San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, February 24, 2012

Obama's "Millionaire Tax" Is Nothing But Pandering To Envy

By now most folks are probably aware that President Obama has proposed an income tax that would force all taxpayers who earn $1 million or more to pay a federal income tax equal to 30% of their adjusted gross income.  He has mentioned his tax proposal in numerous speeches and has routinely found it a good way to get applause.  Obama's handlers recognize that the best way to get reelected in a democracy is to appeal to the bottom 51% of the income population.  The best way to appeal to the bottom 51%of the income population is to demonize the top 49% of the income population.  That is why we so often hear the phrase "fair share" when talking about the amount of tax paid by the top 49%.  The top 49% is constantly accused of not paying their "fair share" of federal income taxes.  Promising to raise taxes on the highest income earners is always a good way to buy the votes of envy-ridden lower income earners.
I have pointed out previously that those making greater than $1 million make up only 0.16% of all tax returns filed (2009 data, which is the most recent data available at the IRS).  I have also pointed out previously that this tiny 0.16% of the population actually pays 9.5% of the total federal income tax bill.  Just what constitutes a "fair share" is never described by any politician.  To really define what a "fair share" is would most likely cause people (even envy filled people) to come to the conclusion that the folks in this country who are earning the most are not paying a fair share.  Indeed, we would be driven to the conclusion that the share they are paying is grossly unfair.  It is far too much.
That observation, however, is not the point today.  The Associated Press conducted a survey to find out what the public thinks about Obama's proposed millionaire tax.  According to the AP, 65% of US citizens believe that the government should force all people earning $1 million or more to pay 30% of their adjusted gross income to the federal government.  Only 26% of those polled believed the millionaire tax to be a bad idea.  One man in favor of the tax stated, "Everybody should be called to sacrifice.  They should be in the pot with the rest of us."  I believe it would be fair to conclude from the above quote that many, if not most,  people believe that those earning $1 million or more are presently paying nowhere near 30% of their income in federal taxes. That would be a false conclusion.
This tax proposal first originated after the infamous billionaire Warren Buffet commented that his secretary pays taxes at a higher rate than he does.  He failed to mention that the reason his secretary pays taxes at a higher rate than he does is due to the fact that he takes all of his income as capital gains from his company, Berkshire Hathaway.  Capital gains have a maximum tax rate of 15%.  But, does it follow from the fact that Warren Buffet has a marginal tax rate of 15% that all people making $1 million or more also have a marginal tax rate of 15%?  Furthermore, does it follow that those people making $1 million or more are paying nowhere near 30% of their adjusted gross income in federal taxes, as Obama and others would have us believe?  To answer that question I once again returned to the IRS website.  Here is what I discovered.
The 0.16% of taxpayers in this country who are making in excess of $1 million per year had a combined adjusted gross income of $625 billion.  The total amount of federal income taxes paid by this same group was $182 billion.  Simple math tells us that those making greater than $1 million per year have paid a combined federal income tax bill that equals 29.1% of their income.  So, if Obama is successful in getting his millionaire tax bill passed, the total tax bill of those unlucky millionaires will go up by a whopping 3%.  That is all.  3%!
All of this makes me wonder......does Obama know these facts?  Does he know what the millionaires presently pay in taxes?  If not, why not?  If not, how can he possibly go around proposing new tax laws that would impact them?  If not, why would he propose a millionaire's tax that could potentially reduce the amount paid by them (if, by chance, they were presently paying 31% of their income in federal taxes)?  On the other hand, if he is aware how much millionaires presently pay, why would he make such a big deal out of a 3% tax hike?  Furthermore, why not simply describe his proposal as a 3% tax hike on those making in excess of $1 million per year rather than a 30% mandatory tax on millionaires?  Is it possible that Obama chooses the terms he does because they sound better to those who are dominated by envy?  Is it possible that Obama's millionaire tax is nothing more than a political ploy to purchase the votes of the envy-ridden?  It sure looks like it to me.

Thursday, February 23, 2012

Government Grants US Citizens One More Hour A Day

News Flash:  In a rare example of unanimity, the Federal Reserve, Treasury, the Congress, the Obama administration, and the Federal Trade Commission decided to give all US citizens an extra hour each day.  It has been decreed that the hour from noon to one o'clock each day will be immediately replayed.  In an unprecedented move, the US Supreme Court declared that this extra hour is a constitutional right that should be enjoyed by all US citizens.
President Obama immediately called a news conference in which he spelled out all of the advantages inherent in the government's latest decree about our civil right to an extra hour per day.  He pointed out that we have been granted this extra hour without any need to raise taxes.  He was disappointed that the rich got the same 60 minutes as the average working family but he said he could not figure out any way to make time move at two different speeds.  Obama declared that this extra hour will increase the productivity of the US worker as well as reduce the number of unemployed.  He went on to say that the extra hour will level the playing field with those countries who are dumping their manufactured goods in America by giving us more time to produce.  The President said that the Surgeon General had informed him that the extra hour would reduce stress in the life of the average American as well as improve marital and family relationships.  Lastly, the President congratulated himself for his brilliance in coming up with such a clever scheme.
News Flash (one year later):  The implementation of OMHFUSCA (One More Hour For US Citizens Act) has proven to be an unmitigated disaster.  It did not take long for US citizens to realize that the earth continued to spin on its axis at the rate of one revolution per 24 hours despite the fact that the government had granted them an extra hour each day.  The replay of the noon hour soon caused all time schedules to go haywire.  Work schedules have been disrupted, worker productivity has plunged, domestic workers have fallen behind their foreign counterparts in manufacturing ability, family relationships are strained, juvenile delinquency is on the rise, and the economy is in a deep depression.  In a news conference earlier today President Obama stated that OMHFUSCA would have succeeded in reaching its goals had it not been for the greedy bankers who have subterfuged the process. According to the President, banks seized upon the idea of an extra hour per day as a way to make more money.  That greedy desire was enough to ruin the plan.  He announced that he had just issued an Executive Order to tax 50% of the windfall profits the banks were receiving due to the extra hour of business and use the proceeds of that tax to commission a Congressional committee to look into the possibility of extending the length of a day by another hour. 

Is the above scenario ridiculous?  Of course.  Is it untrue?  Of course.  Is it an example of what the government does every day?  Absolutely.  Consider the following.
The Federal Reserve Board has set short term interest rates at zero.  The primary reason the Fed has set short term interest rates at zero is to attempt to bring down long term (10 to 30 year notes and bonds) interest rates.  It has been largely successful in doing so as the ten year treasury now yields less than 2% and 30 year mortgages can be obtained for 4%.  Just like the mythical creation of an extra hour in the story above, the Fed has apparently been able to overrule an economic law and produce an outcome that is better than what the free market would have delivered.  But, the end of the story has not yet been told.
The Fed has no more ability to set the rate of interest in the economy than the government has the ability to determine how long it will take for the earth to complete one revolution on its axis.  The rate of interest in the economy is set by the combination of all the time preferences of all of the voluntary participants in the market.  The Fed can attempt to set a rate that is lower than the true rate but that act is doomed to failure.  All that the Fed is accomplishing with an artificially low rate of interest is to distort the financial signals that are sent through the market by the real rate of interest.  Businesses are now making decisions about future production based upon information that is not correct.  The artificially low rate of interest will create the next business cycle boom (it already has) but it is also sowing the seeds for the next business cycle contraction (recession).  When the next recession comes, don't blame the market, blame the Fed.

Wednesday, February 22, 2012

Wanting A Low Price Is Not Exploitation

David Sirota is a Denver area talk show host and sometimes columnist in the Denver Post.  He wrote a column for the February 18th issue of the Post in which he displays a gross ignorance of economics and a penchant for hypocrisy as well.  The column is entitled "Choosing a Chinese Future" and in the column he attempts to make the argument that high corporate taxes and a lack of willing workers are arguments that "are designed to deny the obvious, by pretending that exploitation and policies that encourage exploitation aren't the root causes of offshoring.  More specifically, they ask us to ignore the tariff free trade agreements and tax loopholes that incentivize companies to shift production to countries where slave wages, environmental degradation and human rights abuses are tolerated."
Mr. Sirota believes that when a corporation moves a job to another location, that is outside of a particular geo-political boundary that he personally favors, that corporation has committed an evil action.  Furthermore, Mr. Sirota believes that allowing citizens on either side of his favorite geo-political boundary to engage in free trade with one another is also an evil action.  Mr. Sirota also believes that government should step in and prohibit free trade between people who happen to live on opposite sides of a geo-political boundary when the life circumstances of the people living on either side are not identical.  Lastly, Mr. Sirota believes that the pursuit of self interest evidenced by seeking out the lowest price for a good or a service is an example of the evil behavior of exploitation.  Mr. Sirota believes a lot of things.  In this case, all of them are wrong.
He goes on to say, "But now at least a few manufacturing jobs are suddenly coming back to America, and many are finally admitting that exploitation has always been the manufacturing economy's invisible hand."  Now let me get this straight......we exploited the Chinese when domestic businesses sent manufacturing jobs to China because the labor was cheaper and now the Chinese are exploiting us because they are sending some manufacturing jobs back to us because our labor is cheaper?  Is this some sort of cosmic game of exploitation hot potato?  He who seeks out the lowest cost to produce a good is an evil exploiter?  Does he seriously believe that a business must pay more than the market value for labor in order to avoid being branded as evil?
Apparently he does.  He goes on to say, " requires us to declare that access to the American marketplace is no longer free -- that corporations who want to sell things to Americans must play by our wage, environmental and human rights rules no matter where they make their products."  Wow!  Now that is a mouthful.  Mr. Sirota believes that a worker in Sengali who puts together a straw hat for a US customer must be paid at least the same amount as the minimum wage worker in the US.  Furthermore, that worker must have employer provided health insurance that includes free access to birth control.  That foreign worker must also have paid vacation and the right to sue his employer if he detects what he perceives as a "hostile environment" in his place of work.  Any foreign producer who is unwilling to play by our rules is forbidden to export his goods to the US market.  A more sure way to catastrophically end all international trade and plunge the entire world into depression could surely not be conceived.
I do not know Mr. Sirota so it is possible I could be way off base with what I write next.  I wonder if Mr. Sirota has ever shopped around for the best price for something he wanted to buy.  I wonder if Mr. Sirota has ever congratulated himself on a good deal he obtained.  I wonder if Mr. Sirota makes decisions about what he is going to purchase based, at least partially, on what the good costs.  If he has never done any of these things, then I apologize to Mr. Sirota.  If he has always paid more than the stated price for a good in a vain attempt to elevate all imported manufactured goods to some equivalence of US costs, then I apologize.  If, however, he has ever sought to pay less for something, then besides being economically ignorant, Mr. Sirota is a hypocrite.
The rest of us, however, are not sentenced to live in Mr. Sirota's imaginary world in which moral guilt accrues to the individual who seeks out a low price.  We know that the free market determines the price for everything, including labor.  We know that it is a good thing to seek out the lowest price because it forces producers to most efficiently respond to the demands of consumers.  We know that the wealth of everybody in the marketplace is increased when both producers and consumers seek out the lowest price.  We know that anyone who believes that seeking a low price is an example of the sin of exploitation is just plain crazy.

Tuesday, February 21, 2012

I Learned Something Today, And It Made Me Mad

This morning I had the pleasure of attending a small business networking group.  About twenty or thirty people who own small businesses get together once a week to advertise their skills, talk about business, and support each others ventures.  I was invited to attend this particular group by a lady who is starting up a medical services business.  In particular, she is an Occupational Therapist.  During a break in the festivities we got to talking and she told me about the challenges associated with starting up a business like hers.  I was shocked by what I learned.  I think you will be too.
This lady is attempting to build her business as a fee for service business that does not utilize the insurance industry to pay for her services.  I wondered why she would not want to have access to the much larger market that must be available with those who would use insurance to pay for her services and assumed that it must be due to the regulatory hassles associated with dealing with insurance companies and claims forms.  That, she told me, was a part of the problem.  It was not, however, the primary problem with running a medical service business without seeking clients who pay by health insurance.
I did not know, but quickly learned, that the governmental program of health insurance known as Medicare dominates the private medical insurance industry.  I had always assumed that Medicare was simply a governmental health insurance plan for those who are over 65 years of age.  I was wrong.  The tentacles of Medicare have spread throughout the health insurance industry to the point that almost every for profit insurance company structures its billing and claims procedures after the Medicare model.  How this has come to be I do not know.  I suspect it has something to do with the elderly using more medical services than others.  Regardless, the amount in charges that insurance companies will accept for various medical services is pretty much set in stone by Medicare.  For reasons best known by those powerful bureaucrats who administer Medicare, those charges are set ridiculously high and then adjusted down to something that probably approaches the free market price.  This is why if you have ever had the misfortune of spending any time in the hospital, and you actually looked at the list bill that you received afterward,  you found that you were billed $5 for an aspirin but the insurance company ended up paying only 25 cents.
At this point, besides pointing out the absurd nature of billing within the Medicare system, I did not see why this should be a problem for a start up medical services business.  She could simply use insurance for those that want to do so and charge a steep discount equivalent to the amount that Medicare will eventually pay to those who want to pay cash.  That is when I learned something that made me very angry.  Charging a discount for cash paying customers of medical services is illegal!  In essence, everyone is forced, against their will, into the system of third-party insurance payments for medical services.  There is no legal way for a person who wants to pay cash and operate outside of the government insurance cartel to do so without being forced to pay the much higher non-adjusted amount for medical services.  My friend would be forced to bill her clients two to three times more than she is currently billing them for the same services provided.  This is an outrage.
It does not take an IQ over 150 to realize what is happening here.  These rules were in place prior to Obamacare.  The Medicare rules that we have been operating under for years have already socialized medicine to a degree I did not comprehend.  Everyone, whether he chooses to go private pay, utilize private insurance, or utilize Medicare, is part of a vast governmental insurance cartel that fixes prices and payment schedules.  The system is specifically designed to prevent private competition and maintain the government monopoly over payment for health care services. 
If a private corporation attempted to do what Medicare does, they would be attacked by the Federal Trade Commission and the Depart of Justice.  They would be broken up and rules would be written to prevent them from exercising monopoly control over this particular market.  In this case however, the government is the agent of monopoly control and it is our duty, as good citizens, to praise the government for what it has done, thank it for caring about our health, and dutifully reelect politicians that support this immoral system.  It is worse than I realized.  I hope you are angry as well.