the Air Vent

Because the world needs another opinion

Tax the rich

Posted by Jeff Id on November 4, 2010

Tax the rich, is the common phrase heard from Democrats today.  They describe how much extending the Bush tax cuts will ‘cost’ the government.  The balance between letting them all expire and keeping the majority of the hapless voters cajoled is to increase tax on a minority of the population which has insufficient votes to fight back.

Of course it is easy for a lazy person to simply say – I want more money and look how rich they are.  200,000 a year for a single person!

But just who are the rich?

I bet that even most of the readers here don’t realize that in America, most companies don’t pay taxes  — ever!   The reason is that the company owners, by law, report the income on their own personal tax returns.  So an individual with a family of four paying themselves a salary of 80,000, who is fortunate enough to own a small company that is barely making a profit, would probably qualify as one of the ‘rich’.

By increasing taxes on the ‘wealthy’ you are are raising taxes on gas station owners, factory owners, plumbing shops, small stores and restaurants.  Really anyone with a real business that has any measure of success.  Tax the rich is just another political deception, anyone surprised?

Of course you’ll get a bunch of lawyers too, so that probably makes up for it.


135 Responses to “Tax the rich”

  1. xtophr said

    Jeff, not sure you have this right. There is a big difference between sales and profits. A company that generates $200K in profits is probably doing something like $1 million in sales. Assuming that the other $800k goes for cost of goods, salaries of employees, sg&a, etc., the owner is still making out pretty well. In fact, at $200k in income, the owner is well within the top 5% of earners. I wouldn’t call him rich, but he is certainly doing well.

    Moreover, the owner has lots of ways to reduce his AGI before taxes, just like everyone else, tax advantaged retirement plans, 529 plans for his children, HSA accounts, etc.,interest payments on second homes, not to mention many many tax avoidance strategies that would allow him to treat much of his business profits as capital gains, rather than income.

    So really, someone making $200k is going to have a much, much lower adjusted gross income, and be subject to the 25-28% marginal tax bracket. To actually fall in the very top bracket, you have to be making so much money that you just can’t find a way to avoid the top tier. I would guess that number would be much closer to $300k, maybe more, which puts our “small” business man within the top 2% of earners.

    I know some plumbers. I apprenticed as a plumber one summer, and the guy I worked for did pretty well. He charged $80/hr, and this was 20 years ago. We had more work than we could handle, but there was still no way he was pulling down $1million plus a year. $250k maybe, but that didn’t all go into his pocket.

    Anyways, I appreciate how thoroughly you analyze the numbers on climate science. Your readers would benefit if you brought the same insight into taxation scenarios.

  2. Jeff Id said

    A plumber would probably need to have 5 or 6 people full time to get hit. A gas station/store probably runs 2million a year. A machine shop with 10 machinists would definitely get hit.

    My point was that people aren’t thinking about the businesses, only the imagined wealthy. While big business will also get hit if they are S corps, small business owners will be the real targets of the tax.

  3. AMac said

    > …529 plans for his children…

    Under most circumstances, 529 plan contributions aren’t tax-deductible.

    That said, I’m sympathetic to Xtophr’s point of view. If “we” want big government–and a lot of “us” do–then “we” are going to pay for it, one way or another. That means some combination of taxing the well-off and taxing the very rich, for Willie Sutton reasons.

    It would take a long blog comment to explain why I don’t think the fairness argument is compelling. That leaves the “don’t kill the goose that lays the golden eggs” concern. Which, IMO, is the problem with the “big government” concept–sooner or later, kill-the-goose is where it leads.

  4. Andrew said

    The poor don’t have the pools of capital to employ people. The rich do. The poor don’t have money to invest in all sorts of business ventures, which spark innovation and create jobs. The rich do. Most people work for someone “richer” than them, because only someone with more money than you can afford to pay you the amount of money you get, while also doing that for several other people. Those “evil rich” everyone wants to “soak” are key drivers of economic growth. They didn’t, for the most part, get that way through theft. They mostly got there by elevating themselves from lower status through their vision and or initiative. Anyone who hears the vitriol in store for them as a reward for doing this-and likely giving good jobs and providing goods and services to many more people in the process-is likely to think twice about it. Society should not punish the successful, rather it should emphasize that success is something we can all strive for.

    “That some should be rich, shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built.” ~Abraham Lincoln, Reply to New York Workingmen’s Democratic Republican Association (21 March 1864)

  5. kim said

    Paging Dr. Sutton, STAT.
    ==============

  6. Jason Calley said

    Rant follows:

    There is NO fair way to tax a populace. If you tax everyone an equal amount, that is unfair to the indigent. If you graduate taxes so the rich pay more that is unfair to the rich. If you tax some, and don’t tax others… BAH! The problem is that with the present enormous government and the even more enormous accumulated debt, there is no way to suck enough taxes from the people to pay the bill. If government were so small that the budget was only a few percent of GDP, no one would be concerned about a little tax here or there. Instead, whether through sloth, ignorance or ethical decay, we have allowed our “representatives” to run up so much debt (both present and long term obligations) that even at confiscatory tax rates, your great-great-grandchildren will still be paying on it. As a nation, we are broke, bankrupt, in over our heads!

    Instead of discussing the details of tax apportionment, we would do better to discuss gang rape.

    “Geez, I think this is a swell gang rape and all, but I noticed that Susie only got raped once and Mary got raped three times. Is that fair?”

    “Well, maybe not fair, but Mary is prettier. She has a duty to be raped more!”

    “Yeah, but if I were head of this gang, I would see that the rape gets spread around more evenly!”

    Look folks, arguing about who gets taxed the most misses the point. The point is that we have a gang in charge — a gang that takes however much they want from whomever is the weakest taget. Any gang that will steal FOR you, will steal FROM you, and not just from you, but from your kids, and your grandkids.

    Unless we get rid of the gang (and yes, they run both major parties) arguing about who gets raped the most is pointless.

    End Rant:

  7. j ferguson said

    After considering my discomfort with the idea that employees on wall street could earn multi-millions annually, it occurred to me to wonder where this money went.

    I suspect Jeff’s point might be that money taken from us by taxation is lost to the most beneficial part of the economy, but money left in our hands is more likely to feed the economy. So it comes down to what happens to the money earned by the rich? Do we know in any organized way?

    Maybe we all are better off letting them keep more rather than less of it, not to mention the possibility that if the government gets hold of it, it may be used to fund activities not in our interest.

    As an aside, all of the fretting about the debt ought to lead to some thought about how it is funded. Debt funding in England seems to have started in the 1690s with the new Bank of England absorbing excess capital (capital arising as profit and looking for a safe haven) via selling notes which rented the capital. We do the same thing now, but the buyers of our notes are not only Americans. We are at risk here because the funders of our debt may not share our best interests in non-monetary areas in contrast to the English note-buyers who likely did.

    As I may have the whole thing screwed up, I won’t whimper if someone straightens this out for me.

  8. 2 comments (some already referred to).

    1. No one has ever been employed by a poor person.

    2. Who knows best how to “grow” money (and thus the wealth of a nation)? The ones who earn it? Or the ones that waste it on pork?

  9. Steve Fitzpatrick said

    Jeff, #2,

    Let me second that. The people who pay the most taxes (as a percentage) are not the very wealthy, who have lots of options to minimize taxes. I can tell you from personal experience that the people who pay the highest marginal tax rates are successful small business owners and a handful of managers at larger companies. Income averaging used to be (prior to 1986) a help, since small business owners who had significant year-to-year variation in profits ended up paying at a lower average rate. No more; have a very good year and you are hammered, have a bad year and, well, tough.

    Taxation of “the rich” as a means to equalize economic outcomes via government funding of benefits (cash or otherwise) has a long history, with the biggest increases in income “redistribution” since Franklin Roosevelt took office. It is not going to disappear.

    “When the people find they can vote themselves money, that will herald the end of the republic.” B. Franklin

  10. BarryW said

    “Why do I rob banks? Because that’s where the money is”: Willie Sutton

    “Why do we tax the rich? Because that’s where the money is”: Any Liberal Democrat.

    Pretty much the same thing.

  11. Thanks for the post, Jeff.

    I agree. The link between science and forms of government is important.

    In fact, the global climate scandal and the crisis in Western science and in Western forms of government seem to have confirmed the validity of a warning from the former US President Dwight D. Eisenhower – in his farewell address to the nation on 17 Jan 1961 – that a federally funded scientific-technological elite might one day take control of government policy and pose a serious threat to “the supreme goals of our free society”.

    http://www.h-net.org/~hst306/documents/indust.html

    In my opinion, the climate scandal exposed serious threats to our free society from a federally funded scientific-technological elite.

    With kind regards,
    Oliver K. Manuel

  12. In 1980 I had the good fortune to visit the old USSR and present a paper at the Vernadsky Institute of Geochemistry in Moscow:

    “Heterogeneity of isotopic and elemental compositions in meteorites: Evidence of local synthesis of the elements “, Geokhimiya (12) 1776-1801 (1981) [In Russian].

    By that time, I knew that the US National Academy of Sciences was corrupt and was using its considerable influence to promote itself rather than to promote science. [Dr. Sabu and I had personally observed the NAS in action at the 1976 Meeting of the American Geophysical Union (AGU) in April of 1976].

    Although science in the old USSR was more open to new developments than was the NAS-controlled science establishment in the West, I observed that the USSR scientists lived in fear. The USSR government was secretive and tyrannical.

    With kind regards,
    Oliver K. Manuel

  13. David Dunn said

    Xtophr,
    The problem is actually worse for the business owner than Jeff cites. If a small business (S-Corp or LLC) is actually growing, which would be the type of business that tax law should encourage, then the business could be in a situation where they generate $200k+ in taxable profits but might have limited cash flow to pay the tax. All of their profit margins for the year could be tied up in their accounts receivables (AR). The exact amount would depend on the profit margins for the business, the growth rate, and their AR aging. If you don’t allow the business to take accelerated depreciation on capital expenses that might fuel future growth (like the acquisition of a productivity increasing software package), the problem is even worse because cash has gone out to pay for the package but you can’t deduct the current expense. I’ve run a small business for 16 years and in our early days we regularly dealt with these situations – the only solutions are to take on debt, which is tough right now, or squeeze expenses, which often times mean less pay and less jobs.

    I’m convinced that this is the kind of thing those who carry the “tax the rich” banner just don’t understand because they have no idea how their policies affect small business owners.

    David

  14. Jeff Id said

    #13 bingo! That is exactly what we are experiencing right now, high growth. And currently our little bank’s policy changed and they aren’t loaning to ANY businesses unless you have personal assets to cover the debt. AR, inventory, machinery, on and on. We will change banks at some point, but throwing on a big tax and a capital gains increase and the inheritance tax, it’s a very bad deal for a business owner but politicians know no limits.

  15. Sander van der Wal said

    There’s a difference between a gas station owner and a billionaire. A billionaire can employ people to lobby against tax raises for billionaires, while a gas station owner can’t afford paying people to lobby against tax raises for the middle classes, for instance.

    If you think of taxation as paying for a shared service, then you need to consider whether all tax-payed services are provided to everybody. Some services are not shared by everybody, and there is no reason that everybody will have to pay for these services.

    For instance, the government employs people who talk to the lobbyist of the billionaire, and these government employees are to be paid from taxes. Why should gas station owners have to pay extra tax so that billionaire lobbyists, working against the gas station owners interests, can talk to government employees? The billionaire should have to pay extra tax so that his lobbyists have some people tom talk to.

  16. Andrew said

    15-So bad policy is justified by bad policy?

    By the same token, why does everyone with a job have to pay for unemployment benefits they aren’t getting, welfare benefits they aren’t getting, subsidies they aren’t getting, etc? Why do the rich have to pay for the services only the “poor” get, but you expect the “poor” not to pay for the services the rich get? How about instead the government goes back to it’s properly limited role where the “services” it provides are the most basic ones for which they are actually necessary? How about instead we make there no services which only some people get, and only things everyone benefits from? Then the idea of only some people having an obligation to pay because only some people get the service, becomes moot.

  17. DeWitt Payne said

    Experience with variation of the capital gains tax rates over the last few decades has proved beyond a reasonable doubt that Laffer was correct. There is an optimum tax rate for maximizing revenue. Increase the rate above the optimum and revenues fall. The reason is that people with very high average incomes, as opposed to lottery winners, can adjust how their income is paid to avoid high tax rates. Usually this causes a decrease in income, but if tax rates are high enough, there is a net gain. If tax rates are reasonable, it’s better to just pay the taxes. Lowering income tax rates has caused the top 10% of taxpayers to pay a larger fraction of total revenue. Raising tax rates will lower revenue in the long run.

  18. Frank K. said

    “How about instead the government goes back to its properly limited role where the services it provides are the most basic ones for which they are actually necessary?”

    Yes, basic services – like the National Climate Service???

    About the NOAA Climate Service

    The NOAA Climate Service will encompass a core set of longstanding NOAA capabilities with proven success.

  19. Charlie A said

    After considering my discomfort with the idea that employees on wall street could earn multi-millions annually,…..

    Why does this cause you discomfort?

    It’s a serious question. Do you see the economy as a zero sum game where someone else being a success (or getting an underserved windfall) ends up hurting you?

  20. Charlie A said

    ooops. The source of the blockquote didn’t come through. That was a quote of #7,
    j ferguson November 4, 2010 at 9:25 am.

    Of course, others that are discomforted by the gains of others are welcome to reply.

  21. Lorne LeClerc said

    Dear Jeff,

    It appears to me (a Canadian) that US spending is out of control and that US taxes are far too low. It is not rocket science (which the US is good at) but the art of balancing taxation and government spending to maximize both economic growth and social justice (something the US is not so good at).

    You folks need to reign in your spending. Whether you decide to cut the military budget and medicare,and to then increase education spending is for you folks to work out, but however you slice it – you will also need to increase taxes. Your budget deficit will eventually destabilize your currency, and discipline will then come from external forces, if you cannot do it for yourselves.

    We had a similar ongoing deficit crisis in Canada which peaked in 1992 with total Government spending at all levels (Federal, Provincial/State,and local) reaching 53% of GDP. It has since fallen to under 40% of GDP and we have run Federal surpluses for many years.

    At the same time in the US, your total Government spending averaged 36% of GDP but has since grown: to 39% in 2008, 42.7% in 2009, and is projected to stabilize at 45% of GDP going forward.

    On the revenue side, total tax and non-tax revenue for all levels of Government is 38.4% of GDP in Canada and 28.2% of GDP in the US. Your Government revenue is far too small even at your historical average level of Government spending. I would like to refer your readers to the Wikipedia section “Comparison of Canadian and American economies”, as the source of the numbers above.

    In closing I would suggest the following avenues for increasing taxes in the US (as in Canada):
    1) progressively increase income tax levels on the upper 50% of earners,
    2) put in a Federal sales tax in the US. In Canada we have a Federal sales tax of 5%, excluding food and some other essentials.

    A reasonable progressive income tax system is fair and common in most countries, as it was in the US before Bush the Younger. I also think that a Federal sales tax is very important, so that the electorate understands that there are no free rides. It is an in your face tax which puts a visible price tag on Government and therefore helps to reign in politicians, who try to buy us with our own or worse – borrowed money.

    I hope you folks get your books in order and the balance right. If the US gets into severe economic trouble so will we in Canada, as you are our primary export market.

    Best of Luck
    L. LeClerc

  22. j ferguson said

    #19 and #20. Critical word was “employee”. I might also add that my discomfort does not lead me to want any action taken about this discomfort. I strongly suspect the presence of a bubble if the work that firms paying “employees” in the tens of millions annually in salary, commissions, bonuses etc. is that profitable. I realize that anyone reading this may think I’m a socialist. I’m not.

    I’m reminded of a guy I met at the dock, another boater. We got into a technical discussion which lead me to ask where he’d gone to engine school.
    “Brown. ME.”
    “What did you do with it?”
    “Went to work in Bethpage. During my year there I was able to discover what the chief engineer made. It didn’t seem like much and I supposed I might not work my way up to that position, either. So I went to Wall Street, used some of the things I learned in school and did much better that the guy at Bethpage.”
    “Was this from putting your own assets at risk?”
    “Yup, when I was there, you couldn’t really do well any other way. No one then would pay employees not at risk the kind of money paid today.”

    So my problem is with one group of employees paying another group of employees a whole lot of someone else’s money. What do you think about the public service employees that are able to “game” the system and retire at 47 with $100k pensions? Of course that money was ours before the government took it away from us. But again, it’s one group of people giving another group a bunch of someone else’s money.

    The public service pension problem is likely something that can be fixed,bankruptcy comes to mind, but the wild compensation on wall street is symptomatic of something really wrong – and the “leveling” of incomes has nothing to do with it.

    but I suppose I’m just exposing more of my confusion.

    I, too, miss the income averaging provisions in the tax code.

    And one final note. At some point while he was president, Bill Clinton observed that some proposed tax device was likely a good thing because his government would surely do good things with the money whereas the taxpayer was likely to blow it on German cars.

  23. Retired Engineer said

    #21: There are a few small differences between the U.S. and Canada. You don’t have a Defense budget. You don’t patrol the world’s oceans. Perhaps we shouldn’t either, that’s a separate issue. Health care? Ours costs more. We have shorter waits and better technology (speaking from lots of experience) than anyone. And develop more drugs than everyone else combined. That costs money. Education spending? Hah! We spend more per student than anyone else in the industrial world (the teacher’s lobby likes to ignore that and say we spend a smaller part of our GDP. True, we have by far the largest GDP). Over $10K per student, and we rank almost last in performance. More money won’t fix that.

    Thatcher pointed out the problem with Socialism is you run out of other people’s money. It only works in places that have trade surpluses, exporting oil and such. Absent a continual inflow of money, it face plants. Europe is starting to realize that. We have a lot to learn.

    p.s.: my income puts me well below the povery level, so high tax rates don’t concern me, other than the economic disaster they create. Prosperity and wealth creation (really the same) come from Capitalism. It is messy, but nothing else comes close.

  24. stan said

    Two decades ago, the Democrats were jubilant over pushing through the luxury tax on the rich. Result – lots of boat manufacturers went broke, half the workers in the industry lost their jobs, and the cost of increased unemployment benefits, welfare payments and the loss of tax revenue on their income was far greater than the tax revenue raised from the luxury tax. A lose/lose/lose situation. The rich were barely inconvenienced.

    The most important factor in spurring economic growth is the creation of incentives which boost private investment. People will put capital to work: a) when they have access to capital (simple but too often forgotten), b) when they think they will be able to earn a sufficient risk-adjusted return, and c) when they will be able to keep a sufficient portion of the return after taxes to justify the risk.

    If you want to create jobs, encourage private investment. Higher taxes does the opposite.

  25. Lorne LeClerc said

    To #23: a few thoughts.

    In 2009 Canada spent 20.5 billion (1.3% of GDP) for defense whereas the US spent 663 billion (4.3% of GDP). The US is 10 times the size of Canada. If we were the same size as the US, our defence budget would be 205 billion, which would be the second largest in the world, ahead of China at 98 billion which currently has the second largest defence budget.

    Health care: Canadians live 2 to 3 years longer than Americans. Universal Health care is a Godsend in this country. Do not confuse socialism and free enterprise with the provision of Government services. The Government can provide services either by doing it themselves (Goverment employees), or by contracting it out to the private sector through competitive bidding or a combination of both. We could all individually hire our own policeman, fireman and garbageman – however, it makes much more sense economically to do it collectively and have the Government (on our behalf) provide the service on behalf of everyone, which results in more efficiency and higher standards. Just because the government provides

  26. gallopingcamel said

    Jeff,

    If your business is successful you should read “The Sovereign Individual” by James Dale Davidson and William Rees-Mogg. You will discover that the Internet is changing the rules of the game so the “minority of the population which has insufficient votes to fight back” is no longer helpless.

    Enjoy!

  27. Lorne LeClerc said

    To 23 continued.
    The Government providing a service (i.e. acting as a procurement agent) does not equate to socialism. I am all for a capitalistic economy as the most efficient way to create wealth and inovation. The Governments role in the economy is primarily to regulate taxes, health, safety and the environment. Once the maximal amount of wealth is created, it is governments role to then tax and redistribute, a portion of the excess wealth on behalf of a fair and equitable society. For example, the provision of good quality education to all child and health care to all citizens (regardless of income levels).

    I find the whole discussion of Capitalism versus Socialism in the US to be sterile and reminiscent of an adolescent bun fight. It is the wise combination of capitalism and government that makes for a weathly and happy society.

    Regards,
    L. LeClerc

  28. Steve Fitzpatrick said

    #27,

    “redistribute, a portion of the excess wealth on behalf of a fair and equitable society”

    That is very funny. Please do define “fair and equitable” in some quantifiable way. Does “fair and equitable” include confiscation of 100% of certain peoples’ earnings? How about 90% or 80%? Please do suggest some upper limit on the tax rate you think is fair and equitable.

    I hope you recognize that legal confiscation of income is still confiscation. It is a purely political act, justified purely on political opinion, and so is inherently unlimited. Ben Franklin recognized this danger when the United States was founded.

    Read “Atlas Shrugged” if you haven’t already.

  29. Lorne LeClerc #27

    You are partially correct in that a government procuring a service is not in and of itself a definition of socialism. After all, with few (if any) exceptions, Defense is done that way (one buyer, many sellers). However think about WalMart and the power it has over manufacturers when it comes to setting prices. When there is one (Walmart is not the sole buyer, but is big enough that they do influence prices greatly), then the sellers are not operating in a capitalistic fashion. The market no longer decides the price, the buyer (instead of the seller in a monopoly) does. That is why it has its own name – Monopsony.

    So while some may not call it socialistic since the owner (the government in this case) is not setting the price, it definitely is not free market or capitalistic.

    As for your health care statement, comparing apples to oranges is not really valid, now is it? Canada does not have 20 million illegal immigrants bringing health issues into the country that were never addressed or cared for prior to their entry. That does tend to set up a higher mortality rate. What is the comparison of life expectancy between Canadians and Americans when the illegal population is excluded?

  30. sleeper said

    Re: Lorne LeClerc (Nov 4 14:52),

    Do you think governments allow citizens to keep a portion of their income, or do you think citizens allow the government to take a certain portion of their income?

  31. stan said

    Lorne,

    Get a grip. Senior citizens live longer in the US than anywhere else. Our life expectancy numbers are lower because of accidents and murders. Our healthcare is substantially better. That’s why Canadians come to the US to fix the problems created by crappy Canadian care or to get procedures done quickly which take forever on waiting lists north of the border.

    And if you didn’t take a free ride on our drug development, your costs would be higher and the available drugs worse. Socialized medicine in the US is a disaster waiting to happen for Canada, Europe and the rest of the world.

  32. Lorne LeClerc said

    TO #28:

    That is democracy – a continuous discussion on striking the best balance between unbridled capitalism, the size of government and the nature of government services. However, at the end of the day you do have to pay the bill. This is why having a sales tax is so important in making the average Joe realize that; yes, the Government can provide a you with a new service, but there is a highly visible price tag attached.

    Capitalism is the engine of an economy and creates the wealth. The Government redistributes a portion of the wealth for the benefit of a wholesome society. You need both and a balance between the two. It is not a ideological, either or proposition between England cira 1840 and Russia 1950.

    A well educated population is good thing – this is your future electorate. If a kid is poor, should they have the same quality of primary education as the rest of the population or not. If not, you are breeding a future underclass, your choice. A well educated population is good for the economy and good government.

    If you have people avoiding medical attention and living sickly, aside from humanitarian concerns – a healthy population is also good for business.

    You folks have to work it out to your own satisfaction, but we should all make an effort to drop the ideological rhetoric, it does not aide the discussion at all.

    By the way, I did read “Atlas Shrugged” when I was 16, I enjoyed it very much.

    Take care,

    L. LeClerc

  33. Steve Fitzpatrick said

    #32,

    Thank you very much for not answering the questions I posed; your reply is exactly as I expected. I have asked lots of people on the left what is a “fair” maximum tax rate…. and I have yet to get an answer, even when I ask what their personal opinion is. Taxes as class warfare… I just love it.

  34. Lorne LeClerc said

    To 33.va

    I apologize Steve, I thought I had responded to your question. Do you want me to propose a maximum marginal tax rate? It is what the market will bear. It is the point at which people start to stop playing. I would guess it is a marginal rate income tax rate of 50%. This is where people start to say why should I bother earning any more money. We want those entrepreneurs to keep working their butts off and help pay the bills.

    By the way, I tend to vote Conservative. However, I am speculating that the Conservative party here is perhaps, slightly to the left of the Dems in the US. We have the benefit of having five federal political parties in Canada, two parties (the Liberals and Conservatives) that arm wrestle for the middle ground, and two pinko parties. So we do understand what the socialistic option is.

    Take care,

    L. LeClerc

  35. DeWitt Payne said

    One of the more interesting features of the Canadian national health care system is how it gets gamed by the physicians at the expense of their patients. The number of office visits are related to income so instead of writing prescriptions with multiple refills for six months for a chronic condition like high blood pressure, you get one month of drugs with zero or one refill. Prescriptions cannot be renewed by phone. You need an office visit with the usual amount of time spent waiting to see the doctor for the minute or so necessary to get a new prescription. Sounds like fun doesn’t it.

  36. Lorne LeClerc #34 – He did ask you for your opinion, not for any type of facts. However if we take your analysis as your opinion, then could we not say that the maximum rate has been reached in the USA due to the fact that people have already started to stop playing?

    And for a reference, the top rate in the US is already well above 50%. The federal rate is at 36%, add on top of that another 15% (if you are lucky enough to be self employed – otherwise cut it in half), plus state and local rates approaching 20%. That is the current marginal rate in the US.

  37. j ferguson said

    #36 PhilJourdan

    I think you’ve mixed marginal rates and social security and so forth in your summation of money taken from us. The state and local rates are ???? Living in Florida, I thought I didn’t pay any state or local INCOME based taxes. The 15% you mention must be social security. Do you think that isn’t worth the cost, keeping the retired off the streets? Do you think the health insurance hit is a tax? It was a significant line-item on our employee costs when I was still deluded enough to think I could own a business.

    The most amazing maximum income tax was that imposed by Sweden on people like Ingmar Bergman which exceeded 100% at the marginal rate he found himself. He left. No surprise.

    BTW, can anyone remember the maximum marginal rate in Eisenhower’s time? Much more than 36% IIRC.

  38. Lorne LeClerc said

    To 36:

    Phil, according to your description of the US income tax structure, you have reached a level that is approaching a maximum market rate. However your Government at all levels are only taking 28% of GDP per annum, but they are spending 45%. Therefore, to pay the bills maybe you should cut defense spending in half and put on a special 3% federal sales tax that will only go to the defense budget (this will make it a very patriotic tax). This should give you enough room to start to close your deficit and eventually think about paying down your national debt.

    Be creative, you have to pay the bills and live within your national means. i do not want to see the US having a foreign debt crisis like that of Argentina. Surely an American defense budget of 300 billion (versus 663 billion in 2009), is sufficient, compared to China in the number two slot at 98 billion. Even more so when you add on the defense budgets of your friends in Nato, plus Japan, Taiwan, Korea, etc.

    Take care,

    L. LeClerc

  39. DeWitt Payne said

    Re: j ferguson (Nov 4 17:03),

    BTW, can anyone remember the maximum marginal rate in Eisenhower’s time? Much more than 36% IIRC.

    Indeed. It was 91% on income over $400,000. But for most of that period it was capped at 87% of total income. JFK was instrumental in getting the rate lowered to 70% on income over $200,000. Surprise, surprise, revenue increased after the marginal tax rate was cut. Revenue adjusted for inflation increased by 33% from 1961-1968.

  40. j ferguson said

    #39 DeWitt Payne

    Was the entire schedule adjusted downward, or just the top marginal rate? If rates more applicable to the rest of us also went down, it might be harder to show that the reduction of this clearly extortive maximum rate had the effect you suggest. We’ve been asking Mr. LeClerc to suggest an upper marginal rate which would “maximize” the federal revenue stream without destroying incentive. I can imagine this percent might vary over time, but if you believe, as I do, that the “correction” in expenditures needed to get our debt under control isn’t possible politically (too much of it being in entitlements) then tax we must.

    Carving down the government support of everything imaginable as they are now doing in England apparently with the acquiescence of the governed seems very unlikely to happen here. In short, I think we’re screwed but it will take a while yet for enough people to grasp it, that the repair may be too late to be feasible. What do you think?

  41. Mark F said

    As a Canadian, I have two things to say:
    1. It would be horribly presumptious for me to make ANY pronouncements on another country’s affairs.
    2. I regularly get or more months of prescriptions. The condition is that I must drop into
    the pharmacy each month, so that the pharmacist can do a quick check on my dosage and fancy recipes. Granted, some docs do work the system, but hey, an appedix problem isn’t gonna
    force me to sell my house.

  42. Lorne LeClerc said

    To 41:
    Presumptuous did you say? – commenting on another country’s affairs, Harumph!.

    I heard a quote the other day, attributed to Churchill, who reportedly said: “The Americans always do the right thing, after having exhausted all of the other possibilities”.

    I have a great general fondness for the US. My Grandfather on my Fathers side came to Canada from Oklahoma, and I have a great-great Grandfather who fought in the civil war. The Americans are the big brother of the Anglophone family (US, Britain, Canada, Australia, New Zealand). The success of their Republic, is in all of our own self interest.

    The Obnoxious Canuck.

  43. Mark F said

    Observations – fair game. Advice? Let me know how that works out, eh?

  44. DeWitt Payne said

    Re: j ferguson (Nov 4 17:50),

    The Kennedy cuts were across the board. The lowest rate was cut from 20% to 14% or a 30% reduction while the highest rate was only cut 23%. But if you look at the marginal effect, in the lowest bracket an earner only gets to keep an additional $0.06 for a gain of 7.5% but in the highest bracket, the additional dollar of earnings results in an increase of $0.21/dollar of income or an increase of 233%.

    If rates more applicable to the rest of us also went down, it might be harder to show that the reduction of this clearly extortive maximum rate had the effect you suggest.

    How so? Theoretically revenue across the board should decline. But what happens is that upper income brackets end up paying a much larger share of the total so total revenue goes up. You can say the rich get richer, but it’s really hard to tell when what you may really be seeing is sheltered and deferred income that was always there becoming visible.

    We know that raising taxes during bad economic times isn’t a good idea. Hoover raised the top rate from 25% to 63%. The results weren’t pretty. Allowing the Bush tax cuts to expire wouldn’t be quite that bad. But it still seems like a bad idea.

  45. Brian H said

    As another Canuck, I second Stan’s observations: excluding gunshot wounds and car accidents, the US has the highest life expectancy in the world. And the drug and medical research there is giving a free ride to jurisdictions that “control costs” by legislation. The “unseen” is all the failed products and procedures that you have to go thru to get to the few that work. Those must be paid for by the latter; how else?

    As for defense, again Canada and EU and Japan are “free riding” on the US. Their (our) holier-than-thou anti-military attitudes are shameless hypocrisy.

  46. Lorne LeClerc said

    To #45

    Brian, you are miss-interpreting my suggestion to cut the size of the US military as one possibility to help balance their budget. You are right, many countries, including Canada, benefit from the American defense umbrella. However, if you have to borrow money from China to pay the military budget – there is a looming instability in the endeavour. Do the Amercians need 10 Nimitz class aircraft carriers? It is not for me to say. I would like Canada to have two aircraft carriers (one each for the west and east coast). However, at the end of the day you have to differentiate between – things we would like to have versus things we must have – and pay for your decisions. I heard the other day, that the largest air force in the world is the US air force, and that the second largest air force in the world is the US Navy.

    If the US cuts back on military spending, the result maybe an increase in allied military spending, to pick up a bit of the slack.

    There was no hypocrisy in my comments. My self interest in this is right up front. If the US has a foreign debt crisis and severe devaluation of their dollar, it will kick the you know what out of the Canadian economy.

    Sincerely,
    L LeClerc

  47. Jeff Id said

    I would love to see a cut in military spending, followed immediately by the elimination of the Department of Education and teachers unions, then we could throw the ATF out on their ear and integrate whats left with the FBI. Health care bill in the circular file, EPA powers limited, political contributions by groups which receive federal money eliminated, prosecution of election corrupting groups like Acorn, investigation into freddie may and fannie mac – same thing, elimination of new fuel economy standards, removal of illegal aliens, slashing of global warming research budgets as well as the foreign aid programs which nobody seems to give us points for anyway, then we could get to the real cuts.

  48. Kenneth Fritsch said

    If “we” want big government–and a lot of “us” do–then “we” are going to pay for it, one way or another. That means some combination of taxing the well-off and taxing the very rich, for Willie Sutton reasons.

    This is utter BS. Those who are for bigger government and want “someone” to pay for it do not care in the end whether that someone is rich or not. They want to obtain their revenues by the least painful means possible (to their political careers that is). It is obvious that they tax the rich because the rich do not have that many votes in any voting constituency. They tax the crap out of the poorer people who smoke and they do it because no one sympathizes with smokers. Who big government taxes and how much they are taxed has everything to do with political expediency and nothing to do with being rich or poor.

    As far as taxing the rich, a practical question beyond the issue of involuntary servitude is who would you rather have investing and spending their money, the rich or the government. How prudent an investor and spender would you be if you could use some one else’s moneys and if you failed you could find some else’s to spend. Big government spenders have little or no sense of killing the goose that lays the golden eggs they only know that they eventually need revenues to sustain and grow the government.

    Cooperate taxes are another myth that somehow they are paid by well-off corporations and their stock holders. When competing business firms pay the same tax rate those tax expenses are easily passed through to the customer and customers of various means and certainly a good portion with little means. Even so those taxes are used less efficiently than they would have been by the corporations and their customers. Please consider that when taxes are increased they never generate the amount of revenue that one would calculate with everything else being equal and vice versus when taxes are cut they never reduce tax revenues as much as would be calculated. My point here is not the usual supply-sider argument taken to an extreme, but simply showing the evidence that taxing has a detrimental effect on the economy and thus government tax revenues.

    In Illinois the state and local sales tax can range from 6 to 9% and those taxes are paid by poor and rich alike. Do you really think that the politicians, who use that revenue to pay the highly paid state union employees and their very generous pension and medical benefits for their political loyalty, give two damns whether that money was collected from a rich person or a poor one?

  49. Kenneth Fritsch said

    I hope you folks get your books in order and the balance right. If the US gets into severe economic trouble so will we in Canada, as you are our primary export market.

    Monsieur LeClerc, thanks much for the advice from Canada. I would agree that we spend too much in the US, but we also tax too much, Canada’s example notwithstanding. I would hate to burst your most confident bubble but do really think that Canada has reached a lasting fiscal responsibility or will it succumb to a real or imagined “crisis” as we so often have done in the US. Does your intellectual base in Canada really think that differently about big government than we do in the US?

    In the US we sometimes forget, in the heat of the discussion about the debt carried on the books, about our biggest financial burdens going forward and this is the unfunded liabilities for social security and medicare. How are doing with those obligations up in Canada?

  50. Lorne LeClerc said

    To #49:
    Dear Kenneth, thank you for the Monsieur tag, however, I am not sure that I deserve such deference. From the forecast that I saw on the PBS-Frontline documentary on your looming debt crisis – it was medicaid and medicare that will grow (if unchecked) and take over almost all of your spending. Social security remains relatively stable as a percentage of the budget. As to how Canada will cope with paying for these types of expenditures in the future – I am sure that we will simply muddle through, like everyone else.

    What I would like to share with you is my impression of how we dealt with a similar deficit crisis in Canada and what it took to change direction. Here, the Liberals (Dear Trudeau et al) sold the electorate on the concept of a Just Society in the 70`s. You can argue on the pluses and minuses of such a program of social engineering – however, the bottom line was there was no bottom line. The Liberals promised new and innovative social programs and no significant tax increases. They just borrowed money every year to balance the budget. This went on for a long time and a majority kept supporting this farce, until two things happened:

    1) The Conservative government of Mulroney, changed a hidden Federal value added tax on manufactured goods, into a highly visible Federal sales tax on goods and services. This was not popular with the average Canadian, as Government now had a visible cost attached to it,for everyone on almost everything, except food.
    2) Eventually the amount we were borrowing every year was equal to the annual interest on the national debt. So we were borrowing new money, just to pay the interest…..hmmm – whats wrong with this picture.

    After several years of this obviously unsustainable situation, plus constant discussion of the growing debt and deficit issue in the media, the penny finally dropped and the mood of the electorate changed. No more Government please, we can not afford it. The Liberals rode the wave and finally balanced the budget and began paying down the debt with the surplus, every year.

    I know it is hard to take advice from a younger brother, but sometimes the kid is right. Human nature is the same on both sides of the border.

    Regards,
    L LeClerc

  51. gallopingcamel said

    DeWitt Payne,
    You might be interested in the “Super Tax” levied by the Labor government in the UK. It reached a marginal rate of 97.5% shortly after WWII.

  52. gallopingcamel said

    Jeff (#47),
    As usual, you are a little ahead of your time. Eventually the penny will drop and the American people will be shocked to discover how much their government costs even before any services are delivered.

    When you add in all the creatures of government which we in the UK call QUANGOs (Quasi Autonomous National Government Organizations), the impact is truly staggering. The USA has huge Quangos such as Freddie Mac and Fannie Mae.

    In the UK, the worms (taxpayers) have turned and now we have the “Bonfire of the Quangos”.

    http://www.guardian.co.uk/politics/2010/oct/14/government-to-reveal-which-quangos-will-be-scrapped

    Of course, the scrapping of 192 Quangos is just the tip of the iceberg. What is really needed is “Zero Based Budgeting” for government at all levels but that does not seem likely in our lifetimes.

  53. kuhnkat said

    Lorne Leclerc,

    “The Government providing a service (i.e. acting as a procurement agent) does not equate to socialism. I am all for a capitalistic economy as the most efficient way to create wealth and inovation. ”

    This statement all by itself explains to me what you do not understand about fascism, socialism, and all the other isms that “nutjob” Americans like myself are horrified by.

    Seriously, you do not see the problems with the Government providing a service when it is also the arbiter of what is and isn’t OK to do in providing that service and has the manpower and weapons to enforce their will?? You ever hear of conflict of interest at least??

  54. Sander van der Wal said

    @Andrew, #16

    What else is politics than trading one bad policy for another?

    Yoking aside, you don’t pay unemployment benefit for unemployed people, you pay unemployment benefit as an insurance for the case you get unemployed yourself, so you are also entitled to receive that benefit.

    But if you agree that not all people run the same risk, or benefit in the same manner from taxations then you agree that it is a matter of determining the reasonable amount of tax for each person, depending in his income. If such a calculation can be made economically in practice.

  55. j ferguson said

    #44 DeWitt Payne:

    “How so? Theoretically revenue across the board should decline. But what happens is that upper income brackets end up paying a much larger share of the total so total revenue goes up. You can say the rich get richer, but it’s really hard to tell when what you may really be seeing is sheltered and deferred income that was always there becoming visible.”

    This is very good. My idea was that the benefit in increased revenue might not have been solely from the relief at the top bracket alone but certainly at the top 20% of the income levels, just as you say.

    #47 Jeff Id. Don’t all those programs have head counts? I agree with your picks for programs to eliminate but wonder what we’d do with the people who work there. It looks a lot to me like we may not be generating futures for the “working class” at the rate we once did, but somehow continue to produce its members anyway. To your list of things to cut, add salary and pension programs for government employees that wildly exceed anything available in private industry (except auto industry – which might have been fixed by now).

    I continue to like the looks of England’s austerity program. What’s your take on it?

  56. J Fegurson #37 – you are correct about the SS tax. However if you are self employed (you own your own business), that is a tax you have to pay, and it is onerous. As for the state tax, it is a tax most have to pay. Some states like Fla do not have that tax, but they are offset by high tax states like NY that have not only a state tax, but a local tax as well. The bottom line is that it is a tax and you have to pay it.

    You are being confused I think by the nomenclature. No where did LeClerc or I say that the marginal rate was paid by everyone. No one is contending it. However, the rate is not a super secret rate that only J Paul Getty Pays, but rather a high rate that normal Americans pay. Adding the rates up, you can see the top marginal rate in the US is about 60% (due to go higher on Jan 1 due to expiring tax cuts).

  57. Lorne LeClerc #38 – you are correct. However, as they say, there are always 2 sides to every disagreement. And this is no exception. While I have not put pen to paper (or fingers to calculator) to figure out the exact percentages, I can accept yours as probably close to the truth. But then there are 2 solutions. One is to do as you say – raise revenue to match expenditures. But the other solution is to cut expenditures to match revenues.

    In the early 80s, Reagan agreed to a tax increase on the promise from congress of cutting spending. It never was cut. In the early 90s, the same promise was made to Bush 41, and was again broken. Simply put, congress is an unethical body of cretins that knows no honor. The American people got tired of that this week, and basically told them to either start getting honest, or look for the door. Raising taxes has become too easy as Obama did it within days of assuming office (after pledging not to), and congress gleefully went along.

    Raising taxes does not create jobs, wealth or economic expansion. Think of it as a governor (now you know where they got the term from). It retards economic growth and expansion. So the best solution is to not increase government revenue, but to decrease government expenditures.

    45%? You do realize that means that almost 1 out of every 2 dollars goes into a sink hole that does nothing to help put people back to work? Except government workers. And the inevitable end of the spiraling increase in spending is 100% (unfortunately, unlike cliche’s, people cannot give more than 100% to the government). And what do you call a government that takes 100% of the resources created by its citizens?

  58. Lorne LeClerc said

    To #57

    Phil, I know the numbers are shocking. As I said earlier, in Canada, Government expenditures at all levels hit a peak of 53% of GDP in 1992. We have since come back from the brink, and it has fallen to just below 40%. From the increasing blow back in the US it looks like 45% of GDP will be your high water mark for total Government expenditures.

    Regards,
    L LeClerc

  59. gallopingcamel said

    LeClerc,

    I hope you noticed that Canada is ranked #7 (FREE) in the 2001 “Index of Economic Freedom”.

    The USA fell out of the top ranking and is now classified as “MOSTLY FREE”. The statistics you quote in #58 have a bearing on this remarkable event.

    What countries ranked ahead of Canada? Only Hong Kong, Singapore, Australia, New Zealand, Ireland and Switzerland.

    You have got to love the irony of a country that is owned by the ChiComs being ranked #1 by the Heritage Foundation!

  60. Jason Calley said

    Jeff, re #47

    Now you’re talking! Yes, if given the position as Emperor of the US, those programs and departments would be locked and closed before lunch, with more elimination done by dinner.

    and to J Ferguson at #55

    Certainly, I wonder as well what those people currently employed at various government jobs would do. No one knows. What we do know, however, is this: the jobs they are currently doing are not only NOT producing any surplus wealth for our nation, they are actually consuming the excess productivity of those of us who ARE gainfully employed. At the risk of sounding cruel — and I am not! — those governmental employees need to perform some work that actually benefits people, not holds people back and makes people poorer.

    The sad (for me) fact is that the so-called conservatives that continue to get elected always perpetuate the same bloated system that the liberals espouse. Reagan was elected twice while promising to disband the Department of Education, but of course he did not follow his promises. Heck, even W was elected promising a smaller government and less intrusion over seas. How on Earth people still respect a conservative President who served with a conservative House and a conservative Senate and yet never enforced immigration laws while simultaneously claiming that foreign terrorists wanted to come attack us is beyond me. Same with repealing Federal weapons laws. On a purely personal note, I much prefer the lies told by the Republicans to the lies told by the Democrats, but neither party will follow the Constitution or decrease the size and power of government.

    The ONLY way, long term, to avoid high taxes on the rich (and the poor!) is to decrease the size of what we spend. Every other approach is just delaying the inevitable.

  61. Jeff Id said

    Thanks Jason,

    Here’s another budget cut we could make this morning.

    http://www.foxnews.com/world/2010/11/04/united-nations-human-rights-council/?test=latestnews

  62. j ferguson said

    #56 PhilJourdan

    I think I actually do understand self-employed SS payments having made them for 10 years. And I also imagine that I understand marginal rates having found myself in the top rate for a considerable part of my career although the actual payment at least to Uncle Sam was usually much less than the rate due to the way I organized my income and the usual deductions. It’s what you pay that counts not what you conceivably might have to pay. My guess is that few people pay anything like the full impact of the marginal rate.

    I always thought of SS as a lousy savings plan and a sort of tithe to help those who hadn’t figured out how to help themselves. And you do not have to pay state and local income taxes. Live in Texas or Florida. We used to recruit from Minnesota, Wisconsin and Illinois pointing out that they were paying significant state n local income taxes while we, in Florida, were paying none.

    Someone suggested, maybe Mr. LeClerc that we shouldn’t be burdened with helping py for things we don’t need or want that the government provides. I suspect that the assumption is you need or want some things and someone else wants other things and it all works out.

    For my part, I would like to see all church property pay real estate taxes. Why should I, an infidel, support their use of public services? Does that make sense to you?

  63. Kenneth Fritsch said

    Social security remains relatively stable as a percentage of the budget. As to how Canada will cope with paying for these types of expenditures in the future – I am sure that we will simply muddle through, like everyone else.

    Monsieur LeClerc, you are correct about Medicare and Medicaid being the first unfunded government programs to face reality in a few years in the US. Social Security is not relatively stable if you look a little further into the future. Here in the states we have media types who should know better and politicians who we know will attempt to deceive that talk about the Social Security trust fund and that fund not being broke until the trust runs out of money.

    The hard truth is that what is in the trust fund are IOUs from the federal government on money that it has already spent. The day of reckoning then comes when the current revenues into the fund no longer exceed the funds coming out. Over the next two years that is going to be the case. If the economy recovers soon that will end but then a permanent deficit, given current funding, will occur not that many years into the future.

    Some of the problems that big government types, and especially those with no sense of what actually drives the economy – like community organizers – is that they will, as you phrased it, muddle through to an emergency and then raise taxes to fund these programs. What they conveniently forget is raising taxes to the levels needed to fund these programs and continue all other government funding will have a major to catastrophic drag on the economy. The alternative is to drastically cut these programs and perhaps precipitate what we are currently seeing in Europe – or worse. Sometimes big brothers have a better grasp of economic realities. You know that “muddle” through is more or less the same vague stance we see in the US on our current deficit spending.

    Big brothers advice is to be careful, very careful, of real and conveniently imaged “crises” bringing Canada back to deficit spending. Political scheming has no national borders of which I am aware.

    Grand Frere, Fritsch

  64. Don B said

    Jeff, this is OT, but very important.

    At Lucia’s place, a commenter mentioned that the one year anniversary of the release of the Climategate emails is this month, and wondered about the celebration.

    Are you planning a party?

  65. BlueIce2HotSea said

    gallopingcamel

    The US also had a super income tax rate of around 97% during WWII. This is when Ronald Reagan noted that 3 months work only netted him 3 days pay. It helped to form his ideas on the diminishing returns of increased tax rates, which preceded Aurthur Laffer’s ideas by decades.

    When Reagan stopped playing, all the workers that would have otherwise been associated with the production of another movie were less well off resulting in less tax revenues collected by the government. This is lose, lose, lose.

    Socialists excel at the dissipation of wealth created by others, so it’s quite silly to hear them gloat over what economic geniuses they are. What they are, in fact, are thinly disguised goons who fund their lifestyle via the tax system which ultimately works by the implied threat of deadly force.

    Much of the services provided by government can be provided more cheaply and at higher quality through volunteer organizations and private enterprise. These interactions are for the most part UNFORCED. This is a win, win, win. (Except for the petty tyrant wannabees).

    BTY, I am not in favor of privatizing the military or state and local police.

  66. Mark T said

    “Adding the rates up, you can see the top marginal rate in the US is about 60% (due to go higher on Jan 1 due to expiring tax cuts).”

    It doesn’t quite work that way, i.e., you can’t just “add up” all the marginal rates to get the total rate. You have to multiply each block of income by the corresponding marginal rate, sum those for the total tax, then divide by the total income to get the result. For example, assume three rates, 10%, 20%, and 30% applied to the first $10 k, the next $10 k, and the final $10 k respectively. Tax on the first $10 k is $1000, then $2000 and $3000 on the final two blocks of income. Total tax paid then is $6000 out of $30 k earned, or about 20%, not 60%. Those that are deemd “wealthy” actually pay closer to the top rate overall, since most of their income is in the top bracket, though it is impossible to ever be exactly at the top rate for all of your income since a portion is always taxed at the lower rates.

    Note, however, that EVERYONE pays the 15.5% payroll tax on income below $100 k (about, though the Medicare portion does not cap there) which means it is really a tax on the poor. Don’t think, btw, that because your employer pays half that it is not a tax on you…

    Mark

  67. Mark T said

    Another note to whomever said (paraphrased) “having the government pay for services is not socialism.”

    Nonesense. It is collectivism and the distinction between any of the “isms” is merely variation on a theme. Trying to say “but it’s not socialism,” even if true (it isn’t, either) is nothing more than wordsmithing akin to global warming then climate change then climate catastrophe. They are all the same thing with different clothes, or maybe the same clothes even with a stain on the lapel distinguishing them.

    If you can get yourself to a point where you understand why ALL forms of collectivism will ultimately fail for absolutely the same reason, then you will be nearly to where you need to be w.r.t. basic understanding of economic principles.

    Mark

  68. Mark T said

    “Much of the services provided by government can be provided more cheaply and at higher quality through volunteer organizations and private enterprise.”

    Indeed. Note, too, that charity increases with decreasing tax burden. Socialists (collectivists in general) don’t like to admit this because it makes their pet theory look bad.

    Mark

  69. Mark T said

    “It is collectivism and the distinction between any of the “isms” is merely variation on a theme.”

    Except capitalism, of course, the only one based on free-market enterprise. In a truly free-market enviroment, the government would be required to find funding through other means than taxing income.

    Mark

  70. Retired Engineer said

    #65 – Indeed. The primary role of government is to catch crooks, put out fires, and pave streets. Things that we small citizens cannot do by ourselves. Everything else is optional. Bigger crooks, fires, and roads at the Federal level.

    SS hit red ink this year (more paid out than came in) and may do the same next year. Medicare has been marginal or negative for years. Demographics. More people collecting for each one contributing. Nothing new, the numbers have been obvious for years. Surplus? Trust Fund? All IOU’s from a government far in the red.

    The “rich” pay far more than half the income tax. They got less than half the “tax cuts for the rich” and wound up paying a greater portion of the income tax. (IRS data) It will cost “$700 billion” to extend them. And only “$3 trillion” to extend them for the rest of us. Yet the tax cuts were only for the “rich”? Somebody ain’t tellin’ the truth.

    Madison said he could not lay a finger on the part of the Constitution that allowed spending on acts of benevolence. Not that anyone listened. Laffer showed that tax rates over 34% were counterproductive. Few listened to that, either.

    Our unfunded liabilities exceed $100 trillion. Gonna take one h— of a lot of inflation to meet that burden. $1000/bbl oil ?

  71. j ferguson said

    # 70 Retired Engineer.

    Do you know the specific taxes in Laffer’s 34%? Is it just the 1040 stuff or everything including sales taxes, real estate taxes and on and on and on?

    I think he must have meant only income tax and likely just federal, don’t you think?

    On the rich paying more than half the tax, you might also look to see if you don’t count ss and medicare as taxes almost half our citizens pay no federal income tax. NOT GOOD.

    In our company, 10 employees, I think it was 1991 that the health insurance went up a lot. Take home would go down, so we sat down and discussed it. If we bought policies with higher deductibles, cost could stay the same. So we split the difference, employee would pay same deductible as before and we (me) would cover the difference if it happened – sort of a self-insurance scheme. we were lucky in not having any existing expensive conditions in our “family” or this wouldn’t have been possible. in three years on that system, I never had to “help.”

    I continue to think that a lot of the angst is about take-home pay and that the stuff above the line has no meaning to people, it might as well all be tax – not Jeff Id’s commenters but likely most people.

  72. BlueIce2HotSea said

    #68

    “Note, too, that charity increases with decreasing tax burden.”

    Yes, this is presumably because both the need is increasing, and because people care. Bureaucrats too, may also care, but they know how to take care of number one first.

    One of the great revelations on America’s “War On Poverty” was provided by Friedman who found that the money budgeted for poverty relief exceeded the amount that should have completely eradicated poverty. But the government absorbed 3/4ths of the monies as administrative overhead. As I recall, the impact of the program was that it pushed as many people into poverty as it helped to get out.

    How is it that citizens can be convinced to go along with these schemes? If offered the choice of low price and high quality through free market sources vs. the opposite from government, I have found a stubborn core group will always chose government.

    These are the petty tyrants Marxists who are still at war with the petty bourgeoisie (small business owners & independent farmers).

  73. BlueIce2HotSea said

    Oops. Let me add this important part. Charity increases with reduced tax burden because people’s disposable incomes increase.

  74. PhilJourdan said

    Mark T #66

    No, you are confusing overall tax rate with the marginal rate. The marginal rate is the amount you pay on your last earned dollar, not the average you pay for all of your income.

    If we were talking about the tax burden as a percent of total income you would be correct, but Lorne LeClerc mentioned marginal rate and that is what the discussion has been about.

  75. GregO said

    Excellent, interesting post – wanted to get in earlier but have been busy. I own a mfg business and employ people and am in the cross-hairs of the tax-the-rich gang. I wish them the worst, but I have found it futile to get too worked up about rates – for that I support groups fighting for small business, support and communicate with my elected representatives, hope for the best and pay my taxes.

    My main beef besides rates is the level of complexity of the tax system. I have to have 1 1/2 full time people and an accounting firm to just keep track of taxes (FICA, payroll, state, local, IRS mis-billing and IRS constantly losing stuff…). That’s all they do all day, every working day because the tax system is so convoluted and complex. I have no idea how a normal person would ever be able to start a business in the US and keep everything legal. It is Byzantine to be an American businessman.

    So there’s the complexity of renting people from the government.

    Add to that the difficulty in getting bank financing.

    Add to that the liability of being in business.

    Add to that the difficulty, responsibility and liability of employing and managing people.

    I would say that the small businessman is a productive, responsible, good element in society. So why does it sound to good for politicians to think they can single us out and target us like the do?

    Don’t get me wrong – I like the benefits of living in a reasonably well-run well-governed country; clean running water; electricity on demand; paved, clean streets; protected national sovereignty; and I don’t have a problem paying for it through taxes. But there really is something else going on.

    Government would get more taxes if I hired more people and paid them more. How to make that happen? Easy. Make my life simple by simplifying the tax system. Tax me less. How to still pay all those bills while taxing me less? Government needs to do fewer wasteful foolish things with the money they get. I’m all for #47 above but please add in the Department of Energy and anyone with the title of “Czar”. Stop invading other countries – it never seems to work out as well as we think. Besides, we can’t afford it.

    Government and politicians shouldn’t worry about small businessmen (oh, and women – sorry!) making too much money. We should be allowed to make as much money as we want with no interference or increasing tax regulation at all. And let’s just face it; wealth, real wealth has been off-limits to government in this country since it’s inception. What we are talking about is taxing income and taxing people rising above their position in life.

    I can only conclude that the primary reason the tax system and political system is so screwed up is that it is populated by very stupid, venal people utterly lacking in imagination or problem-solving skills.

  76. Aaron W said

    RE: MARK #67

    ..If you can get yourself to a point where you understand why ALL forms of collectivism will ultimately fail for absolutely the same reason…

    You have socialized fire, police, roads, air traffic control, water, prisons, education, defense.

    These are truely socilaized programs. The services are hired for and managed by the government. According to your theory our nation will fail because of it.

    The one thing most important to your well being is health care. No one EVER proposed dooctors and lawyers being hired and managed by the government. A public option, just like we have for secondary education was what was proposed. But the right wing rebranded it “The Government Takeover of Healthcare” and you’d be subject to “Death Panels”.

    Another myth of the right wing mantra is that capitalism and democracy are synonymous. If you want to know what a country looks like when we have a huge seperation between haves and have nots and no government regulation, take a look at our country in the early 1900’s.

    To quote FDR a nation ruled by “Economic Royalists” that have the power to use government as an appendage to their thirst for profit is a greater danger to democracy that any foreign nation or organized crime.

    Would you rather support an agenda labeled “socialism” or “plutocracy” ??

    Read the preamble to the constitution. It says that all the laws that follow should “promote the general welfare”. Not maximize the wealth and maintain the status quo.

  77. Aaron W said

    To quote John Kenneth Galbraith:

    “The modern conservative is engaged in one of mankinds oldest exercises in moral philosophy, the search for a superior moral justification for selfishness.”

    Why do we need to redistribute wealth?

    It seems funny that people ignore the motivating factor that drove our country to the Revoulution.

    The economy had been subjigated to serve an elite few leaving those most affected by their policies no redress. In colonial times that was a King casuing such tyranny. In modern times that tyranny is achieved by big money and big corporations.

    The ability to lord over people because their financial postion puts them in a powerless situation creates “Economic Royalty.” The only way to combat economic royalty is through government regualtion which is why deregulation is the mantra of the right wing.

    The preamble of the constitution makes no statement equating capitalism with democracy. It’s a pretty socialist statement actually that makes it clear that the constitution is designed to “promote the general welfare” …not maintain the status quo and maximize personal wealth.

  78. Aaron W said

    RE: #65

    ….Much of the services provided by government can be provided more cheaply and at higher quality through volunteer organizations and private enterprise….

    Yes, the health care industry has done such a great job
    providing low cost care for our country.

    We pay double what any other country pays, we cover fewer people, have a lower life expectancy and higher infant mortality, than any other industrialized nation. We pay three times as much for medication as the country to our north and ten times as much as the country to our south. We can be dropped from coverage for the offense of actually getting sick. We are the only industrialized nation with no guarantee of health coverage for our children. All hail private enterprise.

    Big government exists, not because of liberals…it exists because of history.

    When money was hoarded by the rich during the turn of the century we needed a social safety net. When big business ruled people with horrid working conditions and child labor we needed labor laws. When banks squandered people’s life earnings we needed securities and exchange commisions. How many times do you need to see that greed left unchecked causes misery to the masses and wealth to an elite few? Takje a look at the planet gfor god sakes….find me a nation with no middle class that you would call “progressive”.

  79. Geoff Sherrington said

    12 Oliver In 1979 I was going on a 3 month Government exchange re geochemistry at Vernadsky, privately with 2 CSIRO colleagues. When the Ruskies invaded Afghanistan it fell through. Small world.

  80. BlueIce2HotSea said

    #78

    Your plan seems to be: Let’s ride the big horses of corporations and medicine into an era of increased properity and health. Then take over.

    But, why should we go along with that when for all we know, you could be a megalomaniac idiot, or worse? Your own qualifications not withstanding, perhaps other experts in these sectors are better qualified to deliver a better future.

    Maybe we can find common ground if you recognize that libertarians are not promoting the virtues of unregulated monopolies. And if a concern over the greedy hoarders of money was also balanced with a concern over the envious confiscators of wealth, then we can get somewhere.

    How should we label someone who thinks, “I am so generous in the way I spend other people’s money, I deserve a big, fat cut for myself”:
    A. Greedy, heartless industrialist.
    B. Neo-aristocratic, authoritarian, progressive liberal.

    Fail, if A. The greedy, heartless industrialist was given money VOLUNTARILY (excluding via unregulated monopoly of course). Therefore it belongs to the industrialist. The progressive’s monies are forcefully derived and therefore ill-gotten.

    One other thing. Your comparison of the US to industrialized nations seems quite strange given the dislike of big corporations. A more sensible comparison would be US vs. non-industrialized nations. Then explain why we ought to share your animus.

  81. Jeff Id said

    Aaron,

    I find the wealth disparity argument lacking in understanding of how business works and the second order effects of ‘wealth redistribution’. In government service economies the discrepancy between wealth and poverty is far greater than in the US. Is there any question that Kim Jung Il, or Castro want for nothing while his people starve. In the meantime, my neighbor who hasn’t worked in 30 years due to disability has a plasma TV that wouldn’t fit in most European apartments, six cars in his driveway parked in front of the two car garage, next to his filled woodshed.

    While there are a few very successful businessmen, there are many (like my neighbor) who’s lives are elevated by our freedom to make and keep our own money. While you can pay money for services, calling it a form of enslavement doesn’t make sense when the person employed has full rights to follow the same paths and make the same choices that the business owner did.

    Also, the old men on the dollar bills would certainly not be considered liberals in any sense of the word. Read the federalist papers for a while. Of course most liberals mix up the few misplaced ‘conservative’ positions like deciding for you whether you should have an abortion on their own religious grounds and corrupt conservatives which expand govt, etc. with the otherwise overwhelmingly greater freedom offered by the conservative movement.

    Liberals in America want to control the most important things in our lives, our money, our property, our food, our futures, our schools, our health, our companies on and on and on. That is decidedly not what the founding fathers so successfully built, and it is poisoning this countries success.

    We don’t want that kind of help.

    When you complain about our health care system, you need to first realize that the US system provides a higher level of technical care than any in he world. Then you should recognize that most health related technical developments came from the US – for a profit. Then you should look at what actually is driving costs up. I have several family members who spent their lives in health care, in my opinion it is a combination of over-regulation, poor laws governing insurance allowing complex and stupid situations to occur, lawsuits, illegal aliens and a few other things. People don’t understand that the uninsured in the US still get free treatment and if the treatment gets messed up they can get free lawyers to sue the hospital.

    But no, it’s the evil profit makers right? Those who would invent something which helps people — for a profit. The argument against wealth holders is poorly considered IMO.

  82. Kenneth Fritsch said

    You have socialized fire, police, roads, air traffic control, water, prisons, education, defense.

    Good point Aaron W, these government functions are far from perfect and in many cases failing. Unfortunately with a government monopoly there are no alternatives and the public gets to the point where they are convinced that are no alternatives and they are willing to settle for mediocrity.

    As for the remaining diatribe you have spouted, I am certain you are beyond a reasonable argument, but for the potentially more reasonable readers here much of what you denounce as driven by the rich and big business interests is the result of government intervention.

    The rest of the world and the US (Medicare and Medicaid currently) cannot sustain their government health care systems for much longer as they have overwhelming unfunded liabilities.

    Our present health care system was driven from medical insurance being primarily for catastrophic events and paid for by the insured to a third person payer where coverage was nearly complete and thus encouraged more expensive care, since many of the end use customers were not paying directly for the services. It was driven there by corporations getting around wage controls set by the government a while back in order to competitively compensate their workers with fringe benefits. That part of the expense for the insured was also a tax deduction. The near immediate consequence of Medicare was that the cost of hospital care skyrocketed as did other medical expenses. Our health care system is driven by the actions of government and has been for some time now. Our tort law system has changed to allow for huge medical mal practice settlements and cause medical practitioners to resort to expensive defensive medical procedures.

    Developments and advancements in the drug industry, and primarily in the US, have been a godsend for medical care. The higher costs in the US are driven by exclusive patent coverage that other nations can get around by bargaining with the drug companies. The patent coverage is, of course, a function of government. Drug companies defray their cost in developing drugs primarily from sales in the US and then can sell at the margins the same excellent drugs to the rest of world and their benefit. As a libertarian I have some mixed feelings about patent laws and intellectual property rights in general, but there is no doubt that government is in charge of those laws.

    As Aaron so clearly points out the “economic royalty” was driven by a royal, the King, in revolutionary times – actually the government of which the king was a part. Unfortunately he was unable to see that economic royalty invariably requires the government to impose and loyal to government and unquestioning people like Aaron to sustain and confuse. The rich, big business, big labor, communist conspiracies, fossil fuel executives, druggies, smokers, drinkers, sexual perverts, invented foreign enemies and greedy anything have always been the bogey men to which big government advocates point to justify imposing their wills on freedom loving people and never you mind that once government gets involved we now have threats and problems with big business, big labor etc. to the extent that government has “controlled” them and at the same time given them advantages they would not have otherwise had.

  83. Brian H said

    #78;
    2 data points re HC: The US has the highest life expectancy in the world, excluding gunshot wounds and car accidents (neither of which is an HC issue, just to be explicit); France’s exalted position on the list, e.g., is a lie. Most of its HC costs are called “Social Services”, and total almost 25% of GDP, not the 10.1% widely touted (notably by the WHO).
    Oh, a third: Japan recently discovered that a large portion of its elderly don’t exist. There are 10s of ‘000s of centenarians, ‘000s of those over 120, and even about 900 over 150 on the books, none of whom can be located. Can you say “pension fraud”? LOL

  84. Steve Fitzpatrick said

    Kenneth #82,

    You hit on the key cause of high medical costs: when party A provides medical service to party B, but the whole thing MUST be paid for by party C, then only the very finest and most expensive care option will be chosen. The entire problem of high health care costs is the result of classic ‘moral hazard'; when you are personally benefiting from spending someone else’s money, there is no limit to how much you are willing to spend. If you look at the cost trends for medical procedures which are not generally covered by health insurance (like corrective eye surgery, vasectomy, etc.) you see that the costs have generally fallen over time as technology advances, just at it normally does for nearly all products and services people actually pay for themselves.

    The high cost gasme is played from both sides of the provider/customer transaction: health care providers set absurd prices because they know their customers don’t care about the cost, so long as it is covered by insurance. I recently had a toothache, but it was a Friday, and all local dentists’ offices were closed (I guess they all play golf of Friday). So I went to a walk-in ‘urgent care’ clinic, and explained to the doctor that I needed an antibiotic, since I could not see a dentist until Monday; the clinic and prescription cost $89 (out of pocket). I started the antibiotic on Saturday mid-day, and by Sunday morning my toothache was gone. On Monday morning I visited the dentist, and he told me he recommended a root canal… for $1,400. I noted that this price seemed a bit high, and that I did not have dental insurance. He immediately dropped the price by 20%. Had I been willing to negotiate, I expect he would have dropped it more. The point is, his “normal” price of $1,400 would always be paid by anyone with dental insurance. Since I was pain-free, and in no mood to spend $1,000 or more if I didn’t need to, I chose to pay $80 for the consultation and see what happened. (Result: No problems with the tooth for three months.)

    The only way medical costs will ever be controlled is when a normal cost/benefit analysis is required:

    1) The true cost of medical care is borne by the person receiving that care, or

    2) Cost is controlled by a third party payer with the legal right to deny care that does not have sufficient benefit compared to cost

    Note that the second option leads to cries of “death panels” and endless lawsuits between insurance companies and insured individuals over denial of the desired care. There are no free lunches… nor free health care. As with most economic activity, disconnecting cost from benefit always leads to bad results.

  85. MyForumDepot said

    Progressive tax rates are a sledgehammer. Some people with high incomes got it by extortion, monopoly situations, corruption, cronyism, etc, and deserve to be highly taxed. Others got it through hard work and good sense, and deserve to be lightly taxed. The question of whether to tax the rich is a question only for the stupid. There is no good answer because the question is a hidden assumption of equality.

  86. Brian H said

    P.S. to the Japan note above: it is suspected that ‘paper seniors’ under 100 total in the 100s of ‘000s, or even millions. It seems Japan’s average life expectancy is about to take a nosedive!

  87. Brian H said

    #84, Steve;
    Here’s an OT suggestion re your toothache: buy a bottle of Glycerin. Either the ‘100% pure Vegetable Source’ from a health supplement store, or a drugstore’s ‘USP’ grade is fine.

    Brush your teeth with it, pure. It is a moderately sweet, intensely hygroscopic 3-carbon alcohol, somewhat syrupy in texture. You can swallow it, if you wish. In fact, a swish on the back of the tongue and swallow kills the sulfur-loving bacteria back there and instantly ends ‘death breath’, too.

    The G. will kill all bacteria in your mouth, and penetrate cavities, and filter down under the gumline and clean out periodontal disease bacteria, too. When I figgered this out, I had only a few, loose teeth left. They immediately firmed up and I’ve had no problems since.

    It has a myriad other uses; any skin condition responds rapidly, from sunburn to bites to psoriasis. It subdues inflammation, and turns off “alarm chemicals”; it is often prescribed for arthritis sufferers for that and other reasons. It naturally penetrates the skin without rubbing.

    Marvelous stuff. Dirt cheap; expect to pay <<$1/oz for it, and it goes a long way.

    BTW, it’s the most widely used chemical in existence, partly because it is ‘GRAS*’ as a food additive. Raisins soaked in it stay soft, e.g.
    *FDA-rating “Generally Regarded as Safe”

  88. Steve Fitzpatrick said

    Brian H,

    Never heard of that. Any references? No need to explain what is is… I am a chemist.

  89. Pops said

    Aaron 76 said:

    The one thing most important to your well being is health care.

    Beg to differ. That would be food, shelter and clothing, and no roving bands of thugs who kill and destroy for fun like happens in less-civilized parts of the world. Your priorities are as distorted as your political theories.

  90. BlueIce2HotSea said

    #84

    “..disconnecting cost from benefit always leads to (very) bad results.”

    Without this important negative feedback the stability of economic systems seems to be compromised.

    But wait for the full explanation by the spinmeisters, just to be sure.

  91. Kenneth Fritsch said

    On Monday morning I visited the dentist, and he told me he recommended a root canal… for $1,400. I noted that this price seemed a bit high, and that I did not have dental insurance. He immediately dropped the price by 20%. Had I been willing to negotiate, I expect he would have dropped it more. The point is, his “normal” price of $1,400 would always be paid by anyone with dental insurance.

    Steve, my experience has been that you negotiate to get the insurance price and that walk in customers, who do not negotiate, get the “full” price. Insurance companies do negotiate with the leverage of a large group to obtain better rates. For individuals to buy dental insurance is a bit tricky for calculating the payback because you go to a dentist more for maintenance and as I recall purchasing catastrophic dental insurance is not really possible or practical like medical insurance can be – although the payoff for dental insurance is when you have a huge expense for a non preexisting dental problem.

    I do know people who have made the choice to purchase catastrophic medical insurance and a choice with which I would agree makes economic sense. What they forget sometimes is that when there is a catastrophe, the deductible has to be paid and when you look at savings in premiums over time that they are way still ahead of the game. Unfortunately, they sometimes forget to make these calculations and in addition neglect to put some of the premium savings away for the rainy day of a catastrophe. They then have to make installment payments to pay down their medical bills and once again forget that the financing is often provided interest free. People have been spoiled into to not thinking straight about these matters by third party payments.

    By the way, what people with third party payers often fail to realize is that their take home pay is reduced by the fringe benefit. A saving grace is that, to date, it has not been considered part of your income and taxed accordingly. Another benefit is that an employer can often provide a convenient group insurer that might take some thought to find otherwise. Further these groups are advantageous for the older less healthy person and not so good a deal for the young and healthier. Unfortunately the young and healthy can often least afford the lessened take home pay that the fringe costs all employees and/or their contribution to the premiums. And, of course a lot of this uniformity in insurance premiums and lack of choices comes from the states which regulate the insurance industry and invariably reduce people choices. I will not attempt to explain that situation to someone like Aaron.

  92. Aaron W said

    #85

    #85

    a sledgehammer to what???

    Certainly not the economy.

    Find an actual economist that says that tax cuts to the rich are a good idea. I mean actual economists not those named O’reilly, Hannity, Beck that you bow to.

    The only thing that creates jobs is demand.

    Demand is created by spending.

    You don’t generate spending by giving more wealth to someone who already has a lot of it.

    Even the Wall Street Journal hardly a bastion of liberal thought, said that the two least effective multipliers to the economy are: corporate tax breaks and Bush tax cuts.

    If you hunt for a scapegoat you will always find a good reason to justify greed. Blame it on immigrants or the lazy…ignore the guy working three jobs, seven days a week, who still has no health care and lives check to check.

    When there is no middle-class left it will be a banana republic.

  93. M. Simon said

    The Laffer curve stands for the proposition that in some cases (not all) revenues can be increased by reducing tax rates. This generally results when tax rates are so high and discouraging so much productive activity as a result that the rates are actually generating less revenue that they would if they were lower.

    This has been demonstrated in the real world with capital gains taxes in recent decades. Since the 1960s, capital gains taxes have been cut 3 times and raised 3 times. Every time they have been cut, capital gains revenues have actually increased. Every time they have been raised, capital gains revenues have fallen.

    http://spectator.org/archives/2009/07/29/a-laffer-curve-breakthrough

    And a nice general explanation with generic curves:

    http://en.wikipedia.org/wiki/Laffer_curve

    Of course I can’t vouch for what the wiki article will look like tomorrow.

  94. M. Simon said

    If you hunt for a scapegoat you will always find a good reason to justify envy.

  95. Brian H said

    Steve, #88;
    References are a bit thin on the ground; there was an initial animal model study at Georgia Medical that started my explorations. Vitamin M is hard to come by for cheap public domain product studies. Some of the researchers have been exploring looking for upstream or downstream biological factors they can patent. No idea if they’ve succeeded.
    Here’s a link: http://news.bio-medicine.org/medicine-news-2/Glycerin-may-help-skin-disease–study-finds-4754-1/
    But things haven’t moved much off that start point in the lab or clinic, AFAIK. So the time-honored “self-experimentation” rules the field just now! ;)

    #94, M.S.;
    Envy is good, when it inspires emulation, not assault. Short form of There’s an old Russian parable about a peasant with one cow who resents that his neighbor has two. One day, a genie appears to grant him a wish. “Kill one of my neighbor’s cows!” is the instant reply.

    As for Evil in the Hearts of Men, (especially the rich), and gubmint remedies therefor, I give you:

    “If one rejects laissez faire on account of man’s fallibility and moral weakness, one must for the same reason also reject every kind of government action.” “Manufacturing and commercial monopolies owe their origin not to a tendency imminent in a capitalist economy but to governmental interventionist policy directed against free trade and laissez faire.” Ludwig von Mises – Italian Economist 1881 – 1973

  96. Brian H said

    edit: “Short form of an old …”

  97. Steve Fitzpatrick said

    Kenneth Fritsch #91,

    I can agree with most of what you said, but I hope the whole point of my earlier comment was not lost: The reason medical costs balloon in the first place is the disconnect between who pays and who benefits. The choices people who have health insurance make in health care are often bad in a global economic sense, because the benefits are the only thing that matters to them when the costs are picked up by a third party.

  98. GregO said

    #92 Hello Aaron,

    Your logic escapes me.

    “The only thing that creates jobs is demand.”
    So there is this thing called demand and it is the only thing that creates jobs. Really? Maybe another word would be “need” – as in there is some activity that needs workers (jobs).

    I will assume that we all believe creating jobs is good so let’s create a need or demand and get some jobs going. Let’s invade Iraq. That created a lot of jobs for professional soldiers. But what demand (or need) was filled by invading Iraq – it was a purely political act (“warfare is politics by another name” – http://www.military-quotes.com/Clausewitz.htm). There are many professional soldiers employed in the US in Iraq. Let’s invade Afghanistan. More jobs for soldiers. Let’s invade Iran as some have suggested; and my personal favorite, let’s invade Venezuela. I made that one up. Just kidding. (I am retired from the US military after 3 years active duty during Vietnam and 23 years reserve).

    Personally I am quite sick of all these invasions – but they created jobs and since by your logic the only thing that creates jobs is demand, there must be something demanding invasions. And there is. It’s called political fiat, and it created jobs for professional soldiers.

    You say “Demand is caused by spending”. No. Demand for professional soldiers is caused by political fiat. Now that they are deployed, they have to be paid for – paid for by us back home and taxes will do the trick. Deploy troops. Spend. Not spend/deploy troops.

    Besides military invasions, government exercise countless other costly endeavors; some of these possibly filling a need; others possibly filling no need whatsoever; all exercised on political fiat. The market is not involved at all. There need not be a market-driven demand to create a job – it can be created out of thin-air by political fiat and commonly is; with numerous people having life-long careers with pension; with the very real possibility they filled no market need at all. Happens every day all over the world.

    “You don’t generate spending by giving more wealth to someone who already has a lot of it.” Hmmm. This falls somewhere between an unfounded assertion and the old (utterly discredited) Keynesian theory. I might suggest you get away from Television economists, up your game a bit and read this book:

    http://mises.org/store/Where-Keynes-Went-Wrong-P633.aspx?gclid=CKbx-9-LjaUCFRiAgwodICLiOw

    O’Reilly, Beck, Hannity, et al are entertainers, not economists. I certainly don’t recommend paying them much attention. Try Hayak, Von Mises, and Milton Friedman. Also check out the Cato Institute. Really, turn off that TV.

    I (and my small company) are squarely in the cross-hairs of the tax-the-rich crowd; and I can assure you if I had more money, or access to capital, I would:

    Buy more machinery for my company (including a nice new truck for me!)
    Lease a bigger building
    Hire more people
    Develop more stuff to sell

    I would like to return briefly to your statement that: “Demand is created by spending.” Let’s forget about gigantic government entities wielding political fiat backed by a monopoly on violent force and examine a simple commercial offering instead: Personal Computers and Laptops.

    I would maintain that when computers were new, there was no demand; no real mass-market demand – a demand had to be created by a kind of brainwashing we refer to as marketing. And the first people to have them had enough disposable wealth to procure a certain something (PC/laptop) that there was almost no real need for at the time.

    So the brainwashing (“Buy a PC- they’re cool..”) caused the spending which caused the demand which created the jobs; but the PCs were originally bought by people who had money to spare…(those nasty wealthy people again) what’s wrong with that in your world? And let’s not forget that these PCs had to be dreamed up by someone; built and produced; distributed; marketed (oops I already said that); oh and programmed and upgraded and on and on. IMHO this “PC/Laptop” avenue is better than invading Venezuela; and to get the ball rolling to develop and market products you need capital belonging to those nasty rich people we need to tax. Implied here: too much tax – no new PCs…

    Perhaps it is a crude and simplistic example; but any way you cut it, the whole cycle only gets going by political fiat, or people with too much money.

    Add in talented exceptional people to develop stuff/fix stuff/grow stuff/mine stuff – really everyone else is a service provider of some sort.

    Hurray for the middle class! I’m with you there brother! My grandfather was an immigrant. Justification of greed? Greed is a vice. Avoid vice. It is bad. But to be energetic, creative, and restless for new cool stuff, and even a bit wealthy doesn’t automatically signal greed and it scarcely justifies taxing said “wealthy” person more severely on a marginal basis. As far as hard work and being in desperate straights – don’t even go there with me – I’ve been through it all. You’ll have to read my book whenever I write it. And get that book about Keynes – it really is good – and from your postings I think it will help you understand things a bit better.

  99. DeWitt Payne said

    Re: Aaron W (Nov 6 14:41),

    Find an actual economist that says that tax cuts to the rich are a good idea. I mean actual economists not those named O’reilly, Hannity, Beck that you bow to.

    As pointed out by J Simon Arthur Laffer (bio here) is a real economist. Supply side economics is the school of economic theory to which he belongs.

  100. Steve Fitzpatrick said

    GregO #98,

    I suspect your passion for economic freedom is lost on Aaron.

    But nice try.

  101. GregO said

    Thanks Steve!

  102. Kenneth Fritsch said

    I can agree with most of what you said, but I hope the whole point of my earlier comment was not lost: The reason medical costs balloon in the first place is the disconnect between who pays and who benefits. The choices people who have health insurance make in health care are often bad in a global economic sense, because the benefits are the only thing that matters to them when the costs are picked up by a third party.

    I agree that people with a third party paying are not as economical as they would be if they were a first party payer. Part of this occurs because the worker does not have the choice of taking the fringe benefits in wages. That the worker is not taxed for the fringe benefits also plays a role in his choices. The point that I did want to get lost is that the worker is paying for his fringe benefits that otherwise would be part of his wages/salary. Government action and influences invariably reduces the choices that people have and leads to one size fits all.

    While Aaron is way beyond hope in these discussions his attitude is not all that different than the prevailing intelligentsia we have in the US. Economists step all over themselves and economic principles to justify and advocate for more and bigger government. That quote from John Kenneth Galbraith says a lot about an economist who seems to justify his teachings because they are not oriented or motivated as selfish. Look at what and how Paul Krugman can argue for in the way of a partisan appeal for bigger government. Aaron would definitely be classified as a Keynesian and what he says is not that far afield from Keynesian thoughts. Remember Keynes pitched his economic philosophy as one that, while he was advocating it for the then mixed economies, would work in the framework of a totalitarian system and maybe better.

  103. PhilJourdan said

    Aaron #92. You found one. Right here. DO you want Tenactin for the athletes tongue?

  104. joe said

    Aaron, demand is created by spending? really. So my spending money on a loaf of bread, makes me hungry for the bread, which I didn’t really want before I bought it. And why was there a baker? if someone had to spend money to create the demand who would that person give the money to? There would be no baker because no one had yet spent any money buying the bread creating the demand that didn’t exist before the spending. or was I hungry and in need of food so I exchanged my money, which I received in exchange for providing a service to someone, for the bread, which is worth less to the person who produced it than is the money I will give him? See to me, the hungry person, the bread is worth more than the $2 I will pay for it otherwise I would keep the $2, and the baker values the $2 more than the bread he baked, To each of us we’re getting a good deal, and the baker has met a demand that wasn’t caused by any spending but was caused by people being hungry.

  105. Jeff Id said

    Aaron,

    “If you hunt for a scapegoat you will always find a good reason to justify greed. Blame it on immigrants or the lazy…ignore the guy working three jobs, seven days a week, who still has no health care and lives check to check.

    When there is no middle-class left it will be a banana republic.

    Aaron,

    I’m moderately curious as to the thought process that leads to your statement.

  106. M. Simon said

    Let’s invade Iran as some have suggested; and my personal favorite, let’s invade Venezuela. I made that one up.

    I believe Mexico is way more likely.

    =====

    I desire a much better computer. Because my income is currently quite limited I can’t pay for one. So is my desire a real demand? If the computer company will take a months worth of my blogging for it the demand is real. If it is not worth it to them the demand is an illusion.

  107. M. Simon said

    What people forget about Keynes is that he was a traditionalist: in good times you save. In bad times you spend the savings. i.e. what you do is always counter cyclical in order to maintain a steady (more or less) flow.

    In that respect there are no Keynesians in economics today. That is not so bad. If the illusory money (credit) goes into increasing productivity. And if the productivity increases enough to cover the spending. If not (the housing bubble) – look out.

  108. RB said

    Laffer and Mankiw on the Laffer curve (may not be in sync with all of the commentariat):

    http://www.time.com/time/magazine/article/0,9171,1692027,00.html

    DeWitt on the rich being able to hide income to avoid paying taxes (only the little people pay taxes as Leona Helmsley said) is correct. However, the tax cut revenue thing tends to get carried a bit too far.

  109. Lorne LeClerc said

    To 107

    I did not directly experience the irrational exuberance of the dot com and housing bubbles in N. America, as I was working and living overseas until 07. I was in savings mode throughout this period, which helps me now during this nasty downturn. So I guess in my own life I am a counter-cyclical (if that can be used as a pronoun). I am not ready to abandon all of the precepts of Keynes yet, but I will have to look into this new 2009 book that reportedly dethrones his ideas.

    My point is this, when the Fed dropped the interest rates to historic lows, combined with the two Bush tax cuts and higher than normal military spending – was this avalanche of liquidity during the longest business expansion cycle since WWII not the main reason for the extraordinary bubble. Keynes would have said, run a Government surplus during the good times and a deficit during the bad. I do not think that petal to the metal during good times is the role of government.

    Having been out of NA during this period I am sure there are nuances that I am unaware of. What did I miss….

    L LeClerc

  110. Brian H said

    Lorne;
    “petal to the metal” — would that be flower power? I prefer pedal-pushing. :)

    IMO, the politically mandated destruction of credit standards for mortgages in the U.S. created the bubble. It was not the case in Canada; you still had to prove ability to pay to get a loan.

  111. DeWitt Payne said

    Re: Lorne LeClerc (Nov 7 00:36),

    The Fed indeed bears a large responsibility for the bubble. When you pump a lot of money into the system, it has to go somewhere. Rather than general inflation, it went into housing and commodities like oil and metals. The following deflation wasn’t general either. During the Reagan administration once the tax cuts took full effect in 1983 the economy recovered and inflation went down. The reason was that the Fed under Volcker had a tight money policy in place at the time. But without the stimulus from the tax cuts, the economy would have tanked. The Fed’s main problem is that it has two competing missions that tend at times to appear to be mutually exclusive, maintain the value of the dollar and maintain full employment (Humphrey-Hawkins Act). Repeal H-H and things might be better.

  112. RB said

    Re: #107,
    tax cuts themselves are Keynesian as Dewitt in #111 also describes but is elaborated upon by Mankiw below. Many of Reagan’s advisors though turned out to be the “charlatans and cranks” who are responsible for today’s popular Republican opinion on tax cuts that pay for themselves.

    http://gregmankiw.blogspot.com/2007/07/on-charlatons-and-cranks.html

    One can view the short-run effects of these tax cuts from a classic Keynesian perspective. The tax cuts let people keep more of the money they earned. This supported consumption and thus helped maintain the aggregate demand for goods and services. There is nothing novel about this. It is very conventional short-run stabilization policy: You can find it in all of the leading textbooks.

  113. RB said

    OK, the last para below the link above is by Mankiw in that article, not me.

  114. Kenneth Fritsch said

    I think what RB is referring to here is something about economics that needs to explained at the margins. Laffer’s supply side economics have been abused by Republican (and Democrat for that matter) politicians in that they use it to justify politically appealing tax cuts without commensurate cuts in government spending and thus adding to debt that our children and their children will eventually have to pay.

    I think that we get confused by the beneficial effects of tax cuts from the Austrian and Keynesian views. In my view the Keynesians are more or less oblivious to the detrimental effects of government spending replacing private spending. They do not see the differences in efficiencies between the two. Tax cuts are always welcome, as Milton Friedman once implied, but the problem with the abusing of the cuts is that they lead to deficits without spending cuts and merely kick the can down the street.

    I think economists basically agreed that tax cuts that Bush and Obama administrations provided in the form of a one-time rebate have little positive effect on the economy. Interesting though, that the partisan nature of a lot of economists can have an economist put down the Bush tax rebates and get warm all over over the Obama rebates and vice versus.

    The Keynesian instincts to play with the taxes as the economy grows or contracts is something that the people can no longer count on or plan around and can readily end up with a very negative result. The same goes for the Keynesian instincts to inflate and contract the money supply that only enhance the amplitudes of the business cycle. Keynesianism was essentially dead when stagflation occurred in the 1970s, but has since been revived to justify a bigger and bigger role for the government in the economy after hand waving the problems of the 1970s away.

    And of course we have those wonderfully ignorant claims about how many jobs are created by the fiscal pumping by the feds. You can, of course, print money or borrow money or raise it by immediate tax increases, and use it directly to have people employed and even if it is a temporary job or a job that is totally useless. You create a web page and track this effect and hopefully the voters out there will never wonder what that same money could have done for the economy if it had not been spent as it was. It goes back to the broken window fallacy where you think only in terms of the jobs and economic activity that a broken window can provide and totally ignore what that same money could have provided for something more productive.

    I also agree with DeWitt Payne on the impossible mission handed to the Federal Reserve of proactively anticipating the moves of the economy to keep “full” employment and economic activity at an optimum. If economists could accurately anticipate these moves they would not be working at the Federal Reserve, but instead making billions on investments. I would think we would not stop at repealing Humphrey-Hawkins but also the Federal Reserve Act.

  115. Kenneth Fritsch said

    Ludwig von Mises – Italian Economist 1881 – 1973

    I think you meant Austrian Economist.

  116. Mark T said

    “I also agree with DeWitt Payne on the impossible mission handed to the Federal Reserve of proactively anticipating the moves of the economy to keep “full” employment and economic activity at an optimum.”

    Ultimately, the problem is that the Fed acts as if it can do this, and, sometimes, I think they really believe in their own power to do so. Greenspan was an Austrian at one time, then the power given to him by the Fed overtook his senses and inflated his ego. He lost whatever ability he had to realize that the economy is not really predictable (else the Fed folks would all be working Wall Street as you state in the next bit.) They, Greenspan included, also do not understand what happens when you poke at a massively complex, unstable feedback system…

    “I would think we would not stop at repealing Humphrey-Hawkins but also the Federal Reserve Act.”

    The Federal Reserve Act, IMO, is an un-Constitutional delegation of the US Congress’ power to issue currency. Humphrey-Hawkins is just… well, what were they thinking?

    Mark

  117. Brian H said

    Kenneth Fritsch [kill]​[hide comment]said
    November 7, 2010 at 12:38 pm | Reply w/ Link

    Ludwig von Mises – Italian Economist 1881 – 1973

    I think you meant Austrian Economist.

    No, he was Italian. His economics were Austrian. :)

  118. DeWitt Payne said

    Re: Mark T (Nov 7 14:18),

    Humphrey-Hawkins is just… well, what were they thinking?

    R. Pielke, Jr. refers to this sort of thing as magical thinking ( see here for example ).

  119. Brian H said

    DeWitt;
    Primo current example is the “magic CO2 thermostat”. If only!

  120. DeWitt Payne said

    Re: Brian H (Nov 7 16:56),

    No, the magical thinking is that by wishing, and I include cap and trade legislation or carbon taxes in the category of wishing, to lower CO2 emissions, it will somehow happen.

  121. Brian H said

    Re: DeWitt Payne (Nov 7 17:43),

    I see you still feel that there is some point in trying to reduce CO2 emissions, rather than striving to end the CO2 famine?

  122. Mark T said

    117.Brian H said
    “No, he was Italian. His economics were Austrian.”

    Uh, no, he was an Austrian, not Italian, born in Lemberg, Austria-Hungary. The key, of course, is the name “von Mises,” as opposed to di Laurentis or something Italian.

    Mark

  123. Brian H said

    Re: Mark T (Nov 7 18:20),
    Yes, I’m not sure where the label in the original came from. On further investigation, he seems only to have ever lived in Austria, Switzerland, and the US.

    Even Ricardo wasn’t Italian! Pareto is the only prominent one that comes to mind.

    Current Italian economists are objecting to (their own) imminent job loss, it seems: http://www.zerohedge.com/article/100-italian-economists-wake-say-austerity-will-destroy-europe .
    Heh.

  124. Mark T said

    Any economist with a brain can see the writing on the wall. Those that don’t are either twits or won’t be impacted by the impending doom and thus don’t really care. It’s easy to waste other peoples’ money.

    Keynesian economics simply doesn’t work, nor does anything even remotely smelling of collectivism. We keep forgetting history every time we make an attempt to implement such failed policies. It’s like beating your head against a wall, noticing the blood, then doing it some more in hopes it may stop. I’ve watched this movie before, it ends the same way every time…

    Mark

  125. gallopingcamel said

    If goods and services cost far more than is reasonable it is usually a sign that corruption is present. Corruption costs money and the cost is passed on to consumers. According to the National Coalition on Health Care medical expenditures in the USA amounted to $1.7 trillion in 2003 rising to an estimated $1.8 trillion in 2004. Our expenditures per capita are typically double those of our major trading competitors and comparisons are far less favorable with low cost providers of health care such as many Latin American countries. The rate of growth is even more alarming. In 1950 medical expenditures accounted for 5.2% of the GDP rising to 9.4% in 1975. By the year 2000 expenditures had risen to 15.4% of the GDP or roughly four times what is spent on national defense. If the country is not capable of radically reforming the health sector the spending could well exceed 20% of GDP by 2025.
    To reduce this to things that matter to individual consumers I made comparisons of medical procedures for an uninsured person in Sarasota, Florida with comparable procedures in Mexico, Costa Rica and Colombia. Knee replacement surgery costing $46,000 in the USA can be had for under $10,000 in Costa Rica. A cranial MRI scan costing $700 in Sarasota not only cost much less in Bogota ($102) but involved much less hassle than one gets in the USA.
    How did things get so bad? According to several experts we are suffering from a perfect storm caused by the alignment of many powerful forces capable of manipulating the health care market to benefit themselves.
    The American Medical Association ensures high salaries for doctors by limiting the number of people trained in this country and placing barriers for foreign doctors who wish to practice here.
    The drug companies prefer developing products that will make money (e.g. Viagra) to working on ones that reduce human suffering.
    The Federal Drug Administration is a wholly owned subsidiary of the drug industry, working hard to prevent people from obtaining cheaper drugs.
    Health Management Organizations exist to make money while dragging down the quality of service experienced by the general public.
    Trial lawyers drive up the costs of malpractice litigation, getting rich while smugly pretending to be standing up for the victims of the medical colossus.
    The legislators produce laws that drive costs up while achieving little of value for anyone other than the lawyers and HMOs (remember HIPAA?).

    What can be done? The present system appears to be beyond hope of reform. The conspiracy is so huge and its members so powerful that there is no hope of it being declared a criminal enterprise. The medical industry will continue to increase its share of our GDP, pauperizing pensioners and destroying once mighty companies such as General Motors. At some point there will be a revolt; let it be soon.

  126. DeWitt Payne said

    Re: Brian H (Nov 7 17:58),

    I see you still feel that there is some point in trying to reduce CO2 emissions, rather than striving to end the CO2 famine?

    The point is the same whether I believe it’s either wise or necessary to reduce CO2 emissions or not. You can’t do it by magic, which is all we’ve got at the moment. Thorium reactors or Bussard fusion may be the wave of the future, but the beginning of that future is not coming any time soon and will take the usual amount of time for the introduction of new, highly capital intensive technology and the retirement of the old, about fifty years.

  127. M. Simon said

    higher than normal military spending

    This is a favorite. However, even with the wars in Iraq and A’stan military spending is well below the post WW2 norm in relation to the size of the economy.

    The real problem with tax decreases increasing revenue is that our wise Congress critters spend the additional revenue + 10%. There is nothing you can do that will beat such a system.

  128. M. Simon said

    gallopingcamel,

    I remember reading a Time Magazine one pager decades back complaining that medical inflation was an astounding 5% a year. Ten the government got in the game and since then it has been a more reasonable 10% a year.

    Just an accident to be sure.

  129. M. Simon said

    Many of Reagan’s advisors though turned out to be the “charlatans and cranks” who are responsible for today’s popular Republican opinion on tax cuts that pay for themselves.

    The tax cuts turned a profit. And then the Democrat Congress spent the profits + 10%.

    That is the sum total of he proof against the Laffer curve.

    Let me try again:

    The Laffer curve stands for the proposition that in some cases (not all) revenues can be increased by reducing tax rates. This generally results when tax rates are so high and discouraging so much productive activity as a result that the rates are actually generating less revenue that they would if they were lower.

    This has been demonstrated in the real world with capital gains taxes in recent decades. Since the 1960s, capital gains taxes have been cut 3 times and raised 3 times. Every time they have been cut, capital gains revenues have actually increased. Every time they have been raised, capital gains revenues have fallen.

    http://spectator.org/archives/2009/07/29/a-laffer-curve-breakthrough

  130. Mark T said

    Yes, I fully expect punishment for being brave enough to start my own business this year. Brave, stupid, whatever the term du jour may be. Until I figure out how to hide my wages, contract wages no less, I’m boned.

    Mark

  131. Mark T said

    “Ten the government got in the game and since then it has been a more reasonable 10% a year.”

    Don’t worry, they’ll fix that. 15-20% is clearly on the horizon. Now that EVERYONE in the US has one of them thar “guarantees” to get health insurance, it doesn’t take a rocket scientist to figure out what prices will do next.

    Mark

  132. BlueIce2HotSea said

    gallopingcamel #125

    “If goods and services cost far more than is reasonable it is usually a sign that corruption is present”

    Your definition of corruption excludes the economic corruption that your health-care ideas will cause.

    Libertarians like to point out that an intervening bureaucracy causes a corruption in the transmission of price/value information.

    (This was also pointed out by John Strachey, a hugely popular Marxist writer. He promoted Keynesian economic policies and government control of the private sector as a means to progress inevitably toward communism.)

  133. RB said

    Simon #129,
    Mankiw addresses both labor and capital taxes and Ken Fritsch #114 in his first paragraph summarizes the implications well. But the beauty of the Internetz is the freedom of belief and YMMV as they say.

  134. Brian Epstein said

    $80,000 a year is rich? Who are you kidding? $800,000,000 a year is rich.

  135. nhathuoc said

    nhathuoc…

    [...]Tax the rich « the Air Vent[...]…

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