Things I've Tagged ‘Taxation’

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#Economics, #Taxation

On Tax Cuts And Revenue

Governments must raise revenues to finance vital functions; we all know this and have very little choice in the matter as those decisions were made many generations ago (i.e. social contract theory). Life’s lottery has placed me squarely in the United States; it is a Land of Opportunity™, where economics and government are oft discussed and poorly understood. Because of this lack of understanding, the average citizen supposes our government does more than it can reasonably or legally be expected to accomplish.

I’m really discussing a particular affiliation here, and that affiliation is…all of them. Made you look.

Nevertheless, people of no particular political affiliation will discuss for hours the notion that tax cuts are expenditures to be paid for rather than a decrease in revenues. It’s all on the backs of the poor, dammit! Does this honestly make any sense to folks? Politicians sure take advantage of this notion.

It is because of this framing, that when we talk about tax cuts, it becomes very easy for those opposed to these cuts to paint them as something that has to be paid for—or more sinisterly, as some kind of cash grab for a favored class. It is as if it is the government handing over money, rather than the government simply not collecting it.

We can think of taxes as a form of government revenue, or sales, in the business sense. Reducing the price of one product does not mean that business is simply handing over cash to its customers—even if they run sales claiming as much. But that move can do a couple of things for that business. If the reduced price doesn’t affect the number of units sold, then you will see a reduction in sales. However, and this is the most likely scenario, that reduction in price is most likely going to increase the demand for that product and increase sales. A tax reduction can also work this way, depending on the category of tax. It can encourage investors to move money into the economy, and increase government revenue.

This all seems rather counterintuitive, but think about this: no decision is isolated. Everything has an effect on something else, and all decisions encourage or discourage other actors from making specific decisions. What do you think?

#Obama, #Socialism, #Taxation


Update:12/12/2008 To be honest with you, it looks as if the Obama administration is going to lean to the center for a while, certainly as long as the economy is weak. If he and his team have learned anything from the past, it’s that increasing taxes and spending in an economic downturn, even to create work programs, could inevitably lead to further destabilization and the extension of the problem. At any rate, his first term will be tough, but I’m curious to see how he handles it. Good luck Mr. President, all anybody can hope for is that our government doesn’t try to manage this recessionary period too much.

Update:5/20/2009 Wrong. Wrong. Wrong. This guy is a socialist through and through. He’s sure good at pretending to be a centrist though.

This was not an entirely unexpected result. Mr. Obama was a highly touted media darling of a candidate, and extremely popular with the people—considered the vox populi by many.

I’m not as frightened by his election as some conservatives, and he may well not do any of the things most people fear, but it is what he represents that I find to be so dangerous about him. It is the Marxian principles that he touts so energetically; the socialist tendencies his administration, coupled with Democratic control of both houses of Congress, would bring to the table; and the seemingly willful way in which the media has ignored his associations, misspoken words, policy gaffes, and inexperience in an effort to see that he is elected, that bother me so much.

For me, the American ideal can be summarized as rugged individualism, laissez-faire economics, and little Federal involvement in my life. I believe strongly in paying few taxes to the Federal government, and more locally (i.e. the state or municipality one resides in). What should I pay taxes to the Federal government for? Simply put, defense and operating costs. That’s it.

Obama would raise taxes for the rich; while this might not affect me directly, it does not make this redistribution of wealth right. I’ve read, and I’ve heard, leaving my claims without a source for now, that an increase in taxes will often erode your tax base, leaving you with less money in the coffers than if you had left the rate where it was at. Obama ignores this fact.

Obama would increase the rate at which capital gains are taxed. This leaves less incentive for individuals to invest, and puts our already teetering economy in an even worse position. For the economy to grow, and for individuals to prosper from this growth, we need healthy investment. The economy is built on investment from the top, not the bottom’s spending power.

The Democratic party is entertaining a very nasty idea; some in the party have proposed a removal of tax incentives for 401(k) plans; 401(k) plans are one of the single most important retirement investment tools available to individuals and have been a major investment opportunity for the average person. You remove that and the market will drop to levels not seen in twenty years because of the mass exodus induced by this plan. What will they replace the 401(k) with? Social Security 2: it will be a required deduction of 5% from your check to be deposited into a government retirement account. Your money will be invested in government bonds with a meager return rate of 3%. Oh and they’ll even contribute $600 a year to your account. Plus, and here’s where the mass exodus from the market comes from, any 401(k) rolled into this government investment account will not be taxed.

Additionally, Democrats are itching to reduce that defense budget. By as much as 25%. While we’re still in Iraq and Afghanistan. Dumb move.

Look, Obama won’t be the end of the country, but the damage the Democratic party can do to my future makes me quite nervous. I’m not looking forward to the next two years, but we’ll see what happens.

#Gas, #Government, #Oil Prices, #Taxation

Gas Tax Holiday

It sounds so warm and inviting, doesn’t it? Say it out loud: Gas. Tax. Holiday. Do you get the same tingling feeling that I do? It goes right to your toes. I keep thinking about this proposed vacation of sorts as a trip to the Caribbean–a trip that might or might not cost you $30 less over the course of three months than it normally would.

That does sound like a really fantastic deal doesn’t it? Not so, say economists, and rightly so I’d guess. Justin Wolfers over at the Freakonomics Blog posed a challenge to economists. He wanted to find an economist who thought that this gas tax holiday made any sense. So far, none have taken up the challenge. I wonder why?

Now, I’m no economist but I understand a couple of different things about this proposal. Let’s run through it real quick. Hillary and McCain back the deal which would be a suspension of the Federal tax on gasoline (roughly $.184); in addition to that, Hillary proposes a tax on the windfall profits (a weird way to say their exorbitant profits) of oil companies to make up for that suspended tax. This is primarily an effort to reduce costs to the consumer, which in my tank would amount to about $3.12 every fill-up and perhaps $12.50 every month–not too impressive in my eyes considering the well over $300 my wife and I spend every month on fuel.

At any rate, the suspension of the Federal tax is all well and good, but taxing the oil companies, in addition to what they already pay, is not. That extra cost will be passed on to the consumer, thereby negating the benefit of the suspended tax. Also, if I remember my intro to macro economics course, two of the primary factors driving the equilibrium price of a product are the current supply of that product and the demand for it.

If politicians truly wanted to make a difference and reduce gasoline prices they would allow domestic oil companies to drill in viable regions in our own country and off the coast in an effort to increase supply. With an increase in domestic supply, we are likely to be less susceptible to foreign pressures in the market (and reduce our dependence on foreign oil).

Granted, it will take a while for new drilling to have an affect on supply, but it would seem that anything we can do to increase domestic oil supplies would be a good thing. In addition to drilling domestically, oil companies must invest in new technologies for them to remain viable beyond oil–this isn’t about creating a happy environment, it’s about sound business principles.

However, right now someone is getting very rich–some impressive inflation, food being used for fuel, and speculators are making it happen. Incomes are not keeping up with the pace of inflation.

I don’t know all there is to know about our economy, but I do know that this gas tax holiday will not have the effect politicians are promising. At this point, the money saved is a slap to the face.

I guess $30 saved is $30 earned–dirty panderers.

Update: 5/7/08 12:34pm — After reading a bit, it seems inflation is really only affecting the volatile food and fuel markets much more aggressively than others, which accounts for the general inflation rate being so low; but I suspect most people are not seeing their wages rise accordingly. (Source: Seeing Inflation Only in the Prices That Go Up)

#Hillary Clinton, #Obama, #Taxation

Obamwhat: My Disdain for Current Political Discourse

What exactly is going on with these Democratic primaries? While I have absolutely very little experience or knowledge of their operation due to my relative lack of age, I have to wonder whether or not the candidates have always been this venomous, vile, and voracious in attacking each other–and I’m not referring to an attack on an opposing party’s candidate.

At the beginning of this process I found myself in support of Barack Obama and his run at the democratic nomination (and perhaps as President), but these constant mainstream news and media organization provoked attacks between him and Hillary Clinton are getting out of control; by all appearances, Hillary will not get the nomination, but she remains in the race and threatens to divide the party to the point of detrimentally affecting the Democratic party in the fall.

In addition to that wonderful mess, this primary has created a sense of disillusionment for many (well, at least for me) in the political process; I do not wish to see a SuperDelegate™ selected nominee for any office. This is especially true in a process that claims to be seeking the will of the people; Super delegates be damned!

I’ve been turned off by the Barack Obamas of this world. What I have truly enjoyed about the man has been his ability to unite a large swath of the populace; it has not mattered what demographic category an individual has been from, they loved him. What I have been turned off by has been his lack of knowledge. A lack of knowledge in basic economics; a lack of regard for the economic standing of millions of Americans; and a lack of concern for the truly impoverished: the middle class.

Neither candidate has a real grasp on what is important to scores of Americans: absolutely no new taxes (and in my case, the dissolution of the Federal income tax–lets bring the tax money back home to the states). Instead they tout “plans” to fund all sorts of socially responsible programs. Programs like universal health care. Funded. By. Increasing. Taxes. To ensure that those of use who make all of this crazy phat cash pay our share of the burden.

No. Sir.