yates once wrote, “You know what the Englishman’s idea of compromise is? He says, Some people say there is a God. Some people say there is no God. The truth probably lies somewhere between these two statements.”

    And, from George Jean Nathan: “A man’s wife is his compromise with the illusion of his first sweetheart.”

  • Well Joe, we can go on pretending that the President of the United States is not a Democrat, and therefore the GOP would be free to push whatever policies it so chooses, or we can wake up and smell reality. The tax cuts are going to expire in 21 days, and do you have another means by which to convince a President I’m willing to bet you’d consider a socialist to allow the tax cuts to continue?

  • I am apolitical, Paul. I have no love for either party. These fiscal bookkeeping games are beyond my ability to grasp, nor anyone else’s. Administrations for decades have been fine-tuning tax policy and the result is always the same: the haves get more, the have-nots less. I have no solution, of course, and I don’t think it lies in any one philosophy, left or right. As a collector of Social Security solely, it has no effect on me either way and I have no inheritance to leave upon my demise.

    Actually, I do have one idea: Bring ALL the troops home, cut military spending in half, close 700 bases around the world and raise the draw bridges. We’d save $5 trillion and could have universal health care, buy a new car for everyone who didn’t get one from Oprah and still have enough left over for a pretty good weekend in Vegas.

Abolish The Corporate Income Tax and Tax The Rich

Thursday, October 28, AD 2010

Atlantic columnist Megan McArdle makes the case for why abolishing the corporate income tax (and then taxing capital gains and dividends at the same rate as other income) is a proposal that both liberals and conservatives should be able to agree on:

The incidence of “corporate” taxes is not necessarily progressive. The “employer half” of the payroll tax, for example, is thought by most economists to fall pretty much entirely on the worker; corporations compensate for the extra cost by lowering the wages they offer. Taxes on corporate profits are exactly the same for middle class families who have some shares in a 401(k), and multi-millionaire heiresses.

If we get rid of the corporate income tax, we could eliminate the special treatment for dividends and capital gains.

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28 Responses to Abolish The Corporate Income Tax and Tax The Rich

  • Taxing individuals is messier than taxing corporations and I don’t like using cap gains and dividends as a proxy for high income but I guess it’s better than nothing. I’d still prefer a VAT to replace them all though.

  • My guess is that the U.S.’s corporate tax rate is on the downward slope of the Laffer curve, so you could raise more revenue by decreasing the tax rate.

    The corporate tax is basically a very inefficient disguised VAT, so of course ideally a VAT would be preferable. Politically, though, I don’t see it happening.

  • Only a person who has no understanding of subchapter c would claim that taxing individuals is messier than taxing corporations. The corporate income tax is a set of exceedingly complex rules. McArdle is right that its economic incidence falls on consumers, employees and shareholders in essentially arbitrary but constantly shifting proportions depending of a variety of economic forces. Eliminating the tax does indeed make some economic sense, but the problem is deferral. Unless corporations were required to distribute earnings every year in the form of taxable dividends, then shareholders will expect corporations to defer dividends and therefore defer tax, and corporations will quite sensibly cooperate. The holy grail is called “integration,” whereunder all income would be taxed currently (i.e., as it is earned or realized) one time either at the corporate or shareholder level, but never both levels. Many tax law professors have offered various proposals to do this, but all are fairly complicated — more complicated than subchapter K or S which do something similar with smaller businesses formed as partnerships or s corporations. And anyone who thinks those subchapters are easy to understand is very mistaken.

    In my view, we should impose two types of levies. First, fees designed to pass on concrete social costs to those responsible for creating those costs, such as gas taxes for road maintenance. Corporations should not be immune from such levies. Taxes designed to pay for general governmental services should be imposed only on individuals, and the best approach IMO would be a broad-based consumption tax like that proposed by Harvard’s Wm Andrews and former Senator Sam Nunn. Basically, the idea would be to simply adjust our current income tax to allow for deductions for all additions to savings and tax all subtractions from savings. We essentially do this already with 401(k) plans and IRAs, so it would mainly be a matter of merging and expanding those plans so that there were no limits on contributions or withdrawals. Such a tax would continue to allow for graduated rates. Assuming gifts and bequests are treated as consumption, all lifetime income would be taxed as it is consumed. Economists favor such a tax since it is neutral as between savings and consumption, whereas an income tax favors consumption.
    While one can make the case that our corporate income tax is indeed a very inefficient VAT, a case can also be made that a VAT is a very inefficient broad-based consumption tax.
    Finally, taxing capital gains at ordinary rates may be workable when the top ordinary rate is 28%, as it was immediately after the 1986 Act. But current rates are almost certainly too high to sustain this. Investors will simply refrain from selling investments in order to avoid gain recognition. This so-called “lock-in effect” is well-understood and documented. Aside from the ensuing revenue problem, this behavior causes a misallocation of resources since investors will not move into more appropriate investments because the toll charge is too great. In addition to this practical lock-in problem, there are policy difficulties in that capital gains usually contain a phantom inflation component, which theoretically should not be taxed. The magnitude of this component depends on the magnitude of inflation that exists during the holding period. This risk must be weighed against the fact that capital investments benefit by deferral since it is usually not possible to impose a tax until an investor volunatily decides to sell and thereby cause a recognition event.
    The bottom line is this. This is a healthy discussion to have, and it is good to see a non-conservative such as McArdle try to tackle it intelligently; and it is tricky and complex stuff. People who think that there is some magical easy tax that is simple and fair are naive. But important improvements can be made.

  • Dissent. If a commercial enterprise wishes to have the benefits of limited liability, they can pay for it.

    No one here has suggested that an index be applied to the purchase price of a capital asset in the course of computing tax liability.

  • I find it odd to see a VAT considered favorably here. They may be a somewhat efficient means for the government to fill the coffers by concealing the true cost from the consumer (which is something I oppose), but they are quite regressive (something I oppose even more).

  • RL, the idea that a VAT conceals the true cost from the consumer is simply not true. It only conceals it if you don’t know what it is. That can be remedied simply by requiring that it be printed on all receipts.

    A VAT can be just as regressive or progressive as the current income tax.

  • Mike Petrik, “a VAT is a very inefficient broad-based consumption tax.”

    How so? The difference between a VAT and Nunn’s USA tax is that the latter collects from individuals rather than businesses and it would tax consumption of used goods.

    IMO, the most efficient tax would be a VAT system that gives everyone a tax credit card.

  • restrained,
    How would you make a VAT progressive?

    Art,
    Limited liability is a privilege afforded by state law, not federal. Consequently, any quid pro could only justify a state level corporate income tax; and most states do impose such taxes. Also, conceptually if limited liability carry substantial social costs, consumers would favor doing business with proprietorships. There is no evidence of this. It must be remembered that the limited liability only extends to investor/shareholders, not the corporation itself or those that act on its behalf such as officers. I have never found the limited liability explanation for the corporate income tax remotely convincing. It is an after-the-fact rationalization, and in my opinion not a good one.

  • VATs are inefficient from an administrability standpoint because administration must occur in each link of every business chain.

    Collecting from individuals is good. Citizens should know what their tax burden is.

    Also, a tax levied on individuals also allows for rate graduation based on ability to pay as measured by consumption level.

    VATs also create fraud opportunities in cross-border transactions.

    Finally, the idea that mechanisms can be established so that individuals are aware of their tax burden may sound good in theory, but it is doubtful that most people really would understand.

  • My preferred method of a progressive VAT would give everyone a tax credit card that’s used at the POS, sort of like a shopper’s card, that instantly discounts the item. Alternatively, we can do as some countries do and give everyone a card but make them pay full price then mail the rebate later. Yet another method is to mail a check to everyone regardless of level of consumption like the FairTax. Finally, we continue income reporting then mail rebates based on income.

    VATs are collected from individuals. They’re just collected by businesses instead of your employer or directly by the IRS.

    Making people aware of the VAT burden would be no more difficult than making people aware of the sales tax burden. Just print it on the receipt. You’ll see it every time you make a purchase.

  • Great Discussion! May I inject a bit of irrationality first, then something of a real problem?

    Restrainedradical: I can just see the more suspicious in our population railing against having to carry and use a government card in order to make a legal purchase. Recall the noise made about a Federal ID card some years ago.

    At least some believe a mandatory card for making purchases would be an equivalent to the “mark of the beast.” While not necessarily a rational stance, it could cause a lot of trouble.

    An unforeseen but real consequence of such a card would be the collection of an individuals purchasing history. The promise of protection of such information, given the private information that is regularly compromised from presumed secure repositories, rings hollow.

    Finally, with regard to the VAT itself: a perceived high tax rate on purchased goods also opens up incentives for black market activity. It is customary in the United States, unlike Europe, to list an item’s price pre-tax, and add the tax at the register. Also, localities, States and the Federal Government have the power to levy tax.

    Assuming that the pricing custom remains, the consumer will see the aggregate of the sales taxes as a single rate and will change behavior accordingly.

  • Death and taxes . . . the power to tax is the power to destroy – that’s why the Federal government cannot tax state, county or municipal governments (e.g., tax-free bond interest).

    The US Internal Revenue Code is about 40,000-plus pages: enough said . . .

    Taxes, nanny-state regulations, and national crushing debt ($13,000,000,000,000.00 and NOTHING to show for it): we the people live and breathe at the government’s discretion.

  • Dissent. If a commercial enterprise wishes to have the benefits of limited liability, they can pay for it.

    They do pay for the benefit of limited liability, just not through taxes. They are required to maintain adequate capital to meet the needs of the business (including lawsuits), and if they fail to do so, the limited liability is discarded.

  • Limited liability corporations pay by not having access to the capital that an unlimited liability business would.

    Dminor, a VAT card would raise privacy concerns. If that’s the route we take, it would have to be voluntary. There would have to be a more onerous alternative like annual reporting of income and savings.

    As for awareness, we can make sellers advertise the full price including tax (unless it’s a multi-jurisdiction ad in which case it would include only the taxes that cover all jurisdictions plus a disclosure like “plus state and local tax”). We can require that receipts print a break down of the taxes. We can mail annual receipts telling every household how much they’ve paid in taxes. Point is, there are lots of ways to get around this problem.

  • “They do pay for the benefit of limited liability, just not through taxes. They are required to maintain adequate capital to meet the needs of the business (including lawsuits), and if they fail to do so, the limited liability is discarded.”

    That is not the case in Illinois. Shell corporations go belly up all the time here and that, by itself, is insufficient under Illinois law to pierce the corporate veil, although it can be a factor in piercing the veil if there are other factors, no observance of corporate formalities, comingling of corporate and private funds, etc, which are also present. Judges have a fair amount of discretion in piercing the veil in Illinois, and in my experience most of them are reluctant to do it, unless the facts of corporate malfeasance are pretty extreme.

  • Limited liability is a privilege afforded by state law, not federal. Consequently, any quid pro could only justify a state level corporate income tax; and most states do impose such taxes.

    I do not see that that follows. They have been granted the status of legal person. I cannot see that the treatment of them as a person needs be confined to the tax collectors of the chartering government.

    I have never found the limited liability explanation for the corporate income tax remotely convincing.

    That is because you are not a proper Poujadiste.

    For a given level of public expenditure, you have to collect the revenue one way or another. Property taxes promote environmental damage and can be subject to caprice in their administration, general sales taxes are regressive, payroll taxes discourage hiring, and taxes on phantom capital gains discourage investment and distort patterns of investment. Given how sclerotic the political system is concerning reform of our wretched tax system, seems you would have other priorities than eliminating corporate taxes.

  • I’m not sure what a Poujadiste is, but I suspect your are right.

    The case for corporate taxation is best made once you decide that you don’t care about horizontal or vertical equity. Few tax scholars are willing to do this (none come to mind). To be sure I don’t view elimination of the corporate income tax as a “priority” at all, but I do think that the policy justifications for the tax are generally pretty weak.

    While sales taxes are generally regressive, a broad based personal expenditure tax as described above would accomodate graduated rates and progressivity. It would also be neutral as between saving and consumption, something universally favored by economists (and how often can one say that!). The key to its success IMO rests in the treatment of testamentary bequests. IMO assets held at death should be regarded as deemed consumed and subject to tax (no need for a separate estate tax). All lifetime income would be subject to tax as it is spent. This is economically desirable and practically feasible.

  • restrained,
    There are, as you say, lots of ways to get around this problem. Pray tell, are there any that aren’t guaranteed beaureaucratic nightmares or invitations to fraud?

  • Mike Petrik writes Thursday, October 28, 2010
    “Finally, the idea that mechanisms can be established so that individuals are aware of their tax burden may sound good in theory, but it is doubtful that most people really would understand”.

    “Most people” = thee, but not me.

    As Richard Feynman said “If you think you understand quantum mechanics, you don’t”.

  • While running a small corporation, I thought about such expenses as rent, electricity, and wondered why taxes were not levies on the same basis. The landlord, the utility companies are not our partners; why should the government be? Why not a Gross Receipts tax? This way we would know the cost.
    My accountant complained: “Are you trying to put me out of business?”.

  • I’m not sure what a Poujadiste is, but I suspect your are right.

    Well, you gotta get with the program.

    http://www.dailymotion.com/video/xdvoqt_pierre-poujade-contre-mendes-france_news

  • Gabriel,
    The State of Washington does have a gross receipts tax. It applies whether or not you have a profit (that is what “gross” means), and is almost universally despised by the business community. It is also not simple. The only simple tax would be a head tax. All other taxes are compromises between competing objectives — administrability, understandability, revenue objectives, and fairness. And the fly in the ointment is fairness. Fairness is the enemy of simple even if lay folks think otherwise. Most people know no more about taxes than they do about quantum physics, but they seldom let that impair strong opinions.

  • Thanks, Art. I’m afraid that is yet another program that I’ll have to avoid.

  • Fairness is the enemy of simple even if lay folks think otherwise

    Non ci credo. You are beginning to sound like Barber Conable.

  • I would rather expect that, and thank you my friend.

  • It’d never work.
    Firstly, it would greatly increase the taxation of the rich, which is suicide in every developed economy. An exodus of wealthy people giving away the passport would be the consequence, foreign investments in the US would be greatly discouraged.

    Secondly, the lobbying effort would then be directed to lowering the income tax, and rightly so. It is not that corporations owners would accept paying more taxes just because there’s “income tax” written over it.

    The way is reduction of public spending and state invasiveness and reduction of taxation, not increased taxation.

    The rich are those who provide the jobs and create a country’s wealth. Punish them, and you’ll kill the goose that lays the golden eggs. Encourage them to risk and invest and the whole country will prosper.

    M
    (not rich, in case you ask).

Obama To Announce New Business Tax Cuts

Monday, September 6, AD 2010

President Obama will propose several new tax cuts and incentives for businesses on Wednesday, September 8th, including one which is billed as having a decidedly right-leaning flavor:

President Barack Obama, in one of his most dramatic gestures to business, will propose that companies be allowed to write off 100% of their new investment in plant and equipment through 2011, a plan that White House economists say would cut business taxes by nearly $200 billion over two years.

The proposal, to be laid out Wednesday in a speech in Cleveland, tops a raft of announcements, from a proposed expansion of the research and experimentation tax credit to $50 billion in additional spending on roads, railways and runways. But unlike those two ideas, both familiar from Mr. Obama’s 2008 campaign, the investment incentive would embrace a long-held wish by conservative economists that had never won support from either Republican or Democratic administrations.

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4 Responses to Obama To Announce New Business Tax Cuts

  • It would encourage businesses to invest more than they otherwise would have. The big problem with Cash for Clunker was that most of the money went to people who were going to buy cars anyway. Likewise, most of the business tax break will go to businesses that will have made those investments anyway.

  • The answer to your last questions strikes me as dependent on whether companies have been putting off replacement of critical equipment en masse or not.

    The long timetable is helpful because it makes it possible for companies to decide now to replace in six months or a year. In this respect it is different from the idiocy of the “Cash for Clunkers.” It may also be different in that manufacturers with an ongoing relationship to their equipment suppliers are in a better place to avoid the price gouging of the car program. (E.g. I was interested in a truck at a dealership up the street and was watching it for a couple of months. Come Cash for Clunkers, the price went up more than $3,000. I have heard the same from other people – that the incentive was eaten up by price increases.)

    In general, I am a whole lot more supportive of this idea than its companion bill – $50 billion in new investments. I am more supportive of that – because there is at least an offer of value (infrastructure) for money rather than just tossing money into the wind like the President’s past plans.

    Perhaps the President is coming to his senses on economic policy.

  • I am not so sure I would support this idea. Is this a carrot to conservatives to support other programs in the bill they would otherwise reject? Or, is this a favor to a select voting group?

    Additions to plant and equipment require planning. Would this actually encourage the purchase? Businesses would still need to fund the cost of the purchase.

    Without the accelerated depreciation of 100% in the first year, the business would deduct the cost over several years. So, the deduction is not exactly lost without President Obama’s proposal.

    Finally, it is similar to Cash for Clunkers. Businesses would receive a tax savings up front and pay more in taxes later with the lost depreciation. (The amount they would pay later could be at a higher tax rate per the expiration of Bush’s tax cuts for partnerships, S-Corps, and sole proprietorships.) They do receive a benefit from the time-use of money. However, without permanent business tax breaks, this will result in a slow down once the benefit expires.

    Is this a carrot or is it a political tool to make this administration look good due to a spurt of growth that is set to expire? Congress should look at a more permanent solution.

  • I found this comment from Veronique de Rugy the other day to be interesting. This ‘graph in particular struck me:

    “He rightly assumes that lowering the cost of employment helps firms keep their current employees or hire new ones. He wrongly assumes, however, that tax credits are a good way to reduce these costs. I asked a small business owner during a recent radio show to explain to me why the tax credit wouldn’t work, and he confirmed my intuition. This tax credit is useful only if you have a tax liability, which you likely don’t have when business is slow.”

Planned Parenthood, What Happened to the Money?

Tuesday, June 22, AD 2010

A US Government Accountability Office (GAO) report has brought out an interesting mystery in regard to the federal funds given to Worse Than Murder, Inc, aka Planned Parenthood:

A new report from the U.S. Government Accountability Office (GAO) on federal tax money funneled into Planned Parenthood and similar organizations raises more questions than it answers about the nation’s largest abortion chain.

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2 Responses to Planned Parenthood, What Happened to the Money?

When You Vote Democrat, Your Taxes Get Raised

Monday, May 31, AD 2010

The Governors office and both chambers of the Washington State legislature are currently under Democratic control. Years of spending on European style socialist programs have created a budget deficit. The Democrats have decided instead of cutting or trimming their state programs whey will instead add a beer tax (and more) to compensate for the budget shortfall.

Republicans don’t have all the answers either.  But you know (most times) it won’t be taxes that they turn to to solve a budget deficit.

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13 Responses to When You Vote Democrat, Your Taxes Get Raised

  • If taxes were raised to 90% but abortion would be entirely stopped, would you support the tax party or the anti-abortion party?

  • That’s a big “if”.

    But that in most likelihood not ever happen.

  • Plus, I’m pretty sure if you vote democrat you won’t get into Heaven.

  • We need to return to the good ol days of fiscal responsibility we had under Bush.

  • In 15 glorious months, President Quis Ut Deus has achieved: one-in-six Americans unemployed or underemployed. One-in-ten mortgages delinquent. One-in-four mortgage balances higher than the home value. One-in-ten mortgaged homes will be repossessed after the Obaguvmint cuts the loan modification masquerades. One-in-four credit card balances being written off. ETC.

    All this economic achhievement through $800 billion in federal fiscal stimulus (the Chineses fiscal stimulus worked, the dems’ went to pay dem voters/prop bankrupt blue states) and $1.25 trillion in worthless mortgage securities bought by the Fed – that has just ended. Not to mention destructive (same as the bubble run-up) monetary policy actions . . . When the “chickens come home to roost”, we will hold responsible the Dems.

    Next year the Dem powers (controlled congress 39 months) will solve all of the above. The president and Pelosi/Reid will end the evil tax cuts for the rich: Look out below!

    And, in 2013 they’ll add 30 million to government health care entitlement programs and save $$$ billions (ya’ think?). And, generate all the electricity people need with sunbeams and zephyrs. So, they can tax the crap out of oil and gas.

    While he was saving the economy, Obama found the ten minutes he needed to save the Gulf Coast from oil spill devastation – 40+ days and nothing.

    All according to plan objectives: destroy the unjust, racist private sector and reduce citizens to an equal level of poverty and dependency.

    I have the answer: raise taxes!!!!!

  • I’m glad there is an admission that the political right doesn’t have all the answers either.

    To the point — with a Republican President and a Republican Congress there was an increase of public funding of abortion, an increase in the size of government, and a budget-busting foreign policy agenda. Has President Obama and the Democrats done anything to slow this train wreck? No. Will they? Probably not. Do they deserve criticism? Most certainly.

    But this is not merely a Democratic problem. A great number of the same Republican politicians that would be re-elected this November and many of whom would become national leaders are the same figures who were supporters of the Bush Administration, supporters of deficit-spending, and a number of which who voted for 8 years for massive funding of Planned Parenthood without any pro-life amendments through Title X and other programs — and, of course, the National Right to Life’s legislative hawks were out playing cards somewhere, surely only concerned with what the Democrats are doing.

    Every social program has its lobbyists and defenders. Some programs are legitimate and I don’t oppose them at all; others are not. Some I think should be consolidated, others terminated, and some continued. But it is the demand for social programs but a love for low taxation (no revenue) that has created the budget crisis — not just the spending.

    In California where voters tend not to oppose, in principle, social spending, there is also a law — passed by an amendment on the ballot — that does not allow taxes to be raised unless there is a 2/3 majority in both chambers of the California congressional legislature which is terribly difficult. In other words, this is a two-sided problem. So with a number points of distinctions, I do agree with this post.

    Though I do pray that those concerned about fiscal matters will join me when there is a Republican majority in Congress and a Republican president and oppose the growth and massive spending of American imperialism.

    – We spend more on defense than the next 10 nations combined.
    – Our Navy exceeds in firepower the next 13 navies combined. We have 100,000 troops in Iraq, 100,000 (with the arrival of additional troops in Afghanistan), 28,000 in Korea, 35,000 in Japan, and 50,000 Germany. Do we actually need a presence with such great number in the last three countries mentioned?
    – According to the DOD, there are 716 (or more — some may not be counted because they are secret facilities) U.S. bases in 38 countries.
    – According to the DOD’s “Active Duty Military Personnel Strengths by Regional Area and by Country” there are U.S. troops in 148 countries and 11 territories.
    – We spend $1 trillion dollars a year for the Pentagon, two wars, foreign aid to allies, 16 intelligence agencies, scores of thousands of contractors in Iraq and Afghanistan, and our embassies. Much of this spending is on “the credit card” and we are currently building a $1 billion dollar embassy in London, England in the midst of this economic downturn. Do all of these efforts, all of these facilities, et al, constitute something — every measure of it — that is essential to our security?

    So here’s an idea — it is not a new one — but it is a good one. Republicans will fight new taxes and Democrats will fight to save social programs. So why don’t we gut the American empire?

    Does it make sense that we borrow billions and billions from Europe, Japan, and the Gulf states to defend those same countries? Why borrow billions from China to defend the rest of Asia from China? It is absurd to borrow from all over the world to be defenders of the world.

    Accuse Democrats until you’re blue of being socialist utopians that want to rob Peter to pay Paul. You might be able to make that claim with credibility if you are too alarmed that the Republicans now are on a war-without-end Wilsonian crusade with great budget-busting spending that has as its declared utopian goal of “ending tyranny” in our world and “promoting freedom” — an objective that obviously cannot be achieved in its totality in a world with sin and must surely it won’t be achieved through external force or solely through the use of arms.

    In short, vote Republican and you too will see a budget deficit and war without end. So let’s band together behind a coherent position and reform the parties from within.

  • …and war without end…

    How very silly – in addition to being historically inaccurate.

  • daledog,

    The point was meant to be hyperbolic — and I was not referring to historical precedent (Democratic presidents have launched more wars, surely) but the current political reality underscored by exaggeration. Objectives such as “defeating terrorism,” “fighting tyranny,” and “promoting freedom” are concepts not too far apart from that of “fighting poverty” and “combating racism.” In other words, these long-term objectives are not tangible, feasible goals (versus short-term goals such as “stabilize Iraq and withdraw”) and if the use of arms is an integral strategy in our foreign policy on such matters, then the Republicans will give us more war. If the terrorists move from Afghanistan into Pakistan or we catch them Iran, then we will have to follow them there and wage war against them and in the process nation-build where we’ve wrecked havoc — and this is a costly endeavor and it certainly has its advocates, McCain and Lieberman particularly.

    That was my point.

  • with a Republican President and a Republican Congress there was an increase of public funding of abortion

    ??

  • No Public Funding of Abortion: Myth or Status Quo?:

    In recent months, primarily due to the health care debate, much attention has been given to the contentious issue of public funding of abortion. Though it is true that the status quo, for the most part, has been not to directly subsidize abortion, Americans have been both directly and indirectly subsidizing abortion in a number of ways virtually since its legalization in 1973…

    …During the nominally pro-life Bush Administration, there was considerable federal funding of abortion. Planned Parenthood received funding through the Title XIX (Medicaid) and Title X appropriations to the Secretary of Health and Human Services, gaining over $50 million per year through each program.

    The Title X appropriation which funds a “comprehensive” sex education and contraception program is particularly alarming. Its prime recipients are Planned Parenthood and other pro-abortion organizations and facilities. While Title X monies cannot be used directly to fund abortions by organizations such as Planned Parenthood who provide abortions, the increase of available funds can be used to offset operational costs and free up resources that can be used to promote and expand abortion services. For the fiscal year 2008, the tax-exempt “non-profit” abortion provider Planned Parenthood reported taking in $1.0381 billion dollars in revenues. More than a third of Planned Parenthood’s budget (roughly $350 million) came from grants from the federal government. In other words, taxpayers directly underwrite abortion by underwriting abortion providers.

    Despite this obvious problem, President Bush signed the appropriations bill increasing the Title X funding level to $265 million, a total of $11 million more than it had been in the last year of the Clinton Administration. In 2004 President Bush signed the annual appropriations bill increasing Title X funding to $280 million, a $26 million increase over his first term. After the election of a Democratic Congress in 2006, Title X received its largest funding increase in 35 years, totaling $310 million with the signature of the then-Republican president.

    In the 1980s, President Reagan issued an executive order clarifying the statute prohibiting Title X funds cannot subsidize abortions to also mean “that Title X recipients may not refer for abortion or combine family planning services with abortion services.” Thus, under the Reagan Administration, health care professionals working in Title X-funded clinics were prohibiting from providing any abortion-related information or referrals. This policy was continued by President George H.W. Bush and was upheld by the Supreme Court in 1991. The executive order, however, was rescinded by President Clinton.

    This regulation was surprisingly never reinstated by President Bush; federal appropriations to the Title X program increased every year underwriting the abortion business with taxpayer dollars, with the majority of those increases occurring with a Republican (and an allegedly pro-life) majority in Congress and all on the watch of a nominally pro-life Republican president.

    By no stretch of the imagination could one imagine any of this changing during the Obama Administration. The current trend has continued, with the 2009 and 2010 Title X appropriations totaling $312 million and $317 million, respectively. President Obama in his 2011 budget proposal has suggested a $10 million increase in Title X spending, a total of $327 million.

    It is worth noting that Rep. Mike Pence (R-IN) introduced an amendment to the 2009 HHS Appropriations bill intended to de-fund Planned Parenthood. The amendment read: “None of the funds made available under this Act shall be available to Planned Parenthood for any purpose under Title X of the Public Health Services Act.” The amendment (surprisingly) passed out of committee but failed on a floor vote.

    Unfortunately a few pro-life Democrats did not vote in favor of the Pence amendment, though many did. This issue—disunity in terms of congressional pro-life votes—has become quite a stumbling block for pro-life unity that must seriously and immediately addressed. This need not be downplayed nor need it be exaggerated—there are both wavering as well as courageous pro-life Democrats in Congress.

    In the same instance, one must wonder why is it that the Pence amendment or another equally pro-life measure was not enacted in the six years of a Republican majority to ensure that organizations that provide or refer for abortions did not receive Title X funding? It is almost certain there were a sufficient number of yes-votes. This might be a cynical point (as well as true one) but it seems that the Republicans have gotten too comfortable not forcing the abortion issue by avoiding “showdowns” or any sort of direct confrontation that does not seem to carry with it any sort of political capital that benefit’s the party. In other words, it is not surprising (to a skeptical mind like my own) that Rep. Mike Pence, no matter how sincerely pro-life he may be, would offer such an amendment with a pro-abortion majority in Congress. There is political capital in the amendment’s victory as well as its failure—it is but another issue that the GOP can use against the Democrats. At the very least, the amendment distracts from the enormous sums that Planned Parenthood was receiving under a Republican President and congressional majority. If this is true, there is nothing particularly heroic about the amendment; it is nothing more than bait for pro-life voters.

  • So why don’t we gut the American empire?

    Because there is no American empire.

  • I obviously don’t mean “American empire” in a strictly historical use of the term “empire.”

    Though I’m not sure if you insist on nit-picking my arguments with distinctions instead of substantially undermining it — unless my argument is, for the most part, reasonable.

  • I am not nitpicking over your terminology, Eric. There is a good deal of blatherskite in ‘palaeo-conservative’, libertarian, and social antiquarian discourse (see ‘Front Porch Republic’) about ’empire’ and ‘resistance to empire’. They are not contending with anything outside their own heads. You use their words.

    If I recall correctly, our balance of payments deficit on current account has, since 1982, usually run to about 4% of gross domestic product. That is a measure of the extent to which we are borrowing abroad for our various objects – private consumption, investment, and public consumption.

    Public expenditure is a compound of government purchases of goods and services and transfer payments. Private consumption amounts generally to around two-thirds of gross domestic product. Expenditure on the military and the intelligence services has varied between 3.5% and 8% since 1982, and now stands at around 5%. Military expenditure makes but a modest contribution as to why you are ‘living beyond your means’. There is, however, no secular trend in living memory with regard to the devotion of productive resources to the military. About 10% of domestic product was devoted to the military in 1955. By contrast, the medical-industrial complex accounted for 5% of domestic product in 1960 and 16% today. You made a complaint about the size of our Navy. The personnel strength of the U.S. Navy is the smallest it has been since 1941.

    Bringing ends and means in balance requires financing your public consumption and transfer payments from tax revenues and penalizing private consumption with the tax code. Right now, we face acute problems with fiscal imbalances brought on by an exceptional situation in the economy, so the military budget is an inviting target. The thing is, you only have banking crises once every fifty or sixty years or so in this country. As a rule, the level of military expenditure we have had over the last decade is quite sustainable. The economic arguments against ’empire’, such as it is, are bogus.

Value Added Tax Will Not Solve Budgetary Woes

Tuesday, April 20, AD 2010

There has been a fair amount of useless discussion among pundits and Obama administration officials about a Value Added Tax, a National Sales Tax, the mainstay of the crumbling welfare states in Europe.  I say this discussion is useless, because Congress would never pass it, as the 85-13 vote in the Senate on an anti-Value Added Tax non-binding resolution indicates.

Today in the Washington Post Robert Samuelson explains why a VAT wouldn’t solve our budgetary woes:

The basic budget problem is simple. For decades, the expansion of Social Security, Medicare and Medicaid — programs mostly for the elderly — was financed mainly by shrinking defense spending. In 1970, defense accounted for 42 percent of the federal budget; Social Security, Medicare and Medicaid were 20 percent. By 2008, the shares were reversed: defense, 21 percent; the big retirement programs, 43 percent. But defense stopped falling after Sept. 11, 2001, while aging baby boomers and uncontrolled health costs keep retirement spending rising.

Left alone, government would grow larger. From 1970 to 2009, federal spending averaged 20.7 percent of the economy (gross domestic product). By 2020, it could reach 25.2 percent of GDP and would still be expanding, reckons the Congressional Budget Office’s estimate of President Obama’s budgets. In 2020, the deficit (assuming a healthy economy with 5 percent unemployment) would be 5.6 percent of GDP. To cover that, taxes would have to rise almost 30 percent.

A VAT could not painlessly fill this void. Applied to all consumption spending — about 70 percent of GDP — the required VAT rate would equal about 8 percent. But the actual increase might be closer to 16 percent because there would be huge pressures to exempt groceries, rent and housing, health care, education and charitable groups. Together, they account for nearly half of $10 trillion of consumer spending. There would also be other upward (and more technical) pressures on the VAT rate.

Does anyone believe that Americans wouldn’t notice 16 percent price increases for cars, televisions, airfares, gasoline — and much more — even if phased in? As for a VAT’s claimed benefits (simplicity, promotion of investment), these depend mainly on a VAT replacing the present complex income tax that discriminates against investment. That’s unlikely because it would require implausibly steep VAT rates. Chances are we’d pay both the income tax and the VAT, making the overall tax system more complicated.

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6 Responses to Value Added Tax Will Not Solve Budgetary Woes

  • As for a VAT’s claimed benefits (simplicity, promotion of investment), these depend mainly on a VAT replacing the present complex income tax that discriminates against investment

    And there’s the rub. I would have no objection to the VAT if it replaced income tax. But it never has – both the income tax and VAT have grown ever larger in European countries. The VAT simply allows a government addicted to spending to expand even further, like a junkie obtaining a new supplier.

  • A VAT wouldn’t replace the income tax, but it would replace income tax increases, which is the only other plausible source of the extra revenue we need.

  • If a political climate existed to pass a VAT BA, and if the Democrats can’t do it with the majorities they command now I find it difficult to imagine such a political climate, I guarantee you that the VAT taxes would ever increase, that the politicians would spend every cent raised in new spending and that reckless borrowing would continue. At least that has been the experience in Europe:

    “One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.

    Proponents also argue that a VAT would result in less federal government borrowing. But that, too, has rarely been true in Europe. From the 1980s through 2005, deficits were by and large higher in Europe than in the U.S. By 2005, debt averaged 50% of GDP in Europe, according to OECD data, compared to under 40% in the U.S.

    Thanks to the recession and the stimulus, U.S. federal debt held by the public has now reached about 63% of GDP and is headed higher, but the OECD forecasts that the 30 wealthiest nations will see debt burdens “exceed 100% of gross domestic product in 2011.” Debt levels in France, Germany, Spain and Italy are expected to have increased by 30 percentage points of GDP from 2008 to 2011. Greece has a VAT rate of 21%, but its debt as a share of GDP is 113%.

    The very efficiency of the VAT means that it throws off huge amounts of revenue that politicians eagerly spend. The VAT thus becomes an engine of even greater public spending. In Europe, average government spending was about 30.2% of GDP when VATs began to spread in the late 1960s. Today, those governments are more than 50% larger, with spending of 47.1% of GDP on average. By contrast, U.S. government spending (federal and state) rose to 35.3% from 28.3% as a share of GDP in the same period.”

    http://online.wsj.com/article/SB10001424052702304198004575172190620528592.html

  • I don’t think it’s likely but a VAT along with an income tax cut might be political feasible. You can probably massage the numbers and sell it as a net tax cut.

    I’d love to replace all or part of the income tax with a VAT but I have no faith in the government getting it right. I’ve become convinced that ever-increasing bureaucracy is what will bring America down.

  • If a political climate existed to pass a VAT BA . . . I guarantee you that the VAT taxes would ever increase, that the politicians would spend every cent raised in new spending and that reckless borrowing would continue. At least that has been the experience in Europe.

    Actually this *hasn’t* been the experience in Europe. It’s true that VAT rates has tended to go up after its introduced; however, this increase in revenue has been at least partially offset by reductions in taxes elsewhere. Thatcher, for example, raised the VAT to offset decreases in the income tax while simultaneously cutting spending. The same thing happened in New Zealand in the 1980s, Canada in the 1990s, and (to a lesser extent) Australia in the 2000s.

  • The very efficiency of the VAT means that it throws off huge amounts of revenue that politicians eagerly spend.

    This argument would apply equally to any kind of tax simplification, including the Flat Tax, the Fair Tax, the Reagan tax cuts, etc. It would also apply to income tax cuts to the extent that they are justified on supply side grounds.

Happy Tax Day!

Thursday, April 15, AD 2010

It takes me approximately eight hours each year to prepare my federal and state income tax returns.  This does not take into consideration the quarterly estimated payments I make which probably take 20 minutes each.  After a long and frustrating day preparing a fairly complicated tax return, I, Union loving Don McClarey, often end the day as I am writing the check to the Federal government by playing the song below:

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11 Responses to Happy Tax Day!