A Total Disregard for Economics
April 13th, 2005 | by Dr. Forbush |Taxes are on my mind. That yearly (or quarterly) torturous ritual of going over your records and determining what you owe to cover the expense of living in a modern society.
My pet peeve at tax time is how Congress has total disregard for economics. I don’t care what party you support or hate, Congress passes laws that work for the current time and place, but they do not take into regard the changes that happen in our economic system. Inflation, efficiency, economic growth and many other economic variables are rarely considered.
Disregard can be seen every year when you look at the Child Tax Credit. This is an arbitrary value that is not tied to any real economic variable. The idea is that politicians intend to make families with children happy enough to consider voting for them again at the next election. Congress thinks to itself, “how much child tax credit do I need to add enough votes to my side of the equation?” People with children tend to vote, because they care about the kind of world their children will grow up in. They may feel slightly more emotional about these things than your typical single male who is just trying to make ends meet. So, when things were looking gloomy after 9/11/2001 George W Bush thought that increasing the Child Tax Credit would make families with children feel a little bit richer. But, that tax credit wasn’t based on any economic principle. The only economic principle was to get more money into the economy quickly. This could have been done both more fairly and more efficiently. But it wasn’t.
But, what really shows disregard for understanding economics is the disregard for inflation. This is one such variable that Congress never takes into account. This is because most people think of money in terms of its current value. But money always looses its value if it isn’t invested in something that maintains its value over time. For example, if you invest your money in real estate the value of your assets is tied to the value of your real estate investment. Everyone needs a place to live and homes are built to last a reasonable length of time, therefore the value of a house will rise when the value of money goes down. One house is still going to be equal to the value of one house in the neighborhood you live in. If you invest your money in stocks, the value of the company is bound to go up with inflation because the value of one food company now is likely to be worth the value of one food company after inflation raises the prices of everything we buy. So, when Congress sets an absolute income level for a tax rate to kick in we should realize that the tax rate will always be lower after inflation acts.
For example, if Congress says that people making less than $10,000 a year don’t need to pay taxes this year, and the law isn’t changed for ten years then people who make $5,000 a year this year would actually pay taxes ten years from now. Well, I don’t actually mean the exact same people, but instead people who are doing the jobs and getting paid at that rate this year and people in ten years who are doing the same type jobs and get paid the inflation corrected rate in ten years. So, if congress does nothing about taxes the compounded inflation effect actually lowers all of the set points for taxes every year in a very gradual way until more and more people have to pay higher and higher taxes.
But, this type of tax increase effects people who earn their income through salaries or wages. People who have their assets in stocks, bonds and real estate are not effected in the same way. This is because these items are taxed by percentages and there are very few places where there are cutoffs that are determined by absolute values. People who have assets in the stock market pay taxes on dividends. The tax on dividends is not dependent on how much money you make, but instead it is based on a percentage of the dividend earned. And, that tax was lowered under the Bush tax cut, a clear bonus paid to the wealthy.
So, what Republicans have managed to do was to raise taxes on the lowest income taxpayers by not doing anything about taxes. Inflation did it job. One particularly nasty tax that has been taking effect slowly is the alternative minimum tax. This tax was placed on the wealthy many years ago. It was intended to prevent the wealthy from declaring so many deductions that they didn’t need to pay any taxes. Once someone makes more than this value many deductions become null and void. The effect is to be a sudden increase in taxes once you make more than this value. Because of inflation more families earn more than $100,000 per year and this increase in tax is swallowing more people. Republicans who control Congress don’t want to do anything about this tax, because the longer they put this off the more revenue the government makes on this disregard for inflation. The more revenue the government acquires from the middle class, the less revenue that is required from the wealthy or the corporate taxpayers. This is good for the Republicans who get most of their campaign funding from these two groups. Congress doesn’t have to vote to raise taxes, but taxes are effectively going up with respect to inflation anyway.
If Congress would actually tie not only taxation but also projects to economic variables that mattered, then taxes would become more stable and the economy would become more stable. Taxes would fluctuate, but the government would be able to finance projects that were planned and approved ten years earlier. Government spending would not depend as much on changes in the economy. The business cycles could be flattened out and people could more honestly predict government requirements for projects and voters would have better information to be able to decide which projects would be better for the community.
Of course that is a fantasy of what could be. I know the reality is no where near that nice. But, if the government were more honest about the economics it would be a small step toward a fair system of taxation.
16 Responses to “A Total Disregard for Economics”
By pia on Apr 13, 2005 | Reply
Dr. Forbush, excellent! Two things: while people with children tend to vote, so do single women without children. Studies show that because women live longer (many have children) they tend not to vote in older age for many reasons–thus bringing down the percentage of single women voters.
Apologize for bringing up New York, but that’s the state I know the best. The middle class is leaving, or not moving here, because wages don’t keep with inflation.
Middle class here includes people making more than 100k.
We are a very high state tax state, yet aside from the standard deduction, our federal taxes are exactly the way you point out.
This very vital city and surrounding areas won’t be in 30 or less years until something is done is to lower taxes for the middle class among other things.
By The Bastard on Apr 13, 2005 | Reply
After reading Cranky’s post about taxes I was finally relaxed and comfortable again about paying taxes. Than I had to read you post! Thanks a lot now I’m pissed again!
But serously, what about the married but childless group that gets no tax breaks, no rewards for reproducing or from another stand point, penalized for not being able to reproduce. If people get money from the government for having babies shouldn’t someone that can’t make little Christian Republicans get a disability payment?
The whole tax credit is horse shit! As you so nicely pointed out.
Good post!
By Dr. Forbush on Apr 13, 2005 | Reply
Pia:
Thanks for the comment. Single Women do vote, but they vote Democratic more often than Republican. Perhaps I failed to mention that in my post. Families with children have been increasingly voting Republican. So, the child tax credit would tend to encourage more Republican votes.
Middle class in California extends to people making over 100k as well. At least along the coast.
By Jet on Apr 13, 2005 | Reply
In the two years since we folded our 15 year-old business, the child credit has increased our return to the point that we were able to pay off the back taxes to the IRS this spring and be shut of the whole mess. While I agree that it’s unfair, a small selfish part of me is grateful for it, otherwise, our farm would be history. I’d make a lousy apartment dweller.
Did ya catch that George? We paid off our debt. That’s what an IOU is. You ought to try that with Social Security sometime.
By Jay on Apr 14, 2005 | Reply
Tax the spending, not the income. Support the fair tax proposal!
By dhunley on Apr 14, 2005 | Reply
Jay,
I think you’re on to something there.
Guys! Isn’t there a single one—not one–reader in here (except for perhaps Jay) that can’t spot the contradictions in this post? I could but I wonder, why should I? The “logic” of my posts is never addressed…just my motives are questioned.
And Dr. Forbush…don’t ever let little things like facts get in the way of telling things like you want it to be…like this little nugget:
“The more revenue the government acquires from the middle class, the less revenue that is required from the wealthy or the corporate taxpayers. This is good for the Republicans who get most of their campaign funding from these two groups.”
The truth is, a study conducted by the Federal Elections Commission found
…”that Republicans raised more than Democrats from individuals who contributed small and medium amounts of money during the 2002 election cycle, but Democrats far outpaced Republicans among deep-pocketed givers.
Republican candidates and parties topped their Democratic counterparts, $68 million to $44 million, in fundraising from individuals who contributed under $1,000 in itemized contributions for the 2002 elections. Among donors giving $1,000 or more, Republicans again beat out Democrats, $317 million to $307 million.”
http://www.opensecrets.org/pressreleases/DonorDemographics02.asp
Time to question motives and break out the accusations, eh? That’s your forte and it’s all you’ve got to work with…I just wish you had a better grasp of basic economics.
By The Bastard on Apr 14, 2005 | Reply
Hunley,
Thanks for reenforcing Dr. Forbush’s comment. The numbers above show that the Republicans cater to the top 1% of the country. Yeah, both parties cater to the rich but the Republicans have no problem taking the money from the bottom and giving to the top as Dr. Forbush pointed out. The Republicans came through on their promises with the bankruptcy bill, the Alaskan Oil bill the push for privatization of Social Security. All on the back of the American middle class (whats left of it).
Wow 27% of their income is most peoples yearly salary. This isn’t even touching the corporate tax.
Paid NO income tax! So the contributions are paying off. They get a better return from their contributions then they would if they invested in their own companies.
So I don’t knwo where you were going with your statement but you and Jay can keep the ACLU and your Republican cronies, I’m just a squirrel trying to get a nut. You can read the rest of the report here.
By Jersey McJones on Apr 14, 2005 | Reply
This thread brings to mind the rabble riling rhetoric of the right. Why is the CTC set at an arbitray value? Who knows. It doesn’t matter. Think of the rhetoric of “Lower Taxes”, or “Small Government”. What do these abstract concepts mean? How low is too low? How small is too small? How do you know when one is one or the other? It is all reminiscient of the Founding Mythologies. Our abhorance of taxation has been ground into our collective psyche from the very beginning. But we fool ourselves. For every tax cut, another is invariably raised. Afterall, taxes are raised to spend. Another funny term is “Tax and Spend”. As opposed to what? Don’t Tax but Spend Anyway? Tax but don’t spend?
It’s easy to live life in an ideology, it’s difficult to deal with reality.
By Dr. Forbush on Apr 14, 2005 | Reply
Jersey,
Excellent point! I was just showing my wife that our portion of tax for emergency funding of our elementary school was $16.00 last year. It was “emergency funding” and people fought tooth and nail against it. It cost $16.00! It only passed by 2%! There is something crazy when people get bent out of shape about keeping the education system up and running so that our Democracy survives. People have no idea about the reality of the situation.
By Jersey McJones on Apr 14, 2005 | Reply
You said it Forbush (by the way,… ironic moniker ya’ got there…)!
This also points up the issue of what should be democratic and what should not.
Should education funding be a democratic process? Look at the local system we have now. Why do we have this? Because, people will say, that schools should be custom to their particular locality. But doesn’t everyone need basically the same education? Doesn’t everyone need a certain amount of investment in that certain amount of education? Is this not a utility? In most states, it’s a right. Shouldn’t it be a federal right? People who claim to be “constructionists” complain about “Judicial Activism” when state courts site the right to education in their respective state constitutions when they order the state to provide funding for under funded districts. Ideologues almost always are hypocrites. A second hypocrisy gets back to that notion that schools should be local so that they are customized to their locality. In fact, because schools are locally funded and all kids need a certain amount of education, the local schools are, by default, all exactly alike! They have to be because they have to be all things to all people in their particular locality. And you know the expression, “Jack of all trades, master of none”? So what we have, because of the localized scheme, is a steaming pile of mediocre schools that are all the same. In the hay day of American education, from a ways before to after WWII, schools were regional, private, parochial, or too tiny to be of note. They were specialized and the parents didn’t have a damned say in the world about the curricula, discipline, or anything (unless they were wealthy enough to donate a gym). Good times. What we need is a regional system with specialized schools (not everyone needs a liberal arts education), like they have in countries with high educational attainment rates (re: every developed nation except America).
Now the cons want to democratize the courts! Many states have elected Judiciaries. States like Texas. And you know the expression, “Texas sucks.”?
By The Bastard on Apr 14, 2005 | Reply
Hey Jersey,
Glad you finally got here! Have you met Hunley? Oh you have to meet Hunley! He should be here anytime now. Gotta run, tell everyone I said hi! Me and Jersey go way back!
By dhunley on Apr 15, 2005 | Reply
Bastard,
This….
“Paid NO income tax! So the contributions are paying off. They get a better return from their contributions then they would if they invested in their own companies.”
Was preceded by this:
Six in ten American corporations reported no tax liability for the five years from 1996 through 2000, even though corporate profits were growing at record-breaking levels during that period.
What years was this data talking about? 1996 - 2000 was it? What are you trying to say? That a democrate President was putting it to the corporations? Sometimes a person can’t even pick and choose your data to suit you can you? Rotten luck eh?
and…huh…this:
that Republicans raised more than Democrats from individuals who contributed small and medium amounts of money during the 2002 election cycle, but Democrats far outpaced Republicans among deep-pocketed givers.
…fortunately I can pick data to suit me. You want to try it again?
By The Bastard on Apr 15, 2005 | Reply
That doesn’t mean anything if the Republicans beat the snot overall out of the Democrats, does it?
They raised more money in one sector. If you look at breakdowns. Some laws only allow $1,000 dollars at a time to be contributed. So the money was spread out and donated under different privat entities.
Now Hunley I know your a smart fella but how about going and tracking down the money trail. These guys hire fleets of lawyers to tell them exactly how to break the law leagally. So what I was trying to say is that you one set of numbers is irrelevant. The fact that corporations pay less in taxes is a fact.
One other thing, it seems you are trying to make this into a Rep vs. Democrat and I think I said
Oh my God I reffered to Republicans but I also condemned the Dems. I can’t help it that there is a Republican in the White House right now. Well, I tried to stop it but oh well.
Nice spin though. Do you get dizzy a lot?
By dhunley on Apr 15, 2005 | Reply
Jersey…greetings, I’d like to introduce…well, me…the guy who thinks people should be able to choose how they live their lives—or perhaps, even to live it…period! Thanks Bastard.
Any way, Jersey, what did that chicken say in “Chicken Run?”…”Isn’t there a better way?”
concerning this…
“Another funny term is “Tax and Spend”. As opposed to what? Don’t Tax but Spend Anyway? Tax but don’t spend?”
How about “Tax and Spend” opposed to “Tax less and Spend less”? Isn’t that ever an option…EVER?
I’ve read your post…couple of times actually, and can’t make heads nor tails of it. Exactly what are you saying anyway?
This…
“But doesn’t everyone need basically the same education?”
or this…
What we need is a regional system with specialized schools (not everyone needs a liberal arts education),
and this…
So what we have, because of the localized scheme, is a steaming pile of mediocre schools that are all the same.
or this…
In the hay day of American education, from a ways before to after WWII, schools were regional, private, parochial, or too tiny to be of note. They were specialized and the parents didn’t have a damned say in the world about the curricula, discipline, or anything (unless they were wealthy enough to donate a gym)
I gather you are dissatisfied with the way our government has handled schools…so we need more government handling?
I think you are being sarcastic when you say “Good days” concerning schools before and for sometimes after…otherwise I’d agree—considering all the technological advancement, scientific discovers, and the betterment of life in general for our citizens as a whole during that period.
And I’d hardly call education a “right” when it is mandatory. Since when are you forced by law to exercise a “right”?
There’s more things I could address in this post…the implication that the American Education system is inferior to other developed countries—I’d love to see you support that statement with something other than your opinion. But I will agree with you on one point entirely; iideologues almost always are hypocrites…especially those who continually seek to ever great governmental control of our lives.
By Jersey McJones on Apr 15, 2005 | Reply
Hello Hunley, I see that you are a libertarian? Conservative? Well, Conservatives tend to be selective Libertarians and vice versa, anyway.
“the guy who thinks people should be able to choose how they live their lives—or perhaps, even to live it…period!”
Even cannibals?
“How about “Tax and Spend” opposed to “Tax less and Spend less”? Isn’t that ever an option…EVER?”
It depends, right? Should we always tax less? Should we always spend less? Look at the war in Iraq. Rummy et al decided that the political impotace did not exist for a massive war effort, so we went in on the cheap. Should we have spent more? Taxed more to do it? Perhaps. Less is not always more.
“I gather you are dissatisfied with the way our government has handled schools…so we need more government handling?”
No, I am disappointed with local governments handling education. I am disappointed with school boards, especially. I see no reason for Democracy in education. That’s how we get creationism in the science class. That’s how we get teachers telling kids lies like, “condoms do not help prevent STDs.” I would prefer that a more accountable and central system of governance handle education because it is a national responsibility, not a local one. If when you go on a drive to Quimbyville, you get there and drop on the street from a medical condition, the Quimbyville paramedics arrive, look at you and say, “Duuuuhhhhh, whatta we do, Mitch? I don’t know Herb, I’m a friggin’ idiot with no education!”, then you see why we all need good schools and why it is not a local matter.
“I think you are being sarcastic when you say “Good days” concerning schools before and for sometimes after…otherwise I’d agree—considering all the technological advancement, scientific discovers, and the betterment of life in general for our citizens as a whole during that period.”
I was not being sarcastic. Back in those days (I’ll see if I can remember a great book I read on this many years ago for ya’ - I think you’d enjoy…), they didn’t have giant brick-n-mortar local schools in every town that taught the same crap. We had a variety of technical schools, trade schools, liberal arts schools, etc. Kids began their career training, in most of these schools in high school, not in their 15th year at Brown. Regional, rather than local, systems can provide for a variety of school types.
“And I’d hardly call education a “right” when it is mandatory. Since when are you forced by law to exercise a “right”?”
It should be a right. It is mandatory because some parents will gladly deny that right to their children and the government must protect those rights. Some parents suck, so we must, as a nation, watch out for their unfortunate progeny.
“There’s more things I could address in this post…the implication that the American Education system is inferior to other developed countries—I’d love to see you support that statement with something other than your opinion.”
My opinion? What are you talking about? I’ve worked in an international business for many years, so I’m sure. But thousands of anecdotes aside, where have you been? I guess I could dig up some data, but jeez man, it’s nit exactly uncommon knowledge I’m sharing here…
“But I will agree with you on one point entirely; iideologues almost always are hypocrites…especially those who continually seek to ever great governmental control of our lives.”
What “control”? You’re very application here of “government control” is a display of ideological dogma. I’m talking about less government. I’m talking about centralization, the abolishment of school boards, taking government out of the schools. Schools should not be democratic institutions. They should be places of learning. Meritocracies. Not democracies.
Ciao, my friend, I look forward to some interesting debate with you in the future. You’ll see that I am not into any popular dogma. I may be “liberal” or “progressive”, but I’m a realist first and foremost. Do I expect America to implement better schools? No. But then do I expect that America will be a great power in 100 years? No. So, the only realistic thing to do, as I see it, is talk about it.
By Jersey McJones on Apr 15, 2005 | Reply
Hey Bastard! I’ve been running around like a headless chicken lately. Pop me over an email when you get a chance!