Free Liberal

Coordinating towards higher values

| Politics

Exploding Myths

by Robert Capozzi

Warren Buffet, the second-richest-man in America, seems to think hes under taxed. I for one dont see how he can reach this conclusion, no matter how you slice it. Michael Bindner suggests here that the reason is [h]igher income taxpayers are currently paying at a lower rate than the average American.

Some people seem to believe that, but then people believe a lot of things that are simply not true. The most comprehensive view Ive seen is here and Ive previously blogged on this here.

Tax equity is a consideration, Ill grant, but the primary issue is that taxing and spending are out of control. Were all rich and poor paying way too much for this stinking war, bridges to nowhere, the Ex-Im Bank (what exactly do they do?), and give me many hours to itemize just the absurdities alone.

I suggest we keep our eyes on the prize. Its time to unburden the people from out-of-touch elites and their cavalcade of pet projects. Along the way, we can deliberate over the wisdom of taxing dividends (a bad idea, in my book). But lets not give Nero a pass. Hes fiddling. Put down the violin, Nero, and put the fire out.

-RC

« Running and Hiding | Main | Giving Credit Where It Is Due »

Comments

To answer your question: the Ex-Im Bank is an export credit agency. As defined by Wikipedia: "Export credit agencies and investment insurance agencies, commonly known as ECAs, are institutions which act as finance companies for private domestic entities who conduct business abroad. ECAs provide government-backed loans, guarantees and insurance (Trade Credit Insurance) covering both commercial and political risk. Most industrialized nations have at least one ECA, which is usually a national, public or publicly-mandated agency that usually supports companies from their home country."

So, to summarize, the Ex-Im Bank facilitates U.S. exports by assuming the commercial, political and/or country risk that the private sector would not otherwise assume.

Now, if you believe that all markets are perfectly efficient and that the private sector is infallible in its judgment (such as was recently proven to be the case with the underlying assumptions backing the valuation models of structured credit products), this would be a bad thing. However, in reality, markets are not perfectly efficient. Information is asymmetrical. And deals that would otherwise be viable may go south because a multitude of private actors (banks) sometimes lack the cohesion necessary to take collective action or because a transaction is so large and ideosyncratic that a single bank simply wont opt to risk that large a slice of its balance sheet over it (this is also the rationale behind syndicated loans) or because commercial banks with the expertise necessary to fund projects on an international scale lack the institutional capacity to service small businesses (something in which the Export-Import Bank of the United States excels).

Of course, you must have overlooked the fact that the Ex-Im Bank has generated $4 billion dollars for the U.S. taxpayer through its operations over the past 15 years (how many other government agencies actually make a positive net contribution to the Department of the Treasury?). You must have also overlooked the fact that the U.S. has a $180 billion current account deficit, which is weakening the dollar and stoking fears of inflation at home at the same time that we most need a monetary stimulus to counteract a deepening credit crisis (that could very well turn into a banking crisis, which is far worse). Case in point: U.S. exports need all the help they can get. So next time, please do your research before you go comparing the Ex-Im Bank to the Iraq war and the Gravina Island Bridge.

# posted at by a concerned citizen

Some time ago Reason magazine had an article that pointed out that Warren Buffett makes money by buying the assets of people who inherit wealth, and must sell assets to pay the inheritance taxes.

That is a reason he supports high inheritance taxes.

I was speculating on why Buffett was paying a 15% effective tax rate. I would be interested in seeing the CATO spread on the top 5% and top 1%. Be that as it may, theoretically, if someone received all of their income from dividends, their effective tax rate would be lower than that of workers.

I am all for spending and taxation being under control, which is why I support a Business Income Tax/VAT (a portion of which could be visible as a minimum tax - with the invisible piece understood to be the part of the tax rate to be eaten up by Credits for Children and Dependents, Health Care, Mortgage Interest, Education and Training and Charitable contributions on the part of Employees (including support for non-state schools and adult education/financial support for workers and the poor below the required level of literacy).

The Business Income Tax/VAT would be set on a regional basis by regional congressional caucuses and would fund operations regionally based (including land based defense) under a regional vice president with appropriations also passed regionally. This would increase the link between taxing and spending at a more local level so that no one in South Dakota who wants to keep their military base open thinks that Barbara Streisand's taxes are going to fund it. When people realize they have to pay for their fun, they will demand less pork.

Some operations will stay national, but they must be self funding. Health research must be supported by drug fees and royalties resulting from that type of research. Ticket fees must fund the FAA - although these will be both regional and national. OSHA, Wage and Hour and EEOC operations will be funded by fines - as will environmental enforcement. Patent and Trademark, NIST and NASA will be in a common funding pool - although NASA will shift from direct funding to loan gaurantees on firms who do commercial spaceflight. If Cal Tech wants to do research on the asteroid belt, they can pay for it. Most of the big science agencies in the DC area will stay exactly where they are, but how they collect their money will be different.

There should be a separate Personal Income Tax for income taxed at above the business income tax rate. This surtax should be personal rather than on the employer so that wealthier individuals need not share their personal information with their employer or the firms they own. It will also be individual, rather than familial, and will also cover inherited income over $100,000 when it is received in cash or services when an asset is liquidated or distributed. This surtax would fund net interest, debt repayment, repayment of the Social Security Trust Fund and any transition costs to the switch to Personal Accounts, as well as transition costs to switching to a fully funded military retirement system with personal accounts (if this approach is good for the masses it is good for the military), as well as any overseas adventures or operations.

If you wnat more info on this, click on my name for a link to the Iowa Center for Fiscal Equity web page and look for the piece I submitted to the President's Task Force on Tax Reform.

Of course, to some extent, this would bring spending out of "Control" in that there would be no central agency controling how funds are spent when the employee or employer designates a non-governmental provider.

This is kind of the point.

I did a piece a while back on my Christian Libertarian Party blog where I talked about Pork and the bridge to nowhere.

It was removed from the appropriation, but it was still funded under the formula grant. It wasn't a bridge to nowhere after all but a bridge to the local airport (don't mess with Alaskans and their air travel, they don't like it). Airport passengers and employees did not find the ferry very reliable, especially in the winter (about half the time in Alaska). The airlines were the major beneficiaries, in other words. Usually these projects have such beneficiaries, they aren't just done for make work. Anyway, the project was later funded as worthwhile by the DOT on its own merits - although I am sure the local government applied its share of pressure - and paid its share of money lest we forget how these things are paid as an intergovernmental expenditure. Alaska gets its share, no matter what projects are picked. The bridge to nowhere is their version of the Dulles Access Road and Dulles Rail Extension (which a lot of us will use to avoid airport parking and take advantage of those cheap fares offered from Dulles - which won't stay cheap as more people use them).

Let me address the gist of your comment - that we undburden the people from the demands of the elites.

To some extent, there are no such elites, just people who are organized. We have seen the enemy and he is us. In the public choice literature, the incentives for legislators to respond to organized interests v. the general interests of their constituents has been studied extensively and probably continues to be. Most of these studies are from a free market/rational actor perspective, by the way. The studies find that there is no cost to members to respond to pressure groups. (Don't shoot the messenger, this is what the analysis shows).

Normatively, most of the "elites" represent the economic interests of everyday workers, savers and citizens. The fact that some of the opinion leaders are dishonest or deliberately avoid solutions is one of the dangers of freedom. The point is, there is no them. As I said, the problem is us.

We need to be really careful when looking at items of spending (including tax expenditures) to catch all of the effects as well as the efficiencies. This is important because simply ending programs is not an option, especially in our current form of government. A revolution may do it, but these invite counter-revolutions and I doubt that libertarians will be taking arms against the government any time soon.

The only option left is to replace a governmental benefit or service with a private benefit or service. The favored example is Social Security. It is a good example because the program involves two factors, both of which must be addressed if a solution is going to be enacted: retirement saving and income redistribution. Safe and secure retirement saving is easy to design. There are proposals out there, including my own (which focus on employee-ownership), so they do not need repeating. One thing most proposals miss, of course, is value retention, but this can be accomplished with any number of insurance or self-insurance vehicles (such as a fund which employee-owned firms can each contribute stock to so that the owners can be reimbursed with stocks from all other funds should their firm go belly up - with requirements for good business practice of course).

It is the redistribution piece that usually gives libertarians gas. Failure to compromise on this point, however, leaves you with government Social Security forever and tax increases to keep it afloat. The proposal I have is to do this was stated above - equal crediting and distribution of the employer contribution, regardless of salary. This recognizes that if you work eight hours you are presumably productive and you deserve an equal piece of the pie for each month of work. Additional productivity bonues can be granted above the basic retirement piece based on peformance and taken from profit, but there should be a base that is distributed equally as a replacement for Social Security.