Thursday, August 18, 2011
More media incompetence
First, let's look at the title: "Why Warren Buffet is wrong".
Does the article actually show that Warren Buffet is "wrong"? No. It shows that a libertarian doesn't want rich people to pay taxes, and will repeat libertarian talking points because if something is repeated often enough, the Very Serious People will think it's a Very Serious Point and that it Deserves Consideration.
But let's not quibble; let's dig in.
The first problem with Buffett's view is that the number of super-rich is too small for higher rates to make much difference to our budget problems.
"The first problem with Buffet's view is that, while his ideas will help, they won't magically make all problems go away!" Yeah. Not very impressive. No one claimed that if the rich pay a tad bit more in taxes, the world would turn to Magical Rainbow Land with Cotton Candy Clouds and cute baby kittens and puppies that poop gold.
No, Buffet's point was that we have a political party that's whining that it's horrible and unfair to make the rich pay even a penny more in higher tax rates, and that's stupid. The rich have done quite well, and have received massive benefits from a strong government that protects their interests, and helps them do business, and therefore, it's perfectly justified to ask them to pay a bit more in taxes.
We then see the naked assertion that if we were to place, say, a 10% surcharge on the income of the very rich, "...the super-rich will avoid or evade much of the surcharge, significantly lowering its yield."
This is an interesting idea to consider. There was a time when the top marginal rate was 70%. You know what a lot of well-to-do business owners did? They started generous pension funds. These funds would tend to have more than 30% of the benefits going to the business owner, who was typically older (and hence, closer to retirement), and, obviously paid more.
Note that at a 70% tax rate, giving one's self more than 30% of the pension contributions means a net benefit to the employer, since taking the money home would mean a 70% tax hit.
Another thing business owners did was make charitable contributions - maybe they supported the local little-league team if they had a few bucks, or maybe they supported the local opera company if they had more.
Not every tax avoidance scheme is a bad thing - many are good!
Let's look at the next point:
Focusing on the super-rich also fosters a counterproductive attitude toward material success. The way to promote a hard-working, entrepreneurial and innovative society is to celebrate great wealth so long as it has been earned by legitimate means. When this is not the case, policy should target the wrongdoing directly, not demonize everyone who hits it big.
Get this: if you think a person making a million bucks a year should pay, I dunno, 5, 10, 15% more in taxes on the money over that first million, you're DEMONIZING SUCCESS!!!! You horrible, awful person!
Or, maybe you're just saying that hey, the wealthy make their money in large part because of the country we live in, so maybe they should help support that country.
Look: when Apple and Google and Microsoft and who-knows-who-else get into a big patent fight, there are possibly billions of dollars at stake. Well, we have courts just sitting there, willing to give them a clean, final judgment on who is right and who is wrong. That judgment is worth a lot more to them than it is to some working class person making $30,000 a year. So, why not let the millionaires and billionaires pay a bit more towards the government that keeps that court system up and running for them? And, of course, the courts are just one example of the many places where the wealthy get proportionally more benefit than the less-wealthy.
The fact of the matter is, a good, strong government is what makes the wealthy able to become wealthy; asking for a few extra pennies on the dollar in taxes in return for those proportionally higher benefits is only fair.
At this point, the article meanders into nonsense.
Excessive licensing requirements, permitting fees, restrictive examinations and other barriers to entry into medicine, law, plumbing, hair styling and many other professions are bad for economic productivity because they artificially restrict the supply of these services. And these barriers redistribute income perversely by raising incomes for those protected and raising prices for everyone.
When did Warren Buffet say "Oh, yeah, and licensing requirements! Permitting fees! They should all be raised, too!"? He didn't? Okay.
See, I told you - libertarian talking points. And not even very sensible ones, given the discussion topic.
Finally, we come to this:
Buffet asserts that taxing capital income has never deterred anyone from investing. Well, then he has never discussed the issue with me or many of my friends.
Folks, Buffet is an investor, and a wise one. Now, it's true that tax rates on capital income can create distortions. If inflation is 3%, and taxes on interest income is 50%, then anything less than 6% earned interest is wasting your money - interest rates will have to start at about 10% to attract investors. (50% taxes on 10% interest gives you 5% interest - 2 points above inflation, which is generally the lowest interest that will be, well, "interesting".)
So, yes, tax policy needs to be set carefully. If you tax capital income in a foolish manner, you will distort what investments are sensible.
But people with money to invest will find a way to invest it. That's the wonder of the free market. We don't need to give them a free ride; we just need to make sure the taxes aren't so high as to discourage investment.
Are they so high they discourage investment? Well, remember the big crash in 2008? That was caused by wild levels of over-investment. Can I prove that our tax policy caused companies to leverage themselves 40-to-1, and caused them to be so greedy, so dishonest, and so stupid, as to bring us to the brink of a worse collapse? No. But let's not pretend that "investment" is a purely good thing, either. Distorted investment was at the base of a financial collapse that caused a huge amount of grief, and could have caused a lot more.
No... let's not pretend that the wealthy need a free ride, or that they shouldn't support the system that makes them wealthy, or that we have to leave them free to invest wildly, possibly causing another big bubble to pop. Let's instead consider sensible tax policies, which will, of course, include sensibly higher tax rates on the wealthiest among us.
Monday, August 15, 2011
Econ and trade, Part II
There's another side to this, as well. What is the great benefit of free trade? Well, more goods and services are now available, for everyone, for less money. (Technically, for fewer resources - but let's pretend that resources and money are exchangeable.)
Well, if there's less money being paid for goods and services, that means there's less being earned for goods and services. It's great for the well-off, who get more stuff more cheaply, but it's bad for those who just lost their job because someone in another country can do the same job cheaper.
Over the long term, economic growth is likely to turn things around, of course. But in the short term, opening up new trade often means a lot of people will get hurt.
In a nation with a strong social safety net, this is not a problem. Some people lose their jobs, and have to find something else - but with a good safety net, the impact to their lives is minimized.
In the US... well, there isn't a very good safety net, is there? And it's been slowly shredding for many years. The Republicans want to throw it away. And the Democrats, well, the Democrats want to maintain it for the poorest of the poor, and throw it away for everyone else.
And its ridiculous. It's a poor economic decision, for one thing. Look, if the safety net is too good, sure, people will live off the dole without looking for work. But we are so far away from that situation that it's hard to imagine at this point! What you want - what a society needs - is a safety net.
Not, as Clinton stupidly said, "a hand up instead of a hand-out." A safety net. Something to make sure that, when you fall, you're caught; nothing horrible happens.
It's a perfectly fair trade for free trade; boost free trade, but also boost the safety net. This way, you benefit everyone. There are more goods and services for everyone, and those whose jobs are lost have a much easier time moving to the next job... and, they can keep spending a bit while looking for work, which helps the economy to grow.
But of course, in this country, fairness isn't a virtue any more, is it? Free trade, to make the rich richer, and the safety net gets cut. Because, you know, "booga booga, deficit gonna kill you in your sleep!"
Saturday, August 06, 2011
There are two big entitlement programs: Social Security, and Medicare.
Social Security is paid for through around 2037. And, the Social Security payroll tax used to affect 90% of all salaries, now it's only affecting about 84%; before we talk about cutting benefits, we should first bump up the maximum until it's taxing closer to 90% of salaries again, and see what that gets us.
Then, there's Medicare.
Here's the problem with Medicare: we pay far too much money for health care in this country.
I've seen figures that show that the US government spends more per capita on health care than other nations do, including nations that have single-payer health care.
Let's go over that again: the US government pays more, per citizen, for Medicare, Medicaid, VA, and other health care programs, than, say, Canada pays per citizen to completely insure all of its citizens.
If this were Canada, we could provide health care for everyone, based just upon what we currently spend on Medicare, Medicaid, VA, and so forth. All of the money spent on private health insurance could be spent on other things.
If you're like me, part of you is thinking that's impossible. Well, remember: the US spends about twice, per capita, what other nations spend. If half of that spending comes from the government - and it does, near enough - then what I've just said is true. We should be able to cover just about everyone, just with our government expenditures. Throw in a boatload of extra cash, if you want; imagine cutting all private health care costs in half, so there's rivers of extra money to allow hungry capitalists to find a bit to feast on. We should still be able to cover everyone, for much less than we're spending to cover about 80%.
Every other advanced nation does this... but we don't.
Do we need to reform the "entitlement" known as Medicare? No. We need to reform how health care is paid for. Once we're paying rational amounts for health care, we can figure out what our true Medicare liabilities are going to be like.