Category Archives: Taxed Again

Interest-ing

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“Vermont is a AAA rated state,” former State Treasurer and current Secretary of Administration Jeb Spaulding said yesterday.

The AAA Diamond Rating system “is North America’s premier rating program. Whether you seek simple roadside accommodations or a destination resort experience, trust AAA’s reliable Diamond ratings to guide your decisions. Some 32,000 hotels in North America and the Caribbean have achieved AAA rated;” many are right here in Vermont.

Being pathologically parsimonious, I stay exclusively in Motel 5s. (OK, there was that Motel 4-1/2 in South Carolina and my personal favorite, the 16 $CDN/night Bumblebee just over the border in New Brunswick.) No AAA surveyor worth his salt has ever stayed in a Motel 5 even with a broken down car.

I stayed in a jail once when my car broke down in central Jersey but that was free. Pretty nice cops in that town to take in a college kid in the pouring rain.

“When an accident is waiting to happen, it eventually does.” Economists Kenneth S. Rogoff and Carmen M. Reinhart wrote in This Time Is Different.

The Outstanding Public Debt as of noon on Monday, July 25, 2011:
$ 1 4 , 3 5 7 , 3 1 7 , 9 8 3 , 8 9 2 . 0 4

Three months and a week ago, Standard & Poor’s lowered its outlook for America’s long-term credit rating from stable to negative. At that time there was a one-in-three chance that S&P would downgrade the nation’s AAA credit rating. Fitch, Moody’s, and S&P rate the likelihood that businesses and sovereign nations will repay their debts.

Three months and a week ago, President Obama called for a bipartisan group in Congress to “begin negotiating” a $4 trillion debt-reduction package, the parties have not even agreed to its membership

Three months and a week ago, the Gang of Six — three Democrat and three Republican Senators — said they would deliver their own bi-partisan plan when Congress returned from its May recess.

The Wall Street Journal reported this morning that congressional leaders have trotted out yet another new set of “competing debt-crisis solutions.” This is so serious that President Obama “canceled fund-raising appearances” today. But the two parties still have no agreement about what to do before the August 2 default deadline.

Am I the only observer to notice that banks want interest rates to go up so the United States government wants interest rates to go up?

About $5 billion of municipal bonds are in default today. Yawn. Nobody cares.

Countries “can default on stunningly small amounts of debt,” Dr. Rogoff wrote.

I predict another week of Lindsay Lohan and Roger Clemens in the news.

Kenneth S. Rogoff is an economics professor at Harvard and a former research director of the International Monetary Fund. Carmen M. Reinhart is the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics. She directed the Center for International Economics at the University of Maryland and was Chief Economist at Bear Stearns.

Stunningly large amounts of debt notwithstanding, the U.S. has plenty of cash flowing in to service the debt, so the country won’t default to its creditors. Nope. No chance. Won’t happen. Instead, President Obama announced that he won’t send Anne her Social Security check.

And we let these people who can’t figure out how to run the medical system and who stole General Motors from us use our credit cards to stay in the Five Diamond motels.

Talk about a train wreck.

FLAT-TAX

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Editor’s Note: This column is the second in my three-part series on taxes; it appeared in the Burlington Free Press in 1996. I have not updated the numbers.

I have met many people who think paying taxes is fair. I have met even more who think our current tax system is unfair.

Taxes on earned income are the most equitable way to raise revenue. Our income comes from our productivity: make a widget, sell the widget, get paid. Taxing land, cars, stock certificates, machinery, bank franchises, electric energy, and insurance is an artificial method to sneak money out of your wallet. Current tax laws do all that and more.

Politicians have made the flat tax this year’s buzz word. Unfortunately, these same representatives just passed the 12th “short term” spending resolution, instead of working on substantive tax reform.

I have long admired the flat tax in principle; in practice it has the potential for burdening the low income taxpayers who today pay little or no taxes and for hammering the middle class taxpayers who pay most of the bills.

We need four canons to make a flat tax work fairly:

  • Every wage earner pays a small percentage of his income as tax; income includes interest and capital gains but not dividends.

 

  • Every wage earner files an income tax return.

 

  • Every wage earner gets a substantial “personal deduction” and no other discounts.

 

  • Every wage earner pays a different percentage of any remaining income as tax.

Every citizen owns a piece of the federal government and each of us has a responsibility for its good operation. Let’s set a figure of 4% of income as the minimum cost of governance. Everybody pays that, regardless of their [dire or rosy] straits.

Obliterate the married/single/household head categories. That simplifies our calculations, eliminates all discussion of the “marriage penalty,” and assures we each file a return.

We ought not tax a wage earner for the cost of creating that income. That means we should exempt some common amount for basic shelter, food, and commuting costs but not spare any other expenses. Let us remember that the current tax code grew out of a fairly simple system. Once upon a time, our income tax taxed income; then the politicians and special interest groups changed the code to foster social change. Want everyone to buy a home? Grant a mortgage deduction. Need more babies to work the fields or factories? Create an exemption for kids. Need to work those oil wells? Concoct a depletion allowance. Make the personal deduction $21,500.

After deducting that $21,500 from your paycheck, pay an additional 24% percent on whatever is left.

If you earn less than $21,500, you owe 4% of what you made. Period. If you earn more, the flat tax percentage assures you will pay a little less than today’s tax schedule demands.

“But wait!” you say. “Gomer Gotrocks netted half a million last year. The tax table says he owes $145,072 but under your plan he’ll pay $29,372 less in taxes. He’ll save more than I make in a year!”

Reality check. Anyone clearing half a million a year can find $100,000 in effortless deductions today. With those “small” deductions, the tax table says Gomer now owes only $114,072. That’s a wee bit less than the expected $115,700 flat tax on his half million. Now imagine this dream in living color; Gomer can actually find a lot more than $100,000 to subtract today.

This plan gives folks earning under $8,800 a small financial stake in governance for the first time. It also makes taxpayers earning between $40,000 and $65,000 and those earning over $200,000 pay a little more.

We may have to fiddle with the percentages and deduction. My rates and deductible may not produce enough revenue to run Washington. If that’s true, we have two choices: (1) change the tax rate or the deductible, or (2) put Washington on a diet.

 

I Was Right

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Again. The Obamanation announced it will release 30 million barrels of oil from the strategic reserves and has another 30 million barrels pledged by our energy partners. Two million barrels per day for a month. And they can do it again next month and the month after if prices don’t drop enough.

It is to “make up for Libyan oil,” administration officials say.

Bwahahahahahahahahah hah ha. And hah.

It’s not a hail Mary to jumpstart the economy.

It’s not to fill in the gaps in our oil supply. There is plenty of oil.

It’s not even to ease the summer driving season.

But it is to drive speculators out of the market. See, if the price at the pump drops for 90 days, the third quarter Cost of Living calculations look flat again.

At the beginning of June, I said the Obamanation would try to get gas prices down to $2.47/gallon for July, August, and September, the “window” for Social Security’s 2012 COLA calculations. Artificial Cost of Living Adjustments are a free tax on the back of American seniors and the gummint needs more money. Way to go, Mr. Obama.

Smoke(stacks) and Mirrors

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“At a time of high gas prices and massive oil industry profits,” Mr. Obama has renewed “his call to end the $4 billion-per-year subsidies for oil and gas companies and invest in clean energy.”

Let us remember that the heavy “subsidies” are actually the tax breaks they get at virtually every stage of the exploration and extraction process rather than cash the taxpayer hands them at the pump. It’s also worth remembering that the oil business just happens to invest more in “clean” energy than any other industry.

Americans consume about 322 billion gallons of crude oil each year. Some of that goes to plastics. Some goes up the smokestacks heating our homes and making electricity. And about half, 146 billion gallons, is gasoline.

Oil producers pay on the order of $90 billion in income taxes each year and, in fact, pay a higher percentage of their earnings in taxes than most other American corporations. Obama wants to take $4 billion more in taxes from them. That translates to around 1.4 cents per gallon of crude or, if you want to assess it all on gasoline, about 2.7 cents per gallon at the pump.

2.7 cents per gallon.

Speaking of the pump, We the Overtaxed People pay 18.4 cents per gallon in Federal tax on gasoline so that not-quite-3 cents is really coming from our driving.

Do you think Mr. Obama will drive the price at the pump down or up?

And do you really think Mr. Obama has an energy policy here or a political platform?

In the interests of full disclosure (regular readers know this), I do own ExxonMobil stock. I remain disappointed in their performance. I dislike subsidies but I despise political poseurs.