FT91: We vilify doctors, hospitals, pharmaceuticals and insurance companies for rising health care costs but we don’t vilify professors or universities responsible for rising tuition costs.

Posted by PITHOCRATES - November 11th, 2011

Fundamental Truth

Greedy Taxpayers are Blamed for the High Cost of Higher Education

Both health care and tuition costs are rising.  They’re out of control.  Both are crises.  We hear about it all the time.  And we’re doing something about it.  Interestingly, though, we’re trying to solve these crises differently.

We’ve identified villains in the health care industry.  Doctors who order unnecessary procedures.  Hospitals that carry out unnecessary procedures.  Greedy pharmaceutical companies that make seniors choose between food and medicine.  And greedy insurance companies who keep raising their premiums while aggressively denying claims.  All who contribute to the rising cost of health care.

So we know who wears the black hats in the health care crisis.  It’s a little different in the tuition crisis.  Do you know who the villains are there?  We are.  The greedy taxpayers.  Who have nothing to do with the rising cost of tuition.  No.  Our crime is our opposition to ever higher taxes.  So we can subsidize ever more of the high cost of higher education.

The Rich Fat Cats above the Professors live like Wall Street Fat Cats

So why are costs so high?  And why aren’t we blaming those who make these costs so high?  Like we blame doctors, hospitals, pharmaceutical companies and insurance companies?

Universities are awash in cash.  From tuition.  From the state.  From corporations.  From benefactors.  From alumni.  And, of course, from college sports.  A multibillion dollar industry.  That doesn’t pay a dime to the athletes that generate all that cash.  So universities have a lot of cash.  Yet tuition costs keep going up.  Why?

What are the costs of a higher education?  There are classrooms.  But these are long-term fixed assets.  That last decades without any improvements.  There are textbooks.  They’re very expensive.  Rarely less than $100.  Which is odd.  Because it’s rare to find a book at Barnes and Nobel for more than $100.  So that’s a profitable enterprise.  Textbook publishing.  While all other publishing is bleeding red and going out of business.  And there are, of course, faculty.

The life of a university professor is pretty sweet.  You get to hide from the real world on campus.  You have great working hours.  You get a lot of time off.  Sometimes all summer.  And have graduate students do all of your busy work.  It’s a charmed life.  And students pay them well for it.  And once they get tenure they can pretty much do whatever they want.  And no one will ever fire them.  No matter how many of their graduates can’t find a job.

And then you have all the rich fat cats above the professors who do even less.  Who drive the same kind of cars the Wall Street fat cats do.  And live in the same kind of houses the Wall Street fat cats live in.  But no one protests these rich fat cats.  Who got rich by ripping off students.  Via the ever rising costs of higher education.

Getting into the University System is like being Knighted in the Old World

The university system is a microcosm of Old World aristocracy.  Getting into the system is like being knighted in the Old World.  And university life is like the Old World.  Where no one challenges your privilege.  Because that wouldn’t be proper behavior.  And lacking the respect due to the privileged class.

Of course this isn’t a problem when you produce great doctors, scientists and engineers who make the world a better place.  We thank those professors who work tirelessly for the betterment of society.  But to those who sucker kids into worthless degree programs?  Where there’s no math?  Only ‘no right or wrong’ essay questions?  And no jobs waiting for them in the private sector?  Well, we’re not quite as enamored with these professors.

Because we’re left to clean up their mess.  From students defaulting on their student loan debt.  Because they can’t get a job.  To the mess they make while protesting Wall Street greed.  Because they can’t get a job.  All the while those responsible for their plights are preparing to raise tuition costs yet again.  As they always have.  And always will do.  Free from blame.  Even though they are more blameworthy than those on Wall Street.

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FUNDAMENTAL TRUTH #34: “Sure, until you win the lotto you’re all for sticking it to the rich.” -Old Pithy

Posted by PITHOCRATES - October 5th, 2010

Money Envy

Class warfare is a different kind of warfare.  During the English Civil War, the Protestants and the Catholics were trying to kill each other.  They didn’t want to have anything to do with each other.  Protestants didn’t want to be Catholic.  Catholics didn’t want to be Protestant.  But in class warfare, it’s a little different.  The poor want to be rich.

The poor hate the rich because they have it so much better than the poor.  But they don’t hate the idea of being rich per se.  Just who gets to be rich.  Because, given half the chance, they’d choose to be rich if they could.  Why?  Because the rich typically don’t go wanting for food, shelter or clothes.  They also get to have all the neat toys to play with.  And they wear some nice bling.

So the poor don’t really hate the rich.  It’s just money envy.  After a child grows up he or she may notice that they like money.  They see they have no money of their own.  So they want their mother’s or father’s money.  Because there are limits, and sometimes outright rejection, they seek money elsewhere.  As they grow up, they may get a job.  Sell drugs.  Prostitute themselves to conventioneers.  Marry into it.  Steal it.  Become a ward of the state.  Or play the lotto.

Whose Money is it Anyway?

During this phase in their life, politicians, college professors and the media bombard them with messages of income redistribution.  Fair share sacrifice.  Taxes on the rich.   And all around fairness.  It all sounds good.  And right.  Those damn rich people.  How dare they?  Why them?  Why not me? 

Well, some inherited their money.  Like the Kennedys.  Some married into it.  Like John Kerry.  They live like rich royalty from days of old.  When there was a true aristocratic class that could actually own people.  But they are there, fighting for you.  Liberals.  Taking away other people’s money and giving it to the more deserving.  And the poor are all for that.

A luxury tax?  Yeah, stick it to them.  An inheritance tax?  Sounds good to me.  How about taxing their assets?  Their net wealth?  Because some of those rich bastards don’t even work.  They invest their money.  Sure, they pay a confiscatory capital gains tax on their earnings, but their earnings pale in comparison to their overall wealth.  We need to go after that pile of wealth.  Redistribute it.  Along egalitarian principles.  Level the playing field.  Close the gap between the rich and the poor.  The way the liberals look at it, it’s the government’s money anyway.  So the government can spread it around as they damn well please.

Poor/Rich – It’s All Relative

Most of these rich bastards are not Kennedys or John Kerrys, though.  Most are self-made.  Through hard work.  And personal sacrifice.  Most are small business owners.  They borrowed everything they could.  They mortgaged their homes.  They risked their children’s college funds.  And they made something.  A small business.  Created jobs.  They hired people.  Something the Kennedys and the John Kerrys of the world don’t do.

Most of these small business owners are ‘S’ corporations.  They aren’t big corporations with corporate officers.  No finance or a legal department.  They’re just people who work 80+ hours a week.  They may never see a million in annual revenue.  But they’ll probably make more than $250,000.  And, being an ‘S’ corporation, that makes them rich.  Even if they leave the money in their business to grow it.  But the IRS still taxes them like they’re rich fat cats lighting their cigars with $20 bills. 

Yes, they’re small business owners.  But they’re still pretty much middle class people.  Do the poor hate them, too?  Sort of.  Simply because they have more than they do.  And the politicians, college professors and the media point out how wrong that is.

Congratulations.  And Thank You

And then one day you buy a lotto ticket and, overnight, you become rich.  Congratulations.  It’s nice to have another rich person to tax.

Yes, you won the lotto and now you’re rich.  How does that feel?  Are you looking forward to redistributing your winnings?  For egalitarian principles?  Help close that gap between rich and poor?  Or have you become a greedy rich bastard?  Like all those others you used to hate until you became one of them?

Whether you do or not doesn’t matter.  For the IRS will be coming after you.  With their hand out.  For their share, a sizeable chunk of your winnings.  Your windfall will push you into the highest tax brackets.  And, guess what?  If you don’t pay your ‘fair share of taxes’ willingly, they’ll come after you.  Or seize your wealth.  And as sad as that may be, few will pity you.  Just as you did not pity those before you were rich.

Be Careful What You Vote For

Class warfare is good for politics.  Because there are always more poor people than rich.  And poor people are useful to someone running for public office.

But they don’t like you.  They don’t really care about you.  They care about only one thing.  To keep you poor.  For should you win the lotto, the chances of you voting for high taxes and income redistribution are slim to none.  Your egalitarian principles will fly out the window.  Which won’t help them.  So should you become rich, they will vilify you.  Come after you with a vengeance.  To take your wealth.  And return it to the rightful owners.  Themselves.  The government.  So they can use it as they please.  To buy votes.

And how will you feel then?  You might want to think about this ‘what if’.  Because you could win the lotto one day.  Inherit wealth.  Marry into it.  Or even earn it.  I mean, be careful what you vote for while in college.  One day you might make something of that education.  You may very well become rich one day.

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Look Out – Here Comes the Middle Class Tax Hike

Posted by PITHOCRATES - September 25th, 2010

A Little Business Primer

Who hires more people?  Big corporations?  Or small businesses?  Some may be surprised to learn that small business provides the majority of American jobs.  Little guys taking a risk.  Doing something they love.  Are good at.  They earn a living.  And provide jobs with benefits for others.  Not too shabby.

These people start their own construction company.  Buy a restaurant (from a lunch counter to a fancy place with table cloths and a wine steward).  Captain a fishing boat.  Move up from fixing cars in a backyard to operating a three-bay service garage.  Open a multi-chair hair salon.  Run a landscaping business (and snow removal business in the winter).  Sell ice cream to tourists from an independently owned Ben & Jerry’s on the strip.  Or buy and operate a McDonalds, Pizza Hut, Dunkin’ Donuts, Kentucky Fried Chicken, Taco Bell, etc.

These are not fat cats running fortune 500 corporations.  They’re no Donald Trump.  So they keep things simple.  And yet protect themselves.  They operate as an ‘S’ corporation.  This is sort of a hybrid between the regular ‘c’ corporation and a partnership.  There’s limited liability (you limit your losses to only what you invested into your business).  And there’s no business tax on earnings like in a partnership.  All earnings are distributed to the shareholders (which could be just one person).  And taxed as personal income. 

I Will Not Raise Taxes on Anyone Earning Under $250,000

Sounds good.  Stick it to the rich fat cats.  But who else makes more than $250,000?  I’ll give you a hint.  Reread the previous section.

A small business owner operating as an ‘S’ corporation is likely to earn more than $250,000.  But they’re not fat cats.  Far from it.  Let’s pick a number.  Something you think is fair for a business owner’s salary.  Someone who probably has his or her house mortgaged to the hilt.  Works 7 days a week and puts in on average 80 hours each week.  If they could earn, say, $75,000 working for someone else, would you begrudge them earning, say, $100,000 working for themselves?  For the sake of the argument, let’s say you don’t.  That’s less than half of the $250,000 tax threshold.  The small business owner, the generator of American jobs, should be safe from any Obama tax hike, right?  Wrong.

As a business struggles to grow, a business owner plows most of their earnings back into their business.  To buy a new copier.  Replace a furnace.  Buy new software.  New computers.  A network for your computers.  Inventory tracking.  A new delivery truck.  Decals for your new delivery truck.  Building signage.  A ‘yellow pages’ ad.  New telephones.  A new website.  New invoicing software with a custom-designed invoice form.  Etc.  But before you can spend this money, you have to earn it.  And, once earned, an ‘S’ corporation small business owner pays taxes on it.  Even if they invest it back into the business.  So, the higher the tax rate, the less they can grow.  And the fewer jobs they can create.

The Obama administration keeps bitching about the greedy bankers and big corporations who are sitting on their cash.  (And they sit on their cash for good reason.  They already have excess capacity.  So there’s no reason to expand.  Because there’re no markets to expand into).  The one area, though, where there may be expansion possibilities is in small business.  Raising taxes on those earning over $250,000 per year, though, will kill small business growth.  Kill jobs.  And prolong this recession.  So why do they persist in attacking the ‘rich’?  Because in terms of voters, they’re less of them than those earning under $250,000.

Playing the Numbers

The Bush tax cuts expire at the end of this year.  If Congress doesn’t extend them, taxes will go up and the economy will tank even further.  And Obama will have violated his no tax rate increase for anyone earning less than $250,000 pledge. 

But there will be no vote before the midterm elections.  (See Congress Punts on Taxes by Martin Vaughan and John D. McKinnon at the Wall Street Journal on line.)  The Republicans want to extend them across the board.  This is a problem for Democrats.  If they do, it endorses George W. Bush’s economic policies and discredits their own.  And angers the liberal base.  They would rather extend the cuts only for the middle class.  This, however, won’t help the small business owners (i.e., the job creators).  So the Republicans are opposing this as it will not help the economy. 

Let’s look at the numbers.  Note the chart at the bottom of the Wall Street Journal article referenced above.  Especially the fine print.  It reads, “2008 tax year, an additional 25% of filers are in the 0% rate category.”  In other words, 25% of the voters pay no federal income taxes.  If you add that figure to the sum of the top three ‘Pct. of filers’ in that chart it equals 95.1%.  In other words, approximately 95.1% of voters earn $140,550 or less.  Only 4.9% of the voters earn more.  Hence the class warfare.  And after stirring up the masses (the 95.1%) to hate the rich (the 4.9%), they have no choice but to keep on hating.  I mean, they can’t tell the 95.1% that they were wrong, can they?  Especially when the poll numbers are moving against them.

So, of course, the Obama administration sticks to the time-honored playbook.  And attacks the rich.  In hopes of persuading enough of the 95.1% to forget about results and to just vote their hate.  We call it playing the numbers.  There’s only one problem.  Most of the 95.1% work for the 4.9%.  So if you make it too costly for the 4.9% to expand and create jobs, they won’t.  They may even cut back.  And the 95.1% are the ones who will suffer.  They may see a reduction in their benefits.  Work longer hours (because their boss can’t afford to hire a new employee). They may even lose their job.  And their house.  They may not like that.  But at least they can find solace in their hate.

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