In 2006, W. and his team wanted the estate tax out. They wanted lower taxes across the board (the argument: lower taxes will actually increase revenue; reality, you will get about 30-40% of the revenue). They could only get so far in Congress. So they used Andrew Jackson's tactic - if no one is enforcing a law, it doesn't really exist (see Trail of Tears).
If 2006, W. authorized the firing of half of the IRS's auditors. These were the men and women responsible for catching those defrauding the government of income tax, of estate tax, of capital gains taxes. For every hour each auditor worked, they brought in $2000 of revenue. Best case, that's:
157 employees x 40 hrs x 48 weeks x $2000 = $602,880,000 per year.
That is, of course, best case. That is, also, 3/4 of the cost of the stimulus package.
The Republican congresses of the Bush years also failed to close the tax loophole that allows hedgefund managers to effectively move millions of dollars of income right out of the American taxflow. They allow deferred compensation to corporate execs, spreading the taxation over years and potentially into entirely different tax brackets. They allow a "stock option double standard" to let businesses give away stock options but claim a deduction nonetheless. There are billions in these loopholes. I, on the other hand, have to follow the rules in the 1040 rules because I don't want to go into debt just to invest.
THIS ISN'T RIGHT.
Idea 3: Hire back the IRS auditors and more. Close the loopholes in individual and corporate tax law. Fix the AMT once and for all.
Do I need to explain the justifications here? Before W. fired the 157 auditors, the IRS was actually requesting more auditors (see this NYTimes article for starters). Let them do their job, give them the teeth to do it well, and let those out their looking for cheats that they will be caught and they will pay.
Oh yeah, and make the hedgefund loophole closure retroactive, say, for 8 years.
Sunday, February 22, 2009
Third Topic: National Debt; Idea 2: Dock the Pay of Those Who Watched It Happen
If a car dealership has a salesman who watches someone drive off with a car, they may forgive it once. When the half the dealership is gone, you don't give them a bonus. If anything, you cut their pay.
Congress, the SEC, the Fed, Presidents past - they watched CDO's, Madoff, Stanford, Merrill Lynch move along. So they get pay raises?
Idea 2: Cut the pay of those at the top of government, and don't let them decide on their pay.
Congressman are paid from $174,000 to over $223,000. The president received a huge pay raise in 2000 - from $200K to $400K, plus $50K in an expense account, $100K in travel, and $19K in entertainment expenses. They all get pensions if they are in office for more than 5 years (currently 413 people, at $22 million). The SEC chairman, the Fed chairs - they also make over $150K. Do they deserve it?
Cut the pay of the members of Congress by $20,000 a year, that's $9,000,000 a year. Cut the presidential pay back to $200K (yes, they need the expense accounts - they represent us diplomatically), and get rid of their pensions (have you heard of a poor president?). Require any congressman who takes part in lobbying/consulting after leaving office to lose the right to all future pension pay. And cut the salaries of Cabinet members, heads of the SEC, the Fed, of federal judges, of every single member of the federal government who is making more than $150K, by at least 10%. And make pay raises for Congress allowed for cost-of-living only; anything above that must be submitted to referendum and national ballot.
Some would argue that we'd be penalizing people who may not have been responsible for what is at hand. Some would argue that it's spitting in the ocean. Some would say why bother.
I would say that the federal government, as a whole, has taken missteps over the last 30 years. I would say that belt-tightening would be seen as, at the least, a symbolic gesture that the current government understands what the common man is going through. I would say that members of government who use their elected positions as a point of profit after they leave office don't deserve any extra compensation. I would say if your difficulties in life include the mortgages on your 2nd and 3rd houses, you don't understand the principle of public service.
And, even if the budget is only saved $100 million a year by these measures, that's thousands of employees - people at mid-level positions who would like to be employed. A little sacrifice at the top would be highly appreciated by those who toil daily.
Obama was at least smart enough to cap salaries in the West Wing. Congress has yet to pass a resolution refusing the their annual cost-of-living pay raise. If they can't be trusted to be fiscally appropriate now, at the least they can be regulated in the future. If they complain about their pay raises now, they won't dare show their faces at re-election.
Congress, the SEC, the Fed, Presidents past - they watched CDO's, Madoff, Stanford, Merrill Lynch move along. So they get pay raises?
Idea 2: Cut the pay of those at the top of government, and don't let them decide on their pay.
Congressman are paid from $174,000 to over $223,000. The president received a huge pay raise in 2000 - from $200K to $400K, plus $50K in an expense account, $100K in travel, and $19K in entertainment expenses. They all get pensions if they are in office for more than 5 years (currently 413 people, at $22 million). The SEC chairman, the Fed chairs - they also make over $150K. Do they deserve it?
Cut the pay of the members of Congress by $20,000 a year, that's $9,000,000 a year. Cut the presidential pay back to $200K (yes, they need the expense accounts - they represent us diplomatically), and get rid of their pensions (have you heard of a poor president?). Require any congressman who takes part in lobbying/consulting after leaving office to lose the right to all future pension pay. And cut the salaries of Cabinet members, heads of the SEC, the Fed, of federal judges, of every single member of the federal government who is making more than $150K, by at least 10%. And make pay raises for Congress allowed for cost-of-living only; anything above that must be submitted to referendum and national ballot.
Some would argue that we'd be penalizing people who may not have been responsible for what is at hand. Some would argue that it's spitting in the ocean. Some would say why bother.
I would say that the federal government, as a whole, has taken missteps over the last 30 years. I would say that belt-tightening would be seen as, at the least, a symbolic gesture that the current government understands what the common man is going through. I would say that members of government who use their elected positions as a point of profit after they leave office don't deserve any extra compensation. I would say if your difficulties in life include the mortgages on your 2nd and 3rd houses, you don't understand the principle of public service.
And, even if the budget is only saved $100 million a year by these measures, that's thousands of employees - people at mid-level positions who would like to be employed. A little sacrifice at the top would be highly appreciated by those who toil daily.
Obama was at least smart enough to cap salaries in the West Wing. Congress has yet to pass a resolution refusing the their annual cost-of-living pay raise. If they can't be trusted to be fiscally appropriate now, at the least they can be regulated in the future. If they complain about their pay raises now, they won't dare show their faces at re-election.
Third Topic: National Debt; Idea 1: Leave a Tip When You Check Out
We're about a third of the way (at most) into this depression/recession. Big houses, big banks, big carmakers all need our help. We get it. Those who don't get it are simply refusing to do so. Sanford, Jindal, McConnell, Boehner - they have jobs. They see life how they've tended to see it; take money, spread it around, the people will catch some. Why not? It worked for the Medici, it worked for the Hapsburgs, it worked for the Romanovs ....
OK, let that be as it is. If select governors choose to refuse funds for their states - despite the fact that those citizens will be made to contribute to the repayment - let them answer to their citizens.
One point all these opponents make is that we are mortgaging our futures, that it will be "our children and our children's children" who will be asked to repay the debts of today, with no guarantee of benefit. Tax breaks would get into the economy faster and that money will somehow make it back to the government.
I will not expand a rampant debate on the risks and benefits of tax cuts vs spending. The facts are that both happen in the stimulus package. Even before the stimulus package, even before the recession, we were running huge debts, debts that have benefited industry and the rich. Regardless of all other arguments that business has more strain, that there have been oversights, that there have been abuses by "prior administrations" (those that have been now disavowed), there is one irrefutable fact:
The rich are getting richer, and governmental policies have done nothing to prevent this.
Most economists will acknowledge that a widening gap between the rich and the poor is never a good thing. It causes strains politically, it causes a smaller tax pool (usually due to fancy tax planning), and, as we see now, it causes for instability as speculation falls apart.
Here's the point. We have to change the policies at present to, at the very least, increase revenues stably. Income taxes alone won't help - if fewer people are working, fewer people are paying income tax.
If the generation in charge is so worried about saddling us with debt, they should have asked about 30 years ago, when Reagan started running up the tab, or 8 years ago, when W. demonstrated how much better he was than Reagan at deficit spending. It's spent, do something to chip in.
Idea 1: Reinstate the mandatory estate tax to those at $1,000,000 or more.
Currently, the federal laws require estates worth more than $3.5 million to be charged the estate tax. These were amongst the fiscal policies that W. encouraged. If the Republicans are going to through him under the bus, through his policies out with him.
More legitimately, these taxes make sense. The people who have that money are no longer able to spend it. If their estates are that grand, they undoubtedly benefited from current policies. If their estates go to their heirs, we are encouraging a gentrified class. As Winston Churchill put it, estate taxes are "a certain corrective against the development of a race of idle rich." Bill Gates supports it. Warren Buffett supports it.
There are arguments that estate taxes are bad:
1) Estate taxes are too high. Fine, charge more people at a lower rate (say, 30% for those from $1 - 3.5 million). More people should contribute. Which leads me to point number 2:
2) If the family doesn't deserve the estate, neither does anyone else. Again, this is fair. However, the person who does deserve it can't use any longer. If their families don't deserve it, let society benefit. If they don't want to pay taxes on it, they should make the appropriate donations to charities (and this should be used as a credit against the tax).
3) It's socialism, it's collectivism, it's never proven to help. We're a society. If you don't want to help, don't take advantage of the resources of society - roads, police, fire departments, the military, etc.
4) It's a disincentive to business, to entrepeneurship. The tools to keep businesses safe from estate taxes exist - incorporation, holding companies and the like. Adjust the estate tax law to also eliminate risk otherwise; e.g., if the deceased owns a significant share of a company, let that share revert to the company directly to be redistributed without risk of "cashing out" the company. Alternatively, let those shares be exempted, but any profit from sales of those shares within 1 year of the death of the decedent should be taxed at full capital gains rates.
5) It costs more to collect the tax than the tax actually. Give the IRS teeth again (see the next couple of ideas). Simplify the estate tax laws as much as possible. The exemptions for estates going to spouses should also include estates to minor children. Hire more IRS investigators to work with estate lawyers to smooth the process.
If properly supported, this can help chip away at the debt that my generation faces. We don't mind spending now because we don't want to face a 2nd Great Depression. Just don't leave the whole bill at our feet.
OK, let that be as it is. If select governors choose to refuse funds for their states - despite the fact that those citizens will be made to contribute to the repayment - let them answer to their citizens.
One point all these opponents make is that we are mortgaging our futures, that it will be "our children and our children's children" who will be asked to repay the debts of today, with no guarantee of benefit. Tax breaks would get into the economy faster and that money will somehow make it back to the government.
I will not expand a rampant debate on the risks and benefits of tax cuts vs spending. The facts are that both happen in the stimulus package. Even before the stimulus package, even before the recession, we were running huge debts, debts that have benefited industry and the rich. Regardless of all other arguments that business has more strain, that there have been oversights, that there have been abuses by "prior administrations" (those that have been now disavowed), there is one irrefutable fact:
The rich are getting richer, and governmental policies have done nothing to prevent this.
Most economists will acknowledge that a widening gap between the rich and the poor is never a good thing. It causes strains politically, it causes a smaller tax pool (usually due to fancy tax planning), and, as we see now, it causes for instability as speculation falls apart.
Here's the point. We have to change the policies at present to, at the very least, increase revenues stably. Income taxes alone won't help - if fewer people are working, fewer people are paying income tax.
If the generation in charge is so worried about saddling us with debt, they should have asked about 30 years ago, when Reagan started running up the tab, or 8 years ago, when W. demonstrated how much better he was than Reagan at deficit spending. It's spent, do something to chip in.
Idea 1: Reinstate the mandatory estate tax to those at $1,000,000 or more.
Currently, the federal laws require estates worth more than $3.5 million to be charged the estate tax. These were amongst the fiscal policies that W. encouraged. If the Republicans are going to through him under the bus, through his policies out with him.
More legitimately, these taxes make sense. The people who have that money are no longer able to spend it. If their estates are that grand, they undoubtedly benefited from current policies. If their estates go to their heirs, we are encouraging a gentrified class. As Winston Churchill put it, estate taxes are "a certain corrective against the development of a race of idle rich." Bill Gates supports it. Warren Buffett supports it.
There are arguments that estate taxes are bad:
1) Estate taxes are too high. Fine, charge more people at a lower rate (say, 30% for those from $1 - 3.5 million). More people should contribute. Which leads me to point number 2:
2) If the family doesn't deserve the estate, neither does anyone else. Again, this is fair. However, the person who does deserve it can't use any longer. If their families don't deserve it, let society benefit. If they don't want to pay taxes on it, they should make the appropriate donations to charities (and this should be used as a credit against the tax).
3) It's socialism, it's collectivism, it's never proven to help. We're a society. If you don't want to help, don't take advantage of the resources of society - roads, police, fire departments, the military, etc.
4) It's a disincentive to business, to entrepeneurship. The tools to keep businesses safe from estate taxes exist - incorporation, holding companies and the like. Adjust the estate tax law to also eliminate risk otherwise; e.g., if the deceased owns a significant share of a company, let that share revert to the company directly to be redistributed without risk of "cashing out" the company. Alternatively, let those shares be exempted, but any profit from sales of those shares within 1 year of the death of the decedent should be taxed at full capital gains rates.
5) It costs more to collect the tax than the tax actually. Give the IRS teeth again (see the next couple of ideas). Simplify the estate tax laws as much as possible. The exemptions for estates going to spouses should also include estates to minor children. Hire more IRS investigators to work with estate lawyers to smooth the process.
If properly supported, this can help chip away at the debt that my generation faces. We don't mind spending now because we don't want to face a 2nd Great Depression. Just don't leave the whole bill at our feet.
Monday, February 9, 2009
Second Topic: Bad Banks; Idea 1: Encouraged Capitalism
You can't turn on any source of media without hearing about the bad economy, the stimulus bill, the bad banks. No matter the view, the opinions keep going back - without a source of capital, the economy can't get better. Without removal of the "bad" assets, the banks will continue to sink like they have an anvil tied to their feet. And only the government has the power to remove these bad assets.
Like hell.
1) Let people with resources bail out the banks.
2) Bail out those homeowners who deserve it (i.e., those whose incomes match their purchase).
3) DO NOT bail out those who don't deserve it.
First, these "bad assets" are still assets, namely, land. It doesn't matter where it is, what's on it, what's under it, land will always have value. And this isn't land in the middle of the Mojave, in Love Canal, or in the TVA coal waste site - these are, by and large, residential homes. Homes people wanted to by over the past 5-10 years. Land and homes that are generally nice, habitable, in good condition.
Yes, prices are down now. Inevitably, prices will go up. That is the general working concept of Federal economic controls - slow but steady inflation. Too fast, things get too expensive; not fast enough, companies don't do well. So Bernanke, Geithner, Cox - they'll make sure things head back in the right direction.
Nonetheless, prices continue to fall, so no one is really sure what the banks are worth. If the banks don't know how much is in the vault (now impacted as much by investors as by depositors), they are skittish to lend. If they don't lend, they get no worth; if they lose worth, they lose investors, and down the drain it goes.
A few weeks ago, the talk was of a federal "bad bank," something to buy up all the CDO's and pool them, akin to the New Deal Home Owners Loan Corp. and the savings and loans buyout of the 1980's. This was rejected by the right - "costs too much," "Big Brother," "puts the debt on our grandchildren," even though historically these measures zero out or even profit a little. Now the idea is to guarantee the cost of the assets federally and encourage private investors to by the assets.
If you can't convince private investors to put their money into banks, how effective will it by to encourage them to buy properties, sight unseen, even with a federal guarantee? After all, where would the feds come up with the money?
The members of the right continue to say federal stimulus costs too much, we should not saddle the future with the debts of today. I agree. But they fail to draw on the lessons of true capitalism, of our financial past. In 1907, there was a banking crisis not entirely different from today. J. Pierpont Morgan intervened then, reportedly locking numerous fellow bankers in his study and refusing to release them until they found a solution. Carnegie, Rockefeller, Gary, Barney - all were drafted to buoy the economy. The government was involved, surely, but the men of industry and finance took the lead on saving their livelihoods, not a backseat.
With a few exceptions (thank you Mr. Buffett), there has been no evidence of those with resources helping out the capitalists. If anything, we hear about tax shelters, hedge fund manager tax loopholes, bonuses to Wall Street, the "needy" energy companies. If they won't help on their own, make them help.
The approach: Increase federal income taxes on households with gross incomes of $500,000 or more to 40-45%. Simultaneously establish a federally-supervised Loan Restructuring Agency (i.e., the "bad bank," in the style of HOLC). Make shares available and allow for a dollar-for-dollar tax credit for any investments into the LRA, not to exceed the current tax contributions for the given year (i.e., no payment out by the government). Furthermore, any profits from the sales of those (private equity) shares can be used as a tax deduction after 5 years of holding shares (any losses could be deducted as a capital loss, per current IRS rules).
OK, this may seem a little complicated at first, but it really isn't. The right is correct - the government shouldn't be on the hook for boosting the financial section of our economy. However, the government is exquisitely good at doing what is needed right now - spending money. Let them do that, just finance it with current resources.
Multiple websites give numbers on how wealth is distributed in the US. Most of it is extrapolated from Fed's Survey of Consumer Finances - a survey of over 4000 households. Roughly, the top 10% of households hold about 70% of the wealth of the nation, per this data (this doesn't really take into account wealth held by companies outside of shares, but it's close enough). By extrapolation, about the top 5% make $500K annually, give or take. This is distributed over about 5.25 million households.
These households are currently taxed federally at 35%. Increase that by 5%, you get an extra $25,000 per household, minimum (and likely a lot more). That's at least $125 billion in extra funds, which will go quite a way in federal mortgage aid. Give people the option - they can lose the funds as taxes, or they can potentially get their money back and more and help their country at the same time.
The benefit of a federally-managed bank:
1) The rich don't start buying up large chunks of land across the nation. We're not looking to make liegelords.
2) The federal government can sort the CDO's. A major problem to-date is that no one knows what mortgages are in which CDO's. Buy them up, dismantle them, and re-package them.
Take mortgages that are entirely fine and sell them back to the banks (they'd be crazy not to buy them).
Take mortgages from people who can pay the capital back with an appropriate interest rate, give them appropriate financing rates, and hold on to them. As the economy stabilizes, these mortgages will balance and the government can take a profit.
Take the mortgages from the people who don't deserve them and tell these people they have lost their properties. Cut the losses and move on.
On NPR today, they interviewed 2 homeowners. One family makes about $100K per year, bought a house worth $350K (the standard ratio of income/debt), and got screwed by misinformation from their mortgage seller who shanked them on the interest rate at closing. They didn't lie, they didn't scam - they got lost in the reams of paperwork and have to deal with it. They should hold onto their home. The second guy was a kid just out of college, making $40K/year who bought a $465K house! His excuse - "there was some complicitness." He can't even take the blame - let him burn (financially, that is).
You can't save everyone. Those with resources should try to help someone - even if nothing else, it's in their best interest. They are part of our society. If they can't contribute willingly, penalize their selfishness.
Tuesday, February 3, 2009
First Topic: Fuel; Idea 1: Speed change
How quickly we forget one topic from crisis to crisis. Last summer, the great evil was petrol, black crude, Texas tea. Then the bottom dropped out of the economy and we didn't care anymore. Here's an I had then and I propose now:
1) Fine inefficient (i.e. speeding) drivers double, and enforce it vigorously.
Energy use will remain a major drain on the US economy (perhaps 3rd behind the ridiculous systems we call health care and our true masters, China and the trade imbalance). We have already seen the only way to truly drive change in energy use, on a person-by-person basis, is with the power of the greenback. Given the current climate, however, we can't dare impose a fuel tax at any level - business would call that treason, citizens would call it abuse.
So don't call it a tax - call it a fine, one people can choose to use or not use.
Every day, driving on I-95 to get to work, I drive no faster than the speed limit and usually 5-10 miles below. I am to drive between 55-60 mph. Why? I used to drive like everyone else, speed from 70-80 mph. I used to get pretty good gas mileage, too - 28 mpg in my 2008 Mazda 3, with a nearly empty trunk. Then I heard the advice, and I slowed down. Mazda says my car should get 23 mpg city/30 mpg highway.
I'm averaging 34 mpg now, with about 1/3 of my driving on city streets.
I see the people who have their Durangos, their Expeditions, even their Rav4's, flying by me on the highway - 75, 80, even 85 mph. I used to say, "Fine, that's their choice. If they want to waste their fuel, that's their money." Then I realized their fuel usage will start to impact me; it already did last summer, it will again in the next few decades. Fuel usage as a population helps to set the price of fuel (so does speculation, but we'll discuss that in the future). If everyone started driving more slowly, fuel usage would drop; even a 10% drop in fuel use could impact oil prices.
We can't expect people to change their driving habits on populist sentiment. We need to enforce it. On my drive to work, I usually pass 3 Highway Patrol or Country Sheriff cruisers, sitting in the medians. Often, their are 2 or even 3 cruisers lined up, just talking, while people happily speed their 10 miles over the limit. I have yet to see a cruiser actually going the speed limit themselves. For what are we paying them?
Here's my proposed format:
State by state, pass laws adding a "fuel inefficiency fine." If you are going faster than 65 mph at any time, you will be pulled over for speeding and the fine will be doubled for wasting fuel. The extra revenue will be split between the law enforcement agencies enforcing the new law and the state governments.
The benefits would be many:
1) Increased revenues would support local law enforcement, decreasing the drain on local budgets, and potentially it could allow more officers to be hired and trained. This would require truly diligent enforcement of the law. No more letting people speed 10 miles over the limit. Increase the numbers of tickets every morning and every evening, plain and simple.
2) The extra revenue to the state governments would be great. They can drive true change of fuel economies without imposing dreaded "taxes." After all, if people don't want to pay the fines, they shouldn't speed. This increased revenue would, in the short-term, allow holes in budgets to be filled. Optionally, sustainable energy funds could be established to support alternative energy options (with the bonus of increased manufacturing jobs, real jobs, on a local level).
3) Best case scenario, people start to change their driving habits. Reality - this generation of drivers don't change. The next generation of drivers - the ones who will need to adapt - will learn good habits from the start. Look at seat belt usage.
Multiple people have proposed and continue to offer a gas pump tax as the way to force these changes. Those taxes will never pass in any substantial way. If a politician ever voted for such a tax, his opponent in the next election would use that vote to hang him. This gets the tax in place effectively.
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