Tuesday, August 26, 2008

Taxes and Fairness

When people talk about everyone paying their fair share of taxes, what they usually mean is that someone else is going to pay more. But that raises the question: how much is the fair amount to ask people to pay, and how much more than that is unfair?

There are two ways of looking at that question. The conventional way is to look at someone who pays, oh say 20%, and determine that they could afford to pay more. So for this example, we could decide that 25% is that person’s fair share. After all, we're only asking that person to give up another 5% of their income. They can afford it, right?

To look at this from another perspective, let us examine a hypothetical economy. In our small scale imaginary model, there are only 25 income earners. The distribution of income among these households is as follows:
1 @ $1,000,000
14 @ $100,000
10 @ $10,000
So the top 4% of households earn 40$ of total income.

Let us further assume the following tax policy: the first $10,000 of income is exempt from tax. After that, up to $100,000 is taxable at 10%. Income above $100,000 is taxed at 20%.

Under this scenario, tax payments break down as follows:
$1,000,000 household: $189,000 (10,000*0%+90,000*10%+900,000*20%)
$100,000 households: $126,000 (14*(10,000*0%+90,000*10%))
$10,000 households: $0
Total taxes: $315,000

What this means is that 4% of the taxpayers are covering 60% of the total tax payments. Meanwhile, the bottom 40% of households are paying…nothing. Somehow that doesn’t strike me as fair play.

Of course, the example shown above is a completely imaginary, highly simplified economy. Let’s see what the numbers are for a real world economy, like, for instance, the United States.

According to the Heritage Institute, in 2004 the top 5% of taxpayers had 29% of the reported income, but paid 58% of the taxes. Expand that group to the top 10% of income, and the numbers climb to 39% of the total income and 71% of the taxes paid. Meanwhile, the bottom 50% of income earners paid less than 3% of the total taxes.

Maybe my example wasn’t so far fetched after all.

My policy point is this: if, as a society, we have decided that we have cut government spending as much as we can, and we need more tax revenue, let’s raise everyone’s taxes. We can have a debate about making the system more progressive, or less progressive. But if we are going to hit the high income folks up for more money, the low income folks should have to pay something in as well.

And maybe, if everybody has to kick into the pot, we’ll discover as a society that maybe we can do without some government spending after all.

Wednesday, August 20, 2008

A Simple Plan

We have a host of economic problems facings us these days. If not already in one, we seem to be sliding into a recession. Although the unemployment rate is low, a lot of people are underemployed, wither working part time or in jobs for which they are overqualified. Americans undersave, risking an insecure retirement down the line. The weak dollar is contributing to the rise in oil prices, generating inflation.

I have a cure for all of that. Buy American.

I have to confess, I have been a Galactic-class pain in the rear on this subject for at least twenty years. For a long time, Christmas morning conversations went like this:
“Gee mom, thanks for the tie, let me just check the label. Oops, says here Made in Italy. You’ll just have to return it.”
“But dear, all of the silk ties were Italian.”
“It would have been okay if you had just gotten me postage stamps as a gift. Like I asked you to.”
This issue was finally resolved with the advent of restaurant gift cards.

Still, hear me out on this one. When you buy Chinese made products, you put a bunch of Chinese to work, plus one retail sales clerk. When you purchase American made goods and services, you put more Americans back to work. Basically, your dollars have a multiplier effect, creating jobs for more of your countrymen than when you imported products.

It’s not just patriotic, either. When you buy American, you are putting your money into the pockets of potential customers. Think about it, how many of your customers live outside the United States? Unless you work for Boeing or Hollywood, probably not too many.

I can hear someone whining now: “Nothing’s made in this country anymore!” Since I have worked for manufacturing companies for the last twenty years, this is one of my personal pet peeves (#3994, to be exact). However, I do concede that it can be difficult to find US made products sometimes. My advice in that regard is to do without. I mean, do you really need another picture frame/stuffed animal/baseball cap/kitchen gadget? Our homes are filled to overflowing with possessions now. Why keep spending your money on more stuff? Stop the insanity! Just say no!

If you stop buying offshore stuff, you’ll have more money for other things, like saving for retirement. Also, since we as a country currently buy so much more than we sell, we’ve reached a point where our dollars are worth less and less every year. If we stop buying stuff we don’t need, it will strengthen the dollar, making it cheaper to buy the things we do need, like imported oil.

I’m not advocating that we be slavish about this. We all have some things we just aren’t going to do without. For me, it’s coffee.

Thursday, August 14, 2008

Bad Timing Award, 2008 Edition

Kia Motors, the Korean car company, has just launched an ad campaign to tout their newest model, a V-8 powered SUV called the Borrenga. The tagline of the ads are that you’re not surprised when a luxury SUV is advertised with various clichés (show the car going off-road, show a symphony orchestra to suggest the harmony of the ride, etc.), but you will be surprised when you see the Kia name badge on the front grille. This is Kia’s attempt to move into the luxury segment of the car market.

Car companies don’t make the decision to do this kind of platform launch lightly. It takes years to develop these vehicles. Hundreds of millions of dollars are spent to build the tooling and production processes involved in a totally new car. Just the budget for the TV advertising alone can run upwards of $20 million.

It’s just a shame that they have come to the culmination of this process just in time to watch the market for big SUV’s crash and burn. Too bad, so sad, sucks to be Kia Motors.

I bring this up by way of pointing out that the domestic automotive manufacturers were not alone in their plans to continue selling large numbers of big cars in the North American market. The American car companies have gotten a lot of bad press because of their overreliance on pickup trucks and SUV’s. But for fifteen years the best selling vehicle in America was the Ford F-150 pickup. What would you expect Ford to do, stop making them?

Even Toyota, probably the best car company in the world, got hammered by the shift in the market. They built the brand new San Antonio assembly plant in 2006 to build the Tundra full size truck. Because sales fell off so much, Toyota has closed the plant for three months this summer while they work off inventories. They were building another plant in Tupelo, Mississippi to build trucks. It now looks like that plant will be retooled to build hybrid Priuses.

A number of commentators have written about how the government should have forced the manufacturers to raise the average mileage on the cars they sell. As if it should be illegal to sell a car that gets less than 30 miles to the gallon.

It’s not like the car companies didn’t offer fuel efficient vehicles for sale, because they all do. Even Ford, GM, and Chrysler. But they kept making full size vehicles because that’s what we wanted. That is why all of the car companies kept developing full size cars and trucks, including Kia.

Being able to buy what we want, and being able to make what people want to buy. It’s a little concept that I like to call freedom.

Saturday, August 9, 2008

Take from the rich...

Last spring, John McCain floated a proposal to suspend Federal gasoline taxes for the summer driving season. This was a bad idea, widely criticized. It would have taken millions out of the Federal highway fund those taxes go into, leading to shortages of money to keep roads and bridges in repair. It would have led to increased gasoline demand, keeping prices elevated. Finally, it would have saved the average family only about $3 a week.

Barack Obama opposed the gas tax holiday proposal, for all of these reasons. He got a lot of favorable press at the time for being wiling to take an unpopular stand and tell people the truth.

Now Obama has come out with some ideas of his own. He has proposed selling oil out of the Strategic Petroleum Reserve. He also wants to place a windfall profits tax on large oil companies, and then provide a $1000 rebate to every American family out of that tax.

His campaign released a statement that actually said “Barack Obama will require oil companies to take a reasonable share of their record-breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for a married couple.”

He might as well have said: “Vote for me, folks, and I’ll give you $500 in exchange for providing me the privilege of riding on Air Force One.”

His response to two different proposals reveals a mindset that taxes are good, and should not be lowered. Profits are bad, and should be taxed.

George W. Bush is often metaphorically referred to as a cowboy. This has both good and bad connotations. The cowboy is an icon for strength and self-reliance, admirable qualities. In the pejorative sense, calling someone a cowboy implies a lack of control and finesse. The European press has this in mind when they disparage President Bush as a cowboy.

Based on this part of his energy policy, a different mythic figure springs to mind with regard to Barack Obama. While the cowboy is an iconic American image, Obama is associated with a European figure. This is only fitting, given his wild popularity on the other side of the Atlantic.

He’s Robin Hood.

Tuesday, August 5, 2008

Let the Games Begin

There is breaking news on this summer’s salmonella outbreak. At first the Centers for Disease Control thought the bacteria was coming in on tomatoes, so stores and restaurants pulled tomatoes from the shelf. Then after ruining this year’s tomato crop for farmers, the CDC announced that no, it wasn’t tomatoes, it was actually Serrano peppers from Mexico that were to blame.

Me, I kept eating salsa. Over 1300 people came down with salmonella poisoning during this outbreak. But I would guesstimate that over 130 million people ate some combination of tomatoes and/or peppers during the time period between the start of the outbreak and the location of the source of contamination. So the odds of getting salmonella were about the same as the risk of being stung to death by killer bees, and only a little riskier than being ripped to pieces by a pack of dogs. Most of us don’t build our lives around avoiding bee stings and dog bites.

I don’t want to make light of salmonella. One of my coworkers got it a couple of years ago, and he said he remained curled around the toilet for three days, because there was no point in going anywhere else. He wouldn’t wish it on his worst enemy. About one in five of the people who came down with the stpaul strain involved with this outbreak were hospitalized.

Well, one of the hospitalized people has hired an attorney. And who has the attorney sued? Not the CDC, for missing the source during the initial investigation. Not the farmer, who was the actual source of contaminated produce (how much money could a Mexican pepper farmer have, anyway?). No, no, the attorney has sued Wal-Mart. Wal-Mart sold this guy the peppers that made him sick.

This attorney actually has a practice dedicated to suing companies based on food borne illnesses. According to the press release, his position is that Wal-Mart should have known that the peppers had salmonella and prevented them from being sold. I guess that Wal-Mart is supposed to check every box of produce from every source for every possible contaminant and pathogen.

I fell for the guy who got sick, but suing the supermarket is not the answer. If this suit is successful, what’s next? Suing the supermarket for selling honey and dog food?

Sunday, August 3, 2008

Food Police

Last week the Los Angeles City Council passed what has to be a candidate for the worst new law of 2008. In the district of South Central Los Angeles, a thirty-two square mile area with over 500,000 residents, the new ordinance places a one year moratorium on building new fast food restaurants.

This part of LA has the highest percentage of obesity in the city. Fully 30% of the adults are obese. So the rationale behind this law is that the rate of obesity is connected with the prevalence of fast food restaurants in this area. By blocking new McDonald’s or KFC’s for a year, the goal is that planning for healthier food choices can be accomplished.

This plan is so ludicrous that one scarcely knows where to begin attacking it. Let’s start by pointing out how hard it is to define what a fast food restaurant is. I have not read the ordinance itself, but it apparently contains language about restaurants with limited menus. Well hello, but I’ve eaten in bistros where the night’s offerings were the five or six items chalked up on the menu board at the entrance. By a limited menu definition, the bistro would be fast food. Of course, the bistro chef could counter that he had been cooking all day, so the food wasn’t exactly fast.

Maybe by fast food they mean a lack of table service. By that definition, a salad bar restaurant would be excluded, even though we can all agree that a salad bar could provide healthy food. Although, after loading up on the cheese and creamy dressing, you could debate that point.

What if you opened a new supermarket in South Central LA. Would the deli be able to sell rotisserie chicken? Would the market be able to put in a salad bar? I’m sure the planning department bureaucrats will be able to provide the answers to these kinds of questions. Eventually.

If you’re in a hurry for those answers, well, that’s just too bad. It’s your own fault for not getting a safe city job.

Even assuming we have a common definition of fast food, I don’t quite understand the theory that preventing fast food outlets will spur the development of other types of restaurant. Somehow I can’t envision Wolfgang Puck announcing plans to open “Spago in the ‘Hood.” When Emeril Lagasse is siting his next place, I’ll bet he doesn’t count the number of Wendy’s in the area.

Aside from the practical difficulties of helping Angelinos lose weight by using the blunt instrument of restricting their eating choices, it is troubling to consider the worldview that informs this experiment in social policy.

To wit: the residents of South Central Los Angeles are children, incapable of making decisions that affect their own lives without the wiser heads of the LA City Council stepping in to protect them from their poor decision making.

As a political conservative, I believe that we institute governments among ourselves for the primary purpose of protecting our freedoms. That includes the freedom to make dumb choices. Now, government is restricting freedom in the name of helping the citizens. “It’s for your own good.”

A lot of the rationale for this new law is to control Medicaid costs. After all, obese people have higher rates of diabetes, heart disease, and high blood pressure. A few years ago, the states’ Attorneys General piled on to attack the tobacco companies. The legal reasoning was that because states paid for half of Medicare expenses, they had the right to appropriate the profits of the tobacco industry. A variation of this argument is now being extended to cover what we eat. “If we are going to pay for your health care, than we have the right to regulate your choices that affect your health.”

The scary part of this argument is that almost every activity involves choices that have the potential to adversely impact our health. If we buy into the argument paying for health care gives government the right to regulate your activities, where do we stop?

“Our studies show that the citizens are not getting enough exercise. Therefore we have banned elevators in high obesity areas. Enjoy your climb, sir!”

The scariest part of this whole story: the LA City Council passed this moratorium unanimously.

Be afraid. Be very afraid.