Category Archives: Tax Policy

How To Fix Social Security

Social Security will be solvent until 2038. (Social Security Adminstration, Summary of 2012 Annual Reports). Social Security is completely funded by the Social Security Tax and the payouts add nothing to the deficit. Reducing Social Security benefits will not reduce the Federal deficit one cent. Social Security benefits are fully funded until 2038. However, there are five changes to the structure of the Social Security tax that could, and I think should, be made.

First, eliminate the ceiling. Currently the Social Security tax is 6.2% of the first $110,000 of income. Everyone who makes $110,000 or less pays 6.2% of his or her income into the Social Security fund. People who make $50,000 pay $3,100. People who make $100,000 pay $6,200. People who make $110,000 pay $6,820. But people who make $1,000,000 also pay $6,820, as do people who make $100 million, or $1 billion. This makes Social Security a regressive tax. Eliminating the ceiling would make it flat tax.

Second, impose a floor, perhaps $25,000 per year. This would transform the tax from a regressive tax into a slightly progressive tax for the lower 80%.

Third, transform the structure of the tax to a fully progressive tax, as illustrated below.

Progressive Structure for Social Security
Income	Tax Rate
Under $25,000	0.00%
$25,001 to $50,000	2.50%
$50,001 to $100,000	3.50%
$100,001 to $250,000	4.50%
$250,001 to $500,000	5.50%
$500,001 to $1.0 Million	6.50%
over $1.0 Million	7.50%
Table 1

Fourth, REQUIRE, elected and appointed representatives in all branches and at all levels of Federal government to participate in the program. That would include the President, Representatives in the House and Senate, the Honorable Justices of the Supreme Court, lower courts, as well as elected representatives in the governments of the states of the Union and territories.

And Fifth, consider Capital Gains, distributions from Trust Funds, and other distributions that are not “W2 Income” as defined by the Internal Revenue Service to be treated like “W2 Income” for the purposes of funding Social Security.

How to Fix Medicare, Medicaid, and Social Security

President Roosevelt created the Social Security Administration in 1935.

President Johnson created Medicare in 1965.

President Obama passed the Affordable Care Act in 2010.

People say “Medicare and Social Security are broken. They need to be fixed.” Some say they should be eliminated, or turned into voucher programs. What are the facts? What does “Broken” mean, in the context of Medicare and Social Security?

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Occupy Wall Street, Obama, The American Jobs Act, Veterans & Patriots

The same way that they filibustered the The American Jobs Act of 2011, Senate Republicans filibustered the Veterans Jobs Corps Act of 2012. According to the Examiner, here,

the proposal failed 58-40, with most Republicans voting against it. Sixty votes were needed to overcome the procedural hurdle and push the bill toward final passage. Five Republicans – Sens. Scott Brown (Mass.), Susan Collins (Maine), Dean Heller (Nev.), Lisa Murkowski (Alaska) and Olympia Snowe (Maine) – voted with all 53 members of the Democratic Conference to sidestep the procedural roadblock.

I know the Republicans CLAIM to be “Fiscal Conservatives” and “Patriots” but the evidence shows that they are neither.
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Occupy Wall Street – On Taxes

“Taxes are the price we pay for civilization.” – Oliver Wendell Holmes.

Progressive tax structures are not about punishing the rich. They are a recognition that wealthy people – like everyone else – derive benefits from being in society. Warren Buffett, Steve Jobs, Bill Gates, Michael Jordan, Oprah, for example, got rich because people buy their products or watched them play basketball or on TV. Paris Hilton is wealthy because her great-grandfather built a successful business. Their successes are wonderful. But their success should not require me to subsidize their lifestyles.

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Progressive Tax Policy

“Taxes are the price we pay for civilization.” – Oliver Wendell Holmes.

Progressive tax structures are not about punishing the rich. They are a recognition that wealthy people derive benefits from being in society. Warren Buffett, Steve Jobs, Bill Gates, Michael Jordan, Oprah, for example, got rich because people buy their products or watched them play basketball or on TV. Paris Hilton is wealthy because her great-grandfather built a successful business. Their successes are wonderful. But their success should not require me to subsidize their lifestyles.

This tax structure can be implemented by October 31, 2012, and effective January 1, 2013, if not by Congress, then by Executive Order.

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Protesting Marked Cards and a Stacked Deck

_ Tweet I spoke with two of the Wall Street protesters this morning. We discussed credit unions, other cooperative ventures, Buckminster Fuller’s ideas, capitalism, and productivity. (“A 4-day work week,” Fuller was quoted as saying, “would give us time to enjoy the wealth we create.”) We didn’t talk about Warren Buffett or President Obama, but it seems that both would agree with the protesters’ sentiments, as I do, that our financial system “favors the rich and powerful at the expense of ordinary citizens.” (The protests and the protesters’ motives were described here by Colin Moynihan in the New York Times, Sept. 17, 2011.) The protests are also covered by Think Progress, here.

Buffett, in “Stop Coddling the Super-Rich“, published in the NY Times, said

I paid … only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

Obama’s initiative is explained on White House . gov and Talking Points Memo, and by Obama in recent days, “It’s not class warfare,” he said, “it’s math” and “If it’s class warfare,” he said in Ohio and Kentucky, while discussing an old bridge between southwestern Ohio and Kentucky that needs to be renovated, “I’m a warrior for the Middle Class.”

Move On has a petition here, saying, “I agree with Buffett – and Obama.”

Despite the evidence, from the 2001 to the present, that cutting taxes on rich people does not create jobs, Charles Gasparino, in the New York Post, a Rupert “We-hack-cell-phones-for-fun-and-profit” Murdoch product, said, here, “taxing the rich will destroy jobs.”

Gasparino is clearly wrong. And Buffett and Obama are clearly correct. Rich people can afford to pay higher taxes, and asking them to pay 17.4% while others, who need to spend a much higher percentage of their income on food, clothes, and housing, pay 33% to 41% does not seem fair.

But the question is “What do we do with the money?” Buffett has also said that he would never have made the money he made had he not been born in the United States, and had he not gone to Columbia University and studied “Value Investing.” He basically argues that the cultural climate and economic systems in the United States enabled him to become wealthy, that this is a good thing, and others deserve the same opportunities. “We must plan for the future and invest in infrastructure. And the wealthy should pay their fair share. ”

Tax policy must be linked to fiscal policy. What we are doing today, Obama, Buffett, and the protesters would say, is using tax policy to make rich people more rich. They would argue, and I would agree, we should use tax policy to develop infrastructure. One idea is to build a 40 kilowatt photovoltaic solar array on each of the 92,000 public schools in the United States. Solar only generates power during the day; schools need most of their power during the day. This would use tax revenues to pay for infrastructure upgrade – and tax revenues pay public schools electric bills. PV Solar systems provide energy without pollution, without toxic wastes, without greenhouse gases. And in the event of an emergency, if disconnected from the grid, we would have a network of 92,000 local emergency shelters with power during the day, when the sun is shining.

Marked cards and a stacked deck are great when you’re doing card tricks. But don’t play poker against a cheater using them.

Mitt Romney: "Corporations are People"

Tweet On the campaign trail in Iowa, Mitt Romney said, “Corporations are people.” (NY Times, Washington Post)

An argument can be made that Mr. Romney meant that corporations are composed of people, that they magnify the abilities of individuals. However, Ayn Rand might suggest that the candidate made a collectivist statement. Mr. Romney could also have meant that corporate profits eventually wind up in the pockets of investors like himself and Warren Buffett, and their heirs, like his children and Paris Hilton. However, that may be a nuance that may be lost in the political debate.

It could also be that Mr. Romney meant exactly what he said.

But what is closer to the truth, I think, is that corporations are legal mechanisms by which people use to limit their liability and to develop and protect their wealth.

In my courses at the Marlboro MBA in Managing for Sustainability, we discuss corporations as a “nexus of contracts.” That’s not really a definition of a person that a flesh and blood person, a person whos DNA is DNA would use.

People, that is flesh-and-blood-based people, DNA-based people can own corporations. Corporations can own other corporations. But neither people nor corporations can own people.

In “The Divine Right of Capital,” Marjorie Kelly (Amazon, EcoBooks) clearly describes why corporations ought not be considered “persons.”

But that’s not the only issue I have with Mr. Romney’s statements in Iowa.

Mr. Romney also said, “Social Security, Medicare, and Medicaid account for about half of Federal Spending.” This seems to be factually incorrect. According to the Congressional Budget Office summarized on Wikipedia, Social Security, Medicare, and Medicaid account for 43% of total federal spending, in fiscal year 2010. (Note that total defense spending is greater than the 20% reported in the figure because certain programs and agencies, such as the CIA, the NSA, and other defense and intelligence agencies are funded, in part, out of the “Discretionary” category.)

While $1.491 Trillion, 43%, is $350 Billion less than 50% of the budget of FY 2010, you could argue that Mr. Romney was exaggerating for effect, something politicians do. However, I imagine if we were to raise taxes to 50% on the wealthiest 1% of Americans, people with over, say, $50 Million, Mitt Romney has $284 Million, and say, “It’s only about 43%,” he would at the very least question our understanding of mathematics.

Mr. Romney also said, “You can raise taxes, that’s not the approach I would make.”

That is the approach I would take. As noted here, taxes are “The price we pay for civilization.” They are revenues raised by the people in governments to pay for the things they understand must be paid for; things like education, infrastructure, security. I would raise taxes on people making more than $250,000 per year. And raise them significantly on people, making more than $1,000,000 per year, whether they make their money as actively as salary, or passively as dividends, capital gains, or distributions from trust funds.

I make less. A lot less. My expenses – my health insurance, the costs of food, fuel, etc., are going up. My income, however, is going down. In “real” terms, as inflation is going up, and in actual numbers, as the bonus I used to be given have shrunk or been eliminated because of, it has been said, “the economic conditions faced by the firm.”

The government Lincoln defined as “Of the people, by the people, and for the people” needs money to pay its obligations. It needs money to build infrastructure. And as has been noted, Keynesian economic theory suggests that in an economic conditions such as we face only the government can be willing to act to create jobs. The government can only really raise money by borrowing it or by raising taxes. We should be developing government programs to shift the energy paradigm to clean, renewable, sustainable energy. It will create 2.4 Million jobs, directly cut unemployment from about 9.1% to about 7.3%, indirectly cut unemployment by another 1.0 to 2.0% and generally stimulate the economy in a terrific manner. (Click here).

As we have noted before, and will doubtless do again, Popular Logistics is a POLICY blog, not a POLITICS blog. However, we do think about politics, at least occasionally. And it appears to this blogger that Mr. Romney just lost the election. Whether he has lost to Mr. Obama or to one of the other Republicans remains to be seen.

Socialists v Stalinists

Tweet The Washington Post reported, here, that John Boehner, Eric Cantor, Paul Ryan, and the “Young Guns,” their Republican comrades in the House of Representatives, PLANNED as far back as January, 2009 to use the debt ceiling to create a political crisis. It seems to have worked. The Republicans held fast, Obama and the Democrats blinked. The rating agency Standard & Poors, S&P, downgraded their rating of the credit-worthiness of the United States of America, President Obama’s core supporters seem to be abandoning him. And the stock markets are plummeting – the Dow Jones Industrial Average dropped 1000 points in 3 days.

Allowing US debt to be downgraded – forcing it to be downgraded – will cause a rise in interest rates, an increase in unemployment and bankruptcies. Altho a rise in interest rates will benefit bondholders. This is not the fiscal policy I expect from the party that claims to be fiscal conservatives. Altho, as noted, it does benefit bondholders.

The government should be creating jobs. Our elected representatives should be guiding the ship of state to a prosperous and sustainable future, not selling it short.

The NY Times reports, here, that S&P’s downgrade will spur the Republicans to demand more cuts in government spending, which will put more people out of work, furthor erode the economy. The only hope for the country is for Obama to realize that there is nothing he can do to win the love and admiration of the right wing, to ignore them and look to the center and to his base, and do what is good for the country, regardless of what Bachmann, Boehner, Cantor, Ryan and the Young Guns, and Grover Norquist want.

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Taxes – The Price We Pay For Civilization

“Taxes are the price we pay for civilization.” – Oliver Wendell Holmes.

Neil Armstrong on the surface of the moon

Your Tax Dollars At Work, Courtesy NASA

Tweet Taxes fund Medicare and Medicaid so the poor and the elderly can see a physician and get treatment when they are sick. Taxes fund education for our children and our neighbors children so they can grow up to be doctors, lawyers, engineers, architects, accountants, teachers, plumbers, electricians, carpenters, builders, actors, etc., so we can buy things that work properly, travel safely, enjoy life, so we can, in a word, thrive. Taxes fund police, fire-fighting, defense, judicial and other services so we can be secure in our homes and our persons, so the innocent do not go to prison, so the guilty pay their debts to society, and so we, when we do foolish things, can compensate those we accidentally harm. Continue reading →

Debt, Catastrophe, and Foreign Entanglements

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The battle raging today between Democrats and Republicans will not solve the nation’s debt problems, nor avert a financial catastrophe in the future. The politicians do not appear to have a handle on a comprehensive solution to our financial woes. I’m not certain that I do, either, but I feel an obligation as a citizen and a stakeholder in our nation’s present and future to present my ideas and add to the debate.

The issues, as I see them, revolve around the debt ceiling, government obligations, the economy, consumer debt and what George Washington might consider foreign entanglements of the kind he warned us against in his farewell address. The solutions must benefit the American taxpayers today and in the future. Here are the issues and some ideas toward resolution. Continue reading →

Roughing It

Tweet A s they struggle to pay their bills, forced to work, the wealthy cope as only they can. By sending their children to summer camp in private jets. In “To Reach Simple Life of Summer Camp, Lining Up for Private Jets” Christine Haughney, in the New York Times, July 24, 2011, wrote:

“A turboprop Pilatus PC-12 carrying Melissa T., her daughter, her daughter’s friend and a pile of lacrosse equipment took off for their home in Connecticut, following the girls’ three-week stay at Camp All-Star in nearby Kents Hill, Me. Shortly after, a Cessna Citation Excel arrived, and a mother, a father and their 13-year-old daughter emerged carrying a pink sleeping bag and two large duffel bags, all headed to Camp Vega in Fayette. … as the economy limps along, more of the nation’s wealthier families are cutting out the car ride and chartering planes to fly to summer camps. One private jet broker, Todd Rome of Blue Star Jets, BlueStarJets.com, said his summer-camp business had jumped 30 percent over the last year.”

A quick check on the Camp All Star web site’s “Dates & Rates” page suggests that 3 weeks will cost about $4500. Trips, horseback riding and hockey are extra. Getting there on a private jet, would add $6,318 to $15,240 per party, $2,106 to $5,080 per camper for a camper, his or her mom, and a friend. As I tell people, it’s the trip, not only the destination.

Tell me again, Mr. Boehner, why the wealthy can’t afford to pay taxes?

I did some checking. Went to Blue Star‘s website, priced a charter for three (3) from Allaire Airport in Monmouth County, New Jersey to Augsta State in Maine. I was surprised at how affordable it is. Blue Star offered 5 alternatives, all turboprops:

A Ratheon Super King BE 350, a 9-passenger aircraft, $6,318, which is $2,106 per passenger,
The BE-C90, a 6 passenger turboprop, $11,270, or $3,757 per passenger,
The BE-100, an 8 passenger turboprop: $12,151 for the trip, $4,050 per passenger.
The BE 200, in a 9-passenger configuration, for $13,043, $4,348 per passenger, and
The BE-200 in an 8-passenger configuration: $15,240, $5,080 per passenger.

These data are summarized in the table below.

Plane	Trip	Per Passenger, 3 passengers	Per Passenger If Full
Ratheon Super King BE 3509 Passenger Turboprop	$6,318	$2,106 per person.	$702 per person for 9.
BE-C90, 6 passenger Turboprop	$11,270	$3,757 per person.	$1,878 per person for 6.
BE-100, 8 passenger Turboprop	$12,151	$4,050 per person.	$1,519 per person for 8.
BE-200 9 Passenger Turboprop	$13,043	$4,348 per person.	$1,630 per person for 9.
BE-200 8 Passenger Turboprop	$15,240	$5,080 per person.	$1,905 per person for 8.

I don’t know if the airline serves food, drinks, or offers in-flight movies. But caviar is only $115 per oz (Russian Sevruga, Caviar Express, Glendale, CA).

The False Assumptions of Neo-Conservatives

To paraphrase John Kennedy, “Ich bin ein Keynesian.”

Jude Wanniski coined the term “Supply Side Economics” in 1976 as a reaction to Keynesian and monetarist thought. In his book, The Way The World Works, Wanniski argues against taxes. “Working together three men can build three houses in three months. Working separately, they can build three houses in six months…. If the tax rate on home building is 49% they will work together … if the tax goes to 51% they will suffer a net loss because of their teamwork and so will work separately in the barter economy and pay no taxes. … the government loses all the revenue and the economy loses the production…”

Here are Wanniski’s assumptions:

Working alone three men can build a total of six houses in one year. Working together they can build 12 houses in the same year.
A 4% change in the tax rate, from 49% to 51%, is significant enough to cause someone to “drop out.”
The government taxes people when they work together but not when they work separately.

These assumptions are flawed. Continue reading →