Pay me what I'm worth!

Just a quick note.  I think raising the minimum wage is a good start in dealing with the vast, current income inequality in the US, so I hope that's somehow able to pass Congress (not holding my breath, though).

But I heard a fantastic idea on Twitter the other day; tax companies based on their compensation strategies. (via @EJDionne)

A tax on both their houses

And I've had people tell me that paying taxes is the same as slavery (yes, Tea Partiers, that would be you).

Are taxes paid?

I haven't heard the whole testimony (and won't) that Apple CEO Tim Cook gave before Congress today, but I've definitely heard some interesting excerpts.

Apple isn't pushing tax shelters as far as they could, no doubt. The fact that Apple accounts for 2.5% of all corporate taxes collected in the US is a pretty good indicator of that.  And a pretty good indicator that a lot more

But the idea that they aren't doing anything to shelter money from US taxes is pretty absurd on its face, as well.

One thing I wonder about: Apple's R&D spending supposedly went up 40% last year. I wonder if that was actually an increase in activity, or, as I suspect, was reclassifying some activity that was already going on to be R&D for tax purposes. I don't know, but it would shock me if a significant amount of that wasn't just reclassification.

Oh, and further proof that Apple is playing games to avoid taxes: their recent bond offering to repurchase shares. This was done purely to keep from repatriating overseas profits (and thereby having to pay taxes on that money).

So yes, Tim, I believe that Apple is using far less than all of the available tricks to avoid paying taxes, but claiming that it isn't using any just doesn't hold up to even casual scrutiny.

And that overseas money? Trapped is not the word for it. You can pay the taxes on it (remember, it's only a tax holiday, which is to say deferment, that's keeping you from paying taxes today. Those taxes should need to be paid eventually (though it is likely that you'll be able to convince Congress to overlook it)) and bring it back today. The only thing preventing that is an unwillingness to pay the piper.

IRS Scandal (?)

I really don't understand all the uproar over what's going on at the IRS.  Yes, it probably shouldn't have happened (almost certainly not, but I actually haven't heard enough details to be positive), but what is the IRS supposed to do in cases like these?

Well, here's a good run-down from tax policy expert David Cay Johnston:

Congress requires the IRS to review every application for tax-exempt status to weed out organizations that are partisan, political, or that generate private gain. Congress has imposed this requirement on the IRS, and its predecessor agencies, since 1913.

So, it is likely that something that shouldn't have happened, did.  But we shouldn't lose sight of the fact that the IRS shouldn't be giving blanket approvals for tax filing status (and, perhaps more importantly, for purposes of hiding donations and donors).

There's quite a few other important points made in Johnston's article.  Check it out, and wish that most of those breathlessly talking about Watergate-level scandal had done so (because they obviously haven't).

Stupidest idea ever

I could have sworn that I'd already written about this, but if so, I can't find it.

One of the biggest problems with the current economy is the absurdly outsized compensation packages lavished upon executives at large corporations these days.

Well, here's a large write-up on what's driving that trend, and what problems it's causing.

Imagine also, to extrapolate Martin’s analogy [comparing CEOs to sports team coaches], that the coach and his top assistants were hugely compensated, not on whether they won games, but rather by whether they covered the point spread.

Yeah, that's pretty much how the stock market works for a company.  All sorts of evils wrapped up in that kind of scoring of performance.

There's also a mention about how "goodwill impairment" (of which I had not previously heard) forces CEOs to take a short-term view of company return, even if is at the expense of long-term returns.

Another factor not talked about is how low taxes are on the very rich, these days.  Back in the day, when the US was growing by leaps and bounds, CEOs paid taxes around 70-90%.  Yep, they really did.

What that meant was that to become really rich, they needed to keep working to build up their companies for years.  That forced them to take a long-term view of returns, which was great for the company, great for the country, and great for the workers.  But now they can get generationally wealthy in only a couple of years (and average CEO time in position is less than five years), so why would they bother with the hard work of building long-term value?

It's a cyclical problem that needs to be dealt with, and I have yet to hear of a policy suggestion from Washington that would even be a step in the right direction.

Perhaps not a surprise...

But still disappointing.  According the Post, Democrats are preparing to cave in to the hostage-taking on the Right, and give in on just about everything.

I guess that means that there's no point in voting for Democrats, because they seem not to have even half a spine among them.  Not even when public opinion polls are solidly on their side.  Not even when they decisively win elections.  I guess that means elections don't have consequences, after all.

And I guess, since they're dropping all demands on the aristocracy tax, the rich today will stay rich forever.  Maybe it's just me, but that seems more than a little bit unAmerican.  Sad.

Economists agree...

I heard a bit from Planet Money this morning, where they were talking to five economists from across the political spectrum, about six ideas the group agree on. I'd heard of the group before, and agree with some of what they said, but think some of it is blisteringly stupid.

We'll start with the parts with which I agree. That would be legalizing marijuana and taxing carbon emissions. Let's do it. Make sure we invest the emissions income in public transportation, but I completely agree with both of those.

Next, the one I somewhat agree on: eliminating mortgage interest deduction. I think that's actually overdone; personally, I would reduce, rather than eliminate, it. My pet idea is to reduce it down to one house, and a limit of the median home price of the year before (or two years before, if we want to make it predictable a little more in advance). That way it helps the middle class, and encourages home ownership, but isn't a vehicle for the rich to get richer.

Next, the one I'm not too sure about: ending the tax deduction for providing health care. I'm not sure what I think about it, but I think I'll come back to this in a minute.

Finally, the ones I find mind-bendingly stupid: eliminating corporate, income, and payroll taxes (ignoring, of course, that following through on these would make the suggestions in the last two paragraphs pointless). Payroll taxes are paid to separate out mandatory and discretionary spending in the government budget. If you want to make it trivially easy to underfund or eliminate social security/medicare/medicaid, then that's a great policy idea.

But eliminating corporate and income taxes really take the cake. The explanation advanced for corporate taxes is that you don't want to discourage reinvestment. Maybe it escaped them that those reinvestments aren't taxed, and never have been. Those are expenses. Businesses are only taxed on profits (you know, revenue minus expenses). I can't understand how someone (let alone five someones) calling themself an economist can make such a basic mistake.

But it's even worse than that; reducing corporate taxes actually DIScourages reinvestment. Why? Because, without corporate taxes, the cost to the business of making those reinvestments actually goes UP (it also raises the marginal cost of hiring, as well! Yeah, we don't want businesses hiring). If the tax rate is 35% (it's around there), and a business looks at a $1M capital investment, they can say that it really only costs them $650k, because they would have lost the other $350k anyway to taxes. But if there are no corporate taxes, they look at that investment, and say that it costs them $1M, making it less likely that they would make that investment (the ROI is guaranteed to be smaller).

On the income tax side, why is that stupid? Well, it's actually only stupid in terms of how it would be replaced. The stupidity is in terms of what you want to encourage or discourage. If you don't tax income, then someone needs to work less hard to get the amount of money they need for what they want to buy. What government should be encouraging is production, and should be mostly neutral on income.

Actually, it now occurs to me that this whole thing about eliminating tax is a complete supply-side attempt at a solution. There's actually nothing politically neutral about it (at least not these parts of it). It's attempting to increase the supply of money available for spending.

The part of it that is downright stupid is this: they acknowledge that taxing something discourages it. Why would you worry about discouraging income (which has built-in advantages, almost no matter how much it is taxed), and instead discourage consumption (which does not)? Consumption is good for the economy. It provides more demand, which will, in turn, require more supply (and more people to do work to provide that supply). The whole problem with supply-side solutions to problems is that too much supply DIScourages demand, which discourages economic activity overall. That means it, by design, leads to economic contraction. Why would the government want to pursue such a policy? It's self-defeating.

And all that ignores the large practical problems with a consumption tax. To whit, consumption taxes are inherently highly regressive (poor people spend a much larger portion of their income), and that's not easily flipped. You can increase the tax as items get more expensive, I suppose, but that's hard to keep from being highly gameable. And you can eliminate taxes on certain necessities. The point is, though, you quickly end up with a system every bit as complex as what we have. So what's the point?

Perfectly balanced

Think Progress continues their excellent work by flagging a report on the economy that shows that the top 1% have 288 times as much as the median household.

And yet, we still can't tax the rich, right?  Because then they might only have 100 times as much as everyone else?

More electioneering

[This is another that I wrote several days ago, but am just getting around to posting.]

I mentioned, yesterday, that other people were doing a far better job than I of talking about the problems with Romney as a candidate. One that I found yesterday is this epic-length blog post by Kurt Eichenwald dismantling the entire economic argument for the GOP.

I really don't have a lot to add to it; it covers a lot of ground, very well. Really, it's well worth reading the whole thing.

The two things I think I want to mention are about the Laffer curve and about Reagan's tax increases.

We'll start with the Reagan tax increases. Wait, increases? Yes, as mentioned in the article, the TEFRA was a large tax increase. What he doesn't mention, was that it was needed to stabilize Social Security's finances. How well did it work? Well, Social Security started having surpluses immediately. Congress immediately used those surpluses by having Social Security buy T-Bills to finance the operations of the rest of the government. But the real reason I wanted to bring it up is that that also occurred right before the economy started booming, and there's reason to believe correlation, there. Not to say it was a bigger reason than the rate cuts, but it wasn't nothing, either.

About the Laffer curve, here's what I see as the key points. If you tax at 0%, revenue is zero. If you tax at 100%, revenue will similarly be zero (or very close; altruists might get some work done). So it's pretty obvious that there is some point in the middle that maximizes revenue. And pretty obvious that progressive marginal rates will push that maximum point higher. It's pretty tough to argue that current rates, already incredibly low historically (and Eichenwald does a decent job of pointing out how low, by comparing with Reagan-era rates. He neglects to mention Eisenhower-era rates (90% top marginal rate), though, which are also instructive).

Actually, let's look at tax rates for a bit. Here's a chart of top marginal tax rates, historically. Do tax rates really look high, now? They seem ludicrously low, to me. Ah, finally found it. Here's a chart with the full tax rate table under Eisenhower. Man, that would be painful for my family, but only because we're accustomed to paying so much less. Still think rates are high, though? How crippled was the economy by those tax rates? Yeah, it was extremely healthy.

The other point worth noting, though, is just how many different tax brackets there were. I'm not sure if that was a good thing, or bad, though.

The main point, though, is that, no matter what your political orientation, you should read that Eichenwald article.

So, I guess tax hikes aren't so bad after all, are they...

It looks like a lot of people will be getting a small tax hike, in the form of the payroll tax holiday going away on January first. How we got there is kind of interesting. As near as I can tell, Republicans wouldn't agree to a one-year extension unless it was amended with a bunch of irrelevancies (most notably fast-tracking the Keystone XL pipeline).

So a compromise, two-month extension was agreed to, that would extend it long enough to negotiate a longer-term agreement. The Senate promptly passed that, with 89 or 90 votes (I forget), but the House decided that negotiating wasn't good enough. No, they needed to reject the Senate bill, and send the issue to committee, so they could negotiate.

Huh?

So, once again, we see that 'public service' stops at the doors of Congress, as everyone went home for the holiday.

Merry Christmas to the 160M or so who are affected by the payroll tax holiday. *sigh*

Update: Supposedly, the House Republicans caved earlier today, and will be approving the agreed-upon two-month extension. We'll see what happens when the two months ends, but I suspect it'll be as ugly as the last few days have been.

Kudos to WaPo

I was kind of mocking last week about WaPo's finally noticing, and prominently mentioning, just how counterproductive current tax rates are. And I still have mixed feelings about that, but I'm glad to see that they're continuing to mention the problem.

This time they're looking more at write-offs and corporate taxes. The teaser in the paper promised to look at the whole problem, but I know it didn't do that, because that would require the entire paper to go into even a cursory look.

And it opens by talking about how

the debate has revolved around “loopholes” for corporate jets and ending “carve-outs” for well-heeled special interests. But if the goal is debt reduction, that’s not where the money is.

The problem with that is that the goal isn't debt reduction. Republicans don't care about it at all; they just use it as a cudgel to attack democrats in power. If they really meant it, they'd do it all the time, not just when there's a democratic President. And the Democrats in Congress, and the President, don't really care about it either, they're just trying to look "bipartisan" (as if that's something that's always useful).

Not to say that I think bipartisanship is terrible, I think it's great when both sides are negotiating in good faith. But when one side is insane, and willing to take hostages, it's just not productive. In fact, it's actually counter-productive.

But to get back to the main point, it isn't an accident that the crap that they're making a big deal about is small-ticket items (not that they aren't hugely egregious, but the dollars compared to the size of the budget is basically pocket change).

I guess the article does get to one important point, though.

All told, federal taxpayers last year received $1.08 trillion in credits, deductions and other perks while paying $1.09 trillion in income taxes, according to government estimates.

Which means that the entire government operating budget is being borrowed. Think about that for a moment, and what it means for what is possible in supply-side economics. You would have to cut more than 99.9% of the total budget in order to stop borrowing. The IRS' operating budget, alone, is more than the $10B left in that difference above. To say nothing of the debt service costs. I'm quite sure those are more than $10B also. You think you could survive without any federal services at all? Well, Social Security has its own funding, so that would still be around. And maybe Medicare/Medicaid would as well (they have their own funding, but I don't know if its enough to pay their bills). But nothing else. Not even salaries for the President and Congress. Ok, maybe that part would be good.

Does the Republican position that tax increases are always evil still make sense?

Just figured that out for yourself, huh?

The Washington Post opened itself up for some more mockery, today, boldly declaring (in a small headline on the front page) "Tax Policy Feeds Gap Between rich, poor".

To be honest, I really shouldn't mock. This is a very important topic, and I do hope the front page placement gets it a bit more notice than has yet been the case.

But it's really hard not to mock when it takes the paper at least eight years to notice this. I can't see any way in which this is news. Really, when the debate over continuing the Bush tax cuts was happening would have been a more appropriate time to make this case.

Still, maybe this will get some notice, particularly among the political class. And maybe, next, they[Post and politicians, both]'ll notice that the inheritance tax is even more slanted than the capital gains cuts. And even more pernicious, as it creates a permanent aristocracy that doesn't care how those tax policies hurt people less fortunate than themselves.

Class Warfare?

The Diane Rehm show came on NPR Thursday morning, and I was listening to it as I frequently do. But when one of their guests was first given the chance to speak, he goes off about how Obama's plan was class warfare.

Frankly, I was so disgusted by the whole thing that I had to turn it off immediately.

If you'd like to see class warfare in action, take a look at the book Perfectly Legal, about how the tax code has been wildly distorted over the past decade or two to heavily favor the rich. You will find out how it can be cheaper for a company CEO to take a corporate jet than to take a taxi (which is outright thievery from the shareholders, but also from taxpayers). You can also be reminded about how badly Social Security and the mortgage income deduction favor the rich. Plus how there is more money put into enforcement of the Earned Income Tax Credit (which pays the working poor to make it worth their while to work instead of just taking in welfare) than there is to making sure the rich pay the appropriate amount in taxes (where far more money is at stake). Frankly, if you aren't sick to your stomach well before the end of the book, you must be stupid or both wealthy and amoral (hmm... I suppose poor and amoral, but with aspirations of getting rich is also possible).

And, perhaps, an even starker example can be seen in a , comparing justice for poor criminals versus that for rich criminals.

Tax Deal Cruises Through Senate

The Post's headline on this article this morning. It just makes me sick.

All those bills that attempted to help the entire country get help up (to say nothing of the judicial appointment blockade that has gotten so bad that the (Republican-appointed) judiciary itself has requested that the Senate lift it), but if you promise a huge giveaway to the top two percent of the nation, no problem.

And the Post apparently has no trouble with this, as they comment

lawmakers rushed to prevent a New Year's tax hike from striking virtually every American household

Obama has now given up all pretense of being a liberal, or a progressive, and actually seems to go with the media's BS narrative of the US being a "center-right" nation. He certainly seems to be governing from the right. That point might be debatable, but it's unquestionably much further to the right than he campaigned on. And he wonders why his base is upset at him.

And I know conservatives who were telling me, before he was elected, that he was the most liberal member of the Senate. Which was, even then, an absurd thing to say, but has become more and more ridiculous as time has gone on.

He said that we needed to do this to keep from hosing the long-term unemployed, and certainly, something needed to be done for them. But how much are the 99ers being helped by this compromise?

And what is this going to do for seniors, long-term, when this deal is used as a precedent to cut funding to Social Security? That'll cause Social Security to become insolvent a heck of a lot sooner than 2037 (the current projected date for problems). It'll also drive a large number of Senior Citizens into poverty. Before Social Security, a large percentage of seniors were below the poverty line. If Social Security truly is bankrupted, by disrupting funding, we'll go back to that situation. Is that what we want, as a nation? Is that how our nation keeps its promises?

What was so difficult about putting a bill in front of Congress to extend Social Security benefits? Make them filibuster it. Make Republicans own their "principled stand". How well would that go over with the majority of the population? The Tea Party would certainly love it, but I think not too much more of the country would.

We Can't Discourage Working. Unless You're Rich.

I was just reading Jim DeMint's (R-SC) comments about reducing the deficit while permanently extending the Bush tax cuts. Leaving aside the fact that these two goals are completely inimical to each other, there was this lovely quote:

We can't just keep paying people to stay at home. We've got to create economic activity to allow businesses to grow so they can hire people.

(tip o' the cap: ThinkProgress)

Apparently, what he actually means is that you can't keep paying poor people to stay at home. But if you're rich, you should always be encouraged to do so, via taxing your capital gains (which generally don't require you to work outside the home) much less than taxes on labor (which usually does).

Granted, that's usually not a strict either/or option, but with those incentives, which is going to get more of your attention?

On the other hand, if you're poor and undereducated (remember, the unemployment rate, right now, for college grads is still less than five percent, which is generally considered "full employment"), it's too expensive to make sure you can keep your home and feed your family. No matter how long you've been working beforehand, and paying into unemployment insurance.

Because homeless people find it so much easier to find employment.

Does South Carolina have no poor people, or do they just not vote?

This is a Compromise?

Man, if this tax deal is being accurately reported, I have to wonder what it would have taken for the White House to acknowledge that it had just bent over to the minority party.

This is absolutely horrible policy, as it continues on with the current "give everything to the rich" that we've suffered through for the past ten years. Actually, it's even worse, as the estate tax "compromise" puts the tax lower than it's been any year prior to this year.

If you want to guarantee a permanent, landed aristocracy, this tax package would be the number one way to go about it. The only thing missing is the formality of acknowledging that the (criminal) laws are different for the very rich. Oh, and maybe giving them formal title as, say, Lord Baltimore.

Doing nothing, and allowing all the tax cuts to expire, would be much better policy than this. While I dislike doing nothing about the AMT, allowing it to come back full-force is definitely worth it for the other problems allowed.

I'm just sick; this is full-scale capitulation to the Republicans who were holding tax benefits to 98% of the population hostage to tax benefits for the richest two percent.

Oh, and instead of working to get corporations to pay more of their fair share, they'll get even more tax breaks. As if them saving up over $1T already wasn't enough. How about we at least do something to force them to spend that money, so it gives the economy some stimulus. You know, hire some more people. It really isn't all that complicated.

Yes, some of the concessions gotten have minor salutary benefits, but they're piddling compared to the vast rapage that is being allowed in the name of "compromise".

Seriously, I really hope this whole deal falls apart. Maybe Feingold, or someone like him, will put a hold on this legislation to keep it from getting voted on. And then filibuster, when the hold isn't honored (Reid only honors holds by the other party, as we've seen). We can hope, at least.

Some more thoughts on the public option (and the deficit)

I was thinking of writing something more about the public option anyway when I ran across this article about the so-called Catfood Commission. The part about medical spending is dead-on, and this is why the public option was so important. The budget projections for it showed it putting some downward pressure on medical expenses.

In fact, it gives some possibility (not assurance, but at least hope) that medical care could be improved for everybody except the insurance companies. How would it help care providers? By simplifying and reducing paperwork.

Why would the paperwork be a big deal? Part of it is that there should be many fewer denials (as I alluded earlier, no profit motive for doing so), but the larger issue is standardization of paperwork (and digitizing medical records, which the insurance companies have been fighting for years because, being easier to search, it increases transparency). If that doesn't sound like a big deal, consider this: a friend of mine's dad is a doctor. He had a small practice, and his wife took care of the paperwork. Dad finally retired, handing the practice over (or selling, I really neither know nor care) to another doctor. My friend's mom worked full-time for more than a year afterwards, just taking care of the paperwork generated by the care my friend's dad did.

To get back to some of the other proposals of the commission, let's think about their suggested increase in Social Security full benefits retirement age. My first thought was that it wasn't too big a deal, given how small the age increases are, and how far away they are. But one thought gives me pause. The people most likely to be relying on Social Security for their retirement are those least likely to live those extra years. So I'm not sure whether it's problematic or not.

Reducing the mortgage deduction? I'm actually ok with this, even though it wouldn't be good for me, personally. In fact, I think it should be reduced slightly more, even, limited not only in dollars, but in number of houses. It doesn't make sense to me to get a deduction for a second home. It just seems to go against the rationale of the deduction.

Eliminating the charitable donation deduction? Given the uproar over having the deduction be a flat 28% rather than scaled to your tax bracket, it seems a non-starter. I don't have a strong opinion on it, though; it depends on how much it would reduce charitable giving.

Eliminating the Alternative Minimum Tax (AMT)? I've got mixed feelings about this. I like the idea of the AMT, but a) it should only be hit by people making a lot more money than currently happens and b) some things shouldn't count as deductions you're comparing the AMT against. For a), I think it should be people with income over $1M, indexed to inflation for the future. And with respect to b), some deductions, particularly state and local taxes, shouldn't really apply.

The thing that really torqued me, though, was hearing that they're talking about reducing the size of the government workforce. In a booming economy, I could actually get behind this idea, but talking about it when unemployment is already above 9% (and many more are already being forced to work part-time instead of full-time) just pisses me off. Did the people on this commission miss that the thing people want most is more jobs? Eliminating 200k jobs just isn't the way to respond to that.