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Thursday, September 23, 2010

Tax Post 3: The Bush Taxcuts and the Sunset Strip

Disclaimer:  I stayed up till 5 in the morning last night.  And I got to work on time this morning.  So I'm a little out of it.

Anyway, the Bush tax cuts are a big deal right now, and our tax professor has furnished me with many excellent links and class discussions on the topic.

Let me lay it out for you.  The Bush tax cuts, set to expire in 2009, are being currently reviewed for an extension for 2010.  I think it likely that they'll get passed, because of the political clout of the angry rich.  That is a link to Paul Krugman's article on this subject.  Almost every link here will give you a better treatment of the subject than I will, but I shall press on nonetheless.

So there are a couple of ways to cut taxes.  One is to cut the tax rate.  This is the graduated percentage of taxable income that you and your employer pay out of your wages, after taking the standard deduction or itemizing, you may get something back, you may owe.  The other way is referred to as backdoor tax increase, and selacious references aside, it's a really simple concept.  If you can't increase the tax rate, the only other way to increase tax revenues is to increase the tax base.  Namely, what you can tax.  Bush I was famous for his "No New Taxes" and as Clinton would razz him for later, taxes went up.  But tax rates did not.  They just made real estate more taxable.  Anyway, that was a digression.

Bush II's tax cuts in 2003 changed the tax rates.  They also backdoored a number of other tax cuts.  That's right, you can shrink the tax base too in that manner.  Think about it as a fraction, increasing or decreasing the denominator has a directly correlative effect on the take.  Enough about backdoors.  Here's the rub, take a look at the chart below:
I was looking for bracket population data to match with these numbers but haven't been able to find much save for the fact that the first bracket grosses more than 373,000 in taxable income, and comprises less than 1% of the population.  Remember, that taxable income has already had above the line and below the line deductions from it.  It is not what you get on your pay stub.  So anyone who falls into that taxbracket likely makes at least double that and half of it isn't taxed already.

Anyway, the crux of this post is this:  The reason the Bush taxcuts are expiring is because they would have never passed through Congress if they had been completely honest.  I don't mean to infer foulplay, just dirty pool.  Per a rule established in the last decade, all budget increases have to be balanced by budget cuts.  Which means that every tax cut comes with a price tag, i.e. the money that tax isn't taking in, that 4.6 percent of the top 1% taxable income (and so on down the line).   If they'd made the cuts permanent, or if they begin extending them indefinitely, it will cost the government 700 billion dollars.  But the republithugs played this pretty smart, they knew that it's harder to enact new taxes than it is to cut taxes.  Now that the cuts are set to expire the hue and cry is to keep extending them.

Wednesday, September 22, 2010

AEI op-ed in NYTimes: Looks like Women are Equal, Break Out the Champagne

So the American Enterprise Institute published a truly bizarre op-ed in the New York Times today by Christina Hoff Sommers.  Apparently, women's pay is completely equal, and the Pay Check Fairness Act is unduly onerous on American Business, and will crush the spirit of free enterprise.  Of course, those guys at the AEI ain't dummies, they got a woman to write it.  No woman would ever act against the best interests of her sex, so clearly, she must be unbiased.  Oh wait, it's the AEI.  I provided the link to Sommers wikipedia page, nevermind that it quotes ridiculous sources like Reason magazine, it does quote the Washington Post book review of her book The War Against Boys. Her reviewer ended his critique with "[the] book is a work of neither dispassionate social science nor reflective scholarship; it is a conservative polemic."

As usual, the prominent spector of a litigious society looms large in this article.  The AEI purports to defend American business from increased sexual discrimination litigation.  If the AEI spent half as much time promoting behaviors that would decrease the need for discrimination litigation as it does defending unethical business practices (businesses who pay it's wage in donations btw,) it might actually manage to do some good on both fronts.

The whole point of her letter, that there is no need for the act because the pay discrepancy has nothing to do with women being less competent, is defended by Sommers completely unsupported statement that "It overlooks mountains of research showing that discrimination plays little role in pay disparities between men and women."  Not a single link to these mountains of researchI mean, not even one?  No wait, Sommers does post to another bastion of equal rights, the Wall Street Journal, in the form of a new survey of census data run by Reach Advisors.  That survey caused quite a buzz, but Salon called up the analyst for clarification and there are some important "buts..."  I won't bore you with them, Salon's Tracy Clark Florey, did an excellent job of it. To quote Florey's summation "The fact that ladies these days are getting their learn on like never before, and that this gap is most notable in communities with "knowledge-based" job markets that prize higher education, sends a clear message of how we can help young men to catch up."

Sommers' next point remarks on a quote from a BLS report, “may be almost entirely the result of the individual choices being made by both male and female workers.”  In the end, Sommers' point is that women seem to work in the social services, and in education and entertainment, and less in the sciences.  She explains that it is flawed reasoning to have this bill signed now when the debate is ongoing, and that "Under the bill, it’s not enough for an employer to guard against intentional discrimination; it also has to police potentially discriminatory assumptions behind market-driven wage disparities that have nothing to do with sexism."  Well, duh!

The point of the act is that it's a tune-up of an act that is already on the books, the Equal Pay Act of 1963.  To fix some of the things that the original act, after thirty seven years, hasn't quite gotten right.  They're not wrong, the trope that math is for boys, reading and art is for girls is still widely upheld, in sciences, but also the financial services industry.  How many girl quants are there out there?  And why?  Is it sexual dimorphism that women aren't equipped with the brains to do math?  To conduct scientific research?  Women and men make their career choices fairly early on, as in, what sort of groups and activities they belong to from the earliest of ages.  And those choices inform their career trajectories for their entire lives.  If misconceptions about what "women are good at" still abound, then the point of the act is completely defendable.

Sommer's last paragraph was what really galled:  "The Paycheck Fairness bill would set women against men, empower trial lawyers and activists, perpetuate falsehoods about the status of women in the workplace and create havoc in a precarious job market. It is 1970s-style gender-war feminism for a society that should be celebrating its success in substantially, if not yet completely, overcoming sex-based workplace discrimination." 

Umm, set women against men?  Really?  Are they going to commence armed hostilities?  Will women start packing heat when they come into the office?  I'm sorry Sommers, I don't get it.  Empower trial lawyers and activists?  Wow, well that's your mission statement right there, I guess the other three hundred words of your letter were just icing on the cake.  Trial lawyers are already empowered, and the deck is stacked on defense, settlements have gone down, and been winnowed away for decades from that 1970s gonzo-style feminism that so galled Sommers.  And what, on earth is wrong with empowering activisim?  Oh wait, you mean liberal activism, so say so lady.  Perpetuate falsehoods?  Now wait a darn minute.  All of the works you cited effectively stated that there was still a wage disparity, just that they had reversed in some instances, and that they were harder to ascertain.  Not that the wage disparity was a falsehood.  That's just blatant spin.  Havoc in a precarious work environment?  Funny that on the one hand, some of her friends at the AEI  want to get rid of unfair labor practices like affirmative action, when male blacks are the single largest unemployed bracket, but on the other hand, it makes affirmative action seem like a swell idea to counter all this rampant feminism going on here. 

It comes down to this:  I find it hard to have an honest discussion with a paid conservative thinktank, who historically aren't interested in equal rights so much as a misperceived notion of the bottom line.  When the only argument against is higher operating costs due to increased litigation, well, I'm sorry, I just don't bite.

Thursday, September 16, 2010

1 in 7 Americans lives in Poverty--But they're probably just slackers

So, front page of the New York Times, declaims, Poverty Rate Rose Sharply in 2009.  Not a surprise, really, but it's good that the Times picked up on the story.  I mean, probably not good for the midterms, but hopefully the news will serve to rejigger the Democratic Party to leave behind the spector of the deficit, and think about getting Americans work, and saving the middle class.

Why the middle class, and not the poor?  Well, look at it like this.  Programs for the poor are sinkhole programs.  Necessary evils.  That money is not helping the poor advance, or get out of poverty, it's less than substistence wages.  It's just barely making it.  It's wage slavery.  But it's the only thing they got.  But helping the middle class, that's another story. 

Helping the middle class is economic stimulus.  New business growth will explode, new jobs will appear, education will be more affordable, healthcare reform will lighten the burden of medical hardship.  Providing longer maternity leaves, and giving them to men will encourage young families to stay engaged in the workforce, and continue their careers without fear of economic reprisal.

So, tonight after my tax class, I'm going to raise a pint to the Census bureau and Elizabeth Warren.

Read Salon's Interview with Elizabeth Warren

This is the reason why I write here, this is at the core of what being a RavingLeftatic is all about.  Kudos to Elizabeth Warren, kudos to

"I guess it is a fundamental belief that people are doing the best they can. It is easy when you are successful to think that you did it all by yourself and to forget that you didn’t. You got here because a lot of things broke your way. You were lucky enough to be born into a family that could afford to take care of you well. You were lucky enough to be able to have a family that could pay for you to go to school or buy your way out of scrapes. And to people who have had a lot of luck and don’t acknowledge that -- the world looks like a total meritocracy, right? I’m on top because I really won, because I am better than everyone else."

Monday, September 13, 2010

Tax Post 2: How the Effect of Taxes on Economic Stimulus is Nil

I'm still enjoying tax class, but it has gotten MUCH harder.  And if anyone can point out an answer manual for the South Western book, I'd appreciate it.  I saw a "study guide" for it, for $40, but it's difficult to say whether or not it includes the answers to the practice questions.

I never understand why they don't just include the answers.  How else are you supposed to know if you're right or not?

Anyway, I've been thinking a lot about taxes.  One of the big things you learn in Macro and in Tax is that there is a very serious societal element in how we structure our tax codes.  So for example, the fact that Child Support is considered an exclusion for gross income is a sop to both working mothers, and divorced working dads.  The fact that there is something collegially known as the Innocent Spouse rule, a way for abandoned spouses to file as heads of household instead of married filing separately, which has a lower standard deduction, than head of household, allows an abandoned spouse to keep more of her income.

Ok, now as a RavingLeftatic, I think these things are nice.  But we come back to something that I touched upon in my first Tax post, namely, the concept of equability.  On the surface, these tax breaks are great.  But I'm a fairly intelligent guy, fairly well educated guy, and I don't know about half of these things.  And I could rightly be accused of stereotyping.  But give me a break, is it crazy to assume that in a nation where 28% of the populace believes that the moonlanding was staged, wouldn't know how to do their taxes?  Now, to be fair, as a single white male, I am taxed the absolute highest of any category, so the reason for my lackadaisical tax attitude might well be simple ignorance based on use.  I might well have dependents in the near future, dependents possibly including my older relatives.  How many low class, middle low class people know about the qualifying relative tests, or can perform the gross income test.  I'm reading the damn tax book and I can't figure it out.

I would certainly admit that there are some who do take advantage of these things.  And certainly, many of those people simply go to H&R block to get their taxes done because they can't be bothered with it.  But who can say how effective that is?  Roughly 65% of taxpayers use the standard deduction, 22 million Americans and Canadians filed with H&R block in 2007.  That's not a huge percentage, but it could easily include the poorest caste of American life.  Of course, the poorest caste don't even have to file if they're under the Standard Deduction limit.

Anyway, my point is this.  If taxation is supposed to have successful influences on society, than there has to be a real bias toward the middle class and the rich, people who can afford to hire a professional, or take the time to figure out how to best manipulate the tax code to best fit their situation.  That, and as we discussed from Macro, the multiplier for a dollar of tax released back into the economy is much lower than the value of a dollar directly spent.  So the next time, some pundit shouts from the mountain top how they provided a great tax break for working moms or some such, ask him if that money would have been better spent actually providing services and job training for that working mother.

PlanetMoney: The Pelican Bill

So, Planetmoney did an interesting post on July 30th, about the environmental costs of the BP spill.  It's an interesting piece.  As we've discussed environmental costs are not included in GDP.  One of the reasons for this is because its difficult to effectively cost the effects on the environment.

In this case, they decided to price a pelican.  In point of fact, a much more valuable way to have done it was to tally up the price of shrimp in the Gulf of Mexico, but hey, I guess they wanted something that was more esoteric in value.

There first stop was to a bird lover, who paid up to $500 for a Pelican.  One of the hosts scoffed at this, saying that what a rare bird collector and preservationist would pay isn't the best estimate.  The second stop was Hollywood.  Hollywood, being in the business of accurately fabricating real life, rents pelicans.  That price was even higher, at $4,500 a day.

But here's where it gets interesting.  They talked to Gardner Brown, of the University of Washington, about his work valuing a wild duck.  This theory, called contingent valuation makes some interesting points:  1)  Nature is a public resource, ostensibly, we are ALL owners.  So while, we may not value a pelican particularly highly, maybe a few cents, in aggregate, the value of that pelican can be quite high.  Also, and this is the reason for this post, Brown, whose work was done for licensing and wildlife hunting issues, would go up to hunters and ask what price would they pay for one more duck.  One of the planetmoney hosts again scoffed at this, implying that hunters aren't necessarily experts, or that they wouldn't necessarily be honest.  He further stated that a survey isn't the same as a live market.  While these are good questions, I think a really obvious point would be that:

If my government were really interested in conservation, then they would pay hunters to stop hunting.  Recognizing that hunting is the source of their livelihood, the price of a duck is the hunters gross income.  It's not preferable, for obvious reasons, I mean, you'd have to be able to prove that this was your only source of income, and then what?  You would get paid to sit around all day?  This isn't a big problem in North America, but in the African bush, it's a very big problem.  In fact, AIDS was probably loosed on the world through a very similar transmission, people hunting and eating infected chimpanzees.  Bush meat is very popular in developing countries.  Not only is it cheaper than going to the market, there is also a blackmarket value for interesting animal parts.  Completely aside from the blackmarket value, is the superstitious value of eating gorilla balls for virility.

Wednesday, September 1, 2010

TAX: The Federal Income Tax Post 1

So in keeping with my earlier desire to keep my blogging relevant to my classes, I am now enrolled in my first tax class, and my first management class.  Honestly, I don't have high expectations about the management class, I'm enjoying it so far, but that's not the same as finding it useful or learning something from it.

I'm only two classes into Tax yet, and I only received my book yesterday, so I'm not too far in yet.  Already I find it very interesting.  I think most people, myself included, get turned off from tax because of the excessive number of rules and the oppressive nature of being taxed.  Just the title of the class hits the snooze button for most people.  And yet...

Some history of the Federal Income Tax.  The first tax was established in 1861.  It was established during the Civil War, and raised some 376 million, which, in todays dollars is 9.4 billion.  It was repealed immediately following the war.  The next attempt was in 1894.  This bill was opposed by the Supreme Court in Pollock v. Farmers Loan & Trust Co. on the basis that the tax was not, as demanded by the constitution apportioned properly, and thus unconstitutional.  Than in 1909, the first Corporate Income Tax was successfuly installed, and by 1913, the 16th Amendment was ratified and made the Pollock case irrelevant.  "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

A couple of other interesting things:  Adam Smith came up with what we call the four canons of taxation, which are still used as general rules today.  They are
1) Equality-fair and equitable
2) Convenience-administrative simplicity
3) Certainty-easy to predict
4) Economy-nominal collection costs and minimal compliance costs

For those who prefer the flat tax, and say progressive taxation isn't fair and equitable, a very interesting argument is made in two parts.  First, the poor spend a greater percentage of their income.  Myself, as a member of the middle class spend roughly 80% of my income every year.  And that figure doesn't even include rent, which means that in many months, I actually overspend my income.  Taking 10% away from me, is much more detrimental than taking 10% from the upper class, and downright crushing from the working class. 

Second, the justification for taking a higher percentage from the middle class and the rich, is rooted in the concept, that the higher your wealth, the more you are actually able to partake in society, and so a higher percentage of tax is justifiable.  This is very much the case.  Think about it:  If I were to get an IRS field audit, I would have to hire a tax attorney to represent me.  Though there are places like legal-aid for the poor, it is undeniable that those with money, get better justice.  It is undeniable that those who can afford personal finance, brokers, and other representative expertise glean more from society than the poor and disenfranchised--And these rewards are in many cases intangible, and without apparent monetary value.  I should note that the last 100 words are so my own.

Another thing our professor noted about the flat tax is that even if a legislator were to somehow squeeze it through, private interests would then begin carving out their own exemptions anyway and we'd just be back where we were before.