New York Mayor Bill de Blasio paid a lower effective tax rate than Mitt Romney and Warren Buffett

Posted by PITHOCRATES - April 16th, 2014

Week in Review

The problem with Republicans is that they are so greedy that they put money before people.  That’s why they oppose taxes.  Because they don’t want to give up any of their money.  At least, this is what Democrats say about Republicans.  Along with the ‘tax cuts for the rich’ mantra.  In fact, they castigated Mitt Romney for only paying an effective tax rate of 14% in 2011.  Even Warren Buffet decried the unfairness of the tax code where rich guys like him pay an effective tax rate of 17.4% while the poorer classes working beneath him paid on average 35%.  Even his secretary paid a higher tax rate.  And that just wasn’t fair.  Of course Buffet’s 17.4% in actual dollar amounts dwarfed the tax dollars of everyone working for him combined.  But that’s not the point.  No, the point is that Republicans are all a bunch of greedy, vicious, heartless bastards.

New York’s new mayor is a Democrat.  And he isn’t a greedy, vicious, heartless bastard.  In fact, he promised to raise taxes on those rich fat cats who pay as little as a 14% effective tax rate.  Something he would never do himself.  Because he’s not a greedy, vicious, heartless bastard.  He’s a Democrat (see New York Mayor Bill De Blasio Pays A Lower Tax Rate Than Mitt Romney by Hunter Walker posted 4/16/2014 on Business Insider).

Democratic New York City Mayor Bill de Blasio became a prominent proponent of progressive tax policy when he made raising taxes on city residents who make over $500,000 a year a cornerstone of his platform during his underdog campaign last year.

That’s why it raised eyebrows and drew some initial national coverage when The Wall Street Journal reported Tuesday that de Blasio had paid an “effective tax rate” of 8.3%.

That would put de Blasio’s tax rate substantially lower than the approximately 14% tax rate multimillionaire former Republican presidential nominee Mitt Romney was attacked by Democrats for paying in 2011.

Well, somehow it works out that a Republican paying a 14% effective tax rate is a greedy, vicious, heartless bastard but a Democrat paying 8.3% is not.  Go figure.

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To avoid Detroit’s Fate Chicago looks at Revenue Generation from Speed Cameras

Posted by PITHOCRATES - August 11th, 2013

Week in Review

The City of Detroit bankruptcy shows how the massive costs of a city’s public sector are strangling these cities.  Promises of generous pensions for a long retirement and free health insurance up until you die are just promises these cities can’t pay for.  So some (like Detroit) raised their tax rates so high that people left the city in droves.  Further reducing the tax base.  While other cities turn to other revenue generating schemes (see Speeders were plentiful in camera test run by David Kidwell and Bill Ruthhart posted 8/12/2013 on the Chicago Tribune).

As Mayor Rahm Emanuel rolls out his long-delayed speed camera plan, new numbers his office released suggest that drivers who speed in Chicago could rack up way more in fines than a cash-starved City Hall initially projected.

The mayor had hoped to bring in $30 million this year. But results from a monthlong test of the automated camera system indicate the city could reap well into the hundreds of millions of dollars in the program’s first year.

City transportation officials argue that estimate is overblown, but the test period statistics the mayor’s office released Friday reinvigorated critics who argue that the program is more of a cash grab than the child safety measure Emanuel sold it as…

City transportation officials put estimated first-year revenues at $40 million to $60 million, arguing that several factors will cut down on the number of tickets actually issued.

For starters, they argue that it’s incorrect to estimate revenues based on the test program. They suggest the money will never reach into the hundreds of millions of dollars because of a number of factors. The most important: the fast learning curve of Chicago drivers…

Ald. Leslie Hairston, 5th, who voted against the speed camera program, said the number of speeders captured on the test cameras supports her insistence that the main motivation is to generate more city revenue.

“I guess this is just going to be a city for wealthy people, that’s where we’re headed,” she said…

The speed camera rollout was scheduled for closer to the start of the year, but it was delayed after City Hall came under scrutiny following Tribune reports of an alleged bribery scandal involving its 10-year-old red light camera program.

Making the streets safer for children is a noble goal.  But like their red light camera program it’s all about the Benjamins.  The money.  And they love cameras because they can rake in the money without having to put more costly public sector workers (i.e., cops) onto the streets.  That is, they’re outsourcing these costly union jobs to machines.  To minimize their labor costs.  Just like corporations try to minimize their labor costs.  Because union workers are very, very expensive.

But like every government revenue policy they’ve overstated the expected revenue from these cameras.  Just like a higher cigarette tax rate reduces cigarette tax revenue.  Taxes, and these revenue cameras, change human behavior.  Actually achieving the stated purpose for them (better health if people don’t smoke and safer streets if speeders are punished).  Which means though they have a burst of revenue in the beginning it will eventually taper away.  Requiring a new revenue generating scheme.  And then another one to replace that one.  And so on.  On and on.  Forever and forever.  Instead of doing the simpler thing.  And the thing that would work best.  Forever and forever.  Just stop spending so much.

If the public sector union enjoyed pensions and health care benefits like they do in the private sector there would be no Detroits going bankrupt.  Because there would be no generational theft.  These workers would provide their own pensions—401(k)s—and pay a much larger portion of their health care expense.  And they would work into their Sixties (or more) like the rest of America.  Instead of retiring in their 40s or 50s.  To enjoy a retirement that in some cases lasts longer than their working career.  This would solve the budget problems of the big cities.  Instead of passing it on to future taxpayers who were not included in those generous contract negotiations that they find themselves stuck paying for.

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Greece is cutting their Goods and Service Tax (GST) to replace the Lost Economic Activity the High GST Caused

Posted by PITHOCRATES - August 3rd, 2013

Week in Review

There are few things more enjoyable than going out to a nice restaurant.  Where you and your significant other can enjoy a fine meal.  And some adult beverages.  A couple of cocktails each before dinner.  A couple of glasses of wine each with dinner.  Then dessert and coffee after dinner.  It doesn’t get better than this.  But it can get costly.  Especially when there is a 23% GST (see Greece slashes restaurant taxes by Alanna Petroff posted 8/2/2013 on CNNMoney).

This week, the Greek government slashed the restaurant sales tax on food and drink across the country, making it cheaper for everyone to go out and grab a meal.

The restaurant sales tax, which was 23%, has been cut down to 13%…

It’s expected that the break will cost the government €100 million in lost tax revenue in the short term, but will ultimately benefit the country in the long run as it boosts tourism spending and encourages restaurant owners to declare more of their revenue to the government.

They acknowledge that a high GST tax (goods and service tax) rate discourages people from going out.  But the notion that cutting a tax rate will cost the government is a foolish Keynesian notion that must be done away with.  For example, let’s look at the numbers for the above noted dinner out.  If each entree is €8, each cocktail/glass of wine is €5, each dessert is €5 and each coffee is €2 the total for a dinner out is €70.  Add in the 23% GST (€16.10) brings the total up to €86.10.  That’s a lot of money.  So let’s say we can only do this twice a week.

The best part of going out is relaxing over adult beverages.  Which is often the largest part of the bill.  In our example, we drink a total of 16 adult beverages in those two dinner outs (and walk home/back to the hotel or take a taxi as we shouldn’t drive anywhere after enjoying 4 adult beverages during a meal).  Our total GST comes to €32.20.  Equivalent to the cost of 6.4 adult beverages.  In other words, the GST makes us pay for 6.4 adult beverages that we’re not allowed to drink.  So our 2 nights out we pay for 22.4 adult beverages but can only drink 16 of them.  If we went out 4 nights a week we’d pay for 44.9 adult beverages but could only drink 32 of them.  Or drink about 71.3% of what we paid for.  Which would limit our evenings out.  Now let’s look at what happens when the GST is only 13%.

The GST for our 2 nights out only costs us 3.6 adult beverages.  Not 6.4.  Which isn’t too bad.  So we are more willing to eat out.  If we go out 4 nights a week that GST now only costs us 7.3 adult beverages.  In other words, we pay for 39.3 adult beverages while getting to drink 32 of them.  Or about 82%.  Which would encourage us to go out more than before.

So with the high GST rate we may go out only twice a week and pay €32.2 in GST taxes.  But at the lower GST rate we may go out 4 times a week and pay €36.40 in GST taxes.  A 4.2% increase.  And because the lower tax rate is getting people to go out the restaurant owner doesn’t have to cheat the government out of the tax to get people into the restaurant.  If the tax rate is reasonable people will pay it and the owner will pass it on to the government.

This is something Keynesians don’t understand.  They see only loss tax revenue with a cut in tax rates.  Not the additional economic activity those lower tax rates will generate.  Which is why Keynesians have horrible economic records.  Like President Obama.  And the Eurozone nations.  While people who understand classical economics have good economic records.  Like Ronald Reagan.  And Margaret Thatcher.

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President Obama has a Lot in Common with the Social Democracy Ideology of the NDP

Posted by PITHOCRATES - April 13th, 2013

Week in Review

The New Democratic Party (NDP) of British Columbia is a social-democratic political party.  Their political ideology is Social democracy.  And the Social democracy political ideology is to transform capitalism into socialism through progressive social reform.  And they do that with higher taxes and wealth redistribution.  In fact, the current NDP leader in British Columbia has pledged to raise taxes should they win the coming election (see NDP promises tax hikes if elected by Bryn Weese, QMI Agency, posted 4/11/2013 on Vancouver 24 hrs).

Corporations, banks, polluters and the wealthy will pay more if the BC NDP wins the provincial election.

The party’s fiscal plan, unveiled at Simon Fraser University Thursday, calls for: a one point rise in the corporate tax rate from 11% to 12%, reinstating a 3% bank tax, expanding the carbon tax to include vented oil and gas emissions, and raising the personal income tax rate to 19% on incomes over $150,000 a year.

The party, if elected, also plans to run the same $800 million deficits it alleges the ruling BC Liberals are hiding. In total, the NDP would run nearly $2 billion in deficits over the next three years until the party, it says, would balance the budget in year four of a NDP government.

“We’re looking at those who have a little more to give a little more,” NDP finance critic Bruce Ralston told reporters…

The fiscal plan is a broad look at how the NDP will pay for its election platform, which will be detailed during the campaign. On Thursday, the party promised a childcare and early-education plan and a poverty-reduction strategy.

Earlier this week, NDP Leader Adrian Dix proposed increasing the tax credits for TV and film productions in the province to 40% of labour costs.

Sound familiar?  It sounds a lot like what you hear coming out of Washington.  For the Obama administration wants to tax corporations, banks, polluters and the wealthy more.  In fact they’ve used the same language.  “We’re looking at those who have a little more to give a little more.”  The Obama administration is running deficits.  President Obama even talked about expanding funds for childcare so children as young as 4 years old can receive state indoctrination.  I mean, early developmental skills.  The Obama administration has a poverty-reduction strategy.  They call it food stamps.  Some have even called him the food stamp president because more people than ever use food stamps.  And the Obama administration as a special relationship with TV and film production.  He even changed his stance on same-sex marriage in exchange for more Hollywood campaign donations.

So what does this mean?  Does it mean that President Obama is a Social democrat, too?  Because he shares the same political ideology of the NDP?  Social democracy?  Does this mean President Obama wants to transform capitalism into socialism through progressive social reform?  Of course not.  Just because it looks like a duck and walks like a duck and quacks like a duck it doesn’t mean President Obama is a socialist-leaning anti-capitalist.  It’s just a coincidence that he looks like, walks like and quacks like a socialist-leaning anti-capitalist.

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Mark Zuckerberg is a Rich Guy who will pay $1 Billion in Taxes

Posted by PITHOCRATES - March 31st, 2013

Week in Review

It’s open season on rich people.  The favorite target of the Left.  And governments everywhere that are spending far more money than they have.  To buy votes.  So to make up that shortfall they continuously attack the rich.  For how can the rich complain with all that money?  So they attack them.  To get them to pay their ‘fair’ share of taxes.  Despite the huge tax bills they pay (see Report: Zuckerberg facing $1billion tax bill by Brett Molina posted 3/29/2013 on USA Today).

So how much will Facebook CEO Mark Zuckerberg have to pay in taxes for taking his social network public..?

Citing three certified public accountants based in California, CNN says Zuckerberg’s final tally, after deducting charitable donations, sits at $1 billion.

The median U.S. income is $52,762.  Based on the 2012 tax rates a single person earning the median income will pay approximately $17,442 in federal income taxes.  Which means one rich person, Mark Zuckerberg, will pay the same amount of taxes 57,333 Americans will pay.  And if a rich guy is paying what 57,333 Americans are paying it’s pretty hard to say they aren’t paying their fair share.

Zuckerberg paid these taxes while the economy was limping along in one of the worst recoveries in history.  So it would seem we should be encouraging people to get filthy rich.  For they will be able to pay huge sums in income taxes.  No matter how low the tax rate is they pay.  Even in one of the worst economic recoveries in history.

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Woodrow Wilson, FDR, Progressivism, Great Depression, Creeping Socialism, Social Security, Baby Boom and Baby Bust

Posted by PITHOCRATES - January 15th, 2013

History 101

The Policies of Herbert Hoover and FDR caused and prolonged the Great Depression

Franklin Delano Roosevelt (FDR) took Rahm Emanuel’s advice.  Long before Rahm Emanuel gave it.  FDR did NOT let a good crisis go to waste.  And as far as crises go, none were better than the Great Depression.  After the government’s bad policies (wage and price controls, higher taxes, Smoot-Hawley Tariff Act, etc.) caused the Great Depression and then their monetary contraction caused the massive bank failures the poverty rate soared for senior citizens.  FDR saw that suffering and thought here was a way to forever lock in the senior vote.  Give seniors a government pension.  And put the fear of God in them that the opposition wants to take it away.

At the turn of the Twentieth century the new thing in politics was progressivism.  Smart government people intervening into our private lives to make things better.  The size of the federal government exploded during the presidency of Woodrow Wilson.  He gave us the Federal Reserve System.  America’s central bank.  That would prevent anything like the Great Depression from ever happening.  Which it failed to do.  As the Great Depression happened on their watch.  He gave us a permanent federal income tax.  He attacked the U.S. Constitution.  Making the case for expansive presidential powers.  And used the courts to get around Congressional opposition.  As well as the U.S. Constitution.

The political opposition fought back against Wilson’s power grab.  Defeating the progressive successor in the next election.  And returning the country to normalcy.  Warren G. Harding and Calvin Coolidge undid much of the anti-business policies of the Wilson administration.  Returning the nation to prosperity.  And giving us the Roaring Twenties.  Where the nation modernized with electric power, the automobile, radio, etc.  Unlike the speculative dot-com bubble of the Nineties.  Where investors poured money into dot-com companies that never made anything to sell.  The Federal Reserve was a little loose with their monetary policy causing some inflation in the Twenties.  But the economic activity was so robust that it absorbed that inflation.  Then the progressives got back in power.  First the Republican Herbert Hoover.  Then the Democrat FDR.  Whose policies caused and prolonged the Great Depression.

When FDR gave us Social Security it only cost Employer and Employee each 1 Cent of every Dollar up to $3,000

FDR was picking up where Wilson left off.  Expanding the federal government.  And the power of the presidency.  Using the federal courts like Wilson to bypass Congress.  And the U.S. Constitution.  Marking yet another departure from the free market capitalism that founded the country.  And made it the world’s number one economy.  It was a creeping socialism.  At least, that’s how the political opposition saw.  Especially with Social Security.  Which helped tip the power from the states to the federal government.  Just as Thomas Jefferson feared a strong executive would do.

Of course, the progressives played on our emotions.  These were, after all, destitute seniors.  We had to take care of these people.  Our fathers.  Our mothers.  Our grandparents.  Who sacrificed for us.  Now it was time to sacrifice a little for them.  And they promised it would be a little.  Both employer and employee would only pay 1 cent on every dollar earned up to $3,000 a year.  That’s all.  Only $30 a year (about $483.58 today).  And how could such a small amount be socialism?  The problem was that it didn’t stay only 1 cent on every dollar earned up to $3,000 a year.  The tax rate went up.  As well as the maximum taxable earnings.  The government has increased them both.  Often.

(source: Historical Social Security Tax Rates)

That low tax rate lasted barely a decade.  Then they started raising the maximum taxable earnings.  Not much for the first 30 years or so.  But once the Seventies arrived that maximum amount grew at an accelerated rate.  Despite the increasing tax rate.  Thanks to President Nixon decoupling the dollar from gold.  And ushering in the era of out of control Keynesian economics.  Where the government inflated the money supply like there was no tomorrow.  Devaluing the dollar at an alarming rate.  Which is why they increased the maximum amount of earnings at an accelerated rate.  Because constantly devaluing the dollar reduced what those Social Security checks could buy.  So they had to keep making those checks bigger.  And that required more tax revenue.

The Social Security Tax Rate held Steady during the Nineties thanks to the Dot-Com Bubble and Japan’s Lost Decade

But it’s worse than that.  For it’s just not bad monetary policy forcing the increases in the tax rate as well as in the maximum taxable earnings.  Something else happened during the Seventies.  Birth rates fell.  The baby boom ended in the Sixties.  But not the baby making activities.  They just continued along without producing new taxpayers.  Thanks to birth control and abortion.  Also, over the years they expanded the Social Security program to provide for more than just those destitute seniors.  So the benefits of the program greatly increases just as the falling birth rate reduce the growth rate of tax revenue.  As the number of people leaving the workforce grew at a greater rate than those entering the workforce.  Which is why when you convert the dollars into constant dollars the graph doesn’t change much.

We finance most wars with inflation.  By printing money to expand the money supply.  To give the government all the cash they need to buy the instruments of war.  And to pay, feed and clothe their military personnel.  We can see this rapid inflation during World War II as the real dollar amount of the maximum taxable earnings fell.  That changed in 1951.  When they started to increase that maximum amount.  That and the higher tax rate stabilized things for awhile.  Then the Seventies came along.  Where both the tax rate and the maximum taxable earnings amount continued to rise.  Even in real dollars.  Reflecting the growth in benefits.  And the fall in tax revenue.  Thanks to the baby bust following the baby boom.

The tax rate held steady during the Nineties thanks to the surpluses of the Clinton administration.  Due to that dot-com bubble.  And Japan’s Lost Decade.  Whose bad economic times helped boost the American economy.  Still they had to keep raising the maximum earnings amount.  As the baby boomers started retiring.  Then Clinton’s dot-com bubble burst.  Giving George W. Bush a recession to start his presidency.  His tax cuts pulled us out of that recession.  Then Bill Clinton’s revamping of the Community Reinvestment Act caught up with us.  Giving us the subprime mortgage crisis in 2008.  And the Great Recession.  Which President Obama tried to ameliorate by reducing the employee’s Social Security tax rate from 6.2% to 4.2% in 2011.  For his near trillion dollar stimulus bill failed to end the Great Recession in 2009.  As his Social Security tax cut failed to do in 2011.  Which was not enough to overcome his anti-business policies (such as Obamacare).  All he did was starve Social Security of hundreds of billions in revenue.  Making the Social Security funding problem worse in the long run.  Requiring even higher tax rates than that once promised 1% (for both employer and employee).  On earnings more than that promised $3,000 (about $48,000 today).

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FT150: “The Left wants to extend tax hikes down to those earning $250,000 because there are just too few rich people to tax.” —Old Pithy

Posted by PITHOCRATES - December 29th, 2012

Fundamental Truth

If you Confiscated ALL Income from those Earning a Million+ it would be Less than HALF of the Average Obama Deficit

The fiscal cliff yadda yadda yadda the Democrats want to raise taxes and the Republicans’ mothers are whores.  That about summarizes the fiscal cliff negotiations.  The Democrats want to raise taxes.  The Republicans don’t because there is nothing that will kill off an economic recovery quicker than raising taxes.  And the Democrats are mean.  Calling the Republicans a lot of names.  And saying things about them that aren’t very nice.  So once again let’s look at the numbers to see what they say about federal income taxes.  The following numbers come from the IRS (see Table 3.  Number of Individual Income Tax Returns, Income, Exemptions and Deductions, Tax, and Average Tax, by Size of Adjusted Gross Income, Tax Years 2001-2010).

The Democrats keep saying that the Republicans want tax cuts for the rich paid for by the poor.  But according to these numbers that’s just not happening.  People who earned $15,000 or less paid 0.0% of all federal income taxes.  People who earned $30,000 or less paid less than 1% of all federal income taxes.  It’s the meaty center that paid the taxes.  Those who earned from $75,000 to $1 million submitted approximately 20.5% of all federal tax returns while they paid approximately 62.9% of all federal income taxes.

Now how about those rich people?  Those earning $1 million or more submitted approximately 0.19% of all tax returns.  Less than a quarter of one percent.  And yet they paid approximately 21.9% of all income taxes.  Is that fair?  At these high levels of income people pay basically the top marginal tax rate as only a very small fraction of their earnings falls outside this top rate.  So if we divide the total taxes paid by this 0.18% ($207 billion) by 0.35 (the 2010 top marginal tax rate) you get a total income of $590 billion.  So if you confiscated ALL of their earnings it would be less than HALF of the average Obama deficit ($1.324 trillion).  Meaning that it is IMPOSSIBLE to reduce the deficit with any tax rate on those earning $1 million or more.

The Rich may be paying Lower Tax Rates but they’re paying Far More Tax Dollars than most of Us

All right, so it won’t reduce the deficit.  But the Democrats say we must do this to be fair.  Meaning those earning more should pay more even if it’s only symbolic.  To punish success.  As if they’re not being punished already for their success.  We’ve all heard about Warren Buffet’s secretary paying a larger tax rate than he pays.  But talking percentages isn’t the same as talking dollars.  Because a small percentage on a much larger earnings amount will produce more tax revenue than a higher tax rate on a smaller earnings amount.  So let’s look at dollar amounts to see if the rich are paying their fair share.  Or whether we’re punishing them enough for their success.

The rich paid a smaller percentage of their earnings in taxes but paid far more in actual dollar amounts.  Which is the only thing that allows government to pay for things.  Dollars.  Let’s assume Warren Buffet’s secretary falls into the income range $50,000 to $75,000.  Who paid on average $4,310.92 in federal income taxes.  Now compare this to what rich people paid in income taxes.  Those earning from $1 million to $1.5 million paid on average $306,779 in federal income taxes.  Or more than 71 times what someone earning $50,000 to $75,000 paid.  Those earning $1,500,000 to $2,000,000 paid 102 times more than that lower income earner.  Those earning $2,000,000 to $5,000,000 paid 179 times more than that lower income earner.  Those earning $5,000,000 to $10,000,000 paid 407 times more than that lower income earner.  Those earning $10 million or more paid 1,389 times more than that lower income earner.

The rich may be paying lower tax rates but they’re paying far more tax dollars than most of us.  An inordinate amount.  If you look at it in terms of government services people consume (which is what taxes pay for) are those earning $10 million or more consuming 1,389 times the government services those earning $50,000 to $75,000 consume?  No.  If anything, they consume far less government services than most people.  Because they live the good life.  The good life their high earnings provide.  Being that the rich are paying far more than their fair share you can only conclude then that these excessive taxes are punitive.  To punish their success.

The only way to Achieve Real Deficit Reduction is to Increase Taxes on the Middle Class or Cut Spending

So what can we conclude?  The rich are paying more than their fair share of taxes.  The amount of tax dollars they’re paying could even qualify as being punitive.  As they are so great any further increase in rates on the rich is not likely to increase tax revenue.  First of all as they are already paying so much they will take every tax shelter advantage they can to minimize the further confiscation of their earnings.  But more important than that is that there are just so few rich people.  Even though the rich pay on average hundreds of times more in federal income taxes than that meaty center it’s the meaty center where most of the tax revenue comes from.  Because there are so many more people in the meaty center.  And by graphing the number of tax returns from each income bracket and the amount of tax revenue they pay we can understand why the Democrats are so adamant to raise taxes on those earning as little as $250,000.

The blue line (Series 1) is the number of tax returns filed in thousands of people for each income bracket (the left vertical axis).  The red line (Series 2) is the total tax revenue in millions of dollars each income bracket produces (the right vertical axis).  You can see the meaty center of tax revenue (from those earning $75,000 to $1 million).  And you can see the meaty center of those filing tax returns (form those earning $30,000 to $200,000).  As you can see the meaty center of tax filers and tax payers are not the same.  As the tax code shifts the tax burden onto the higher income earners.  And in this chart we can see why the Democrats want to increase tax rates on those earning $250,000 and more.

The drawback to progressive tax rates is that it shifts the tax burden onto fewer people.  Who must pay more in taxes than is their fair share.  And that worked for awhile until government grew so large.  But as our aging population has increased the costs of Medicare and Social Security (and soon Obamacare) there just aren’t enough rich people to tax to pay these soaring costs.  And they will have no choice but to shift the tax revenue graph to lower income people.  So they can capture more people (and incomes) under this graph.  Yes, they want to tax the rich more.  But only for the symbolism.  For once they’ve punished them by forcing them to pay their ‘fair’ share then they can raise tax rates on everyone else.  Which is the only way they have a snowball’s chance in hell of achieving real deficit reduction.  Increasing taxes on the middle class.  Well, that, or cutting spending.  Which could provide serious deficit reduction.  By shrinking the size of government. The very cause of those massive deficits.  And accumulated debt.  But shrinking government is, of course, crazy talk for those on the Left.  Who would rather let the country sink into insolvency before agreeing to that.

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Paying French Workers more for less Work is putting France on the Path towards Greece

Posted by PITHOCRATES - December 9th, 2012

Week in Review

France is where President Obama is trying to take the United States.  While the French are trying to figure out a way to save the French from the French (see Insight: Making France work again by Mark John posted 12/9/12012 on Reuters).

Yet the overtime episode is a telling insight into a France struggling with itself: the France whose appetite for work sits uneasily with the France whose priority is to sustain one of highest standards of living in the world…

Its welfare system is among the most generous in the world. A road and rail transport network means its companies are within hours of tens of millions of potential customers. It is a leader in luxury goods and is the world’s top tourist destination.

But somehow that Gallic vigour is being lost.

Unemployment is at 14-year highs as plant closures mount, France’s share of export markets is declining, and the fact that no government in three decades has managed a budget surplus has created a public debt pile almost as big as national output…

And it was the cost of that generous welfare state that has raised the cost of doing business in France so much that less business is done in France.  Less business means fewer jobs, less private income to tax and less corporate income to tax.  Forcing the French to turn to borrowing to sustain that generous welfare state.

By 1980, French economic growth had shrunk to two percent compared to its pre-oil crisis rate of above six percent – a rate which France and most rich states have not seen since.

In the years that followed, governments around the world reacted in their fashion: Britain’s Margaret Thatcher faced down Britain’s unions in a drive to free up labor markets, while Scandinavian leaders sought to free their economies of debt.

In France, governments of left and right chose entrenchment: strong rises in public spending which helped ease the social and employment shocks but which sent national debt soaring from 20 percent of output in 1980 to its current record of 91 percent…

The high productivity of its workers might have compensated for their rising cost. But decisions such as the 1997 cut in the working week from 39 to 35 hours meant many French were also starting to work less.

A 2008 paper on “the Liberation of French growth” by Jacques Attali, ex-adviser to Socialist President Francois Mitterand, calculated that while the French lived 20 years longer than they did in 1936, they worked 15 years less over their lifespan – a shortfall he labeled “35 years of extra inactivity”.

“Even given that each French worker produces five percent more per hour than an American, he produces 35 percent less over his working life,” he found in the 245-page report.

You need two things to generate tax revenue.  A tax rate.  And income to tax.  In other words, you need businesses to grow and hire more people.  But when they reduced the work week down to 35 hours that’s fewer hours worked.  And less income to tax.

One of the ideas behind the reduced work week was to force employers to hire more workers.  For example, if a company had 15 employees working 39 hours per week that’s a total of 585 hours a week to complete the necessary work each week.  When they reduced the work week to 35 hours it now took 16.7 workers (585/35) to complete the 585 hours of required work per week.  As you can’t hire 0.7 of a worker that rounds up to two new workers the state believed owners would hire.  The government believed they’ve reduced the unemployment rate.  But they’ve actually increased the unemployment rate.

The existing workers may be working 4 hours less a week but their employers are still paying them the same.  Which makes workers more costly to employers.  For they’re getting paid the same but are working fewer hours.  Forcing the owner to raise his or her selling price to cover these higher costs.  Or laying off a worker or two so their current revenue can pay for their higher labor costs.

So all of the government’s policies intended to increase the number of high-paying jobs actually decreases the number of high paying jobs.  Encouraging employers to hire part-time workers or temporary workers in lieu of full time workers to escape these higher labor costs.  Reducing the gross amount of income in the economy to tax.  Forcing the government to borrow more to support that generous welfare state.  And it gets worse.

France has an aging population.  So not only are French employees working fewer hours there are fewer workers entering the workforce than leaving it.  And those who are leaving the workforce are collecting pensions.  And consuming health care resources.  With these growing expenditures being paid by fewer workers entering the workforce who are working fewer hours each week.  Forcing the government to borrow even more to support that generous welfare state.  Which is why their total debt now is 91% of GDP.

And it will only get worse if France doesn’t make the country more business friendly.  While at the same time cutting their spending.  As French students took to the streets to protest a proposed increase in the retirement age a year or so ago don’t expect either to happen anytime soon.

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FT147: “The politician that plays with the meaning of words most is the politician that is lying the most.” —Old Pithy

Posted by PITHOCRATES - December 7th, 2012

Fundamental Truth

When you start Playing with the Meaning of Words it’s usually because you’re Trying to Lie

When President Clinton committed perjury when denying having sexual relations with Monica Lewinsky he tried to play with the meaning of words.  Saying it depended on what the meaning of ‘is’ is.  Clinton was a lawyer.  Like most politicians.  Who like to parse their words.  To twist their meanings.  So they can say one thing.  While they mean the complete opposite.  Clinton said he did not have sex with Lewinsky even though he had.  But the words he used could be parsed to both say he did and did not have sex with that woman.  Monica Lewinsky.  Lewinsky’s blue dress with Clinton’s semen on it, though, proved he was lying despite his nimble linguistic gymnastics.  And the House of Representatives impeached Clinton.  But the Senate didn’t have the votes to remove him from office for his perjury.  Nor did he resign as Richard Nixon did after he was caught in his perjury.

In George Orwell’s Nineteen Eighty-Four the oppressive socialist state did the same thing.  Play with the meaning of words.  To make lying easier.  The Ministry of Love was like the Gestapo in Nazi Germany or the Stasi in East Germany.  Institutions that tortured and instilled fear into the people.  Which was for the people’s own good.  For the state loved the people.  At least that’s what the state said while they were torturing and abusing the people.  The Ministry of Plenty was responsible for the empty store shelves and the constant hunger gnawing in the people’s bellies.  The Ministry of Peace waged perpetual war.  And the Ministry of Truth was the state’s propaganda arm in charge of state censorship.  Advancing the state’s lies.  Like Joseph Goebbels did in Nazi Germany.

Words mean things.  And when you start playing with the meaning of words it’s usually because you’re trying to lie.  Trying to advance an unpopular agenda by disguising that agenda in a cloak of disarming words.  You can trust anything coming from the Ministry of Truth as the word ‘truth’ is in its name.  And you have nothing to fear from the secret police as the branch of government they work under is all about love.  And when the state tells you over and over again that it is a moneyed upper-class that is the cause of everything that is wrong in your life you start believing it.  Whether that moneyed upper-class are rich capitalists and bankers.  Or Jews in 1930s Germany.

The Ronald Reagan and George W. Bush Tax Rate Cuts brought in Record Tax Revenues into the Treasury

Liberal democrats like to tax and spend.  They believe in big government.  They like it big like it is in Europe.  Where they have socialism-light.  Social democracy, they call it.  A big, expansive welfare state funded by high tax rates.  When taxes can’t pay for all their spending they borrow money.  When they can’t borrow any more they start printing money.  As a result of this excessive state spending most of Europe is mired in a sovereign debt crisis.  Many nations are so broke that they have no choice but to cut back their spending.  Which is sending people into the streets rioting.

This is where the U.S. is heading.  Most people who understand economic fundamentals know this.  And vote against going further down this European road.  But there are a lot of people who don’t understand economic fundamentals.  They listen to their Ministry of Truth.  The Democrats, the public schools, college professors, mainstream media and the entertainment establishment.  Who all lean left.  And who all say the only problem we have is a moneyed upper-class who aren’t paying their fair share.  Though the top 10% of income earners pay about 70% of all federal income taxes.  Something the state doesn’t mention when they say they aren’t paying their fair share.  So the people don’t know that they pay 70% of all federal income taxes.  And they are more willing to believe their Ministry of Truth.

The public schools, college professors, mainstream media and the entertainment establishment do their part, too.  By revising history.  They note the deficits of Ronald Reagan in the Eighties.  And blame those deficits on the Reagan tax rate cuts.  But what they don’t tell the people is that after those cuts in tax rates the amount of tax revenue (money coming to Washington from taxpayers) nearly doubled.  President Obama and his Ministry of Truth blame all of our economic woes on George W. Bush’s tax rate cuts.  But what they don’t tell the people is that the treasury collected a record high in tax revenue under George W. Bush.  Proving that cuts in the tax rates did not cause any fiscal harm.  It was the greater increases in spending that caused all of the harm.

Democrats want to Raise Taxes on Everyone because they are Tax and Spend Liberal Democrats

Under baseline budgeting increases in spending amounts are automatic.  Every year they go up.  And they never go down.  So when the politicians decry proposed draconian spending cuts there are no real cuts in spending per se.  What they are proposing to cut is the rate at which to increase spending.  Say, instead of an automatic 7% spending increase they will only increase spending 5%.  Spending will increase 5%.  But those in government call it a 2% spending cut.  Which is why despite all of the spending cuts ever enacted (and there hasn’t been a lot of them) the federal debt has never gotten any smaller.

So an increase in spending can be a spending cut.  But the Orwellian doublespeak doesn’t stop there.  Those on the Left call tax cuts increases in government spending.  (Interestingly, the only kind of spending the government can never afford.)  Here’s why.  Excessive spending causes deficits.  And if they cut tax rates they believe less money will flow into the treasury.  Thus increasing the size of the deficit.  Ergo, spending and tax cuts are the same because both increase the deficit.  Of course that’s a fallacy.  As proven by Reagan and Bush.  Who actually increased tax revenues by cutting tax rates.  How?  Lower tax rates encourages more economic activity.  More people are working and paying taxes.  Resulting in a higher tax revenue overall.

Currently President Obama and his Ministry of Truth are saying that the Republicans are fighting against a middle class tax cut to give the richest 2% a tax cut.  Which isn’t exactly true.  There are no tax cuts on the table.  The George W. Bush tax cuts are expiring.  If they expire everyone’s taxes will go up.  The president wants to extend these tax cuts.  But only for the middle class.  Unfortunately, there are many small business owners whose business earnings flow to their personal tax returns.  Which puts them into the richest 2%.  But most of that money never comes out of their business.  They may be taxed as rich people.  But they live middle class lives.  Because they reinvest their earnings into their business.  To buy new equipment.  To expand their business.  And to hire new people.  This is why Republicans don’t want to raise taxes on these small business owners.  For it’s these small business owners who provide the majority of jobs in the economy.  And increasing their taxes will only hurt the economic recovery.

The Republicans offered to increase tax revenues by revising the tax code to eliminate certain deductions.  Providing the amount of revenue the president was asking for.  But the president refused.  For he wants those increases in the tax rates.  To complete the revision of history by ‘righting the wrongs’ of the Reagan and the Bush administrations.  To further the lie about the Reagan and Bush tax cuts.  But there’s another reason.  The amount of revenue he’s asking for now (whether it’s from eliminating deductions or increasing tax rates) won’t make a dent in the deficit.  Or the debt.  The only way they will be able to do that is by increasing taxes on the middle class.  Which will be a lot easier to do after they raised taxes on the rich.  Which is what they want to do.  Raise taxes on everyone.  Because they are tax and spend liberal Democrats.  But as most people don’t vote for people that want to raise their taxes, they lie.  And play with the meaning of words.  As liars do.  And the politician that plays with the meaning of words most is the politician that is lying the most.

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Undecided Voters, Party Platforms, Capitalism, Socialism, Free Stuff, Taxes, Spending, Deficit and Balanced Budget

Posted by PITHOCRATES - November 29th, 2012

Politics 101

There are Stark Differences between Republicans and Democrats even though many are Equally Worthless

A lot of people listen to opposing candidates before making their voting decision.  The perennial undecided voters.  Who often don’t make up their mind until they enter the voting booth.  Who are swayed by the prevailing political winds.  Who are more susceptible to the lies and misinformation bombarding them during political campaigns.  For these are good people.  Kind people.  Trusting people.  Which is why the Left can lie to them so easily.

Anybody who has to listen to both parties’ candidate make their case before choosing who they will vote for does not follow politics.  Does not understand the platforms of the two major parties.  Does not have an understanding of rudimentary economics.  Or history.  For if they did they would be aligned with one party or the other.  Because all Democrats are basically the same.  And all Republicans are basically the same.

Democrats choose to be Democrats because they believe in and support the Democrat platform.  Republicans choose to be Republicans because they believe in and support the Republican platform.  Not in their entireties.  But pretty darn close.  Otherwise they would not identify themselves with their chosen party.  For there are stark differences between the parties believe it or not.  Even though many candidates from both parties are equally worthless and contemptible.

Republicans lean towards Free Market Capitalism while Democrats lean towards European Socialism

Republicans lean toward free market capitalism.  The Austrian school of economics.  Small government.  Low taxes.  Low government spending.  Sound noninflationary monetary policy.  A business-friendly environment that encourages entrepreneurialism.  And job creation.  They tend to be more socially conservative.  And would prefer to combat the rise in teenage pregnancy and teen sexually transmitted diseases by having teens doing more homework and having less sex.

Democrats lean toward European socialism.  What they call social democracy.  The Keynesian school of economics.  Big Government.  High taxes.  Lots of government spending.  Inflationary monetary policy so they can print the money that they can’t tax or borrow to pay for all that government spending.  They don’t believe that there can ever be too much business regulation (they may talk about creating good-paying jobs but their policies hinder job creation).  They tend to be more socially liberal.  And would prefer to address the issues of teenage pregnancy and teen sexually transmitted diseases by providing free birth control and abortion.  Because teens are going to have sex anyway.  And asking them to do more homework won’t change that.

These aren’t their official platforms.  And it’s not an all-inclusive description of their policy positions.  But it gives you a general idea of their differences.  And as you can see there are differences.  An undecided voter may struggle with their choice between Democrat and Republican.  But that’s a decision few Democrats or Republicans ever have.  Because they know the differences between their two parties.  And really don’t like each other.

Those who vote Straight Party Ticket will know how they’ll vote even before any Candidates Announce

When it comes to wooing the undecided voters both political parties tend to downplay their official platforms.  To keep from confusing the undecided with stuff they don’t understand.  Or, worse, to keep from scaring away the undecided in case they do understand this stuff.  So they make personal attacks.  And promise free stuff to voters who’ll vote for them.  Which Democrats can do a lot better.  As they always want to raise taxes and increase government spending.  Which comes in handy when giving away free stuff.  While Republicans want to govern responsibly.  Which isn’t very conducive to giving away free stuff.

Of course the Democrats don’t come out and say that they will tax people more so they can increase the size of government.  To administer that free stuff.  So they say things like they just want everyone to pay their fair share.  And that those who can afford to pay more (the 1%) should pay more in taxes.  For if only we were fairer we wouldn’t have these trillion dollar deficits.  The president would like to return to the Clinton era tax rates.  Raising the top marginal tax rate from 35% to 39.6%.  In 2010 the top 1% earned about $1.7 trillion.  So raising the top marginal tax rate 4.6 points would raise about $77.5 billion in additional tax revenue.  Sounds like a lot of money until you look at the average annual deficit of President Obama’s 4 years in office.  Which comes to about $1.3 trillion for each of his 4 years.  So the president’s proposal to balance the budget would only raise revenue equal to 5.86% of his average budget deficit.  Which won’t be anywhere near enough to balance the budget.  So we’ll have to do more.  And once we raise taxes on the rich that leaves the middle class.  Which we will have to tax punitively to balance the budget if we don’t cut spending.

Of course, the Democrats don’t tell us this.  This math.  Though they talked about math a lot during the 2012 campaign.  Instead, they just talk about being fair and having the rich pay more.  Which sounds like the decent thing to do.  Especially to the undecided who the Democrats haven’t exactly told the truth to.  Which is why those who understand this math tend to vote straight party tickets.  Either for their special interests and the math be damned.  Those who tend to vote Democrat.  Or those who seriously want to balance the budget before we end up like Greece.  Those who tend to vote Republican.  And unlike the undecided voters these people know who they will vote for even before they know who the candidates are.  Who will ignore whatever the candidates say during the campaign.  And, ironically, these people will probably be more informed than those undecided who study the candidates’ positions up until they enter the voting booth.

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