Friday, October 05, 2012

The clothes have no emperor

In watching the first Presidential debate I came away with a few basic ideas and wrote those up at Hot Air, which appears to be my initial post point for ideas.  I slept on the ideas, and posted them the day after and will now put that out with all my standard provisos on WYSIWYG, no corrections for anything, just simple copy and past and then concentrate on one area:

So much good from last night it is hard to know where to begin.

Just in overview I noticed that Romney was transitioning between topics to keep up with the debate outlines, so that when Lehrer had to go to the next area it had been softened up by Romney ahead of time. Giving Obama the lead position meant a lot in that Romney could get the last word in which shifted Obama from offense to defense at a few points throughout the night. Together this effect was devastating.

On the major plus side Romney put out how an executive deals with problems in government: you lay out a policy and then have to adapt it to the legislative branch and what it is willing to do. This is what an executive DOES – lay out policy which then drives the argument and direction of legislation. You don’t need miniscule, point by point things to do if you give the overall direction and theme of what you want to accomplish. Those were laid out quite well in multiple instances.

Taxes would go down but exemptions would be eliminated meaning that the end marginal rate is a goal and it is a rate with few exemptions to it. This reduces overhead and makes understanding the code easier, not harder. It also is an aim to remove all the loopholes put in by the letter street cronies that the Left used to complain about. In the end more people pay taxes, but the rate is lower so that there is less taken out of the paycheck, meaning more take home pay. This was not lost on me and seems like a good way to start repealing the crony tax system to get to a flatter tax. A good start.

Thematically Romney laid out that all government expenditures must be balanced by asking: ‘Do we want to pay China for this by having them bankroll our deficit spending that our children and grandchildren MUST pay off for us?’ This is killer. If he really and for true means this, then the morality of spending has just been put into play in a big, big way and everyone wanting ‘entitlements’ is now on the defensive having to justify putting future generations in debt for current spending. That is a game changer if pressed home and to the hilt. Putting the spenders in the position of immorality (instead of the cloak of doing good) is killer: put the red letter D for DEBT around their necks and point out how wicked their spending is to future generations and how lacking we are in wanting to do that.

Just so many good points… Mitt Romney did the startling thing of knowing Obamacare AND Dodd-Frank better than Obama, inside and out, which is no mean feat. Dancing through the problems of the legislation and making it sensible was stunning as NO ONE on the Left or Right has done that to-date in such a thorough way going point-by-point. And that point-by-point way of addressing concerns is yet another executive trait, meaning that problems are assessed and prioritized before-hand. Just amazing.

In one night Mitt Romney has demonstrated that he at least gets the fundamentals of the Constitution and Declaration and why they are intertwined and what that means for policy. Giving an overview of the 10th Amendment, while short, means that he has another area to flesh out beyond just block granting stuff to the States. Combined with the morality, or lack thereof, of spending, he has a potent arsenal that can only be utilized if it is backed as POLICY. Not programmatics but that thing that drives programmatics. If done as POLICY then this is the beginning of a sea-change in politics.

His job would not be one of reaching across the aisle, however, as the Tea Party begins to dominate the Republican Party… if 1/3 or more of Congress is held by Tea Party members, then they become the drivers of legislation because of the two parties and the fights become one of the establishment against the Tea Party which is a whole other fight and unlike anything seen for over a century in America. If we put in the hard work, then we will give Romney a very, very hard job to do and require him to live up to what he has laid out for us tonight. It isn’t about an election, but changing the course of the Nation away from its current disastrous path. I do disagree with some programmatics from Romney, yes, but it is up to him to show that he really does understand his policy direction… and if he doesn’t live up to those themes, I will have no problem in 4 years voting for someone else. As of last night, however, it can be said that the direction of not just this race but the entire dialogue of what is moral and just in government has been put into play. Fairness is in the eye of the beholder and that loses out to equality for all and upholding a moral standard and good so that our children will have the chance to prosper without our debt loading them down.

Prepare for weeping, wailing and gnashing of teeth from the Left over this as the basis for politics is now changing beneath their feet.

ajacksonian on October 4, 2012 at 6:19 AM

Here I would like to concentrate not on the morality of debt or spending, although morality does come into play, but of taxes.  I know the morality of taxes is a dry subject that the Left figures it won somewhere around President Wilson, but lets start with the can opener and look at taxes, deductions and marginal tax rates.

For this exercise I will use totally made up numbers for a highly simplified tax system with some embedded carrots to get you, the taxpayer, to do what the government wants you to do.

In this case there will be two families, they will have definite similarities in that they will be a 4 person household with two parents and two children.  In this tax code they will each get 'benefits' of deducting $100 per person and an additional $500 per child per year.  Each family gets a 15% write-off on their home mortgage interest payments and a general write-off on all income of 5% which I'm tagging for medical expenses.

Family 1 has an aggregate income of $30,000 per year, a 25% tax rate, a home mortgage payment of $1000 per month and 95 percent of that is interest as they haven't been in the home long.

Family 2 has an aggregate income of $55,000 per year, a 30% tax rate, a home mortgage payment of $1500 per month and 90 percent of that is interest as they have been in a somewhat better home for just a bit longer.

Now let me break down the numbers a bit so you can get an idea of how this 'removing deductions and lowering rates' works.  These numbers just reflect this made-up tax code system with just a few simple parts to it, so no griping about how they don't reflect 'reality' or real numbers – they are just math.

  Family 1 Family 2
Federal Taxes $7,500 $16,500
Standard deductions -$400 -$400
Child tax credit -$1,000 -$1,000
Mortgage interest deduction -$1,710 -$2,754
Standard medical deduction -$1,500 -$2,750
Net Taxes $2,890 $9,596
Net tax rate 9.6% 17.4%


When it is pointed out that NO ONE pays the tax rate for their bracket, this is a truism as NO ONE  actually pays that load due to the loopholes, give-aways and write-offs in the tax code.

Is a tax code that rewards behavior by the power of government a moral one?

On the positive sides it does things that government in the form of Congress and bureaucrats want to see happen in the economy.  It is, in other words an enticement to you to do certain things even if they don't make any sense at all for you to do them.

Taking the deductions line by line:

1) Why should you have a deduction for being yourself?  And why do those who live with you who depend on you get a deduction?  You are a citizen, after all, and so (with a bit of luck) are the members of your family.  What is the earthly reason that you should be able to deduct anything on taxes for these people just as citizens?  And, really, isn't that a bit denigrating to say that you 'deserve' to write-off such individuals who are, after all, part of the whole of the people?  Why not lower the tax rate and just do away with that? If this is meant for 'the poor' then set a point of minimal, subsistence living under which no taxes can be paid and be done with it.  Be generous and peg that at 4x this deduction and you now have the ability of a family of 4 to earn just enough to feed themselves.  Putting this loophole in is condescending from government and treats you as a dependent of government... yet YOU are the one earning the income which government is trying to take away from you.

2) The child tax credit is a simple loophole to make children more 'affordable', sort of like that new home you wanted to buy at inflated prices, but with a higher cost of consumables over time.  This is treating children as a 'burden' to adults, not as new life to be cherished. It is also a very recent addition to the tax code (with the income tax, itself, being only 100 years old in the US) and much fought over for a few years until it got inserted due to 'family values'... of which are included kick-backs from the US government, apparently.  Isn't that a lovely 'conservative family value'?  Call it what it is, not what it is sold as, and that changes the entire view of the deductions and their purpose.  Plus it is small ball, stuff, meaning that you can be easily bribed to have a larger family.  Yet another 'family value' apparently.  Even better if you make so little in taxes that your marginal rate drops below zero, you get a bonus gift from the US government: a pay-off.  Kick-backs, pay-offs and bribes: all 'family values' via the tax code.  Just what you want children to learn about growing up, isn't it?  How to become a nice, subservient crony to the system taught right there at home with the tax code.  With the tax code as it is, why do we need a Dept. of Education?

3) Next up is the vaunted, much lusted after mortgage interest deduction, one of the two main ways to reduce your tax obligation!  Yes, say that you want to touch that and you get roasted over an open flame.  Yet what, exactly, is it?  You take out a mortgage based on a few things: you need a home, you seek to limit tax liability, you believe that you will make more in the future, you think the home will appreciate in value.   These are not the traditional things that people have thought about prior to Ginnie Mae and the 'securitizing' of debt vehicles in the home mortgage market by the federal government (done under the Nixon Administration at the suggestion of the Dept. of Labor, of all places), at least some of the latter – the need for a home and reducing tax liability were key before that era starting in 1970, and prior to the 1930's only the ability to actually pay for a home mattered due to lack of write-offs before then and the FHA.

What is this yet another side of kick-backs, pay-offs and bribes by the US federal government via the tax code?  Unfortunately, yes.

When the banks were left to their own devices they required some things of people purchasing a home: 20% down, a work history, a known business you worked for or (as an owner) a steady ownership record, and the ability to actually afford maintenance on your home (about 1% of its cost per year).  Back in that era the bank was local, the person who managed mortgages knew the area and neighborhoods, and your mortgage was kept locally as a part of a portfolio held by the bank.  You, as the lendee, were known and probably had a working relationship with that bank to start with, meaning they knew your family's situation and could give some leeway on paying back during hard times.  To achieve all of that you had to demonstrate the ability to work, to save, lead a thrifty life, manage your household expenses, be reliable and understand just what the burden of owning a home was.

Today we have the enticement to banks to lend to NINJAs, people with No Income, No Job or Assets.  Your mortgage interest deduction started as a way to 'ease the burden' of home ownership and to entice more people to purchase homes.  All well and good if you still had to place 20% down, I suppose, but it is a kick-back just the same.  Still the larger banks saw that there was an 'opportunity' in the mortgage market if only the pesky regulations could be changed to stop them from entering it and if they could get some assurance on the value of the debts in far off parts of the country.  Aren't you glad the US federal government got that done to destroy the Savings & Loan industry and press local banks out of the market and out of business?  Because of the S&L crash the opportunity to change regulations further to open up the spigots for the larger commercial banks was done through the crisis of that crash: never let a good crisis go to waste.  Through activists at the bottom, local banks were pressed into giving loans in bad neighborhoods where home values were at threat from local conditions, and then made to give loans to those with lesser work histories and less down on the mortgage.  Home values, with the entry of the commercial banks, started to rise far faster than their 1-2% appreciation that was historical to the late 1960's, and the idea of a home being an 'investment' safe from most of the problems of normal affairs took root.  Once a final safe haven of IRA's were put in, then homes just became another investment vehicle with an expectation of appreciation over much shorter periods of time.

That was achieved by the home mortgage interest deduction, the lowering of lending standards for commercial banks, and the forcing of loans into areas that were marginal and required some civic renewal (read: redevelopment and investment) to be worthy of having loans floated to them.  These conditions created a bubble in the home mortgage sector of the economy and it popped circa 2007-2008.  The regulations pushing all of this are still, to this day, in place.  Including the vaunted home mortgage interest deduction which makes it 'affordable' to own far too much home for a given income (because those restrictions were 'loosened' as part of all of this, too).

Doesn't that 'old fashioned', local and largely unregulated but highly protected banking system with stable neighborhoods and firms sound nice today?  Wouldn't it be nice to have people who actually were thrifty, were able to understand the value of a home as a place to live, and who didn't look for kick-backs and bribes (if not outright coercion) to banks to give loans?  The large commercial banks are only a part of this problem, albeit a large one with enormous long-term impact and structural degradation to local communities. Every individual who bought more than they could afford, purchased without income or assets, or who could only swing purchasing a home with the deduction or because of the deduction is part of the  problem.

Is this deduction a moral one?

Are the regulations that followed on to it, that inflated expectations, reduced valuations and were in search of more money flowing through the system to cause a large-scale systemic collapse moral?  For these regulations are the problem, not the solution.  In this imaginary system this line item accounts for 1/5 to 1/7 of the reduction in liability, but in the actual world people searching the quick flips, the quick turnarounds, the easy sale, the inflated home value up to as much as 10% per year allows for the exploitation of this write-off to reduce liability even further.  It was a tax dodge put in by cronyism with the willing assent of the bought off citizen who purchased a home.  It is the money-grubbing that was exploited by government and banks to utilize the home owner via pay-offs to inflate the system artificially to cause temporary 'prosperity' that then crashed hard and deep, and has a major crater still lingering  in the financial structure of the Nation that neither Democrats nor Republicans want to remove.

Are these the values you want to teach to your children: that pay-offs and kick-backs, cronyism and the expectation of getting ripped off are the norm for government regulations and that one should take part to make a quick buck while they can?  Is that the basis for a moral family arrangement when your children see YOU in that light?  And when you happily slap that bumper sticker on your RV that you are spending your children's inheritance then what, exactly, is the message that you are sending?  That you got yours?  Hurray for me and fuck you?  Because that is the message we get from such regulations and they do not bring about a stable nor just society, but just the opposite.

4) A standard deduction for medical expenses.  This, in various formulations, is currently in the modern tax code and became embedded in it during WWII as part of the enticement to get retirees, the unfit and those who were marginal in the workforce to join in the industrial war effort.  Women, midgets, the blind, those stricken with polio, the elderly... all of these people had to be enticed to work and the one easy way to do that was via what had been for decades, an executive 'perk': health care 'insurance'.  Prior to the war effort the idea of having health care 'insurance' was limited to the very upper class of society.  Why?  Because it is uneconomical to provide it, save as an enticement to a high experience, highly capable executive as part of a package of goodies to get them to work for a company.  To put it bluntly, that sort of coverage is too expensive to afford.  In fact companies couldn't afford it for their workers prior to WWII.  Luckily the crisis of necessary wartime production meant that businesses lobbied Congress to get a tax write-off put into the tax code so that a percentage of the cost wouldn't be taxed, which was about 40% if memory serves.  Why is this uneconomical?  And is it moral to have this in the tax code at all?

Health 'insurance' isn't real insurance where you are betting you will get sick and the insurance company is betting you won't.  The expansion to regular health visits, check-ups, tests, hospitalization and all of that has many features that are recurring on an annual basis, and often more frequently.  Covering medications also has a recurring and regular cost to it, and this is not a feature of any other type of 'insurance'.   Prior to this write-off individuals could get true insurance for forms of catastrophic care, accidental death and dismemberment, and even such things as investing in long-term care while young by having a stable family.  Thus this form of 'insurance' must have a high premium to it, because it is covering so many expenses for so many people that there is an overhead cost to it that is far beyond any other insurance around.  Instead of a secretary and a couple of actuarial people, these companies must employ a raft of experts, forms processors and other individuals that has grown larger over time.  Further they have taken on negotiating with hospitals, physicians and groups of same for reduced prices for the insurance members.  What used to be something that you paid directly and negotiated with the physician or hospital now had an intermediary involved, and whenever you get a middle-man, you get the cost of the middle-man as part of the system.  Without a write-off businesses could never afford that additional overhead cost for their workforce.  Period.  It costs too much.

When insurance companies put the screws on providers, by promising volume to make up for lower cost, any shortfall is passed on to other customers.  All well and good until you get to the Johnson Administration and the start of Medicare and Medicaid.  When the US federal government starts to tell what it will pay for procedures, and they are not the going market rates but below them, then the cost differential must be made up by physicians and hospitals to stay in business.  That is cost shifted to other patients, which means that insurance companies both inside and outside the M&Ms see the cost of care rising, which they must pass along via higher premiums only a portion of which can get a write-off.  Your cost of care rises.  The federal government only exacerbated a pre-existing problem that it caused in the first place, and neither Democrats nor Republicans removed the uneconomical tax write-off after WWII.  The very vocal minority that told of the problems of the 'Great Society' medical programs proved not only prescient but having too limited a vision of the actual rate of increase of costs involved.

Why is overhead cost important?

Overhead cost is a burden to whatever the transaction is that is going on: stores have square footage, personnel, record keeping, liability insurance, lighting, heating, janitorial work all of which are just part of overhead cost.  Insurance companies have this, as well, so that when a transaction takes place the cost of their negotiations is added into the fray, as well as the cost of making sure that charges passing through the system are not fraudulent: it is their money they are handing out, dues and such are only payments to them to do this job.  Thus whatever the actual cost of an item is, it must have the burden of overhead added on to it and medical care is no different from any other transactional service be it getting served dinner at a restaurant or purchasing a computer from an online store.  To put it simply, the cost of the system is increased with middle-men and their burden added to the system as a whole and YOU pay for it either directly or via cost shifting to others.  As with all other transactional systems, the fewer intermediaries that there are, the lower the end-user cost will be in the aggregate and often for each individual summed up for their entire usage of the system in their lives.

Today the system is so rigged, so encrusted with tax changes, with so many kick-backs at the federal and State level, with so many cronies and lobbyists seeking line items in the budget for themselves that NO ONE knows the true cost of medical care in America save that without all of this burdened overhead it would cost FAR LESS than it does now.  Coming from the federal government and seeing industrial and governmental non-productive time and generic overhead cost burdening that delta could be as small as 15% and as high as 65%: what you pay, overall, for all medical treatment and medications in your lifetime could drop by 15% to 65% overall, in aggregate without trying to make the damned system 'fair' to treat 'special cases' with high cost and even higher overhead differently from everyone else.  That delta is picked up by this thing known as 'charity' run by religious institutions, citizens dedicated to the cause of helping others, and special interest charities dedicated to single diseases and their medical costs.  By depending on insurance and government this charitable system is on the rocks and slowly being eroded away in its entirety as it doesn't have the lobbyists or the capability to write-off as much as larger institutions because they lack the scale to do so.  Once they are gone the lowest cost anchor of the system will go with it and the costs that had been merely way too expensive will go to impossible to pay because there is no way for charity to compete in a crony system dedicated to undercutting charity to the benefit of the cronies and politicians.

That is not only immoral it is reprehensible.  Yet you sustain it via tax write-offs for yourself in the tax code.

And all in search of the objective: lower taxes.

5) That bottom line is what we are all seeking via this system, and yet we achieve it in the very worst of all possible ways.  The income tax was promised as never going beyond 7% and that only for the fat cats, yet in 7 years its highest rate was 70%.  One of the interesting drivers for the tax code, beyond 'soaking the rich' was in the quest to get the US federal government another source of revenue beyond its main one: liquor taxes.  The hard drinking US had problems, which first brought about individual organizations seeking to reform drunkards (like the Washington Society) so that the familial problems of drinking could be alleviated by reforming those who drank too much liquor.  Yet most of the US government's income was on liquor and it sustained the Nation up to the Progressive era.  Temperance, sobriety and using government to enforce these things was a Progressive agenda item, backed by powerful lobbying organizations like the Anti-Saloon League.  Getting dry counties and dry States was not enough as people could go elsewhere to bring drink back home.  The idea was that if the US Constitution represented the moral fabric of the Nation, then amending the Constitution would change the people to a more sober and moral people.  Yet the only way to do this was to find an alternate revenue stream as liquor was very much the life-blood of government.  Thus the income tax, warned against and written against in the Constitution, had to be put into place before the political power of the Temperance Movement could come into play.  With an alternative revenue stream, Prohibition quickly passed and proved that human nature is stronger than the US Constitution.

We are left with the artifacts of a directly elected Senate system and an income tax system, both prohibited by the original Constitution of the Framers.  That system had everyone being assessed equally for the cost of the US government and then apportioning that to the States for getting the revenue.  The States figured out how to get the revenue: sales taxes, property taxes, direct levies, bake sales, it was left up to the more local to figure this out, not the National system.  That is both a moral system and a 'fair' system in that it adapts to local situations as dictated by the people at a much easier level to control.  Everyone gets a stake in the system.

Today the idea is to avoid taxes, have the rich pay the way of the poor and do everything in one's power to pay as little as possible to a government that must stand for all of the people.  Instead of passing the burden to States, we now have the problems of the States at the federal level and we are left with only the people as the means to address the ills of this system.  The failure of our government, our businesses and ourselves via human nature have now put us into a desperate situation.  To gain earthly goods we have accepted pay-offs to avoid questioning the moral cost of them.  For the pursuit of having someone else pay, we now pay in the dearest coin of all: our own self worth.

When Gov. Romney puts forward the morality test in spending, it must be something that is far beyond spending because spending requires a source of that revenue, and that can only be taken from the people of the Nation or borrowed from others.  We put ourselves and our future in the hands of others when we do that, and it matters not if it is other Nations or 'the rich': you dance to the tune of the piper and when you pay nothing you are obligated to dance to their tune.  It isn't immoral to hand our children and grandchildren our debt, it is immoral of us to incur it in the first place and shows our own lack of self worth and valuation to accept that cheating pays, that avoidance of paying taxes pays, and that instead of expecting all citizens to take up our common burden, we seek to shift it only in one direction: ever upwards to others.  To be a free people we must all pay our way, even the destitute as I am sure that we, as moral people, will form charities to help them pay for some small citizen so they can learn the value of being a citizen.  That is also an obligation to actually be productive, of course, and to care for not just oneself but one's fellow man.  If we do not expect it of ourselves, the non-rich but not destitute, either, then how can we expect it either of the rich or the destitute?

Once morality of government in its size, scope, power and cost are all brought into question, the very tax code we have then comes in for scrutiny.  In my fictional one for people of moderate means I get something between 10 and 17% as a net tax rate.  If we shear out the immorality of the system, get a flat tax of a given amount, and then say 'we must live within that', then we are on the path of being moral and righteous in our actions because we sustain ourselves and our society by swearing to pick up the burden for those who fare less well and to pay our own way to sustain us all.  No matter how much you may like the special treatment, the kick-backs, the pay-offs... they get you the cronyism, the complexity and the resulting immorality of treating people differently when we are all citizens and created equal.  To claim ownership of yourself you must be able to deny government the right to control you via economics and its own petite tyranny, which soon grows fat and becomes a true tyrant in its own right.  The tyrant of the bureaucrat.  The tyrant of the rules.  The tyrant of the cronies who seek to escape scrutiny by buying off government to get paid-off by you.

I am sure Gov. Romney hasn't gotten down this far in his thinking.  But that he has taken a step in this direction is not just unexpected but refreshing.  Because once you start to question the morality of borrowing and expecting your children to pay it off for you, then you must begin to question the taxation and just what it is you are seeking from it in the long run.  A Nation of free men must be able to admit the burden they bring, carry their own and help others less able and to do so openly, honestly, and not via subterfuge of collection via the shopkeeper or the ease of the transaction stealthily burdened by the politicians in the back room.  Force it into the open, force it to be discussed, and then come to an agreement in common and cement that baby down and make it toxic for any power hungry ideologue to even think of touching it.  You don't win your freedom and keep it by paying stealth taxes, but by putting the tax man out in front of all to see and saying: do your damn job and stop trying to steal us blind behind our backs.  For what they rob is far dearer than mere coin, and far harder to win back once lost.

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