Category: Taxes

Presidents sign the bills that control the economy.

Via John Cole, this editorial cartoon (original source – Steve Greenberg):

Of course this is too blunt to be accurate. There is the additional guilty party, the Congress. It’s more reasonable to suggest that their guiltier, but the nature of our political system produces the marketing message conveyed in this cartoon. Better to just take the message that politicians lie.

Take the beauty of divided government as the better lesson. It’s not perfect because you can see the results of divided government under Reagan, Bush, and Bush. Maybe they would’ve been worse with unified government. Maybe not. I don’t want to speculate here. So I’ll just suggest that pre-W Republican fiscal partisanship controlling Congress and a philandering Democratic fouling the White House are approximately what America needs forever more. Petty distractions from the task of legislating. Maybe we’d no longer need to believe in the same change every four, eight or twelve years.

We need to stop using oil, but it shouldn’t cost too much.

Better to control through blunt force than through individual receptiveness to economic pain, right?

Sen. John Warner, R-Va., asked Energy Secretary Samuel Bodman to look into what speed limit would provide optimum gasoline efficiency given current technology. He said he wants to know if the administration might support efforts in Congress to require a lower speed limit.

Will that be broken out by make and model? Will we next proceed to mandatory speed limits built into cars sold in America? Does it matter, as long as Congress gets to Do Something?

Warner asked the department to determine at what speeds vehicles would be most fuel efficient, how much fuel savings would be achieved, and whether it would be reasonable to assume there would be a reduction in prices at the pump if the speed limit were lowered.

Is it reasonable to assume that motorists will drive at or below those speed limits? Not to get too anarchist, but as a motorist, every successful, traffic-free experience I have on the highway involves a spontaneous order, with some optimal speed above the limit “magically” appearing to smooth the flow of traffic. If Congress imposes a national speed limit, we’ll have one of two realities. Motorists will ignore the speed limit, or states will allocate more police enforcement. What is the net effect of saving a few pennies on gas if we spend a few pennies to enforce that savings? And what of the extra court costs? Insurance premium spikes?

Or we could consider something else:

The [Department of Energy’s] Web site says that fuel efficiency decreases rapidly when traveling faster than 60 mph. Every additional 5 mph over that threshold is estimated to cost motorists “essentially an additional 30 cents per gallon in fuel costs,” Warner said in his letter, citing the DOE data.

Maybe we can assume that motorists are capable of deciding how willing they are to pay an additional 30 cents per gallon. And maybe the market is capable of slowing drivers down when the price of gas is “too high”. But why let the market work when Congress can interfere?

Will they reduce rates or add more services when the economy improves?

The current, apparent economic journey into recession demonstrates why limited government is wise. Unlike individuals, who tend tighten their financial dealings through closer observance and more critical judgment, government chooses only one path during tough economic conditions.

Fairfax County yesterday joined a growing list of communities across the region that have raised property taxes this year to protect government services and public schools in the face of declining real estate values and a generally sluggish economy.

Perhaps an analysis of the Fairfax County government would reveal a limited array of indefensible services. I doubt it, but I’m rather more interested in the theoretical here. Individuals can’t simply require a higher salary when their salary falls below break-even. They must understand their need to reduce expenses, however temporarily. When services are essentially guaranteed¹ by the government, flexibility causes problems, as these counties are now discovering. No one should be surprised.

No reasonable person is going to suggest cutting out schools, for example, to save money. But if you send your children to a school that you pay for directly, will you likely be more or less inclined to scrutinize how the school spends its (i.e. your) money? Will administrators likely be more or less accountable for each penny? If there’s an important message that needs to go out, and the school usually prints for distribution, might direct concern regarding costs lead to e-mail distribution instead?

Unfortunately, we have layers of extraneous bureaucracy instead. We have distance between consumer and cost. We don’t know how to say “no” when funds are unavailable or the request is ludicrous. We concede more services as public goods, then relinquish more of our money when tax receipts fall below spending. We cease to question any previous transfer of services to government provision. And when the economy picks up, government takes the credit.

¹ Services are guaranteed. Quality, maybe not as much.

I’ll take the minor tax victory where I can get it.

I’ve made it a very minor hobby to question the advice in Michelle Singletary’s The Color of Money personal finance column in the Washington Post. Yet, I can find only one quibble in yesterday’s column. The rest is very good, sensible advice. But, still, this is just strange.

I’ll confess: I filed my tax return on April 15. This year the time just seemed to come up so fast.

That shouldn’t be a confession. That’s a sign of intelligence. Barring the unexpected large refund due to a life change, no one should file taxes before the deadline. I say, regardless of the payment or refund involved, overwhelm the system at the last minute.

As a practical matter, I owed a minor penalty on the tax due when I mailed my forms on Tuesday. Even though IRS rules incorrectly considered the penalty legitimate, in spite of the unusual timings of my income and estimated tax payments for the year, I was happy to pay it in light of what I received in its place. I earned all of the interest on that not-inconsiderable sum over the course of 2007. After factoring in the taxes owed on that interest, I still came out ahead. And I got the bonus of sticking with the principle.

I won’t advance this argument, but perhaps the IRS should charge a higher penalty. Since it doesn’t, paying early would’ve been irrational. When choosing between irrational and selfish, choose selfish.

Politicians lie to please us because we allow ourselves to be pleased.

Via Wired, the Los Angeles Times reports on a scheme to fight global warming. Or, rather, I should write that the scheme is claimed to fight global warming, although the specifics (unsurprisingly) suggest otherwise. Consider:

Motorists in Los Angeles County could end up paying an extra 9 cents per gallon at the gas pump, or an additional $90 on their vehicle registration, under proposals aimed at getting them to help fight global warming.

Voters would be able to decide whether to approve a “climate change mitigation and adaptation fee” under legislation being considered by state lawmakers and endorsed by the board of the Los Angeles County Metropolitan Transportation Authority.

So state lawmakers are offering a Pigovian tax, right? Their interest is in countering the negative externalities of carbon pollution, right? You know the answer, right?

The money would fund improvements to mass transit and programs to relieve traffic congestion at a time when transportation dollars from Washington and Sacramento are hard to come by.

Of course. Sin taxes always purport to be about reducing the offending behavior, but are never actually designed to correct the problematic outcomes. The politicians always end up saluting General Fund.

And it often comes with “words mean what I say they mean” baggage.

[Jon Coupal, president of the Howard Jarvis Taxpayers Assn] also objected to the measure’s being called a “fee” — which requires a simple majority for approval — instead of a “tax,” which requires two-thirds approval.

[Assemblyman Mike] Feuer’s bill would allow the MTA board to ask voters either for a fee of up to 3% of the retail price of gas, or for a vehicle registration fee of up to $90 per year. The money would pay for programs to reduce greenhouse gas emissions.

Want to bet how quickly lawmakers would revisit “3% of the retail price” tax if the retail price of gas falls, lowering tax receipts? Bonus points to anyone who can find an example of Assemblyman Feuer endorsing an expansive governmental role in lowering the price of gas. Oh, wait, scratch that. Finding an example is actually quite simple. Surprise!

Triumph of the Big Government Advocates

Writing about OPEC’s rise to actual cartel power, Robert Samuelson writes this sentence about one of America’s short-comings.

We have steadfastly rejected higher gasoline taxes to curb unnecessary driving and strengthen demand for fuel-efficient vehicles (better to tax ourselves than let foreigners tax us through higher prices).

First, higher prices are not a “tax”, they are the result of supply and demand. As Mr. Samuelson points out throughout his essay, world demand is growing. OPEC has control of a large segment of supply. But OPEC does not have the ability to make us pay its prices. Why didn’t he just alter the sentence and write “better to tax ourselves than let foreigners gouge us through higher prices”? It would’ve been as economically (in)correct.

More importantly, the purpose of a tax on gasoline should never be to limit “unnecessary” driving. Unnecessary to whom? If I go to the store to browse for merchandise I have no intention of buying today, is that unnecessary? If a parent drives his child around to help the child fall asleep, is that unnecessary? If a teenager drives his date around aimlessly for an extra half hour so they can talk longer, is that unnecessary?

Taxes to achieve subjective ideals is ideology, not valid public policy. The only purpose for a tax – a user fee – is to rectify the negative externalities from the taxed activity. Carbon emission is an externality. Fifteen cents more for a gallon of gasoline from higher demand is not an externality.

The price of a gallon of gasoline should be the result of market forces. Either people value driving or they value money. But each consumer is the only legitimate decision-maker on that choice.

“Do as I command, not as I say or do.”

As usual, Kip has the correct take on a news item. In this case, the House Oversight and Government Reform Committee is interrogating three CEOs without any clear reason why a committee created to investigate the government is investigating private market individuals. But politicians are involved, so there you go. I recommend Kip’s entry in its entirety.

I’m frustrated by something within the hearings:

Lawmakers confronted corporate executives Friday about how they managed to take home hundreds of millions of dollars in compensation while their companies were taking a financial nosedive from the subprime mortgage crisis.

“It seems that CEOs hit the lottery when their companies collapse,” House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., said at the opening of the hearing. “Any reasonable relation between their compensation and the interests of their shareholders appears to have broken down.”
…

Waxman noted that [Countrywide Financial Corp. CEO Angelo] Mozilo received more than $120 million in compensation and sales of Countrywide stock last year while that company recorded losses of $1.6 billion. Merrill Lynch lost $10 billion in 2007, but [CEO Stanley] O’Neal got a $161 million retirement package.

I’m sure there’s an explanation for this. Not being a shareholder of any of the companies involved, I do not care what they are. And neither should Congress. Perhaps this matters?

CBO estimates that the government recorded a deficit of $262 billion during the first five months of fiscal year 2008, compared with a shortfall of $162 billion recorded in the same period last year.

Why isn’t our CEO, President Bush, hauled before Congress to explain his failure to veto excess (and illegitimate) spending? It couldn’t have anything to do with Congress being the body that sends those spending bills to his desk, could it? I’m sure it’s also defensible to send free money to Americans, as long as Congress prints borrows sends a large chunk but divides it among many Americans rather than concentrating it in a few hands. It’s also defensible to pay it to people who didn’t “earn” a refund by actually paying any taxes. At least the CEOs performed a task, however (incorrectly) one wishes to judge the results.

This is another reason why I am not a political partisan. None of them are competent at anything other than struggling for power. I don’t admire that, and I’ll never follow it blindly.

House Votes to Shift the Deck Chairs

I’m hard-pressed to imagine a scenario in which simplifying the tax structure is bad. Although this legislation would only achieve it on the front-end, replacing simplification with complication elsewhere, the front-end suggestion is good.

The House of Representatives brushed aside threats of a White House veto yesterday and voted 236 to 182 in favor of an $18 billion tax package that would rescind a tax break for the five biggest oil companies and use the revenue to boost incentives for wind and solar energy and energy efficiency.

There is no reason for Congress to pick winners and losers by giving tax breaks. (Again, redirecting those breaks to favored groups is not a principled stance by Congress.) As always, Congress is horribly short-sighted and unaware of unintended consequences.

The Bush administration, Republican lawmakers and big oil companies condemned the bill, which they said would raise fuel prices for consumers, discourage oil and gas exploration in the United States and unfairly discriminate against a single industry while other manufacturers continue to enjoy tax breaks.

Of course fuel prices will go up. If I could find a reason not to be cynical, I’d ignore the probability that members of Congress want this to happen so they have a continuation of one of their favorite targets to bully in populist, economically-ignorant rants. But I’m cynical, so I think they know this. How else to explain the nonsense my local Fox affiliate bombarded me with last night in claiming that a gallon of gasoline could rise to the “outrageous” price of $4. Adjectives require more than one data point.

That the price of a gallon of gas already includes – inefficiently – the $18 billion cost of the existing tax break. Removing inefficient tax breaks would push the price of gas (closer) to its true market price. That’s problematic?

On the second point, profit alone should encourage or discourage oil and gas exploration. Let the market figure out the details. The ongoing results will also work to push for alternative energy without requiring shifting tax breaks from one group to another. And, no, arguing that one industry will get tax breaks does not justify giving them to another.

Prove it.

Senator Clinton makes a bold claim:

Blasting “companies shamelessly turning their backs on Americans” by shipping jobs overseas and railing that “it is wrong that somebody who makes $50 million on Wall Street pays a lower tax rate than somebody who makes $50,000 a year,” Sen. Hillary Rodham Clinton increasingly sounds like one of her old Democratic rivals, former senator John Edwards of North Carolina.

The first half of her statement is boring rhetoric. Corporations are evil, blah blah blah. Empty talking points. Whatever.

The second half of her statement is absurd. She needs to prove it. Show me one Wall Street executive who pays a lower tax rate than somebody who makes $50,000 per year.

No matter what, I will take no solace. If she could fine one, her solution would be to raise the rate on the individual making $50 million. She’d never imagine that she could (ask Congress to) lower rates or simplify the entire tax code.

**********

It’s interesting that the first screen a visitor encounters at her campaign website is a place to give her your information, accompanied by a big red SUBMIT button. Freudian, anyone?

Senator Obama does the same, but he doesn’t ask for first or last name and invites the visitor to LEARN MORE. I won’t pretend that the result isn’t nearly identical, when mentality meets policy, but the marketing difference explains a lot.

Sic Semper Medius Consilium¹

Megan McArdle on individuals who claim to want the government to tax them more:

No, I simply cannot grant that people really believe that they pay too little in taxes. It seems more like they think the government has a better use for everyone else’s money, and should therefore take it. They believe this so strongly that if they have to pay some of their own money to rectify the situation, they will do so. In other words, they don’t so much want higher taxes on themselves, as to purchase the good “State coercion of other affluent people”. That is not the same moral intuition as “I have too much money, and the government should take it away”, however much nicer it would be if that were true.

That is correct. And it’s a given that said individuals always know better how that good should be used by government.

Ms. McArdle’s “tax me more” thread continues here and here.

¹ Even with four years of Latin in school, I’m sure I’ve messed up the translation. Aside from simple grammar, maybe cogito should replace consilium?