Imagine that in a few years you wake up to news reports on the radio that your town is under a flash flood watch. The ground has been so baked by the recent drought that water can’t soak in, and so the pounding rain is just flowing off into streams and filling low-lying areas.

What’s worse is you’ve got a pediatrician appointment today for both of your kids – their asthma is acting up and the drugs aren’t working as well as they should be. Furthermore, your son is still recovering from a case of malaria he picked up, probably from a mosquito bite he got during the pee wee football game by the reservoir a couple of months ago. At least the rains will damp down on your environmental allergies some today. Better rain, even flooding, than the dust storm that blew through the area a couple of weeks ago. That caused several major pileups and fouled up ventilation so bad that some of the buildings downtown are still closed..

As you pull together breakfast for the family, there’s no milk because it’s too expensive. Full Story »

Been wondering what Tom Daschle’s been doing since he bowed out of a nomination to President Obama’s cabinet because of a peculiar Washington disease — not paying taxes?

According to The New York Times, former Sen. Daschle has been spending quality time in the White House holding forth on health-care reform. Reports The Times: “He still speaks frequently to the president, who met with him as recently as Friday morning in the Oval Office. And he remains a highly paid policy adviser to hospital, drug, pharmaceutical and other health care industry clients of Alston & Bird, the law and lobbying firm.”

He says he’s not a lobbyist. He says he’s a “resource” for his clients and former legislative colleagues. “I do not tailor my views to any specific group or client.”

How believable — or unbelievable — is that claim?
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You’re a coalition of multinational corporations. Imagine this deal: Invest $1 in lobbying. Get a return on investment of $220. Save $100 billion on taxes, too. Nice, eh?

That’s the conclusion of three University of Kansas professors who undertook an empirical analysis of the American Jobs Creation Act of 2004 to study rates of return for money spent on lobbying, reported The Washington Post in an April 12 story by Dan Eggen.

This law — this shady excuse for a law with a name only charlatans could love — allowed companies that had earned profits overseas to inexpensively bring that money back into the States. The customary tax rate on such profits was 35 percent. But this elegantly named process — repatriation of profits — gave companies a one-time chance four years ago to haul the money home, paying only 5.25 percent.

The act was a tax holiday sought by a coalition of companies, primarily big pharmaceutical and high-technology corporations, all because they sought to pay little or no taxes on profits generated overseas — and they concocted a successful scheme to pull it off.
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American-style capitalism, sans regulation, has earned its present bad rap. Even so, some market mechanisms do work quite well. Commodities pricing is discovered and costs kept low because markets are very efficient at making sure that metals, oil, food, etc. are moved to where the demand is the highest from where the supply is greatest. Similarly, a market in traded sulfur emissions imposed by the Clean Air Act has enabled fossil fuel plants to reduce sulfur dioxide emissions (the main source of acid rain) dramatically since the market’s inception.

Markets don’t work for everything, however. The sulfur dioxide emissions market works because the effects are not hyper-localized – farmers in Kansas and Iowa won’t notice the difference between the emissions from coal plants in Denver, Boulder, or Fort Collins. However, in the case of mercury emissions from coal plants, an emissions market would be a very, very bad idea. Coal-produced mercury precipitates out of the air in a plume immediately downwind of the emissions source, and so there’s no way to fairly balance the increased emissions of one coal plant with the lower emissions of another. In this case, all the increased mercury emissions would to is poison more mothers and children.

But because markets work so well for so many things, the creation of a cap-and-trade market for carbon dioxide (CO₂) makes a lot of sense. In a similar fashion to sulfur dioxide and unlike mercury emissions, CO₂ emissions mix well with the atmosphere and so trading emission credits between one source and another is viable. Full Story »

House Minority Leader John Boehner (R-OH) stated on March 3 that “‘Cap-and-trade’ is code for increasing taxes, killing American jobs, and raising energy costs for consumers.” His claim is based on the fact that carbon-intensive energy sources such as coal, natural gas, and petroleum supposedly provide 85% of the energy consumed in the United States. And if energy prices go up as a result of a cap-and-trade market on carbon emissions, then that means the increase is a tax.

Let’s put aside for a moment the audacious claim made by the Heritage Institute (source of the 85% number mentioned at Boehner’s website) that nuclear power is renewable – it’s lower carbon, but it’s hardly renewable in the same sense as solar, wind, tidal, or geothermal. No, let’s focus instead on Boehner’s intentional blurring of the definitions of “capitalism” and “taxation.” Full Story »

The UK, in 1979, was a mess.

In 1976, the then-Labour government of James Callaghan became the first developed-nation member of the OECD to have to beg the IMF for a bail-out after economic collapse. The top tax bracket was 83%, excluding tax on dividends and interest, while the bottom bracket was 33%. The European Economic Community (precursor to the EU) made an additional $3 billion available on top of the $3.6 billion from the IMF.

The damage of high taxation, high wages and terrible red tape was causing businesses to collapse and, as they fell, government nationalised them.

The Britain that Margaret Thatcher “won” 30 years ago, in 1979, was wracked by daily strikes by millions of unionised workers. Their wage packets, under the Labour government, were being increased by 30% annually but with no concomitant increase in efficiency or production.

The setting for a battle royal was in place. No-one doubted that getting England back to work would require incredible hardship. Few felt it would be possible. Full Story »

Income distribution is a divisive subject. Fairness, more so. The standard way of evaluating income distribution is the GINI Coefficient, an extremely complex equation that produces a number between 0 and 1. With GINI = 1, one person in an economy gets all the money, and everyone else has nothing. At GINI = 0, everyone is absolutely identical.

There are no nations at either end.

The current approach to ensuring some degree of fairness is to use the tax system. And, here presented, are various systems of taxation as well as the impacts of targeted changes to tax systems. It does involve some maths, but it is presented as simple tables. Like this one…

Figure 1: Equal Taxation Full Story »

Vice-presidential candidate Senator Joe Biden (D-Delaware) ran into a buzzsaw of an interview from Barbara West of WFTV-TV, Channel 9, in Orlando, Fla on October 23.  West is the wife of Wade West, a GOP political and media consultant, and her bias was evident as she made more than one statement of opinion, as though it were fact, then proceeded to ask a question related to that opinion/faux fact.  The exchange making the rounds most often in the blogosphere is this one:

West:  “You may recognize this famous quote:  ‘From each according to his abilities, to each according to his needs.’  That’s from Karl Marx.  How is Senator Obama not being a Marxist if he intends to spread the wealth around.”

Biden:  “Are you joking?  Is … is this a joke?”

West:  “No.”

Biden:  “Is that a real question?”

West:  “That’s a real question.” Full Story »

S&R: Rep. Boehner, Chairman Bernanke called yesterday for Congress to pass a stimulus plan to help stabilize the U.S. economy. Studies have shown repeatedly that stimulus plans directed at the poor are the most likely to both help those who need the money the most and to have the greatest economic benefits for the country – the poor are most likely to spend any money given them instead of save it or use it to pay down existing debt. The same studies have shown that your preferred stimuli – corporate tax cuts, capital gains tax cuts, an “all of the above” energy development plan, etc. – fail to provide significant stimulus to the economy in less than one to two years and are not cost effective for that reason. Given these facts, why should Americans who are suffering from a bad economy right now support your plan when they won’t see any improvement for at least another year?

I feel really bad for Samuel Joseph Wurzelbacher, aka “Joe the Plumber.” Here is a guy, minding his own business, playing football on his front lawn with his 13-year-old son, when he looks up and sees a candidate for president walking down his street.  This particular candidate is tall, well-spoken, extraordinarily well-educated, accomplished, and black.  Joe is a Republican, so he figures he’ll confront a Democrat he doesn’t much care for.  He goes over to him and … well … embellishes a little bit, as we are all wont to do on occasion.

He tells the candidate he’s trying to buy a business that brings in more than $250,000 a year, and that would mean he would have to pay more taxes, wouldn’t it?  The candidate probably should have probed Joe a bit about whether he meant that the business charged a total of $250,000 or whether that was the profit, but he probably figured that Joe was a businessman and didn’t want to insult his intelligence.  So, the candidate from Chicago told him it would, but that tax savings for those earning less than he does would benefit others who could then afford his services more easily, meaning he could make more money from getting them as customers in a Keynesian “spreading the wealth around.” Full Story »

Dear Joe the Plumber,

Welcome to your 15 minutes of fame. It’s not everyone who gets his name mentioned 286 times in a presidential debate.  If you haven’t already, you simply must change your business’s name to Joe the Plumber.  That’s just good marketing.  Oh, and don’t forget to add the tag line, “As seen on TV!”

OK, Joe, so you had a conversation with Barack Obama and, while media reports are very sketchy about exactly what your circumstances are (not surprising), it appears you want to buy a business that “brings in” more than $250,000.  I have yet to find out if “brings in” means $250,000 in revenue or profit (a very important distinction, Joe), but let’s assume for a moment that it’s profit we’re talking about.  Under Barack Obama’s plan (as sketchy as it is on his website), a good guess would be that you would go into a higher tax bracket, paying about 3.6% more in taxes on every dollar you earn over $250,000, for a total marginal tax rate of 39.6% — exactly the same as it was in the 1990s.

But let’s take a closer look at your situation, shall we Joe? Full Story »

There are over 25 million businesses in the US but companies which make up the Standard & Poor 500 contribute over 26% of the US government’s annual $2.4 trillion tax take. These 500 businesses are 6.5% of the total number of listed businesses .

Across the Atlantic, in the UK, the FTSE 100 index of companies contributes 3.3% of Her Majesty’s tax take. Even if you add in the salaries and other taxes that these companies manage on behalf of Treasury, it is no more than 7%.

The US taxation system is what is known as progressive; it falls more heavily on the wealthy than on the poor. The intention is that it is to be fairer. And so, in the US, the top 10% of taxpayers contribute 70% of taxes, and the top 1% contribute 40% of taxes. Conversely, the bottom 40% of registered taxpayers actually received more money back through tax grants than they contributed through their incomes.

Depending on how you feel about rich people, you could be cheered or charged about such information. However, you shouldn’t be surprised at the consequences. Full Story »

UPDATE: Marc in the comments made a point about sole proprietorships with employees that I’d like to address as well.

Barack Obama wants to reduce taxes for roughly 95% of the United States while raising taxes on the other 5% – those making more than $200,000 per year. John McCain wants to lower taxes on everyone, and attacks Obama’s tax increase on the upper 5% as destroying small businesses and jobs. I decided to do some research on this issues to see if, in fact, raising taxes on those individuals making more than $200,000 would reduce employment or not, and I found out some interesting things. The conclusion, however, is this: Obama’s tax increase on the wealthy will not directly harm small businesses. At. All. Full Story »

Yesterday, Senator John McCain announced that he was suspending his campaign to return to Washington to provide leadership in the effort to save the American economy from what George W. Bush says will be a “long and painful recession.”  By yesterday afternoon, Senate leadership had announced that they were very close to a bipartisan agreement on the Bush Administration’s plan to buy up bad debt, thereby freeing capital markets to continue to provide crucial lending to businesses and consumers; lending that many call “the life’s blood of the economy.”

Senator McCain, Senator Obama, President Bush, and congressional leaders met yesterday afternoon with the congressional leaders thinking they were near a deal.  By the end of the meeting, there was no deal, participants were visibly upset, and an attempt by Treasury Secretary Henry Paulson to convene an evening meeting failed, as the House minority leadership refused to send a negotiator. Full Story »

If you live in America, undoubtedly you drive on roads and highways maintained by the state in which you reside. And, just as certainly, many miles of those byways are in poor repair. They’re not safe. The rutted, pot-holed macadam causes expensive damage to your vehicle. Don’t count on this changing any time soon.

Friday, Transportation Secretary Mary Peters asked the Senate to prop up the federal highway trust fund with $8 billion. The fund, established in 1956 as the national financial engine of road building and repair, has a deficit. The fund provides the money the federal government uses to reimburse states for up to 80 to 90 percent of highway construction and maintenance costs. The House has already approved the extra cash.

If the Senate fails to add its approval, at the end of this month the federal government will delay and occasionally reduce the payments it sends to the states for construction it has agreed to underwrite. That means you’ll keep on driving your vehicle over the same badly damaged, poorly maintained roads that you have been, probably for years.

What should anger you is that every time you fill your tank, you’re paying 18.4 cents a gallon into that fund (24.4 cents if you’re tanking with diesel).

Why has this deficit come to pass?
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Periander, however, understood Thrasybulus’ actions. He realised that he had been advising him to kill outstanding citizens, and from then on he treated his people with unremitting brutality.

Herodotus, Histories

What Herodotus knew in 440BC, some 2,500 years ago, was this: opportunity is set on the margin. It is the historical power to choose either astonishing innovation, or “unremitting brutality”.

Consider the power of the margin. Say the average inter-city passenger airplane can carry a maximum of 150 passengers. Now, they may fly full at peak times, but they don’t at others, so the airline will set themselves a target of 85% occupancy. Plus, they’ll want a 15% profit (at least) on their capital.

This means that the airline doesn’t begin to make a profit until the 109th person gets on board. Everyone is important, but a plane that flies with only 108 people on board runs at a loss.

These subtle marginal effects can rock markets, bankrupt companies, and destroy nations. Full Story »

It’s July of 2023, and, just 20 years after President Bush decided to spend $1.2 billion to develop hydrogen fuel-cell technologies for vehicles, you’ve just picked up your finally-ready-for-prime-time luxury BMW Hydrogen 7. Your neighbors, stuck with the crappy next-generation of GM’s electric but ill-fated EV-1, will be jealous.

You’re eager to get that water-emissions-only Beemer out on the open road and see what it’ll do. But the road won’t be that open any more, and the road’s lousy condition is likely to chew up your umpteen-thousand-dollar green-mobile’s undercarriage. The road just plain sucks because politicians haven’t been able to stop themselves from screwing around with the federal highway trust fund. That leaves the ride bumpy and, no doubt, unsafe.
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The Republicans have found a new weapon in their desperation to capture the White House again and retain as many seats as possible in Congress:  oil drilling.  Yesterday, President George W. Bush lifted a moratorium on offshore drilling his father implemented in 1990.  Note that this will make only a political difference, since Congress maintains its own moratorium.  It does do two very important political things for the Republicans, though.

1.  It allows Republicans to say that the Republican president wants to do something about the oil crisis and gasoline costs, even if the Democratic Congress does not, and

2. It allows Congressional Republicans to introduce a bill lifting the moratorium, forcing Democrats to vote on the measure, while robbing Democrats of the ability to say that what Congress votes doesn’t matter, because the presidential executive order is still in effect. Full Story »

We are all going to die.

When we do, an industry with 100,000 employees will annually collect about $11 billion in revenue from our survivors, who presumably love us and wish to put us to rest with appropriate pomp and circumstance. Requiescat in pace, although survivors’ wallets might not.

Since 2002, after authorities found the remains of 339 people scattered about the grounds of a Georgia crematorium, the funeral industry has been visited by a wave of regulatory activity in many states. Not surprisingly, the funeral industry, a monopoly in many ways, wishes to influence that regulatory activity. It has also sought to influence drafting and revision of federal regulations, most notably the Federal Trade Commission’s “Funeral Rule.”

According to a richly detailed and footnoted report by Scott Jordan of the National Institute on Money in State Politics, from 1999 to 2006 the industry has coughed up $6 million in political contributions spread over political parties and state-level candidates in 46 states, positioning itself “to have a hand in shaping legislation and regulation” [emphasis added]. Millions more have gone to federal candidates.

This is what lobbyists principally do — act to influence legislation and regulation. And they’re really good at it. Therefore it’s important to take notice when presidential candidates spout rhetoric promising to “curb this industry” and “control that industry.” How will they do that?
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Eric Schmidt, CEO of Google, believes that a Yahoo / Microsoft tie-up would be awful for the Internet. Schmidt issued the vague sequitur that we should all beware of, “the things that it has done that have been so difficult for everyone.” Of course, everyone knows that Microsoft is the Great Satan, so it stands to reason that anything they do should be regarded as automatically the equivalent of making baby stew.

Here, though, it is Google – owner of 62.9% of all Internet searches ($16.4 bn in ad revenue) – which dwarfs any tie up (Yahoo-Microsoft have a combined search share of 15.7% and $ 9.8 bn in ad revenue). Could it be that Google is trying to pull a Microsoft and protect its home-turf advantage from a healthy rival? Full Story »