Noticed something of "interest" today, via:
http://mjperry.blogspot.com/2011/03/1-coin-would-save-55-billion-lets-do-it.html
http://mjperry.blogspot.com/2011/03/switching-to-dollar-coin-seems-like-no.html
The $1 bill costs much more to maintain in circulation than the $1 coin. Yet the Sacagawea is nowhere to be found. Nobody carries them, nobody spends them. They get thrown in the change jar and traded in for folding money. In the seven years our business has been open, we've had less than 10 go through the register.
I can tell the Mint how to make people prefer coinage over paper money. Put metal of intrinsic value in the coin. For example, the 1970 Kennedy half dollar is 40% silver, and the '64 Roosevelt dime is 90% silver. Of course, the metal value of these coins is $5.35 and $2.62, respectively. Does this tell you something? It does me. (For reference, the metal value of the current dime is $0.02, and the Sacagawea is $0.07.)
Exercises on the bottom limit of value for current coins, and how long at current rates it will take to reach it, are left to the reader.
On a related note, I'll take any of those old dimes and dollar coins off your hands for you. I'm willing to pay the next higher denomination of current coinage (for a Kennedy 50c I'll give you a spanking new $1 bill or Sac). What a deal! No? Then why do you let the gubmint force you into the same deal by depreciating (or "Easing") your dollars?
Wednesday, March 9, 2011
Friday, December 10, 2010
Abolish the IRS!
Lisa has asked me here as a guest to post a primer about the FairTax. Considering that the FairTax is my one and only overriding issue on election day (I don't care what your party, species, or status as Martian ambassador is; if you will vote for the FairTax, I will vote for you), I accepted. It really is that important, that simple, and that fair.
First, there are a few points that have to be made:
1. Only individuals own wealth. Corporations are owned, either directly or via stocks, by individuals. Only individuals performing labor, creating products, or using their knowledge create wealth.
2. Currently, we all pay hidden taxes. When you buy a loaf of bread, you pay sales tax. You also pay the tax the baker paid (payroll, property, etc.). And the taxes of the trucking firm who delivered the flour. And the taxes of the farmer who grew the wheat. These embedded taxes are currently hidden to us. Nor are they levied evenly; tax loopholes vary the amount depending on the industry and even the individual company. On average, for everything you buy, 23% of it is the taxes of the companies who make it and their suppliers. This 23% is the rate that currently funds our government.
3. The poverty rate everywhere in the country is a well established figure, measured and kept on a per-county basis. This number is the amount of dollars a year total spent on necessities, including food, transportation, medical, housing, etc.
The problems with our current situation:
1. The loopholes. Do I really need to explain this? K Street lobbyists earn hundreds of thousands getting tax breaks for their industries. Sometimes their individual companies. Crony capitalism, this method of using government's force to skew a market in your favor, is what caused the recession our friends in the financial industry have foisted on us, thanks to their bought and paid for assistants in government.
2. The cost. Tax preparation costs companies and individuals big bucks. When was the last time you filed your own taxes, on paper? Or did you pay H&R Block? That small payment adds up to billions in loss. Not only that, but companies make decisions based on tax advantage rather than smart business. How much does that lose?
3. The income base. Those of us paying taxes are becoming fewer and fewer. Those under the poverty line get credits. Those making the most can afford lawyers and accountants to find (or buy) loopholes or move their money overseas.
4. Government invasiveness. The less I say about this the better, lest you tune me out as a tinfoil hat enthusiast. But privacy is underrated these days, and our own government is one of the worst offenders. Also, do you know how much tax you paid last year? You know your take home, and you know how much you paid at the end (or got back) when you filed. But you have to calculate the actual amount you pay. It isn't on any of the forms. Do you really think this isn't on purpose?
5. Constitutionality. The income tax required a Constitutional amendment to enact it. It was illegal to do without it. I'm guessing that the founding fathers though it was a bad idea? "Sin Taxes" show us that taxing something lowers the desire for it. So we tax working and creating wealth?
The Fairtax solution:
The Fairtax is a national retail sales tax. It repeals all payroll taxes, corporate taxes, and quite a few special taxes. Every worker will receive 100% of their paycheck. Companies will no longer be taxed or file a tax form on April 15. They will not pay taxes on wholesale purchases used to provide a product or service. Instead, they will collect and submit a 23% National Retail Sales Tax on all new products or services sold to a consumer.
OK, wait! Put on the brakes! What? No corporate taxes? 23% new sales tax? How is this supposed to help? That's easy. The 23% embedded taxes described above? Gone. It's been proven that when taxes are removed from a product, the price goes down almost immediately. Thus, all products companies buy are 23% cheaper... as are the products they sell. All it does is take the hidden back end taxes and load them to the front end, on the receipt just like local sales tax. You know how much you're paying. And you have 100% of your paycheck to do it with.
I am a small business owner, and regardless of what opposition to the Fairtax says, collecting and paying sales tax is a walk in the park compared to payroll tax. Virtually effortless since it's already done automatically at the register.
So what are we gaining? We close the loopholes. No exceptions to be lobbied for. EVERY good and service pays. (But wait, you say... Yes, we'll get to that next). No cost for tax preparation (provision in the bill allows 2% to be kept by the company to pay for collection). Businesses can focus on business instead of gaming tax stats. The income base grows. Now everybody pays, including illegals, drug dealers, foreign tourists, and virtually every American citizen. (Yes, here's the part where the Fairtax gets good).
"But what about the poor people?" is what most of you have been holding in during most of that paragraph. "Where is the part where the rich pay and the poor don't?" What makes the Fairtax different than a flat consumption tax? Or you're saying "Great, but how do we get the liberals to go for it?"
Here's how: the prebate. Remember, the poverty rate, county by county, is a number that has been computed and trusted bipartisanly since the 70's. So, every household gets a check or debit card "pre-bate" for all taxes paid monthly up to the poverty level. If the poverty level is $12k a year, $1k a month, your check comes or card is credited for $230 at the beginning of the month. It's your money. Get a good bargain (Note that used goods, including houses and cars, are not taxed again, only once when they are new) and you've saved money. Don't spend on anything but necessities, and you may pay no taxes at all. Investments (both education and stock/mutual) are not taxed either. Save it? No taxes on interest.
"Shouldn't we exempt food or medicine or blahblahblah..." No. Exemptions are the reason for the existence of loopholes. And these loopholes create the crony system that's causing the problem. There's a reason it's called the FAIR tax. No loopholes. We don't need them anyway. The poverty rate value already takes into account spending on necessities. Food, medicine, housing, everything; it's already computed by the government anyway.
If enacted, the Fairtax makes the US the world's largest tax haven. 80% of foreign companies polled have said that they will move their headquarters to the US and/or build their next facilities there if the Fairtax is enacted. Billions in offshore accounts, both business and individual, banked outside our byzantine and draconian wealth confiscation culture comes into the US as those laws are rendered inert, providing massive amounts of investment capital.
Multiple independent projections show that: (paraphrased directly from the Fairtax page)
So who opposes it? IRS officials? No. Nor tax preparers and accountants. Not the economists and legislators who sponsor it. No, the only real opponent is the vast army of lobbyists whose sole income derives from gaming the current tax system and virtually buys and sells our government officeholders to win unfair advantage over their competitors or the market. Do we really want them to be in charge of our increasingly skewed economy?
For more information, visit http://www.fairtax.org. Start with the FAQ and check the papers and "Ask the Expert" section for more specific details. All of the details listed above come from there and are given with reference notes. The text of the bill, The FairTax Act (HR 25, S 296), is also available. There's also a calculator tool that lets you compute your own exact tax situation, and how you would benefit.
As a taxpayer, small business owner, and libertarian, there is no reason I can find that make me favor any other tax reform over the Fairtax.
First, there are a few points that have to be made:
1. Only individuals own wealth. Corporations are owned, either directly or via stocks, by individuals. Only individuals performing labor, creating products, or using their knowledge create wealth.
2. Currently, we all pay hidden taxes. When you buy a loaf of bread, you pay sales tax. You also pay the tax the baker paid (payroll, property, etc.). And the taxes of the trucking firm who delivered the flour. And the taxes of the farmer who grew the wheat. These embedded taxes are currently hidden to us. Nor are they levied evenly; tax loopholes vary the amount depending on the industry and even the individual company. On average, for everything you buy, 23% of it is the taxes of the companies who make it and their suppliers. This 23% is the rate that currently funds our government.
3. The poverty rate everywhere in the country is a well established figure, measured and kept on a per-county basis. This number is the amount of dollars a year total spent on necessities, including food, transportation, medical, housing, etc.
The problems with our current situation:
1. The loopholes. Do I really need to explain this? K Street lobbyists earn hundreds of thousands getting tax breaks for their industries. Sometimes their individual companies. Crony capitalism, this method of using government's force to skew a market in your favor, is what caused the recession our friends in the financial industry have foisted on us, thanks to their bought and paid for assistants in government.
2. The cost. Tax preparation costs companies and individuals big bucks. When was the last time you filed your own taxes, on paper? Or did you pay H&R Block? That small payment adds up to billions in loss. Not only that, but companies make decisions based on tax advantage rather than smart business. How much does that lose?
3. The income base. Those of us paying taxes are becoming fewer and fewer. Those under the poverty line get credits. Those making the most can afford lawyers and accountants to find (or buy) loopholes or move their money overseas.
4. Government invasiveness. The less I say about this the better, lest you tune me out as a tinfoil hat enthusiast. But privacy is underrated these days, and our own government is one of the worst offenders. Also, do you know how much tax you paid last year? You know your take home, and you know how much you paid at the end (or got back) when you filed. But you have to calculate the actual amount you pay. It isn't on any of the forms. Do you really think this isn't on purpose?
5. Constitutionality. The income tax required a Constitutional amendment to enact it. It was illegal to do without it. I'm guessing that the founding fathers though it was a bad idea? "Sin Taxes" show us that taxing something lowers the desire for it. So we tax working and creating wealth?
The Fairtax solution:
The Fairtax is a national retail sales tax. It repeals all payroll taxes, corporate taxes, and quite a few special taxes. Every worker will receive 100% of their paycheck. Companies will no longer be taxed or file a tax form on April 15. They will not pay taxes on wholesale purchases used to provide a product or service. Instead, they will collect and submit a 23% National Retail Sales Tax on all new products or services sold to a consumer.
OK, wait! Put on the brakes! What? No corporate taxes? 23% new sales tax? How is this supposed to help? That's easy. The 23% embedded taxes described above? Gone. It's been proven that when taxes are removed from a product, the price goes down almost immediately. Thus, all products companies buy are 23% cheaper... as are the products they sell. All it does is take the hidden back end taxes and load them to the front end, on the receipt just like local sales tax. You know how much you're paying. And you have 100% of your paycheck to do it with.
I am a small business owner, and regardless of what opposition to the Fairtax says, collecting and paying sales tax is a walk in the park compared to payroll tax. Virtually effortless since it's already done automatically at the register.
So what are we gaining? We close the loopholes. No exceptions to be lobbied for. EVERY good and service pays. (But wait, you say... Yes, we'll get to that next). No cost for tax preparation (provision in the bill allows 2% to be kept by the company to pay for collection). Businesses can focus on business instead of gaming tax stats. The income base grows. Now everybody pays, including illegals, drug dealers, foreign tourists, and virtually every American citizen. (Yes, here's the part where the Fairtax gets good).
"But what about the poor people?" is what most of you have been holding in during most of that paragraph. "Where is the part where the rich pay and the poor don't?" What makes the Fairtax different than a flat consumption tax? Or you're saying "Great, but how do we get the liberals to go for it?"
Here's how: the prebate. Remember, the poverty rate, county by county, is a number that has been computed and trusted bipartisanly since the 70's. So, every household gets a check or debit card "pre-bate" for all taxes paid monthly up to the poverty level. If the poverty level is $12k a year, $1k a month, your check comes or card is credited for $230 at the beginning of the month. It's your money. Get a good bargain (Note that used goods, including houses and cars, are not taxed again, only once when they are new) and you've saved money. Don't spend on anything but necessities, and you may pay no taxes at all. Investments (both education and stock/mutual) are not taxed either. Save it? No taxes on interest.
"Shouldn't we exempt food or medicine or blahblahblah..." No. Exemptions are the reason for the existence of loopholes. And these loopholes create the crony system that's causing the problem. There's a reason it's called the FAIR tax. No loopholes. We don't need them anyway. The poverty rate value already takes into account spending on necessities. Food, medicine, housing, everything; it's already computed by the government anyway.
If enacted, the Fairtax makes the US the world's largest tax haven. 80% of foreign companies polled have said that they will move their headquarters to the US and/or build their next facilities there if the Fairtax is enacted. Billions in offshore accounts, both business and individual, banked outside our byzantine and draconian wealth confiscation culture comes into the US as those laws are rendered inert, providing massive amounts of investment capital.
Multiple independent projections show that: (paraphrased directly from the Fairtax page)
- Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25.
- Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.
- The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be.
- Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.
- The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.
- By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.
- Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system.
- Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively.
- Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax.
- Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20.
- On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base.
- The FairTax reduces the true cost of buying a home by 19 percent.
So who opposes it? IRS officials? No. Nor tax preparers and accountants. Not the economists and legislators who sponsor it. No, the only real opponent is the vast army of lobbyists whose sole income derives from gaming the current tax system and virtually buys and sells our government officeholders to win unfair advantage over their competitors or the market. Do we really want them to be in charge of our increasingly skewed economy?
For more information, visit http://www.fairtax.org. Start with the FAQ and check the papers and "Ask the Expert" section for more specific details. All of the details listed above come from there and are given with reference notes. The text of the bill, The FairTax Act (HR 25, S 296), is also available. There's also a calculator tool that lets you compute your own exact tax situation, and how you would benefit.
As a taxpayer, small business owner, and libertarian, there is no reason I can find that make me favor any other tax reform over the Fairtax.
Wednesday, December 8, 2010
Congressional Shenanigans
Before I did a stint at a trade organization in Washington, DC I thought my knowledge of how our government really works was well above average. I learned I was sadly mistaken. Clueless, even. I believe the organization I worked for was as ethical as they come and played by the rules and I’m proud of the work I did there. I’m still proud of that organization, which, by the way, did many things besides lobby Congress and government agencies. Nonetheless, I believe that the average citizen would be absolutely shocked at what “playing by the rules” really entails. Trust me, neither Democrats nor Republicans are better than the other in this game. The game has become so twisted and convoluted that trying to find the line of sight from the best interest of the country to what actually becomes law will leave you with vertigo.
I believe that if most voters are aware of how things work inside the Beltway, they will demand real change. So when I have the time and opportunity I’m going to try and highlight some of the problems. The examples I’m using today showcase Democratic maneuvers, they are the ones still in charge of the both the House and Senate after all, but don’t take that to mean that Republicans haven’t used the same tactics.
To wit, Harry Reid is trying to quietly tack on to the bill that will extend current tax rates language that will legalize online poker. Questions you may ask are “So? I would kinda like more opportunities to gamble online” and “why would Senator Reid do that?”
I personally rarely gamble and think that many casinos prey on people that can least afford it, but I also highly value an individual’s right to choose how he or she spends time and money. Plus a friend that has made some steady income playing Texas Hold ‘em has told me that with my geeky love of statistics and ability to remember every card thrown playing canasta with my mom that I would be a natural…but I digress. Back on topic, I also haven’t researched the issue so I really have no position on it. I DO have an opinion, however, on whether or not it is appropriate to try to slide this unrelated issue into critical legislation that is being fast-tracked. I believe whole-heartedly that it is NOT appropriate and this kind of maneuvering is one of the many things wrong with our legislative process.
The House Financial Services Committee actually held hearings on the online poker issue and, as a committee, approved proposed legislation to regulate it. The next appropriate steps would be to publish the conference report and recommendations and vote on the legislation crafted by the committee. I have no idea what the conference report says or whether I would agree with it but that’s not the point. Allowing Harry Reid, as Senate Majority Leader, to just slip in the language that he wants makes a mockery of the considered, deliberate process that SHOULD characterize Congress.
So why would Harry Reid pull this stunt? Simple. He owes the casinos. The 2010 midterm elections were the tightest of Reid’s career. It really came down to the wire and Harrah’s and other casinos contributed a boatload of money (see the original article) and even bussed their employees in to vote. I normally would refrain from linking to sources that lean too far left or too far right, but the emails published by the National Review speak for themselves. The Center for Responsive Politics tracks the money and also has an opinion.
Meanwhile, other Democrats, disgruntled by the compromise on tax rates and unemployment benefits reached by Obama and Republicans, are being tempted by legislative "sweeteners" related to…wait for it…corn. If you’re looking for the line of sight from expanding the net for the long-term unemployed to continuing to give credits that make it more profitable to grow corn to burn in cars rather than to grow things to feed people, please don’t hurt yourself as you twist into a pretzel. This is NOT about what is best for the country. Even His Global Warmingness …err…His Climate Changedness, Al Gore, has said that ethanol subsidies are bad policy. But Democrats have whipped out their electoral calculators (reverse polish notation?) and are frantically trying to figure out if the anger their constituencies will have over them caving in to Republicans on tax rate extensions can be overcome by the gratitude (read $$$) that farming interests will undoubtedly shower upon them. I could take this moment to expound on my views of energy policy, an area which I really do have expertise, but I can’t mention the N word until I clear my activities with my current employer. Plus, it would take hours, charts, graphs, etc. All things that tend to bore the bejesus out of my friends. I’m trying to build an audience for this blog, not shrink it.
But back to the main point. Generation X is the population that has the most to lose as we address critical issues like tax rates, government spending, energy policy, entitlement reform, immigration reform, etc. We need to demand that our elected leaders end the shenanigans so that major policy decisions are made in a process that collects data objectively, debates proposals openly, and holds votes that cleanly distinguish among disparate issues.
I believe that if most voters are aware of how things work inside the Beltway, they will demand real change. So when I have the time and opportunity I’m going to try and highlight some of the problems. The examples I’m using today showcase Democratic maneuvers, they are the ones still in charge of the both the House and Senate after all, but don’t take that to mean that Republicans haven’t used the same tactics.
To wit, Harry Reid is trying to quietly tack on to the bill that will extend current tax rates language that will legalize online poker. Questions you may ask are “So? I would kinda like more opportunities to gamble online” and “why would Senator Reid do that?”
I personally rarely gamble and think that many casinos prey on people that can least afford it, but I also highly value an individual’s right to choose how he or she spends time and money. Plus a friend that has made some steady income playing Texas Hold ‘em has told me that with my geeky love of statistics and ability to remember every card thrown playing canasta with my mom that I would be a natural…but I digress. Back on topic, I also haven’t researched the issue so I really have no position on it. I DO have an opinion, however, on whether or not it is appropriate to try to slide this unrelated issue into critical legislation that is being fast-tracked. I believe whole-heartedly that it is NOT appropriate and this kind of maneuvering is one of the many things wrong with our legislative process.
The House Financial Services Committee actually held hearings on the online poker issue and, as a committee, approved proposed legislation to regulate it. The next appropriate steps would be to publish the conference report and recommendations and vote on the legislation crafted by the committee. I have no idea what the conference report says or whether I would agree with it but that’s not the point. Allowing Harry Reid, as Senate Majority Leader, to just slip in the language that he wants makes a mockery of the considered, deliberate process that SHOULD characterize Congress.
So why would Harry Reid pull this stunt? Simple. He owes the casinos. The 2010 midterm elections were the tightest of Reid’s career. It really came down to the wire and Harrah’s and other casinos contributed a boatload of money (see the original article) and even bussed their employees in to vote. I normally would refrain from linking to sources that lean too far left or too far right, but the emails published by the National Review speak for themselves. The Center for Responsive Politics tracks the money and also has an opinion.
Meanwhile, other Democrats, disgruntled by the compromise on tax rates and unemployment benefits reached by Obama and Republicans, are being tempted by legislative "sweeteners" related to…wait for it…corn. If you’re looking for the line of sight from expanding the net for the long-term unemployed to continuing to give credits that make it more profitable to grow corn to burn in cars rather than to grow things to feed people, please don’t hurt yourself as you twist into a pretzel. This is NOT about what is best for the country. Even His Global Warmingness …err…His Climate Changedness, Al Gore, has said that ethanol subsidies are bad policy. But Democrats have whipped out their electoral calculators (reverse polish notation?) and are frantically trying to figure out if the anger their constituencies will have over them caving in to Republicans on tax rate extensions can be overcome by the gratitude (read $$$) that farming interests will undoubtedly shower upon them. I could take this moment to expound on my views of energy policy, an area which I really do have expertise, but I can’t mention the N word until I clear my activities with my current employer. Plus, it would take hours, charts, graphs, etc. All things that tend to bore the bejesus out of my friends. I’m trying to build an audience for this blog, not shrink it.
But back to the main point. Generation X is the population that has the most to lose as we address critical issues like tax rates, government spending, energy policy, entitlement reform, immigration reform, etc. We need to demand that our elected leaders end the shenanigans so that major policy decisions are made in a process that collects data objectively, debates proposals openly, and holds votes that cleanly distinguish among disparate issues.
Tuesday, December 7, 2010
Don't Blame the Victim
I was reading in Politico forums the reactions people of all stripes had about the tax rate/ unemployment benefits compromise between Obama and Republican leaders when the comments of one poster got my blood boiling. He started by saying
I'm an old fart and I don't understand you younger generations and I suppose you won't understand this.And went on from there. I'm copying here what I ranted there because it captures much of the reason I started this blog. To all Baby Boomer friends and family that I love, none of this is directed toward individuals. The original poster attacked what he sees as the failures of people younger than him and I questioned his logic in the face of decisions made by policymakers of his generation. My response:
Holy smoke. Are you really saying that the current mess we’re in is somehow the fault of YOUNG PEOPLE?
Do you realize that the average age of a US Senator is 60 and the average age in the House is 55?
Do you realize that for half or more of their careers Baby Boomers and their employers paid about HALF the FICA rate that Gen X and their employers have paid from their first day of work? Does ANYONE think Gen X will have the same level of SS and Medicare benefits when they retire as Boomers will? Nope, we’ll have to work longer, pay in a greater portion of our income and get fewer benefits than our elders.
And what age group voted themselves the biggest increase in entitlements with the prescription drug coverage in Medicare without raising rates during the majority of their own working years to pay for it?
Under which generation’s watch did the sense of entitlement grow from “let’s make sure the elderly and poor don’t starve for lack of food or die from lack of basic shelter and medicine” to “I should be able to keep my house and standard of living in retirement or unemployment regardless of whether or not I saved for it?”
Who RAISED the Millenials that, even before the economy tanked, preferred to live with Mom and Dad into their thirties and that believe having all the latest electronics and unlimited texting and internet access are basic rights regardless of whether they have pursued the training and education for jobs that pay enough to sustain such a lifestyle?
Under which generation’s watch did unions go from a necessary tool to protect workers to being just as greedy as corporations and demanding contracts that brought the US auto industry to its knees?
Under which generation’s watch did education in this country go from the world’s best to US students ranking 25th in math skills?
With the oil crisis in the 1970s you would think our country would have had the collective will to establish a coherent energy policy that would have made us LESS dependent on foreign and polluting sources by now. Sorry, we Gen Xers were a little busy with grade school in the 70s to solve that problem. Gen Y wasn’t even born!
Which generation turned a blind eye over the last 25 years while the number of people in the US illegally rose to tens of millions such that no matter how we solve the problem now it is going to be painful for everyone?
Don’t you dare accuse “young” people of causing this mess. Generation X is smaller than both Baby Boomers and Generation Y. People my age are getting royally screwed.
Wednesday, December 1, 2010
Unemployment Benefits May Be Necessary but...
Let me start by saying that I’m not advocating to abolish unemployment benefits. And I’m not, at this point, going to try and say how long a person should be allowed to collect them, though I will say emphatically that they cannot be extended indefinitely.
But I flinch every time I read that unemployment benefits “pay for themselves” and every penny goes right back into growing the economy. It makes no intuitive sense to me but I can’t convince anybody simply on my intuition so I’ll turn to my old friends Pat, Chris, and Jamie.
I’ve taken a few economic courses but am no means an expert so I always go back to the first principles I learned in Economics 101 where one person is on an island growing bananas and another person is on a nearby island growing coconuts. Pat, Chris and Jamie are sufficiently gender-neutral names, right?
But I’ll have Pat growing and selling apples and Chris growing and selling daisies. Jamie is just in the scenario as a buyer who always spends the same amount on apples to feed a third island. When things are good, Pat grows enough apples to feed the apple island and to sell to Chris and Jamie. Daisies aren’t really a necessity but make the island a nicer place to live.
As luck would have it, Chris spends the money earned from selling daisies to buy apples from Pat to feed the people on the daisy island.
But then a nasty pest destroys Chris’s daisies and he doesn’t have anything to sell to make money to buy apples to feed the household on his island. The government steps in and taxes Pat to give money to Chris to buy apples. By the logic of the people that say every penny of unemployment benefits goes right back into the economy we must assume that there are no administrative costs associated with the government to collect the money from Pat and give it to Chris. Of course that’s ludicrous but for the sake of simplicity we’ll run with a zero cost government agency here.
So everything flows right back to Pat and everything is fine and he doesn't really need to buy flowers, anyway, right? Sure! As long as Pat’s costs remain exactly the same and no revenues are spent investing in the business.
That can’t happen in the real world, though. What happens when one of Pat’s two apple-picking machine breaks down?
Pat must decide whether to buy a new machine. If Pat buys a new machine the same number of apples will be harvested but profits will be down by the cost of the new machine. Which means Pat will pay less in taxes. That means less money to give to Chris to buy the apples from Pat to feed the daisy island, which means Chris buys fewer apples leading to less profits of Pat’s to tax the next go-round. Of course, the government can step in and raise Pat’s taxes each time to make sure that Chris’s island can buy the same number of apples but that only goes so far.
Because if taxes are raised too far, Pat may not be able to afford to buy the new machine, feed the apple island and still have the same amount of profits to tax without also raising apple prices. So if Pat buys the machine and raises prices so that the government receives the same amount in taxes, it still means that Chris can buy fewer apples than before, which lowers Pat’s profits and the cycle starts again. Without the new machine the apple island will just have to get by producing fewer apples to sell which, again, means fewer profits to tax to give to Chris to buy apples from Pat.
Then what happens if the 2nd machine breaks down and Pat can’t afford to replace it? Now there is nothing of Pat’s to tax and the apple island must depend on the government to feed it, too.
The only way the downward cycle stops is when Chris finds something else to sell.
Those who say that unemployment benefits grow the economy might say that if the government didn’t give Chris the money to buy apples, it would hurt Pat’s business. But if Pat didn’t have to pay the taxes to give to Chris in the first place, it’s a wash for Pat if costs remain the same. If costs increase Pat’s lower tax payment makes funds available to replace equipment or address whatever is driving costs up.
The point isn’t who deserves to receive how much or who deserves to pay how much or how long Chris should be given to find something else to sell or if taxes should help Chris start a new business, etc. The point is that taxing a producer and giving it to a non-producer DOES NOT improve the economy. It actually hampers business growth that would help the economy long-term. It may still be NECESSARY to provide unemployment benefits short-term and temporarily but they must be justified by other reasons, not by an economic fallacy.
But I flinch every time I read that unemployment benefits “pay for themselves” and every penny goes right back into growing the economy. It makes no intuitive sense to me but I can’t convince anybody simply on my intuition so I’ll turn to my old friends Pat, Chris, and Jamie.
I’ve taken a few economic courses but am no means an expert so I always go back to the first principles I learned in Economics 101 where one person is on an island growing bananas and another person is on a nearby island growing coconuts. Pat, Chris and Jamie are sufficiently gender-neutral names, right?
But I’ll have Pat growing and selling apples and Chris growing and selling daisies. Jamie is just in the scenario as a buyer who always spends the same amount on apples to feed a third island. When things are good, Pat grows enough apples to feed the apple island and to sell to Chris and Jamie. Daisies aren’t really a necessity but make the island a nicer place to live.
As luck would have it, Chris spends the money earned from selling daisies to buy apples from Pat to feed the people on the daisy island.
But then a nasty pest destroys Chris’s daisies and he doesn’t have anything to sell to make money to buy apples to feed the household on his island. The government steps in and taxes Pat to give money to Chris to buy apples. By the logic of the people that say every penny of unemployment benefits goes right back into the economy we must assume that there are no administrative costs associated with the government to collect the money from Pat and give it to Chris. Of course that’s ludicrous but for the sake of simplicity we’ll run with a zero cost government agency here.
So everything flows right back to Pat and everything is fine and he doesn't really need to buy flowers, anyway, right? Sure! As long as Pat’s costs remain exactly the same and no revenues are spent investing in the business.
That can’t happen in the real world, though. What happens when one of Pat’s two apple-picking machine breaks down?
Pat must decide whether to buy a new machine. If Pat buys a new machine the same number of apples will be harvested but profits will be down by the cost of the new machine. Which means Pat will pay less in taxes. That means less money to give to Chris to buy the apples from Pat to feed the daisy island, which means Chris buys fewer apples leading to less profits of Pat’s to tax the next go-round. Of course, the government can step in and raise Pat’s taxes each time to make sure that Chris’s island can buy the same number of apples but that only goes so far.
Because if taxes are raised too far, Pat may not be able to afford to buy the new machine, feed the apple island and still have the same amount of profits to tax without also raising apple prices. So if Pat buys the machine and raises prices so that the government receives the same amount in taxes, it still means that Chris can buy fewer apples than before, which lowers Pat’s profits and the cycle starts again. Without the new machine the apple island will just have to get by producing fewer apples to sell which, again, means fewer profits to tax to give to Chris to buy apples from Pat.
Then what happens if the 2nd machine breaks down and Pat can’t afford to replace it? Now there is nothing of Pat’s to tax and the apple island must depend on the government to feed it, too.
The only way the downward cycle stops is when Chris finds something else to sell.
Those who say that unemployment benefits grow the economy might say that if the government didn’t give Chris the money to buy apples, it would hurt Pat’s business. But if Pat didn’t have to pay the taxes to give to Chris in the first place, it’s a wash for Pat if costs remain the same. If costs increase Pat’s lower tax payment makes funds available to replace equipment or address whatever is driving costs up.
The point isn’t who deserves to receive how much or who deserves to pay how much or how long Chris should be given to find something else to sell or if taxes should help Chris start a new business, etc. The point is that taxing a producer and giving it to a non-producer DOES NOT improve the economy. It actually hampers business growth that would help the economy long-term. It may still be NECESSARY to provide unemployment benefits short-term and temporarily but they must be justified by other reasons, not by an economic fallacy.
Monday, September 13, 2010
Subscribe to:
Posts (Atom)