The budget battles

[kenberg]

Speaking for myself, not Jimmy, I may question the taste of a nation that makes Lady Gaga or Sarah Palin rich, but I don't really care. That is not the same as saying I have no concerns about the ways of the rich.

 

Here, in a nutshell, is my problem:

 

People bought houses they can't afford on mortgages that never should have been written. If 500K was paid for a house that is worth 300K, someone gets stuck with the 200K. The guy who bought the house has no money so he's not going to pay it. The mortgage folks have highly paid people watching out for their interests, they will not be suffering a loss. That seems to leave me holding the bag.

 

This has many variants: Mary Landrieu will make sure that no oil company makes any contribution to any of the nations problems, Charles Schumer will watch out for the New Yorkers. (These two examples courtesy of the Washington Post.)

 

I have never spent thirty seconds worrying about someone making more money, or a lot more money, than I do. Someone can blow a grand on box seats at a game if they want to, just as long as they do not stick me with the tab. I think a lot of this resentment we see is because people are getting the idea, probably pretty close to accurate, that we who do not buy what we cannot afford and do not lend money to people who cannot pay it back are going to get stuck with the losses of the idiots who do. And I guess if they get us to do such a thing, we are the idiots.

[helene_t]

Its been done in the netherlands, maximum salaried earnings including bonuses are capped at the level of the prime ministers salary. about 200000 euros. This does not include money earned from investors, so small business owners can earn much more. So can the owners of capital.

Source? This Dutch page: http://nl.wikipedia.org/wiki/Balkenendenorm says that it only applies to companies owned by the government, and that it is allowed to pay more than the PM salary, they just have to publish details about such high salaries.

[luke warm]

Okay, but seems to me you brought the matter up in the first place. Are you saying now that this disparity is not a problem for the US?

i guess it depends on how you define "problem"... you (and i) may disagree, but someone in a privately held company decided at sometime that the jobs some people did were worth X number of dollars... it is not the gov't's purview to get involved in this... it isn't the gov't's money, it belongs to private citizens, who can (or should be able to) do what they want with what is theirs

[Zelandakh]

Income disparity seems to be a very minor issue to most people.

 

This might be true at face value. However there is a very strong correlation between "happiness" in a society and the difference in standard of living between the wealthiest and least wealthiest in that society.

 

That said, I do not agree in a pay cap for senior executives. If nothing else such individuals are in such high demand that they will simply go elsewhere if necessary with a potential "brain-drain" to follow. The income disparity in the US probably reflects the success of companies there in attracting the best managers rather than a fundamental breakdown of society, naturally in combination with America being a highly competitive market and thus there being internal competition as well as international competition.

[kenberg]

I don't see why anyone's pay should be artificially capped. However, given the remarkable good fortune of CEOs who get large sums of money for running a company into the ground, a person does not have to be a raving paranoid to suspect the game is rigged. We all have a stake in having our major corporations be successful, and a little checking into whether shareholders are getting the options, information and the control that they rightfully should have might improve matters all around.

[PassedOut]

I don't see why anyone's pay should be artificially capped. However, given the remarkable good fortune of CEOs who get large sums of money for running a company into the ground, a person does not have to be a raving paranoid to suspect the game is rigged.

Capping pay seems both wrong and impractical to me. But, after looking at these charts, it seems to me that a more progressive tax structure won't hurt the high earners at all, and the US needs the money to pay down the debt racked up since the Bush tax cuts.

 

In fact, the surcharge proposed by Reid and Schumer won't affect me at all (by a long shot), nor will it affect many more of us who can afford to help pay down the debt. Better to combine that surcharge with the expiration of the irresponsible Bush tax cuts so we can chop down the US debt at a faster clip.

[PassedOut]

it isn't the gov't's money, it belongs to private citizens, who can (or should be able to) do what they want with what is theirs

In the face of the huge US debt, that's like the person who has racked up huge credit card bills saying, "It's not the bank's money, it belongs to me and I should be able to do what I want with it."

[Zelandakh]

and the US needs the money to pay down the debt racked up since the Bush tax cuts.

 

Talking of the Bush tax cuts, has anyone in the US considered taking the Ukrainian route and locking him away for 7 years for "Misuse of Public Resources"? Surely if spending cash to provide your people with gas when they are freezing through a Russian winter is misuse then giving it away to those who do not need extras (other than perhaps to donate back to political organisations) has got to be worth at least as long! :D ;)

[PassedOut]

Talking of the Bush tax cuts, has anyone in the US considered taking the Ukrainian route and locking him away for 7 years for "Misuse of Public Resources"? Surely if spending cash to provide your people with gas when they are freezing through a Russian winter is misuse then giving it away to those who do not need extras (other than perhaps to donate back to political organisations) has got to be worth at least as long! :D ;)

Well Bush didn't do it alone; he got congress (including a number of democrats) to go along with it.

[mike777]

Talking of the Bush tax cuts, has anyone in the US considered taking the Ukrainian route and locking him away for 7 years for "Misuse of Public Resources"? Surely if spending cash to provide your people with gas when they are freezing through a Russian winter is misuse then giving it away to those who do not need extras (other than perhaps to donate back to political organisations) has got to be worth at least as long! :D ;)

 

 

 

Interesting idea, if you give tax cuts to rich people you should be sent to jail.

 

Perhaps we can extend this idea to if you dont increase taxes on rich people you get sent to jail.

[blackshoe]

Personally, I think anyone who runs for or is currently in political office should be sent to jail.

[luke warm]

Talking of the Bush tax cuts, has anyone in the US considered taking the Ukrainian route and locking him away for 7 years for "Misuse of Public Resources"?

and what about those in congress who voted to do it? and those who voted to extend them (with support from obama)?

 

In the face of the huge US debt, that's like the person who has racked up huge credit card bills saying, "It's not the bank's money, it belongs to me and I should be able to do what I want with it."

mknot

 

Well Bush didn't do it alone; he got congress (including a number of democrats) to go along with it.

and, if i remember correctly, an extension agreed to by obama

 

Personally, I think anyone who runs for or is currently in political office should be sent to jail.

what about just having them live by the same laws as everyone else? i don't mean most laws they pass, i mean *all* laws they pass

[PassedOut]

The US transportation system is crumbling around us and lots of people who could and should be working on fixing it do not have jobs. The Post has an article describing the magnitude of the problem: ‘Gargantuan large’ investment in infrastructure needed, experts say

 

The American Society of Civil Engineers has estimated that an investment of $1.7 trillion is needed between now and 2020 to rebuild roads, bridges, water lines, sewage systems and dams that are reaching the ends of their planned life cycles. The Urban Institute puts the price tag at $2 trillion.

 

Last year, a report by 80 experts led by former transportation secretaries Norman Y. Mineta and Samuel K. Skinner called for an annual investment of $262 billion.

 

Fail to invest now, and the cost will increase later. Already, the civil engineers said, infrastructure deficiencies add $97 billion a year to the cost of operating vehicles and result in travel delays that cost $32 billion.

Failing to raise taxes for essential infrastucture improvements is foolish.

[blackshoe]

Failing to make the improvements is foolish. Taxes aren't the only way of funding things.

[y66]

From Occupy DC

 

http://occupydc.org/wp-content/uploads/2011/10/photo-4-e1318540029839-150x150.jpg

 

Second that.

[mike777]

In 2004,

federal, state, and local governments in the

United States spent $312 billion on just water

and transportation infrastructure, according to

the Congressional Budget Office.

 

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

 

In fiscal year 2007—the most recent year for which data on combined spending by the federal government and by state and local governments are available—total public spending for transportation and water infrastructure was $356 billion, or 2.4 percent of the nation’s economic output as measured by its gross domestic product. For the purposes of this study, transportation and water infrastructure encompasses infrastructure for all forms of surface transportation (highways, mass transit, rail, and waterways), aviation, water resources (such as dams and levees), and water distribution and wastewater treatment.

[Winstonm]

Failing to make the improvements is foolish. Taxes aren't the only way of funding things.

 

I second the vote for slave labor if that is the case. If not, I second the vote for a repetition of Smoot-Hawley tariff increases because I am sure we are way overdue for a cleansing 1930s style depression.

 

And finally, I also support the idea of pillaging and looting the countries we invade - what good is being a superpower if there is no profit in it?

[blackshoe]

If we're already spending 300+ billion a year on these infrastructure improvements, then neither increasing taxes nor any of your suggested funding sources is necessary, is it, Winston?

[awm]

I have a question about Cain's 9-9-9 thing.

 

While I've never owned a business, it seems to me that there must be a lot of businesses which bring in large amounts of revenue, but also have large expenses such that their overall profits are relatively small. For example, it seems like this must apply to virtually every store or restaurant; it wouldn't surprise me if they bring in millions per year, but after paying to stock their wares, paying employees, paying electricity and rent on a building, etc. they are probably not clearing much.

 

The thing is, while current tax rates are a lot higher than Cain's 9%, that tax is on the profits. So a business that has huge revenues and huge expenses and makes only a small profit won't pay a whole lot of tax. However, Cain wants a 9% national sales tax. This would increase most (perhaps not all) business expenses by 9%. But for one of these businesses with huge revenues but also huge expenses, that 9% tax on the expenses could easily exceed their entire profits.

 

Am I missing something here?

[helene_t]

Am I missing something here?

Dunno how this particular tax is supposed to work, but VAT is (the name says it already) a tax on added value. I.e. wages and interests are not deductible but most other expenses are.

 

Even so, VAT (or this new sales tax or w/e) may be bigger than the profits. But stores add the VAT to the prices so in the end it is a tax on consumption.

[PassedOut]

If we're already spending 300+ billion a year on these infrastructure improvements, then neither increasing taxes nor any of your suggested funding sources is necessary, is it, Winston?

I suspect you are kidding, but just in case...

 

Indeed, a lot of money is spent by states, counties, and local governments to patch bridges, fix potholes, repave roads, dredge shipping lanes, and so on. But returning to a 1940s style transportation system in the US will definitely hurt business and will speed the decline of the US compared with other countries.

 

Gargantuan large investment in infrastructure needed:

 

The American Society of Civil Engineers has estimated that an investment of $1.7 trillion is needed between now and 2020 to rebuild roads, bridges, water lines, sewage systems and dams that are reaching the ends of their planned life cycles. The Urban Institute puts the price tag at $2 trillion.

The longer we delay, the more costly the replacements will be. The US needs to invest $262 billion per year to do the work.

 

As Congress grapples with taming a massive deficit, just keeping transportation funding at current levels has been heralded as a triumph. Though neither house has made public a written proposal, the House has talked of allocating roughly $45 billion a year, while the Senate number is about $54 billion.

The US has work that needs doing and lots of people who need work. It's foolish not to raise taxes to get it done.

[phil_20686]

I have a question about Cain's 9-9-9 thing.

 

While I've never owned a business, it seems to me that there must be a lot of businesses which bring in large amounts of revenue, but also have large expenses such that their overall profits are relatively small. For example, it seems like this must apply to virtually every store or restaurant; it wouldn't surprise me if they bring in millions per year, but after paying to stock their wares, paying employees, paying electricity and rent on a building, etc. they are probably not clearing much.

 

The thing is, while current tax rates are a lot higher than Cain's 9%, that tax is on the profits. So a business that has huge revenues and huge expenses and makes only a small profit won't pay a whole lot of tax. However, Cain wants a 9% national sales tax. This would increase most (perhaps not all) business expenses by 9%. But for one of these businesses with huge revenues but also huge expenses, that 9% tax on the expenses could easily exceed their entire profits.

 

Am I missing something here?

 

No. You are not. High volume low profit businesses like, low level electronics or Utilities will be particularly hard hit. Restaurants will actually be ok as they actually have pretty good margins per Item, although the higher wage taxes will be a problem.

 

The most interesting thing is to look at what is the tax incidence for hermans plan. Obviously the income taxes are paid by the workers for most jobs (anywhere talent is not in high demand, which currently describes most jobs).

 

A revenue tax, like a sales tax, is paid for primarily by the consumers. Thus those who spend all their income will pay 9% on everything in a sales tax. Those who save will pay a 9% tax only on what they spend. Thus it is regressive.

 

The final 9%, the transaction tax, will, for most businesses, amount to a payroll tax. Again this is basically a tax on employees, as most businesses expenditure is dominated by staff. For those that aren't it is actually worse. Anytime you buy something along a supply chain you will effectively add an 18% cost - as the seller hikes their prices to cover the revenue tax, and the buyer pays 9% transaction tax. Without an exemption, this will compound, suppose I buy a car, it contains screws, which were made from iron, so now there is an 18% tax on the value of iron at every stage of the supply chain.

 

Large changes in the tax system like this can have large an undesirable effects. Here I predict that one effect would be that companies would start to buy out their suppliers to avoid the tax, which would lead to more economic inefficiency. Current wisdom (common sense) tells us that one should set up the tax system to encourage outsourcing production. This is because that puts the part of your company that makes screws in direct competition with other companies which make screws. Tax incentives here would mean that screws could be 10% more expensive than an external supplier, but it would still be more profitable to use them as there is an effective 18% tax on screws bought in. Since its clearly worse for the country as a whole if people are using more expensive screws (that are functionally identical save for the price) this type of a tax plan is a salient example of why its hard to have good taxes.

 

This tax regime would heap the burden upon the poor, notice that none of these taxes are paid primarily by the owners of capital. (Although taxes on employees and revenue/sales can be transferred onto the owner if the price cannot rise due to competition abroad - however, if this is the case it most likey just results in production being moved abroad).

 

More sensible policy for the US would include a VAT tax[1]. A rise in income tax for high earners, and a large estate tax with a very high bar. [2]

 

[1] The primary difference between a Value Added Tax and a sales tax is that VAT is reclaimed by a buisness on parts it buys in. If I make a car and I buy screws I can reclaim the tax I paid on the screws, but then I have to pay it on the item I sold, and the difference is the "value added" to the product, which is what the buisness pays tax on net. The avoids the compounding problem of a buisness transaction tax. A sales tax is paid only at the end point. These are differences about how the tax is spread along the supply tax. The VAT seems like the most efficient to me, as often much of the end product might be sold abroad and is effectively tax free. The names of the taxes are often used misleadingly, but I think this is how an economist would use these terms.

 

[2] I generally think that estate taxes are a very bad Idea, but there is a definite social cost of creating a class of people that are so rich that they are unlikely to have to work for the next eight or nine generations. If you set it at 50% above $20 million or something like that you would increase the social equality a lot in the long term, without discouraging prudent behavior in anyone who could be called middle class.

[PassedOut]

As I understand it, Cain proposes his 9-9-9 plan only as a short interim step on the way to replacing the whole federal tax system with the Fair Tax promoted by his fellow Atlanta talk-show host, Neal Boortz, and others.

[phil_20686]

I suspect you are kidding, but just in case...

 

Indeed, a lot of money is spent by states, counties, and local governments to patch bridges, fix potholes, repave roads, dredge shipping lanes, and so on. But returning to a 1940s style transportation system in the US will definitely hurt business and will speed the decline of the US compared with other countries.

 

The US has work that needs doing and lots of people who need work. It's foolish not to raise taxes to get it done.

 

I think that people do not appreciate the total cost of transport in an economy. Most houses spend something close to 20% of their income on transport. Overall its something like 10% of GDP (although estimates vary), and the worst bit about transport is that it is a dead weight loss to the economy. Always, and with no exceptions, cheaper transport is better.

 

If investment in better transport saved 2% of gdp per year, that would save the economy 300bn a year or so.

 

I suspect that building an efficient rail network that moved more people onto trains rather than planes would do really quite a lot better than that. It would also spread the prosperity of urban centres into the surrounding landscape a bit more. I am a huge fan of high speed rail as an economic investment. Every time someone uses a train instead of a car your economy has saved quite a bit :), and that gap will only increase with rising oil prices. As a country with plenty of cheap land the USA is ideally suited to high speed rail networks.

[PassedOut]

I am a huge fan of high speed rail as an economic investment. Every time someone uses a train instead of a car your economy has saved quite a bit :), and that gap will only increase with rising oil prices. As a country with plenty of cheap land the USA is ideally suited to high speed rail networks.

I would very much like to see the US move strongly in that direction.