American finances and the rich
by Robert A. Young
Some thoughts on America’s dire finances: Members of the tea party crowd claim we pay too many taxes.
I’d like them to visit Europe and buy some of that $7 gas. It’s a draconian way to reduce air pollution. It works in the same way that capital punishment of delinquents stops bullying.
Young, of Roanoke, is a resource assistant for the U.S. Forest Service.
March 5, 2013 - 7:26 AM
Just yesterday I had a very interesting conversation with a Canadian who immigrated to this area. Being a retired doc myself, I was especially interested in his opinion of the Canadian health care system compared to the present US system. He is not a health care professional, by the way.
He thought it funny that many Americans believe the Canadians get “free” health care. In Canada, he said he paid a 60% income tax plus a 12% sales tax to pay for his “free” health care. He laughingly said in Canada, you could actually die waiting for your “free” health care. He is not “one percenter” by any means.
He said there is an annual salary cap of about $200K for doctors and $70K for nurses. Many Canadian docs reach their salary cap before the end of the year, some after just six months, and stop working. No sense in working for nothing. They either go on holiday or go over the border and work in the US. Yet many patients are on waiting lists for treatment.
His final comment on the subject was that Canada was moving more toward the US system while the US was moving more toward the Canadian system.
I’m glad I am retired.
Well, we all know anecdote is evidence.
Obviously those poor put upon Canadians are crossing the borders in droves….
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“…the number of migrants from Canada decreased between 2000 and 2006, and the annual growth in the number of Canadian-born persons in the United States declined.
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This outcome was perhaps predictable considering the relative prosperity Canada enjoyed over the study period. Emigration tends to decrease in Canada when the economy is strong.”
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http://www.statcan.gc.ca/pub/11-008-x/2010002/article/11287-eng.htm
Mr. Young writes a rambling article. What is his point? Are US taxes too high – YES! Don’t compare us to Europe or Canada, we are not either and do not want to be like them! Sounds to me like Mr. Young has wealth envy. Class warfare…Obama is the best at it. Always railing the successful, talking about how the successful do not pay their fair share, etc. And I am looking for the toad under the rock with a shiny coin in its mouth. What is the point of this article?
Sandi, its called a data point. If the president talks about a janitor who lost his job because of the sequester…is that an anecdote too?
Say there, Robert Young:
I just checked out an article on one of the biggest and most overlooked special interest groups in the US. Guess who it is? The GOVERNMENT employees themselves. Some interest facts in that article about the explosion of both wages AND numbers of “government” employees. The article also said the number of govt employees equals to 16% of the total number of registered voters nationally. A nice little diddy to go along with that was that each one of those 16% PROBABLY had the ability to influence the vote of at least one other person, such as a wife, husband, child or parent. The author concluded that at least the % could be 36% at a minimum. So is there any possibility that anyone in government is going to support a reduction OF government? Seems like probably not to me. Seems like you are all in favor of more taxes, more govt, bigger govt and a more secure future paid for by the likes of people like ME. Odd, ain’t it!
The government is also the most GREEDY entity that ever existed! It never gets enough money…always wants more!
#5 & #6 Agreed…..with the caveat that your points and my agreeing are somewhat pedestrian & colloquial. Yet what are we but citizens & taxpayers?
Al, as to “greedy”….you are correct. But to the left, only those that wish to keep their (own) money are greedy. They, the left, know the best way to use the very capital they ridicule.
They’re not greedy….they’re progressive.
I also really had a hard time understanding the point that Mr. Young was trying to make. I think his essay was one of the least effective that I have read in the Roanoke Times in recent months. Even John Long’s columns are better than this.
Here is another “data point” Al, it is just plain laughable how in one thread we are comparing the bad US with the good “other nations” and in the next thread we are warned not to make such comparisons because we “do not want to be like them!”
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It is not only government employees who do not respect the “cut the government” meme. Many people realize the services and outcomes we get count on those same employees. I realize how things “seem” to you, but the reality is that the government has not done the “growing” that so many right wingers claim and is not the problem so many harangue either. I saw a chart just this morning that showed fewer government employees in 2011 than in 1983 under St. Reagan.
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My point is that for all of the right wing whining and snarling, the nation has done well to recover from the economic collapse we barely missed and the stock market will be followed by the economic rise. That is reality.
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The right wing is “in the weeds” because that is where you put yourself.
Sandi, how do you define full economic recovery (or as close to it as reality will allow)? What metrics will you look for to finally be able to say, “We’re here! We’ve made up all ground previously lost. Now it’s nothing but moving forward”?
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And the obverse: at what point would you say, “This is isn’t working. Maybe we’d better try a different approach”?
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And finally, what timeframe do you anticipate to be able to make that call?
This so called economic recovery is the worst since the Great Depression. And the GDP and unemployment show no signs of improving or the Fed would start to raise interest rates.
The current bull market is not a reflection of the this economy. The reason the stock market has taken off is because the Fed has kept interest rates artificially near zero and is printing money 24/7. Some of this money ends up in the stock market, it has to go somewhere and bonds and CD’s at the near zero return rate are a bad investment.
When interest rates rise, as they eventually will and bonds and CD’s give a 3-5% return, the stock market will fall like a rock.
So then what you’re saying John is that the people whose 401K’s have benefited since the stock market rally should be somehow disappointed?
There is a “boatload” of cash still on the sidelines that hasn’t been invested in either the stock market or the bond market. The Fed may be printing money 24/7 as you say, but the amount that’s ended up in the market in miniscule.
So to your comment, I simply say….so what.
No doubt you value my opinions 89Hoo, none at all.
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I “define full economic recovery” as unemployment reaching 5%, Revenue reaching 18.5% of GDP and income disparity lessening (better paying jobs). Those three are my trifecta.
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I think we have already been at the “This is isn’t working” point and we made some of the necessary choices to regain our footing.
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John R, if you understand the depth of the economic collapse, this recovery is precisely what should be expected and is certainly better than the GOTP will admit. IMO, we are on the right track. If we increase revenue, cut spending, repair our infrastructure and trudge through our commeuppence we will come out the other side as always, smarter and better than before. Sadly, our Congress will not.
Those are worthy goals. I do have to question what changes we’ve made, other than “more of the same, but in a higher gear”. Have we tried sound money (other than pre-Fed when the metrics you identified actually were met)? Have we tried reforming the banking system to require more accountability on the part of the banksters, and less of a guaranty the Uncle will protect them if the are deemed too big to fail?
WHOA!!!!!!!!!!!
unemployment at 5%??!!
Remember the SNicker Bar commercial…”you’re gonna be here a while”
Sandi…”I saw a chart just this morning that showed fewer government employees in 2011 than in 1983 under St. Reagan.” I would like to see this chart. I believe it only shows a ratio. The following graph shows the number of government employees…
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http://www.google.com/imgres?q=chart+of+government+employees&hl=en&sa=X&biw=1366&bih=677&tbm=isch&tbnid=cugTtpon-EACOM:&imgrefurl=http://m.radio.foxnews.com/2012/06/12/chart-the-swelling-size-of-the-federal-government/&docid=hxQhAi5E7LNl4M&imgurl=http://radio.foxnews.com/wp-content/uploads/2012/06/governmentEmployees.jpg&w=634&h=382&ei=m343UaqGM8uiqQGIsIGIBA&zoom=1&ved=1t:3588,r:58,s:0,i:265&iact=rc&dur=1396&page=3&tbnh=174&tbnw=289&start=38&ndsp=21&tx=149&ty=104
Definitely more now than in the 80s.
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I do not compare the US to other countries for good or bad. The US is the best country in the world and I want to live no where else.
An interesting analysis of tax revenues and GDP.
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http://www.oftwominds.com/blogmar13/corp-tax3-13.html
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…Hauser’s law, which contends that Federal tax revenues rarely rise above 20% of GDP, regardless of where nominal tax rates are set.
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Hauser’s observation is more a socio-political trend than a law per se, but the point is that total tax revenues are remarkably stable despite changes to the mix of revenue sources and tax rates.
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The implicit dynamic here is that when taxes exceed 20% of GDP, participants modify their behavior to lower their taxes. Corporations will shift operations overseas. Those in the higher tax brackets will lobby the political class for lower tax rates. Some high-wage earners will simply work less, reducing their income to lower tax brackets. Small business owners will decrease their compensation, cut back their workload, or simply bail out. Others will leave the high-tax market and slip into the cash/informal economy where the tax rate is zero.
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In a $15 trillion economy, this suggests the maximum Federal tax revenue that can realistically be collected is around $3 trillion. Currently, Federal tax revenues are around $2.5 trillion, and Federal spending is about $3.8 trillion.
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That leaves a $1.3 trillion deficit that is filled with borrowed money.
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Taxes are zero-sum to the taxpayer: collect another $500 billion in Federal taxes and that’s $500 billion taxpayers don’t have to spend, save or invest in the economy. So policy-makers fear raising taxes will trigger a recession, yet running deficits that are 35% of Federal expenditures is not sustainable.
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Tradeoffs will have to be made. That is the essence of adulthood. Too bad we’ve become a nation of spoiled adolescents.
Oh, so now you need evidence for the thing posted here?
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http://research.stlouisfed.org/fred2/graph/?id=CEU9091000001
@ 89Hoo: “Have we tried sound money“?
We believe we have sound money.
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“Have we tried reforming the banking system”
Yes, but that was not met with much cooperation and fell far short of the needed safeguards.
Guess I am just damnably lucky I did not say Revenue should be at >20% for full recovery to be considered!
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http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205
Sandi, sound money is defined as a currency backed by something of tangible value. The US dollar, since 1971, has had no such backing (merely the intangible faith and credit of the US government), and is therefore NOT sound money, but fiat money. Politicians hate sound money because it limits their ability to spend beyond their means.
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What you may be saying is the US thinks it has stable money, but even that is questionable given the massive monetary expansion we have seen since 1971, and especially over the last ten years or so.
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With regards to reforming the banking system, the problems with the banking system start with the central bank (the Fed), and its monetary expansion. It allows the banksters and big brokerage houses to line their pockets (see Wall Street) and destroys the value of the dollar for everyone else (something not possible with sound money).
The Fed purchases $85 billion each month of long term Treasury bonds and mortgage backed securities. It does this with printed money. This keeps the return on bonds very low so interest rates stay low and private sector money goes into stocks. This keeps the bull market going.
This is nice as long as it lasts. However, continuing to print money to keep interest rates artificially low and prop up the stock market devalues the dollar and creates another bubble. The real estate bubble led us into this mess.
The more the government interferes with the free market, the more bad things tend to happen.
Anyone who thinks they have the stock market all figured out is in prime position to have their head handed to them.
IMO….the reason the stock market is at current levels is that it is an index of price. No such index is immune from either inflation or the anticipation of inflation. In addition, the devaluing of the dollar raises all prices (by “all” at least any valid average or index).
Also….the “market” is a forward indicator. Meaning it reflects the participants thoughts of future economic behaviour.
Finally….this is the first time since 2006 that the market has been at these levels….price/inflation reality is catching up with a slightly improving view of “the economy”. Or….at least corporate profits….again, as indexed to prices in general….and the declining dollar.
Al, the text string “foxnews” appeared in your web link, so I thought it would be good to look for a more reputable source of information, and I found something at the Bureau of Labor Statistics, although it does not go back to the Reagan era.
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http://www.bls.gov/web/empsit/ceshighlights.pdf
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There is a chart on p. 21 with accompanying text that reads, “In total, government has shed 704,000 jobs since July 2008, approximately the time when both state and local governments reached employment peaks. Local government education accounted for over half of the jobs lost during this time, while local government, excluding education accounted for about one-third. Over the same period, federal government employment has remained essentially unchanged, on net.”
20 – more to the point, the “rule of thumb” (Hauser’s ‘Law’) states that’s it’s not possible for total tax receipts to exceed 20% of GDP for any extended period of time. The data seem to support that.
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I really just posted the link because I thought it was an interesting analysis.
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22 – correct. And we see the real estate bubble being re-inflated, along with a credit bubble. There are some that favor this approach, but I think it’s foolish.
I liked your link because it confirms, “corporate profits are rising while corporate taxes are declining…As corporate taxes are declined, individual income taxes paid rose“.
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There are areas we must improve on and certainly revenue at 15.4% of GDP and higher personal taxes with lower corporate taxes in relation to profits must be addressed as well as spending cuts.
Hauser’s Law sure is interesting. Suggests to me that if you’re running tax receipts close to 20% of GDP, then any increase in marginal tax rates should result in a corresponding increase in the GDP.
27 – I’m not sure that’s what it says. I think the flaw in that notion is that tax receipts are not a part of GDP>
26 – the other half of that, though, Sandi:
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It is not realistic to compare corporate tax rates in a unipolar world (circa 1950) when the U.S. economy represented roughly half of global GDP to today’s global economy. Those who enthusiastically demand a return to high corporate tax rates forget that U.S. global corporations are not bound to the nation-state of the U.S.A. Push them into an anti-competitive tax situation and they will transfer their operations elsewhere.
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Even worse in terms of fairness, high corporate tax rates punish those companies that do not have the elaborate tax avoidance scams of global companies. Some U.S. companies pay close to the nominal rate while the average pay roughly one-fourth of the official rate. Ours is a blatantly unfair system where corporate capture of the political machinery offers a well-greased back-door method of lowering taxes for those able to buy political influence.
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A much better tax collection strategy, and a much fairer one, is a flat corporate tax of 8% that aligns the U.S. nominal rate with the rate actually collected. Actual tax revenues collected would be about the same or perhaps even rise as gaming the system is no longer rewarded, and all the wasted motion of tax avoidance would go by the wayside.
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It’s a call for a re-structuring of the tax system to one that will maximize the application of Hauser’s Law while leveling out the disparities inherent in the current tax and tax-avoidance system.
Well if “It is not realistic to compare corporate tax rates”, it is a darned good thing I did not do that.
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I suppose I misunderstood the parameters of the discussion, I was speaking of the lowered revenue we are laboring under and what might help us gain what is needed to get back to that “full economic recovery”.
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I think it is not a good thing for revenue when corporate profits are growing and corporate taxes are not and it is worse when the income of the individual is shrinking as their taxes are growing. It does not enhance revenue and it harms the economy. The disparities and inequalities in the tax system is a problem and the benefits inure to the wealthy not the workers. Same for the education system and the justice system. All of those are problems IMO.
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One look at the comparisons that he did in your link cannot make anyone fear for corporate America, or see the need for a flat tax as a pressing need.
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BTW, there have been only three times the revenue as a percentage of GDP has reached 20% since 1934, so Hauser’s cannot be such a hard “law” IMO.
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I have little hope that the deficit reduction and debt solutions will not involve more pain for workers, the elderly, the disabled and the poor. Which again proves the system is “rigged” for pain, like all bad things, to roll downhill.
28 what i meant was that if you are at 20% and you double the marginal rates, then gdp would have to double to maintain the ratio at 4 to 1.
Sandi….hhmmm, this FRED guy that you and I both cite produces some confusing graphs…
Name Withheld….your graph and comments show that during the current recession, federal government employment remained constant. States and localities took a hit.
Sandi, as the original link I provided stated, Hausers Law is more a socio-political trend than a law, which is why I called it a rule of thumb; my point being that I agree that it’s not a hard law and I haven’t tried to represent it as such. What this trend observes is that federal tax revenues rarely rise above twenty per cent; your observation that federal tax revenues have only risen above twenty per cent supports that observation. Thank you for helping make the point.
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As I said above, I only posted link because I thought it was interesting; I agree with you re corporate taxes, but I think we disagree on the solution. Is the idea to efficiently maximize revenue or punish successful corporations?
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NW, if you read the link you will see your question answered.
To the moderator gods (and goddesses, but I digress, never entirely, but rhetorically, another subject) if it makes any difference as to your graces…..this is neither advice or solicitation. A parable?
IMO the market will continue to rise. IMO if one with money they can afford to lose were to find decent stocks that are down, have not yet caught up with the general market “recovery”…..one could make a ton of money.
I did so many times. UNTIL I truly thought I had it figured out. Margin accounts will kill you when wrong, especially with options. You can have everything right except the exact timing and…..well, see first line of my # 23.
Yet I do think the market will continue to rise & significantly. The various parameters have equalized…..for the first time since 2006, and, money….such as it is, can & will go somewhere.
Holding my head….