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October 26, 2008

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Come here for a minute children. I have a lesson for you.

This answer //My answer was, I thought, a polite way of communicating that it was in fact your question that lacked specificity. Apparently I was too subtle.// is the answer of a consultant who has been stung more than once by the dissatisfaction of a client. It is what he mutters to himself as he stomps back to his cubicle after his boss explains why he once again is being passed over for advancement. If only he wasn't given the imbecilic clients to work with he'd be king.

You can go back to your play now.

So, it is not helpful for me to offer a real world example as I have done. And it is not helpful for me to eschew real world examples and offer a clean sheet of paper. Do I understand you correctly?

No, you don't understand me correctly. If you want to analyze an economic proposal, which is what you are at least pretending to do, then you need to offer an economic argument that considers all, or at least a reasonable number, of the relevant economic factors and projected results. I cannot believe that this is a difficult concept to grasp but you have somehow managed to continue this conversation for days now without grasping or even acknowledging it. Indeed your initial argument was a very poorly constructed effort to suggest that you had some understanding of the larger consequences of Obama's tax plan that you intended to communicate to us. If you believe that you can make such an argument without actually grappling with the complex and shifting parameters of the larger economy than you should resolve yourself to the fact that your arguments will not be be very persuasive with anyone who a) isn't stupid and/or b) doesn't already agree with you.

Whoosh....was that opportunity passing us by?

Well the opportunity missed in this conversation is the chance you have repeatedly passed on to offer a coherent argument for what the deleterious results of Obama's proposals would be in a macroeconomic sense. As far as I can tell, your only reasonable statement in that regard was your admission that you actually have no idea of what the net result might be ("I shrug").

Focus on the expenditure side of things.

Well that's quite a bold and very specific proposal. Indeed, I cannot imagine a consultant proposing something so detailed. I wonder why no one ever thought of that?

is the answer of a consultant who has been stung more than once by the dissatisfaction of a client.

I have no idea if that is how a consultant reacts to the sort of stinging you are talking about since I don't consult for a living and, to my knowledge, I have never had a dissatisfied client. I will take your word for it.

What I do know is that it is also the answer that someone gives when they are faced with a vague question and they are giving the most specific reasonable response to that question. I also know that attempts to turn disagreements into discussions of amateur psychology is typically done by people who don't think they can make a reasonable argument on the merits.

You can go back to your play now.

I hate to be the one to break it to you, frank, but you're here in the sandbox, too.

Thanks -

The economy did just fine in the 90's with a top marginal rate of 39.6%. I don't see what's magic about Bush's number of 36%. Frank's argument doesn't address those particular numbers. He's just offering a generic argument for lower taxes. If Bush cut the top marginal rate to 30% and Obama wanted to raise it back to 36%, he'd be saying the same thing about how he can't expand his idiosyncratic real estate business.

Brent: If one is not an imbecile, then the first question they ask before they write down anything is: what does this tax policy need to fund? How much revenue does it need to generate and from what potential tax base?

I would offer one quibble to the above, Brent. No matter how small we make the government budget, no matter how few programs we decide to fund, no matter how little revenue we need to raise, the question of how to divvy up the "tax burden" is still a live one. Note that if we have a perfectly "fair" set of tax rates, and then choose to reduce revenue by 20%, then to 1st order we can simply reduce every rate by a fifth. Tax fairness is a relative thing, overall revenue an absolute thing, more or less.

Frank:
First a quickie, re your second comment: you got it. I was essentially asking for your definition of "flat". It seems that who pays figures in your definition. That's cool. I would sign up for a perfectly flat rate on all income, no exemptions. But not unless we explicitly made straight government subsidies to below-median-income people an "entitlement".

To your main comment:
In a world more ideal than our own, the average person's pre-mortem estate would follow a trajectory as a function of age. Roughly speaking, the average person's pre-mortem estate (okay, "net worth") would peak at roughly retirement age. In my modest proposal the PET formula would nudge things toward that trajectory.

Some people will of course spend their entire lives above the average person's net-worth trajectory; some under it. Those above would pay more PET than those below.

I harp on the "average person" because, just as a mathematical relation, the overall economy's aggregate production, consumption, and wealth creation is, per-capita, the "average" person's. It takes consumption, as well as production, to make an economy. The average person can not consume more than he produces, over his lifetime. But neither can the average person produce much more than he consumes over a lifetime, unless our goal is to be the underpaid slaves of our posterity. Wealth is created by investing the difference between production and consumption -- but the ultimate purpose of investment is future consumption. It's not a good idea to eat your seed corn, but accumulating an ever-growing pile of seed that you never plan to consume is hardly the recipe for a comfortable life, either -- for the "average" person, which is to say for "the economy".

It being dinnertime, I feel the need to undertake some personal consumption right now, but I will try to get back to your "risk" point later.

--TP

No matter how small we make the government budget, no matter how few programs we decide to fund, no matter how little revenue we need to raise, the question of how to divvy up the "tax burden" is still a live one.

Sure. But what I would say - the point I was trying to make - is that there isn't anything inherently unfair about a lot of different tax systems. It seems to me that fairness is a bit beside the point. What you want is to fund the society in way that responds to the basic needs that are democratically decided that also does not put too much of a burden on the people who can afford it the least and that also allows the widest potential for economic opportunity. There is, for instance, nothing wrong, in my opinion, with a flat tax as long as the society is structured in such a way that everyone has basically equal access to resources and opportunity. It is not inconceivable that one could design a society that looks like that. It is inconceivable that such a tax could fund our own needs here in modern day America.

Moreover, my further point is that deciding just how progressive a progressive tax should be is really a function of what the society needs to pay for. If we want, as a democratic society, to have the kind of budget we have then the only reasonable way to do that is to raise the marginal rate a bit more for the people who can most afford it. If we are willing to shed major costs then there is no problem, from a perspective of fairness, if we want to lower that top marginal rate significantly. No matter what, the only thing we really care about is not how fair the code is in some abstract sense but what is the fairest way to raise a certain amount of money from a certain group of people. The less money we agree as a society that we need to raise, the less complicated or even meaningful that question of "fairness" really is.

Other businesses are the same. Banks do not loan 100%.

I suspect you guys live in a world of book learning rather than of experience.

Frank,

You got angry when people questioned your bona fides. My turn. Yes, I actually have small business experience - a lot of it - including both successes and failures. (I also have some "book learning" - hope that's OK). That's number one.

Number two is that I did not suggest that you could borrow 100%, merely that borrowing is a way to help with cash flow mismatches, and there is more flexibility in financing than you seem willing to admit. This is especially so if your existing projects are as conservatively financed as you say.

Number three is that, as others have mentioned, it is a mistake to generalize your company into the entire economy. This woud be true in any case, but is especially so since yours is an unusual situation. Not many single proprietorships generate the kinds of profits you're talking about, or operate in quite the same way financially.

Number three is that, as others have said,

TSW
The essence of my argument was NOT lower taxes.

It was that we should not raise income taxes on one class (the 5%) in order to write checks to another class (40 million who pay no income tax now).

I would be more comfortable with raising taxes on the 5% and on no one else IF the money was to be used to decrease the deficit or some such thing.

The Obama proposal is a NEW and expensive social program (giving money to 40 million taxpayers who pay no income tax) cloaked as a tax program.

Don't bother telling me how other taxes are regressive so this just makes up for it. It is a spending program. If the other taxes are regressive then change them.

Brent
I actually was very specific with my question. I said 'all'.

Which government expenditures should be considered? All.
Which citizens should be covered? All.
How much money will be required to do that? Whatever it takes to fund what you consider to be programs programs worth funding.
What is the economic base that will be taxed. All of the US tax base.

The purpose of the question is to flush out the philosophy you would follow.

Perhaps 'fair', to you, means everyone gets a basic allotment of services/tools such as free education, free medical care, a free house, a free bicycle, food rations, and a new suit of clothes every year. And maybe after that everyone pays a flat N% of income.

I personally don't think actual numbers are needed to discuss the philosophy of fair.

Tony P

You say //I would sign up for a perfectly flat rate on all income, no exemptions. But not unless we explicitly made straight government subsidies to below-median-income people an "entitlement".//

I would sign up for a perfectly flat rate on all income too with an entitlement like you propose. My entitlement would not be tied to median and it would not be tied to income. It would be an in kind provision of the minimum things to keep you alive: Free healthcare, free education, a basic food alotment (rice and beans would suffice), shoes, a coat, a blanket, basic shelter.

I don't think people should be subsidized up to the median income (how would that work anyway? Everyone would then be at the median). I think you have a right to life - so i'll give you what it takes to stay alive. But, if you don't care to raise yourself above that why should I?

I actually was very specific with my question. I said 'all'.

Which government expenditures should be considered? All.
Which citizens should be covered? All.

I would strongly disagree that that is a very specific way of framing a question but whatever. The question that you intend to ask then is more like what sort of publicly funded services do you want in your make-believe society and what is the fairest way to fund such a society. This is quite similar to how I described the central question in my response and I don't see how relevant this could possibly be to the question of how Obama or McCain plan to fund this particular society but okay, I'll play along.

What I would like to see is a level of public service a lot like what we see in much of Europe. Lets say Germany for argument's sake. They heavily subsidize things like public transportation while providing free health care and free education through the university level for those who qualify. They also offer an extensive system of low cost housing.

It is obviously quite expensive to provide such services. It is paid for through progressive tax where the top marginal rate is 45%. The second highest rate for more middle class workers is 42% and there is also a very high VAT on purchases.

People in Germany pay a lot of taxes. It is also the case that they often have a high unemployment rate. But as a general outline I would be happy to consider a system similar to Germany's and I think it is certainly a "fair" system.

In our society in the USA, also a democracy, we have made a very different set of decisions about what level of public funding we think is appropriate. I think in our society, which obviously also has a lot of characteristics that I like, raising the higher marginal rate to 39.6% and even raising the middle class rates a percentage point or two would be perfectly fair. This is because we need to pay the cost of living in this society and despite all the bluster we get from politicians and your own bold suggestion that we lower costs, there really aren't many major costs that we are willing, as a society, to lower significantly.

Frank: I would sign up for a perfectly flat rate on all income too with an entitlement like you propose.

If you think about it, Frank, we currently do have a "flat" income tax schedule. Whether you make $350K, or $3.5M, or $35M, in a given year, your income tax rate stays "flat". What we currently do is give a discount on the rate to people who make incomes like $35K per year. That's kind of like a subsidy.

As for your beans and rice comment, all I can say is that corporations had better be prepared to live on that kind of subsidy, too. Let'em buy their own SEC, USPTO, and all the other government agencies whose main function is to make sure that rich people honor the contracts they enter into with other rich people.

--TP

The Obama proposal is a NEW and expensive social program (giving money to 40 million taxpayers who pay no income tax) cloaked as a tax program.

Look, here is a pretty good side-by-side assessment of the features of Obama's and McCain's tax proposals.

Some of the changes in the tax schedule Obama proposes include making some of the credits refundable. I guess you could look at those as "transfer payments" if you like.

Other than that it's just a straight tweaking of the tax schedule to shift more of the burden to wealthier people, and less to poorer people.

It's a change to the tax code. Period.

There is nothing whatsoever new about that. Congress tweaks the tax code about every other year. The people who will benefit in this case pay plenty of tax on their income, it just goes to FICA rather than the general fund.

They pay plenty of other taxes, too, quite often at a greater rate in proportion to their resources than you do. And yes, that is the 'other taxes are regressive' argument. I raise it in spite of your objection because it's a f*cking reality. You're the guy that wants to talk about real cases, right?

And, since you mention it, Obama's plan will result in a net increase in revenue over time, while McCain's will result in a net decrease. So your point about the deficit is also covered.

Everybody in this damned nation pays taxes that turn into checks written to somebody else. Quite likely somebody else's money ends up in your pocket via the federal government, one way or another.

You make a million and half a year. You work for it, it's yours, and good on you. Mazel tov.

Other folks work damned hard, too, but they haven't done quite so well, and they need a break. They aren't freeloaders, they aren't lazy, and they aren't stupid. They just don't make as much money as you do.

You're being asked to step up to the tune of something like 5% of your income. That ain't nothing, but it's also probably not going to make a big dent in your life one way or the other.

You can be gracious about it, or you can bitch and whine. Your choice. But by my lights you really do not have much to bitch about.

Seriously, look around yourself and see what folks are up against, and tell me you're being ill used by Obama's plan.

If there's one thing I just cannot stand to hear, it's people with everything in the world to be grateful for whining like puny-assed babies.

You got no worries, dude. You've had a great ride for the last eight years, to some degree on everyone else's shoulders. Be grateful and chip in.

Thanks -

Brent

You said // What you want is to fund the society in way that responds to the basic needs that are democratically decided that also does not put too much of a burden on the people who can afford it the least and that also allows the widest potential for economic opportunity.//

The constitution was written to protect us from an overreaching government. Overreaching is exactly what it would be if EVERYTHING was democratically decided. The constitution puts limits on what can be democratically decided.

The constitution was written to protect us from an overreaching government. Overreaching is exactly what it would be if EVERYTHING was democratically decided. The constitution puts limits on what can be democratically decided.

While I am always appreciative for rudimentary lessons on what the constitution says, I honestly cannot imagine what you think this has to do with anything. Yes, much of the constitution enumerates what the government cannot do - so called "negative liberties." It, in no way, limits our right to decide, through our elected representatives, and in some states by referendum, which public services we would like our government to provide and which we do not. Are you somehow trying to suggest that there is something unconstitutional about such a process? If so, you are incorrect. If not, then exactly what "overreaching" are you trying to raise?

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