A Second Hand Conjecture

Derek Thompson at the Atlantic blog writes about a NY Times piece on taxing email. He’s not advocating it, or arguing against it but looking at the supposed benefits and negatives, and how it would likely increase instant messaging.

What would be the effects of an email tax? I’m not sure it would make such a big difference. To save my daily pennies, I know I would lean more on Gchat or other instant message programs, and I’m sure everybody else would too.

Would that be taxed next? If email can be taxed, why not aim? However one of the key benefits touted by both the Times article and Thompson is that it would curtail the deluge of spam that we all recieve. You know, hey spammers send a lot of email, let’s just tax email, then we not only get less spam, but make money too! Anyone see any holes? I do. How do you keep track of emails and then send the tax bill?

Such a tax is feasible, he says, since e-mail addresses are easily identifiable by Internet service providers and they could pass on the levy in their monthly bills to users.

The problem with this? This isn’t how spam works. Spam is sent from “zombie pc’s“, meaning unknowing grandparents and non-netsavvy people are going to get a huge bill come due for the spam sent. Furthermore, the government will always be behind in technology, there’s just no way spammers and people wouldn’t be able to get around the tax through forged email headers, botnets, tor networks, ect. This will end up costing the unfortunately honest people and not the dishonest ones it’s targeted to.

Let’s also not overlook the liberal arrogance of the Times piece:

You might gulp at the $3-a-day cost for 100 e-mails, but don’t forget you pay more to gulp your daily large caramel macchiato.

For one thing, $3 a day is a lot of money in a year ($1095), for another, I have no idea what a caramel macchiato is.

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Today is the day that we have earned enough to pay its tax burden for the year. This year’s day comes earlier than last year, though this is due to recent stimulus effects. Before you start to celebrate though, Doug Bandow warns us that the future does not look good on the tax burden front.

Runaway spending ensures that this year’s TFD will be dwarfed by future TFDs. Some day someone will have to pay off the debts being run up today. The Obama administration’s budget figures are bad enough, but they almost certainly rest upon unrealistic economic expectations. The CBO again offers a sobering analysis: “CBO’s estimates of deficits under the President’s budget exceed those anticipated by the administration by $2.3 trillion over the 2010-2019 period.”

What do do about it? Many are taking to Tea Party protests. While Jon Henke defends the protests from Paul Krugman’s libel.

Yet, in today’s New York Times column (in which he makes some reasonable points about the sad state of the Republican Party), Paul Krugman grossly misuses a term to libel a variety of people.

Last but not least: it turns out that the tea parties don’t represent a spontaneous outpouring of public sentiment. They’re AstroTurf (fake grass roots) events, manufactured by the usual suspects. In particular, a key role is being played by FreedomWorks, an organization run by Richard Armey, the former House majority leader, and supported by the usual group of right-wing billionaires. And the parties are, of course, being promoted heavily by Fox News.

What Freedomworks and various other organizations are doing is not “astroturf” any more than the anti-war protests of some years back were astroturf because ANSWER and Moveon.org helped organize people around those events.  Astroturfing is paid activism by an organization; it is not genuine grassroots activism that funded groups are simply helping to organize.

Update: More piling on from my home town Tea Party site.

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Ben Armbruster at ThinkProgress is upset Fred Barnes and Dick Morris are blaming Obama for the post-election declines in the stock market. Armbruster’s case is a little defensive and misjudged (he cites the New York Times’ opinion, as if that would mollify critics), but then the transition from implacable critic of a government to determined apologist for a proto-government has been swift for all at TP.

However, in a general way he does have a point to object on I think. People are out to make cash gains where and when they can in this market, and opportunities have been rather few lately. To the extent that there was a specific macro cause, it seems to me the abrupt election day rally was the more likely culprit for the subsequent sell-off. That is what we’ve seen in other isolated spikes on events this year. The Saturnian habit for feeding yourself by eating your children, rather than letting them grow up to sow the fields, if you will.

Although it should be said that Dick Morris’ point that provoked Armbruster’s ire is not entirely unreasonable either. There’s certainly some incentive for selling on a small gain now, if you expect capital gains taxes to be substantially higher later. Comprehensively rejecting that as a buried motive is not reasonable.

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For a technical look at what’s ahead, fifteen tax profs offer their thoughts on tax policy in the new Obama Administration.

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Alan Reynolds at Cato asks “How’s Obama Going to Raise $4.3 Trillion?”

Altogether, Mr. Obama is promising at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018 — roughly an extra $430 billion a year by 2012-2013.

How is he going to pay for it?

Read the whole thing for an overview of what Obama is promising in inscreased spending and loss of tax revenues and how his rational for paying for it falls far short of the goal. How will we pay for all this? It’s something I’ve wondered for a long long time and have only found hand waving about corporate loopholes and better efficiencies savings that seem absurd on their face.

That leaves 3 options as I see it. We will do one or some combination of

1. Increase the national debt
2. Raise taxes
3. Cut Spending

Increasing the national debt may not be as politially feasible in the near future as it has been in the past (at least I hope), so it’s clear that can’t account for all of it. I’m not sure how much more the democrats will be able to tax the rich and corporations. I mean, they might try, but I don’t think it will give them the returns they would hope for. So that leaves raising taxes on the rest of us and cutting spending. Any whats the only part of the budge the democrats have been known to favor spending cuts for? The military.

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Under McCain and Obama's tax plans 43% and 44% would pay no income tax respectively

Fewer and fewer people are paying income tax and even less will be with either candidates tax plan. I don’t think this would be such a problem if we didn’t have such high spending, growing entitlements, and if so many of these zero income tax filers weren’t getting additional handouts from the government (especially under Obama’s tax “cuts” ie. handouts).

It has been said by an unknown author “[Democracy] can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury…” and this is where we’ve been heading for awhile. I think just as a tax plan can be too regressive, it can be too progressive in that it places too high a burden on “the rich” resulting in them leaving (atlas shrugs) or seeking tax shelters, and at the same time having too much of the population with no civic tax obligation leaving them no incentive to constrain public spending (hey, it’s not their money right?)

(HT Greg Mankiw)

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If you support the Paulson bailout plan that is. The New York Times has coverage.

The Senate proposal would cost more than $100 billion and extend and expand many individual and business tax breaks, including tax credits for the production and use of renewable energy sources, like solar energy and wind power.

The bill would also extend the business tax credit for research and development, expand the child tax credit, protect millions of families from the alternative minimum tax and provide tax relief to victims of recent floods, tornadoes and severe storms.

In a delicious bit of soon to be civics geek trivia, the Senate worked around the Constitutional restrictions against voting on tax legislation not already considered by the House by attaching the bailout plan along with a tax extender bill to the Mental Health & Addiction Act (which passed the House several months ago).

You gotta love our government.

In addition to the Paulson plan details, various tax cuts and dealing with the AMT it includes a very helpful proposal, increasing government insurance on bank deposits from 100k to 250k.

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According to the Associated Press, a sequence of interviews with Democratic leaders has revealed this to be the political plan being recommended to the Obama campaign:

1. Tie the Republican to an unpopular President Bush.
2. Let no charge go unanswered.
3. Stress plans to fix the economy.

Well, I’m not sure any of these items is good advice, with a possible qualitative exception on #3.
(more…)

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George Reisman’s Blog
“The loot?and?plunder theory is the theory of Obama, of the Democratic Party, and of much of the Republican Party. It is time to supplant it with the sound economic theory developed by generations of intellectual giants ranging from Smith and Ricardo to Böhm-Bawerk and Mises.”

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And millions of us may benefit.

The dispute arose when more than 30 mutual life insurance companies became publicly traded corporations in the late 1990s and earlier this decade, in a process known as “demutualization.”

Mutual companies are owned by their policyholders, so the companies provided stock and cash to compensate them for the loss of their ownership interests when they went public.

All told, roughly 30 million policyholders received distributions, Ulrich estimates. MetLife Inc. provided over $7 billion of stock to about 11 million policyholders when it went public in 2000, while Prudential distributed $12.5 billion in stock to another 11 million.

The IRS held that the recipients hadn’t paid anything for the shares and owed taxes on the full amount when the shares were sold. Cash distributions also were fully taxable, the IRS said.

That didn’t sound right to Ulrich, 72, an accountant for 49 years. He began researching the issue in 2001, when he received shares from two companies, Prudential and Indianapolis Life.

Ulrich concluded that policyholders had paid for their ownership rights through their premiums so the distributions should have been tax-free.

Funny, a family member gave me some shares he inherited from Met Life’s demutualization just last night to help him with. The man is a hero in my book. The IRS’s position was illogical, but they often make calling them on such matters too burdensome for most to fight. Good for him.

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Maybe.  Professor Mankiw has the gory details.

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I would call this ignorance, but it is worse than that. The Times reporters just believe corporations are such a honey pot they didn’t even stop to think. They just wrote.

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FROM: Dr Ben Bernanke
Central Bank of United States of America
01-658-555-1234

TO: CEO
Lagos, Nigeria

Dear Friend:

I have been requested by the regional members Federal Reserve of the USA to contact you for assistance in resolving a matter. The Federal Reserve of the USA has recently concluded a large number of contracts for credit derivative investment vehicles “CDIV” in the Wall Street region of the USA. The contracts have immediately produced moneys equaling US$40,000,000. The Federal Reserve of the USA is desirous of CDIV in other parts of the world, however, because of certain regulations of the USA Government, it is unable to move these funds to another region.

Your assistance is requested as a non-USA citizen to assist the Federal Reserve of the USA, and also the investment bank community of Wall Street USA, in moving these funds out of USA. If the funds can be transferred to your name, in your Nigerian account, then you can forward the funds as directed by the Federal Reserve of USA. In exchange for your accommodating services, the Federal Reserve of USA would agree to allow you to retain 10%, or Nigerian $4 million of this amount.

However, to be a legitimate transferee of these moneys according to USA law, you must presently be a depositor of at least $100,000 in a USA bank which is regulated by the Central Bank of USA.

If it will be possible for you to assist us, we would be most grateful. We suggest that you meet with us in person in New York, NY USA, and that during your visit I introduce you to the representatives of the Wall Street USA, as well as with certain officials of the Central Bank of USA.

Please call me at your earliest convenience at 18-555-1234. Time is of the essence in this matter; very quickly the USA Government will realize that the Central Bank is maintaining this amount on deposit, and attempt to levy certain depository taxes on it.

Yours truly,

The Esteemed Arch-Chairman

Credit: Barry Ritholtz

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Ryan Ellis, the Tax Policy Director at Americans for Tax Reform, presents 3 principles of conservative health care.

Principle 1: Conservative health care reform should neither raise taxes nor increase the size of government. You’d think this would be a no-brainer, but trust me that it isn’t.
Principle 2: Health insurance should have nothing to do with your job unless you want it to. In any event, health insurance should be 100% portable.
Principle 3: Shopping for health care should look more like currently shopping for prescription drugs, dental, vision, and cosmetic surgery, and less like going to the hospital or getting a checkup. The former is price transparent and market-responsive. The latter is bureaucratic and doesn’t work

He offers the the Health Care Freedom Coalition as a possible package and then asks for reader suggestions in the comments. Sadly the comments then fill up with sidetracking discussions about illegal immigration. If you have any ideas, feel free to chime in at the Next Right.

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No sales tax, no income tax, no capital gains tax, no inheritance tax….If I could only figure out a way to have income in Grand Cayman, I’d move without a minute’s notice. As it stands, it’s easy to avoid taxes even here if you don’t have a job.

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Thanks to Don Boudreaux, I found this “Inconvenient Truth” about the struggles of the middle class. As readers here know, I have long been a bear on housing, but as always those who want their hands on our wallet can take any crisis or problem as a license to take from us. Todd Zywicki writes to the Washington Post:

In his April 27 op-ed, “Don’t Blame All Borrowers,” Robert H. Frank argued that the quest for better schools for their children has led many parents to overspend on housing. He cited “The Two-Income Trap,” a book by Elizabeth Warren and Amelia Warren Tyagi, to make this argument.

But Ms. Warren and Ms. Tyagi’s own data do not support Mr. Frank’s claim. In fact, from the 1973 to 2000, the percentage of household income dedicated to mortgage payments actually declined. So where did all the money go? To taxes — which, all told, rose a whopping 140 percent in constant dollars.

In some part, this is a result of “the two income-tax trap”: When a spouse enters the workforce, he or she is immediately taxed at a higher marginal rate than one worker would be alone. But it is also because of increases in myriad state and local taxes, notably property taxes, which have risen along with real estate prices.

If Mr. Frank is concerned about the financial plight of the middle class, the answer seems clear: He should be arguing for a reduction in the tax burden, not about some chimerical “bidding war” for homes near good schools.

TODD J. ZYWICKI

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Due to free markets, capitalism and freedom in general, the world is getting wealthier.

The last quarter century has witnessed remarkable progress of mankind. The world’s per capita inflation-adjusted income rose from $5400 in 1980 to $8500 in 2005.Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just asfast. Compared to 1980, many more countries in the world are democratic today.

The last quarter century also saw wide acceptance of free market policies in both rich and poor countries: from private ownership, to free trade, to responsible budgets, to lower taxes. Three important events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in China, which over the quarter century lifted hundreds of millions of people out of poverty. In the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her radical reforms and a long period of growth. A year later, Ronald Reagan was elected President of the United States, and also embraced free market policies. All three of these leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to the last quarter century as the Age of Milton Friedman.

Oh!  The agony of it all!

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Actor Wesley Snipes was found not guilty of federal tax fraud and conspiracy charges earlier this month. Basically he blamed it on the tax advice he received. Whether one believes that he didn’t know that when one earns $38 million you are likely to owe some tax, much less request a 12 million dollar refund, the decision has gotten the IRS to take the tax protester movement seriously:

Treasury and Justice Department officials say the protester ranks are growing and now include white-collar professionals. And they are costing the government millions of dollars.

“Too many people succumb to the fallacy, the illusion, that you don’t have to pay any tax under any set of conditions,” Assistant Attorney General Nathan Hochman told Bloomberg. “That is a growing problem.”

The movement has been energized by the Snipes trial:

According to the Bloomberg report, in addition to the Snipes verdict in which he was cleared of tax conspiracy charges, the tax protester movement has been given a boost by the faltering economy and politicians’ vilification of the Internal Revenue Service.

And, no surprise here, the promotion of “kooky” avoidance plans has been aided by the Internet, where many firms sell strategies online and believers encourage others to join the anti-tax efforts.

“Any kooky tax protester can put up their theories,” said Jonathan R. Siegel, a professor at George Washington University’s law school. “It is much easier to get their message before a mass audience.”

You can read the full Bloomberg story on the coming tax enforcement activities here.

You also should check out Siegel’s collection of tax protester myths here.

And the official U.S. word on such efforts can be found at this special Web page dedicated to debunking frivolous tax arguments.

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There is only one way to kill capitalism – by taxes, taxes, and more taxes.

Karl Marx

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One of my liberal friends routinely rails at me for being such a selfish, uncaring conservative. When I remind him, though, that he is the one who moved from Minnesota to Florida because he “could not afford the taxes” in his former home state, and I am the one who remains here – I hear mumbling about temperatures and golf. (With temps seemingly stuck in the “your-nose-will-freeze-and-fall-off-your-face-if-you-go-out-for-more-than-three-minutes” range, I’ll give him the temperature argument.)

People do move for weather and sports, for culture and family. Nevertheless, if you look at the data, clearly some percentage of people move because they judge it costs them just too damn much to live in their high tax state.

We invite readers to visit the U-Haul Moving Company Web site (www.uhaul.com), where you can type in a pair of U.S. cities to learn what it costs to move from point A to B. If you want to move, say, from Austin, Texas to Southern California, the moving van will cost you $407 to rent. But if you want to move out of California to Austin, the same van costs $1,831. A move from Dallas to Philadelphia costs $663, versus $2,433 to swap homes in the other direction. The biggest discrepancy we could find was $557 from Nashville, Tennessee to Los Angeles, but the trip costs nearly eight times more, or $4,285, to move to Nashville from L.A.

I’m someone who believes in fiscal responsibility. You need reasonable services to have a pleasant and safe community, and you need some taxation to pay for those services and safety. Politicians should remember these words of wisdom, however:

Our friends on the left say Americans are willing to pay more taxes to get better government services, but their migration patterns reveal the opposite. Governors would be wise to heed these interstate migration trends as they try to cope with what may be one of the worst years in recent memory for state finances. The people who tend to be the most mobile in American society are the educated and motivated — in other words, the taxpaying class. Tax them too much, and you’ll soon find they aren’t there to tax at all.

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photo: ccgd

Mick at Uncorrelated picks up a Mark J. Perry story noting that ExxonMobil’s annual average tax bill, nearly equals total taxes paid by the bottom 50% of individual taxpayers in 2004. In the leftist mind this is perhaps deserving punishment for the robber baron. For me, it’s an enormous amount of private capital, that would could be doing much to stimulate legitimate economic growth, were it not being confiscated by the state.

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Arnold has to govern liberal California, Rudy had to govern liberal NYC and McCain…McCain is from Arizona. So what exactly is his excuse for his dramatic shift to the Left over time? Lest you think he has one, here’s a very good interview from Kudlow & Company with Arizona Senator Jon Kyl, who is championing the cause of slashing corporate taxes to induce growth, while his colleague McCain rants about the evils of big business. Just some info in case you’ve ever wondered if like Arnold and Rudy, McCain’s liberal positions are induced by electability concerns in demographically fluid Arizona. Kyl has managed to remain staunchly conservative for years while being easily reelected. On a media note, Kyl’s 2006 reelection is often described as “narrow” by the press. 53-43 isn’t narrow.

H/T: Larry Kudlow

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Richard Rahn pushes for the indexing of capital gains due to inflation as part of the stimulus.

Accounting for inflation in this way has the advantages of producing more short-term revenue to the Treasury as long-term gains are “unlocked.” Furthermore, lowering the cost of capital would stimulate investment and the stock markets, and would increase the fairness of the tax system by not taxing phantom gains for people at all income levels. It would also square capital-gains taxation with the U.S. Constitution.

Assume you purchased a common stock in a company in 1984 for $100 a share and sold it in 2007 for $200 a share. Have you received any “income” from the sale of the shares of stock? The IRS would say “yes,” but this is clearly wrong. The IRS will claim that you had a $100 per share capital gain on the stock in the above example, yet actually the increase was solely a result of inflation. Because you cannot buy more goods and services with $200 now than you could have with $100 in 1984, you have had no “income” or wealth accretion.

Over the years numerous economists, lawyers and others have tried to fix this problem and have gotten nowhere with Congress. But now, due to increased concerns about inflation, economic growth and judicial salaries, the time may be right to move forward.

Pejman has his back.

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I don’t want to hear any more about how the Democrats are the party of fiscal responsibility; none of them are planning to close the current deficit, much less deal with the now-seriously-it-really-is-looming entitlement problem. Their tax code changes will claw back only a small fraction of the revenue lost in the Bush tax cut. If you are surprised, it is probably because the Democrats and the Republicans have a different definition of the tax cuts going “mostly to the rich”. If you mean, “which individuals got the biggest benefit from the tax cuts?”, rich people did, because they pay the most taxes; that is the definition Democrats use. But if you mean “which class of people got most of the money?”, then the answer is “the middle class”. There just aren’t that many rich people; it costs a lot more to hand out a modest amount of cash to 200 million than to hand out a lot of cash to 500,000. So when Democrats repeal only the tax cuts on the top one or two brackets, this may be symbolically rewarding, but it will not actually generate that much revenue for the treasury.Democrats are, of course, planning to spend every bit of the money from their tax increases on new spending, plus it looks like some more. You may now return to forgetting that you ever thought you cared about the budget deficit.

This rant is inspired by this post from Greg Mankiw on Hillary Clinton’s tax plan:

1. The $52 billion estimate seems high to me. The CBO reports that each percentage-point increase in the top two income tax rates–singles making over about $150K, married taxpayers over about $180K–increases tax revenue by only $6.5 billion in 2009. Multiply that by 4.6 (the proposed rate increase), and you get $29 billion, not $52 billion. And even that $6.5 billion is an overestimate, because it includes the top two rates, not just the top rate. I would guess that the Clinton campaign included other tax increases in the $52 billion figure, such as increases in the taxes rates for dividends and capital gains.

2. Even taking the $52 billion estimate at face value, it shows how little revenue would come from increasing taxes on the rich. This is only about 1/3 of one percent of GDP.

3. The passage from Leonhardt makes clear that Senator Clinton wants to spend the extra revenue on other proposals, instead of using it to reduce the long-term fiscal gap.

4. The passage says that this revenue will “help pay” for her other proposals, instead of fully paying for them. The entire package seems to involve either an expanded deficit or other taxes increases (or spending cuts) to be named later.

Actually, as bad as this is it doesn’t come close to the grand stupidity of this suggestion from Hillary on how to solve the housing crisis.

Not that Megan is shocked at her conclusion, but I have certainly pointed out before that any examination of the voting in Congress showed that Republicans were far more fiscally responsible than the Democrats. So I already reached the same conclusion she has. Which doesn’t mean the Republicans in power is a good thing. They have much stiffer backbones in the minority.

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