Pay it Foreward, Pay it Backwards, Pay it NOW!

 Elizabeth Warren made a speech in Andover, Massachusetts on September 22nd 2011 . My comments.

“There is nobody in this country who got rich on his own. Nobody."

Of course! The way you accumulate money is to deliver value to people who value your services or products more than the money they give you. To accomplish this very difficult task of delivering value to people, you need to understand what they want, communicate effectively, build trust and deliver a product or service that meets their expectation. And, if you are going to do this for lots of people, you need a team that works well together and efficiently. Additionally, we have the infrastructure that allows people to cooperate, invest and work together with a legal system that supports this cooperation. Yea America! You can't get rich on your own any more than you can get pregnant on your own.

“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for"


Ok, now here is where she starts to drift from reality. The fuel taxes we pay are supposed to go for the roads. In fact, this is almost a "perfect" tax because those businesses and people that use the roads, have to pay for them. The larger the vehicle, the wear and tear on the roads, the more they pay. So, our "rich" guy pays for the roads that he uses.

"you hired workers the rest of us paid to educate;"

Actually, the "rich" businessman funds most of our federal services. According to the IRS, the top 1% of taxpayers paid 40.42% of federal income taxes. Those in the top 5% of taxpayers paid 61% of the taxes. And the lower 50% of taxpayers pay little or nothing at all.

I would be grateful to this "rich" person who is paying taxes to help educate our children but he is wasting his money. The federal structure for education (I have read the "No Child Left Behind Bill – it isn't about education or how children learn, it reads like an IRS manual and is about power and control) interferes with good teachers and innovative solutions in a world that is very different than it was 100 years ago. If public schools were to adopt the same administrative to teacher ration as private schools they would have to fire thousands of staff. We know our educational system sucks, I don't have to back that up.

My understanding is that currently, every dollar in tax this "rich" person pays for education, 25 cents is kept in Washington D.C for "overhead" and 75 cents is returned to the school system with rules and regulations that cost another 25 cents in compliance. So, this "rich" guy isn't getting much for his money. I think we owe him an apology.

"you were safe in your factory because of police forces and fire forces that the rest of us paid for"
 
Actually, he paid property taxes that paid for these.

"You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.”

Actually, as mentioned, the "wealthy" pay for most everything. 50% percent of the population pays little or no taxes.

“Now look, you built a factory and it turned into something terrific,

 Like getting struck by lightning. It "turned into." This sentence decouples the risk, work, insight, sweat and tears from success. Now since you got lucky...she wants to you  keep a "hunk" of it.

or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

What social contract?

If I read this accurately, the social contract means that we take more money from business people that are delivering value to the rest of us, creating jobs, new products and services and give it to the government to support a failed education system.

What am I missing?

What is the purpose of income taxes?

Let's look at the options:

1. Raise revenue
2. Reduce the disparity of income
3. Social engineering (targeted taxes and subsidies)
4. Limit the power of the rich
5. Reward political supporters
6. Punish political opponents

Which ones do you think are currently being used?

Which ones do you think are legitimate use of the tax code?

Each purpose supports a very different income tax rate and special provisions.

The current income tax is used for ALL the above. As a result it is complex and its many missions are in conflict.

If you believe that the purpose is to raise revenue, then you want a growing economy that broadens the tax base. You will want a tax rate that balances a growing economy with maximizing revenues. It is my guess that this tax rate is around a flat 10%. Could be a bit higher, could be a bit lower. But a low flat rate would spur investments and jobs and set the stage for a long term growing economy that would maximize revenues.

It is also my guess that even the poorest segment of our society would have improved lives. However, the disparity between the productive wealthy and the poor would also widen.

If the goal is to reduce the disparity of income, you will want a sharply progressive tax. This will reduce investment and job creation. It will reduce the tax base. There will be fewer rich people for sure. Perhaps it may make a statistical difference in the gap between the rich and poor.

If you believe that the purpose of the tax code is social engineering, (i.e. tax breaks for green energy) then you can reward the industries and companies you like (yes the current tax code describes breaks for companies where only one company is eligible) and punish companies you don't like (investment banks).

If you are afraid that "unfettered" capitalism will move the locus of power to uncaring business interests, then taking their money and moving it to the public sector will move the capitalists from serving their customers to serving Washington. In the last year, we have seen a sharp growth in CEO activity in Washington and growth of lobbying.

And of course, politicians always have and always will reward and punish us citizens to keep us voting for them.

Just keep in mind, if you believe the tax code is for anything but number 1, raising revenue, then you are reducing the power of the economy, moving power to Washington and creating an unfair and uncertain playing field for entrepreneurs, investors and businesses.

Your choice.

The Truth About the Deficit is Half Right

"The Truth About the Deficit" NY Times February 6, 2010

I just looked at a chart of total income tax revenues. And what a surprise! Income tax revenues went UP, not down.

http://www.usgovernmentrevenue.com/

Not only that, but after a lag, (as you would expect) the economy grew.

Entitlements are going to dwarf the GDP of the planet. If we look at the unfunded liabilities and off balance sheet obligations on every level of government, from cities to municipalities, to counties, states and the federal government...the amount of the obligations are going to dwarf our economy. And there "ain't" any reserves anywhere.

Its not taxes, it is

Raising taxes does little to raise revenue. What raises revenue is economic growth and a larger tax base. Raising taxes, reduces economic growth.

Do this thought experiment. Imagine that the federal government raised the income tax rate for everyone to 100%. That's right. Took every penny from everyone. Period. What would happen to economic growth? It would stop. The market would go in a free fall, all investments would stop. Now imagine that it reduced the taxes to 90%. Well...we might see some economic activity...and keep imagining they bring the rates down to say 10%.

At what point will we have the most economic growth? You make your guess. Mine is about the 10% number. AND, the bonus is that the total income tax REVENUE would be at it highest at this rate.

Capital gains tax revenues, for example doubled following the 2003 tax cuts.

The deficits didn't come from decreased revenues, (which dropped 2001-2004) and then exploded in 2005-2008, but from increased spending.

Year GDP-US Income Taxes %GDP
2000 9749.1 $1,211.75 12%
2001 10286.2 $1,145.41 11%
2002 10398.4 $1,006.39 10%
2003 11142.1 $925.48 8%
2004 11867.8 $998.33 8%
2005 12638.4 $1,205.50 10%
2006 13090.8 $1,397.83 11%
2007 13715.7 $1,533.71 11%
2008 14441.4 $1,450.10 10%


The Times editorial states, "The first lesson is that spending without taxing is a recipe for huge deficits, and that running big deficits when the economy is expanding only sets the country up for bigger deficits when the economy contracts. The second lesson is that once a deep recession takes hold, slashing government spending is not going to solve the problem. It will only make it worse."

Let's correct that to read, "spending without ECONOMIC GROWTH...."

Its not about tax rates, it is about economic growth. You can't tax you way to revenues. Growth is achieved with productivity. The person who can spend their own money most productively is YOU.

Cut taxes, watch the economy grow and increase revenues. And most importantly, the entitlements will have to be cut. They are sustainable. If we tax our way into a depression, and then cut entitlements we will have a revolution. Not good.

The process will be painful enough...let's make it happen during the sunny days of economic expansion.

in reference to:

"The first lesson is that spending without taxing is a recipe for huge deficits, and that running big deficits when the economy is expanding only sets the country up for bigger deficits when the economy contracts. The second lesson is that once a deep recession takes hold, slashing government spending is not going to solve the problem. It will only make it worse."
- Editorial - The Truth About the Deficit - NYTimes.com (view on Google Sidewiki)

A Sustainable Economy

We understand the concept of a sustainable environment.

Wikipedia defines Sustainability as "...the capacity to endure. In ecology the word describes how biological systems remain diverse and productive over time. For humans it is the potential for long-term maintenance of well being, which in turn depends on the well being of the natural world and the responsible use of natural resources.

We can use this same concept to define economic sustainability in terms of jobs.

What jobs have the capacity to endure? In the environment, a predator that eats all of its prey will die. A logging firm that clear cuts a forest will run out of timber (plus destroy other ecosystems). Jobs need to have the capacity to endure and add value to the economic ecosystems. This means that when I create a product or service it adds MORE value to your life than the money you give me for it. The money that you gave me came from a job where you created more value for someone else. This is an amazing process. Everyone is adding value to everyone else.

A sustainable job can be defined as work that produces goods or services that add more value to the customer than it extracts from the economy.

OK, the government wants to create more jobs. How does it do this? A jobs program? A program requires funding. So first, it must either tax and remove money from the economy or borrow it and remove capital from the economy. Both of these activities destroy jobs. (Well the third option is to print money, and destroy jobs in the future.)

Now, we have destroyed jobs to create jobs. Jobs in the private sector must add value or they go out of business. Jobs in the public sector have no such feedback loop. They can keep taking resources out of the economic ecosystem and give nothing back.

The other idea is to create public service jobs. This is like importing non-native plants. They can soon overwhelm an ecosystem and destroy it because the natural feedback loops in a local economy can't destroy them. They soon develop a constituency in Washington that lobbies for additional resources and funds. These jobs do not need to add value to your life or my life because they are funded with taxpayer dollars with the taxpayer having no control over how they are spent.

The other way to have a jobs program is to give tax breaks to businesses. Now, this leaves more capital in the economy and can create jobs. Good idea! However, the plan is to "target" certain businesses and jobs. The problem here is that these targets may or may not match the shifting preferences of the the American people. A good idea, but let's extend it.

What if we were to cut taxes on ALL business activity?

Public service jobs and jobs programs increase taxes and reduce the sustainable jobs that add value to our lives.

I would like to see a healthy sustainable economic ecosystem. A jobs bill will destroy sustainability. Reduced government spending, borrowing, taxing and targeting will allow sustainable jobs to grow that have to meet your needs.
in reference to:

"But right now there is no way to sustain a recovery unless millions of jobs are created soon — and the private sector alone cannot do that."
- Editorial - No Jobs, No Recovery - NYTimes.com (view on Google Sidewiki)

Spend Less by Spending More

"March of the Peacocks" by Paul Krugman - NY Times January 28, 2010

I am soooo confused. The problem with the deficit is that we are spending not enough stimulus money to create more jobs and that we haven't expanded health care to save money.

I have mentioned before, and will say it again, the government cannot create sustainable jobs. It can only transfer money from one group to another.

A job is when I add value to your life directly or through my employer. YOU have to be the one that determines if I am adding value to your life by the purchases and choices that you make.

A government created job does not have this feedback because you have no choice to pay your money to the government...and what they choose to subsidize may or may not be of value to you.

If it isn't of value, it is only sustained through the force of taxation.

And...no government program has ever, EVER, saved money. It just creates new entitlements.

So, Paul...explain this to me...we need to reduce the deficit by spending more?

in reference to: Op-Ed Columnist - March of the Peacocks - NYTimes.com (view on Google Sidewiki)

President Obama....you ARE the President!

In his state of the Union speech yesterday, President Obama said, “Washington has been telling us to wait for decades...”

This struck me as just plain weird. For all my disagreements with the President's policies, I do want him to be PRESIDENT. This means a confident man dealing with REALITY.

President Obama, you ARE the President. You not only ARE Washington, you are THE President. Take the role. Which means you have to deal with reality.

In a speech at Lorain County Community College on January 23rd, the President said he was....

"...not going to stop fighting for (fill in the blank)" thirteen times. He sounds like a community activist standing outside the gates of the statehouse trying to pump up 15 supporters. Its like he is unable to grow past his community organizer roots.

You ARE Washington...you are the PRESIDENT... grow a pair and grow up.

Incredible Idea!

"A Payroll Tax Break for Jobs" NY Times January 25, 2010 by Charles Schumer and Orrin Hatch.

Are they actually suggesting that the payroll tax inhibits employment? That reducing the tax will encourage employment?

Wow, this is powerful stuff. Let's extend the power of this idea.

What if we were to eliminate other taxes? Now imagine, what if we eliminated the capital gains and dividend taxes completely. Additionally, what if we dropped the income tax to a flat rate of 10% for incomes over $40,000 a year?

If this surprise announcement were to happen tomorrow what do you think would happen to the stock market in one day? What do you think would happen corporate planning? What would happen with venture capital? What would happen to new business start-ups? What would happen to the value of the dollar? Where would international money flow? How much capital would be released into growing businesses?

Orrin, Chuckie...I never thought I would say anything like this, but I love you guys. You are really on to something here...just keep the ball rolling and expand the concept. (Oh, sit down with the president and explain this idea...he still thinks that raising taxes will spur job growth.)

in reference to: Op-Ed Contributors - A Payroll Tax Break for Jobs - NYTimes.com (view on Google Sidewiki)