Thursday, February 26, 2009

Attitude adjustment 

There is no use in me fulminating against Barack Obama's giant tax and health care bill. Others will devote more emotional and intellectual energy than I can muster. There are a couple of points to be made about the administration's attitude, however, that may not rise to the surface in other blogs.

First, the administration quite clearly argues that our money is in fact the government's money, which it lets us keep, or not, according to the best interests of the country:

Under existing law, the tax benefit of itemizing deductions rises with a taxpayer’s marginal tax bracket (the bracket that applies to the last dollar of income). For example, $10,000 in itemized deductions reduces tax liability by $3,500 for someone in the 35 percent bracket.

Mr. Obama would allow a saving of only $2,800 — as if the person were in the 28 percent bracket.

The White House says it is unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions. (bold emphasis added)

Of course, the point of a deduction is that the income attributable to the expenditure is not taxed. If in the absence of the deductible expenditure the associated income would be taxed at 35% rather than 28% or 15%, it is not "unfair" for the high bracket taxpayer to avoid the high bracket rate unless you take the position that any income not taxed is equivalent to an "expenditure" by the government for your benefit (in which case the "tax expenditure" is higher for the higher bracket taxpayer). That is, all national income "belongs" to the government, and its decision not to tax it is identical to its appropriation of it for some government purpose. It is not inaccurate to say that, philosophically, this is the standard position of the socialist.

Second, it is just as easy (and correct) to say that Obama wants to tax the charitable contributions of high bracket taxpayers. Under current law, if I earn $100 (say, from my dear readers buying products from Amazon through my links) and gave that money to charity, I pay no tax on the $100. That is fitting, because I transferred the benefit of that $100 I earned to the charity. I give up $100 in money I might have used otherwise. I cannot invest it, save it, or fritter it away on trivialities. In reducing the tax "benefit" of the deduction from 35% (the current top rate, soon to go up), President Obama is eliminating the deductibility of 20% (soon to be more) of my charitable contributions. Put differently, Barack Obama is essentially proposing that I pay a 7% gift tax on everything I donate. Henceforth if I give $100 to a charity it will cost me $107. In effect, the government is taking a vig on my decision to diminish my own standard of living for the benefit of others. This is also consistent with socialism, because it taxes doing good by private means to fund "doing good" by government.

Third, the bill requires that carbon-emitting industries purchase "permits," which will add billions in new taxes by 2012. I respectfully submit that Barack Obama has done the climate change activists no favors by promulgating as his first initiative in the field a big new "hidden" tax to fund his social agenda. It tends to reinforce the growing perception that calls to regulate greenhouse gas emissions are motivate more by fiscal considerations than environmental. Far better to have a direct tax on carbon emissions at all levels in the economy, and return it right back to taxpayers (and, for that matter, the growing number of citizens who pay no federal income taxes) on some other basis.

Of course, your results may vary.


By Anonymous Anonymous, at Thu Feb 26, 12:20:00 PM:

It will be interesting to see if voters hold the Democrats and the Won responsible, as our debt rises and the government permenantly expands at the inevitable cost of private job losses and economic struggle.  

By Anonymous Anonymous, at Thu Feb 26, 12:29:00 PM:

Chicago Tea Parties are scheduled for tomorrow in many locations. Please go if you are near one, and have the desire to be heard.  

By Blogger Escort81, at Thu Feb 26, 12:44:00 PM:

Yup, TH, the bolded language in the White House comment is pretty remarkable. What, precisely, is "unfair?" Isn't the 35% filer still paying more in absolute dollars in taxes, and more taxes as a per cent of his overall income? And did I not get the memo, or isn't there still a phase-out of itemized deductions over certain income levels?

On the bright side, most Europeans have become comfortatble with the notion that "all national income 'belongs' to the government, and its decision not to tax it is identical to its appropriation of it for some government purpose," so it shouldn't take Americans too long to adjust.

It wasn't too many decades ago moderate Democrats such as Sen. Bill Bradley (he was pretty centrist on fiscal matters) were exploring the concept of a simpified one or two tiered flat tax. I guess Steve Forbes's advocacy of it made that too toxic for Democrats to touch.

I know there are people in the U.S. who are hardcore income redistributors -- I have had conversations with them -- who believe that all income over a certain threshold (say, $100,000) should be taxed at 100%. In other words, they are willing to tolerate only a certain amount of income disparity, and do so understanding that if the country as a whole is much less productive, they're fine with that, as long as there is more overall "equality."

Look, I am not philosophically against a mildly progressive federal income tax policy, which is pretty much where we are right now, and have been for some time, as is well documented by the tax figures the IRS publishes which show what % of total tax revenues come from top brackets, and the effective rate in those brackets as compared to others. That is not to say we are in the best of all possible worlds and the IRS is wonderful; far from it. But it strikes me that at some point, when combined federal, state and local effective rates approach or exceed 50%, there has to been some marginal disincentive to work and be productive.  

By Anonymous Anonymous, at Thu Feb 26, 12:52:00 PM:


Carbon - emitting industries "permits". Coming soon to a neighborhood near you. I wonder if this will shut down steel mills all over the country? A big winner for organized labor, that one is. Ooooh, maybe all those dirty steel mills just need solar panels to power their furnaces.

The madness begins. I'm sure the Europeans will approve, but this will do no wonders for an economic recovery.


By Anonymous Anonymous, at Thu Feb 26, 01:42:00 PM:

The real tax increase is going to come in the form of lifting the limit on SS tax. That additional 6.2% above this year's limit (I think 106800) is going to leave a mark. Those dollars of my money that I'm going to have to get used to living without per Michelle Obama.

Welcome John Galt. Welcome cash businesses and tax cheats. Follow the lead of Obama's cabinet selections.

Sadly, there are plenty of ignorant people who actualy believe that "rich" people (those who earn more than they do) don't pay taxes.  

By Anonymous Anonymous, at Thu Feb 26, 02:46:00 PM:

... I would also add that the amount of itemized deductions higher AGI folks can take is a function of an additional calculation found on page 10 of instructions for Schedule A.  

By Anonymous Anonymous, at Thu Feb 26, 02:49:00 PM:

I agree with JT ... Obama will want to eliminate caps on payroll taxes. With phase-outs of itemized deductions, effective marginal federal rates could be over 50%. Elements in New York State want to jack rates on those making $250,000. I'm sure other profligate states will follow.

But as a WSJ piece today points out -- you could make it 100% on the top 2% and not cover future deficits. Obama & Co won't be effective at bringing down spending ... certainly not to the extent they say they will. You have to conclude that $100,000 will soon be their new definition of rich, with very high rates applied. But the truly rich own things and can live without realizing taxable income.

Obama's plan to eliminate charitable deductions for those making over $250,000 will have a significant adverse impact on our elite colleges. These schools are facing financial pressures as endowments have lost billions and many current and prospective students can't afford $50,000 per year bills anymore. Right now these colleges need their alumni contributions. Once the colleges understand that Obama's proposal will cut alumni contributions in half ... or more, maybe the faculty will wake up to what Obama's about.


By Anonymous Anonymous, at Thu Feb 26, 03:00:00 PM:


I good friend of mine (not the police, but a big supporter) recently fell upon hard times.

Now the medical bills are rolling in and he is trying to raise money to pay them.

I know alot of people with discretionary income read here, so I hope someone can help him out. I posted the item for him, so I can verify that it's in mint condition and I will ship it.

Very nice electronic gift for someone who enjoys gaming.

So please go to Ebay and search for item #140303598610.

Thanks in advance.  

By Blogger Viking Kaj, at Thu Feb 26, 05:16:00 PM:

The budget is horrible,

just horrible.

I'm too depressed to post.

I'm going home to have a Swedish vodka party, by myself.  

By Blogger Escort81, at Thu Feb 26, 06:29:00 PM:

VK -

I'm going home to have a Swedish vodka party, by myself.

Don't you mean Aquavit? Or is that just the Norwegian version of vodka? Sorry if I insulted you by accident, but I like both Norwegians and Swedes -- understanding that there can be some friction between the two -- they all ski and drink like there's no tomorrow.  

By Anonymous Anonymous, at Thu Feb 26, 10:20:00 PM:

Carbon Permits?
My project in California is going through that right now. A lawsuit by the anti-business people will require that we return a diesel generator that we already ordered. the restocking fee is going be be tens of thousands of dollars. All paid by the taxpayers, of course. That is right, one tax supported agency is fighting another tax supported agency, and the taxpayers get the privilege of footing the bill.  

By Anonymous Anonymous, at Thu Feb 26, 11:15:00 PM:

This is off-topic, but so many bizarre things are coming out of Washington it's hard to keep up. Did anyone else notice they expanded the House of Representatives by two seats today? Article 1 of the Constitution explicitly and in plain English says that only states can have representatives in the House. The District obviously does not qualify. Are we just ignoring the Constitution now?

Sorry about going off-topic, but I wondered if anyone else saw this.  

By Anonymous Anonymous, at Fri Feb 27, 12:18:00 AM:

The White House says it is unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions

Why are we just talking about charitable donations? This language is carte blanche for limiting all deductions to 28%.  

By Blogger Viking Kaj, at Fri Feb 27, 02:41:00 PM:

Absolute Vodka actually used to be called Absolute Rennat Braenvin, and was the cheapest stuff that sold by the Swedish Systembolaget (State Alcohol Monopoly). It was favored by elderly types who used to add their own flavorings to make homemade akavit. Akavit is basically flavored vodka.

The Swedes took this inexpensive brand, put it in a slightly updated bottle, hired an ad agency, and the rest is history. American imports of expensively priced (but intrinsicaly cheap) Swedish vodka now pay for all the alcohol imports of the Kungariket Sverige.

If you want to make your own akavit this is fairly easy to do. Put some seasonings like fennel seed, ginger, caraway seed, dill, or citrus peels in a bottle of really cheap vodka and put it in the freezer for a week or two. The flavors will cold infuse into the spirit and impurities will precipitate out on the spices (This is basically what the Russians do when they grind a little fresh pepper into a frozen shot).


By Blogger Viking Kaj, at Fri Feb 27, 02:45:00 PM:

BTW, Akavit means water of life loosely translated from the latin.

Uisca Beatha in Gaelic (the root for Whiskey or Whisky) also means water of life.

Trust me, any one who lives above the 50th parallel where the North Atlantic Drift meets the continent of Europe needs the occasional drink now and then.  

By Anonymous Anonymous, at Fri Feb 27, 10:03:00 PM:

This budget is incredibly naive, and in that naivite it is one of the most irresponsible acts a President has ever taken. The President has proposed huge tax increases right in the midst of a terrible economy, and whatever else the budget accomplishes or doesn't accomplish, the proposal does without question expose us to the risks of international instability. What happens to our economic situation if any one of many serious international crises happen in 2009? For example, what if the Israelis launch an attack against Iran? Iran is preparing to begin testing soon of an advanced Russian air defense system to protect their soon-to-be-successful nuclear program, and the Israelis are scared. In the event of an Israeli attack, the market will tank even further, and our very fragile economy will truly be on life support. In fact, any serious international crisis could deal a body blow to the markets right now, given the terrible uncertainty and high political risk Obama has introduced. Would anyone bet that an international crisis of some sort won't happen this year? To have any hope of a late 2009 bottoming out in our contraction, the world has to be quiet and enemies have to play nice with each other. It's not going to happen.  

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