Pure Genius in Print

Witty, timely and humorous. This writer has it all:


http://www.deseretnews.com/article/700051712/Take-cue-from-Hollywood.html

Should Cities Fund Rec Centers?

I live in Eagle Mountain, which has about 20,000 residents. Last year around this time city officials started circulating a plan to build a rec center. The closest center to Eagle Mountain is in Lehi, about a 20 minute drive away. Having our own center has been a strong desire of many residents, and many elected officials, for some time. However, when the city's plan to finance one was made known last year, there was strong opposition based on economic issues. So strong, in fact, that the city put all plans on hold. I'm sure that it being an election year had nothing to do with that decision.

I attended some of last year's meetings regarding the proposed rec center. It was stated that no private enterprise would build a facility like those that cities build. The closest thing we would have would be a Gold's Gym type workout center. But anything with swimming facilities and climbing walls and senior citizen areas etc. would never be built without public funding. There is just no money to be made in that area, we were told.

Since then our pro-rec center mayor was reelected and we added a strong proponent of the center to the city council, so it comes as no surprise that the idea is anything but dead. However, what strikes me about this issue is that the economic concerns voiced by the public last year have not really gone away, and even if they had for most people, there will always be some who have economic problems. If it's unjust to impose higher taxes when everyone is feeling threatened by the economy, then isn't it unjust if even one homeowner feels threatened?

So it would seem that raising taxes to pay for a rec center hinges on the question of whether a rec center is necessary for the common good. In this vein, I've heard it compared to city parks. Parks are paid for and maintained by public funds - everyone is taxed for them and they consistently need public funding to remain solvent. No one seems to have any problem with city parks which are clearly recreational facilities, so why would there be opposition to an indoor recreation facility?

While that argument seems logical, I'm not sold. Racquetball courts and family swimming centers would be great. My family would certainly love it. But I remain unconvinced that it is something that falls within an acceptable use of tax revenue.

California: "Think of it as a forced, interest-free loan"

I'm an accountant. As such I've done tax returns in the past as part of my employment, and still do a few here and there each year. One of my biggest pet peeves is people having a large withholding balance at year end when they don't really need one. See, the way taxes work is that each paycheck your employer withholds paying you a certain amount and sends that amount to the federal and state government. The reason for this is so that the government has consistent cash flow throughout the year to pay its bills. At the end of the year and sometime before April 15 you figure out what your tax bill is, and then you subtract what you've already sent to the government. If the number is positive, then you have to pay more to make up the difference. If it's negative, then that means you've overpaid and you get money back. Overpayment means that you have lent the government money all year long, interest free. So even though you're excited to get a big tax return, you've actually lost money on the deal.

Well, the state of California has taken that scenario one step further.

Because California is so inept at budgeting, they've found themselves in serious red ink. They don't have enough cash to pay their bills. Usually when states find themselves in this situation, states like our very own, they either raise taxes or cut spending. But the geniuses out west are doing neither.

California is simply going to withhold 10% more money from its residents. It's not a tax increase, so they'll pay it back when you file your return next year. But between now and next spring Californians are unwillingly going to give their state a huge, $1.7 billion interest free loan.

Sutherland Institute's Prosperity Forum: Utah's Budget

I attended the Sutherland forum on the state budget this afternoon. The panelists were Representative Rob Bigelow, Salt Lake Chamber president Lane Beattie, Deputy State Superintendent Dr. Martell Menlove, and former Governor Norm Bangerter.

Lane Beattie spoke first, stating that this is "one of the most difficult years in the history of Utah". He said the state had revenues of $5.3 billion in 2007, and has dropped a billion dollars to only $4.3 billion. Budget cuts need to be the "right cuts, right time, in the right place".

He said the state funded for growth in public education, but not in higher education. A situation he thinks is a mistake since higher ed has seen large increase in demand specifically because of the economic downturn. This year the Chamber expects a 12,000 student increase in higher education, and the chamber wants more funding. They advocate reinstating the sales tax on food, indexing the tax on motor fuel, taxing coal, and rescinding other tax cuts and exemptions if even for a short period of time.

Next up was Dr. Martell Menlove, who said officially public education had a 2% budget reduction last year, but because of 15,000 enrollment growth the effective cut amounted to 7 1/2%. Without those cuts 500 additional teachers would have been hired. He proposed that public education received level funding this year.

Finally, Norm Bangerter spoke. He recognized that there are polls showing current support for higher taxes to fund education. He then told the story of when he was governor and had the same situation; polls in favor of higher taxes. So he raised taxes for education, and consequently saw his approval rating drop from 75% to 41% in just two weeks. I spoke with him about this for a few moments after the forum, and he again remarked that there is at times a disconnect with how Utahans answer polls and how they actually vote. I found this interesting coming on the heals of my recent education funding post. Governor Bangerter said he supports reinstating the sales tax on food, but also said, "I don't think we can take a general tax increase."

At the end of the panelist remarks there was a Q&A session. The most interesting part of which was when, on the heels of a questionor being told that every department should expect a lower budget, someone asked if government has a moral responsibility to needy or disabled citizens. Representative Bigelow answered that yes there is a responsibility, but the state only has a certain amount of money, and the budget must be balanced. This led to Dee Rowland, who I recognized from her time as a panelist for Sutherland's SB81 forum, to say that she saw the need for higher revenue (read: higher taxes) and thinks that Utahans would support this as well. She then asked what she and others could do to help the Legislature drum up support for raising taxes. Representative Bigelow's response was interesting. He said that he often hears people say they would be willing to pay more taxes to fund X program. The problem is that the support is not broad based. Everyone has certain things they would like to fund, but it's really an issue of balance, and balancing the needs of different groups. These budgeting issues are really about shifting the impact from one group to another. As for convincing the public to support higher taxes, Rep Bigelow didn't seem too optimistic. He said the public generally drives itself and that even the media with all its influence can't really drive it. At this point Governor Bangerter interjected and said that the polls may say there's support for higher taxes, but that he doesn't believe it was true.

Also of note is that after the forum was over, the lady who asked the question about government's moral responsibility to provide for people spoke with Gov Bangerter about that topic. Part of his response was that often those who talk about wanting the government to provide assistance don't provide that assistance themselves, despite being very well off. He said we currently have a president who made a million dollars last year and gave about 1% of it to charity.

We Are All Trickle Down Economists Now

A few years ago I watched a Denzel Washington movie called Deja Vu. Aside from being a pretty solid movie, it was also set and filmed in New Orleans. Filming actually began before the 2005 hurricanes, but instead of finding another locale to finish shooting, the movie's producers went back to New Orleans as quickly as they could. Here's how Denzel Washington explained it,

“It was important to me that we stuck it out, and returned to New Orleans to continue filming as soon as we could. Three months after the water receded, we were filming in the 9th Ward (the area of the city most devastated by the flooding) and we did that intentionally, to show the people that big projects like ours were not going to abandon them when they needed us the most. Think about a big movie production, the amount of people employed and all the others services that depend on it, from catering to hotels or what have you.

Think about that statement for a moment. In effect, Washington is saying that all that money being spent, and earned, by huge corporate movie studios trickles down to help the local economy. And New Orleans has embraced this strategy. Major movie and television projects have gone from 9 in 2005 to a record of 21 in 2008. Much of this increase can be traced to sizable tax credits the state has given to these production companies. The state believes that by cutting taxes for movie producers they can lure business to Louisiana and New Orleans and through this "all boats will rise". For instance, in an article on the television show K-Ville, which was filmed and set in New Orleans, city officials talked about the economic impact that this show and others were having,

“It takes eight days to film an episode,” she said. “Over that eight days a little more than a million dollars is pumped into the local economy.”

For New Orleans, show business is serious business. Several theatrical films have shot in the city this year, including “The Curious Case of Benjamin Button” with Brad Pitt and Cate Blanchett. Entertainment projects have generated more than $100 million for the city in 2007.

And it's not just New Orleans attracting business through tax cuts. According to the Wall Street Journal, 40 states have similar tax strategies to lure Hollywood. One of those forty is Utah. All of these states argue for the tax cuts because bringing business to their state will be a big boost to their economy. The strategy is that the economy as a whole will increase by more than what it cost to bring in business.

The inverse is also true. Business, when faced with higher taxes, leaves to find a better deal somewhere else. For instance, facing a large budget deficit, New York floated the idea of canceling their movie tax credit. Alec Baldwin, from the TV show 30 Rock, said,

"I'm telling you right now," Mr. Baldwin declared, "if these tax breaks are not reinstated into the budget, film production in this town is going to collapse, and television is going to collapse and it's all going to go to California."

New York caved and gave the movie industry a new tax deal.

Representative Jason Chaffetz: Report Confirms Failure of Stimulus to "Save or Create" Jobs

From Rep. Chaffetz's email newsletter:

Dear Cameron,

President Obama's $1.1 trillion stimulus package is not delivering the expected economic benefits, even according to the President's own benchmarks. The President projected that his stimulus package would prevent the unemployment rate from exceeding 8%. Today, the Bureau of Labor Statistics announced that May's unemployment reached 9.4%, and economists project that the rate will go even higher in the next several months.

Not only does the unemployment rate exceed the President's stimulus projection, it also exceeds the unemployment rate that the President projected if Congress had NOT approved the stimulus package. According to the President's own numbers, the unemployment rate would not have exceeded 9% if Congress had rejected the President's stimulus package.

Stimulus proponents may argue that more time is needed for the stimulus package to work. However, the following graph shows that the President was claiming that the impact of the stimulus package would be immediate. Not only is the recovery taking longer than promised, the job losses are higher than projected.

The Democrats' fiscally irresponsible stimulus plan has not delivered the promised benefits and has driven us further into debt, which already exceeds $11 trillion.

Click here for the report and please keep in mind the following:

(1) The only change to the President's graph is the insertion of the actual unemployment rate (in red) for the months since the President's signing of the "stimulus" law.

(2) As the graphic displays, the May 2009 unemployment rate of 9.4 percent is HIGHER than the worst unemployment rate the President predicted WITHOUT passage of the "stimulus" law.

Sincerely,

Jason Chaffetz
Member of Congress

The Economy is an Addict, & Government Spending is the Crack

I would like to posit a theory, or perhaps make a prediction. The US will never pay off its national debt. Here's why:

Today's prevailing economic theory is that when the government spends money it grows the economy. Therefore, the government should play a significant role in making everyone more prosperous by spending lots of money. Of course, any money the government gets it must first take out of the economy through taxes. It is that feature of government spending that drives the furor over pork spending, earmarks etc. Why should my money go to fund some other state's lame pork project?

However, what's really interesting about federal spending is that they always spend more than they bring in from taxes. In other words, they run deficits. This of course drives most people even more crazy. But in reality it's done on purpose. That's right, despite all the rhetoric from all the politicians, the federal government spends more than it makes on purpose.

See, deficits mean that the government is getting and spending money it never took from you in the first place. It's basically free money. Free money which the feds use to pump up the economy, making us richer. A win-win scenario for all involved.

The catch is that the money for deficits has to come from somewhere. That somewhere is debt. It's sort of like a business taking out a line of credit with a bank. They use the available money when it's needed, and that extra cash makes it easier to expand and grow the business such that the debt is easily paid if and when it comes due.

But therein lies the problem with our national debt. As noted earlier, tax money is a deduction from the economy. If that tax money is used to pay back creditors instead of being plowed back into our economy, then the economy just got smaller. In this way we have steadily addicted ourselves to federal stimulus. Take away the spending and we'll go through withdrawal (recession). Since federal revenue relies on the strength of the economy, a recession reduces tax revenues, which, unless spending is cut, plunges us right back into deficits. Exacerbating the deficit issue further is the fact that prevailing economic wisdom is to increase government spending during recessions in order to boost the economy. Sort of like giving crack to a recovering addict.

Cap and Trade is a Tax - And It's A Great Big One

Another Example of the Evil Bush Tax Cuts For The Rich

I still do a few tax returns on the side, and it interests me to see how the tax code affects different situations.

From an actual federal income tax return filed this year:

A family consisting of a husband, wife, and three children, with an income of $70,000. They own a home, so are able to deduct the interest from the mortgage. They also made sizable contributions to charity. Thanks to Bush's tax cuts, they can claim $3500 in exemptions for each person in the household, for a total of $17500.

After their exemptions and deductions, their tax liability was $2899. Since Bush doubled the child tax credit, they get to claim $1000 per child, which lowers that tax liability dollar for dollar. That means they have zero tax liability. And since the child tax credit is refundable, the family not only pays $0 in income tax, but gets $101 from the government.

Now, they had money withheld from their paycheck throughout the year, but they get all of that back too, making their tax return about $1400. It could have been much higher, but, knowing how their return was likely to turn out, I had them withhold the least possible amount from their checks during the year.

This return is similar to that of the "struggling mother earning minimum wage", and that of the family earning $45k, paying zero income tax and getting paid $2400 by the government. Before the Bush tax cuts, that family would have owed $950.

Alaska Realizing Consequences of Higher Taxes

Alaska relies heavily on its tourism industry for revenue. A major part of that industry is cruises. In an effort to make the cruise lines "pay their fair share", the state passed a referendum in 2006 which increased taxes on the cruise lines for every passenger they brought to Alaska.

Shockingly, those cruise lines are now reducing the amount of business they do in Alaska.

In February, Royal Caribbean International announced that in 2010 it would redeploy the Serenade of the Seas, one of its three ships operating in Alaskan waters. The cruise line cited the high cost of doing business in the Frontier State.

The following month, Carnival Corp. followed suit, significantly reducing the 2010 capacity of the Alaska market’s two biggest players, Holland America and Princess.

Those moves were the culmination of almost constant industry protests since the Cruise Ship Initiative was enacted.

Binkley said the loss of Royal Caribbean’s Serenade of the Seas would mean 42,000 fewer visitors to Alaska in 2010, which translates to an estimated loss of $55 million in tourist revenue.

"I’ve been concerned for some time as I’ve seen the cruise traffic level off for the last three years," he said. "We’ve lost market share."

President Now Backing Away From Middle Class Tax Cut Campaign Promise

In 1993.

Plan To Reduce Charitable Deduction Will Cost Charities $7 Billion

So argues Martin Feldstein of the Washington Post,

President Obama's proposal to limit the tax deductibility of charitable contributions would effectively transfer more than $7 billion a year from the nation's charitable institutions to the federal government. But the high-income taxpayers affected by the rule change are likely to cut their charitable giving by as much as the increase in their tax bills, which would, ironically, leave their remaining income and personal consumption unchanged.

In effect, the change would be a tax on the charities, reducing their receipts by a dollar for every dollar of extra revenue the government collects. It is hard to imagine a rationale for taxing schools, hospitals, medical research budgets and arts organizations in this way. I suspect that the administration officials who drafted this proposal did not understand that it would have this perverse effect.

How To Get An Entire Industry To Change Its Tune On Taxes

But the American auto industry, under pressure, has invested heavily in the small-car and hybrid market. So it should probably not be a surprise that auto industry leaders like Alan Mulally of Ford have called for higher gas taxes, an idea Detroit once abhorred.

US automakers got creamed by the media, politicians, and the public last year when gas prices soared to $4 a gallon. Detroit brought it on themselves by not making high mpg vehicles, the saying went. Problem is, besides the fact that mpg had little to do with Detroit's problems, after being "under pressure" to build countless more small, fuel efficient cars, no one is buying them now.

Whereas last summer dealers couldn't keep a Prius on the lot for two days, now they're sitting for an average of 80 days. Not only that, but even though hybrids are always more expensive than their gas powered equivalent, carmakers make zero profit on them.

So why are US automakers pumping them out like crazy? Because the government made them. All that bailout money comes with strings attached. Not to mention the PR motivation brought on by the political grandstanding of last year. So now Detroit is on a quest to be the hybrid capitol of the world, just in time for gas prices to fall under $2 and decimate the artificial stimulus for the consumer to buy them.

Which is where the tax policy lesson comes in.

At the government's urging, Detroit makes tons of expensive cars no one wants to buy. The loss of consumer demand is blamed on low(er) gas prices. Detroit suddenly changes its tune on raising the gas tax.

So after using tax payer money to bail out car companies, we now get to pay higher prices for gasoline...to bail out the car companies.

Class dismissed.

"Generally it means being less productive"

Hold up. You mean to tell me that higher taxes cause less productivity?

Who knew?

"President Barack Obama's tax proposal – which promises to increase taxes for those families with incomes of $250,000 or more -- has some Americans brainstorming ways to decrease their pay.

"I've put thought into how to get under $250,000," said Poczatek. "It would mean working fewer days which means having fewer employees, seeing fewer patients and taking time off."

"Generally it means being less productive," she said.

"The motivation for a lot of people like me – dentists, entrepreneurs, lawyers – is that the more you work the more money you make," said Poczatek. "But if I'm going to be working just to give it back to the government -- it's de-motivating and demoralizing."

Colorado dentist Poczatek says those who support the increase in taxes misunderstand what it means for those who will end up paying more.

"I'd like these people to know that we pay a lot of taxes, and have been paying a lot of taxes through the past administration," said Pcozatek.

"We make a lot of money, it's true, but we also already pay a lot of taxes," she said.

"So maybe we got a little bit successful but we worked very hard," she said. "It's taken us over 30 years and it didn't happen overnight. Every day is a lot of work.

"We're working for it and we're still overtaxed."

AP: Obama pledges to cut deficit in half

See here.

How will he do it?

"he wants to reinstate a pay-as-you-go policy on federal spending programs, get rid of programs that do not work and end tax breaks for companies that ship jobs overseas."

Pay-as-you-go = the bill for all of the profligate spending of the last decade, and which continues today, will come due in the form of higher taxes.

What Economists Don't Really Agree On

A few days ago I posted a link to Harvard economist Greg Mankiw's blog post listing a number of economic principles about which economists generally agree. Number 4 on that list was,

4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)

What I didn't include in my post was the following from Mankiw's post:

"Note that the proposition about fiscal policy (#4) does not distinguish between taxes and spending as the best tool for purposes of macro stabilization. Maybe that question should be added in a future poll. I doubt, however, that the answer would make it onto this list of widely agreed upon propositions."

Our government isn't very good at distinguishing between taxes or spending as the best tool either. What happened during President Bush's terms was a combination of both fiscal policies. Remember, the US was already in a recession when Pres. Bush took office. That recession was exacerbated by our last "worst economic crisis in decades" brought about by 9/11. The government responded by cutting taxes, increasing tax rebates to the poor, and increasing spending like never before.

Now we have a new "worst economic crisis in decades" and our government is responding in much the same way. Huge government spending coupled with tax cuts. A strategy destined to increase our national debt like never before. Again.

To those opposed to the huge increase in government spending, many are asking where were you 8 years ago when Republicans did the same thing. First, I think it's important to point out that even Republicans don't like national Republicans right now - largely because of the spending of the last 8 years. But perhaps more educational is to say that I suppose national Republicans are now doing exactly what national Democrats did during the President Bush years. I distinctly remember our current Speaker of the House Nancy Pelosi pledging on Meet the Press that Democrats would reinstate Pay As You Go spending habits should they retake Congress. She and her colleagues were outraged (outraged!) at the deficit spending that Republicans were doing.

The pendulum of power may have swung since then, but the economic policies, and opposing party political rhetoric, haven't really changed all that much.

What Economists Do Agree On

From Greg Mankiw:

Here is the list, together with the percentage of economists who agree:

1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
2. Tariffs and import quotas usually reduce general economic welfare. (93%)
3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
6. The United States should eliminate agricultural subsidies. (85%)
7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
11. A large federal budget deficit has an adverse effect on the economy. (83%)
12. A minimum wage increases unemployment among young and unskilled workers. (79%)
13. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

If we could get the American public to endorse all these propositions, I am sure their leaders would quickly follow, and public policy would be much improved. That is why economics education is so important.

The Rich Don't Pay Taxes

IBD: It's Not Taxpayers, But Tax Takers Who Aren't Doing Their Fair Share

"Since the war on terror began in 2001, Washington has sounded an intermittent drumbeat for the wealthy to make a greater "sacrifice" in the form of higher taxes. The dubious charge is that these taxpayers have been shirking a duty performed in other conflicts.

The accusation bears reviewing, and its inaccuracy needs to be refuted...

America is not undertaxed. Washington is overspent — but not as a result of the current conflict. The sacrifice truly called for is on the spending side. And it would not have to be large.

Last year's federal deficit was $161 billion. As large as it sounds in nominal terms, it was 1.2% of GDP and just 5.9% of total federal spending. Less than a 6% cut in spending would have eliminated the federal deficit.

So the next time the call for "sacrifice" comes from Washington, America's response should be: Lead by example."

Additional reading:
The Achilles Heel of a Progressive Income Tax
Tax Cuts for the Rich: 1999 vs 2007
Repeat After Me: The Poor Pay No Tax

Repeat After Me: The Poor Pay No Tax

In the comments to this Deseret News letter criticizing Senator McCain for being rich, comes another oft-repeated misconception. I'm quite certain it won't be the last time I hear it between now and November, so let's get it out of the way early on.

"Yes we would like to see the super wealthy CEO pay more percentage of their pay in taxes than the struggling mother earning minimum wage."

A "struggling mother earning minimum wage" pays ZERO income tax.

In fact, if we give that mother just one dependent child and have her take the standard deduction, then she not only owes zero tax, but she'll also get back $3,850 through the Earned Income Credit and the Child Tax Credit. With two children that number jumps to $6,710.

See here and here for previous posts on taxes.