The Pitfalls of Globalization

Although the failings of Obamacare and its website are a life and death issue for many Americans, the state of the economy is still our number one domestic problem.   Many articles about our growing and appalling disparity of wealth and incomes have been appearing lately, usually written by liberals.  I have conservative views, but facts are facts.  The average real wage has steadily declined since 1976, and the upper 20% of Americans now own more than 87% of all the wealth.  The bottom 40% own only .3 of 1% of the nation’s wealth, and these data are only a few of many devastating indicators.  The result has been a lowering of living standards and rising levels of stress and anger.  This disparity has, indeed, become our nation’s greatest domestic problem.

I’ve written several articles about this, and pointed out the several reasons for these trends.  Advances in technology, including robots and email, have eliminated millions of factory and middle management jobs.  Other factors include: an explosion in energy costs, the collapse of private-sector unions, our welfare system, and globalization.  In my opinion, the main reason for the increasing disparity and our present stagnation is globalization or so-called, “free-trade”, which has decimated manufacturing industries and jobs, and shifted them overseas.   The result has been that Americans who live on investment income become richer, while most of America becomes poorer.  What has happened is that the average American has traded a good-paying job for the opportunity to buy cheap goods at Walmart.  This has had the most devastating effects on black families living in inner cities where factories have completely disappeared.

Both political parties are to blame, as both have succumbed to the ephemeral lure of the benefits of “free-trade”, while both seem paralyzed by references to Smoot-Hawley tariffs and its role in the Great Depression.  It clearly was a mistake not to protect our manufacturing base, and we have to start working out of this mess.  Right now, the average American cannot find a good job, and their children cannot find any job.  It is especially dismaying to hear President Obama talking about a free trade agreement with Vietnam, which will just increase the flood of cheap goods and further exacerbate the problem.

What we need to do is 1, stop any further “free-trade” agreements; 2, require our military to purchase only items 100% made in the USA; 3, subsidize and protect the startup of manufacturing businesses located in inner cities; 4, begin negotiations to abrogate current agreements such as NAFTA; 5, begin to impose limited tariff protections for existing industries that need help; 6, encourage the growth of private-industry labor unions by amending Taft-Hartley to allow “right-to-work” laws only to apply to public-sector unions; and 7, review all federal regulations relating to manufacturing with the object to eliminate those that are unreasonable or do not survive an unbiased cost-benefit analysis.

I used to view with shock and disgust the violence that occurred in cities where globalization conferences took place.  Now that I am aware of the destruction that globalization has brought, I have a little more understanding of that anger.

Why No Inflation?

While middle-class and lower-class, working Americans suffer from low pay (the average real wage has declined steadily) and from joblessness, corporations are making large profits, and the stock market has risen to record levels.  Globalization and the housing crash brought us to this point, but the current dilemma is the direct result of Obama Administration economic policies.

The Federal Reserve is pumping hundreds of billions of dollars into the economy by buying Treasury Bonds ($2 trillion, so far).  Ordinarily this would be causing high and rising inflation here at home, and many of us have taken steps to protect ourselves from a hyperinflation that, so far, has failed to develop.  Inflation is higher than admitted by the government, but not anywhere what we would have expected.  The question is, why not?  An explanation is in this excerpt below from RealClearMarkets:
“While Washington's latest figures show a year-over-year CPI increase of just 1.2%, the private service ShadowStats, which recalculates the data along the lines that the government used to, finds that real consumer inflation is closer to 9%.

My guess is the true number lies somewhere in between, but that it would be much higher were the US not able to export much of its inflation abroad. The process works as follows: the Fed prints money (inflation) and uses it to buy Treasuries and mortgages. The government and banks, in turn, pass much of that money to consumers, who spend it on imported goods. The money then flows to foreign manufacturers of those products, who then sell it to their own central banks, who print their own currencies (inflation) to buy it. This money goes out to pay wages, rents, etc., which the recipients then spend on goods & services. Finally, the foreign central banks use the dollars they buy to purchase US Treasuries and mortgages, starting the cycle again.

It's a complicated relationship, but the end result is that inflation created in the US ultimately bids up consumer prices abroad and Treasury prices at home. In other words, our trading partners have to pay much more for goods & services while Americans get to borrow limitless money for next to nothing. The products our trading partners "sell" us increase the supply of goods available to American consumers while simultaneously decreasing the supply available to everyone else. That is what I mean by "exporting inflation," and the important thing to remember is that its result is to mask inflation at home and transfer wealth from emerging markets to the US.”  RealClearMarkets

This cannot continue indefinitely, but right now we cannot predict when the day of reckoning will come.  Remember how the market tanked when the Fed simply wondered aloud about how and when they should start tapering off the Quantitative Easing?  More on this in future articles.

 

The Bigger Picture Part II

In part one (just below) I showed how middle class and lower class Americans have suffered huge decreases in wealth and incomes, especially in the last 35 years, while upper class Americans have made great gains.  This has particularly affected African-Americans whose family life has disintegrated, trapping them in inner cities.  To add to the misery of inner-city life, in cities like Detroit, not only has there been white flight, but those African-Americans who had somehow become successful have also moved out.

Black murder-rates have now reached 10X those of other races, and blacks now account for 85% of all inter-racial crimes. Since almost all victims of black murders are blacks themselves, it behooves all races to try to work together to reverse these trends, even if radical measures are necessary

I identified four areas that can be worked on that are the sources of the problem:

 1. the welfare state led to the disintegration of the African-American family.

2. low and unskilled factory jobs have disappeared in inner cities.

3. the wholesale decline of private sector unions.

4. income tax rates have been cut drastically since 1981 when the highest rate was 70%.

Some solutions will anger liberals; some will anger conservatives.  Cooperation and compromise are necessary before our society disintegrates completely, even though solutions some will call ‘radical’ are necessary.

 The Welfare State

Since AFDC Welfare came into vogue with President Johnson’s Great Society, the number of black children  born out-of-wedlock has reached almost 75%, whereas before AFDC, the black rate was the same as the white rate, leaving us with a society in which millions of fatherless, young black men roam.

The only solution to this problem is to leave AFDC in place for those now receiving it, but end it for new recipients; and replace it with emergency assistance for those needing temporary help, possibly for a period of up to six months, which cannot be repeated for at least three years.

Inner-City Factory Jobs

The federal government should not only subsidize, but guarantee investment in factories built by entrepreneurs in inner cities.   The government should not only establish tariff protection for products of these factories, but guarantee product sales for the early years of production.  We subsidize farmers, and I can remember when cereal grains were burned, potatoes were dyed blue, and milk was dumped.

Why not subsidize an activity that can help restore lost neighborhoods and lost souls?

Restore the Health of Private Sector Unions

I chaffed when I was forced to join a union after I landed my first good job, and later, as an owner of a business, I fought against any attempt at unionization.   It is only recently that I have come to understand the state of income and wealth disparity in this country and to understand the role of union decline in furthering this disparity.

Private-sector union membership has fallen from a peak of 35% of the total private industry labor force in 1950 to a little over 6% today.  There can be no doubt that the decline in factory wages is somewhat keyed to the decline of unions.

Private-sector unionization must be encouraged by federal legislation outlawing “right-to-work” laws as they affect unionization of non-public workers.  “Right-to-work” laws should only be applied to public-sector workers.  This means that “union shops” would be legal in all states (they are illegal in 23 states), and new workers would be required to join and support the existing union.

The Tax Code

The only direct way to ameliorate income and wealth disparities is through income and estate taxes.  I know that some will say that increasing taxes will depress economic activity, but I believe that that is only true for taxes on investment income, which I would leave alone.  I wish that certain tax shelters and tax loopholes could be closed, because the upper 1% of income earners actually pay less taxes than the next lower earnings group, however that is a complex subject beyond the scope of this article.

The current top income tax rate on incomes over $400,000 is 39.6%, a recent increase from 35%.  In 1981, before the Reagan tax cuts, the top rate was 70%. 

I believe that a new top rate of 70% should be applied to incomes exceeding $5,000,000 per year.

The current estate tax is 40% on estates exceeding $5,250,000.  Because of the devastating effect high estate taxes have on family-run farms and small businesses, I would leave this system alone.

 

Note:  All statistics presented in this and in my preceding article are from recognized sources that were stated in previous articles on these subjects in this blog.

The Bigger Picture Part I

Recently I wrote some blog articles about the growing and dangerous disparity of wealth and incomes in America.  My site has always taken a conservative view of issues, and my readers have considered mine to be a conservative voice.  I learned from some of the responses to these articles, however, that conservative America also has many ideologues who ignore facts and data that do not comport with their world view – as do liberals whose foolishness is destroying our culture and our cities like Detroit.

 I was called names like ‘socialist’ and ‘communist’ by many readers simply because I had pointed out that present-day measures of incomes and wealth were similar (and even worse than) those that preceded the trust-busting era near the turn of the last century, and that conservatives and liberals had to join forces to come up with ways to minimize these disparities before our society imploded.

I have also noticed, over the last few years, how conservatives are much more likely to turn on Republicans they formerly supported, simply because of a single issue of disagreement.  Many former supporters of Senator Rubio, for example, have deserted him because of his stand on immigration; I disagree with him, but he is still a great senator whom I will support against any liberal Democrat.  Democrats always seem to be able to unite behind a position once their leadership has settled on it.

 In the aftermath of the Zimmerman trial, I view the unbelievable outcry from the ignorant crowds following the corrupt race baiters like Al Sharpton and Jesse Jackson to be a symptom of both the disintegration of our society caused by income and wealth disparity, and of our need to apply both liberal and conservative measures to improve the lives and the opportunities for young, black men.  It is not white men that black men have to fear, but black men who were fatherless children and who have no good jobs or job opportunities; whites need to fear them too.

 It was greatly disappointing that President Obama chose to speak so little of this side of things, but instead fed the nonsense that profiling and white vigilantes pose a major problem for African-Americans.  What poses major problems for African-Americans is ordinary life and the poverty and the inequality that come with it.

 The kind of inequality, which I mentioned above, was a fact of life at the turn of the last century. It led to the trust-busting that made Teddy Roosevelt a hero, and to the breakup of Standard Oil and of the US Steel Company. Inequality peaked in 1928 and then ameliorated greatly up until the late 1970’s, when it began to reverse and take on steam. The income inequality ratios that existed in the 1920’s have returned and exist today. One example of this is that average CEO pay was 40 X average factory pay in 1976. In 2008, average CEO pay was 400 X average factory pay. This is immoral and unsustainable, and is one of the reasons why real wages have declined steadily from 1976 through the present day.

 In 2007 the richest 1% of the American population owned 34.6% of the country's total wealth, and the next 19% owned 50.5%. Thus, the top 20% of Americans owned 85% of the country's wealth and the bottom 80% of the population owned 15%.  Even more shocking is the fact that the bottom 40% of Americans (that’s 128 million Americans) own just 3/10’s of 1% of the nation’s wealth, and many of them have negative wealth.

 What Are The Reasons For This?

1.   the welfare state led to the disintegration of the African-American family.

2.   low and unskilled factory jobs have disappeared in inner cities.

3.   the wholesale decline of private sector unions.

4.   income tax rates have been cut drastically since 1981 when the highest rate was 70%.

 I understand that there are other factors such as globalization and technological changes, but the above four factors are somewhat within the power of American voters to change, if liberals and conservatives can manage to make compromises and work together.

In my next post I will explore some of those changes.

 

Rasmussen Agrees With Me

Many of you are ignoring the facts and just don’t get it. The class situation in this country is worse than at any time since just before the Great Depression. I’ll say it again: the top 20% of Americans own 93% of this country’s wealth, while the bottom 80% owns just 7%, and the bottom 40% owns just .3 of 1%. The average real wage has declined steadily since the 1970’s, creating increasing divisions and hardship, while CEO pay has increased 1000%. Republicans are ignoring these facts at their peril. Rasmussen agrees:
 
Republicans Need to Get Over the Makers vs. Takers Mindset

By Scott Rasmussen - April 21, 2013 RealClearPolitics

Mitt Romney’s secretly recorded comment that 47 percent of Americans are “dependent on the government” and “believe they are victims” isn’t the only reason he lost the presidential campaign. But the candidate himself acknowledged after the election that the comments were “very harmful.”

He added, “What I said is not what I believe.”

But many Republicans still believe it, and the “makers vs. takers” theme has a deep hold on the party. In private conversations, many in the GOP are whispering that Romney was right and that his only mistake was saying it out loud.

I can’t tell you how many times I’ve heard people say something like, “Well, the half who favor government programs is the half who don’t pay any taxes.”

This is ridiculous — on many levels.

First, the overwhelming majority of those who don’t pay federal income taxes pay a whole variety of other taxes, including state and local taxes, payroll taxes, sales taxes, property taxes, sin taxes and more. They don’t feel excluded from sharing the tax burden just because they don’t pay one particular tax.

It’s also worth noting that these aren’t the people pushing for higher taxes. At Rasmussen Reports, our most recent polling shows that people who make $100,000 or more each year are more supportive of higher taxes than those who make less.

Second, the 47 percent who don’t pay federal income taxes include large chunks of the Republican base. Many senior citizens fall into this category because their primary income is from Social Security. They don’t consider themselves“takers.” They paid money into a Social Security system throughout their working lives and now simply expect the government to honor the promises it made.

Third, low-income Americans aren’t looking for a handout. Among those who are living in poverty, 81 percent agree that work is the best solution to poverty. Most would rather replace welfare programs with a guaranteed minimum-wage job. Sharing the mainstream view, 69 percent of the poor believe that too many Americans are dependent upon the government.

Sixty-five percent of low-income Americans consider it “very important” for an economy to provide everybody with an opportunity to succeed. Interestingly enough, low-income Americans consider that more important than those who earn more.

But if I had to pick just one number to highlight how bad the 47 percent remark was, it would be this. Just 11 percent of Americans today consider themselves dependent upon government. Sure, some receive a Social Security check or an unemployment check, but that’s not dependence upon government. That’s cash received in exchange for premiums paid.

 

If they want to seriously compete for middle-class votes, Republicans need to get over the makers vs. takers mentality. We live in a time when just 35 percent believe the economy is fair to the middle class. Only 41 percent believe it is fair to those who are willing to work hard. Those problems are not created by the poor.

GOP candidates would be well advised to shift their focus from attacking the poor to going after those who are really dependent upon government — the Political Class, the crony capitalists, the megabanks and other recipients of corporate welfare.

 

 Scott Rasmussen is the founder and CEO of Rasmussen Reports.

 

More Shocking Ideas

Last fall my readers were shocked to learn that I agree with President Obama that incomes and wealth are badly disproportionately distributed in the USA.  The data are shocking, and the situation is immoral and, ultimately, unsustainable.  I won’t go into this again here.

The basic economic problem that we have here is that real wages have been steadily declining since the early 1970’s, after increasing regularly every decade since 1830.  The promise of a better life tomorrow for ourselves and our children has ended, and that’s where the trouble starts.

When this first began happening, workers responded by working more hours, by taking two jobs and by sending other family members out to work – in order to maintain or improve their standard of living.  When this didn’t work, people began borrowing on their homes and on their credit cards.  This is one reason why the housing and credit crash of 2008 was so devastating.

Of all the factors that have led to the decline in real wages and the growth in inequality, perhaps the only one that is somewhat under our control is the decline in private-sector unions.

“But the figures announced by the bureau point to grave problems for the future of organized labor. The portion of private sector workers in unions fell to just 6.6 percent last year, from 6.9 percent in 2011, causing some labor specialists to question whether private sector unions were sinking toward irrelevance. Private sector union membership peaked at around 35 percent in the 1950s.”  New York Times

As a business owner and employer, I always cheered the decline in union membership and power, but as an American, I now realize that this was one of the worst developments that could happen in our country.  The decline in real wages and the inequalities now present were what re-elected Obama, and there is no end in sight to the class-warfare situation that is developing.

 In my view, raising taxes on the wealthy and strengthening unions are the only two remedies realistically available; promoting growth has not worked.  The Republican Party should adopt a program of supporting and encouraging the growth of responsible unions, and should stop the automatic opposition to all tax rate increases.

 

 

CEO Pay Curtailed

We have often pointed out the immorality and unfairness of CEO pay in the US that has grown recently from 40X average wages to 400X average wages. We considered using tax policy to even things out, even slightly, but our friend, Mason, suggested giving stockholders the right to veto such outrageous CEO contracts. The Swiss have now done this and led the way.

Swiss Back Strict Executive Pay Curbs

March 3, 2013 CNBC.com (excerpt)

“Swiss citizens voted on Sunday to impose some of the world's strictest controls on executive pay, forcing public companies to give shareholders a binding vote on compensation, result projections showed.

Claude Longchamp of pollsters Gfs.Bern told Swiss state television early returns in a referendum showed 68 percent backed allowing shareholders to veto executive pay proposals and a ban on big rewards for new and departing managers.

While anger at multi-million dollar payouts for executives has spread around the globe since the financial crisis, Swiss direct democracy — including four national referendums a year — means public outrage can be translated into action.

A few other countries, including the United States and Germany, have introduced advisory "say on pay" votes and Britain is also planning to give shareholders a binding vote on pay and "exit payments" at least every three years. Brussels agreed a cap on bankers' bonuses last week.

The clear majority in Switzerland was unusual given fierce opposition and intense campaigning by business lobby group Economiesuisse, which warned the proposals would damage the country's competitiveness and scare away international talent.

Support for the move was driven partly by big bonuses blamed for fuelling risky investments that nearly felled Swiss bank UBS, as well as outrage over a proposed $78 million payment to outgoing Novartis chairman Daniel Vasella.

"The clear support for the initiative reflects the understandable anger of the electorate at the self-serving mentality of certain managers," said a group representing most of the parties in parliament which opposed the plan. "With their misconduct, they have done the economy as a whole a disservice."

Thomas Minder, the businessman-turned-politician behind the campaign who says his proposals are aimed at ending a culture of short-termism and rewards for managers of badly-run companies, said intense corporate lobbying had backfired.

"This is a clear sign of the distance between the people and the political and business establishment," he said.

Despite threats from some executives, Switzerland is unlikely to see an exodus of big companies, drawn to the country by low taxes, stable politics and business-friendly laws.” CNBC

At the present time, in the US, stockholders can only "advise" their boards on CEO pay, even under the new Dodd-Frank law.  We need to follow the Swiss lead on this.

Excerpt From ThinkProgress.org

“Many of the same problems that led to Swiss frustration with CEO pay apply here in the U.S. For instance, Citigroup CEO Vikram Pandit walked off with millions of dollars after vaporizing most of his company’s value. Duke Energy paid its former CEO $44 million for working literally one day.

Skyrocketing executive pay (along with growing pay in the finance industry) is a huge component in America’s growing income inequality. In fact, “Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005.” Special tax deductions for executive pay cost taxpayers billions of dollars per year.

In the Dodd-Frank Wall Street reform law, shareholders of U.S. corporations were also given new powers meant to rein in executive pay. However, Dodd-Frank only gives shareholders a non-binding vote, meaning that the corporation is able to essentially ignore it.

The corporate argument that huge executive pay packages are necessary to retain top talent has proven to be false. Yet the U.S. tax code preferences these pay packages, and there’s little shareholders (or anyone else) can do to stop them."  ThinkProgress.org

 

Fiddler on the Roof

In this wonderful play and movie, Jews living in a remote area of Czarist Russia start seeing their customs and traditions erode and disappear. It is a story of the ages.

Retired people my age are almost always bemoaning the changes in society. In the case of my generation, however, there may be something to it; we never worried about finding a good job or getting ahead. College costs were low and so was housing. People were civil, and only nasty people used vulgar language.

Since 1975, however, unknown to many of us, the buying power of the average wage has steadily declined, and the distribution of both income and wealth has become badly skewed so that the upper 20% earn most of the money and have accumulated most of the wealth. Earnings from investments far outperform earnings from salaries and wages. College costs also skyrocketed.

Left-click to enlarge

Middleclass and lower income Americans first responded to these trends by sending their wives to work, and also working longer hours and getting two jobs. When this didn’t work they began borrowing large sums on their credit cards and on their houses in order to try to maintain their standard of living. This all came tumbling down after the housing bubble crashed, and we continue to be in a terrible mess.

There have been many causes: globalization, the decline in private industry labor unions, the pressure on CEO’s for short-term results, federal government interference in education, the rise of the welfare state, the burst of inflation causing huge increases in the cost of imported oil, technology, unintended consequences of lowering taxes – especially on investment profits, the overturning of the Glass-Steagall Act, etc., etc., etc.

The housing crash opened a festering sore that the Republican Party has not adequately addressed, and some in the Party have not even seemed to notice. In my mind now, the only thing worse than the Republican Party is the Democratic Party whose entire program is aimed at symptoms, not causes.

Don't Let Ideology Blind You

Left-click to enlarge

One feature that jumps out at you is how relatively flat mean income has been for the bottom 80% over the last 45 years and how much it has grown for the top 20%, from an already high baseline.  From 2011 census data.

Left-click to enlarge

Top 1% paid less taxes than lower group

Some people have their facts wrong, while others have no facts. Due to my call for the Republican Party to support higher income, investment and estate taxes on the very wealthy and the upper 20% of income earners, I am getting many angry (and often obscene) e-mails from people who just don’t get it. They complain that I have turned Marxist; they complain about the so-called 47% who pay no income taxes; they complain that you have to cut taxes to promote growth.

Here is what they don’t understand:

1. income tax rates have been cut drastically since 1981 when the top rate was 70%; it is now 35%
2. the 47% pay no taxes due mostly to low taxable income and to changes made in tax law by both Democrat and Republican administrations
3. most voters understand that income and wealth distributions have become obscenely skewed over the past few years.
4. if Republicans don’t lead the way in effecting changes in wealth and income distributions, the election of 2012 will look like a picnic
5. the current wealth and income distributions may even become dangerous to a civil society
6. cutting taxes to promote growth works when taxes are too high and in normal times; largely due to the housing crash, these are not normal times, and tax rates are way down.

We may despise President Obama’s class warfare and hateful, insulting language, but he is basically right about needed tax increases. Of course, at the same time, we need to press him for meaningful spending cuts.

From Bloomberg:

“The Republican presidential candidate’s comments that 47 percent of Americans don’t pay income taxes and see themselves as “victims” dependent on the government signifies a shift in the party’s thinking. Republicans backed refundable tax credits and expanded entitlement programs under George W. Bush. Now they want to curtail entitlements and express concern that not enough people are paying taxes.

“The working people who don’t pay income tax, that is by and large the result of Republican policies,” said Michael Linden, director of tax and budget policy at the Center for American Progress, a Washington group aligned with Democrats. He said he didn’t “understand why they’re not trumpeting this.”

From Factcheck.org:

“Romney is a bit out of date with his claim that 47 percent of Americans pay no federal income tax. That was true in 2009, but the number is lower now, and falling as the economy improves and more people are working and getting paychecks.

Figures come from the nonpartisan Tax Policy Center, and its most recent analysis in July 2011 put the figure for that year at 46.4 percent. That comes to about 76 million individuals or families who paid no federal income taxes in 2011. TPC projected that the percentage would fall to 46 percent this year, and to 44 percent in 2013, under current tax policies.

Let’s take a closer look at the 46.4 percenters.

According to the Tax Policy Center, about half of those who owe no federal income tax are people whose incomes are so low that when standard income tax provisions — personal exemptions for taxpayers and dependents and the standard deduction — are factored in, that simply leaves no income to be taxed. Those are people who earned less than about $27,000.

But that doesn’t mean those folks paid no taxes at all. Many of them paid payroll taxes, those taxes taken out of a paycheck by an employer to fund programs such as Social Security and Medicare. They also pay federal excise taxes, such as those on gasoline, and they may also pay state and local income taxes or property taxes.

So that’s half of Romney’s 46.4 percenters. The rest pay no federal income tax due to tax benefits and credits. Here’s the rest of the breakdown:

 22 percent receive senior tax benefits — the extra standard deduction for seniors, the exclusion of a portion of Social Security benefits, and the credit for seniors. Most of them are older people on Social Security whose adjusted gross income is less than $25,000.

 15.2 percent receive tax credits for children and the working poor. That includes the child tax credit and the earned income tax credit. The child tax credit was enacted under Democratic President Bill Clinton, but it doubled under Republican President George W. Bush. The earned income tax credit was enacted under Republican President Gerald Ford, and was expanded under presidents of both parties. Republican President Ronald Reagan once praised it as “one of the best antipoverty programs this country’s ever seen.” As a result of various tax expenditures, about two thirds of households with children making between $40,000 and $50,000 owed no federal income taxes.

 The rest ended up owing no federal income tax due to various tax expenditures such as education credits, itemized deductions or reduced rates on capital gains and dividends. Most of this group are in the middle to upper income brackets. In fact, the TPC estimates there are about 7,000 families and individuals who earn $1 million a year or more and still pay no federal income tax.”

The Future Hinges on Republican Changes

Someone once said that being lucky is better than being smart. Mitt Romney wasn’t lucky. In a campaign for the presidency when the man in the street believed that the structure of the US economy is stacked against the middle class, and that the wealthy pay too little in taxes, Romney gave us double-talk on his tax plan, and was shown to pay a small percentage in taxes.

The fact that the US distribution of wealth and income has become dangerously skewed toward the upper 1% should become apparent to anyone who looks at the data with an open mind, and yet Republican leaders kept saying they would never increase taxes on the wealthy. Good-bye Romney.

Now the Republican leadership seems to be accepting that all taxes on the very wealthy must be raised, but are constrained by the base to get out in front on this problem. WE NEED REPUBLICANS TO WAKE UP BECAUSE ONLY THE REPUBLICAN PARTY CAN SAVE THIS COUNTRY!

We are still suffering from the unintended consequences of the presidency of Lyndon Johnson, who gave us the Vietnam War and the Great Society, which then gave us programs that resulted in hordes of fatherless children and a society that is falling apart. Carter and Clinton gave us a program that forced banks to give mortgages to deadbeats, and that, in turn, led to the collapse of housing values and middle-class wealth. This same mentality has now resulted in carbon taxes and strangling regulations and in a government run healthcare program (Obamacare) that places such cost burdens on businesses, that they are engaged in a mass effort to cut hours and employees to avoid them.

Republicans must again become the majority party and again embrace limited spending, limited government and states’ rights. They can only do so by throwing Grover Norquist in a ditch and face facts about the needed changes in income and estate taxes so that the man in the street sees some fairness as existed from the 1950’s to the 1980’s. The Republican Party must not be seen as the protector of the very rich, but as the protector of a system where anyone who wants to work hard can make it.

A continuation of government by modern liberals will change America for the worse for all time.

Republicans Have Really Stepped In It

As one of my favorite people, Ben Stein, says below, how did the Republican Party ever get itself in the "can't win" position it now finds itself? I know why, 1. by subscribing to the insane position personified by Grover Norquist NEVER to raise any taxes, and 2. by having leaders like Boehner and McConnell saying over and over that we will never raise taxes on the wealthy.

Hot Air offers the only sane solution. Republican congressional leaders have to embrace the Simpson-Bowles plan ($3 of cuts for ever $1 of tax increases) and come out for increased taxes on the very wealthy. How can Obama refuse? He appointed the Simpson-Bowles blue-ribbon committee.

Ben Stein December 5, 2012 American Spectator (excerpt)

"I wandered back to my room, which is cheery and airy. I felt happy until I started to think about my Grand Old Party.

How did we ever get into the position of fighting like madmen to keep taxes low on billionaires? How can we possibly win if our position is to sacrifice the welfare of poor and lower middle class people to make sure we keep the taxes of very wealthy people low? Let's see: Obama is for keeping almost all entitlements and raising taxes on the rich (his definition of rich is insane but that's another story). Our GOP position is low taxes on the rich and cut entitlements and medical care for the poor. Hmmm, which is a winning position?

My old boss, Mr. Nixon, used to say, "Honesty may not be the best policy but it's worth trying once in a while."

So, Let's be honest: the ultra-rich do not need ultra-low taxes. The poor have a moral claim on the generosity of the nation if they are genuinely in need. Might we just try to align ourselves with the morally right position for fiscal policy?

Yes, government spends insanely too much. Yes, government is criminally wasteful. But the nation is racing towards bankruptcy. Do we right the course by taking from the very rich -- while searching like Sherlock Holmes for waste to cut? Why not? I'd like to see the party win the next election and being the party of the billionaires does not help us." American Spectator

This Is Really Serious

It appears that others, including conservatives like me, have also noted the appalling statistics on income and wealth distribution in our country over recent years – one explanation for Obama’s win. The reasons seem to have to do with globalization, lower income and investment tax rates, and the huge decline in private sector unions. Our middle class, the bedrock of a stable society, is disappearing.  The two recent articles below affirm what I have been saying:

Net worth of American households at 43-year old low

Rick Moran December 2, 2012 American Thinker (excerpt)

“Yes, but we've got 4 more years to get it right...or something.

The median net worth of American households has dropped to a 43-year low as the lower and middle classes appear poorer and less stable than they have been since 1969.

According to a recent study by New York University economics professor Edward N. Wolff, median net worth is at the decades-low figure of $57,000 (in 2010 dollars). And as the numbers in his study reflect, the situation only appears worse when all the statistics are taken as a whole.

According to Wolff, between 1983 and 2010, the percentage of households with less than $10,000 in assets (using constant 1995 dollars) rose from 29.7 percent to 37.1 percent. The "less than $10,000″ figure includes the numerous households that have no assets at all, or "negative assets," which is otherwise known as "debt."

Over that same period of time, the wealthiest 1 percent of American households increased their average wealth by 71 percent.” American Thinker

Last week the House passed a bill making it easier for high-skilled workers to become legal immigrants.  The following article explains why this is important:

Why Conservatives Must Surrender on 'Redistribution'

By Josh Barro - Nov 29, 2012 Bloomberg

Liberals talk about booming incomes at the top while lower-income households barely see benefits from economic growth. Conservatives talk about a rising share of the population that depends on government benefits and a shrinking share that pays income tax.

Though the frames are different, these are descriptions of the same economic phenomenon: rising inequality of pre-tax incomes. But only liberals are advancing a semblance of an agenda to address it.

The main liberal reaction to this phenomenon is to call for more progressive fiscal policy: higher taxes on the rich people who have benefited most from the last 30 years' gains in gross domestic product to pay for programs that raise low- and middle-income people's after-tax incomes. Obamacare, which raised taxes on the rich to fund a new health-care entitlement for the poor and middle class, is a key example of this agenda.

Liberals also advocate policies that are aimed at reducing pre-tax inequality: more subsidies for education, trade protection, industrial policy to support medium-skill jobs in manufacturing, easier unionization, minimum-wage increases, rent control.

All of these policies have a trade-off: in exchange for reducing income inequality, they are likely to reduce GDP growth. But some are better than others. Minimum-wage increases in the range being discussed in today's political debates don't seem to have significant negative impacts on employment or output. There is room for a significant increase in tax progressivity without (much of) a negative impact on GDP growth, especially if the reform is well-designed.

But the key problem in this debate isn't that liberals' ideas are bad, though many of them (especially on trade) are. It's that conservatives have no serious proposals of their own on rising inequality.

One conservative message on inequality is to say that it doesn't matter, and we should accept rises in both pre-tax and post-tax inequality. This is the implication of studies periodically put out by the Heritage Foundation, arguing that poor people aren't really poor if they have microwave ovens.

This isn't an appealing argument. The problem with rising inequality is not that lower-income families can't afford ever-cheaper electronics; it's that they can't keep pace with the rising costs of health care, education and (in certain parts of the country) housing. There's also no reason to think that, whatever standard of living we start from, an economy where nearly all the improvements accrue to a small fraction of families is either politically sustainable or morally acceptable.

Then there is the argument that government benefits reduce the productivity of people at the bottom, who would go out and earn more money if we made their entitlements less generous. When Mitt Romney says this he ends up more or less calling the bottom half of the income distribution moochers; people such as Paul Ryan manage to say the same thing more artfully.

The main problem with this position is the lack of evidence to support it: Lower taxes and a smaller government might raise GDP growth, but there's no particular reason to assume that growth would accrue in a more equal manner than we have experienced recently. The main effect of Ryan-style fiscal policy, which makes taxes both lower and less progressive and while shrinking benefits, would be a rise in after-tax inequality.

This is an example of what I said two weeks ago: Conservatives do not have economic ideas that are good for the middle class. Since the 1970s, wage gains have decoupled from productivity gains and the median family has therefore reaped a disproportionately small share of the benefits of growth. Conservatives are left without anything to say about this problem.

What can they say about it? I have a few ideas, though I don't think conservatives are likely to like any of them too much.

One, as I discuss at greater length here, is that they can take up the cause of cost control in health care and higher education, the effect of which would be to raise real incomes for the middle class. The rising cost of health benefits has been a key driver of middle-class wage stagnation. Unfortunately, many of the policies actually likely to control costs in these sectors are interventionist in a way that makes conservatives recoil.

Another possibility is greater high-skill immigration. Globalization has been disproportionately beneficial to high-skill workers in developed nations: they have seen the prices of products fall as manufacturing shifts to low-wage countries, but their own jobs are insulated from foreign competition. Letting in more foreign doctors and engineers should drive down wages in skilled professions and the cost of the services those professionals provide, raising real incomes for lower-income workers who already face wage competition from other countries. Reducing occupational licensing requirements would similarly raise real incomes.

But the big problem for conservatives is that these policies cannot fully substitute for progressive fiscal policy. The dirty secret about the last 30 years' rise in pre-tax income inequality is that we probably can't reverse it. Instead, we will have to rely on policies that ameliorate it on an after-tax basis -- that is, the dreaded redistribution of income, or "spreading the wealth around."

Some redistributive policies are more economically damaging than others. If conservatives made peace with the need for more redistributive economic policy, they could fight to make sure it is pro-growth. For example, they could focus on minimizing poverty traps created by means-tested entitlements, and making sure the tax base is broad so progressivity can be achieved with relatively low tax rates.

Roughly, this is what right-of-center political parties in Europe do.

Obviously, it's not something conservatives in the U.S. are interested in doing. Instead of trying to make Obamacare less costly and less economically distorting, conservatives fought as hard as they could to stop it, rejecting the whole idea of a more progressive fiscal policy. (If you think conservatives' objection is to spending rather than spending specifically on poor people, note how protective Republicans are of Medicare, a relatively non-progressive entitlement program.)

And they lost, because the rise in pre-tax inequality (and the related rise in health care costs) is making the electorate's demand for progressive fiscal policy stronger and stronger.

Eventually, if conservatives want to keep putting their stamp on American economic policy, they will have to give in to that reality that government must become more redistributive. Otherwise, the Republican Party will be left with an economic appeal to an affluent minority of the population and an ethnic appeal to a shrinking older white-voter base -- and that will win them fewer and fewer elections.

The Tide May Be Turning (Slightly)

Two weeks ago I wrote an article saying that Obama won re-election primarily because people are hurting much more than Republican politicians realize -  from the effects of the housing crash and from the incredible and dangerously unfair distributions of wealth and income now taking place in America. Obama won because he articulated this unfairness while leading Republicans kept saying that they will never raise taxes on the wealthy, and Mitt Romney never came to grips with the issue.

When 1% of our population has 37% of America’s private wealth, while 40% of the population has only 3/10 of 1% of the wealth, something is very wrong – even to a conservative Republican like me. To his discredit, President Obama never explained the situation, never worked to change it, and instead used class warfare to batter Republicans.

All of a sudden, due to the fiscal cliff that faces us, some Republicans, at least 16, are indicating a willingness to raise income tax rates on wealthier Americans, not because of the unfairness issue, but because of the deficit and the need to make some compromises to get Obama to agree to some spending cuts. There are two dangers facing Republicans: 1. one is that the cuts will be future cuts that, as usual, will never materialize, and 2. recent polls indicate that Republicans will be blamed if a real bargain is not reached. As discussed here, rates on higher incomes need considerable upwards adjustments. This has nothing to do with the needs of the federal budget, but obviously will help in the efforts to balance it.

I’ve gotten some angry e-mails from readers who tend to be conservatives since my posts are usually very conservative in nature. These readers are of two schools: 1. that what I am saying is socialism, or 2. that raising rates on earned and investment incomes will cause an economic slowdown since lowering rates has often caused an upturn.

As to point 1. my answer is that when something is wrong, it should be corrected, and I don’t care what it is called. On point 2., unless rates are increased to levels in effect from 1932 to 1981, I don’t believe raising them will have much effect on economic activity.

History of income tax rates adjusted for inflation
---------Top ----- Top -------- In 2011
Year -- Rate --- Bracket ----  Dollars -- Comment
1913 --- 7% ---- $500,000 -- $11.3M First income tax

1917 -- 67% -- $2,000,000 -- $35M World War I financing

1925 -- 25% ---- $100,000 -- $1.28M Post war reductions

1932 -- 63% -- $1,000,000 -- $16.4M Depression era

1936 -- 79% -- $5,000,000 -- $80.7M

1941 -- 81% -- $5,000,000 -- $76.3M World War II

1942 -- 88% ---- $200,000 --- $2.75M Revenue Act of 1942

1944 -- 94% ---- $200,000 --- $2.54M Tax Act of 1944

1946 -- 91% ---- $200,000 --- $2.30M

1964 -- 77% ---- $400,000 --- $2.85M

1965 -- 70% ---- $200,000 --- $1.42M

1981 -- 70% ---- $212,000 ---- $532k Reagan tax cuts

1982 -- 50% ---- $106,000 ---- $199k Reagan tax cuts

1987 -- 38.5% -- $90,000 ----- $178k Reagan tax cuts

1988 -- 28% ---- $29,750 ----- $56k Reagan tax cuts

1991 -- 31% ---- $82,150 ---- $135k

1993 -- 39.6% - $250,000 --- $388k
2003 -- 35% ---- $311,950 --- $380k Bush tax cuts

2011 -- 35% ---- $379,150 --- $379k

Warren Buffet Is Right

For a couple of years now, I have ridiculed Warren Buffet and the so-called Buffet Rule. Now that I’ve looked at the data, I have to admit Buffet is right, and if my fellow Republicans don’t wake up to the inequities that have developed in America, we and they are doomed.

A Minimum Tax for the Wealthy

By WARREN E. BUFFETT November 25, 2012 NY Times

SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”

Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.

Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation’s economic output) increased at a rapid clip. The middle class and the rich alike gained ground.

So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.

And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.

A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.

The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.

This outrage points to the necessity for more than a simple revision in upper-end tax rates, though that’s the place to start. I support President Obama’s proposal to eliminate the Bush tax cuts for high-income taxpayers. However, I prefer a cutoff point somewhat above $250,000 — maybe $500,000 or so.

Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.

Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.

But the reform of such complexities should not promote delay in our correcting simple and expensive inequities. We can’t let those who want to protect the privileged get away with insisting that we do nothing until we can do everything.

Our government’s goal should be to bring in revenues of 18.5 percent of G.D.P. and spend about 21 percent of G.D.P. — levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won’t stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America’s debt stable in relation to the country’s economic output.

In the last fiscal year, we were far away from this fiscal balance — bringing in 15.5 percent of G.D.P. in revenue and spending 22.4 percent. Correcting our course will require major concessions by both Republicans and Democrats.

All of America is waiting for Congress to offer a realistic and concrete plan for getting back to this fiscally sound path. Nothing less is acceptable.

In the meantime, maybe you’ll run into someone with a terrific investment idea, who won’t go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him.

Obama Holds All the Cards

Articles are appearing about the budget and tax negotiations now underway between the Republican House and President Obama – with Obama wanting higher income taxes on the wealthy, and the House wanting to retain the Bush tax cuts – and both sides wanting to avoid the draconian cuts hovering in the near future. Speaker Boehner keeps saying that the House will never accept higher income tax rates.

This, of course, is hogwash. These columnists and Boehner are forgetting the 20 new taxes already embedded in Obamacare, a program whose implementation is now inevitable. The largest tax increases on investors hit on January 1, 2012, with the maximum capital gains tax going from 15% to 23.8%, and the maximum dividends tax going from 15% to 43.4% (the steep increases assume the basic rates revert to pre-Bush rates with a new 3.8% surtax on incomes over $200,000). This one Obamacare set of taxes is expected to raise $123 billion a year.

I would expect that the House will end up accepting an increase in ordinary income taxes on the wealthy in return for the continuation of existing rates on capital gains and dividends. That would result in maximum rates of 18.8% on both types of investment income.

The area that is an unknown is what will happen with estate taxes. If nothing is done, the current exemption of $5,120,000 and maximum rate of 35% will change to $1,000,000 and 55% on January1, 2012.

Taking into account the concerns I discussed here and here over the extreme and dangerous concentrations of income and wealth that have developed over the past few years in America, I would like to see increases in income tax rates and on investment tax rates on the wealthiest Americans, but I am not talking about an income of $200,000 as is Obama. I would like to see income taxes and investment taxes raised on individuals making $1,000,000 or more. That would begin to resolve some of the inequities that have occurred lately.

I would also like to see a continuation of approximately $5,000,000 exempted from estate taxes, special provisions made for business ownership and family farms that would prevent their forced sale, and a steep, progressive set of tax rates on huge estates.

Full List of Obamacare Tax Hikes

Obamacare law contains 20 new or higher taxes on American families and small businesses

Taxpayers are reminded that the President’s healthcare law is one of the largest tax increases in American history.

Obamacare contains 20 new or higher taxes on American families and small businesses.

Arranged by their respective effective dates, below is the total list of all $500 billion-plus in tax hikes (over the next ten years) in Obamacare, where to find them in the bill, and how much your taxes are scheduled to go up as of today:

Taxes that took effect in 2010:

1. Excise Tax on Charitable Hospitals (Min$/immediate): $50,000 per hospital if they fail to meet new "community health assessment needs," "financial assistance," and "billing and collection" rules set by HHS. Bill: PPACA; Page: 1,961-1,971

2. Codification of the “economic substance doctrine” (Tax hike of $4.5 billion). This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed. Bill: Reconciliation Act; Page: 108-113

3. “Black liquor” tax hike (Tax hike of $23.6 billion). This is a tax increase on a type of bio-fuel. Bill: Reconciliation Act; Page: 105

4. Tax on Innovator Drug Companies ($22.2 bil/Jan 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year. Bill: PPACA; Page: 1,971-1,980

5. Blue Cross/Blue Shield Tax Hike ($0.4 bil/Jan 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services. Bill: PPACA; Page: 2,004

6. Tax on Indoor Tanning Services ($2.7 billion/July 1, 2010): New 10 percent excise tax on Americans using indoor tanning salons. Bill: PPACA; Page: 2,397-2,399

Taxes that took effect in 2011:

7. Medicine Cabinet Tax ($5 bil/Jan 2011): Americans no longer able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin). Bill: PPACA; Page: 1,957-1,959

8. HSA Withdrawal Tax Hike ($1.4 bil/Jan 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent. Bill: PPACA; Page: 1,959

Tax that took effect in 2012:

9. Employer Reporting of Insurance on W-2 (Min$/Jan 2012): Preamble to taxing health benefits on individual tax returns. Bill: PPACA; Page: 1,957

Taxes that take effect in 2013:

10. Surtax on Investment Income ($123 billion/Jan. 2013): Creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single). This would result in the following top tax rates on investment income: Bill: Reconciliation Act; Page: 87-93

Capital Gains Dividends Other*

2012   15%          15%        35%
2013+ 23.8%       43.4%     43.4%

*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income. It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans. The 3.8% surtax does not apply to non-resident aliens.

11. Hike in Medicare Payroll Tax ($86.8 bil/Jan 2013): Current law and changes:

First $200,000 ($250,000 Married) All Remaining Wages
Employer/Employee

Current Law 1.45%/1.45%               1.45%/1.45%
          2.9% self-employed

Obamacare Tax Hike 1.45%/1.45%      1.45%/2.35%
           3.8% self-employed
Bill: PPACA, Reconciliation Act; Page: 2000-2003; 87-93

12. Tax on Medical Device Manufacturers ($20 bil/Jan 2013): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This law imposes a new 2.3% excise tax. Exempts items retailing for <$100. Bill: PPACA; Page: 1,980-1,986

13. High Medical Bills Tax ($15.2 bil/Jan 2013): Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). The new provision imposes a threshold of 10 percent of AGI. Waived for 65+ taxpayers in 2013-2016 only. Bill: PPACA; Page: 1,994-1,995

14. Flexible Spending Account Cap – aka “Special Needs Kids Tax” ($13 bil/Jan 2013): Imposes cap on FSAs of $2500 (now unlimited). Indexed to inflation after 2013. There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. Bill: PPACA; Page: 2,388-2,389

15. Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D ($4.5 bil/Jan 2013) Bill: PPACA; Page: 1,994

16. $500,000 Annual Executive Compensation Limit for Health Insurance Executives ($0.6 bil/Jan 2013). Bill: PPACA; Page: 1,995-2,000

Taxes that take effect in 2014:

17. Individual Mandate Excise Tax (Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following

1 Adult 2 Adults 3+ Adults

2014 1% AGI/$95 1% AGI/$190 1% AGI/$285
2015 2% AGI/$325 2% AGI/$650 2% AGI/$975
2016 + 2.5% AGI/$695 2.5% AGI/$1390 2.5% AGI/$2085

Exemptions for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases (determined by HHS). Bill: PPACA; Page: 317-337

18. Employer Mandate Tax (Jan 2014): If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees. Applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer). Bill: PPACA; Page: 345-346

Combined score of individual and employer mandate tax penalty: $65 billion/10 years

19. Tax on Health Insurers ($60.1 bil/Jan 2014): Annual tax on the industry imposed relative to health insurance premiums collected that year. Phases in gradually until 2018. Fully-imposed on firms with $50 million in profits. Bill: PPACA; Page: 1,986-1,993

Taxes that take effect in 2018:

20. Excise Tax on Comprehensive Health Insurance Plans ($32 bil/Jan 2018): Starting in 2018, new 40 percent excise tax on “Cadillac” health insurance plans ($10,200 single/$27,500 family). Higher threshold ($11,500 single/$29,450 family) for early retirees and high-risk professions. CPI +1 percentage point indexed. Bill: PPACA; Page: 1,941-1,956

Obama Is Right, Part II

I shocked quite a few people last week when I wrote an article advocating some redistribution of wealth in this country because the concentration of income and wealth has become enormously unfair and widely misunderstood. I believe President Obama was re-elected mainly because he understood and articulated the need for reform, which has become urgent due to the tremendous loss of wealth (mostly by the lower 80%) caused by the housing crash.

I am disgusted with Obama that he made no attempt to explain this situation or work to correct it. He only used the anger of millions to batter Republicans who, like Speaker John Boehner and Minority Leader Mitch McConnell, kept stupidly saying, “no increase in taxes on the wealthy”.

We not only need to reduce spending and reform entitlements, we need to make our income tax system more progressive and also enact a steeply progressive estate tax system – both without the loopholes that very wealthy people use to escape taxes. See my post on this here.

The 99% mostly get it, though, even if most Republicans don’t (including me before I was challenged to do some research).

They “get” it even though they misunderstand the extent of the problem. Below is a quote from an exceptional report which I used for most of my data:

“A remarkable study (Norton & Ariely, 2010) reveals that Americans have no idea that the wealth distribution (defined for them in terms of "net worth") is as concentrated as it is. When shown three pie charts representing possible wealth distributions, 90% or more of the 5,522 respondents -- whatever their gender, age, income level, or party affiliation -- thought that the American wealth distribution most resembled one in which the top 20% has about 60% of the wealth. In fact, of course, the top 20% control about 85% of the wealth.

Even more striking, they did not come close on the amount of wealth held by the bottom 40% of the population. It's a number I haven't even mentioned so far, and it's shocking: the lowest two quintiles hold just 0.3% of the wealth in the United States. Most people in the survey guessed the figure to be between 8% and 10%, and two dozen academic economists got it wrong too, by guessing about 2% -- seven times too high. Those surveyed did have it about right for what the 20% in the middle have; it's at the top and the bottom that they don't have any idea of what's going on.

Americans from all walks of life were also united in their vision of what the "ideal" wealth distribution would be, which may come as an even bigger surprise than their shared misinformation on the actual wealth distribution. They said that the ideal wealth distribution would be one in which the top 20% owned between 30 and 40 percent of the privately held wealth, which is a far cry from the 85 percent that the top 20% actually own. They also said that the bottom 40% -- that's 120 million Americans -- should have between 25% and 30%, not the mere 8% to 10% they thought this group had, and far above the 0.3% they actually had.”

Another misconception that most people have is that “the very wealthy are already paying their fair share because our tax system is very progressive”. In fact our tax system has become much less progressive over the past few decades, and in fact the top 1% actually pays less in total taxes than the next lower grouping.

Source: Citizens for Tax Justice (2010a).
Left-Click to Enlarge

An argument that conservatives make that has some validity is that “raising income taxes on the job creators is self-defeating since they will be less motivated to invest and work to create more jobs”.

My response to this is threefold:

1. Federal income tax rates have decreased in recent years and are much less punitive of success than they once were.

2. I was a successful small businessman for many years. NOT ONCE DID I CONSIDER TAXES WHEN DECIDING ON NEW EQUIPMENT OR ON EXPANDING. THE EXISTENCE OF A MARKET AND THE OPPORTUNITY FOR PROFITS WERE WHAT MOTIVATED ME.

3. When I worked for a large corporation and analyzed investment opportunities, only when competing projects outnumbered available funds were income taxes considered in a present-value analysis of projects.  That was when corporate tax was 50%.

When income taxes became prohibitive, it is true that when they were lowered, an increase in economic activity and jobs immediately followed. This happened under Kennedy, Reagan and Bush 43. I can’t ever remember when the opposite was true; that is, when raising taxes reduced economic growth. That certainly didn’t happen during Clinton’s presidency, although other factors were also at work then. No-one wants to see a huge increase in income tax rates, but some upward adjustments are absolutely necessary.

I believe that most liberals believe what they do basically from guilt (if they are wealthy) or from hatred caused by envy of success (today’s Democrats are much different than the Truman-Kennedy school). However, once in a while they are right about something, and they tend to be more creative than we conservatives. Social Security was a liberal idea. Without it most of our seniors would be living in abject poverty. The right to bargain collectively was a liberal idea. Without it there would be no middle class. Don’t reject the idea of trying to even out the extremes of capitalism just because it is a liberal concept.