Obtuse Observer

February 14, 2012

Taxes and Fair Share

Filed under: 2012 Budget,Fair Share,Taxation — Tags: , — Obtuse Observer @ 2:24 am

President Obama tells us everyone must pay their fair share.  I think he’s exactly right.  But I don’t think he means what he is saying*.  Everybody would include more than the roughly 53% of Americans who actually pay federal income taxes.  The President wants to make federal taxes more fair by eliminating deductions utilized by “the rich.”  He has never defined the term rich.  Although he often refers to millionaires, proposed tax changes have applied to those earning at most 25% of what millionaires earn.  To President Obama “fair share” means taxing a smaller group of tax payers from the shrinking pool of those who actually pay federal income taxes.  Increasing demands on fewer and fewer people does not conjure the word “fair” immediately to the mind of most sane people.

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What would be fair? 

1)  Take the entire Internal Revenue Code and burn it.

2)  If you have income you pay income tax; unless you are not part of everyone.  If you are not part of everyone you are no one.

3)  There will be two tax brackets.  15% and 25%

4)  Income brackets will be established by an “over/under” number and the number pegged to the rate of inflation. 

5)  There will be four deductions as follows:

  • Mortgage Interest: federal income tax policy should encourage home ownership.
  • Child Credit: federal income tax policy should encourage and support families.
  • State Income Taxes (or high state sales taxes where no income tax): federal income tax policy should not take a second bite from the apple.
  • Charitable Giving: federal income tax policy should encourage charitable giving.  Not only is it right and proper but helps relieve the burden on tax payer funded programs.

The problem with a simplified tax structure like this is that it eliminates thousands of pages of code and the need for hundreds of thousands of experts to interpret it, it eliminates the opportunities for politicians of every political stripe to embed arcane deductions aimed at preferred constituencies and it would eliminate the need for probably 99% of the IRS.  Sadly, while President Obama does not mean what he says, enough Congressmen agree with him to make it not matter.   And so, we will continue to hear a lot about this issue that says nothing, at best, and misleads more commonly.

 

*Just for clarity, because Obama is President and not Governor, Mayor etc, I presume he is talking about taxes within the control of the federal government; that is to say federal income taxes and so my comments address federal income taxes.  It is awful that I need to say that but with people like Warren Buffet intentionally confusing the issue it becomes necessary.

December 3, 2011

OWS Explained by Adam Carolla

Filed under: Adam Carolla,OWS,Taxation — Obtuse Observer @ 4:00 am
YouTube Preview Image

Thanks to my friend Juan Dingo for posting this to Face Book for me to steal and repost.  Adam Carolla explains the OWS.

CAUTION – This is Adam Carolla so the language is NSFW funny too

 

 

August 26, 2011

Mr. Buffett Stop Misleading Your Readers pt. III

Filed under: Taxation,Warren Buffett — Obtuse Observer @ 1:10 am

Mr. Buffet’s op-ed distinguishes several different taxes but fails to observe that these are taxes every wage earner pays without regard to income level.  Income taxes are not payroll taxes are not sales or gas taxes.

Payroll Taxes include social security, Medicare (FICA and SECA)  and federal income tax withholdings .

Social security withholdings are collected from the employee and, theoretically at least, deposited into the social security trust fund to be withdrawn at a later date.  While the employee doesn’t get these funds immediately they do, theoretically, get them back in the future.  Social security withholdings are 6.2% up to $106,800 for 2011.  The withholdings are capped because benefits are capped.  This is not as much a tax as it is compelled savings, at an awful rate of return. 

Medicare withholdings are 1.45% (see p. 1 of this IRS document.) and are collected to provide health insurance for people over 65 and others meeting statutory requirements.  It is a specifically collected “tax” for a specific benefit received by the employee; another type of compelled savings.

Federal income tax withholdings are collected based on one’s W4 filing.  Depending on individual circumstances one can set this level high or low.  When the employee files their yearly income tax return they may owe additional money, own nothing or get a return of some, all or more than the amount withheld.  As noted previously 47% get all or more than all of their withholdings returned.

Sales taxes are all state taxes and are flat taxes paid at the same rate by everyone.  The more one buys the more tax one pays.  Gasoline taxes are a complex bundle that include state and federal taxes but are again based on consumption not the income of the buyer.

Mr. Buffett is correct that his employees (all wage erners) pay payroll taxes.  However, of those taxes 47% receive a minimum of all of their income taxes returned and the remainder are a form of forced savings for future benefits.  One may argue that payroll taxes have a regressive effect the further down the income ladder one goes but one cannot ignore that everyone pays them and at equal rates for FICA taxes and progressive rates for income taxes.

What is most important to note is that EVERYONE who gets a paycheck pays these taxes regardless of their income level.  To refer to them in the case of earners at one level and not at another is again comparing apples to oranges.

..next.. in no particular order… dual taxation scheme (why tax on dividends is lower than ordinary income), who are the 47% and can’t some afford to pay their fair share, the effect of raising taxes on capital and businesses that create wealth and provide jobs, progressive/regressive impact of taxation

August 22, 2011

Buffett: Stop Misleading Your Readers

Warren Buffett recently wrote an article telling us to Stop Coddling the Super Rich during these difficult economic times.  His article was strong on class baiting and weak on providing the reader with a well rounded picture on the issues.  You can find the article here.  I’ll respond to the article in a series of posts rather than one big article that no one will read.  My purpose is not to suggest that billionaires can’t afford to pay more taxes; they can.  My purpose is to illustrate that popular views about who pays federal income taxes and how much are skewed and that Mr. Buffett’s article played on those misconceptions. 

 

To Buffet’s claims.

While the poor and middle class fight for us in Afghanistan and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.” 

I really don’t know what relevance this could have in an article about taxes.  Either Buffett included a non sequitur making his credibility suspect or he did it for a reason.  I’m going with he did it for a reason.  Mr. Buffett is setting up an us vs them dynamic, not hard when  one group is the mega-rich.  This is commonly known as demagoguery.  Although Mr. Buffett waters his assertion down quite a bit to escape getting hammered on facts they way Charles Rangle did after writing in a NYT Op-Ed asserting that, “A disproportionate number of the poor and members of minority groups make up the enlisted ranks of the military, while the most privileged Americans are underrepresented or absent.” they both used the same rhetorical device.

Buffett and Rangle are not very strong on the facts when using this trope but it does allow allow the opportunity to correct the record about who actually serves.  From an exhaustive study by Dr. Tim Kane at The Heritage Foundation regarding the demographics of the US Armed Services:

The household income of recruits generally matches the income distribution of the American population. There are slightly higher proportions of recruits from the middle class and slightly lower proportions from low-income brackets. However, the proportion of high-income recruits rose to a disproportionately high level after the war on ter­rorism began, as did the proportion of highly edu­cated enlistees.

The facts are that Mr. Buffett makes an unsustainable claim of fact in his second paragraph in order to put the reader into the mind-set of a victim to encourage enmity for the subject of his attack; himself and others in the undefined class of mega-rich.  This is not how an honest dealer should begin his efforts to clarify a complex issue.

Buffett’s “federal tax bill” next time

March 23, 2011

Why Kucinich is Wrong About Obama

Dennis Kucinich has objected furiously to President Obama’s decision to order air strikes in Libya.  Depending on what source you believe Kucinich regards this order as an impeachable offense or one warrant investigation into same.  He’s wrong.  But at least he’s consistent.  It got to be old hat listening to him screaming about impeaching President Bush and Vice President Cheney.  On December 20, 2007 candidate Obama said this about the authority to authorize a military attack: 

The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation

Obama was also wrong.  It’ll be interesting to see if he addresses the flop directly by saying he changed his mind (which I’d respect frankly) or if he would argue that the order meets the relevant criteria in his comment or if he will simply demur.

The President is the Commander-in-Chief of all of our military forces.  He needs no authorization from Congress to order an attack.  However, it is standard protocol and in my opinion a proper thing to do.  Few attacks are ordered on such short notice that the leadership of both parties in each house cannot be consulted prior to issuing the order but there is no constitutional requirement for it.  While only Congress may declare war, war and attacks are not one and the same.  The War Powers Resolution of 1973 attempts to limit this presidential authority.  This is a very controversial law that neither side has tested for fear of losing and they have continued on as if the Resolution does not exist.  For my part I think it is unlikely that an act of Congress can limit an Article II power. 

The history of Presidents using force without Congress declaring war is extensive.  This document contains 33 pages of military engagements from 1798 – 2009; eleven of which were pursuant to a declaration of war.  On a case by case basis these attacks were supported or opposed by Congress though they overwhelmingly supported them.  While it is unlikely that support would be unanimous funding the President’s war budget cannot be regarded as anything other than support (begrudging or not).  This legislator/executive relationship has a long history in Anglo-American constitutional jurisprudence.  Just by way of example; Parliament tired of funding Charles I’s war efforts and cut him off.  Charles found a 400 year old Norman ship tax that permitted a direct levy payable to the Crown.  He skirted Parliament but that they had the authority to cut him off and that he did not need their approval for military attacks was not in dispute.  The Framers surely were aware of examples like this (and many others) and as our law is an extension of theirs the counter-balance was established the same way here.  Congress holds a very powerful check – the power of the purse.  They simply need to use it.

November 16, 2010

Two Edwards and a Charles Were in a Boat

Once upon a time there was an Edward.  Edward was a King and he wanted some boats.  Edward fought many wars and wars can be very expensive.  At this point in the development of England’s constitutional monarchy Commons had emerged as the only body that could issue bills for the collection of taxes.  As such, English kings relied on Commons to finance their wars.  During the reign of Edward I and again during the reign of his grandson Edward III a statute was issued which obligated coastal towns to provide the Crown with either a number of ships or their equivalent value to fund and supply a navy used to protect those towns, ports and coasts during times of war. 

Let us skip ahead 350 years to Charles I.  He’s the guy with the pointy beard.  Charles had a poor relationship with Parliament and, as noted, only Commons has the power to tax.  No taxes, no money, no money no way for Charles to pay for a war and Parliament wasn’t going to solve his cash flow problem for him.  In an effort to circumvent Commons Charles dismissed Parliament and began reviving long abandoned feudal obligations in order to raise money.  Amongst these resuscitated obligations was the ship obligation.  Charles now attempted to collect this tax not only in peace time but from non-coastal cities.  

As one might imagine, the people of England (Scotland, Ireland and Wales too) were not happy about this.  Not only was the King taking money out of their pockets but in their view he was using archaic statutes and customs in novel ways to avoid what had been established as a check on monarchical power to wage war.  Long story short, England sank into Civil War, Oliver Cromwell emerged as Lord Protector and Charles lost his head to the ax.

Despite what many may think of Niccolò Machiavelli we find the subject of checks and balances explored in his Discourses on Livy.  

John Locke, whose father served as a cavalry captain for the Parliamentary forces during the war, was seventeen when Charles was executed.  It is easy to presume these events played an important role in his life and in his political philosophy.  

Our framers, educated men that they were, would have been familiar with the history of England, the development of its constitution, the writings of Locke, Machiavelli and many others.  

This is important to you and me because James Madison borrowed from these writers and his understanding of history when he designed our government.  He designed a government with checks and balances but he did not do so out of whole cloth.  Amongst those checks on executive power (analogous to the king) was the power of the purse residing in the legislative branch of government (analogous to Parliament).  Even further, as in Commons, spending bills in the United States must arise from the House of Representatives per Art. 1 § 7 cl. 2 of the Constitution.  The power to declare or rescind war does not check or compel the executive to either engage in war nor to discontinue it. The historical development and the political philosophy that built our government as expressed in our constitution provides Congress a more powerful check on executive power; the power of the purse.  Over the past seven hundred years of Anglo-American Constitutional government it has served its purpose well despite those who are unaware of its existence, purpose or effectiveness.

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