Monday, November 15, 2010

The Pending 26% Tax Hike on the Middle Class

In today's "The Gartman Letter" Dennis points out what will happen if the "Bush Tax Cuts" expire:

1. All income tax rates will go higher with the bottom rate moving up from 10% to 15% while the top rate shall go up from 35% to 39.6% (see chart above comparing 1999 and 2008 tax rates).

2. The tax credit for children will drop from $1000/child to $500. 

3. The standard deduction for married couples will be cut. 

4. Capital gains taxes will go up from 15% to 20%.

5. Dividends, which now are taxed at a lower rate than earned income will rise to that same level. 

6. The one year “exemption” in estate taxes ends but with a $1 million exemption, and the tax rate goes to 55%.

The chart below is from The Tax Foundation and compares annual individual income taxes paid before and after the "Bush tax cuts" by various income groups:

Despite all of the political rhetoric about "tax cuts for the rich," this analysis shows that federal income taxes have fallen for groups at all income levels as a result of the Bush tax cuts, compared to the 1999 tax rates under Clinton.  And therefore, taxes for all groups would go up if the current tax rates expire at the end of the year (see percentage increases in taxes for each group above). 

And in fact, the group in the chart above that would experience the largest percentage increase in taxes would be the married taxpayers with $50,000 of household income (clearly middle class by most definitions) - they would pay 26.7% more in taxes if the Bush tax rates expire. By contrast, "rich" single taxpayers with income of $125,000 would pay only 10% more in taxes. In other words, some middle-class taxpayers received twice the tax cut on a percentage basis as some of "the rich" under the Bush tax rates, and that group would suffer the most with higher taxes if the current federal income tax rates expire.  


117 Comments:

At 11/15/2010 9:37 AM, Blogger Rand said...

So, if the lowest bracket tax rate goes from 10% to 15%, is that not a 50% increase in the taxes paid by the poorest Americans.

 
At 11/15/2010 9:59 AM, Blogger aorod said...

we should substitute the mortgage interest deduction with health insurance deduction. Imagine if we subsidized health care the way we did real estate.

 
At 11/15/2010 10:08 AM, Blogger Walt G. said...

Rand,

It's not necessarily a 50% increase. The income break points are different using the brackets in the tables. So both your effective and marginal tax rates will differ unless you happen to hit that one income level where it's a 50% increase using both tables.

 
At 11/15/2010 10:12 AM, Blogger Paul said...

I don't really have a problem with poorer classes paying more in taxes. Perhaps they'll think twice before they vote for yet more government programs if they have some skin in the game.

 
At 11/15/2010 10:15 AM, Blogger juandos said...

"So, if the lowest bracket tax rate goes from 10% to 15%, is that not a 50% increase in the taxes paid by the poorest Americans"...

Well Walt G makes a good point but none the less why shouldn't the 'poorest Americans' pay for the federal services/programs they use?

Why should someone else have more of their own earnings extorted from them by the government to finance these programs?

 
At 11/15/2010 11:00 AM, Blogger morganovich said...

of all these taxes, the one i find most egregious is the inheritance tax.

what possible ethical grounding does that have? why is dying a taxable event. clearly, it would seem to imply that you will consume no more government services.

why should the government take 55% of my wealth when i pass it on to my kids? i thought the whole american dream was doing well and passing it on to your progeny so that they may have a better life than you had.

i find the notion that somehow wealth belongs to the government and reverts to them upon your death contemptible and despicable.

in my industry, there are 100 ways around this, so don't think i'm arguing from self interest. it's the small businessman who has a store or a restaurant or a law firm that gets killed by this. they wind up having to break up and sell what they built instead of passing it on.

that is a disgusting outcome.

(note: the steinbrenners would have lost the yankees has george died next year instead of this one)

you get taxed every year as you build your wealth. it's an egregious double dip to hit you again when you die.

 
At 11/15/2010 11:02 AM, Blogger Rand said...

If I have a taxable income (after deductions, exemptions, etc.) of $10000, my Bush tax liability would be $1000 while my Clinton/0bama tax liability would be $1500. I call that a 50% tax increase.

 
At 11/15/2010 11:05 AM, Blogger geoih said...

Quote from juandos: "Why should someone else have more of their own earnings extorted from them by the government to finance these programs?"

I agree that people should pay for their services, but isn't that the opposite point of welfare (i.e., it's for people who can't afford to pay for the service).

The bigger question is, who is exactly getting the services? Old people (the richest demographic in the country), the military and defense industries (maintaining the empire), and all manner of special interests.

 
At 11/15/2010 11:20 AM, Blogger Walt G. said...

Of course, you have to question the purpose of the subsidy in the first place, as Juandos says.

But what good does it do to tax the poor and then take more money from someone else to pay the tax? I suppose paying taxes would give the poor a "dog in the fight" and possibly an emotional connection as a taxpayer; however, it would still just be a transfer payment.

Any real solution is to make the poor not poor anymore. Wasn't that LBJ's platform?

Is there is any way to increase revenue without increasing either the tax rate or the collection base? If not, you pretty much have to go after the earners who make up the majority of the taxpayers--us. To do less is the same as to believe you can cut costs deeply without cutting labor when labor is 60-80% of your cost, Right?

morganovich,

I agree with you--no estate tax :) I also don't believe in the corporate tax either. And I believe in NAFTA and free trade for the consumer. No kidding.

Rand,

You are correct as long as you stay below the lowest income amount in the 2008 table. You also have to assume when the brackets change, that the exemption amounts, deductions, additions, standard deduction, and everything else is the same. The tax laws are known for giving with one hand and taking with another and/or privileging one group over another (and sometimes, the bankruptcy laws too :)).

 
At 11/15/2010 11:26 AM, Blogger juandos said...

"I agree that people should pay for their services, but isn't that the opposite point of welfare (i.e., it's for people who can't afford to pay for the service)"...

O.K. geoih point out what part of the Constitution says its O.K. for the federal government to steal from producers and give it to non-producers?

"The bigger question is, who is exactly getting the services?"...

Did you not peruse the 'catalog of federal domestic assitance' geoih?

 
At 11/15/2010 11:32 AM, Blogger juandos said...

"Any real solution is to make the poor not poor anymore. Wasn't that LBJ's platform?"...

Well Walt G its good of you to point out that abysmal failure of a President and it also points out the major flaw in your comment, regardless of how much money is thrown at the poor, the poor are still with us...

$9 Trillion Didn't End Poverty -- What to Do?

 
At 11/15/2010 11:52 AM, Blogger Walt G. said...

Juandos,

I was thinking more along the lines of education, training, and behavior modification. I know too many people who will always be poor no matter how much money they have. A little bit of financial literacy and goal setting goes a long way.

I have students who have no vision where they will be or want to be in five or ten years. Unless that changes, I have a pretty good idea.

 
At 11/15/2010 12:26 PM, Blogger morganovich said...

i'm not sure this argument about increasing tax revenues without increasing rates or collection base is being framed correctly.

first off, it seems to assume that taxes ought to be raised, a proposition with which i would disagree mightily. the feds ought to learn to spend what they have, not what they wish they had. hell, i think they ought to learn to spend much less that they currently collect.

this point leads into my second point - in the long run, federal deficits and debt suppress growth. they crowd out other spending and investment. this breaks the one mechanism that can increase tax collection without moving rates: growth.

the same % of a bigger pie is still more money, and over time, this really piles up.

at 2% growth, the economy will be will be 81% bigger in 30 years. at 3.5%, it would be 180% bigger.

that is a stupendous difference. it may take time for the low taxes to leave the feds better funded, but it does happen. all this short term "priming the pump" nonsense is just hurting us.

growth is what we need, and it's a balanced budget and sound fiscal policy that will deliver that in the long term. all this stimulus based on disproven keynsian dogma it the equivalent of burning the walls of the house to keep warm.

 
At 11/15/2010 1:09 PM, Blogger Rand said...

Walt G. said: I know too many people who will always be poor no matter how much money they have. A little bit of financial literacy and goal setting goes a long way.


When you define "poverty" as the lowest quintile of household incomes, you will ALWAYS have a 20% poverty level.

 
At 11/15/2010 1:17 PM, Blogger Ironman said...

"Meet the rich!"

 
At 11/15/2010 1:36 PM, Blogger Paul said...

America has the richest "poor" people on the planet. And, according to the Brookings institution, if you a) complete high school b)work full time and c)marry before you have children, your chances of being poor in the US are around 2%.

 
At 11/15/2010 3:38 PM, Blogger Hydra said...

Imagine if we subsidized health care the way we did real estate.

================================

Just what we need, a bigger health care bubble.

 
At 11/15/2010 3:41 PM, Blogger Hydra said...

Perhaps they'll think twice before they vote for yet more government programs if they have some skin in the game.

================================ForThem it isn;t a quwstion of how much skin they have in the game, it is how much they have left when the game is over.

Its not like only poor people use government programs. Corporations and the wealthy are far more skilled at that game.

 
At 11/15/2010 3:42 PM, Blogger Hydra said...

Why should someone else have more of their own earnings extorted from them by the government to finance these programs?

==============================

Ask Marie Antoinette.

 
At 11/15/2010 3:47 PM, Blogger Hydra said...

what possible ethical grounding does that have? why is dying a taxable event.

================================

We commonly tax transactions: income transactions and sales transactions.

Think of this as a sales tax your chldren pay.

But 55% on inheritance over one million really is whacked. This is a major destroyer of small businesses and farms.

 
At 11/15/2010 3:48 PM, Blogger Hydra said...

you get taxed every year as you build your wealth. it's an egregious double dip to hit you again when you die.

=================================

Except you are not getting hit, you are dead. Your children get hit.

 
At 11/15/2010 3:56 PM, Blogger Hydra said...

"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence,[1] promote the general Welfare,...."

=============================

I think the preamble pretty much establishes general welfare as one of the purposes. As to the specific prescription you describe, it does not exist, but that does not mean it is proscribed either.

 
At 11/15/2010 3:57 PM, Blogger Hydra said...

Cmon,

9 trillion isn't near enough to end poverty.

 
At 11/15/2010 4:01 PM, Blogger Hydra said...

the same % of a bigger pie is still more money, and over time, this really piles up.

================================

Except that as the population and the economy grows there is also a lot more to govern and a lot more places to invent and perpetrate theft and fraud.

Why is it we think growth is good everywhere except in government?

 
At 11/15/2010 4:04 PM, Blogger Hydra said...

it may take time for the low taxes to leave the feds better funded,

===============================

Yeah, thirty years, and we pay debt service all that time, and then our children get to pay off our debt.

Isn't that the argument, that we can;t leave this debt to our hildren?

 
At 11/15/2010 4:19 PM, Blogger morganovich said...

hydra-

growth is good everywhere but government because government is not productive. it grows by sapping everyone else. once it has provided the basic framework for economic functioning (contract law, courts, police) it pretty much just gets in the way. government can only provide jobs by taking the salaries from the private sector.

and "death is a transaction"? seriously? you have to be kidding. it's the ultimate non transaction. i can see taxing someone during their life to provide police and roads etc, but once you die, you will never consume another service. what's the rationale for taking your money?

and taking it from my kids IS hitting me. it disrupts the world as i want it to be and keeps me from providing for my family. what could be a more direct hit than that?

 
At 11/15/2010 4:31 PM, Blogger morganovich said...

"Yeah, thirty years, and we pay debt service all that time, and then our children get to pay off our debt.

Isn't that the argument, that we can;t leave this debt to our children?""

do you not grasp this issue at all?

if we were running a surplus, our debt service would be cheaper. if we had lower taxes, we grow faster.

an incremental 100% of economic growth would SWAMP a 5% tax difference over 30 years and leave everyone much better off as well.

20% of 2.8 is a helluva lot more than 25% of 1.8. the balanced federal budget would be .56 as opposed to .45, a 24% difference.

not only does government wind up better off, but the rest of the economy would BOOM.

the private sector would be at 2.24 vs 1.35 with high taxes. that's 66% bigger.

so, assuming that a 5% drop in taxes yields 1.5% of growth (and that's pretty conservative) lower taxes yield 66% more private wealth and 24% more government money over 30 years. that sounds like just the sort of thing i'd like to leave for my kids.

if we raise taxes to pay for current government levels, there won't be any economy to leave to our kids at all. we'll wind up bankrupt.

 
At 11/15/2010 4:31 PM, Blogger morganovich said...

"Yeah, thirty years, and we pay debt service all that time, and then our children get to pay off our debt.

Isn't that the argument, that we can;t leave this debt to our children?""

do you not grasp this issue at all?

if we were running a surplus, our debt service would be cheaper. if we had lower taxes, we grow faster.

an incremental 100% of economic growth would SWAMP a 5% tax difference over 30 years and leave everyone much better off as well.

20% of 2.8 is a helluva lot more than 25% of 1.8. the balanced federal budget would be .56 as opposed to .45, a 24% difference.

not only does government wind up better off, but the rest of the economy would BOOM.

the private sector would be at 2.24 vs 1.35 with high taxes. that's 66% bigger.

so, assuming that a 5% drop in taxes yields 1.5% of growth (and that's pretty conservative) lower taxes yield 66% more private wealth and 24% more government money over 30 years. that sounds like just the sort of thing i'd like to leave for my kids.

if we raise taxes to pay for current government levels, there won't be any economy to leave to our kids at all. we'll wind up bankrupt.

 
At 11/15/2010 9:32 PM, Blogger sethstorm said...

Make the idle/hire resistant businesses pay.

If you're running a business, you only get the tax cut for unique(e.g. different people) direct hires for permanent/FT work. Anything but direct hires, you lose all tax credits.

Think of it as the "put up jobs or shut up and pay someone's welfare" plan. The unemployed get work, and businesses have every reason to start hiring.

 
At 11/15/2010 9:36 PM, Blogger juandos said...

"I think the preamble pretty much establishes general welfare as one of the purposes. As to the specific prescription you describe, it does not exist, but that does not mean it is proscribed either"...

See what I mean when extorted tax dollars are spent on public education, its money that might as well be burned in a bonfire...

 
At 11/15/2010 9:52 PM, Blogger juandos said...

"all this stimulus based on disproven keynsian dogma it the equivalent of burning the walls of the house to keep warm"...

Again another beautiful and concise description!!

THE CASE AGAINST THE FISCAL STIMULUS

JEFFREY MIRON
Department of Economics, Harvard University.
=====================

Do Powerful Politicians Cause Corporate Downsizing?

Lauren Cohen
Harvard Business School and NBER
lcohen@hbs.edu
Joshua Coval
Harvard Business School and NBER
jcoval@hbs.edu
Christopher Malloy
Harvard Business School
cmalloy@hbs.edu

 
At 11/15/2010 10:07 PM, Blogger juandos said...

Also from the Tax Foundation: Tax Burden of Top 1% Now Exceeds That of Bottom 95%

'...IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act'...

 
At 11/15/2010 11:46 PM, Blogger Ron H. said...

"See what I mean when extorted tax dollars are spent on public education, its money that might as well be burned in a bonfire..."

In fact the fire might have served us better by preventing our exposure to the object of your scorn.

 
At 11/16/2010 12:05 AM, Blogger juandos said...

Is the definition of the word, 'theft' no longer taught in schools?

"Think of it as the "put up jobs or shut up and pay someone's welfare" plan"...

Definitely not in sethstorm's world...:-)

 
At 11/16/2010 8:16 AM, Blogger morganovich said...

"Think of it as the "put up jobs or shut up and pay someone's welfare" plan. The unemployed get work, and businesses have every reason to start hiring."

and all of us get fascism. seth, you have truly alarming political views. you are happy to sell all our our freedom and destroy the long term vibrancy of the economy just to get a job to which you feel entitled.

that's a pretty ugly philosophy.

fascism doesn't work.

 
At 11/16/2010 10:27 AM, Blogger Junkyard_hawg1985 said...

"Is there is any way to increase revenue without increasing either the tax rate or the collection base?" - Walt G.

Walt, there is an easy way to raise revenue by eliminating some government rules. Currently, if you retire and start drawing Social Security at age 62, there are income limits where you start losing benefits ($14,160). As a result, people work less because they are not compensated adequately for their work. Eliminiating this rule would raise revenue as people would simply earn more money because they work more.

There is a similar rule that prevents a person receiving a pension from continuing to work for the same company more than a fixed number of hours per year. Eliminate this rule and these people will also earn more which will generate more revenue & create wealth by their work). The government should not provide disincentives to work.

Two tax scenarios:

Taxpayer #1 who is 62, draws a pension and receives reduced Social Security benefits. He works 566 hours at $25/hr to earn $14150. He won't work more to keep from hitting the SS limit.

Taxpayer #2 who is 62, draws a pension and receives reduced Social Security benefits. The two regulations mentioned above are eliminated. He works 2000 hours at $25/hr to earn $50,000 plus his pension plus his social security.

Taxpayer #2 created more wealth by his 2000 hours of labor AND the government benefits by receiving more income tax, social security tax, medicare tax, and sales tax. Taxpayer #1 and #2 are the same person. Only the rules were changed.

 
At 11/16/2010 10:32 AM, Blogger Hydra said...

"...growth is good everywhere but government because government is not productive."

===============================

That is a common argument, and there is some truth to it.

However, I think we are very poor at measuring the benefits government provides. It is one thing to say government is not as productive as PE, but it is another to say that government is ONLY and ALWAYS counterproductive.

Besides, government has a different mission from PE. PE only has to concernitself with profit, and probably only for this quarter. If the next quarter turns bad, they can just fold.

Government has an interest in, and policies that consern the long term. It cannot react as fast as PE because of that and becasue of its size. In that, it is no different from any large corporation.

Ideally, the government should have no interest in any policy that does not increase the net social benefit, at least that is the GAOs position. But if we start with the position that governmnet is ALWAYS unproductive,then that cannot happen and government should never do anything.

Including all those things that business asks it to do.

There is really no accepted procedure for evaluating costs and benefits, so Dems and Pubs are free to quibble endlessly over values that are not measured. Lacking evidence we can (or will)believe, any claim is as valid as the next: including the claim that government is always unproductive.

 
At 11/16/2010 10:46 AM, Blogger Paul said...

"Government has an interest in, and policies that consern the long term."

Yes, and these titans of finance in the government have us on the hook for around $100 trillion in unfunded liabilities. What's that again about the net social benefit?

 
At 11/16/2010 10:46 AM, Blogger Paul said...

"Government has an interest in, and policies that consern the long term."

Yes, and these titans of finance in the government have us on the hook for around $100 trillion in unfunded liabilities. What's that again about the net social benefit?

 
At 11/16/2010 10:46 AM, Blogger Hydra said...

Junkyard Hawg makes a pretty good argument. I think he leaves out the fact that one reason we want people to retire is to make room for younger workers.

And, maybe, we think people OUGHT to be able to retire after thirty or forty years. Same idea as use it or lose it vacation time. We want our workers to take time off, so we penalize them if they wont.

What haapens if instead of working 2000 hours at $25 an hour a younger worker comes in and produces almost the same stuff in 2000 hours at $18 an hour?

How does that increase revenue? He pays less income tax and the company gets more income, but they probably have accountants that minimize their taxes, using other rules.

Or what if he is collecting unemployment because the older guy has got his job at $25 an hour? I think we reach bad conclusions because we base our arguments on inconsistent and incomplete systems.

Total Cost = Production Cost + External Cost + Government Cost

 
At 11/16/2010 10:50 AM, Blogger Hydra said...

have us on the hook for around $100 trillion in unfunded liabilities.


=================================

You are proving my point by pointing out the liabilities and not the benefits. I'd suggest that a fair amount of that was for stuff we bought for our grandchildren, and we are sending them the bill.

We ran up big deficits puttig the Soviet Union out of business. was there no benefit in that?

 
At 11/16/2010 11:17 AM, Blogger Paul said...

"You are proving my point by pointing out the liabilities and not the benefits."

We're talking about staggeringly unaffordable entitlement programs. It doesn't matter what the temporary "benefit" is if it causes a fiscal stroke trying to pay for it all.

"I'd suggest that a fair amount of that was for stuff we bought for our grandchildren, and we are sending them the bill."

Oh, we're sending them the bill all right, but it's for social security and medicare.

 
At 11/16/2010 11:29 AM, Blogger morganovich said...

hydra-

can you possibly believe that government is more long term focused than business?

that is a wildly untrue statement. government never thinks past the next 2 year election cycle. they hand out all the easy goodies, but never take the difficult decisions. that is why we are sinking inexorably into a fiscal quagmire.

it's always easier to advocate more spending and less responsibility. that is whay we have not run a balanced budget since eisenhower.

and your notion that the social programs currently destroying our fiscal balance are "for the children" is just silly. medicaid and social security is all monry taken from those who will never get these benefits due to the programs going bust paying for oldsters who want it now.

you seem to have a very odd view of what our children will want. they will want a vibrant economy, greater wealth, and greater opportunity. governmental pillaging and crowding out of the private sector provides none of those things.

 
At 11/16/2010 12:20 PM, Blogger Ron H. said...

Currently, if you retire and start drawing Social Security at age 62, there are income limits where you start losing benefits ($14,160). As a result, people work less because they are not compensated adequately for their work.

Junkyard, have you considered that if employers had more work available right now, they might be hiring unemployed people to do it? I'm not sure your suggestion would generate more tax revenue.

But, as eligibility and level of benefit for SS is determined by means testing, as you point out, it is clearly a welfare benefit, and not a retirement plan as some suggest.

 
At 11/16/2010 12:48 PM, Blogger Walt G. said...

morganovich said: "government never thinks past the next 2 year election cycle."

What would the incentive be to do that for a person with a big ego who is goal-oriented of getting re-elected? Our representatives are unarguably both.

I think the historical re-election rate for a Senator is in the 80% range and for a Congressman in the 90% range. That could off a bit, but it is not an understatement that they have one of the most secure professions in the United States.

We reward and vote back in our representatives for spending money in our district while railing against the other person's representative we can't vote against.

I wish it were different, but it is not. I surely don't handle my personal finances like the government does, and, morganovich, I use your concept of the growth model that you mentioned in an earlier posts. That is, without a doubt,the best way to go.

I guess it boils down to how much we are willing to work with the system we have instead of the system we wished we had. I am the product of a dirt-poor sharecropper's son who was taught that life is not fair, and the only luck you will find is from hard work and recognizing opportunity when it comes your way.

 
At 11/16/2010 12:48 PM, Blogger Hydra said...

We're talking about staggeringly unaffordable entitlement programs.

==================================

He didn't say that. He just said Government is nonproductive. it is that kind of gross overgeneralization that paints conservatives as clowns.

I don't think we advance he argument much by using terms such as "staggeringly unaffordable". How unaffordable is that?

Over the long term social security may have a few years where it takes in less than it pays out, then goes back to a more sustainable level of ponzi scheme.

But, even if we agree the thing amounts to a net loss, we can;t agree on what the net loss is until we take into account the benefits. Which means we have to recognize them for what they are.

 
At 11/16/2010 12:53 PM, Blogger Ron H. said...

"However, I think we are very poor at measuring the benefits government provides."

In that case, we should be horrified at everything government does, as it seems those in power are saying "We don't know what effect this will have, but let's just try it and see what happens."


"Besides, government has a different mission from PE."

And just what is that mission, Hydra? Please explain why we have government and what mission we have assigned to it.

 
At 11/16/2010 12:56 PM, Blogger Ron H. said...

Hydra, you need to learn what is meant by the term "unfunded liabilities" so you can respond correctly to comments that use that term.

Just a hint, it's not the same as "debt".

 
At 11/16/2010 1:12 PM, Blogger Walt G. said...

I think the $100 trillion for the U.S. unfunded entitlement liabilities is what is currently published. And that balloons to $300 trillion or so when states and local governments are included--a lot of teachers, cops, judges, firefightes . . . want the benefits they thought they were promised.

I believe the national debt is somewhere around $14 trillion. And I read there is a bill to raise that another $1 1/2 trillion for our lame-duck Congress to consider shortly.

 
At 11/16/2010 1:14 PM, Blogger Hydra said...

So Sethstorms fascist view recognizes that we have X amount of people. Either we wll have jobs that can support them, or not.

If we don't have jobs that can support them, we will support them some other way, step over homeless bodies on the way to our jobs, or bury them.

Sounds mor socialist than fascist to me. I know, you are going to argue that socialism requires a strong central government, and that is fascist in nature.

-----------------------------

It is hard to argue that we are really better off living well and surrounded by slums. But this is the argument Juandos makes, based on his view of freedom and efficiency.

Suppose there is one guy on the planet who is far more efficient than everyone else, and he is free to do whatever he pleases.
Soon, he has everything and everybody else has nothing.

And yet, because he is the most efficient producer of everything, this would maximize net social benefit. Any other result would be "less efficient".


Capitalism is the social system in which all property is privately owned, and the government's function is restricted to the protection of individual rights (property). There are two problems with this: not all property is privately owned. The conservation cult has arranged control over public goods in such a way that it restricts use of private goods.

The second problem is that Capitalism is still a social system. That is what prevents our single most efficient person from taking over.

 
At 11/16/2010 1:19 PM, Blogger Hydra said...

Just a hint, it's not the same as "debt".

==============================

I understand that, but don't jerk my chain. Ethically the difference is moot. You either live up to your liabilities, responsibilites and debt or you don't.


We promised those teachers and firefighters good pensions so we could get them to work for cheap. Now the bill is coming due and some crooks want us to welch on our promises.

 
At 11/16/2010 1:21 PM, Blogger Hydra said...

In that case, we should be horrified at everything government does,

==============================

Everything?

Or are we onlytalking entitlements, again?

We owe a lot of money on the national highway system. No benefits there?

If government is so terrible, why do we have so many lobbyists trying to get it to do something?

 
At 11/16/2010 1:26 PM, Blogger Hydra said...

I think the $100 trillion for the U.S. unfunded entitlement liabilities is what is currently published.

=================================

Over what period of time? How much money will come in to help cover that $100 trillion in the meantime? How many times have we borrowed from pension funds for other uses, and what is the benefit of those uses? What happens to the benefits that do get paid?



"Oh my God, I have a thousand gallons of water in the bilge!"

Does not mean the boat is sinking.

 
At 11/16/2010 1:31 PM, Blogger morganovich said...

hydra-

you are oversimplifying what i said. i said that once you have enough government to uphold laws, adjudicate contracts, and safeguard rights and borders, then it becomes unproductive. one could possibly make the argument that a public road system is worthwhile, but we already have that.

the rest of government is scarcely productive at all. this contrasts to the private sector from which such funding is siphoned.

if you take money away from more productive uses to give it to less productive ones, that's a deadweight loss. over an extended period, we will all be worse off.

go back and read my 30 year example.

your argument about living better surrounded by slums is a ridiculous straw man. our poor are richer than europe's poor and 4 or 5 times as class mobile. your notion that socialism alleviates poverty is simply false. all it does is even things out by making everyone poorer.

i also disagree with your definitions of socialism and fascism. socialism is a high tax (for everyone) and redistribution system. what seth advocates is fascism. he wants to force companies to hire. once you get into that sort of compulsion by government, you are fascist, not socialist. (i'm also basing my assessment of seth on a number of his other comments which are disturbingly entitled and totalitarian in the truest orwellian sense)

 
At 11/16/2010 1:34 PM, Blogger Walt G. said...

Correction: The 300 trillion in unfunded liabilities I stated earlier is the total amount for all government units in the U.S. after removing all the government accounting tricks and attempting to use GAAP accounting methodology. A lot of liabilities are not on the books, and a lot of the revenues are overstated because they are counting money that they have no intention to collect (AMT and savings? from the health care plan for a couple examples).

 
At 11/16/2010 2:01 PM, Blogger Junkyard_hawg1985 said...

"Junkyard, have you considered that if employers had more work available right now, they might be hiring unemployed people to do it?"

Ron,

I'm thinking of cases of people I work with. They hit 62 and are full pension eligible. They retire rather than work because they net around $3.00/hr to come work. They are experienced, trained, talented operators who are willing to work. Unfortunately, the social security and pension laws make it where it is not worth their time to continue to work. When they retire, they are replaced with a person who is inexperienced (and it usually involves several job moves within the plant so multiple inexperienced people are in new jobs).

For those who think that people working longer hurts young people are falling into the same trap that the French did with their 35 hour work weeks.

 
At 11/16/2010 2:02 PM, Blogger sethstorm said...


seth, you have truly alarming political views. you are happy to sell all our our freedom and destroy the long term vibrancy of the economy

Explain how using incentives to turn tax avoidance into a good thing is a bad idea.

I'm merely making incentives work in the favor of job creation. You want to lock in lower taxes, find a way to expand hiring. Make tax avoidance something people want, for once.

Businesses have circumvented too many reasonable solutions. I only propose something that makes tax cuts personal and favorable.


So Sethstorms ... view recognizes that we have X amount of people. Either we will have jobs that can support them, or not.

At any given point in time, X jobs will exist, with Y people chasing them. While things may change before and after that point in time, that is what is measured.

Let's start with the statistics: 9.5% U3, ~17% U6, 20%+ shadowstats for unemployment. It would only make sense to have each X try to match each Y. Not try to evade creating jobs by sitting on the fence.

 
At 11/16/2010 2:19 PM, Blogger morganovich said...

seth-

you repeatedly make demands about "forcing companies to hire". that is fascism. it abrogates private property and personal choice by turning private enterprise into a tool of the state.

you are advocating coercing others into hiring you when they don't want to. if you want to destroy the economy, that's sure the road to take.

lower taxes create jobs. more money for consumers to spend boosts demand. more after tax profits at companies boosts hiring and investment. i fear your economics is as misconceived as your politics.

 
At 11/16/2010 5:38 PM, Blogger sethstorm said...

morganovich:
Yet you do not answer the part about how evading the tax by creating jobs is a bad idea. You just simply talk about how taxes are theft.

I just provide an incentive to start hiring and remove the incentive to sit idle (or try to halfass it with temp workers).


I'm more than happy to live out the rest of my life on government programs. There are some levels of survival that I am prepared to accept if businesses wish to be bullheaded about hiring. I would think that I am not alone and that I would be one of the more reasonable of the group.

 
At 11/16/2010 5:55 PM, Blogger sethstorm said...

morganovich:

If you think I like that situation, think again. Your suggestions have lead my state to near-ruin, three times over.

 
At 11/16/2010 7:12 PM, Blogger morganovich said...

seth-

i did not answer you because you comment is totally unintelligible.

"Explain how using incentives to turn tax avoidance into a good thing is a bad idea."

this comment literally makes no sense at all. i have no idea what you are trying to say. there is no way to parse that comment.

you earlier idea about tax breaks for corporations to hire is not an effective solution. we are in an overcapacity situation. companies are already producing too much, and a tax cut will not equal the entire price of a hire. even at cut rates, you are just making the overcapacity situation worse while depressing corporate profits and encouraging bad economic decision making. even if you cut taxes so that it's free to hire a worker, it's still a misallocation of resources that will build up greater imbalances.

i am also referring to your constant calls on other threads to "make companies hire" like that is somehow their job. it's not. companies do not exist to give people jobs, they exist to make money. you may not think that system is nice, but it's the only one that works. the USSR etc tried running companies to create jobs. remember how that worked out?

to solve this, you need to create demand. to create demand, you need consumers to spend. to do that, they need more money. a tax cut to consumers is always going to work better to drive demand than a tax cut for hiring. it affects far more people. the demand will then work through the overcapacity instead of exacerbating it as you plan would. once that occurs, the hiring starts and unemployment comes down.

this is how the economic cycle works. no amount of wishing is going to change that. you might as well try to legislate a 20% decrease in the gravitational constant.

 
At 11/16/2010 9:56 PM, Blogger Paul said...

"I'm more than happy to live out the rest of my life on government programs."

Which is why we need to cut government programs and weed out the freeloaders like sethstorm.

 
At 11/16/2010 10:03 PM, Blogger Paul said...

Hydra,

"Suppose there is one guy on the planet who is far more efficient than everyone else, and he is free to do whatever he pleases.
Soon, he has everything and everybody else has nothing.

And yet, because he is the most efficient producer of everything, this would maximize net social benefit."

Wait, how can he be an efficient producer if the masses have....nothing? What, does he store it all in warehouses? How is the net social benefit maximzed again? This makes no sense at all.

 
At 11/16/2010 10:07 PM, Blogger Paul said...

"You either live up to your liabilities, responsibilites and debt or you don't."

Exactly. We don't. No way we can.

 
At 11/16/2010 10:49 PM, Blogger juandos said...

sethstorm = hydra...

Its obvious now...

 
At 11/16/2010 11:27 PM, Blogger Ron H. said...

Well I see you didn't take my advice, so let me give it again.

Hydra, you need to learn what is meant by the term "unfunded liabilities" so you can respond correctly to comments that use that term.

Let me help a little. 'liabilities' in this case are all those retirement and healthcare plans you are concerned about, including Social Security and Medicare. 'Unfunded' refers to the difference between those liabilities and estimated revenue for the same time period.

"Over what period of time? How much money will come in to help cover that $100 trillion in the meantime?"

The fact that you can ask that question says it all. You don't know what 'unfunded' means. There are estimates of "how much money will come in in the mean time". That is the FUNDED part. The $100 trillion - or pick another large number you like better - is the UNFUNDED part. That means there will be NO MONEY coming in to cover it. Get it?

 
At 11/17/2010 12:38 AM, Blogger sethstorm said...


you earlier idea about tax breaks for corporations to hire is not an effective solution. we are in an overcapacity situation.

I would believe you a bit more if not for the combative folks such as McKesson that avoid the US. Others pick up on these leaders in industry and then find it fine to follow. Big, small, or medium size businesses.

Should there be an overcapacity situation, the choices I suggest are ones that would address it.


i am also referring to your constant calls on other threads to "make companies hire" like that is somehow their job. it's not.

Individuals and government aren't their vassals either. But they want them to be as such, or threaten to pull up roots and ruin entire regions.

It is not something I prefer, but all the reasonable options don't work. Consider these options ones of last resort.

 
At 11/17/2010 1:03 AM, Blogger sethstorm said...


Paul said...

I don't see any help coming from the side of business. Just entities willing to raise the stakes and go the extra mile against hiring.

 
At 11/17/2010 2:35 AM, Blogger Ron H. said...

Junkyard,

"I'm thinking of cases of people I work with. They hit 62 and are full pension eligible. They retire rather than work because they net around $3.00/hr to come work."

Yes, I'm familiar with that situation, in fact I faced that decision myself. It was an easy one to make.

But, your assertion was that tax revenue would be higher if retirees were allowed to continue working. That implies that, economy wide, more workers are needed, so that retirees staying on would fill that need. That's just not the case right now.

Using your examples, if a company
needs 20,000 hrs/year of labor - 10 workers - and one retires, they can easily replace him these days due to an abundant supply of unused labor. Tax revenue doesn't change in any significant amount.

I don't think I said anything about older workers hurting younger workers. Unless, of course you consider that if a company needs less labor than it is currently using, a retiree staying on might cause someone else to be laid off.

 
At 11/17/2010 2:41 AM, Blogger Ron H. said...

"Should there be an overcapacity situation, the choices I suggest are ones that would address it."

Wait!! Please go slower. I'm having trouble following this. Over capacity can be fixed by hiring more people?

 
At 11/17/2010 2:48 AM, Blogger Ron H. said...

"I don't think we advance he argument much by using terms such as "staggeringly unaffordable". How unaffordable is that?"

I know, that's a little awkward sounding, isn't it. How about virtually unmeasurable, incomprehensible, bigger than big. You pick one you like, Hydra. What term would you apply to something almost beyond human ability to grasp?

 
At 11/17/2010 3:05 AM, Blogger Ron H. said...

"At any given point in time, X jobs will exist, with Y people chasing them."

Oh goodie! A math problem.

So, Y-X=14,800,000. Right?

"It would only make sense to have each X try to match each Y."

I think it's the other way around, seth, it would only makes sense for each Y to try to match each X.

"Not try to evade creating jobs by sitting on the fence."

Did you mean to say "not try to evade accepting jobs by sitting on the couch in my mother's basement"?

 
At 11/17/2010 9:43 AM, Blogger Hydra said...

What term would you apply to something almost beyond human ability to grasp?

==================================

Surprise.

I'm surprised anyone is that stupid.

If we can grasp extragalactic quantum mechanics we can figure out how the economy really works.

As soon as we set aside emotionally charged descriptions and ideologies that don't fit the facts.

 
At 11/17/2010 10:14 AM, Blogger Hydra said...

Wait, how can he be an efficient producer if the masses have....nothing? What, does he store it all in warehouses? How is the net social benefit maximzed again? This makes no sense at all.

=================================

Well, you have hit on one failing of capitalism.

This guy is the best producer. If anyone else produces it will be at a higher cost, which reduces net social benefit. This is the same argument as to why it makes no sense to "protect American jobs" when we can buy equivalent goods cheaper than we can make them.

As the best producer, he puts everyone else out of work. If they want anything from him, they will have to trade soemthing they already have to get it, or maybe borrow, as we do from China.

Eventually, he has everything, but he got it all at the cheapest price. Therefore the total goods produced was at the lowest cost and net social benefit is maximised, even though he has all of it.

That is the end of the Monopoly game.

--------------------------------

A mexican acquaintance who is illiterate in tow languages described the situtation in Mexico where the rich have everything and the poor have nothing, not even zapatas, he said.

"What good all that money, it no go round and round?"

Which is pretty much your question.

------------------------------

If you want to keep the game going, you have to tax the richest players.

Put another way, how are you going to tax people with no money and no jobs?

The highest tax you can place is to just let them die. It sounds to me like that is what Paul is suggesting when he says "Exactly. We don't. No way we can." [live up to our responsibilities].

That s a pretty high tax to come as a result of a low tax philosophy based on property rights.

 
At 11/17/2010 10:16 AM, Blogger Hydra said...

Morganovich is correct. You cannot "make companies hire."

 
At 11/17/2010 10:17 AM, Blogger Hydra said...

OK, so if you cannot "make companies hire", what makes you think you can "make people work"?

 
At 11/17/2010 10:24 AM, Blogger Hydra said...

'Unfunded' refers to the difference between those liabilities and estimated revenue for the same time period.

"Over what period of time? How much money will come in to help cover that $100 trillion in the meantime?"

The fact that you can ask that question says it all. You don't know what 'unfunded' means.

=================================

I understand what unfunded means. It is equal to the obligation we have for the promises we made, which is equivalent to a debt. What part of ethics do you not understand?

As to the unfunded part, that is all based on some future estimates. We pretty much know what we will owe, just not where it will come from.

What about that 100% growth in the economy that is supposed to come from a 5% cut in taxes? Are we going to slash (ignore) our obligations to get that 100% growth and then put it in our pocket?

 
At 11/17/2010 10:32 AM, Blogger Hydra said...

Lets have a little accuracy.

PART of the bill we send our grandchildren may be attributable to social security and medicare. But most of those expenses are "covered" by "dedicated" payroll taxes.

From an accounting standpoint the bill we send our grandchildren will be mostly for other things.

OK, so money is fungible. We will send a bill to them, to them it won't matter what it is for, they are still stuck with it.

We will send a bill to them. We also did things for them. I'm not arguing your basic point, I just think it is incomplete.

 
At 11/17/2010 10:32 AM, Blogger Junkyard_hawg1985 said...

"But, your assertion was that tax revenue would be higher if retirees were allowed to continue working. That implies that, economy wide, more workers are needed, so that retirees staying on would fill that need. That's just not the case right now." - Ron

Ron,

In the long term, if people work longer, then their replacements will find other work to perform. This is the essence of American history. Freeing up labor to do other work is a good thing. I don't think I can say it as well as Milton Friedman did:

"When the United States was formed in 1776, it took 19 people on the farm to produce enough food for 20 people. So most of the people had to spend their time and efforts on growing food. Today, it's down to 1% or 2% to produce that food. Now just consider the vast amount of supposed unemployment that was produced by that. But there wasn't really any unemployment produced. What happened was that people who had formerly been tied up working in agriculture were freed by technological developments and improvements to do something else. That enabled us to have a better standard of living and a more extensive range of products."

 
At 11/17/2010 10:35 AM, Blogger Hydra said...

"But, your assertion was that tax revenue would be higher if retirees were allowed to continue working. That implies that, economy wide, more workers are needed,....."

============================

Ron is right on this one, I think. it is another version of my argument that we retire people partiaslly to make way for younger (and sometimes cheaper) workers.

Retire and then go find an underground cash job.

 
At 11/17/2010 10:45 AM, Blogger Hydra said...

"....if people work longer, then their replacements will find other work to perform."

Pollyanna. They might also be long term unemployed, as in Germany.

--------------------------------

"...people who had formerly been tied up working in agriculture were freed by technological developments and improvements to do something else. That enabled us to have a better standard of living and a more extensive range of products."

OK.

But some people will argue that those people working in farming were closer to a sustainable economy, though not as rich.

Those technological improvements, like farm tractors, depend on non-renewable resources. They require massive urban areas whose true footprint is not counted in the cost equation. That "growth" is really only depletion of our natural capital, they will argue.

Friedman is comparing a closed system (more or less subsistence agriculture) with an open system that depends on external inputs to keep it going.

 
At 11/17/2010 10:46 AM, Blogger morganovich said...

seth-

you are blaming the victim.

US regulation and taxes make it so unattractive to expand and produce here that companies go offshore.

that is just what they should do.

if the casino rigs the game so that you'll lose, the rational choice is to leave. blaming gamblers for not wanting to stay when the odds are better across the street is just stupid.

companies exist to make a profit, not to give seth a job.

forcing them to hire too many employees at too high a price will make them fail reducing the number of jobs in the long run.

 
At 11/17/2010 10:55 AM, Blogger Hydra said...

"I'm thinking of cases of people I work with. They hit 62 and are full pension eligible. They retire rather than work because they net around $3.00/hr to come work. They are experienced, trained, talented operators who are willing to work. Unfortunately, the social security and pension laws make it where it is not worth their time to continue to work."

===============================

It would be worth their while to work if we paid them more, too. Then the amount they give up on the pension side would be equivalent to raising SS taxes.

Ergo, you can't blame this all on SS rules.

Besides, there is already incentive to delay retirement to 65 or 67, which you left out. You are not really full pension eligible at 62, unless you are talking the (now rare) company pension.

There is another issue. Regardless of whether you retire at 65 or 62, actuarially, you will collec the same money over time.

The risk is that you will kick the bucket at 63 and not collect anything, so most people retire as soon as possible.

 
At 11/17/2010 10:57 AM, Blogger morganovich said...

seth-

you view on this is so skewed is unreal.

transactions need to be consensual. if they are not, it's tyranny.

consensual means both sides agree to participate, free of force and coercion.

a corporation does not make an individual or government its "vassal" by moving jobs or deciding not to hire any more than you make mcdonalds your vassal by not buying a big mac.

you favor non consensual coercive tactics to force companies to do what you demand. this is why i continually (and accurately) call you a fascist.

it would be perfectly equivalent to what you suggest to have the plumber show up at your house and require you to redo your bathroom because he needs work. when you say "no, i don't need a new bathroom" he'll brand you as unamerican and anti-worker and lobby the government to force you hire him for work you don't need or could hire more cheaply from someone else if you did.

how will you feel then?

 
At 11/17/2010 11:01 AM, Blogger Walt G. said...

Hydra,

Newer and cheaper workers? Maybe. But you have to make sure you count the investment required to make the newer workers as knowledgeable and efficient as the older workers. Brain drain is a pain.

On the one hand, you can solve a problem if the older workers are disgruntled or unadaptive to change because they place a burden on the work process and team morale. On the other hand, seasoned workers who are able to change and keep their skill-sets on the cutting-edge can be priceless. Cheaper is not always better (especially if you have to hire two people to replace one)

We have an annoying lack of civility on this blog for people who don't share the same perspective lately. Adults should be able to have different opinions and respect for one another at the same time and all of the time. The intellectual quality of Professor Perry's blog that he puts so much thankless effort into is suffering from this constant bickering. As a regular poster, I will make my best effort to be civil toward you all. Can I expect the same in return? Thanks, Walt G.

 
At 11/17/2010 11:01 AM, Blogger Hydra said...

....companies exist to make a profit, not to give seth a job.

=================================

Yes, but companies are not EVERYTHING.

The actual goal is to minimize Total Cost where Total Cost = Production Cost + External Cost + Government Cost.


Maximising profit by reducing labor cost and increasing unemployment (external cost) and government costs (flogging the economy), isn't necessarily doing me any good overall.

 
At 11/17/2010 11:04 AM, Blogger Hydra said...

Newer and cheaper workers? Maybe. But you have to make sure you count the investment required to make the newer workers as knowledgeable and efficient as the older workers.

================================

Agreed, I think I said (sometimes) cheaper workers for just such reasons.

Some people think we should let people work and collect their pension, others call this double dipping.

One wonders what they are working and saving for, if the inheritance tax is going to get it anyway!

 
At 11/17/2010 11:19 AM, Blogger Hydra said...

transactions need to be consensual. if they are not, it's tyranny.

consensual means both sides agree to participate, free of force and coercion.

=================================

Agreed, but you make this sound easier than it is.

Besides, it isn't really free of force and coercion, it is only equal force and coercion.

I have to respect your property and you have to respect mine. It is my obligation to keep my dog from damaging your property, but if he happens to get over there, you don't have the right to kill him (ordinarily).

Right now there is argument over airport scanners. Does your right to fly risk free include the right to demand nonconsensual search of everyone else's body cavities?

Or does your right to control your body mean someone else has to fly next to you nonconsensually?

What rights has the owner and insurors of the aircrraft got in this?

Seth is wrong on the particular argument of forcing/incentivizing companies to hire, but your argument of tyranny doesn't carry much weight.

For what its worth, I figure you are incentivizing if you are using your money to reward someone for desired behavior. You are forcing them if you take their money away for not performing the desired behavior.

 
At 11/17/2010 12:21 PM, Blogger morganovich said...

hyrda-

i think you are completely misframing this argument, which is why you do not understand my point about tyranny.

you are misframing it because you are misusing the concept of a right.

you do not have a right to fly risk free. a right is intrinsic to being human. you might LIKE to fly risk free, but show me where you have that right.

you have a right to sanctity in your own person and possessions. no TSA employee can come into your home and grab your junk or even do it in the airport unless you are going into a secured area.

getting groped by the TSA (and i am by no means agreeing that their current behavior is good or reasonable) IS in an undeniable sense, completely voluntary. all you have to do to avoid it is not fly.

you do not have a right to fly. it's an agreement. looks at the terms to which you agree when you buy a ticket. (and note that you have to buy a ticket, again, it's not a right)

i can demand to frisk you before letting you into my nightclub. many clubs do. you can either agree and come in, or disagree and go home. there is nothing coercive there, it's just another kind of price, like charging a cover charge. you only pay if you value coming in enough.

you are making the same mistake that seth does and assuming rights where there are none. it is you right to engage in consensual commerce. if you don't like the price, you can refrain.

if you don't like TSA policy, you can attempt to get it changed, but it is not your right to do so.

when you use someone else's property and services, they can tell you under what conditions that is allowed.

again, only if both parties agree does anything happen. either one is free to refuse the other side's offer.

 
At 11/17/2010 1:04 PM, Blogger Walt G. said...

I wonder what will happen when more customers revolt and decide not to get off the airplane because it landed at what they considered to be the wrong airport like was reported yesterday. What percentage of people deciding not to fly could possibly change the policy for people not to be exposed to radiation or sexually groped? Yes, it’s sexual groping. If you don’t believe that, go up to someone in a store today and do a TSA security pat down on them, but make sure you have someone to call to bail you out of jail first.

 
At 11/17/2010 1:16 PM, Blogger sethstorm said...


You are blaming the victim.

US regulation and taxes make it so unattractive to expand and produce here that companies go offshore.


Victim? How are businesses the victim here? They're the ones throwing the first punch by offshoring. The government only wishes to respond to that initial action. Companies that perform such are anything but the victim, and they are far from innocent.

They have to hide their actions, and not commit to them openly or in a way that is exposed to the public. They use gag orders and severance conditions to keep offshoring from being known. They avoid disclosure because they know it will go badly for them, a la Hyatt. Truth hurts for them.

The only victims are the people in the US looking for work, and the people being slave-driven in the offshored countries.



you favor non consensual coercive tactics to force companies to do what you demand.

Don't confuse bulletproof regulation with fascism. Reasonable and more consensual tactics get circumvented. Second, it encourages businesses to make what appears to be overcapacity into a more normal situation.

It isn't their first job to simply hire people. But it is a job businesses may want to take if they have an actual problem finding people. Or wish not to be saddled with more regulations.

 
At 11/17/2010 1:24 PM, Blogger sethstorm said...


Seth is wrong on the particular argument of forcing/incentivizing companies to hire

Explain where I am wrong in asking for there to be a "put up or shut up" option? It recognizes that people get hired under favorable terms, or that businesses pay for their mistake through not getting tax cuts. It takes advantage of a business's profit-seeking interest in how it works.

 
At 11/17/2010 2:08 PM, Blogger Hydra said...

Where is the "option" in put up or shut up?

If you want companies to hire people, then pay them to do work.

 
At 11/17/2010 2:11 PM, Blogger Hydra said...

I understand entirely and personally your point about tyranny.

I still think it is wrong, and you are the one who has misframed the argument.

 
At 11/17/2010 3:41 PM, Blogger sethstorm said...


If you want companies to hire people, then pay them to do work.

They would be incentivized to find ways to hire people on a full-time basis, in order to get a more favorable tax rate.

 
At 11/17/2010 3:56 PM, Blogger Hydra said...

Once I buy a ticket (or anything else) I have a right to a satisfactory level of service.

Now we are negotiating over what constitutes a satisfactory level of service, and how much it should cost. The problem here is that not all of the cost is not included in the ticket price: it is an externality. Airline provides transportation and safety, but not security. Government provides security, but does not coaver all the "cost", hence the uproar. What we want is lowest Total Coat = Airline Cost + External Costs + Government Cost



The chance of getting blown out of the sky by a terrorist is probably smaller than the chance of being hit by lightning. When lightning appears, we call off the game, to reduce the chances: it is a small cost to reduce a small but well known risk.


There is no choice if you don't know what you are buying or what you are paying for it. Some people are now complaining that the cost of avoiding terrorism has now gone too high.


Suppose I start an airline and advertise "No security screening, no baggage checks!"

How much could I sell a ticket for?

 
At 11/17/2010 3:58 PM, Blogger Hydra said...

"They would be incentivized to find ways to hire people on a full-time basis, in order to get a more favorable tax rate."

=================================

So you are in favor of government stimulus spending?

 
At 11/17/2010 4:30 PM, Blogger Hydra said...

As I see it, In this case you are arguing that increasing tax expenditures in favor of business and lowering government cost of unemployment payments + the value of decreasing the external costs of unemployment + increased production costs minus the value of increased production leads to overall lower costs.

Morganovich sees this as tyranny because you are "forcing" the companies to hire people they don't want or need. I think he is all over the map on this. By his own argument they could walk away, refuse to hore people and ignore the tax incentive. by his argument there is always a choice, even when there isn't one.

Consider inheritance.

He has the right to his body and the fruits of his labor. So far we agree. Where does it say his children have the right to the fruits of his labor? They have the right to their body, and the fruits of their labor, same as him. What he is arguing for is assymetric or unequal rights. Rights without the associated cost or obligation.


He is done with his body, and done with the fruits of his labor. Why is it his problem what happens to it now? What gives him the right to reach out of his grave and still dictate what happens? If he wants to "give" something to his children, he can do it while he is alive. After he dies, he is "giving" something that has no cost (or at least no value) to him.

On the other side of the map he thinks that his right to inividual liberty gives him the right to deny any obligations he feels are thrust upon him, even when they are obligations that support concommitant rights. His argument being that he does not want or use those rights, so he should not have to pay for them. He wants to be a free rider on the rights train.


(I agree with Morganovich on inheritance, I just cant see the consistent argument for it. Particularly if you start from the position of personal responsibility, personal motivation, and personal property.)

 
At 11/17/2010 5:00 PM, Blogger morganovich said...

seth-

no. the first punch was the sea of governmental interference and taxation. offshoring is corporations dodging that punch.

what you are saying is that we should stop them and make them stand there and take the punch right in the face.

 
At 11/17/2010 5:01 PM, Blogger morganovich said...

hydra-

"I understand entirely and personally your point about tyranny.

I still think it is wrong, and you are the one who has misframed the argument."

this is not an argument. this is just you saying "i disagree but cannot marshal any logic or facts to back up my position."

 
At 11/17/2010 5:08 PM, Blogger morganovich said...

hydra-

you do not have a right to satisfactory service when you engage in a contract. you are entitled to get that which you contracted for. there is a big difference.

read the fine print on your plane ticket. they are providing to the letter what your contract stipulates. if they aren't, sure, sue them, but i think you'll find that you have no grounds.

you may find the level of service they offer unsatisfactory, but that is what they are selling. if you don;t like it, don't buy.

i'm not saying that i like the level of service either or that i think the current TSA stance is a good one, but they are not violating your rights in any way, they are just offering a service that you find inadequate.

you have no "right" to require them to do otherwise, just the ability to fly or not fly as you see fit.

you are still completely misframing this.

if you check into motel 6 and then get pissed because there is no turn down service and the bathrobe isn't fluffy, you may be unsatisfied with what you bought, but they are providing just what they said they would.

you are not entitled to get the service you want. you are entitled to choose to buy or not by that service which others are willing to offer.

you have no right to be satisfied with your experience, just the legal entitlement to get what you paid for.

though you may not like it, both the airlines and the TSA are providing that.

 
At 11/17/2010 5:18 PM, Blogger morganovich said...

hydra-

"Morganovich sees this as tyranny because you are "forcing" the companies to hire people they don't want or need. I think he is all over the map on this. By his own argument they could walk away, refuse to hore people and ignore the tax incentive. by his argument there is always a choice, even when there isn't one."

this argument doesn't even make sense and now you are just building straw men. seth want to force companies to hire and to hire americans. at that point, government is telling private industry what to do with it's resources. that is fascist. read the plumber example i gave seth.

"He has the right to his body and the fruits of his labor. So far we agree. Where does it say his children have the right to the fruits of his labor? They have the right to their body, and the fruits of their labor, same as him. What he is arguing for is assymetric or unequal rights. Rights without the associated cost or obligation."

this is an incredibly stupid argument. if it's my property, i can decide what to do with it. if i want to give it to my kids, why can't i?

why does property revert to the government when i die? it's not theirs, it's mine.

there is no asymmetry here. my children are not entitled to my wealth. i have to give it to them. i could endow a school instead if i choose (and likely tax free). so why can i choose to give my wealth to the salvation army and pay no tax but give up over half my estate if i give it to my children? it's a stupid, inconsistent law.

there is no ethical basis for government taking my wealth upon my death that does not violate the notion of private property.

"On the other side of the map he thinks that his right to inividual liberty gives him the right to deny any obligations he feels are thrust upon him, even when they are obligations that support concommitant rights. His argument being that he does not want or use those rights, so he should not have to pay for them. He wants to be a free rider on the rights train. "

this makes no sense at all. of what obligations are you speaking? i just want dispose of what is mine and which i have already paid taxes on as a choose. you are advocating that wealth is the state's and that it can take it because i am not using it anymore.

which part of private property is confusing you?

 
At 11/18/2010 12:27 AM, Blogger Ron H. said...

Junkyard,

"Freeing up labor to do other work is a good thing. I don't think I can say it as well as Milton Friedman did:"

"...people who had formerly been tied up working in agriculture were freed by technological developments and improvementsto do something else."

I agree 100% with you and Mr. Friedman on this, but this isn't an example of your original claim that tax revenue would increase if retirees were allowed to work more hours. There are currently plenty of people freed up to do other things, but there are no other things to be done.

By the way, I'm in favor of people working as much and as long as they want to, and are allowed to. I don't agree with rules that penalizes SS recipients if they work.

People with company pensions can draw their retirement pay and work as much as they want - for a different company. The problem is with IRS rules that penalize companies who pay retirement benefits while the retiree continues to work for them.

My objection to your original statement, that allowing retirees to work more hours would generate more tax revenue, is that it's only true if there's a shortage of labor, and a company needs more. That's not currently the case.

 
At 11/18/2010 8:55 AM, Blogger Walt G. said...

"The problem is with IRS rules that penalize companies who pay retirement benefits while the retiree continues to work for them."

That's true, but commonly worked around by the employee whose value needs to be retained hiring into a staffing company and being contracted directly by their old employer without competition for the placement. This gives the employer a way to remove unwanted/deadwood employees and still keep their best workers who can receive a buyout, a pension, and basically their old or similar job back.

This contracting work out happens every day. To many of your surprise, I am sure, I have been actively recruited by staffing agencies to do this myself. There is lots of work out there if you know where to find it and can add value to a company’s bottom line.

 
At 11/18/2010 11:36 AM, Blogger Ron H. said...

"That's true, but commonly worked around by the employee whose value needs to be retained hiring into a staffing company and being contracted directly by their old employer without competition for the placement."

That's exactly what I did when I "retired". One big advantage was that I no longer needed to attend several time wasting meetings.

"There is lots of work out there if you know where to find it and can add value to a company’s bottom line."

Add value is the key. There are some who feel companies owe them a job.

 
At 11/18/2010 11:55 AM, Blogger Junkyard_hawg1985 said...

"My objection to your original statement, that allowing retirees to work more hours would generate more tax revenue, is that it's only true if there's a shortage of labor, and a company needs more. That's not currently the case."

Ron, I would agree with your statement except for the progressive income tax. If you replace a retiree with a new worker and assume they get paid the same by the company, who pays more taxes? Let's say the company pays $50,000/yr for the position. For the retiree, his income is $50,000 plus pension plus social security. The new employee would only have the $50,000. If SS plus pension is $30,000/yr, then the new employee would be paying the tax rate in the $0-50,000 brackets. The retiree would be paying the tax rate in the $30,000-80,000 bracket.

 
At 11/18/2010 12:01 PM, Blogger Junkyard_hawg1985 said...

Walt,

I have actually used the work around you describe to bring a retiree with a needed skill back for one week of work. The bureacracy was stifling. There was a huge amount of work that was required that was non-value adding (i.e. 19 page application, drug test, background check, etc.). When he was an employee a couple of months ago, all of this was not required. If I could have brought him back as a company employee, all of this would not have been required.

 
At 11/18/2010 1:46 PM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 11/18/2010 1:47 PM, Blogger sethstorm said...


That's true, but commonly worked around by the employee whose value needs to be retained hiring into a staffing company and being contracted directly by their old employer without competition for the placement. This gives the employer a way to remove unwanted/deadwood employees and still keep their best workers who can receive a buyout, a pension, and basically their old or similar job back.

Too easy to screw up, in the favor the employer. Not that there aren't honest ways of doing it, just that honesty isn't profitable for the employer.


But then folks like morganovich would demonize people who support the idea of contractors being on par with a full-time human being. Same with the ASA and their many documents in support of the employer, not the person being contracted.

 
At 11/18/2010 1:48 PM, Blogger Walt G. said...

Junkyard_hawg1985,

The staffing agency takes care of the paperwork/hassles in the cases I am aware of. The employer simply calls the agency and says send me "Joe" for 12 weeks, and they keep renewing the contract as necessary and beneficial to both sides. Sometimes Joe is still needed, and sometimes Joe decides he wants to winter in Florida instead of renewing his contract.

Most indictors point toward shopping skill-sets around that adds value as the future employment method whether we like it or not. Those who can do that will win, and those can't, will lose. New world. New rules. It's your choice to make the good decisions that will make you almost instantly hirable.

I just landed developing and teaching an online American government class by self-packaging educational credentials, Web and software knowledge, and teaching experience. If I can do it, anyone can.

 
At 11/18/2010 1:54 PM, Blogger sethstorm said...


Add value is the key. There are some who feel companies owe them a job.

The problem is when businesses have a major disconnect with people looking for work. Then they try to increase it by adding middlemen between them and the person who does the actual work(when the usual thing for a business is to *get rid of* middlemen!). It's fine for them to be out of touch with all those contractors and staffing agencies, yet they make complaints when someone points it out?

Either you tap what value they do have (save your snark, it's more than what you think) or they're going to be taking from you the rest of their life through welfare.

 
At 11/18/2010 2:11 PM, Blogger Walt G. said...

Sethstorm,

I think you will find many companies increasingly deciding to contract out non-core work, which will include HR/staffing. I can see where you are coming from, and I have been there myself with great results; however, I just don't see the employee/employer adversarial method working today or in the foreseeable future. That ship has already sailed.

 
At 11/18/2010 10:34 PM, Blogger sethstorm said...


however, I just don't see the employee/employer adversarial method working today or in the foreseeable future.

Not sure if you worded it right, but I understand the general direction you want to go.

Contracting out HR/staffing would make it worse. Not only are they disconnected from the company, the company itself is given the ability to put up with a whole lot more incompetence.

What I do not support is a model based on Japan or Europe where you're more or less a second-class citizen at best. That kind of model makes things more adversarial due to the ability to more easily dump the temporary workers.


The employer simply calls the agency and says send me "Joe" for 12 weeks, and they keep renewing the contract as necessary and beneficial to both sides

The problem is that Joe is likely to be the least able to negotiate of all the people involved. Willingness is more likely to be only there by technicality, not by a desire by Joe.

Reading the ASA's own site has confirmed that, as they're only putting a PR show for Joe, but show all this legal defense for the client and the staffing agencies.

 
At 11/19/2010 2:35 AM, Blogger Ron H. said...

Junkyard, you are correct about the progressive income tax, but do you really believe the difference in tax revenue would be significant based only on this higher rate for a relatively small number of retirees who would continue working if the current restrictions didn't exist?

I would like to see such restrictions eliminated on principle, but I don't believe I would offer that as a solution for increasing tax revenue in any meaningful way.

 
At 11/19/2010 7:19 AM, Blogger Walt G. said...

sethstorm,

I think you and I are having the same discussion about the world labor market that I have with morganovich and Ron H. about the U.S. political process. The world labor market (and you can't separate it from the U.S. labor market anymore) and the U.S. political process are both huge, messy, dirty processes that tend to have a mind of their own and not change just because we wish they would. And they are unfair and probably unethical and immoral, too. But they are what they are, and what we have to work with.

It is a laudable goal to try to make the world better a better place to be, and I really hope that is the direction it goes, but I guess you can either learn to work with the current situation or be left behind in the dust in the meantime. You will have to figure out a way to make your own “fairness” if you want to existentially thrive in the 21st century.

 
At 11/19/2010 9:58 AM, Blogger Junkyard_hawg1985 said...

Ron,

I think the key focus on improving the economy is wealth creation, not jobs. While most Americans say it's all about jobs, how many would keep working at their job if Bill Gates gave them a billion dollars? I suspect at this point, they would be far less concerned about jobs.

The key to wealth creation is what we produce. When we have systems in place (SS & pension rules, C4C, having farm land idle) that discourage production, these are bad things because they reduce wealth creation. I very much believe that if we eliminate the retirement rules, we would be much wealthier and pay far more in taxes and the number would be significant. In addition to the higher tax revenues for the "working retired", I think that many of the young who did not replace a retiree would create wealth as well. Many of these would start new businesses or other work which would also create wealth and pay taxes. Think about the late 1990's when we kicked people off welfare. We didn't have massive unemployment. The persistently high unemployment has come when we did away with the 1990's era welfare rules and extended unemployment benefits.

To give another Milton Friedman example, when visiting a third world country, he was shown a canal project where the people were using shovels to move the earth. He asked why they didn't use heavy machinery for this work and was told that "this is a jobs project." He replied, "in that case, why don't you give them spoons." It is about wealth, not jobs.

 
At 11/19/2010 12:39 PM, Blogger Ron H. said...

"Too easy to screw up, in the favor the employer. Not that there aren't honest ways of doing it, just that honesty isn't profitable for the employer."

Seth,

As a contract worker you show up for work for a certain number of hours or days or whatevers, and you will get paid a certain amount of money. If you don't, you won't. What could be simpler or fairer than that?

Ask your mother about this. I'll bet she has an arrangement like this with her gardener. He mows the lawn & tidies up the yard once a week & she pays him some agreed on amount of money. They are probably both happy about this.

 

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