Friday, December 30, 2011

Land of Opportunity vs. Land of Entitlement

Much has been written about income inequality in American and how it’s hurting our country.  We’ve heard all the examples where the CEO makes 800 times more than their minimum wage employees.  Despite the inappropriate use of two extremes to form an opinion, it’s hammered home, time and time again, as an illustration of income inequality in America.  Yet, despite the constant concern and identification of this inequality, the body politic doesn’t seem to have ideas on how to fix it, at least none that they are willing to say publicly.  
The populist cry of “tax the rich” seems to be the leader in the clubhouse, but we never hear exactly how that would work in practice.  How much can we actually raise from the “rich”?  How will the extra taxes be spent?  What will be the consequences of higher taxation on economic growth?  (Hint: it’s not good)  Will the tax revenues be used to provide more assistance to the poor?  Will it be used to pay our government workers more, even though they are already better paid than their peers in the private sector?  Will it get funneled back to government friendly unions and corporations like Solyndra?   
How exactly will higher taxes solve the income inequality problem? 
It won’t.

Politicians who are unable to conjure up relevant or rational solutions to the huge problems we face today are left trying to save their own jobs by scoring easy political points with populist “tax the rich” rhetoric.  Could the rich pay more in tax?  Sure, but it’s folly to suggest “tax the rich” is the golden ticket out of our mess.

If redistribution of wealth, via the all-knowing government, is the way to go, when do we stop?  What’s the right amount of income gap?  What's the right amount of taxation?  How do we know who doesn’t make enough, and who makes too much? 
How do we compensate different levels of knowledge, effort and experience required to fill one job vs. another?  What's the right amount of reward for indifference and ineptitude and what’s the right penalty for success and hard work? 

For example, where should Government, in its infinite wisdom, set the income gap between the following two Americans:
·         An individual who couldn’t be bothered to show up for or finish high school, spends $2,000 a year on cigarettes, gets hammered three times a week and stumbles between different minimum wage jobs because they are either too hungover or too lazy to report to work on time, if at all.
·         An individual who worked hard for good grades in high school, qualifying them for enrollment into a quality university, paid for with a combination of student loans, a work-study program during school, and a full time job during the summer.  After four years of good grades achieved through hard work and dedication, they get hired by a successful company where they deliver valuable results, again through hard work and dedication, including but not limited to extensive travel away from home and family, 60-80 hour work weeks, and numerous missed weekends and holidays.  After 20 years, all of that hard work culminates with a dream promotion to CEO and a salary of $1 million per year. 
Should they make the same amount of money?  Should the CEO pay for the slacker’s nicotine habit, 60” HD flat screen TV and HBO subscription through higher taxes?    
Is this an extreme example?  Of course, but our use of two extremes illustrates our point, while highlighting the absurdity of the public debate on the issue. 
It comes down to who we trust to “fix” the “problem” of income inequality.  Government or the free market?  The answer should be self evident, but the rhetoric suggests otherwise.  Government thinks it can solve this vague problem of income equality with an equally vague answer of “tax the rich.” 
For us the only solution is a robust and free economy that promotes and rewards hard work and innovation.  Only a robust private sector economy can provide full employment.   America is the Land of Opportunity where everyone, regardless of class, color or creed, can make their own success through hard work and dedication.  America is not the Land of Entitlement.     
Attempting to solve any income inequality problem by blindly taking from Peter in order to blindly provide Paul with benefits is not a sustainable model. 
Just ask Europe.

Wednesday, December 21, 2011

Putrid Payroll Tax Politics

The President and Congressional Democrats are doing an incredible job of making a mountain out of a mole hill in the debate surrounding the most recent payroll tax “cut” debate. 

The White House spin machine is at max capacity, resorting to flooding Twitter with the question of what $40 per paycheck means to everyone (i.e. the $40 extra a working family making $50,000 will see in their paycheck every other week if the tax “cut” is passed).  The sob stories came flooding in showing that it would pay for bowling with an autistic godson or co-pays on diabetes prescriptions.  Remember, the Administration is only using this rhetoric to push for a 60 day extension to a temporary tax "cut", not fundamental tax reform or any other policy of substance. 
It's a shameful political game and an incredible illustration of the desperate pandering to the electorate by the current White House.
We won’t recount the reasons why a temporary tax holiday is ineffective - John Taylor does a better job than we ever could in today’s Wall Street Journal.  It won't suprise anyone that temporary tax cuts or rebates only serve to inflate the deficit while providing little to no substantive or sustained economic benefit.  The one-time tax rebate of 2001, the temporary tax cut of 2008, the cash-for-clunkers and stimulus payments of 2009 are Exhibits A, B, C and D, respectively. 
While the debate rages on about whether there will be an extra $40 in the average family’s first 2012 paycheck, the silence has been deafening on the effects of this “cut” on future generations. 
Politicians will tell you that the “cuts” are paid for by this spending cut that will happen in 2019, or that spending cut that will happen in 2021.  These cuts will never materialize, and everyone knows it.  It’s a farce, yet it still passes for a legit way to “score” the bill as deficit “neutral.” 
We’d like to once again remind everyone what the payroll tax is meant to pay for – future Social Security and Medicare benefits.  Given the Madoffian nature of our Social Security and Medicare programs, the payroll taxes of today’s working families are used to pay the benefits promised to yesterday’s working families, regardless of how much they contributed.  Therefore, the less we put into the system today, the more we’re going to have to take from taxpayers in the future. 
Let’s assume the payroll tax gets extended another year (despite all the political grandstanding, does anyone think Congress has the intestinal fortitude to actually keep the tax cut temporary?). 
Each family now has an average of $2,000 more in their pocket instead of in their Social Security or Medicare trust fund.  Yea!  We can buy that 60” flat screen we’ve always wanted!! 
However, if you think about the long term ramifications of this tax “cut”, you might think twice about that TV. 
A $4,000 cut today (i.e. two years at $2,000 each) has a future value (using a conservative 5% growth rate) of roughly $10,000 in 20 years, $17,000 in 30 years, $28,000 in 40 years or $46,000 in 50 years time.    
Let’s make a giant leap of faith and assume that these programs are not the largest Ponzi schemes on the planet, and are run by competent actuaries who agree 6.5% is the appropriate amount of taxes required to fund future benefits.  If we reduce that 6.5% to 4.5% without reducing future benefits, it’s going to cause a shortfall in the funds available to pay those future benefits.  After a two year payroll tax holiday, the average 27-year-old working family will have paid $4,000 less into the Social Security and Medicare trust fund.  When the family retires in 40 years, that $4,000 holiday results in a $28,000 hole in the pot of money available to fund their future Social Security and Medicare benefits.
Since Social Security and Medicare are defined benefit plans, that $28,000 will need to come from somewhere. 
Our children and grandchildren.
Future generations will pay for our temporary tax holiday in the form of higher taxes. 
It’s bad enough to get stuck with a dinner bill when you go out to eat with your parents or grandparents.  How would you feel getting stuck with a $28,000 bill because your parents demanded an extra $40 in each paycheck for two years? 
Could you imagine placing that burden on your children and grandchildren?  What will you say when your children and grandchildren ask you why the $40 was so important back in 2012? 
It’s shameful.

Wednesday, December 14, 2011

Intellectually Dishonest Statements Masquerading as Facts

The buffoonery and misdirection on display in a recent Washington Post column by Matt Miller is like nothing we’ve ever seen before. 
We’re firm believers that everyone has the right to their own opinion, but that doesn’t give them the right to deliberately mislead their readers with a ludicrous interpretation of facts.
This column is especially ripe given that the entire premise of the piece is to talk “honestly about redistribution.”
We recently attempted to put the entire Payroll Tax issue in its proper perspective, and Miller’s piece does the exact opposite by trying to claim that the poor are subsidizing Social Security and Medicare for the wealthy.  This is quite possibly the most asinine comment we’ve ever read in a major newspaper.
We take billions from struggling young families earning $35,000 who can barely make ends meet, let alone save for college or retirement, and use the money to pay for Social Security and Medicare benefits for seniors who earn more than $100,000.”
It is possible that a single dollar bill originally collected from the payroll taxes of someone making $35,000 was then sent out in Social Security benefits to a senior who earns more than $100,000.  Therefore, we can’t say that Miller’s “fact” is 100% incorrect, but we can say with certainty that it’s 100% misleading and intellectually bankrupt. 

We could use Miller’s logic to make the exact opposite argument and say that we take billions in payroll taxes from those who earn more than $100,000 and use that money to pay for Social Security and Medicare benefits for seniors never earned more than $35,000.  Both statements are factually correct if you look at a single, fungible dollar bill.  However, the path of a single dollar bill does not prove anything about the total re-distributive effects of Social Security and Medicare.  This leads nicely to his next sentence:
“We do this even though those seniors are getting back far more than they ever paid into the system.”
Again, this is another factual, yet incomplete and inappropriately reasoned statement.  It is true that those seniors who earn more than $100,000 will get back far more than they ever paid into the system, but it’s also true that seniors who earn less than $35,000 will get back far more than they ever paid into the system.  In fact, the senior earning less than $35,000 will have paid much less for the same benefits, especially when Medicare is factored in.  Social Security and Medicare - i.e. the two programs supposedly funded by the Payroll Tax - are progressive programs.  We covered this in detail in our previous column so let’s move on to Miller’s next intellectually challenged statement: 
“We take billions from high-income blue states like New York and California, and ship them via federal benefits and subsidies for farming and oil to poor red states like Alabama and Oklahoma. We do this even though the recipient states mostly vote Republican and moan endlessly about getting Uncle Sam off their backs.”
This is laughable on many levels. 
First, we agree with the premise that subsidies are bad, but to suggest that only “red” states receive subsidies is farcical. In fact, two of the top six oil producing states are “blue” states won by Obama in 2008, including California at #3 which has more electoral college votes (55) than the other four “red” states combined (47).  Additionally, three of the top four states receiving farm subsidies were “blue” states (Iowa, Illinois, Minnesota account for over 20% of total farm subsidies).  Solyndra and its green-subsidized brethren are almost exclusively located in California.  Amtrak, subsidized by hundreds of billions of taxpayer dollars over the last 40 years, primarily services the NE corridor which is as “blue” as “blue” can get.  We could go on, but we’ve made our point. 
Lastly, even if we believe the fantasy that only “red” states received subsidies, the “benefits” of the subsidy reach everyone, not just those in the “red” states.  The effect of subsidies – particularly farming and oil subsidies - is to ensure increased competition with foreign producers, thereby increasing supply and lowering prices for consumers, not to line the pockets of the producers.  Therefore, the high-population “blue” states, which, as far as we can tell, still eat food and drive cars, will benefit from these subsidies just as much as the low-population “red” states – perhaps even more. 
The secondary points in the column start to resemble intelligent thought, as Miller cites the problems with the mortgage-interest deduction (albeit with a ridiculous example involving Bill Gates) and the differences in Medicare costs by location that go above and beyond the cost-of-business differences of each location. 
We have no problem with major media outlets publishing partisan columns on the opinion pages, but it’s incumbent upon those media outlets, both left and right leaning, to ensure those opinions are based on a complete set of relevant facts, not on incomplete and intellectually dishonest statements masquerading as facts.

Thursday, December 8, 2011

AG Holder and, Imperfect Together

Two quick points on an incredible piece on summarizing Attorney General Eric Holder's testimony in front of Congress regarding the "Fast and Furious" scandal. 

Our first point relates to Mr. Holder's attempt to deflect any criticism about his role in the "Fast and Furious" scandal by trying to "turn the tables on his GOP critics, accusing them of engaging in 'inflammatory and inappropriate rhetoric ... in an effort to score political points.'"  Mr. Holder goes on to say it's time to end "politically motivated 'gotcha' games."

Reporting on a $16 muffin to prove wasteful spending, or bringing up settled sexual harassment claims from 10 years ago to discredit a potential presidential candidate are "politically motivated 'gotcha' games."  Vigorously questioning the Attorney General over a program conducted under his watch that intentionally provided violent Mexican criminals with weapons, lost track of those weapons, then found them at a crime scene where a US agent was murdered, is not a "politically motivated 'gotcha' game." 

Wednesday, December 7, 2011

Transcendent Speech or Regurgitated Populist Hyperbole?

Yesterday, President Obama felt the need to fly half way across the country to Osawatomie, Kansas just to regurgitate all of his populist and hyperbolic campaign rhetoric into one heavily marketed and promoted speech. We couldn’t listen to it in real time because we have a job and were busy working, but lucky for us the White House tweeted about it as if it was the second coming of Martin Luther King Jr.’s "I Have a Dream" speech.

Here at the, we’ve already debunked many of the populist themes recycled in President Obama's speech, so we though we’d provide you with many of the official White House Twitter feed highlights, followed by our thoughts and links to previous pieces of relevance. Enjoy!

Tuesday, December 6, 2011

White House: Lower Taxes By Raising Taxes

President Obama continues with the “country over party” and “fair share” campaign rhetoric, this time by claiming Republicans would rather “raise taxes on middle class Americans” than “ask a few hundred thousand millionaires and billionaires to pay their fair share.” 
At issue is recent legislation proposed by Democrats that would provide workers and employers with continued relief from a substantial portion of payroll taxes, or more accurately, FICA taxes.  Republican’s object to the legislation as it pays for itself, not by cutting spending, but by raising taxes on the wealthy (which includes small businesses).  Democrats hope the extra cash in most everyone’s pocket helps stimulate demand and lifts the economy, and believes that the “rich” can afford to pay their “fair share.”

We’ve debunked the premise that Republican’s are somehow putting the interest of their party over the interest of the country.  We’ve also debunked the idea that the “rich” are not paying their fair share.  Yet these simple truths are lost on the President and Democrats in Congress.  A cynic might say they fully understand the faulty logic of these arguments, but can’t resist the lazy political lay-up that class warfare provides leading up to the 2012 elections. 
Mark us down as cynical.