Friday, April 16, 2010

Unemployment Insurance

Economists have known since the beginning that unemployment insurance promotes unemployment. Even the liberal Krugman acknowledges this.

The attitude is, why work when you can get a reasonable amount of money for doing nothing? An article by Stossel sums it up with his take on French entitlements in America. This is why unemployment insurance should be limited to 3 months during boom periods and perhaps 6 months during recessions. Obama and friends are probably kicking themselves in the asses by continuing to extend these benefits because unemployment will remain high for a much longer time period, which makes them look bad.

Party Crasher

This explains a lot about a Liberal Teacher planning to undermine the Tea Party:
Levin has said he would seek to embarrass Tea Partiers by attending their rallies dressed as Adolf Hitler, carrying signs bearing racist, sexist and anti-gay epithets and acting as offensively as possible -- anything short of throwing punches.
Dirty politics. I bet there is a lot more of this going on as mentioned by other commentators. All the racist remarks, death threats and spitting that we have heard of, now there is proof on the record that liberal operatives are engaging in this kind of behavior.

Thursday, April 15, 2010

Tax Breaks for the Wealthy

This is a very misleading statement, and depending on the motives of the speaker, it is also biased. Most Americans hear this and think that somehow the 'wealthy' are paying a lower percentage and/or a lower absolute amount than them. The 'wealthy' pay both a higher percentage of their income and a higher absolute. There are of course exceptions, such as Warren Buffett, who pay a lower percentage (but not an absolute level) but this is because nearly all of this income comes from capital gains. Capital gains are returns on investments and receive a lower tax rate
because there is an element of risk that one must factor into the true cost. You may win, or you may lose. It is different than just collecting a paycheck.

Fratto's Rebuttal

CNBC: Fratto: That 47 Percent No Taxes—Another Closer Look

Wednesday, April 14, 2010


So a writer at the left-leaning NYTimes felt he had to attempt to skew perceptions a little bit by writing a completely biased article in response to the 47% fed-tax-free article (prior posts). Also at CNBC (you have to give it to CNBC, they try to provide both sides to the issue).

Something I posted in the comments section:

The author himself is selectively reading the facts.
"Over the last 30 years, rates have fallen more for the wealthy, and especially the very wealthy, than for any other group"
But the fact remains, they are still paying most of the taxes!! A 35% Top federal (+ 7.5% SS + 3% Medicare/medicaid) is still higher than ZERO. It doesn't matter if tax rates have come down from 90%, they are still paying a 1) higher percentage and 2) higher absolute. Why do we have a problem with people's incomes growing? Obviously they have a useful skill and should be 'rewarded' by allowing them to keep more of the income that THEY earned.

Stop raising taxes, it just gives politicians more incentive to SPEND MORE! Across the board cuts need to take place including wiping out a large portion of the 57% of the federal budget that goes towards social entitlement programs.

Some selected quotes:
"There are also payroll taxes and capital gains taxes, among others. And, of course, people pay state and local taxes, too."
Yes, but did you read the article? It specifically mentions 'federal' not all taxes.

"If anything, the government numbers I’m using here exaggerate how much of the tax burden falls on the wealthy. "
The numbers are not exaggerated, the top 10% of earners pay about 90% of the taxes in this country. The burden falls on 'the wealthy.' Which by the way, I would expect a NY times columnist to expect anyone earning more than 100k a year to be wealthy.

"That is, middle-class and poor families may face higher tax rates than the wealthy"
This is consistently one of the most bogus Orwellian arguments ever. The sky is blue, but it is really green. If a tax is based on a fixed percent, or it is progressive, it cannot be regressive! By definition.

"Well, it’s hard not to notice that the talk show hosts themselves tend to be among the very wealthy. "
It's not hard to notice that the very ones promoting more taxes on the 'wealthy' are the ones who are not. Sounds like taxation without representation to me.

"They would prefer if other people had to pick up the bill for Medicare, Social Security and the military "
Wait, isn't this the attitude of the 'non-wealthy' Americans and the system currently in place (the 'wealthy' picking up the tab)?

Get rid of the free loaders in this country, support a flat tax. If everybody had to put some money into the pot they would stand up against the wasteful government spending of this country.

We're VAT it again

Mankiw on

Unless the president revises his spending plans substantially, he will have no choice but to find some major source of government revenue," wrote Mankiw in the New York Times. "A VAT tax may be the best of a bunch of bad alternatives.
Well gee, why is the former option not getting the proper attention?
Kudlow on CNBC:
Look, if you think for a one moment that spendthrift politicians in Washington won’t treat higher tax revenues as their very own honey pot, think again. That’s exactly what this crowd will do.
As it has always been the case. Government only seems to get bigger and more powerful.

At each stage, the buyer receives a tax invoice that is filed with the government tax collectors; the buyer then gets a refund for the tax already paid by the previous person in the chain. The government, of course, gets the entire sales tax; it just receives it in a piecemeal way.
Sounds like a lot of additional bureaucratic paperwork to me.

But if nothing is done soon, argue proponents of the tax, the nation's huge deficit and debt burden are going to produce a wicked fiscal hangover similar to the one that Greece is experiencing now.
So these proponents never thought that culling wasteful government spending could provide the answer?

Monday, April 12, 2010

Move to Canada?

After the Bush tax cuts expire at the end of this year, it would actually be cheaper for many high income earners well into the top tax bracket to live and work in many parts of Canada than in California or New York City. And Canadians get free health care with that.

Canada has a top federal rate of 29% with Provinces ranging from 10-17.5% for their top tax brackets.

Saturday, April 10, 2010

A Gift From Our Founding Fathers

A wonderful quote from

If there is anything good to say about Democrat control of the White House, Senate and House of Representatives, it’s that their extraordinarily brazen, heavy-handed acts have aroused a level of constitutional interest among the American people that has been dormant for far too long.

Just a random extra:

Since 9/2000, the federal debt has exploded 128%, and this is before the $2.5 trillion dollar health care program.

Friday, April 9, 2010

Misconception of Bailouts

I have noticed that there is a real misconception to the American people of the 'bailouts' that have been passed through in this country. Everywhere you look, the populist media shouts about how Wall Street has plundered our country. I gather that the average American thinks that the government just opens its checkbook and gives free money to these organizations with no strings attached. But that is not correct, they are loans (or warrants/preferred stock). So far, the government has earned an 8.5% return on these loans and most major firms have already paid back the funds. That 8.5% return probably has to go down in the history books as one of USA's greatest investments. It's not quite up there with the Louisiana purchase, but it sure beats the crap out of the paltry treasury rates it peddles. So quite technically, so far taxpayers should be happy about the financial bailouts. But unfortunately they hear the word 'bailout' and think that someone out there is getting free money, and they don't like that (ironically, they don't complain about 47% of American's not paying federal taxes and getting a free ride).

Cash for clunkers was a true bailout. Taxpayers got fleeced in this one. It was sold under the guise of improving the fuel efficiency of the transportation capital and stimulating the economy during a recession. Really all it did was keep the US automakers from going under (for now!). Many of those who received the cash for clunkers were going to buy a new car anyway and the rebate just moved up the time-line for those buyers. Business week reported on the numerous flaws this program had, such as the limited number of people who will desire to start making car payments in the middle of a recession. And in another article stated, "In the end, the bill was written to help companies, especially in Detroit, sell more pickups and SUVs, which earn the struggling automakers more profit than smaller, fuel-efficient vehicles." So the whole rhetoric about fuel efficiency and stimulating the economy is out.

The automakers also received loans from the TARP program, but you only hear the American public crying out about those big bad banks. Banks serve a much more important purpose in this economy than automakers with overpaid unionized workers who have been struggling for years to pump out overpriced gas guzzling earth destroyers. If you look at the historical record, bankers have always gotten a bad rap. But they serve an important purpose to any modern economy: provide capital to businesses collected from millions of savers. The bankers make a profit, the savers make some interest, and the business gets a loan - everybody is a winner. The US automakers have been losing market share for years. It is only a matter of time before these organizations die because they cannot compete with the quality produced by other nations (primarily Japan).

Perhaps the banking situation was extraordinary and what is done has already been done. But going forward, the government should either stay out of it and let them fail or prevent firms
from getting too big to fail in the first place.

Capitalism is the business version of "survival of the fittest."

Unequal Income Distribution

Do YOU want to redistribute some of the nation's wealth? Do you feel jealous that somebody out there is making $250k a year, but you are earning a paltry $40k? I'll tell you how to fix this problem, in a simple three step plan!
Step one: Figure out what these rich bastards do.
Step two: After you've pinned down the careers of these flamboyant wealth slingers, figure out how they got there.
Step Three: Copy them.
It's that simple! After step three, that wealth will be redistributed to you! Generally, what this entails is getting educated, working hard at the job, making sacrifices, taking risks, climbing the ranks of the organization and building personal relationships.

Of course, I am being facetious about the simplicity because this is not easy to do. But I am making a point. This is precisely the reason people earn high salaries. They didn't just wake up one morning and a high-powered career was 'distributed' to them. Sure there are people who find these jobs because of their family connection or whatever, but aside from this being beside the point, it doesn't mean that they don't work hard. And say they don't work hard and they aren't worth it, then their organization is the one suffering and it's the organization's own problem where the situation will likely correct itself through competitive forces. But notice my emphasis of this three step program was on you. Not punishing the other guy who worked hard to get where he is, but elevating yourself to get to a level you are happy with.

But here is the problem in America. We've heard it is called the 'entitlement generation.' Given that over half the federal budget goes to social programs (see previous posts), it's not too hard to see what encourages that mentality. Americans just want stuff given to them without having to work for it. They want the easy road. But why should the easy road be rewarded? Who would want to become a doctor if they spent 8 years in college, 4 years in residency if they only stood to make $40k a year? The point is that people get paid for their marginal productivity. The system values their contribution to society, and values it highly.

And why should it matter to you that Joe down the street is making 3 times as much as you? Aside from pure jealousy, I can't think of anything. Americans are a jealous people. They hate when their neighbor has more toys than them. They want to be better than everybody else, but mainly through the reliance on luck. Because Joe down the street is making 3 times as much as you does not mean that he is stealing money from you. This is not a zero-sum game where one person's gain is at the other's expense.

And here is another fact. The demographics of the wealthy, middle class and poor are generally at different stages in their careers (another great point discussed by Thomas Sowell). Most of the people considered wealthy are senior level professionals in their 40s and 50s (obviously). Many people currently considered the middle class will soon ascend into this upper class designation as their career progresses. Simply cutting a cross section of the economy and dividing it up based on income is highly misleading to the true economic situation and facts surrounding it.

For myself, a difference of a few weeks brought me from being classified as legally poor to being legally 'rich.' And no, I didn't win the lotto. I graduated with another graduate degree and was hired into a full time position. Did anything substantially change? Did my bank account shoot up? Did I go out and buy an Aston Martin V12 Vantage? None of the above. The only thing changed was what tax bracket I will end up in and a mark in the IRS database as being 'rich.' But my point is that from one day I was legally poor and then a few days later was legally 'rich,' but the only thing that changed was that I reached a new stage in my life. These income/wealth distribution statistics should report life cycle information, but that wouldn't rile up the voting base as much, now would it?

I used to envy people driving nice cars and living the good life. But what did I do, whine and cry about how they should be getting paid less or taxed more? No, I worked my ass off in college sacrificing nearly all of my 20s to obtain 3 degrees. While most college students were off at frat parties or in Cancun for spring break, I was in the library studying. Am I living the good life now then? No, not quite. I will be paying off massive student loans for years, but it is the sacrifice that I am making to make it in life and to earn the things I want in life. I have invested in my future, and I should be allowed to keep the return on my investment since it was me who put in the hard work and financial investment.

Thursday, April 8, 2010

Value Added Tax

Also on today's front page is that the government is mulling over yet another tax :::gasp:::. Didn't see that one coming. This time however, it is essentially a national sales tax, known in Europe as a VAT tax. Maybe all these freeloaders from today's earlier post would actually raise a ruckus about this one since they couldn't get exempted.

Kudlow writes some additional points about the "The Tax Attack on America"

What's your federal tax bracket, zero?

We live in a country of leeches. According to a new news article on the front page of CNBC today, Nearly Half of US Households Escape Fed Income Tax. As I stated in a previous post recently, it's no wonder that more people aren't up in arms over excessive taxation, because they benefit from the current status quo. If you read further in the article you will see that many are getting PAID not to pay taxes because their tax credits exceed their tax liability. Well gee whiz, that's going to motivate someone to elevate themselves above their current situation so that they can stop earning free money.

With half paying taxes and half not, essentially all the successful, hard-working people are subsiding another person. It's like having another child in your house. Or, another way of looking at it is having your neighbor sneak into your house and steal money out of your wallet so that he can pay his taxes with your money. If these people actually had to put some of their own money into the pot, they wouldn't be so carefree about wasteful government spending.

Average American mentality:
"I want some free stuff! Let's go legally rob that rich guy over there with additional taxes because he can afford it."
Uh yeah, American leech, you could afford it too if you followed a similar path that the 'rich' guy followed.

Perhaps if you went to college, majored in something useful, spent most of your time in school worried about how you were doing in the class instead of how drunk you were going to get for spring break Cancun, and then landed a career so that you could start working 70 hour work weeks, maybe you too could be rewarded for all your hard work by paying more of your hard earned money to fund wasteful government programs that reward laziness.

But unfortunately, American's don't want to be great. They just want to get by, preferably with someone else paying the bill.

Wednesday, April 7, 2010

Sunday, April 4, 2010

Laffer Curve

So, I was at the bookstore browsing through the business section and came across a book by Steve Forbes, Capitalism Will Save US. Aside from it appearing to be an overall interesting book, I came across a chapter that discusses tax cuts simulating economic activity and leading to more overall tax revenues. It is an economic theory called the Laffer Curve. I have encountered this theory numerous times throughout the years in both my education and in articles, but I haven't researched it for its empirical veracity. There are many critics who say we are not on the side of the curve that increases tax revenue (such as one of the few ultra-liberal economists, Krugman), but actual studies that present data seem to be in short supply. I plan to research this a little more thoroughly for a more in-depth blog article, but a cursory search on information led to a study by the independent International Monetary Fund (IMF) that showed tax revenues increased in Russia when they cut taxes to a flat tax system.

More to come.

High Taxes

What these governments don't understand is that taxes reduce innovation. They seem to think that people will tolerate any tax rate and business will continue as usual. It doesn't.

A good example is France. France has one of the highest tax rates in the world. If people are willing to leave their homeland to keep more of the money they earn, they will do so. About 3.5 years ago, an article published in the Washington Post titled, "Old Money, New Money Flee France and Its Wealth Tax" is a good example of the flight from taxes. Or, more recently, the flight from the new taxes imposed in the UK, "Hundreds of bosses flee UK over 50% tax".

Relatively, USA looks pretty good on the list (except for New York and Illinois). But our relative position is not as important. People always get caught up with how we compare to something else. Relatively, I am rich compared to a homeless guy living on the street. At the same time, relatively, I am poor compared to Steve Jobs. Relatively is not what matters. Absolute terms does because that is what affects you.

A top federal income tax rate of 35% + social security taxes (since I will never see a return) + medicare/medicaid taxes + state income taxes + sales taxes + property taxes + car registration taxes + and on and on. At the end of the day, easily 60% of the money you make goes to the government.

You may not work for the government, but in fact, you do.

Saturday, April 3, 2010

Low Savings Rate and Social Security

The government always expresses concern about the low savings rate in this country, but in reality it is their own fault. They don't encourage policies that promote saving. If I put money into a bank account (or other investment) and then 30% of it goes back to the government, why not just go buy a Hummer or a BMW 7 series like everybody else in America? Plus, is the government really setting a good example here when they have a massive budget deficit and federal debt is $14 trillion dollars? By way of example, living loaded with debt is a stamp of approval. It's the American way.

Social security. So the idea is that I pay into this system and am supposed to get money later in my life (which I won't because the system will be bankrupt, but let's pretend for the original sake of the program; also, the program is financed with taxes being paid by the young directly going to payments for the old - the 'trust account' is more like a checkbook, tallying up what is owed). Essentially this program is forcing me to save at a paltry rate of return (treasury bills). How about I opt out and handle my own affairs? By its very nature, this program impedes on my economic freedom. I don't need the government to hold my hand and force me to save. If I fail to save on my own, then I would get my just desserts. It's about personal responsibility. And anyway, people put too much emphasis on what this program will provide for them. The implication is, why save, when the government will take care of me?

Here's an idea, unlock the cap of 401ks and IRAs. For IRAs, why are we limited to $5k a year? If all young people were encouraged to save for their retirement now, then reliance on social security 40 years from now would not be as important and this government ponzi scheme wouldn't be such a crisis. Why is it a felony for Bernie Madoff, but an entitlement when the government does it?

A simple piece of advice for Americans: Live below your means, not above them.

Flat Tax Theory

I will discuss more about this later, but I think if there were a flat tax, citizens of the United States would be more concerned about the wasteful spending of this country. As the situation stands, only a small minority of Americans pays the bulk of taxes in this country (see prior posts) and therefore the voice against prodigality is muted. The way I see it, if everybody were putting in their fair share, they would care more.