Posts from — April 2008

April 15, 2008
Tax Day: The Involuntary Redistribution of Wealth in America

It seems a fitting time of year to reflect on the economic policies of the leading Presidential candidates. This first article, in a series of three, examines the economic policies favored by Sen. Obama.

Background:
Government Income — The Internal Revenue Service
According to Internal Revenue Service figures for 2005, the top 50% of wage earners (individuals making more than $30,881.00) acquired 87% of the Adjusted Gross Income (AGI) while paying 96.93% of all taxes. This inequality increases with increasing income: Source: IRS 2005

• the top 25% (over $62,068/year)   earn 67%  of  AGI but pay 86% of  all taxes
• the top 10% (over $103,912/year) earn 46%  of  AGI but pay 70% of all taxes
• the top 5% (over $145,283/year)   earn 35%  of  AGI but pay 59% of all taxes
• the top 1% (over $364,657/year)   earn 21%  of  AGI but pay 39% of all taxes

Conversely, the lowest 50% of wage earners take home 12.8% of the AGI but pay only 3% of all taxes.

Government Expenditures – The Federal Budget
 Source
For fiscal year 2007, the Federal government spent $2.7 trillion dollars (give or take a few tens of billions) with 60% or $1.75 trillion going to Defense and Homeland Security, Social Security and Medicare/Medicaid/SCHIP.  Two broad areas: social safety net programs and interest on the debt account for 9% or approximately $240 billion each; leaving the remain 18% or roughly $486 billion for veterans benefits, research, infrastructure, education and the like.

The Changes

Sen. Obama has proposed:

• $60 billion over 10 years for a “National Infrastructure Reinvestment Bank” aka pork barrel handouts to cooperating politicos
• $150 billion of 10 years for “green energy sector”
• $50 billion annual universal health care plan
• A $4,000 refundable tuition tax credit for college education expenses “paid” for by 100 hours for community service: translation $40/hr “volunteers”
• a 10% mortgage interest tax credit for married filers who do not itemize deductions
• a $1,000 tax credit to offset payroll taxes; even if the Earned Income Tax Credit  (EITC) has eliminated any federal payroll-tax burden
• $500 refundable tax credit to families making up to $75,000 who save $1,000 per year
• a tripling the EITC for minimum wage earners: translation a net outflow of $16,000 for every minimum wage earner in the country (when all existing benefits of the current tax code plus the expanded ETIC are figured in).

The bottom line: approximately $1.4 trillion in new spending over a 5 year period. According to calculations by Sen. Wayne Allard’s staff, taxes would have to be raised ” … on the top 5% by 38%; or the top 10% by 32%; or the top 25% by 26%; or the top 50% of taxpayers by 23%. The top 50% of American taxpayers, who already pay 96.9% of all federal income taxes, are those who earn $31,000 (AGI) or more.

To translate this point into language everyone can understand: if you have an income of $104,000 or more, the plan will cause your tax bill to go up at least an additional $5,300 a year; if you have an income of $62,000 or more, the plan will cause your tax bill to go up at least $2,300 a year. This is on top of the $2,300 increase already assumed by the failure to extend current tax policy.”

Indeed, the “Change we can believe in” will be the dimes and nickels left in our frayed pockets after this latest exercise in governmental generosity financed by our “contributions.”

Editor’s Note:

This rant was precipitated by that annual American exercise in financial masochism: preparation of the IRS 1040.  Summing up all my ‘contributions’ to the various federal, state, and local governmental agencies, I arrived at an effective tax rate

[ (total taxes paid/gross income) X 100] of  .. 28.6%.  or 104 days of wages

There is something drastically wrong when every dime of income from January 1 to April 15 (what a coincidence! the 104 day of the Julian calendar) goes to pay for the insatiable appetite of government.

Lexington and Concord ….  events triggered by unfair taxation

“Five times to my face (Richardson) said that he would never do that,” a red-faced, finger-pointing Clinton erupted.  The outraged response was provoked by Rachel Binah’s remark of how “sorry” she was that James Carville had called Bill Richardson a “Judas” referring to Richardson’s switch from Hillary to Obama supporter.

The former President then launched into a tirade condemning the media’s unfair treatment of Hillary and questioning the fairness of votes in state caucuses that went for Obama. One could almost hear echoes of “…vast right wing conspiracy..”.

Imagine .. a politician reneging on a commitment. A politico saying something, anything to gain advantage for himself.  A would be mover and shaker not telling the truth. 

To borrow from Casablanca’s Inspector Renault .. “I’m shocked, shocked.”

But history provides a parallel. A promise apparently made in good faith by a seemingly sincere politician regarding a matter of great importance.  A request that the recipients believe the truthfulness of the statement and its sincerity .. only to discover it was all lies meant to cover up and deceive.

It was mid-January 1998 in Washington DC and the President of the United States, the same Bill Clinton described above went, on national TV and proclaimed his innocence in the rapidly expanding Monica Lewinsky scandal.  Then President Clinton looked straight into the camera and solemnly intoned to his fellow citizens, “I did not have sexual relations with that woman, Miss Lewinsky.”  Plain, straight up talk. No sexual relations with that woman. OK, fair enough. You asked the folks to believe you were innocent and absent evidence to the contrary, we did.

Until …

On August 17, 1998 President Clinton went on national TV to admit to an “inappropriate relationship” with Ms. Lewinsky.  Ah…, that lawyerly parsing of words, the finely crafted statements, the ‘it all depends on your definition of “is”‘ …

Well, this is my definition of what is (or was)..  

A sitting President of the United States went before the American people on live national TV and lied to them.  Lied to their faces.  Said he didn’t do it.  Said these was no sexual relationship between himself and Ms. Lewinsky.  A vast right wing conspiracy.

In the great karmic cycle of life, what goes around comes around.

Translation:  Expect no more than what you have done.