Showing posts from 2012

Income Tax Debate: State Taxes Matter, Too

For all the discussions about what tax rates would be "fair" there is a simple element missing: state income and sales taxes.

I've written that federal income tax rates weren't actually higher in terms of effective tax rates due to deductions (The 90 Percent Tax Rate Myth) and other factors. It's also easy to complain about the "400 richest families," but in the 1930s a mere three men owned 40% of all wealth in the United States (Carnegie, Morgan, and Rockefeller). If you wonder about concentrated wealth, buy The Men Who Built America from the History Channel.

Yes, the wealthy are paying (slightly) less in federal taxes than the historical norms. But, they are also paying much, much more to the states and local governments. How can we ignore the value of those contributions?

Nine states have no tax on regular income (wages), as of this blog entry:
AlaskaFloridaNevadaNew HampshireSouth DakotaTennesseeTexasWashingtonWyoming — Source: http://taxfoundatio…

Why Income Taxes are What We Have

I've been reading various Facebook "memes" and blog postings complaining that the "wealthy" do not pay their "fair share" in taxes. These posts reveal a basic misunderstanding of the United States' historical approach to taxation, and the limits imposed on the government by the Constitution. The basic issue is that the taxes Congress can enact and collect are limited by the United States Constitution.

The Sixteenth Amendment to the U.S. Constitution reads:
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. Notice what this simple, clear Amendment establishes as a Congressional power: "to lay and collect taxes on incomes." The Amendment is clear and concise. Congress can establish an income tax, in addition to its previous power to set and collect various import/export taxes. For much of this na…

Sandy: More Broken Windows

And now we see the Broken Windows Fallacy taken to an extreme — on CNBC of all websites.

Damage From Sandy? What About Potential Economic Boost? - Asia Business News - CNBC
The positive multiplier effect of reconstruction after Sandy could be as much as five times, according to Frank Holmes, CEO and CIO of money manager U.S. Global Investors. If the cost of the damages comes up to $20 billion, the economic boost in terms of spending and activity could be $100 billion, he said. Hurricane Sandy might appear to create economic activity, but such activity is not going to have the multiplier effect some theorize. At least, not based on the experiences of previous disasters. By this twisted logic, the horrible events of Sept. 11, 2001, should have been an economic boost: buildings and transit lines had to be rebuilt. Instead, the economic effects linger for many families and businesses.

Sandy is just one more thing New York and New Jersey didn't need.

There are many, many problems with v…

Entrepreneurs Do Create… and Create Jobs

I am a "serial entrepreneur" by nature. As early as junior high, I was trying to sell my services as a computer tech and programmer. I also knew I wanted to sell my creative writing. Business fascinated me — I tracked the stock market, the precious metals, and the general commodities when I was in the fifth grade.

Not everyone is an entrepreneur; I understand that. Unfortunately, many people don't seem to understand what motivates entrepreneurs and how we help economies and society overall. On an older blog post, the following comment was recently posted:
So instead of viewing him [the entrepreneur] as a 'job creator', he's just another consumer. He may consume other peoples' labor (time/skill/effort) in creating a corporation to earn him profits, but he's not a job creator. The market demand creates jobs. Not entrepreneurs. Entrepreneurs just chase demand and buy labor in order to earn even more revenue and make profit. Entrepreneurs do not create …

Redistribution is not Compassion, Taxes are not Charity

Robin Hood Misunderstood

The legend of Robin Hood is sometimes cited as an example, mistakenly summarized as "Take from the rich and give to the poor!" That is not what Robin Hood did, though.

Robin Hood fought the corrupt sheriffs of Nottingham and Derby. What made these men corrupt? They collected unreasonably high taxes from the residents of the two shires. Prince John of the stories also raised taxes, not only on the poor but also on the wealthy nobility. Those who were loyal to the prince, however, received "favors" (lower tax rates) and were more likely to have the crown prince buy goods from them. (Crony capitalism, anyone?)

The way the system worked at the time, the sheriff was the tax collector and law enforcement in a region. He paid to retain the post, using tax money and fines to fund the annual payment to the royal court and to pay off local nobility for their support.

Robin Hood fought unfair taxes and tax breaks given to the fortunate few. You…

Robert J. Samuelson: Romney’s chance to challenge the welfare state - The Washington Post

Robert J. Samuelson: Romney’s chance to challenge the welfare state - The Washington Post

I wish the Republicans had nominated someone with at least some rhetorical skills, and ideally someone with a genuine sense of the American Dream from hard-earned experience. Mitt Romney? He might be the worst thing to happen to the GOP's public image since George W. Bush.

When Romney described 47 percent of Americans, he was ruining a discussion we must have a nation:
There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax.

Study: Tax Cuts for the Rich Don’t Spur Growth - U.S. Business News - CNBC

Study: Tax Cuts for the Rich Don’t Spur Growth - U.S. Business News - CNBC

I have written several times about tax rates, especially the historical levels of taxation and how those rates of yesteryear are often misunderstood or misrepresented.

See: While the "90 percent" tax rate was the top marginal rate for a few years, it was also during a time when everything and anything seemed to be deductible. The effective rate for top-income earners has been relatively consistent. This means that rates, overall, have had little economic effect. When rates are increased, so are those magical loopholes (deductions) and when rates are lowered, Congress has had a tendency to close loopholes.

I've long argued that a simple tax code, with minimal loopholes/deductions is the best approach. It might leave some accountants and tax attorneys look…

Krugman Confuses iPhones with Broken Windows

Paul Krugman is at it again, either intentionally misleading readers or demonstrating an odd lack of familiarity with an economic theory. I'm assuming he is misrepresenting the theory he discusses and is misleading readers.
Broken Windows and the iPhone 5 11, 2012

There's been some buzz about a report suggesting that the iPhone 5 could, all by itself, give a significant boost to the US economy.The key point is that the optimism about the iPhone's effects has nothing (or at any rate not much) to do with the presumed quality of the phone, and the ways in which it might make us happier or more productive. Instead, the immediate gains would come from the way the new phone would get people to junk their old phones and replace them. In other words, if you believe that the iPhone really might give the economy a big boost, you have — whether you realize it or not — bought into a version of the &qu…

Is College Debt Worth It?

What you study and where you study it matters, especially if you're going to be sinking into debt while completing a degree. There has been some research that illustrates this:
College ROI: What We Found - on Education and the Workforce - St. Journal PayScale Database - First, the notion that college graduates have a comparatively low unemployment or underemployment rate is misleading. The table below shows that "low" unemployment isn't so low among recent graduates, though people over 30 with college degrees do have lower unemployment than the national average.

Second, even those with jobs are often not in jobs that require any college education. As you will read below, as many as 40 percent of graduates in the humanities are working in positions that do n…

Romney + Ryan = Real Discussion We Need

The announcement by Mitt Romney that he has chosen Paul Ryan as his vice presidential running mate means we will have a much needed discussion about the serious economic issues facing this nation. That Paul Krugman and other "progressives" dislike Ryan's budget proposals means the ideas deserve some consideration.

You can find many articles describing the "Ryan Budget" and you can read the complete budget document.
The House Budget Committee posts its documents online:
I disagree with some of Ryan's specific proposals, but the key to me is that he admits we are in a financial quagmire that must be addressed. As opposed to the Keynesian idealism of progressives…

Freedom From vs. Freedom To

Following a post on Krugman, probably because that is what he was reading, Nathan posted the following comment:
In your description of yourself, you are a classical liberal defined as:
"Classical liberalism embodies the original concept of liberalism: a faith in freedom to, not freedom from as a guiding principle."

Yet the concept of 'freedom to,' which is positive liberty, is contained nowhere in the U.S. Constitution. The founding fathers of our country were, as far as the definition of classical liberal that I know, mostly classical liberals - hence where we get the term. Yet, the U.S. Constitution is only written in terms of negative liberty, or 'freedom from.'

How do you reconcile what appears to be a modern interpretation of classical liberalism from what is most assuredly a different actual and historical definition of the term classical liberal?

Check the definition with references from the Stanford Encyclopedia of Philosophy before answering - http:/…

Regulatory Recklessness

Congress has a long history of ceding power to the executive branch. The arguments for this, that administration requires expertise and efficiency, do little to justify the surrender of Constitutional authority. Sadly, this surrender of power to unelected and too often unaccountable bureaucrats shows signs of accelerating.

Review the administrative expansion under Presidents Bush, Clinton, Bush, Obama and the number of regulations issued are depressing. President Obama has a penchant for the expensive, too.
The Daily Caller

In his 2012 State of the Union speech, Obama claimed, "I've approved fewer regulations in the first three years of my presidency than my Republican predecessor did in his."

Obama's statement was true, but skewed, because he's far outpacing Bush in the production of "economically significant" regulations, each of which imposes costs of more than $100 million per year, said Wayne Crews, a vice president for policy and director of techn…

Tax Cuts for the Rich? Barely 4% of the $12 TRILLION Mess

Truly depressing…
The $12 trillion misunderstanding - The Washington Post: After the CBO issued its report, Sen. Rob Portman (R-Ohio), a former director of the Office of Management and Budget who is often mentioned as a vice presidential possibility, put out a news release saying that Bush tax cuts for wealthier Americans (generally $250,000 or more for couples and $200,000 for singles) explained only 4 percent of the debt shift. The CRFB checked his math and concluded that he was right. But all of Bush’s 2001 and 2003 tax cuts — which, except for benefits for the rich, are now supported by Obama — had a bigger effect, accounting for about 13 percent of the debt swing. Tax cuts for the rich just don't seem to be the problem. What is the problem? Our system, which encourages favors for any and every group of voters. At some point, we will need to cut spending, cut spending, and cut spending. Then, we also need to incrementally return marginal tax rates to traditional levels, sans th…

Obama vs the Successful Individual

There have been a great many blog posts and columns written since President Obama spoke on July 13, 2012. Many of his defenders have tried to "correct" any confusion about what his words meant, arguing that his statements were misinterpreted by the press and taken out of context by opponents.

As Charles Krauthammer rhetorically asks, "Did the state make you great?" The problem for Pres. Obama and his supporters is that his argument is deeply flawed. We do succeed with the help of friends, family, church, non-profit organizations, and, yes, government (generally of the local variety). But, many people have the exact same access to all these various supports… yet some succeed and some fail.

Also, a simple point of fact: government is the people, not something outside and above the people. Without successful people paying taxes, there would be no w…

Econ Blogs and Twitter Feeds

I've been swamped with some personal matters these last few weeks, but I have been using Twitter to let people know about great articles and blogs. If you want to follow me on Twitter, use @AlmostClassical. The profile is at:!/AlmostClassical

Because I'm not blogging as much as I'd like, you might consider adding the following blogs to your reading list:

Cafe Hayek: in Wonderland: McArdle, at The Atlantic:
Most readers likely know my favorite websites, but let me suggest a few anyway:

Cato Institute: Legal and Policy Center:
Once things settle down, I hope to be blogging again. There are certainly enough issues to tackle!

Proof 'Stimulus' Won't Save Europe

Stimulus — oh, that's right, we now call it "growth policies — will not save Europe. How do we know? Because the countries in the greatest trouble were spending… and spending and spending some more.
Spare the rod, spoil the child | TribLIVE: Johan Norberg, a senior fellow at the Cato Institute, summarizes the results: "From 1997 to 2007, government expenditures increased by around 6 percent annually in Spain, Portugal and Greece, while population remained mostly stable. Spending increased by 4 percent a year in Italy -- even while the economy shrank."  Consequently, "Between 2000 and 2010, Portugal increased its public debt as a share of GDP from 49 percent to 93 percent, France from 57 percent to 82 percent, Italy from 109 percent to 118 percent, and Greece from 103 percent to 145 percent," reports Norberg. How hard is this to figure out? There was no "austerity" even under conservatives in Europe, as I wrote in a previous blog entry. The U.K. an…

Austerity? Not Really…

Many in the chattering class, especially the economists and politicians on the left, keep telling us "Austerity has failed!" No, austerity hasn't been tried.

I won't even bother with links to Paul Krugman's near-daily calls for stimulus — and inflation — in Europe, which would require a complete disregard for European experiences and German biases towards savings and low-inflation. Such economic arguments are beyond silly: convince Germans that an 11 percent savings rate is a bad idea? Really? Cause inflation in the hopes it will force Germans to spend money? Krugman and other economists can suggest these solutions because they know, they must know, that German citizens are not about to go on a spending binge and buy Greek, Spanish, or Italian goods.

Yes, Germans really do save more than 11.4 percent of their income. And for ten years, Germany employed true austerity and labor reforms. They loosened labor restrictions (compared to the rest of Europe), slowed …