Quotulatiousness

July 29, 2014

Australia’s bitter experience with carbon mitigation

Filed under: Economics, Environment, Government — Tags: , , — Nicholas Russon @ 06:47

Shikha Dalmia looks at Australia’s recently abandoned carbon tax scheme:

Environmentalists had a global meltdown last week after Australia scrapped its carbon tax. They denounced the move as “retrograde” and “environmental vandalism.”

They can fume all they want, but Australia’s action, combined with Europe’s floundering cap-and-trade program, signals that “mitigation” strategies — curbing greenhouse gases by putting economies on an energy diet — are not winning or workable.

Australia leapfrogged from being an environmental laggard (initially refusing to even sign the Kyoto Protocol) to a leader when its Green Party-backed Labor prime minister imposed a tax two years ago. It required Australia’s utilities and industries to pay $23 per ton of greenhouse gas emissions.

But the tax was an instant debacle.

Australia has the highest per capita carbon dioxide emission in the world and the main reason is that it’s even more coal-dependent than America. Coal supplies 75 percent of its energy needs (compared to 42 percent in America). But contrary to green expectations, the tax didn’t prompt companies to rush toward renewable sources, because they are far costlier.

Rather, utilities passed their costs to households — whose energy bills soared by 20 percent in the first year. Other industries that face hyper-competitive environment such as airlines suffered massive losses. (Virgin Australia alone reported $27 million in losses in just six months.) The tax also made Australian exports globally uncompetitive, deepening the country’s recession.

This spawned a backlash that brought down the Labor government and catapulted into office the Liberal Party’s Tony Abbott, who made a “blood promise” to ditch the tax, which he did promptly once elected, despite warnings that Aussie lowlands are more vulnerable to rising sea levels and other dire consequences of global warming than other countries.

July 17, 2014

Mussolini would recognize (and approve of) “economic patriotism”

Filed under: Economics, Government, History, USA — Tags: , , , , — Nicholas Russon @ 07:58

Kevin Williamson isn’t a fan of the recent upsurge in usage of the term “economic patriotism”, both for practical and historical reasons:

“Economic patriotism” and its kissing cousin, economic nationalism, are ideas with a fairly stinky history, having been a mainstay of fascist rhetoric during the heyday of Franklin D. Roosevelt’s favorite “admirable Italian gentleman.” My colleague Jonah Goldberg has labored mightily in the task of illustrating the similarities between old-school fascist thinking and modern progressive thinking on matters political and social, but it is on economic questions that contemporary Democrats and vintage fascists are remarkably alike. In fact, their approaches are for all intents and purposes identical: As most economic historians agree, neither the Italian fascists nor the German national-socialists nor any similar movement of great significance had anything that could be described as a coherent economic philosophy. The Italian fascists put forward a number of different and incompatible economic theories during their reign, and the Third Reich, under the influence of Adolf Hitler’s heroic conception of history, mostly subordinated economic questions as such to purportedly grander concerns involving destiny and other abstractions.

Which is to say, what the economic nationalism of Benito Mussolini most has in common with the prattling and blockheaded talk of “economic patriotism” coming out of the mealy mouths of 21st-century Democrats is the habit of subordinating everything to immediate political concerns. In this context, “patriotism” doesn’t mean doing what’s best for your country — it means doing what is best for the Obama administration and its congressional allies. This is where my fellow conservatives who write off Barack Obama as a Marxist really get it wrong: He has no meaningful economic philosophy whatsoever. Marxism might be a moral step backward for Barack Obama, but it would be an intellectual step up in the sense that it at least represents a coherent worldview. (“At least it’s an ethos.”) In years of listening to Barack Obama’s speeches, I’ve never detected any evidence that he understands, or even has any interest in, economic questions as such. He is simply a keen political calculator. The conflation of the national interest — “patriotism” — with the interest of the party or the supreme leader is too familiar a demagogic technique to require much explication.

That’s the Washington way: Create stupid financial incentives, complain when people respond to them — and then declare that conformity with your political agenda is identical to patriotism. The production values may be Hollywood slick, but this is just another third-rate sequel: Banana Republic: The Tax Code Strikes Back.

Except the tax code is not striking back. Democrats complain about it, but they rarely if ever try to do anything about the industry handouts and sweetheart deals enshrined therein — given that they wrote so many of them, why would they?

July 15, 2014

QotD: King George III’s minor fit of barking

Filed under: Britain, Government, History, Quotations, USA — Tags: , , , , — Nicholas Russon @ 00:01

It is a painful thing to confront someone whom one is accustomed to respecting, and to tell that person they are barking mad. Usually one avoids it, or dismisses the other’s strange behavior as “a difference of opinion,” and speaks platitudes about “the importance of diversity,” however when a person is going, “Arf! Arf!” right in your face, there is no way around it. This includes governments, when they become barking mad.

Thomas Jefferson knew this, when he quilled the Declaration of Independence, listing King George’s barking mad behaviors, however there has been a recent, revisionist effort to show that King George the Third wasn’t all that bad, and his blue urine wasn’t due to porphuria, and his spells of foaming at the mouth were but minor episodes, especially when he was young and was busily losing the American colonies. (I think this may in part be due to the fact that porphuria is hereditary, and certain people don’t want the rabble giving Prince Charles appraising looks.)

The argument states that, if you could get an audience at his glittering palace, King George was quite lucid, and even charming, and that the points he raised, about the government’s right to tax, are valid to this day. There is even some reproach towards America and Jefferson for failing to understand King George’s points.

However taxation was not the issue. Taxation without representation was the issue. When one looks back with twenty-twenty hindsight, the solution to the problem seems simple: Simply give the thirteen colony’s thirteen elected representatives in Parliament. It seems like such an obvious thing, to give Englishmen abroad the same rights as Englishmen at home, and seems so conducive to unity and the expansion of an unified kingdom, that to switch the subject to the-right-of-the-government-to-tax seems a sleight of hand bound to stub thumbs, to lead to schism, and to create discord out of harmony. It was, in fact, a barking mad thing for King George to do.

Caleb Shaw, “Barking Mad – A rave, prompted by facing insane heating costs”, Watts Up With That?, 2014-07-14.

July 11, 2014

The lawless hellhole that is post-legalization Colorado

Filed under: Business, Law, Liberty, USA — Tags: , , , — Nicholas Russon @ 07:24

Just as sensible people were predicting, the once peaceful and scenic state of Colorado is now a smoking hole in the ground, infested with twitchy-eyed, machete-wielding savages. (Oh, wait, no … that’s Edmonton):

[Colorado Governor John] Hickenlooper sounds cautiously optimistic, and there are good reasons for that. Possession and consumption of cannabis have been legal in Colorado and Washington since the end of 2012. In Colorado, so has home cultivation of up to six plants and noncommercial transfers of up to an ounce at a time. Since the beginning of this year, anyone 21 or older has been able to walk into a store in Colorado and walk out with a bag of buds, a vape pen loaded with cannabis oil, or a marijuana-infused snack. And for years in Washington as well as Colorado, such products have been readily available to anyone with a doctor’s recommendation, which critics say is so easy to get that the system amounts to legalization in disguise. Despite all this pot tolerance, the sky has not fallen.

A study released yesterday by Colorado’s Marijuana Enforcement Division supports Hickenlooper’s impression that legalization has not had much of an effect on the prevalence of cannabis consumption. The authors, Miles Light and three other analysts at the Marijuana Policy Group, note that the percentages of Coloradans reporting past-month and past-year consumption of marijuana in the National Survey on Drug Use and Health (NSDUH) rose between 2002 and 2010, mirroring a national trend. But consumption fell a bit in Colorado after 2010 while continuing to rise in the rest of the country. That is striking because Colorado’s medical marijuana industry began to take off in the second half of 2009 after the legal standing of dispensaries became more secure.

Another surprising finding is that marijuana use during this period was less common in Colorado than in the country as a whole. Based on NSDUH data from 2010 and 2011, 12 percent of Coloradans 21 or older were past-year users, compared to a national figure of 16 percent. But among those past-year users, daily use was more common in Colorado: 23 percent of them reported consuming marijuana 26 to 31 times a month, compared to a national rate of 17 percent. It’s not clear to what extent Colorado’s medical marijuana system is responsible for this difference in patterns of use.

[...]

Hickenlooper did not mention crime rates, but some opponents of legalization warned that cash-heavy cannabusinesses would invite robberies, leading to an increase in violence. Instead the frequency of burglaries and robberies at dispensaries has declined since they began serving recreational consumers in January. FBI data indicate that the overall crime rate in Denver, the center of Colorado’s marijuana industry, was 10 percent lower in the first five months of this year than in the same period of 2013.

Although the prospect of more money for the government to spend has always struck me as a pretty weak argument for legalization, Hickenlooper is happy to have tax revenue from the newly legal marijuana industry. So far there has not been much: just $15.3 million from the recreational sector in the first five months of 2014 ($23.6 million if you include medical sales), although monthly revenue rose steadily during that period. The economic activity associated with the new industry, including not just marijuana sales but various ancillary goods and services, is bound to be much more significant than the tax revenue. And although Hickenlooper says he does not want Colorado to be known for its cannabis, legalization (along with abundant snow) may have something to do with the record numbers of tourists the state is seeing. It seems clear, in any case, that legalization has not hurt Colorado’s economy, which Hickenlooper accurately describes as “thriving.”

Another benefit of legalization that can be measured in money is law enforcement savings, which various sources put somewhere between $12 million and $60 million a year in Colorado. Those estimates do not include the human costs associated with treating people like criminals for growing, selling, and consuming an arbitrarily proscribed plant. Prior to legalization police in Colorado were arresting 10,000 pot smokers a year. Today those criminals are customers of legitimate businesses, which are replacing the “corrupt system of gangsters” decried by Hickenlooper.

July 10, 2014

Millennials starting to get jaded about the virtues of government

Filed under: Economics, Government, USA — Tags: , , , , , — Nicholas Russon @ 07:57

The latest Reason-Rupe poll has some interesting results on the Millennial generation:

A Reason-Rupe survey of 2,000 Americans between the ages of 18 and 29 finds 66 percent of millennials believe government is inefficient and wasteful — a substantial increase since 2009, when just 42 percent of millennials said government was inefficient and wasteful.

Nearly two-thirds of millennials, 63 percent, think government regulators favor special interests, whereas just 18 percent feel regulators act in the public’s interest. Similarly, 58 percent of 18-to-29 year-olds are convinced government agencies abuse their powers, while merely 25 percent trust government agencies to do the right thing.

The Reason-Rupe report finds this skepticism of government has millennials favoring general reductions to government spending and regulations:

  • 73 percent of millennials favor allowing private accounts for Social Security; 51 percent favor private accounts even it means cutting Social Security benefits for current and future retirees because 53 percent of millennials say Social Security is unlikely to exist when they retire
  • 64 percent of millennials say cutting government spending by 5 percent would help the economy
  • 59 percent say cutting taxes would help the economy
  • 57 percent prefer a smaller government providing fewer services with low taxes, while 41 percent prefer a larger government providing more services with high taxes
  • 57 percent want a society where wealth is distributed according to achievement
  • 55 percent say reducing regulations would help the economy
  • 53 percent say reducing the size of government would help the economy

Of course, along with those hopeful signs are a few that show millennials are still idealistic (i.e., socialistic) in other areas: higher minimum wages, guaranteed food and shelter for all, and raising taxes on the rich all got lots of support in the poll.

June 29, 2014

Freedom of (certain kinds of) political speech

Filed under: Law, Liberty, Politics, USA — Tags: , , , , , — Nicholas Russon @ 10:04

Mark Steyn explains why it’s not a trivial thing to allow the Internal Revenue Service to operate as the financial wing of a political party:

… we’ve had a steady stream of emails from readers explaining that this is all well and good but it’s taxable income and what I really need to do is set up a 501(c)3 or 501(c)4 or 501(c)87 or some such as a vehicle for this campaign.

To which the answer is: well, we certainly considered the possibility, and a few years ago I might have entertained the notion. But not anymore. The National Organization for Marriage, which was founded to protect the pre-revisionist definition of marriage, is, in its various arms, both a 501(c)3 and a 501(c)4. As such, its tax returns are publicly available, but not its donor lists. Nevertheless, it is obliged to report its donors on Schedule B to the Internal Revenue Service. Someone at the IRS leaked the donor lists to a man called Matthew Meisel, a gay activist in Boston. Meisel in turn passed it on to the gay group Human Rights Campaign (whose president was a national co-chair of the Obama re-election campaign), and HRC in turn published the list of donors, which was subsequently re-published by The Huffington Post.

There’s no secret about why they’d do such a thing. As we know, if you disagree with progressive orthodoxy, you have no right to host a cable-TV home-decor show or give a commencement address at an American university or be a beauty-queen contestant. But that’s not enough for these groups. If you’re not a public figure, if you’re just a Californian who puts up a yard sign or a bumper sticker on Proposition Eight, your car will be keyed and your house defaced. And likewise, if you slip a check in the mail for a modest sum, it is necessary that you also be made an example of. Brandon Eich, Richard Raddon and Scott Eckern all lost prominent positions as chief executives because of their donations. But Marjorie Christoffersen, a 67-year-old Mormon who works in the El Coyote restaurant in Los Angeles, was forced to quit because she wrote a $100 check in support of Proposition Eight.

So, when it comes to the leaking of donor lists, we’re not dealing with anything “theoretically” or “potentially” “troubling”. These guys act on this information, and act hard, and they are willing to destroy your life for a hundred bucks.

This is nothing to do with whether you support or oppose same-sex marriage. This is about whether you support free speech, public advocacy, private advocacy and ultimately — one day soon — the sanctity of the ballot box, and whether you oppose a culture of partisan thuggery.

So how did leaking the National Organization for Marriage donor lists work out for the IRS? Well, after a two-year legal battle, the Government of the United States admitted wrongdoing and agreed to settle. For $50,000.

After two years in the toilet of American “justice”, I can tell you that 50 grand barely covers your tips to the courthouse washroom attendant. It’s nothing. The IRS budget is over $11 billion, so you figure out how many organizations’ donor lists they can leak for 50K a pop while still keeping it under “Miscellaneous” in the annual breakdown. $50,000 isn’t even a slap on the wrist — and this notwithstanding that the IRS, as it has in the Lois Lerner case, obstructed and lied, almost laughably: For example, they claimed that the leak was an inadvertent error by a low-level clerk called Wendy Peters in March 2011. But in February 2011 Mr Meisel, the gay activist, was already letting it be known that he had a source who could get him the info.

As in the Lerner case, the inconsistencies and obfuscations were irrelevant. Like Ms Lerner, Mr Meisel took the Fifth. The NOM asked the Department of Justice to grant Meisel immunity so that he could be persuaded to disclose what really happened. But Eric Holder’s corrupt Justice Department had already decided it wasn’t going to investigate the matter so it had no reason to grant Meisel immunity. The Fifth Amendment, a constitutional safeguard to protect the citizen against the state in potentially criminal matters, is being creatively transformed to protect the state against the citizens in matters for which a corrupt and selective Justice Department will never bring criminal prosecution.

So, when it comes to leaking confidential taxpayer information for partisan advantage, the IRS got away with it.

June 27, 2014

FATCA puts “private-sector assets on a bonfire so that government can collect the ashes”

Filed under: Bureaucracy, Cancon, Law, USA — Tags: , , — Nicholas Russon @ 00:02

In The Economist, a look at the looming deadline for non-US financial institutions to start turning over all their data on their US clients to the IRS:

FATCA stands for Foreign Account Tax Compliance Act, an American law passed in 2010 to crack down on the use of offshore banks, particularly in Zurich and Geneva, to hide taxable assets. The law, part of which takes effect on July 1st, is the most important and controversial development in decades in the international fight against tax evasion. It is feared and loathed by moneymen because of its complexity, its global reach and the high cost of compliance. One senior banker denounces it as “breathtakingly extraterritorial”.

The US government is so worried that US citizens are stiffing them for “their share” that they’re willing to risk blowing up the financial lives of millions of Americans living and working in other countries just to get those theoretical “missing” taxes. I started to type “ironically”, but I really mean “typically” the measure will cause great hardship for law-abiding Americans and do little to inconvenience the scofflaws.

The financial industry is struggling to work out which funds, trusts and other non-bank entities count as “financial institutions” under the law. There is also confusion over who is a “US person”. The definition is broad and includes not only citizens but current and former green-card holders and non-Americans with various personal and economic ties to the United States. Some Canadian “snowbirds” who travel to America for part of each year could be caught in the net, says Allison Christians, a tax professor at McGill University. As the complexities of implementation have grown apparent, the American authorities have had to extend several deadlines. Banks, for instance, will get a two-year moratorium on enforcement as long as they are striving to comply.

FATCA has already sent a chill through the 7m Americans who live abroad. Thousands have been told by their local banks and investment advisers that they no longer want their custom because it is too much hassle. Many others will now have to spend thousands of dollars to straighten out their paperwork with the IRS, even if they owe no tax (and most do not, since they will have paid a greater amount abroad, which counts as a credit against tax owed in America).

[...]

FATCA is about “putting private-sector assets on a bonfire so that government can collect the ashes,” complains Richard Hay of Stikeman Elliot, a law firm. Mark Matthews, a former deputy commissioner of the IRS now with Caplin & Drysdale, another law firm, argues that the effort put into hunting offshore tax evaders is disproportionate: the sums they rob from the public purse “look like a pinprick” compared with other types of tax dodging, such as the under-declaration of income by small businesses.

June 9, 2014

Happy Tax Freedom Day!

Filed under: Cancon, Government — Tags: , — Nicholas Russon @ 09:46

The Fraser Institute says today is Tax Freedom Day for Canadian taxpayers:

Tax Freedom Day for the average Canadian family falls on June 9, one day later than in 2013, according to the Fraser Institute’s annual calculations.

Tax Freedom Day measures the total tax burden imposed on Canadian families by the federal, provincial and local governments. If you had to pay all your taxes up front, you’d give government each and every dollar you earned before Tax Freedom Day. The later the Tax Freedom Day, the heavier the tax burden.

“Without our Tax Freedom Day calculations, it’s nearly impossible for Canadian families to know all the taxes they pay because governments levy such a wide range of taxes including income taxes, payroll taxes, health taxes, sales taxes, property taxes, fuel taxes, vehicle taxes, profit taxes, import taxes, ‘sin’ taxes on liquor and tobacco, and more,” said Charles Lammam, resident scholar in economic policy at the Fraser Institute and co-author of Canadians Celebrate Tax Freedom Day on June 9, 2014.

After accounting for all taxes, the average Canadian family (with two or more people) in 2014 will pay $43,435 in total taxes, or 43.5 per cent of their annual income. On the calendar, this percentage translates into a June 9 Tax Freedom Day, when Canadians start working for themselves and their families instead of government.

Provincial tax freedom days in 2014

June 4, 2014

Gavin McInnes gives a shout-out to the Rebel Alliance

Filed under: Humour, Media — Tags: , , , — Nicholas Russon @ 08:07

No, he really did:

Gave a shout out to the Rebel Alliance on Fox last night. They are a group of kids in the future who live in the sewers like Ninja Turtles and refuse to pay our bloated pensions. That’s the problem with all this talk of the debt we’re saddling our children with. It assumes they’re going to pay it.

What if they just say, “Fuck off” like they do in Costa Rica? The taxes are too high there so most people just refuse to pay. When everyone does it, the government can’t do anything about it. This next generation is tech-savvy enough to create their own currency and barter their own exchanges and the sewers they live in won’t be gross. They’ll be like a cool teen’s bedroom from 1990.

H/T to Kathy Shaidle for the link.

May 29, 2014

Harper’s “starve the beast” policy continues

Filed under: Cancon, Economics, Government — Tags: , , , , — Nicholas Russon @ 07:22

In Maclean’s, Paul Wells updates us on the multi-year diet Stephen Harper has been running on the government’s “revenue generating” tools:

If I were the Conservative Party, I’d be using the latest report [PDF] from the office of Parliamentary Budget Officer Jean-Denis Fréchette to fundraise too. By the standards that motivate Conservative donors, this report is highly motivating.

The report, by PBO analyst Trevor Shaw, examines the reduction in federal revenues resulting from all the major changes to personal income tax and the GST since 2005. It’s an odd choice of starting point — 2005 was the second of Paul Martin’s two calendar years as prime minister — but only a small part of the reduction Shaw measures is attributable to that second Martin budget. Most has happened since.

And the net effect is striking:

    “In total, cumulative changes have reduced federal tax revenue by $30 billion, or 12 per cent. These changes have been progressive, overall. Low and middle income earners have benefited more, in relative terms, than higher income earners.”

Shaw attributes $17.1 billion of the reduction to changes to personal income tax level and structure, and $13.3 billion to changes in GST/HST rates. He doesn’t count revenue reductions from changes to corporate income tax. We’ll get back to that. But on the personal income-tax and GST side, the final number is probably actually a little bigger than $30 billion: Shaw writes that he couldn’t get enough data to make his own estimate of revenue reductions due to Tax Free Savings Accounts, but passes along a Finance Canada estimate that it’s good for $410 million in revenue reductions. So, figure $30 billion and change in the current tax year that Ottawa would have raised if it hadn’t been for the past decade’s worth of tax changes.

NDP leader Thomas Mulcair is apparently hoping to make up the “shortfall” (from the point of view where any reduction in government spending is bad) by jacking up corporate taxes. This may not work as well as he hopes:

First, Mulcair is fooling himself if he thinks corporate taxes can be increased to make up for the shortfall in personal-tax income Harper has engineered. As the PBO points out, “Personal income tax and the federal portion of the GST/HST account for 75 per cent of federal tax revenues.” There’s way less room to make money off rich fat cats than Mulcair pretends. I mean, he’s welcome to keep pretending, but if he keeps his word an NDP government will remain short of cash. And a Liberal government, more so.

Second, this is why Stephen Harper is in politics. I wrote a book about that. He may one day stop being prime minister, at which point the real fun begins, because his opponents are promising to run a Pierre Trudeau government or a Jack Layton government at John Diefenbaker prices. It can’t be done. Their inability to do it will be Harper’s legacy.

May 24, 2014

Piketty’s Charge

Filed under: Economics, Media, Politics — Tags: , , , — Nicholas Russon @ 11:43

The book that everyone has been so enthusiastic about (well, everyone who supports vastly increased taxes and a much larger government anyway) may rely for much of its power on faulty data:

FT economics editor Chris Giles says he has found serious errors in data used by Thomas Piketty in his best seller Capitalism in the 21st Century, about growing inequality in the Western world.

“Some issues concern sourcing and definitional problems,” Giles writes. “Some numbers appear simply to be constructed out of thin air.”

Correcting for the errors revealed fundamentally different conclusions about rising inequality, Giles said.

“Two of Capital in the 21st Century’s central findings – that wealth inequality has begun to rise over the past 30 years and that the US obviously has a more unequal distribution of wealth than Europe – no longer seem to hold,” he writes.

He continues:

    For example, once the FT cleaned up and simplified the data, the European numbers do not show any tendency towards rising wealth inequality after 1970. An independent specialist in measuring inequality shared the FT’s concerns.

Update, 25 May: The concern is not just “fat fingered” data transcription errors, but deliberate falsification of data.

But while the two Harvard professors’ errors seemed to have been unintended, Giles levels a more serious critique: that Piketty actively manipulated his data.

His most damning claim: Piketty altered U.K. data to show that wealth distribution there is worse off than it appears to be.

Piketty says the share of income going to the top 10% never fell lower than 60%, and since the end of the 1970s has returned to 70%, a level not seen in 70 years.

But the data Piketty himself cites shows the top 10% share of wealth is no greater than 50%, and may be as low as 42%.

Giles writes: “This appears to be the result of swapping between data sources, not following the source notes, misinterpreting the more recent data and exaggerating increases in wealth inequality.”

[...]

In a follow-up video on FT.com, Giles shows another example: Piketty appears to have added random numbers to certain formula to bend the data toward his hypothesis. “A 2 is added because the number wasn’t high enough — it didn’t seem to fit what he wanted to show in his charts, so he just added 2 to it,” Giles says. “There was quite a lot of this sort of thing in his spreadsheets.”

Update, 27 May. Nate Silver warns that we should be skeptical of both Piketty and his critics:

Science is messy, and the social sciences are messier than the hard sciences. Research findings based on relatively new and novel data sets (like Piketty’s) are subject to one set of problems — the data itself will have been less well scrutinized and is more likely to contain errors, small and large. Research on well-worn datasets are subject to another. Such data is probably in better shape, but if researchers are coming to some new and novel conclusions from it, that may reflect some flaw in their interpretation or analysis.

The closest thing to a solution is to remain appropriately skeptical, perhaps especially when the research finding is agreeable to you. A lot of apparently damning critiques prove to be less so when you assume from the start that data analysis and empirical research, like other forms of intellectual endeavor, are not free from human error. Nonetheless, once the dust settles, it seems likely that both Piketty and Giles will have moved us toward an improved understanding of wealth inequality and its implications.

April 30, 2014

Inheritance taxes actually perpetuate the 1%

Filed under: Britain, Economics, USA — Tags: , , , — Nicholas Russon @ 08:18

Here’s Tim Worstall’s counter-intuitive post at the Adam Smith Institute blog from last week:

… Note “family foundation” there. Because of that inheritance tax rich people do tend to (and they have to be very rich for it to work) stick all of the money into a foundation. This wealth can then be maintained by professional money managers down the generations. Tax free, of course, as it’s inside a foundation. The stipulation is that said foundation must give away 5% of its assets each year. But such “giving away” obviously includes employing family members to run it. At pretty much any salary desired.

This obviously wouldn’t happen if the money could just be left directly to children without tax being due. And the effect of it going into such a foundation where the professional money managers can maintain it, rather than the heirs blow it, is that we’ve lost one of the major forces that disperses wealth through the society. The feckless heir.

So, we end up with the imposition of the tax leading to the continued concentration of old wealth, as the avoidance of the tax reduces the ability of the inheritors to waste it.

As an example, who thinks that any of the Kennedys would still be rich if they’d been able to get their hands on old Joe’s money directly?

I rest my case.

As one of the comments on that post points out, it’s not just the inheritance tax: it’s the interaction between the tax and the rules governing family foundations that create this unexpected-to-most-of-the-99% situation. I’m sure the 1% who can benefit from this are fully aware of it. This could be fixed either way, but the very people who benefit are the ones who would be pivotal in whether the changes could be made. So, it’s technically possible but not at all likely.

April 24, 2014

You can’t say the IRS isn’t caring and generous

Filed under: Bureaucracy, Government, USA — Tags: , — Nicholas Russon @ 08:27

Tim Cavanaugh explains that your jaundiced view of the Internal Revenue Service is clearly contradicted by the IRS’s approach to helping people with tax troubles:

Sometimes it seems like you only hear the bad news about the Internal Revenue Service: the targeting of the president’s enemies; the padding of union bosses’ hours.

But sometimes the federal tax collector is there to lend a hand.

During 26 of the darkest months of the post-recession, 1,100 persons in the United States had “substantiated Federal tax compliance problems.”

Yet during that same time period, from October 2010 through December 2012, the IRS showed mercy, even charity. It gave those 1,100 people more than $1 million in cash awards, as well as other considerations of value.

The other considerations included 69 workplace promotions and 10,000 hours worth of what California public employees call “air time.”

That is to say: All of those 1,100 were IRS employees.

April 15, 2014

Are breast implants tax-deductable? Only if they’re “extraordinarily large”

Filed under: Business, Law, USA — Tags: — Nicholas Russon @ 07:10

For some reason, the following report at the Tax Foundation website does not have any images to accompany the story:

In filing one’s taxes, it may be necessary to distinguish between breast implants that are merely “large,” and breast implants that are “extraordinarily large.”

The relevant ruling on this subject came in 1994 in a case known as Hess v. Commissioner. The plaintiff, a self-employed exotic dancer, had implants that expanded her bust size to the size 56FF. For tax purposes, she treated these as a deductible business expense on her schedule C. The IRS contested her deduction.

[...]

The relevant issue in Hess was whether breast implants – traditionally thought of as a luxury good bought for personal benefit – could be considered a legitimate business expense. Given that the plaintiff was an exotic dancer, she had a fair argument. But in general, taxpayers aren’t allowed to treat personal appearance expenditures as business expenses unless they aren’t suitable for personal use. Hess, arguing pro se, convincingly established that her implants were inconvenient in everyday life due to the sheer enormity of her breasts. The courts ruled in her favor:

    Because petitioner’s implants were so extraordinarily large, we find that they were useful only in her business. Accordingly, we hold that the cost of petitioner’s implant surgery is depreciable.

H/T to Walter Olson, who assures us that this inquiry is strictly business.

April 9, 2014

Amity Shlaes on “progressive” tax rates

Filed under: Government, USA — Tags: , , — Nicholas Russon @ 09:36

The US tax system, like those in many Western countries, incorporates the concept of “progressivity” — the higher the income you earn, the higher the tax you pay on the last dollar. Your income is divided into blocks where each block of dollars is taxed at a different (rising) rate. In other words, the lower your personal income the less tax you pay per dollar of income. Amity Shlaes explains why this mechanism makes reforming or cutting taxes such a challenge:

Over the hundred years intervening, studies have shown that generally people do think that the greater the wealth, the more dollars wealthy people should pay in tax, proportionally. But that is not a progressive rate structure. That is a flat tax. A progressive tax increases rates as you earn more, disproportionally.

Nor are many people aware that under a progressive structure the last dollar is taxed at a different rate from the first dollar. The top marginal rate is not necessarily the average rate. In the early 1980s, scholar Karlyn Keene found that many Americans, when interviewed, thought flat taxes fair. Before Keene, Walter Blum and Harry Kalven at the University of Chicago studied attitudes toward progressivity and its functions and came away, despite their liberal predilections, concluding that the case for progressivity is “uneasy.”

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Vanity of two sorts provides answers. Most Americans are unwilling to concede that they may not understand or be comfortable with long formulas and complex economic ideas. So, like the Enron audit committee, they simply nod and go along.

The second vanity involves not intelligence but a kind of Puritan pretension. No American wants to be caught appearing unfair, even if in the most fleeting snapshot. “Progressivity” sounds like “progress.” Nobody wants to be seen opposing progress, even if that progress is regress and unfair to boot.

In any case: That willed American ignorance is the single greatest reason our progressive income-tax rates have moved, at times, into the 90 percent range, up from that original 7 percent.

Worse, the attitude makes progressivity hard to undo. When you cut taxes for all in a progressive rate structure, the rich necessarily get a larger tax break because they pay a greater share of the taxes. But “larger tax breaks for the rich” are impossible to sell. A redistributive corollary: benefits for the poor. This week Paul Ryan is getting scourged because his budget cuts affect the poor more than the rich. That is because the poor get more of the benefits in the first place.

Update, 10 April: Here’s a great example of how much tax rates can increase at higher levels (although this particular example is not an income tax). In New York state, a recent change to estate tax rates can result in a marginal tax of 164%:

On its face, the new law seems like tax relief. Under the previous law, New Yorkers paid estate taxes of 3.06 percent to 16 percent on the value of estates over $1 million. The new law raises that exclusion to $2.062 million this year and gradually increases it to more than $5 million by 2017.

But because the law also phases out certain credits related to federal taxes, people who have estates valued just above the $2 million threshold could get massive estate tax bills. An analysis by U.S. Trust found that a New York resident who dies today with a taxable estate of $2,165,625 could have to pay an estate tax of over $112,050. That represents a tax of over 100 percent on the value of the estate over $2,062,000.

It gets worse in a few years. Matz said that assuming that the exclusion rises to $5,250,000, a New Yorker with a taxable estate of $5,512,500 would have to pay an estate tax of $430,050. That’s a marginal tax rate of 164 percent on the value of the estate above the exclusion.

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