Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts

Monday, April 15, 2019

A Short Manual to Nonviolent Undermining of Nations

You are about to read an 11-step manual on how to dissolve social cohesion. It may seem malicious to promulgate such methods, but once you realize any nation or people can become evil and callous, the need for defensive tactics becomes obvious. You don't have to follow all the steps below, but a combination applied consistently and over enough time will be lethal. 

Civilizations die from suicide, not by murder. -- Arnold Toynbee 

1. Promote Extremism, especially in Politics 

Most people believe evil and decay enter with belligerence. In reality, too much of anything can lead to destruction. If you cannot defeat your enemy by violent means, then promote the most shallow, superficial, and/or extreme people within their societies--regardless of ideology

Obviously, national politics is the most ideal arena, but you can start small. Look at public schools (ignore nepotism, whether formal or informal), police departments, and local governmental bodies. Even a city planning commission, if staffed by zealous nitpickers or inexperienced lawyers, can help disintegrate faith in one's fellow citizens. 

Above all, review anything related to debt or inflation. A public or private bank that loans too much money to the wrong people or too little money to the right people will create problems. In peacetime, only the banking and natural resource exploration sectors have specialized instruments capable of causing as much damage as a ten-tonne bomb (see, for example, America's 2008-2009 crisis). 

2. Trust, Nuance, and Context are Conjoined

Some people genuinely believe others "don't want to know how the sausage is made." Agree with them by eliminating nuance and reducing transparency as much as possible. The human mind wants to focus on single or binary data points to understand complex issues. Feed that bias using true but incomplete information. With the media becoming fully digitized and therefore subject to SEO manipulation and the highest bidder, social targeting is easier than ever before. Aim to create a lack of trust through selective reporting and/or the elevation of simplistic viewpoints

We are pragmatists. We don't stick to any ideology. Does it work? Let's try it, and if it does work, fine, let's continue it. If it doesn't work, toss it out, try another one. We are not enamored with any ideology. -- Singapore's founder Lee Kuan Yew 

3. Ignore Potential 

Not actively promoting and nurturing exceptional persons is a surefire way to lose them, whether through physical departure to other nations or a loyalty shift. 

Remember: immigration is a zero-sum game. If you can attract the best and brightest into your nation or group from a competitor, with each person, you create an almost insurmountable 200% gap in your favor. We universally acknowledge stealing ideas is easier than inventing them, or that not all new ideas will succeed; yet, voters seem unable to understand immigration is the exact same process, but applied to people. 

You will know you have succeeded if any prominent politician mentions building a wall

4. Use Idealists and Conformists within Minority Groups 

History tells us empires fail when they openly discriminate against minorities. A wise leadership prefers instead to set extremely high or impossible standards anyone can allegedly reach, then manipulate the budgeting, promotion, and/or selection process to assist his or her friends and allies.

Prices are the new discrimination. -- Chris Rock (2017)

If journalists or others expose inconsistencies or discrimination, it is not difficult to find conformists, idealists, or egotists within the allegedly harmed group and then elevate a single person from that group while maintaining the status quo (e.g., America's President Obama). 

5. Inane Distractions Thwart Substance 

Promote voyeurism and gossip. Louis Brandeis said it best: 

"Triviality destroys at once robustness of thought and delicacy of feeling. No enthusiasm can flourish, no generous impulse can survive under its blighting influence."  

Divert the target's attention from the long-term to the trivial and short-term. 

6. Attack the Artists 

The smartest people in any country are usually comedians. If you can goad leaders into condemning or banning a comedian, you will cause an immediate and permanent loss of credibility.  Hypocrisy is everyone's hemlock, whether governments, individuals, or corporations. 

The same logic applies to authors and musicians. Stalin murdered Leon Trotsky in Mexico in 1940; the Soviet Union dissolved in 1991. Detroit's police department shut down an NWA concert in 1989; the city filed for bankruptcy in 2013. The time frames may differ, but once top level officials try to control art, enough mistakes have been made that the end is inevitable. 

Interestingly, Governor Ronald Reagan assailed UCLA professor and writer Angela Davis in 1969, and California in 2019 is America's most unequal and indebted state. Also in 1969, the NYPD raided Greenwich Village's Stonewall Inn, a bar in a well-known counterculture district. According to the New York Times, six years later, New York City was so close to bankruptcy, "the city's lawyers were in State Supreme Court filing a bankruptcy petition." By the time the Establishment's list of scapegoats includes bohemians, everyone with means has packed their bags or already departed with them. (Americans will be pleased to know as of April 15, 2019, President Donald Trump has not called for the jailing, deportation, or murder of any artists.) 

[Bonus, from professor Danielle Morgan, Spring 2021: "It demonstrates to me the power of comedy that former-President Trump would get so angry that he'd not come to the White House Correspondents' Dinner. He would take to Twitter and yell about Saturday Night Live. Trump spent so much of his time attacking entertainers and, in particular, comedians because he knows that comedy reaches the masses very quickly and very convincingly.]

7. Inefficient Governments Cause Problems 

As religious entities moved into the government's traditional role of providing social welfare, most governments welcomed them, assuming they could provide services more cost-effectively. Yet, how many people realize religious entities have gained credibility through community services because their governments are inept or misusing their tax dollars? Or that the more influence the government allows religious entities in social services, the less one can argue in favor of separation of religion and state? 

The more you can promote religion in everyday public life, the more you can fragment society. Wise governments neither promote nor denigrate religious entities in exchange for noninterference. 

The 1st Amendment leaves the Government in a position not of hostility to religion, but of neutrality. The philosophy is that the atheist or agnostic... is entitled to go his own way. -- Justice William Douglas in Engel v. Vitale (1962)

8. Promote Segregation and Informational Fragmentation 

Segregate different groups of people as much as you can. Most people associate segregation with racial characteristics, but separation based on wealth, education, information, or some other trait eventually leads to intractable inequality and hubris. 

Heed the following Martin Luther King Jr. proclamation and do everything you can to render it untrue: "Anyone who lives inside [our country] can never be considered an outsider anywhere within its bounds." 

9. Fear is Your Friend, Curiosity is Not 

Of her profession, journalist Amanda Ripley once wrote, "we know how to grab the brain’s attention and stimulate fear, sadness or anger. We can summon outrage in five words or less." Notably, she states that it is "impossible to feel curious... while also feeling threatened." 

Almost everyone knows the U.S. government deliberately lied to the American people and American judges in multiple egregious instances, including but not limited to the Gulf of Tonkin incident and Korematsu v. United States, 323 U.S. 214 (1944). Yet, almost no one believes psy-ops (aka propaganda) to shape public opinion and legislative action exist as regular, ongoing events. Maintain this naïveté. 
Indigo Girls, 2002

10. If You Can Collapse a Building by Taking Down One Pillar, Don't Try to Destroy Three

The more open a society, the more fragile it is. If your paradigm assumes the executive, legislative, and judicial branches--all of them--are required for society to function smoothly, remember that only one of these branches need be corrupted or disdained to cause decline. 

11. Overextend the Enemy 

If you succeed using the above methods, governments and societies will be unable to ignore their problems and may defend themselves using censorship, jails, torture, and other blunt instruments. Once you are in this stage, the goal is to cause the target to overextend itself as much as possible and to abuse its power. 

For example, after 9/11, America knew it could not legally torture detainees but did so anyway, in no small part because its political and military leadership specifically drafted exceptions to time-honored procedures. "Black sites" for interrogation or "extraordinary renditions," often in cooperation with other nations, eventually led to a total breakdown in decency, causing the United States to lose credibility worldwide, despite being the victim of a vicious, cowardly attack. 

Abu Ghraib, the most prominent example of America's decline, occurred outside the nation's official borders as a way to escape oversight from the media and courts. The American government even argued its knowing creation of a loophole to evade judicial oversight meant it deserved the power to destroy not just the enemy, but its own checks and balances. (See also President Bush's Executive Order 13224, which "prohibited transactions not just with any suspected foreign terrorists, but with any foreigner or any U.S. citizen suspected of providing them support.") 

Overextension renders a society imbalanced, leading to extreme actions becoming accepted as new norms. Shift the norm as far as you can in any direction. 

12. It's Always Been the Same Old Story

All governments have the same general issues: overpopulation or underpopulation and immigration; employee unaccountability and selection; foreign capital and influence, especially in the media; debt repayments; access to resources, including sustainable food production; effective regulation of competitors, whether criminals or corporate, without endangering innovation; and security without overextension, which includes infiltrating influential groups and gaining intelligence

If you ever find yourself thinking you've discovered something new rather than being put in a position to communicate existing and older ideas more effectively using ever-changing mediums, remember my grandmother's advice: "Don't worry so much. In the end, life is mostly eating, f*cking, and sleeping." 

Good luck

Friday, July 27, 2018

Scandinavia, Socialism, Capitalism, and Taxes

1. The only two questions to ask when discussing an economic or taxation program are: 

1) Do the taxes or fees generate sufficiently positive returns for all taxpayers and residents relative to the tax or fee?; and 

2) Are the programs created or maintained as a result of the tax or fee sustainable over time when accounting for all expenses, both short-term (e.g. salaries) and long-term (e.g., pensions)? 

In short, what is the benefit relative to the tax, and is it sustainable? 

2. Here's a relevant link re: Sweden's pension reform: http://www2.ilo.org/public//english/protection/socfas/publ/discus/swedish.pdf 

3. "The key to Sweden's success is that it slashed taxes, greatly reduced its public sector, and underwent a massive privatization program in the 1990s." -- Michael Booth, The Almost Nearly Perfect People (2014) 
4. Increasing funding for a program doesn't always improve the program because much of the new funding may go to existing obligations, not new employees or new improvements. More here: https://bit.ly/2LF6tgx 

5. Full video here discussing issues more in depth: https://youtu.be/sMlCn66_yFo 

Sunday, December 27, 2009

Current Wealth Distribution Threatens Democratic Process

Why is the unequal distribution of wealth problematic? Because it can destroy democracies.

Right now, the top 1% in America pay about 40% of the tax revenue. Far from being shining philanthropists, the reason for this particular distribution is because the top 1% make so much more money than the bottom 99%. Such a massive concentration of wealth allows rich people to single-handedly finance PACs; to use their influence to raise money quickly for their preferred candidates; and to buy all-important television airtime for their preferred candidate. As a result, modern-day candidacies require fewer people and more mass media. A candidate no longer needs all corners of his/her jurisdiction to ascend to political office--a few well-off friends can introduce a potential candidate to an entire jurisdiction by buying television ad spots.

Friday, July 31, 2009

Behind the Numbers: Top 1% Paid 40% of Total Income Taxes

Professor Greg Mankiw points out that the the top 1% of taxpayers paid 40.4% of the total income taxes collected by the federal government. See here.

I don't think we should have a "free lunch" system where millions of Americans have no financial stake in their government. At the same time, with sales taxes increasing, it's hard to argue the middle class and poor are getting a "free lunch."

It would be more fair to see what percentage of all taxes--state, local, and federal--are paid by the top 10% rather than just income taxes. According to the WSJ, the top 1% of earners pay 26% of all federal taxes. See here. Given the income and wealth disparity in this country, the 26% figure does not shock my conscience--in fact, it seems more on the low than the high side. (Update: the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.)

Mankiw's cited statistics show that our income taxation system is inefficient and non-diversified. Any entity that relies on such a small percentage of its "customer" base for 40% of its "profits" will soon have problems. Rather than feel sorry for the super-rich, we should realize that income taxes are volatile and inconsistent sources of revenue. By relying on such a volatile source of revenue, the government isn't doing us any favors.

Mankiw's post implicitly contends that the rich have never had it worse--their 40% contribution is "the highest percentage in modern history," he says. This increased burden could mean two things: one, the rich are getting bilked; and/or two, the recession has hit the middle class and poor harder than the rich, so they are getting smaller slices of the income pie and paying less taxes as a result of receiving less income. I'm going with Door #2. I am disappointed that Professor Mankiw--normally a very thorough writer--cited the Tax Foundation's statistics without properly explaining the numbers.

Overall, we should figure out how to get more paying stakeholders into the system so we diversify revenue sources and rely on more recession-resistant revenue streams.

Update: Professor Mankiw points out that "the [tax] data predate the recession." Although the recession is not factored into the tax data, the disparity in tax burden between the rich and others may still be a result of a declining middle class.

Tuesday, June 9, 2009

California's Budget Crisis Continues

An interesting perspective from Assembly-member Jim Beall, Jr. in Campbell Times (June 2009, page 19):

The state's biggest cost driver is prisons. The prison budget has doubled in the past decade to $10 billion. The state has 173,000 inmates, which is roughly equivalent to locking up everyone in the city of Ontario [California]. We spend roughly $45,000 on each prisoner, which is just about what it costs to send a student to Yale. Yet, California has a 70 percent recidivism rate...what we are doing now isn't working...

The state's 2009-2010 revenue is chiefly derived from personal income taxes accounting for almost half--49 percent; sales and use taxes make up 34.6 percent; corporation taxes represent 10.7 percent; the rest come from a myriad number of sources.

Two thoughts:

1. The war on drugs is bankrupting the state. The state spends huge sums jailing thousands of drug addicts.

2. The pro-law-enforcement mentality post-9-11 may have caused D.A.s to prosecute more non-violent offenders, knowing juries would be more fearful of anyone suspected of a crime.

To be or not to be a libertarian--more Californians should be asking themselves this question.

More on California's problems here.

Monday, March 30, 2009

Legal Pot Sales in California

According to The Atlantic, April 2009, p. 23 (Joshua Green):

Given California's well-publicized budget crunch, it's worth noting that legal pot sales generate $100 million in state tax revenue a year.

That's a lot of dope.

Sunday, January 25, 2009

California's Tipping Point?

[Note: this post has been revised since its original publication.]

Investors should be worried. California's unemployment rate just skyrocketed, and Bay Area employers are laying off thousands of employees. As the eighth largest economy in the world, California and its consumers move worldwide markets. Shannon Love writes about California taxpayers and tax consumers here. Ms. Love talks about a tipping point, which is reached when state employees achieve enough power and money to dictate to the people. Once this tipping point is reached, she says, "it is only a matter of time before civil servants become civil masters."

Former Presidential nominee Barry Goldwater said it even better: "A government that is big enough to give you all you want is big enough to take it all away." I've echoed similar concerns here and here. Despite the danger of overweening government, nothing seems to jolt the average American citizen and voter into action. This is particularly distressing, because informed citizens seem to have become apathetic to the government's siphoning of taxpayer dollars.

Take this 1/22/09 SJ Mercury news op-ed, for example. The writers chastise a San Jose City Councilmember for trying to rein in profligate spending and public sector union demands. However, in promoting more government benefits, they reveal just how stunningly fat government employees have become.

Mr. Bruce De Mers and John Diquisto write: "[M]ost police and fire retirees left public service well before the advent of 90 percent retirements." [Emphasis added.] There's no way to escape the reasonable inference from this statement. We are being told that at least some current police and fire retirees will receive around 90% of their salary after retirement. This isn't an uninformed slip--Mr. De Mers is president of the Association of Retired San Jose Police Officers and Fire Fighters, so he knows his numbers. The writers forget to mention the lifetime medical benefits also given to police and firefighter retirees, but after getting 90% of your salary in retirement, why add fiscal insult to fiscal injury? I can't find a non-executive private sector worker in San Jose who gets 90% of his salary at retirement and lifetime medical benefits--and I'm an employment attorney, so I've met my share of San Jose workers. (As I explain below, I am not against paying police officers and firefighters high salaries--I am against paying any public employee hard-to-calculate and unpredictable benefits.)

But let's get back to the article. It contains the usual platitudes, such as, "Panic is not productive. Promoting panic is a disservice to the public." Informed people should read between the lines. Our government officials want us to remain calm--while they dig deeper into our pockets. Unsurprisingly, the writers resort to the public safety argument: "Attacking retirees who risked their safety to make San Jose one of the safest big cities in America may feel good. [T]hat doesn't make it right."

Newsflash: if more police kept cities safe, or if police were even a substantial catalyst for safety, then New York City, Oakland, and Baltimore would be almost crime-free. (Last time I checked, they had plenty of police officers.) In reality, police and firefighters are just two components in the public safety analysis. The determinative factor in public safety is the composition of the residents themselves--especially their education levels. For example, imagine a city with 1,000 cops and 1,000 gang members, most of whom lack a college degree. Will there be more violent crime in that city, or in a city with 50 cops and 50,000 accountants, doctors, and engineers? And yes, that's a rhetorical question.

Most Santa Clara County residents have a college degree--61%, by some accounts. College-educated adults tend to be less interested in drugs and dangerous behavior, and somewhat more likely to be married. These traits generally lead to law-abiding behavior.

Ultimately, the police and firefighters' unions do Santa Clara County residents a disservice when they claim to be the primary cause of our safety. It's almost as if they are saying, "Pay us off, and you'll be safe. Don't pay us off, and, well...who knows?" Combine financial self-interest with political power, and you have a ready-made recipe for oppression, or at least government-sanctioned extortion.

Investors must realize that public sector retirement benefits are a stock market issue, not just a political issue. Continuing generous government benefits will affect stock market gains in several ways. First, public sector retirement plans aren't necessarily linked to the stock market--CalPERS, for example, can invest in hard assets, like timber and land, as well as other investments unavailable to ordinary people. (CalPERS controls around 239 billion dollars, and its investment decisions move markets.) Having a separate, two-track retirement system allows government to invest taxpayer money with little regard for the retirement prospects of ordinary citizens. Consequently, while non-government investors must rely on an ever-increasing stock market to retire, public sector unions and their employees are not so inhibited. Not being similarly situated, they may take actions to inhibit corporate profits and, in turn, stock market gains.

In fact, there is no question that continuing government's generous retirement benefits will drain taxpayers, providing them with less discretionary income. General Motors (GM) and Ford (F) are two analogous examples. Like the United States, they have deficits and are losing money. Just like government unions, the UAW lavished their employees with generous retiree benefits during flush times. As a result, until 2007, a Ford (F) employee's average hourly wage was $71.00/hour--but with only $29/hr going to actual wages. Around forty percent (40%) of the total hourly wage went to retiree benefits and health insurance programs. (See WSJ, 1/22/09, A12.) Meanwhile, foreign automakers pay around $49/hr to their employees and still manage to create better products and have better service.

Basically, GM and Ford became non-competitive (at least until declaring bankruptcy and/or gaining union concessions) because they offered generous retirement and medical benefits based on overly optimistic actuarial projections. The costs of their programs--like America's public sector pensions--are linked to the life expectancies of retirees and future profits/tax revenue; therefore, without a crystal ball, true costs are difficult to predict.

Since it's difficult to ascertain the exact costs of benefit programs--which, like construction projects, often take longer and usually go over budget--prudent persons would favor cutting hard-to-measure benefits and then increasing present-day salaries.  If the private sector--with its self-interested, sophisticated shareholders--couldn't restrict union health and retirement benefits to a manageable level, what chance does California have? After all, unions in California have heavy influence over a majority of California legislators. To be clear, I am not anti-union--I am against unpredictable and hard-to-calculate government costs, especially costs that are passed off to future generations. We simply cannot expect the government to consistently and accurately predict the lifespan of all government workers, the number of its retirees in any given year, or the future health and medical conditions of all of its retirees. Yet, in order to accurately predict future costs in any system that provides pensions and lifetime medical benefits to millions of people, the government would have to act as a financial soothsayer, which it has been unable to do.

Unions, both private and public, were originally great ideas (See the film, Harlan County, U.S.A.). However, like most entities with billions of dollars of influence and political involvement, many of the largest unions have become corrupt and unwilling to look at the big picture. If GM and Ford are any indication, California's state budget could end up allocating 40% of our taxes to government retiree/health benefits and still not produce a balanced budget or better service. Like Ford and GM, if the status quo continues, California will become non-competitive. But that's not all. Ford and GM recently considered bankruptcy but were bailed out by the White House at the last minute. Although some California cities have filed for bankruptcy because of overly generous public sector benefits, an entire state has never gone bankrupt. Who's going to bail out California if it goes bankrupt? Will we see the day when California has to offer a 25% interest rate on its bonds to attract investors?

Finally, generous government benefits create major mis-alignments of interest. Having two separate retirement systems--one for Joe the Plumber and another for Sally the Cop--allows the government dangerous leverage against ordinary citizens. The day may come when CalPERS says, "If you don't give us what we want, we'll pull all our money out of the stock market, invest it someplace else, and you can kiss your 401(k)s goodbye." Sound implausible? Until recently, so was the idea that our federal government would give $700 billion to financial institutions without strict oversight. Also, don't forget that just ten years ago, banks like Citigroup (C) looked ready to take over the world. Now, of course, Citigroup (C) sells for around $3/share and is looking for a bailout.

Citizens should develop an eye for non-violent oppression. An oppressive government doesn't need to lock you up or arrest you to control you--it just needs to take enough money from you to buy off politicians and pass laws favoring them over regular folks. Investors, both foreign and domestic, need to stop being calm about overly generous government benefits and take action. Future generations of taxpayers--namely, our children--deserve nothing less.

Bonus: more on California's government unions HERE:
Approximately 85% of the state’s 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser [Pat Dando] wrote in the San Jose Mercury News in the past few days that, “This year alone, $3 billion was diverted to pension costs from other programs.” There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility.
Many of these retirees are former police officers, firefighters, and prison guards who can retire at age 50 with a pension that equals 90% of their final year’s pay. The pensions for these (and all other retirees) increase each year with inflation and are guaranteed by taxpayers forever—-regardless of what happens in the economy or whether the state’s pensions funds have been fully funded (which they haven’t been).[Steven Greenhut, WSJ, 1/22/10]

Sunday, January 11, 2009

Federal Budget Outlays

The Epoch Times had a good chart showing what the federal government projected it would do with our taxes in 2007:

http://en.epochtimes.com/news/7-4-15/54114.html

Social Security is the largest outlay, with 21% of our taxes going there. Next up is Defense, with 19%. Obama may reduce defense spending to shift more taxes towards infrastructure spending. Doing it this way would allow him not to raise taxes.

Defense hawks may disagree with any decrease in defense spending, arguing that it would cause a decline in domestic security. I do believe terrorists will hit the United States again, but much of the current defense spending is on major projects, like stealth fighters. Meanwhile, port security is inadequate. Consider this simple, low-tech scenario: a terrorist pays two dock workers to put an unmarked package on a ship. The dock workers will be told they are transporting drugs and will be paid a few thousand dollars for their discretion. In reality, the box would contain a major bomb or chemical weapon. The bomb doesn't even have to be inside a box. The terrorists could place a bomb inside an imported car, major appliance, or some other product that has many electrical components, making the bomb harder to detect.

Rather than focus on large-scale projects, such as the next generation of aircraft, which always seem to run over cost, the U.S. should shift more money into intelligence work. More specifically, Obama should hire more workers to 1) supervise America's major ports (e.g., Los Angeles, Miami, etc.); and 2) more effectively monitor the contents of packages before ships on-load and offload them. I realize modern ports have automated systems, but having more hi-tech automation doesn't necessarily lead to higher security.

If you're interested in reading more about Obama and defense spending, here is an interesting article:

http://www.cfr.org/publication/17793/

Tuesday, October 7, 2008

Who Pays Taxes?

The WSJ (A25, October 7, 2008) had more statistics on the tax debate:

The top 20% pay 67% of all federal taxes--including not just income taxes, but payroll taxes, corporate taxes, and death/estate taxes. The top 1% of earners pay 26% of all federal taxes.

If Republicans want a return to the Reagan era, pointing out raw numbers isn't the way to get there. The average American knows the rich make the lion's share of money in this country. He also knows that no matter what the percentages and numbers are, unlike the average American, the rich don't have to worry about housing, food, or health care. Despite this knowledge, taxes have continued to come down for years in this country because the average American doesn't hate most rich people. In modern-day America, the majority of super-rich people don't inherit their wealth--they earn it, which gives them some immunity from European-style envy. Thus, the key goal of low-taxation advocates shouldn't be fairness per se. Instead, the goal should be to assure that everyone's tax contributions--no matter what the amount--are spent improving access to health care, infrastructure, and other quality-of-life services as well as cutting wasteful spending. A single dollar collected that goes towards more laws, more useless agencies, more unnecessary subsidies, and more lobbyist requests will damage everyone's faith in the system. In short, low-tax advocates must convince everyone that all taxes collected are going towards necessary services.

Americans want to be rich, so bashing the rich won't work in America as a primary political platform. The average American probably cares more about a) whether his or her tax dollars are spent for necessary services rather than special-interest spending; and b) whether taxes are enough to cover necessary services. Thus, the debate should be about what services are necessary, how the government can best deliver them, and whether the government is the best entity to deliver those services.

Sunday, August 10, 2008

More on Taxes and Paying Your Fair Share


The WSJ published an article on taxes I somehow missed. See

http://online.wsj.com/article/SB121659695380368965.html

Here's an interesting statement from the article:

Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts.

To that I say, "Pfffff." If you bring in an extra billion but increase spending by two billion, I am not patting you on the back.

The article's failure to incorporate Pres. Bush's expenditures reduces the impact of its other cited statistics:

1. In 2006, the top 1% of Americans (making $388,806+) paid 40% of all income taxes; and

2. The top 10% (making $108,904+) paid 71%. That means 90% of all Americans only paid 29% of all income taxes, indicating their income tax burden is relatively low (compared to the affluent). (Note: the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.)

The article states that "Americans with an income below the median paid a record low 2.9% of all income taxes" in 2006. Some argue such a relatively low tax burden creates a moral hazard, because poor and low income residents receive similar benefits as the rich--police and fire protection, schools, access to courts, FDA protection (food and drugs), FAA protection (air travel), and so on--but pay almost nothing for it. Consequently, some people have argued that the lower income brackets should pay more taxes to create a more fair understanding of the high costs of government and public services.

My opinions on this issue of "fair taxation" is evolving, but I support Obama's stated plan to raise the payroll tax threshold. While the poor don't get taxed much on their income, their income is still taxed relatively high if you factor in the the payroll tax and other taxes. The payroll tax is used to finance Social Security and other social programs, but it taxes income only up to a certain amount of wages/salary. In 2007, if you made more than $95,000, you paid the same amount in payroll taxes as the hedge fund manager who made $1 billion. And if you made $1 billion, your wages were deducted the same percentage in payroll taxes as the person who made $30,000. That scenario doesn't appear equitable when the Social Security program is underfunded.

One idea might be to increase the payroll tax threshold (thereby helping save Social Security) while also instituting a national sales tax (which would affect poor and rich alike). This way, current income tax rates would be maintained, and the poor would have an incentive to spend less, perhaps saving more of their money and moving up. I remember telling a friend who protested the sales tax because it disproportionately hurt the poor, "Get the tap water (pointing to my free glass of water), not the Coke." In other words, at least the sales tax is a tax people can avoid most of the time. I realize this makes me sound like Marie Antoinette, but I don't see too many other potential compromises, and such a national sales tax should go into a "lockbox" the government couldn't tap for anything other than benefit payments. [Update on September 18, 2012: my views on sales taxes is not fully formed, but I believe taxes in general should come from predictable and diverse revenue streams.]

Still, reading an article like the one below inspires me to try harder to think of a more equitable and effective scenario:

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/02/AR2008080201672.html?referrer=emailarticle
(Thanks to creditslips.org for the tip; see http://www.creditslips.org/creditslips/2008/08/no-cushion.html#more)

It's no secret that the poor and middle class spend their money, while the rich save it and try to live off their interest and dividends, which are taxed at a lower rate (now 15%). As a result, any decent economist is going to want to try to get as much money into the hands of the poor and middle class as possible.

At the same time, as a Californian, I want more people outside the state to pay their fair share. It is not unusual in Santa Clara County to see people making 109,000 dollars or more (top 10% income bracket nationwide). It's incredible to think Californians pay so much in federal taxes, basically subsidizing Middle America, and yet are looked down upon by so many of our compatriots. For example, Texas took money from (robbed?) California through Enron. New Yorkers consider Californians soft. Dan Gable, from Iowa, reportedly refused to enroll California wrestlers because they were lazy. I dislike the status quo, which breeds resentment among the states and pits classes against one another while government spending runs amok. There has to be a better way.

More below on taxation.

McCain on Social Security (from http://www.csmonitor.com):

Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed.

An Example re: What Happens When You Tax One Group Too Much (taken from internet comment board):
Suppose that every day, ten men go out for tea and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily tea by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. What happens to the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his tea. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
‘I only got a dollar out of the $20,’ declared the sixth man. He pointed to the tenth man, ‘But he got $10!’
‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’
‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’
‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had tea without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Update on April 13, 2009: Ari Fleischer has more income tax stats in today's WSJ (A15):

A very small number of taxpayers -- the 10% of the country that makes more than $92,400 a year -- pay 72.4% of the nation's income taxes.

Wednesday, July 30, 2008

Top 25% of Earners Paid 85% of All Taxes in 2006

The numbers the IRS released regarding tax burdens in 2006 is stunning. Basically, the top 10% pay 68% of all income taxes. That means if you're making less than $108,904, your contribution to the pool is fairly small in comparison, and if you're making more, well, thank you.

BREAKDOWN OF INCOME AND TAXES PAID BY CATEGORY
Income Category
2006 AGI
Percent of All Income
Percent of Income Taxes Paid
Top 1%
Over $388,806
22%
37%
Top 5%
Over $153,542
37%
57%
Top 10%
Over $108,904
47%
68%
Top 25%
Over $64,702
66%
85%
Top 50%
Over $31,987
87%
97%
Bottom 50%
Under $31,988
13%
3%

The above chart is from Kiplinger's:

http://finance.yahoo.com/taxes/article/105468/What%27s-Your-Share-of-the-Nation%27s-Tax-Bill?

This reminds me of a joke I read on Greg Mankiw's (http://gregmankiw.blogspot.com) blog. He told a story about a group of four friends who went out drinking. At first, they divided the bill equally, each paying 10 dollars for a pitcher of beer. Then, the four friends realized that one only made $10/hr, while another made $90/hr. They agreed the higher-earning friend should pay 20 dollars as a "fair" share. The friend agreed, everyone else paid about 7 dollars each, and everyone was happy. Everything was going well, until the other three friends demanded that the higher earner pay 30 dollars as his "fair" share. The friend got ticked off and moved out of the city. The next time the three friends went out for beers, they all paid about 14 dollars each, more than if they had been nicer to the higher wage earner.

The lesson? People will move or take other measures to avoid taxes if they are too high or unreasonable, leaving everyone else with a higher bill.

Update on April 13, 2009: more on income taxes here and here.

Update on August 10, 2012: more on overall tax burdens here: http://online.wsj.com/article/SB10000872396390444246904577571042249868040.html?mod=e2fb  (David Wessel, August 6, 2012, The Numbers Inside a Hot-Button Issue)

"In the 1980s, the top 5% averaged 22.6% of income and paid 28.5% of taxes.

In the 1990s, the top 5% averaged 25.3% of income and paid 34.3% of taxes.

In the 2000s, the top 5% averaged 28.4% of the income and paid 40.3% of the taxes."

"Average tax rates have come down for everyone. On average, the tax bite on the rich is bigger--except for those whose income mainly comes from capital gains and dividends."

"The share of taxes paid by the bottom 40% of the population has been shrinking along with their share of income."