Tax Day Conspiracy

Acting U.S. Attorney General Todd Blanche revealed that the Justice Department is investigating more than 8,000 fraud cases, which he said represent over $1 trillion in taxpayer funds potentially stolen each year by "increasingly sophisticated and opportunistic fraudsters."

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Tax Day Conspiracy

Today is tax day. A day directly 182 days between the two first Tuesdays in November, voting day, would be May 5. So, tax day is two weeks or so as far away from election day as possible.

Is that an accident?

My suggestion is that tax day and election day be on the same day so the voters can keep both in mind. 

Let's see if it made a difference in the quality of people elected.

Willie Sutton Speaks

Nearly three years ago, the U.S. Departments of Transportation and Energy announced a $5 billion spending effort to build fleets of charging stations to lead “an electric vehicle revolution.” As of the summer of 2024, just seven charging stations had been built.

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Ford lost $44,000 on each EV sold in the second quarter, which is more than some of its trucks retail for.

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Ontario would be the Fifth-Poorest, and Quebec the Second-Poorest, U.S. State.

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Willie Sutton Speaks

An insight from Sternberg in the WSJ:

Higher taxes on capital are becoming a centerpiece of liberal politics on both sides of the Atlantic. While Democrats flirt with substantially higher taxes on capital gains (realized or unrealized), Britain’s Labour Party contemplates steeper levies on capital gains and inheritances as Chancellor of the Exchequer Rachel Reeves prepares her first budget proposal for release next month.

The left’s ideological suspicion of capital is only part of the story. The more important phenomenon is a profound change in the tax base in modern economies after 30 years of failed economic policies and hyperactive monetary easing. Capital, rather than labor income, is where the money is now.

For at least 40 years, the value of American households’ assets has increased faster than their incomes. Throughout much of the 1980s, household wealth hovered at or below 500% of disposable income, according to Federal Reserve data. If labor incomes and wealth had increased at the same rate, this ratio would have remained stable. Instead, U.S. household net wealth now stands at 785% of disposable income—and that’s off a peak of 836% in the first quarter of 2022.

Symbolic Trade and Tradeoffs

Good news! Chess has been discovered to be unfair and a paper offers a solution to the distortion!
After White's first move, Black gets to make two moves consecutively. Then White makes two moves in a row, after which the game resumes as normal.

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Kamala Harris choose Eric Holder to review and recommend possible candidates for VP.

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Symbolic Trade and Tradeoffs

When the Trump administration decided in 2018 to impose a 25 percent tariff on all imported steel, ... employment tradeoffs emerged…. The steel industry employs about 147,000 workers, while there are roughly 2.3 million workers in steel-using industries. The tariffs cost Ford Motor Company a billion dollars in added costs of production because the tariffs made American steel the most expensive in the world. The higher steel costs also hurt Caterpillar and John Deere, as well as machinery producers. One study suggested that, as a result of the steel tariff, the number of jobs in the iron and steel industry and the fabricated metal products industry would increase by 44,000, but there would be 17,000 fewer jobs in motor vehicles and parts and 209,000 fewer jobs in construction.--irwin

While not perfect, it's a close approximation of zero-sum game theory, like corporate taxation.

Strange Beliefs in Government

Jon Stewart's Apple broadcast has been dropped. He and Apple executives had disagreements over some of the topics and guests on “The Problem." Mr. Stewart told members of his staff on Thursday that potential show topics related to China and artificial intelligence were causing concern among Apple executives, a person with knowledge of the meeting said. As the 2024 presidential campaign begins to heat up, there was potential for further creative disagreements, one of the people said.
The commercial mix with entertainment is difficult.

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Rep. Tlaib was born in Detroit to Palestinian immigrant parents. She will bring, as many do, the problems of the old world's efforts to insinuate itself into America's new world.

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Strange Beliefs in Government

There is a lot of global trouble, national and international threats. These must be fought or surrendered to. How we lurch depends to some degree on what we, as citizens, know and will allow. (This, of course, accepts the notion that we citizens have input as to what the government does.) Yet never in this country's history has mendacity been a pillar of society. With that poison in the culture, it is difficult to see how it can be mobilized against perceived dangers. And last night Biden tried to do just that.

But in a culture of lies, will a speech like that be meaningful? Can anything?

An example. 

In a recent speech, I heard Biden claim, “Billionaires pay an average of — guess what? — less than 8 percent in federal taxes — less than 8 percent on a yearly basis.” To drive home the point, the President declared that this is a “lower federal tax rate than a firefighter, a teacher, a cop” pays.

According to Congressional Budget Office statistics for 2019 (the most recent year with data), the heaviest tax burdens still fall squarely on the highest income earners. The Top 1 percent of filers pay an average federal tax rate of 30 percent. This number holds among the ultra-wealthy as well. Suppose we restrict the subset to only the top 0.01 percent of earners, a category that generally applies to people with multi-million dollar annual salaries. In that case, the CBO estimates an average federal tax rate of 30.2 percent.

By contrast, the average tax rate on the lowest quintile of filers was just 0.5 percent in 2019 – a result of generous tax credits that are designed to relieve the poor of almost their entire federal tax burden. The second lowest quintile paid an average rate of just 8.9 percent in federal taxes.

How could the President of the United States not know this? And is this president making policy on this misconception? What other strange concepts does the President of the United States suffer from? And is it a surprise that these people cannot enlist support or be believed?

Taxing with Malice

 

                                                  Taxing with Malice

This is from an editorial--I think the WSJ--and contains a lot of very concentrated economics thought, clearly presented. It describes the subservience of economics to the group identity-group conflict fetish.

"The Biden administration last week proposed to increase the capital-gains tax rate—currently 20% for most assets held for at least a year—to 39.6% for people making more than $1 million. Since capital gains are also subject to the 3.8% Medicare tax, the new capital gains rate would be 43.4%.

What makes this unusual is that 43.4% is well above the rate that would generate the most revenue for the government. Congress’s Joint Committee on Taxation, which does the official scoring and is no den of supply-siders, puts the revenue-maximizing rate at 28%. My work several decades ago puts it about 10 points lower than that. That means President Biden is willing to accept lower revenue as the price of higher tax rates. The implications for his administration’s economic thinking are mind-boggling.

Even the revenue-maximizing rate is higher than would be optimal. As tax rates rise, the activity being taxed declines. The loss to the private side of society increases at a geometric rate (proportional to the square of the tax rate) as rates rise. The government collects more revenue, but its gains slow as the taxed activity declines. The revenue-maximizing rate is the point at which the government starts losing from higher taxes. Tax rates above the revenue-maximizing rate are punitive: The government is giving up revenue simply to punish the rich.

Punishing the rich is distinct from redistribution. Higher taxes on the rich to finance spending, or to transfer money to lower-income people, may be good for society’s welfare. Economists express this idea in a “social-welfare function,” which weights additional income received by different people, usually based on income. The same sum is considered less valuable if it goes to a high-income person than a lower-income one. The weights are subjective and different analysts will choose different weights.

Still, economists can agree that the ideal is to make someone better off without making someone else worse off. The simplest case is a voluntary exchange of goods for money, in which the buyer values the purchase at least as much as the price, while the seller values the money at least as much as the item being sold. Economists call such an exchange Pareto-optimal after Vilfredo Pareto, the Italian economist who formally framed the concept.

There is no choice in paying taxes, and usually the government is better off and the taxpayer is worse off. But above the revenue-maximizing rate, even the government is worse off. This is called Pareto-pessimal.

Generally, the government can raise tax rates and transfer the money to lower-income people, thereby improving social welfare. The government can do this even after incurring the economic burdens caused by higher rates and the costs of transferring money (known as the “leaky bucket”). The trade-off depends on how much tax rates distort the economy, how big the leaky-bucket effect is, and how one evaluates the difference in value of money going to people in different income groups.

As indicated by other proposals, the current administration rates money going to lower-income people extremely highly relative to higher-income people—higher than has traditionally been the case in U.S. economic policy. It also seems to put little weight on excess economic burdens and leaky-bucket costs. The wisdom of those choices will be tested at the ballot box.

But to an economist, a Pareto-pessimal choice is unwise by definition. There is no set of “weights” one can devise to justify this proposal, because there are no highly prized winners to offset the losses to the low-weighted losers.

The concept of social-welfare maximization has been a cornerstone of economic thinking across the political spectrum for the past century. It dates back at least to Adam Smith in the 18th century, and arguably to the 17th, when Jean-Baptiste Colbert, King Louis XIV’s finance minister, declared “the perfection of taxation consists in so plucking the goose as to procure the greatest amount of feathers with the least possible amount of squawking.”

That’s why it is shocking that this policy got past the economists in the administration, many of whom have had long and distinguished careers. The Biden administration is blowing up one of the key concepts that has united the economics profession: maximizing social welfare. It now believes in taxation purely as a form of punishment and is even willing to sacrifice revenue to carry it out."

I have not heard it said but it is possible that the powers-that-be believe that the failure of taxes to raise point-by-point revenue is that the victims of the tax increases retreat into some illegal subterfuge to avoid their proper tax. Why? Because they don't believe in market forces. They believe only in corruption.

Wealth Tax

                                                       Wealth Tax

While it tickles all the deep inferior elements in the human heart, a wealth tax has many problems. While it makes for great "soak the rich" soundbites, in reality, it's ineffective at reducing inequality. What wealth taxes do best is to disrupt the accumulation of capital. Since most wealth is invested and provides capital for innovators and producers to draw upon — and for workers to work with — all Americans would suffer from a wealth tax.

In a recent paper published by the Center for Freedom and Prosperity, economists John Diamond and George Zodrow of Rice University's Baker Institute added to the extensive evidence on wealth-taxation's negative effects.

The authors simulated the Warren wealth tax's economic effects and how that impacts the lifetime earnings of different income groups. They estimate that long-run GDP would be 2.7% lower than it would be without a wealth tax. They also found declines in lifetime wealth from the upper to lower-middle classes.

The simulation assumes that wealth tax revenues would be used for redistribution in similar proportions to current spending. The authors thus found small increases in lifetime per-household wealth for bottom income earners, ranging from $100 to $500.

These very small "benefits" come at very high costs. Initial losses in average household income would amount to about $2,500.

The problem is that there is no reason to believe that the motive for politicians' behavior has anything to do what is best for the nation. Rather it is entirely what will benefit the politician through the exploitation of the naiveté of the poor voter. And a politician dressed in righteousness is an awesome sight.

(most from deRugy)

Secure Act

Ideologies separate us. Dreams and anguish bring us together. -Eugene Ionesco, playwright

I feel lousy.
Mom was upstairs reenacting her visit to the dentist with realistic cries and shouts over the phone to Leah. Chris and I on the first floor almost called 911. 

Cole got a seven year, 245 million dollar offer from the Yankees.
 

What the First Amendment says is that the government shall make no law abridging liberty of speech. It’s not about being unable to get an audience of half a million readers for your side of the argument because you don’t own a big-city newspaper. You can say to yourself or your hubby, “Oh, that’s a lot of nonsense. The Tribune is wrong again, and if it goes on saying that I’m going to stop buying the bloody newspaper." It’s an argument in a free market society….Having a media problem, in other words, is not the same thing as being disenfranchised or censored, not unless the government is involved. There’s no ideal speech community of easy access to serve as the utopia relative to the actual, messy market for Google or newspapers or whatever.--McCloskey, writing chiefly to members of the LGBT community.

We gave 10 billion dollars in subsidies to Tesla last year. Half went to California--about 7000 dollars a car.

A recent study of opioid-related deaths in Massachusetts underlines this crucial point, finding that prescription analgesics were detected without heroin or fentanyl in less than 17 percent of the cases. Furthermore, decedents had prescriptions for the opioids that showed up in toxicology tests just 1.3 percent of the time. Alexander Walley, an associate professor of medicine at Boston University, and five other researchers looked at nearly 3,000 opioid-related deaths with complete toxicology reports from 2013 through 2015. “In Massachusetts, prescribed opioids do not appear to be the major proximal cause of opioid-related overdose deaths,” Walley et al. write in the journal Public Health Reports. “Prescription opioids were detected in postmortem toxicology reports of fewer than half of the decedents; when opioids were prescribed at the time of death, they were commonly not detected in postmortem toxicology reports….The major proximal contributors to opioid-related overdose deaths in Massachusetts during the study period were illicitly made fentanyl and heroin.” The study confirms that the link between opioid prescriptions and opioid-related deaths is far less straightforward than it is usually portrayed. One of the imponderables in addiction is the technical and social world that contains it. There is a lot of logistics involved; where does that fit in?

Research suggests “chronic marijuana smoking may be linked to the development of testicular germ cell tumor (TGCT), specifically of the nonseminoma histologic subtype.” The research “revealed that exposure to a minimum of 1 joint per day for 1 year – also known as ‘ever use’ – was not significantly associated with TGCT,” while “more than 10 years of marijuana use, which was not reported in joint-years, was.”

 ... the government needs to be – “government” meaning people who are in the government – people need to be much less arrogant about how well they understand the world. And you need to realize that it’d be so great if law – meaning every judge, every lawmaker, every voter – it’s really great if you realize that you’re capable of error.--Saul Levmore

 Even Milton Friedman, a strong advocate of economic freedom, stated, “You cannot simultaneously have free immigration and a welfare state.” Caplan’s response to Friedman’s objection is one of the strongest parts of book. He admits that immigrants would be disproportionately low-income but points out that a large part of the federal government’s budget is for defense and it doesn’t cost more to defend a larger population in the United States than it costs to defend a smaller one. Taxing immigrants, therefore, lightens the fiscal burden for those of us who are already here.

On this day 1992, outgoing U.S. President George H.W. Bush sent the contingent of Marines to Mogadishu as part of a mission dubbed Operation Restore Hope. Backed by the U.S. troops, international aid workers were soon able to restore food distribution and other humanitarian aid operations.
We knew well if we gave these people the help they needed, they would respond favorably. Well, they didn't and we suffered for it. But none the less, we continue to try to save people from themselves.

                        The Secure Act

The Secure Act has passed through the House with only three "No" votes. That is to say that the greatest tax confiscation in American history just passed without significant objection. Who says we have gridlock? 

McConnell says the law will not be voted on this year in the Senate because of the judges' confirmations.

Walking...chewing gum.....

If you ask around I'll bet most do not even know what the Secure Act is. But it will be brutal on conscientious savers and their families. Retirement plans must be liquidated within ten years after the holder's death and this will trigger gigantic taxes--as well as decreased private investment and income. (One of the proposed beneficiaries of taking money from the decedent's beneficiaries will be pension plans that are behind their targets. One hopes no quid pro quo is involved.)  This ignorance is not just a simple matter of citizen disinterest; no one in the modern world can keep up to date through their own efforts alone. In America, we have learned to expect help from a free Press. But The Secure Act has been passed without Press comment, too. It is understandable. After all, the Press is hard at work investigating possible quid pro quo on Trump's part as he inquired into possible quid pro quo on the part of Vice President Biden and his son's Ukrainian gas bonanza. 

After all, it is clear that the government, and the Press, can do only one evil thing at a time. If you are looking for a scandal, this one is unsurpassed.

UBI

‘‘Sovereign is he who decides on the exception.’--Carl Schmitt

Easy trip in to Boston.
Nice birthday dinner with Liz, Ned and Caroline.
Cold this morning. I like the Custom House. Local industry seems to be bars at might, coffee in the morning.

A pretty far left site I like opened its discussions about the so-called impeachment with this line: "Congress’s job is to make Americans’ lives better." Is that true? Is that concept a basic distinction in how the Left thinks?

As soon as you start making a case against anything, you are making a case, which means you are implicitly committed to reason.
Nagel calls this argument Cartesian, after Descartes’ famous argument that just as the very fact that one is pondering one’s existence shows that one must exist, the very fact that one is examining the validity of reason shows that one is committed to reason. A corollary is that we don’t defend or justify or believe in reason, and we certainly do not, as it is sometimes claimed, have faith in reason. As Nagel puts it, each of these is “one thought too many.” We don’t believe in reason; we use reason.


Blackpink has 31 million YouTube subscribers, more than any other musical group. Who are they? Here: https://www.youtube.com/watch?v=IHNzOHi8sJs



“Ultimately, man should not ask what the meaning of his life is but rather must recognize that it is he who is asked. In a word, each man is questioned by life; and he can only answer to life by answering for his own life; to life he can only respond by being responsible.”--Frankl



Quantitative analysis suggests that global financial integration alone can account for 34% to 55% of the observed increase in the current top one percent wealth share in the U.S., but indicates a possible reversal in the future.


(from Brian)

The sexuality of politics is not limited to those in power. A patient of mine is a very active conservative and has joined several on-line discussion groups. Yesterday she mentioned she was married and lost 7 followers in 2 minutes.

                           UBI

This is from Andrew Yang's campaign website and is one of the many planks of this platform, Universal Basic Income. I understand the basic argument as to inflation of value here, still, this is looking like an attractive idea to me. What do you think?

Andrew would implement the Freedom Dividend, a universal
basic income of $1,000/month, $12,000 a year, for every
American adult over the age of 18. This is independent of
one’s work status or any other factor. This would enable all Americans to pay their bills, educate themselves, start businesses, be more creative, stay healthy, relocate for
work, spend time with their children, take care of loved
ones, and have a real stake in the future.

Other than regular increases to keep up the cost of living,
any change to the Freedom Dividend would require a constitutional amendment.

It will be illegal to lend or borrow against one’s Dividend.

A Universal Basic Income at this level would permanently
grow the economy by 12.56 to 13.10 percent—or about
$2.5 trillion by 2025—and it would increase the labor force
by 4.5 to 4.7 million people.  Putting money into people’s
hands and keeping it there would be a perpetual boost
and support to job growth and the economy.

Representation Without Taxation is Tyranny

As the saying goes, if you give a man a fish, you feed him for a day, but if you teach him to fish you will feed him for a lifetime. Community organizers like Huerta don't teach people to fish, they teach activists how to steal their neighbors' fish. That is what Huerta and her ilk call social justice.--Vadum


Ned went back last night.


"The hardest thing for Westerners to understand is... the nature of the enemy's ultimate goal... to apply the Islamic law (Sharia) globally. In U.S. terms, it intends to replace the Constitution with the Qur'an.... Now, it has become widely accepted that, in Bernard Lewis's words, "Europe will be Islamic by the end of the century." — Daniel Pipes, "The Islamic States of America?", FrontPageMagazine.com

Dr. Leana Wen was fired from her position as president of Planned Parenthood after just eight months on the job. Reports indicated that Wen and the board had "philosophical differences over the direction" of the organization.
Evidently those philosophical differences were significant. According to the  BuzzFeed, "Two sources [said] that Wen also refused to use 'trans-inclusive' language." 

Japan and Singapore: Citizens of these countries can travel to 189 countries without needing a visa. 

Millions of first-time internet consumers are connecting to the web on a new breed of device that only costs about $25. These smart feature phones make up one of the industry’s fastest-growing and least-known segments. (wsj)

Justice demands that all participants in the trans-Atlantic slave trade make compensatory reparation payments to slaves. However, there is no way that Europeans could have captured millions of Africans. That means compensation would have to be paid by Africans and Arabs who captured and sold slaves to Europeans in addition to the people who bought and used slaves. 95% of slaves brought to the New World went to the Caribbean and South America. It is only reasonable we start collecting from the major offenders first.

There are so many things we, as a people, take for granted. But that is changing.
On average, sixty percent of students when asked directly if hate speech should be protected by the First Amendment agree, but this positive outcome is driven by white and Asian men, and by Christians.  There is an overwhelming rejection of the First Amendment by gender non-binary and homosexual students.  A slim majority of black students reject the First Amendment.  Hispanics join Asians and whites by a slim margin in supporting the First Amendment.

Since 1998 wages have increased by more (+83.2%) than the overall price level (57.6%) reflecting an increase in real wages over the last several decades of more than 25%.

On July 23, 1996, at the Summer Olympics in Atlanta, Georgia, the U.S. women’s gymnastics team won its first-ever team gold medal.


          Representation Without Taxation is Tyranny

"...the core function of a democratic government is to tax its citizens for the common good of everyone; that is what a democratic government is for. Essentially, with the consent of the governed, it taxes its citizens, and then it uses that money for everyone's good.

If a class of society is able to opt out of that contract, if they will essentially enjoy the privileges of citizenship without any of the obligations of citizenship, then they are opting out of democracy. And if they are ruling the country, then that means that a democracy falls; that's why it's anti-democratic. Because the governments of these countries are unable to tax their wealth, they're unable to essentially impose any obligations on them as citizens, and instead, they get to enjoy all the benefits of citizens without any of the, you know, what might be termed the downsides.

It's estimated by Global Financial Integrity, which is a think tank in Washington, D.C., that a trillion U.S. dollars - slightly more than a trillion U.S. dollars - is stolen every year from the world's poorest countries and stashed in the richest ones."

This absurd article attempts to justify some international tribunal or process to hunt down political criminals and tax evaders not because they are criminals but in order to tax them. The justification for this bizarre idea is an almost laughable generality:  "...the core function of a democratic government is to tax its citizens for the common good of everyone; that is what a democratic government is for." 

Of all the noble aims of democracy, taxation is the "core function?" And  being taxed is the main qualification for citizenship? Well, we should really turn some attention to the lowest three quintiles in the Western democracies because they do not pay taxes at all. They certainly must be poor citizens in every way because of that and some mechanism should be made to make sure they fully participate in the democracy. Countries where the lower income citizens do not pay taxes are surely anti-democratic.

Now, if you pay more taxes are you a better citizen? And, as a better citizen, should you have more of a say in how the democracy is run?

Amazon

This is a summary of what Pittsburgh and Pennsylvania offered Amazon to induce them to come to Pittsburgh.

Within the bid, there were $556 million in local incentives for land and infrastructure.

The state incentives included up to $4.5 billion in performance-based grant funding and $100 million toward state transportation improvements, according to Wolf's office.

"In collaboration with the Commonwealth of Pennsylvania, Allegheny County, the City of Pittsburgh and Pittsburgh Public Schools, we are prepared to offer Amazon a package valued at $4 billion over 25 years," the bid read.

That $4 billion broke down as follows:

• $637 million in capital to reduce initial occupancy costs, such as land value, infrastructure and transit

• $1.3 billion in performance based grants as Amazon creates jobs

• $2.1 billion in the way of forging Pittsburgh's future investments. These investments would improve fund pre-K, K-12 and workforce development programs and ensure affordable housing and transportation and infrastructure.

Sites in Allegheny County offered to Amazon at no cost included:

• Hazelwood Green

• The former Civic Arena Site

• 44 acres in the Strip District offered by Oxford Development

• Carrie Furnace

• 152 acres owned by the Allegheny County Airport Authority near Pittsburgh International Airport

In addition to those five sites, the bid identified 30 additional sites that Amazon could use for more office space, logistics, fulfillment, research and other uses.

I have been hearing for years that taxes do not have a negative effect on business or its decisions. Yet here are famous tax and spend politicians giving tax breaks to a business to influence its decisions. How come?

And why would a nation that purports to value free enterprise allow such overt bribery with public funds?

Taxes

I'm sure there is something I am missing but I am struggling to see the cause of all the furor over the new tax bill. There will be some loss of deductions and some fine-tuning of retirement plans but generally most people will see their taxes go down. Those who will not are the very wealthy and those in very high city and state tax areas, areas that essentially are subsidized by low tax states.

New Liberals and those opposed to all things Trump are talking about making their city and states "voluntary" in an effort to get them deductible. These are the same guys as the sanctuary city people, reverting to the "states rights" motto of the old "separate but equal" crowd as they attempt to avoid national law.

The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%, which are slight decreases from previous categories. However, many workers will move into lower tax brackets under the new law. A couple making $76,000, for example, would pay 12% in income taxes as opposed to 25%.

The Prism of the Wealthy

An author and investor I have some respect for was writing an article disparaging the new Trump tax plan and was quoting a Representative about the proposal:

"Referring to Trump’s cuts to the federal food stamp program, Rep. Harold Rogers, a Republicans from Kentucky said, “These cuts that are being proposed are draconian. They’re not mere shavings, they’re deep, deep cuts.” Mulvaney says he’s received lots of questions about “compassion”. He says, “Compassion needs to be on both sides of that equation. Yes, you have to have compassion for folks who are receiving the federal funds, but also you have to have compassion for the folks who are paying it.”...
The author then wrote this comment:
"Right?  Think of it from the billionaires’ point of view."

This ludicrous opinion has in it the germ of how we are supposed to think. On every question we are to view the discussion from the point of view of the very rich and how the point would impact them, not us. So Zucherberg can give a commencement speech at Harvard filled with apologies and self-abasement over his financial success and call for a universal basic income for all.
How such a notion fits into the concept of a free nation is simply not asked. How the average guy--where the real money is--is going to underwrite it is not asked.
It will be alright. Just "Think of it from the billionaires’ point of view."

Tax Competitiveness

From the WSJ:
"Tax Foundation, which manages the widely followed State Business Tax Climate Index, will launch a new global benchmark, the International Tax Competitiveness Index. According to the foundation, the new index measures "the extent to which a country's tax system adheres to two important principles of tax policy: competitiveness and neutrality."

A competitive tax code is one that limits the taxation of businesses and investment. Since capital is mobile and businesses can choose where to invest, tax rates that are too high "drive investment elsewhere, leading to slower economic growth," as the Tax Foundation puts it.

By neutrality the foundation means "a tax code that seeks to raise the most revenue with the fewest economic distortions. This means that it doesn't favor consumption over saving, as happens with capital gains and dividends taxes, estate taxes, and high progressive income taxes. This also means no targeted tax breaks for businesses for specific business activities."
The index takes into account more than 40 tax policy variables. And the inaugural ranking puts the U.S. at 32nd out of 34 industrialized countries in the Organization for Economic Co-operation and Development (OECD)."

32nd out of 34!

Tax Inversions

A growing number of U.S. businesses are using American tax laws to lower their tax liability through "tax inversions" where domestic businesses are acquired by or merged with foreign companies and reincorporate abroad, thus paying less in taxes. Mylan Inc. of Cecil, Pennsylvania  the generic pharmaceutical giant, did just that. Obama has publicly criticized this and has threatened the dreaded executive action.

But, and as Bloomberg reports, the Obama administration expressly endorsed the practice in 2009 when it bailed out Delphi Automotive, the parts-maker that supplies the also-bailed-out General Motors. Delphi was given $1.7 billion in public money and reincorporated in England to lessen the American tax bite — with the Treasury Department's full knowledge. And that's with the IRS' criticism.

So, is this notion a belief or just an available mace?

Cutting Spending or Raising Taxes?

A significant battle has been waged along a single line: The money supply (and its cousin, debt). Should there be spending to expand the money supply or austerity to shrink the money supply. This battle is seen through two completely different cultural experiences: The Americans shrank the money supply in the thirties and exaggerated the Depression, the Europeans--i.e. Germans--raised the money supply in the thirties and hyperinflation resulted....and Hitler. The G20 in Pittsburgh several years ago was a remarkable discordant meeting of smiling and insincere politicians who, while preaching unity, completely disagreed, Europe voting for austerity, the Americans for stimulus. There is now a movement in the U.S. toward austerity.

What works?

A group led by economist Alberto Alesina analyzed the International Monetary Fund history of all the fiscal plans that 17 OECD governments enacted between 1978 and 2009, including the U.S., Canada and Japan. Together, these countries tried everything to grow their economies—raise spending, cut spending, raise taxes or cut them, in endless combinations. There were 200 separate subsets. They published their results in an August 2012 paper on "fiscal consolidations" for the National Bureau of Economic Research (The NBER is an American private nonprofit research organization for economic research. Both Krugman and Friedman have been members.). Their results? "Adjustments based upon spending cuts are much less costly in terms of output losses than tax-based ones. Spending-based adjustments"—that is, spending cuts—"have been associated with mild and short-lived recessions, in many cases with no recession at all. Tax-based adjustments"—tax increases—"have been associated with prolonged and deep recessions."

The debate over "failed austerity" (Krugman) is misleading because it emphasizes spending cuts but rarely mentions tax increases. "Austerity" plans, the Alesina studies suggest, fail to revive growth when they too heavily rely on raising taxes on income and capital—as across Europe and now in the U.S.

Spending and tax policies must be seen as separate monetary factors but rarely are. According to the study, spending cuts can positively affect economic growth and is the only historically reliable way to lower deficits and debt.

Substituting tax increases for spending cuts is a dangerous route.

Pruning the Economy

During the Second World War ballroom dancing became popular and sophisticated and, in parallel, the "Big Bands" developed. Dancing was a center of American entertainment in the 30's and 40's.

In 1944, the United States government levied a steep tax against any and all establishments which contained dance floors, served alcohol and other refreshments, and/or provided musical entertainment. This was the so-called "Cabaret Tax." It was 30% of the gross receipts. After the war it was continued in 1947. Two thirds of musicians in the industry left their work forever and the Big Bands broke up. After the war people went out less, stayed home.

The power to tax is the power to destroy. So said Daniel Webster, counsel for the Second Bank of the United States, repeated by Chief Justice Marshal in McCulloch vs Maryland in 1819. In McCulloch the debate was over the state's right to tax the national government. It is used in special arguments, taxation of religion especially. For some reason the wisdom of this statement is seen very parochially, very limited in its scope, when it is the essence of one of government's greatest powers and evils.

Tax Man in the Home

The Defense of Marriage Act, known by its acronym DOMA, defines marriage as between a man and a woman for the purpose of deciding who can receive a range of federal benefits.

Four federal district courts and two appeals courts have struck down the provision. The Supreme Court is going to review DOMA through the case of 83-year-old Edith Windsor, who sued to challenge a $363,000 federal estate tax bill after her partner of 44 years, Thea Spyer, died in 2009. Windsor married Spyer in 2007 after doctors told them that Spyer would not live much longer due to her multiple sclerosis. When Spyer died she left everything she had to Windsor. There is no dispute that if Windsor had been married to a man, her estate tax bill would have been zero. Hence the case.

Strangely, this debate is over the legality of one woman leaving her estate to her presumably illegal spouse instead of the far more obvious question: what right does the state have to take any one's estate or determine where it goes? 

More, when this law is overturned--which it likely will be in homage to current emotional direction--what is to prevent friends and family from marrying each other fraudulently to avoid taxation? Especially with the low childbirth rate in the U.S., a lot of estates are going to be left without obvious beneficiaries. Will a tax marriage industry emerge? Will childless widows marry sisters, childless widowers marry a childhood  friend to benefit his family?

Soft Numbers, Hard Results

"There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil."
- From an essay by Frédéric Bastiat in 1850, "That Which Is Seen and That Which Is Unseen"



Sometimes we ask for more certainty than is available. Equations, for example.

GDP=C+I+G+E-I.

This equation looks rigid but is not. A change in one factor influences many other factors in the equation so that the outcome is often unpredictable. One component is the "multiplier" effect.

Multipliers, the economists just love them. They, in essence, are the proportional changes that occur in GDP when fiscal policies are changed. For example, federal spending influences GDP; it's in the GDP equation: GDP= Consumption + Investment + Fed Spending + Net Exports. But it is not 1:1. For various tax reasons if one decreases federal spending by 1%, there is more likely to be a decline in GDP by 0.5%. This is a crucial concept now when countries are terrified of their debt and are considering "austerity" by cutting spending. The argument against "austerity" is that it causes a decline in GDP --but also tax revenues--so that the deficit does not improve and the economy is still in distress.

But there are some new problems. These numbers are beginning to be reevaluated. Blanchard and Leigh have studies showing that the multiplier for government spending in Europe might not be 1:0.5 but more like 1:0.9 or even 1:1.7. So cutting a dollar in spending drops the GDP by $1.70. It gets worse; there may be national differences. If you remove the Greek and Spanish economies from consideration the multiplier goes back to the traditional 1:0.5.

Temporal distinctions, national distinctions--this is a mess. But the uncertainty has not created caution, has not suppressed ironclad and vehement differing opinion. And these opinions are trumpeted with certainty from every editorial page.

And there is a lot at stake. Look at the Romer study. The Romers have done studies trying to connect tax policy to GDP. Generally they found that a tax increase of 1% reduces real GDP by 3% over the next 10 quarters. This is relatively constant when corrected for government spending, monetary policy, the relative price of oil, and even whether the President was a Democrat or Republican. These results were published in the American Economic Review in June 2010--while Elizabeth Romer was in the White House on the President's Council of Economic Advisers.

In his 2013 budget, President Obama proposes $103 billion in 2013 tax increases, including $83 billion of higher income taxes on those who make more than $250,000 a year, or about 0.65% of GDP. Using the Romer baseline estimate, that would reduce real GDP by 2 percentage points over the next 10 quarters. Based on the general relationship between economic growth and unemployment, such a fall in output implies a loss of more than 800,000 jobs.

Of course, Mrs. Romer is now gone. But the problem remains. In an economic decline, these politicians want to support those on the lower end of the economic scale. But it appears as if increasing taxes is self-defeating; it appears that taxation causes a decline in GDP and aggravates the already precarious economic condition. Spending can be done with borrowed money but that leads to inflation and inflation hits the poor even worse.

The point is not that Blanchard is right or wrong or that Romer is right or wrong. The point is that all of these economic models have enthusiasts with different conclusions. Like "Good pitching stops good hitting" always has the response "Good hitting stops good pitching"; someone always has different numbers, different evaluations and different translations. Sometimes the studies are the same with different conclusions. Medicine is a good metaphor. People are always able to get differing opinions from physicians, but those physicians have no special access to unique studies; they all come to different conclusions from the same studies. More, there is the problem is that many studies are contradictory and that means some are wrong. And, in politics, honesty and sincerity do not necessarily trump inaccuracy.

These politicians are in some real trouble. Greece has shown that confronting problems directly can be hazardous to one's political health.


Perhaps it is better to just appear to care and to help.

Whispers from the Government Drawing Room

Spending on national defense, adjusted for inflation and population, was 42% higher in 2008 than in 1965. Spending for routinely accepted government activity (parks, NASA, embassies, courts, prisons and the like) were 76% higher. Both, in other words, grew far less rapidly than the economy or federal revenues — both of which were about 150% higher in 2008 than in 1965. But welfare-state expenditures were 583% higher. In fact, the welfare state became the core of the federal government, growing from 26% of federal outlays in 1965 to 61% in 2008. When the House Ways and Means Committee drafted Medicare in 1965, it predicted that the hospital-insurance part of the program would cost $9 billion by 1990. The actual figure was $67 billion. In 1987, Congress anticipated that a federal program to assist hospitals serving large numbers of Medicaid patients would require $1 billion by 1992. The final figure: $17 billion. (From IBD)

There are many topics in our "national conversation" that are expressed primarily in body language and innuendo, never in sentences or paragraphs. It is reminiscent of parents talking in front of their children about sex. There are apparently some political facts of life we are simply not mature enough to know. Here is one: The growth of the welfare state will soon outstrip the ability of working people to support it. The transfer of money from productive people to nonproductive people can not be maintained much longer. The recent crisis in the economy was caused by cheap money, terrible business and governmental decisions, irresponsibility and fraud but the crisis itself was unrelated to the basic underlying problem of the welfare state expansion; the artificial expansion of the economy actually may have artificially delayed the crisis. The immediate solution is to take more money from working people and give less money to welfare programs. Then more and less. And more and less. Until...until what?

Will Work for Tax Breaks!

Saft Corporation received a $95.5 million grant from the Department of Energy to open a 235,000 square foot lithium battery plant in Jacksonville, FL.. Saft got economic incentives from the state of Florida and the city of Jacksonville to build the plant, and construction of the 235,000-square-foot facility was further funded by a $95.5 million federal grant from the Department of Energy under the American Recovery and Reinvestment Act, i.e. TARP!

Now here is a French company expected to create 300 jobs at $318,333.33 of taxpayer money per job...to make lithium-ion batteries for cars. This is, by most assessments, a dead end and the government looks foolish.

But, wait. It is actually more complicated. These batteries also have a U.S. Department of Defense application. The Defense Department can not rely on domestic American production for their needed products. So the government may have another motive and may have made a decision based on weakness and need.

What a mess.