Author Archives: admin

Jun 1 2013

Social Security Tax and Fairness

Do we really need Social Security?  Is it fair that it is mandatory or that high earners contribute more but get relatively less benefit?   What is the best way to keep it financially sound?  What guidance does it offer to make our overall tax and budget management system better?

Do we need Social Security?  It is different from other government programs in that its costs are matched by dedicated taxes.  Hoping to stimulate consumer spending, we recently cut them temporarily.  Should we eliminate them altogether?  It would be time-consuming and costly, but we could in theory unwind the program and for example, switch to a system like Nepal’s where families traditionally support each other.

That thought experiment highlights the parallel between contemporary Nepal and pre-industrial USA.  Both are family farm economies where when you retire, your kids take over and support you.  In a society where generation after generation works on the same farm, if you are unable to work when your kids are young, a relative can take over and neighbors help when family is not enough.   In an economy of jobs, however, workers create no family asset to take over, people keep moving, families become dispersed and communities exist mainly in virtual space.

Nepal’s situation is thought-provoking, too, because its traditional support system is collapsing.  The 1996-2006 civil war made villages too dangerous so people abandoned their farms and moved to the cities.  They now need jobs but Nepal has no industry because there is insufficient power (no electricity 14 hours a day), insufficient access to market (no railroad and extremely weak roads), a corrupt legal system and no government.  So Nepalis go overseas for jobs and send money to their families.  That is currently a quarter of the entire economy.  But they send less as they form new attachments.

In the USA we have a job-producing infrastructure but we are vulnerable to losing our job, our family is probably far away, and few of us save enough for retirement.  Like other Western societies, the nature of our economy makes us dependent on social security when we cannot support ourselves.

Is it fair that Social Security is mandatory?  It seems so in a society like ours.  We simply don’t save enough voluntarily – 7% or more of every $ we ever earn, invested to earn at least 3% above inflation, as noted here: Our Ridiculous Approach to Retirement.  And we don’t have enough disability insurance.  The result?  “Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day”.  That’s even with social security benefits.

Is it fair that high earners contribute more but get the same benefit as those who contribute less?  We all contribute at the same % rate but the higher our income, the more we contribute in total.  The more we contribute, the higher our monthly benefit, but those who contribute more get proportionately less.  We get 90% of the first $X (currently $791) of our average monthly earnings, 32% of the next $Y of earnings (currently the the amount between $791 and $4,768), and 15% of the remaining $X  (currently the amount over $4,768) – see Social Security Benefit Amounts.  Is that fair?

That question may be the most contentious.  Should those with higher earnings pay taxes at the same or a higher rate?  I will return to this when I explore income tax.  Here, I’ll just make an observation in this context.  Everyone’s work adds assets to our economy.  If it is reasonable to consider those with higher earnings to be getting a higher return on those assets, it is reasonable they should contribute more to the ongoing development of the assets.  I can’t be the first to have this thought.  I’d be grateful for a discussion of its merits, if any.

What is the best way to keep Social Security financially sound?  Social Security will take in roughly $40B more than it pays out in 2013, so it is not contributing to the problem I noted in FY2010 Revenues, Expenses and Liabilities: “Federal revenue last year was $2.2T while expenses were $3.5T.  We therefore increased public debt by $1.3T.”  Although the Social Security’s trust fund is growing now and will be around $2.8T in 2013, that will not always be the case.  As I noted in Social Security:  “Social Security taxes [were sufficient] to pay current recipients … until 1975 – 1981 when expenses exceeded revenue every year.  Average benefits were then cut approx 5%, tax rates for individuals were raised approx 2.3%, and the full retirement age was raised 3%, which created an annual surplus until 2009.”  Another update will be necessary.

“The fundamental problem”, I wrote, “is that while 100 workers supported only 6 Social Security beneficiaries in 1950, 100 workers in 2010 must support 33 beneficiaries.  When the Social Security full retirement age was set at 65 in 1935, USA life expectancy at birth was 62.  The retirement age is now 67 but life expectancy is 78. “  In Social Security – Past and Future Changes I explored our options.

The best way is to increase the payroll tax ceiling and raise the tax rate.  I won’t repeat the analysis here, just add that Social Security finances are far more predictable than other government programs.  We can model population trends, which change relatively slowly, and accurately forecast future spending.  Revenue is relatively stable because contributions are collected automatically and are pre-tax.  Income tax revenue fluctuates more with the economy (and is easier to illegally evade).

What guidance does Social Security offer for a better overall tax and budget management system?  We need better presentation of Federal government finances.  Social Security spending is usually presented in the context of total spending not in relation to its revenues, so we don’t connect the two.  Payroll taxes feel like an onerous burden on every pay check.  Social Security benefits seem like a burden adding to our public debt.  Social Security looks like just one more unfathomably costly activity of an out of control government.

As JohnK commented about an earlier post: “I always grind my teeth when I see social security benefits lumped in as part of our federal budget.  For instance, in your “The Purpose and Performance of Our Tax System” post, you have a pie chart showing Social Security benefits as 22% of the federal budget.  That amount, and others like it, should be lumped under something like ‘Repayment of Borrowed Money’.”  Folks getting Social Security checks are simply getting back contributions they made when they were working, plus the [notional] investment profits.

TonyP commented on another confusing aspect: “I believe it was Al Gore who proposed a “social security lock-box” in order to stop the federal government from looting the social security trust fund to improve cash-flow.”  Social Security contributions are not invested as a regular pension fund would in marketable securities, but are used to fund overall Federal spending.

John replied: “As per the Budget Enforcement Act of 1990, the social security trust funds are NOT a part of the federal budget.  By law, income accrued by the social security trust funds is invested in securities GUARANTEED as to both PRINCIPAL and INTEREST by the full faith and credit of the U. S. Government.  When the government spends the money obtained from these debt obligations or any debt obligations such as Treasury bonds, it is spending “borrowed” money.  When it is required to redeem these securities, the amount redeemed should be labeled something to the effect: “Loan Redemptions” and not “Social Security”. 

So from one perspective, the Social Security trust fund is a fiction because the money put into it has already been spent, but from another, the money is no more fictional than any other ledger entries representing loans.  What was borrowed from the Social Security trust fund is secured by US Treasury bonds that will be repaid.  John added:  “The official SS history is at: http://www.ssa.gov/history/BudgetTreatment.html  Social Security ADMINISTRATION costs are on the federal budget as are administration costs of all federal agencies, but that amount is relatively miniscule, and is not what was represented on Martin’s pie chart.”

Fully absorbing that official history is headache-making but scanning it gives a sense of why presentation is so important.  The way our government finances are presented now makes it impossible for most of us to evaluate what’s going on.  We don’t know where our tax dollars go.  We imagine half is wasted and the other half is spent on things that benefit other people.

In summary:

  1. We do need a Social Security system
  2. It is financially sound but if unchanged it will not remain so
  3. The options to keep it financially sound for at least the medium-term future are not hard to understand
  4. We are easily misled about all the above because Social Security revenues and spending are usually not presented together, and
  5. If Social Security finances were presented more clearly we’d be better able to debate what’s most fair to those contributing now, those needing support, and future generations.

But as I’ve said before: “The greatest challenge is … an accelerating reduction in the number of jobs as more and more is done by computers and robots”.  That could be a much deeper challenge than for Social Security alone so I will return to it at the end of this series.  Next up, Business Tax and Fairness.

May 27 2013

The 2nd Amendment, Revolution and Self-Defense

DaveR sent me a Facebook message:  “Thought you might be interested in the article at this link:  One of our traditions — throwing off the shackles of a government that has overstepped its bounds — is at odds with another, the one that accepts the results of elections.”   We agreed to copy our long and lively discussion here.  It raises important points that I hope will provoke more discussion.

I responded: “I hadn’t thought about this idea in the article: “In a democracy the majority determines what the law is and could, at least theoretically, take away the rights of individuals for the sake of the ‘public good.’  In a republic, majority will is held in check by constitutional guarantees that forbid legislation encroaching on individual rights even if 51 percent or 95 percent of the population favors it.”  It seems more complicated in real life.   The right guaranteed by the 2nd Amendment is “encroached upon” by subsequent legislation that defines what “arms” we the people may and may not “bear” and the circumstances in which we may bear them.  In the same way, the definition of “we the people” has been the opposite of encroached upon, i.e., expanded by civil rights legislation.”

Then I got off track with an ignorant assertion:  “I always come back to the same state of bafflement about the 2nd amendment.  Do the folks who believe they need guns to overthrow the government really believe their weapons would make that possible?  Or are they like those in the South who knew in their hearts they would fail but went ahead with the War of Northern Aggression, anyway?”

Correcting my mistake led to the important topic of revolution.  Dave responded:  “Well, the South most certainly did not think it was going to lose the Civil War.  In fact, it very nearly won in the first few years.  Many also truly believed that they would receive political, if not military support from Britain (whose textile industry was utterly dependent on southern cotton in 1860).  Interestingly, part of the reason why they did as well as they did despite the North’s superiority in industry, manpower and infrastructure, was precisely because of their cultural military tradition.  Many in the Southern Armies used their own weapons, horses, and the like for the entire war, which is interesting considering this 2nd amendment debate.  I think the 2nd amendment is actually pretty important, but I am for regulation, background checks, etc.  I most certainly do not support repeal. And as I’ve said before, I choose not to avail myself of this right at the moment, but that doesn’t mean I want to get rid of it.  As for your last question – it’s a good one.  In the event of a true, justified revolution in this country, would gun ownership make the difference?  I think, yes, it absolutely would.  Partly, because I think a plausible revolution (not just a bunch of 2nd amendment nuts) would engage a broad enough selection of the populace that we’d see a split in the military.  Think about well-documented revolutions and civil wars – the American or the Spanish Civil Wars, for instance, and you see that the arms used were piecemeal at first, but became more professional as time went on.  Do you think the Syrian rebels wouldn’t love to have some AR-15’s?  Have you seen the improvised weapons they’ve been using?  Some are literally held together with duct tape.  And yet, despite air superiority, tanks and chemical weapons, they seem to be slowly gaining ground.  Civil war these days is an urban war, and small-arms make plenty of difference in city streets.  It scares the hell out of me, but I really do sometimes think I’m going to see a 2nd Civil War of some kind in my lifetime.”

I replied:  “The only thing I’m certain about is, I should actually study US history.  My small patchwork of knowledge means I’ll be mistaken if I believe any theories that occur to me.  I try to discard them and usually don’t believe I understand anything about the Civil War.  Thanks for the correction!  I’ll think more about “true, justified revolution” and respond later.  Thanks for making me think, Dave!”

Dave responded:  “The US Civil War was something of an obsession for me growing up.  I’m probably a bit TOO certain about my “facts” about it, though.  Ken Burns’ documentary is always a good place to start, if you’re really interested (and if you have like 12 hours to kill). And thank YOU.”

After giving more thought to the 2nd Amendment and the Constitution in general, I wrote:  “I want legislation and enforcement to reflect our evolving democratically made decisions about what firearm technologies folks in our society can have.  That requires definition of the purpose.  For example, although I do not hunt I do not want to prevent it, so I’d favor legislation that explicitly approved hunting along with what kinds of hunting firearms are authorized.  I would not expect automatic rifles to be authorized for that purpose, for example, or any kind of handguns.  I would favor background checks for all purchasers of such firearms in every market.   I’m not trying to define the legislation here, just the guiding principal.  Starting from that viewpoint, I’d prefer the existing 2nd amendment to be replaced with one corresponding to today’s society and its needs, not the situation almost two and a half centuries ago.  The amendment now reads:  “A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.”  We no longer expect to defend our nation by raising an army of civilians supplying their own firearms.  We still have uses for firearms that we want to authorize, but not that one.  You make an excellent point about guerilla warfare. Having thought about it more, I agree that an armed uprising might possibly succeed. That makes me think replacing the 2nd amendment is more important, not just something that would theoretically be good.  I want our society to be made better by the working of democracy.  I don’t want there to be a Plan B where we don’t engage in the democratic process but start a Civil War if things don’t turn out the way we want.  If we were writing our Constitution now, and not even thinking about the one we already have, we probably would not include bearing arms as a fundamental human right.   We would probably also draft the 4th amendment in a different way to make explicit some right to privacy.  Search and seizure was the only relevant technology a couple of centuries ago. No phone, internet, satellite or security cameras, etc.  Or maybe we’d decide that in the interest of public safety, we would forgo any and all privacy.  In the real world, I think we should just keep doing what we’ve been doing about the 2nd amendment all along, ignoring the “shall not be infringed”.  We already don’t allow “the people” to have most weapons used by our military forces.”

Dave responded:  “Again, I largely agree with you.  But I have to ask a question you haven’t addressed yet: When is revolution justified? Is it ever?”

It had been taking me quite a while to figure out what I think about that.  I replied:  “Revolution can become inevitable.  Oppression can become too extreme and too prolonged.  It could happen here.  Our tax and spending policies are making hardship from technology-enabled structural change in the economy a lot more painful.  Wealth is being transferred to the already uber-rich from all others.  I expect we will change direction but there’s no guarantee.  It’s not impossible, for example, that unrest could grow severe enough that some “strong man” could use the moment to seize dictatorial control.  “President Cheney declares martial law in response to ongoing riots in cities throughout the land”.  It seems unreasonable to say revolution in such a case would be unjustified.  But if I interpret “justifiable” to mean I would be willing to kill, I can’t use the word.  In a democracy we get what we deserve.  We could have seen that our government’s actions would, if not altered, lead to revolution and we did not make the necessary effort so, shame on us.  It’s not an exact parallel but my grandfather and his five brothers all refused to fight in WW1.  My grandfather’s objection was philosophical.  I’m more moved by what one of his younger brothers said: “I thought, what would I say to his mother if I killed a German boy, or what would he say to mine if he killed me? Nothing could make it right.”  That doesn’t mean I’m absolutely a pacifist.  Maybe there could be a war or revolution where I’d feel I had to participate.  But what I believe I’d do if I saw revolution coming is try to leave and join some other society, one I could feel better about being part of.”

Dave replied:  “Thank you.  I sometimes wonder what I’d do as well.  I suppose it would really depend on what was happening at the time.  But I do think that the idea that our government is getting away from us is part of what drives the 2nd amendment types, and it makes me less supportive of any effort to repeal the amendment.  You say “If we were writing our Constitution now, and not even thinking about the one we already have, we probably would not include bearing arms as a fundamental human right.”  I wonder: isn’t the right to defend one’s self a fundamental human right?  I feel like I have the inalienable right to defend myself from anyone who tries to interfere with my free will.  I’m not interested in fighting, weapons, or anything like that.  I don’t think I’m particularly paranoid, and I don’t see any immediate threats to my freedom (to my health is another story), but I do see my right to privacy and to not be wrongfully seized being whittled away.  Anyway, if it came down to it, I’d probably choose exile as well. Maybe we’re more cosmopolitans than patriots, Martin?”

I responded:  “Yeah, we must work to stop our government from getting away from us.  I’ve started emailing my Representatives about issues I see as especially important and I intend to pester them increasingly more actively.  It’s a cop-out to tell myself one voice won’t make any difference.  I started my original blog because I felt I didn’t understand enough to give them good feedback.  I feel quite a bit closer now to understanding at least which are the most important issues.  Self-defense is confusing.  The way one expects to go about it may be the key factor.  We’re less likely to be attacked if we project confidence, more likely if we project fearfulness.  We need to learn how to project confidence in a way that is non-threatening.  The confusing part is I really do believe non-violence is the right aspiration.  Ahimsa.  I hope I never find myself in a situation where it would be rational, for example, to wear a handgun in order to deter violence.  I’m really not sure what I would do if my everyday life put me in that kind of situation.  I try never to get into such a place.  It was not my intent but it should have been, for example, to avoid a cool project management gig in Mexico City.  The guy I’d have worked most closely with was shot coming out of his office soon after.  But what if I couldn’t avoid it?  I can say, well, if we hadn’t allowed all those guns to be purchased there wouldn’t be nearly so many in the hands of bad folks and our world would be less dangerous, but it’s too late now. The guns are already out there.”

Topics worthy of more discussion include:

  • When is revolution justified? Is it ever?
  • What are the limits on our right to self-defense?  Are there any?
May 21 2013

The Beauty of Impermanence

Yesterday was the last of six days at a Tibetan Buddhist retreat.  Fifty years ago was the end of eight years at Richard Hale’s Free Grammar School for the Deserving Sons of Impecunious Gentlefolk founded in 1608.

Half a century ago my six hundred fellow students and I processed down the long school driveway, past the Hart rampant at the center of town, past the friendly pub where I sometimes soothed my spirit, through the cemetery and on into the great stone church.  Half an hour later I ascended the pulpit to read what was read at every school year’s dissolution, Ecclesiastes Chapter 12 Verses 1 to 12. 

I spoke the words with an actor’s conviction: “Remember now thy Creator in the days of thy youth, while the evil days come not, nor the years draw nigh, when thou shalt say, I have no pleasure in them”.

It was fortunate I wasted so much of my school years acting because although I was feeling apprehensive, it was not about my performance in the pulpit.  That day felt like the end of my youth.  “In the day when the keepers of the house shall tremble”, I continued.  That was not a day to look forward to.  Nor was the mysterious one when “the doors shall be shut in the streets”.  The voice in my head joking about ecstasy if I lay with them on the day when “all the daughters of music shall be brought low” failed to lighten my gloom.

I almost believed the summation: “Vanity of vanities, saith the preacher; all is vanity”.  I paused, dramatically, to let that sink in.  Vanity when those words were written meant futility.  Now existentialist philosophers were saying the same thing – everything is futile.  Then I intoned the preacher’s message:  “The words of the wise are as goads … be admonished: of making many books there is no end; and much study is a weariness of the flesh”.

Why did they choose that Bible lesson?  Perhaps it had resonated in 1944 when the school was absorbed into the state system a decade before I came there.  Many of my teachers rejected the present, retaining traditions from a world of privilege very different from mine on the far side of the tracks.  They yearned for the past, I felt unprepared for the future, but we had more in common than I imagined.  We were both living not where we were but in worlds we imagined.

Buddhism is training to live in the present, the only time we actually are alive.  It offers folks of every temperament ways to practice being and doing with graceful acceptance and joy.  A wise man speaking not about Buddhism but business leadership offered the same insight about our all too common absorption in a stew of regret and hope: “Living with one foot in the past and one in the future will only hurt your crotch”.

That everything is impermanent and every act has results led the preacher to an entirely different conclusion from the Buddhist and the businessman.

The preacher tells us to fear a day in the future when an external deity will pass judgment on our every past act, “whether it be good, or whether it be evil”.   Buddhism teaches not fear but that we can overcome our habits and illusions, not repeat our mistakes, learn to become truly happy, cherishing and selfless in every instant.

That everything is impermanent with no intrinsic tendencies means we need not repeat what we did before.  We need no deity to know what is good and what is not.  We know which makes us happy and which causes suffering.  We can recognize that nothing compels us to do what is not good.

We can purify the working of our mind.  We need not worry about, for example, the theory of my biology teacher who escaped from Hungary after the 1956 invasion by Soviet Russia.  We are doomed by our biology, he thought:  “The huge growth of our frontal lobes is cancerous.  It allows us to create imaginary worlds where we can do terrible things, things that in the real world we could never do, things no other animal could imagine.”

We do too much thinking.  The breath I am taking right now probably is not my last but there definitely will be a last one and I probably will not recognize when it starts.  Those radiant daffodils outside my window, the translucent new leaves, the heron so still at water’s edge, the sun sparkling on the ocean, they probably will not be the last thing I see but there will be a last scene for me.

It makes sense to relish every instant.  If I continue to practice this simple truth, I will waste fewer moments seeking safety by treating life as improvisational theater.  If I really, really try and I live long enough, maybe I can shake off dreams for a whole day.  I shall do it the same way I quit cigarettes, just breathe fresh air for the next hour.  I will aim to awaken just for this moment.

We imagine false choices.  At the T-junction, we cannot turn both left and right but in this instant, we can both think and feel.  We can vibrantly feel the joy or pain this instant brings and also prepare for future moments when we may no longer be present and whose circumstances we cannot know.

Walking while chewing gum may be beyond me, I have not tried, but I can relish the fragrance and complex taste of this Wicked French Roast at the same time as I figure out a better tax system without worry if the one we have can be changed.  Everything changes, anyway.  That’s the beauty of impermanence.

May 13 2013

Campaign Finance and Free Speech

Because only bad government is possible until we reform campaign finance, I recently signed a petition supporting House Judiciary Resolution 29 (H.J.Res.29).  I asked others to join me or point me to a better approach.  It will be a while before I can do the necessary research to find a better approach – if there is one – so in the meantime this is an anchor for comments thus far.

H.J.Res.29 is a proposed Constitutional amendment that would make the rights extended by the Constitution apply only to natural persons and provides a basis for fundamental campaign finance reform.  It was introduced in the House of Representatives on February 14, 2013 and referred to the Committee on the Judiciary.  It reads:

    `Section 1. The rights protected by the Constitution of the United States are the rights of natural persons only.  Artificial entities, such as corporations, limited liability companies, and other entities, established by the laws of any State, the United States, or any foreign state shall have no rights under this Constitution and are subject to regulation by the People, through Federal, State, or local law.  The privileges of artificial entities shall be determined by the People, through Federal, State, or local law, and shall not be construed to be inherent or inalienable.
    `Section 2. Federal, State and local government shall regulate, limit, or prohibit contributions and expenditures, including a candidate’s own contributions and expenditures, for the purpose of influencing in any way the election of any candidate for public office or any ballot measure.  Federal, State and local government shall require that any permissible contributions and expenditures be publicly disclosed.  The judiciary shall not construe the spending of money to influence elections to be speech under the First Amendment.
    `Section 3. Nothing contained in this amendment shall be construed to abridge the freedom of the press.’.

The intent of Section 1 is to establish that artificial entities such as corporations do not have constitutional rights.  The intent of Section 2. is to establish that money is not free speech.

My overall view is:

(1) Our government today is unacceptably bad so we must make a substantial change

(2) A more effective form of democracy is possible, e.g., using social media technologies, that was unimaginable 250 years ago but we’re not going to change the current system

(3) Any legislative change will have negative as well as positive effects so we should make the best change we can, then make more based on future results

May 11 2013

Estate Tax and Fairness

What components must a tax and budget management system have to achieve the results we want?   I’ll start with a result and a candidate that illustrate a few large issues.

It seems to me now that what I said was my biggest surprise in this post, Qualities of an Excellent Tax System, should not have been a surprise at all.  The American Dream is that our freedom includes equal opportunities for all of us to achieve prosperity and success.  In that case, it makes sense that nine out of ten of us would say we want a relatively equal distribution of wealth.  What we mean is, we want relatively equal opportunities to become wealthy.

So, the system needs to to, “lead toward the distribution of wealth we democratically choose”.   By “lead toward” I mean propel the wealth distribution on average and over time, and by “democratically choose” I mean the distribution we want could change but it should at all times be in some way explicitly approved by the electorate.

Among the indicated requirements is to diminish, “unfair opportunity based on parental wealth”.  Estate taxes are a potential mechanism.  How much support might there be for them, and how effectively would they support the objective?

Estate taxes would not be popular at all.  The compendium of public opinion research I used for this post about our tax system shows on page 21 the results of a March 2009 Harris poll about the perceived fairness of various kinds of federal and state/local taxes.  Federal estate taxes are considered the least fair of all.  Two in five respondents (42%) consider them “not at all fair”.  Fully two thirds (67%) consider them “somewhat or not at all fair”.

Before exploring if estate taxes could nevertheless be effective, it’s instructive to set their unpopularity in context.  Every form of  tax has high “somewhat or not at all fair” ratings.

At the federal level, the combined “somewhat or not at all fair” ratings for each type of tax are:  estate taxes 67%, gas taxes 63%, personal income taxes 48%, corporate income taxes 42%, social security payroll taxes 40%, and cigarette, beer and wine taxes 36%.  At the state/local level they are: gas taxes 62%, local property taxes 50%, motor vehicle taxes 47%, state income taxes 44%, cigarette, beer and wine taxes 38%, and retail sales taxes 37%.

I’ll come back to those statistics in future posts.  One thing to consider is the seeming paradox that while gas taxes are almost as unpopular as estate taxes, retail sales taxes, which are also levied at point of sale and unlike gas taxes are shown separately and so are more visible, are considered the least unfair of taxes along with those on cigarettes, beer and wine.  I’ll also address why property and motor vehicle taxes, personal and corporate income taxes, and social security payroll taxes are all considered “somewhat or not at all fair” by 40% to 50% of us.  The overall message from these statistics is:

Large issue 1:  While everyone wants government services, many or most of us consider every way of funding them to be “somewhat or not at all fair”.  It will not be enough to establish a way of collecting revenue that is reasonably fair.  We must also routinely measure its fairness, publish the results and measure public opinion about that.  The long term result, if the system truly is fair, will be a steep bell curve of survey results toward the middle of the range from “Very fair” to “Not at all fair”.  I’ll explore this in a future post.

Meanwhile, why are estate taxes considered most unfair of all?  Because they’re associated with death.  That’s why opponents call them the “death tax”.  We’re pretty much terrified of death and we don’t like any taxes, anyway.  Also, opponents tell us it’s double taxation:  “First, they took your hard-earned money in income tax, then they want estate taxes on what’s left?!”  And while in theory we want equal opportunity for all to become wealthy, we probably in reality want our kids to have a better than equal chance.  The message from this statistic is:

Large issue 2:  We are vulnerable to powerful fears and desires that distort our judgment about government and taxes which cannot be soothed from within the tax system.  We would be happier and kinder if we accepted that we will die.  It would be better to prepare our kids to work for what they most want.  The tax system is powerless to help us accept and act upon such truths.

Would estate taxes nonetheless be an effective way to diminish the unfair advantage of parental wealth?  The answer is again, in normal circumstances, no.  Estate taxes are in reality levied on only a tiny fraction of US estates and they are easy to avoid altogether with trusts and provisions in your will.  If, that is, you act on the fact that you will die.

More importantly, revenue from estate taxes fluctuates because people with equal wealth do not die at the same rate every year. That means estate taxes are unsuitable for supporting ongoing levels of spending.   There is also:

Large issue 3:  Wealthy people can relocate their assets.  Not all US states levy estate or inheritance taxes and those that do, have different rates and thresholds.  You can become a resident of a different state if you expect to leave or inherit a large estate.  The same issue exists for state income taxes as this link suggests.  And if you want to avoid US taxes altogether, you can renounce your citizenship and move offshore.  This means tax systems must be appropriate to their competitive environment, state-wise and nation-wise.

There are, however, a couple of situations where estate taxes are effective.  One is when there is a widely accepted temporary need for exceptionally high government spending.  By the end of WW2, for example, the top marginal estate-tax rate, referred to as “equality of sacrifice”, was 75% in the UK and 77% in the US.  In WW1 when UK men were being conscripted, very high estate taxes were termed “conscription of wealth”. The other situation is when the domination of a wealthy hereditary aristocracy is overturned.  The sacrifice made necessary by WW1 gave UK social reformers that opportunity.

We should work diligently and hard to avoid the need and opportunity for such a remedy in our own society.

May 8 2013

Qualities of an Excellent Tax System

Noting at the start of this project that our tax system has no defined goal and grows ever more bewildering – the Federal tax code alone grew in the past 10 years from 1.4M to 3.8M words – I asked: “What if we had a tax goal and a budget management plan?”  The posts summarized below explore results of the current system to identify what should change.

What We Tax shows how much of what kinds of tax is collected at each level of government.  Federal revenue is chiefly from income and social insurance taxes.  State and Local governments rely mainly on property, sales and inheritance taxes.  Total tax revenue grew steadily as a % of GDP to a peak in 2000 and has since dropped very sharply on two occasions although government spending has not.  Federal taxes are half the total.  Personal income tax is 30% of the total and social insurance 20%.

Who We Tax shows how much tax is paid by each income group.  The lowest fifth whose income averages $12,400 pays 16% of that in sales and other such taxes.  They do not earn enough to pay income tax.  The middle 20% who average about $33,400 pay 25% in taxes overall.  The topmost 1% who average $1.3 million pay 31%.  Tax paid relative to income is similar for all income groups – the top fifth gets 59% of all income and pays 64% of all taxes, the bottom fifth gets 3.5% of all income and pays 2% of all taxes.

The Dept of Health and Human Services judging who has “insufficient income to provide the food, shelter and clothing needed to preserve health” determines that the entire bottom fifth has insufficient income, as does a family of four in the next fifth, and even a family of five in the middle income group.  The bottom fifth, after subtracting the 16% they pay in taxes has $10,400 to support themselves.

What We Do Not Tax examines why our system is so complicated.  Nobody fully understands all the provisions that exclude some income from taxation.  These deductions and payments made via the tax system total almost a third of overall Federal spending, more than $800B in 2012.  That is more than our spending on our three most costly programs, Social Security, defense, and Medicare.

Tax exemptions are popular with politicians because they are less visible than spending programs and generally do not need annual funding decisions.  All the big exceptions have a lot of support with the possible exception of the Earned Income Tax Credit, which benefits only the bottom fifth.  Although the other exemptions are imagined to benefit society in general, they primarily benefit the top 20% and some disproportionately benefit the top 1% income group.

Business Tax explores how our taxes on corporate and other businesses compare to other nations.   Although our top corporate tax rate is among the world’s highest, many of our largest corporations use tax exemptions to pay much lower rates.  GE paid none at all in 2010.  Multinationals manage their accounts to show profits in tax haven countries to avoid US taxes.  All large ones have the advantage of tax deductible debt financing.  What our corporations pay is half the OECD average.

An exceptionally high percentage of our businesses that together produce half of all business net income is not incorporated, which blurs the distinction between business and personal taxes and facilitates legal tax avoidance.

Purpose and Performance of Our Tax System examines its effectiveness, overhead, fairness and clarity.  The system is ineffective, failing by a wide margin to fully fund government activities and allowing illegal evasion on almost a fifth of taxable income.  Its overhead at 30% on income tax is much too high.  It is unfair, only two of five considering it even moderately fair.  Finally, it fails utterly on clarity.

Our current tax and budget management system allows 61% of us to believe the federal deficit can be cut substantially without raising taxes while at the same time opposing cuts to programs that account for 62% of all spending.   Social security cuts are opposed by 79%, Medicare by 76% and defense by 58%.  While opposing cuts to any programs with significant costs, three in four believes almost half of government spending is wasted and imagines cutting programs with relatively tiny costs would be a solution.

That huge compendium of public opinion research confirms in more detail what we in fact already know: we hate taxes, we love benefits.   Home owners hate property taxes but love the mortgage interest deduction.  Almost everyone hates inheritance taxes although hardly anyone has to pay any.  And so on.  What this means is a better tax system will be impossible unless we first agree how we want the tax revenue to be spent.  We will get nowhere considering changes in isolation and make progress only by assessing the impact of potential changes on the outcome we want.

Taxes, Wealth and Fairness explores the outcome we want.  The previous post explored public opinion about fairness and noted, for example, that 66% of us believes “everyone should pay some minimum amount of tax to help fund government”, the implication being that some do not, e.g., the 47% Romney noted who pay no income tax, although as we saw above, the bottom fifth in fact pays 16% of their income in taxes.  This post turns from exploring mechanisms to results, what we mean by saying our tax system should have a fair outcome.

Nine out of ten Americans want a society with a relatively equal distribution of wealth.  The average of our opinions is that the top fifth should have 32% of the total wealth.  What we think they have is close to twice that percentage (59%).  In fact, they have 25% more even than we imagine, a full 84% of our society’s total wealth, and their share is growing fast at the expense of every other group.  Despite great disagreements over policies that affect wealth distribution, e.g., tax and welfare, a great majority of us appears to believe that wealth should be distributed far more equally than we imagine it is, and we imagine it to be distributed much more equally than the reality.

In the next post I will begin exploring different tax approaches to get the system we appear to want, a system that:

  • Fully funds all authorized government activities, not necessarily every year, but on average
  • Makes it easy to understand the impact of proposed tax and spending changes
  • Leads toward the distribution of wealth we democratically choose
  • Has a low collection cost and allows minimal illegal evasion
  • Does not disadvantage US business in the global economy

My biggest surprise from the research is the relatively equal distribution of wealth nine out of ten of us appear to want.  I interpret that to mean we want relatively equal opportunities to become wealthy, which would include relatively equal access to high quality education and health care, for example, as well as relatively little unfair opportunity based on parental wealth.

I began this research because year after year we keep borrowing, not to fund investments for our future, but to keep consuming, and that’s unsustainable.  Better we work our way out of this downward spiral than be forced to when it is more painful.  That motive is the origin of the first bullet point above.  But I now see the deeper problem.  The tax and budget management system we have is not at all what we want.  That’s the origin of the remaining bullet points.

It will be extremely hard to get the tax system nine out of ten of us appears to want.  Inequality as extreme and fast growing as we have (net worth of the wealthiest 7% grew 28% in the past three years while the lower 93% lost an additional 4%) results only when political power based on wealth is shaping government policy.  When we see our tax system’s enormous and confusing volume of laws, we imagine its apparent chaos to have grown randomly.  It can be no accident, however, that it results in wealth flowing always and only to the top.

I will be grateful for any comments about the research, analysis and conclusions so far.  Have I failed to research anything essential, made any flawed analyses, or come to any unwarranted conclusions?

May 5 2013

Barbarous Legislation, Dysfunctional Governments and What to Do

Truck Driver’s Insurance in Nepal explains why a Nepali truck driver who injures someone goes on to kill them.  Sasi Kala commented: “This is one of the most barbaric insurances I’ve ever known” and asked: “Can we do something to change this madness?”  That led me to answer a bigger question; why should Americans be interested?

In 2006 when the civil war ended, the monarchy fell and several long visits had given me a sense of Nepal’s economic situation, I thought: “I have decades of experience in enterprise strategy as a consultant and executive, I studied it at Harvard Business School, I should be able to see a strategy for Nepal”.   I wasn’t expecting it to be helpful but if I came up with something compelling I’d presumably have tried to get it heard.  What happened is, I realized I was trying to answer the wrong question.  It’s not just that there’s so little to build on in Nepal, it now has neither government nor leader.

Distressingly little has changed in the months since I last posted about Nepal’s political situation, or even in the seven years since 2006.  The “movers and shakers who never move and rarely shake” continue only to fulminate.  The Constituent Assembly elected to draft a new Constitution within two years that failed to finish in four still has not been replaced so there is still no progress on the Constitution, and no government or leader.

An alliance of 33 parties is protesting against a proposed election to be held in November.  They say they will not participate.  Party leaders who say they will participate are resisting setting an election date until they have their alliances nailed down.  The caretaker government headed by the Chief Justice is not empowered to do anything, which suits the politicians all too well.  Meanwhile, daily life gets steadily worse for most everyone else.

The truck driver’s insurance is just one manifestation of a much greater madness.  There’s little we can do until that’s healed.  We can’t expedite the election to complete the Constitution, or its drafting, or the eventual election of a government.  All we can do in the meantime is, if we have contacts there, help them understand what should be in the new Constitution and what legislation the new government should establish.  That’s worth doing.

The existing truck driver insurance seems normal to Nepalis because it’s always been that way.   Justice always has been subordinate to the Executive in Nepal so its government officials always have been above the law and that, too, seems normal.  We’ve lived over two centuries with the Constitution of a secular republic and a democratically elected government, so we can more easily see some things Nepalis should change.

But what if we have no contacts in Nepal?  Why should we be interested in Nepalis’ situation, anyway?  Because it illustrates where we’re heading.

Nepal has dramatically inadequate infrastructure of every kind because it has no government.  That’s a fundamental problem.  If there’s no electricity 14 hours a day, there can be no wealth-producing enterprises with jobs for educated people.  Fully a quarter of Nepal’s GDP is money sent home by Nepalis doing manual work overseas.  “What’s the point of educating our children if there are no jobs for them?” one of my Nepali friends asks: “They’ll either leave us behind or make another war.”

Because the US government used to be effective, we have electricity, road and rail networks, school systems and the other services necessary for a strong society.  It’s easy to start a business here and grow it quickly to any size.  But our infrastructure that makes such things possible is now, day by day and year by year growing weaker.  Why?  Because our government no longer invests effectively for the future of our economy and society.

Why do we behave as if that’s OK?  Because the results are accumulating at a pace we don’t notice.  It’s like not changing the oil in a truck.  The wise trucker does that and other maintenance and at the appropriate time gets a new and better truck.  He doesn’t just drive the one he inherited into the ground.  Like Nepalis, we’re accustomed to what our government is failing to do.

We say government should get out of the way of business.  Nepal shows business is impossible without government.  It’s not just that you can’t operate a business without electricity and you can’t access markets if there’s no railroad or highways.  It’s not even worth trying if there’s no legal protection.  Over the last few years I’ve explored with Nepali friends half a dozen business ideas that could have produced worthwhile products, profits and employment.  They’d all be easy to do here.  Not one is viable there.  There’s so much missing and what is present is undependable.

I like business.  I had fun and satisfaction doing it for forty years.  But I have no experience in government and little understanding of how it works.  That’s a problem.  We all have biases about how much of what kinds of things government should do.  Bias is unavoidable but ignorance is not.  We all should form not just opinions but educated and actionable ideas about government, test them against ones that don’t match our biases, think them through, then work to get them established.

The goal of my original blog and this one was at first just to help me identify and define what would be better and worse.  That is necessary but it no longer feels sufficient.  We must stop our government and future from getting worse, and have our government do what it must for a better future.

May 2 2013

Armed Revolution and Gun Control

Fairleigh Dickinson University just published the stupefying results of their recent national survey about armed revolution and gun control.  Asked for their opinion about this question: “In the next few years, an armed revolution might be necessary in order to protect our liberties”, 29% said an armed revolution may be necessary.  That’s three in ten of my fellow citizens.  Three in ten!

The survey also shows how belief in the potential need for armed revolution against our government correlates with beliefs about gun control.  Only four in ten (38%) who believe a revolution might be necessary support additional gun control legislation.  Additional legislation is supported by over six in ten (62%) who do not think armed revolt will be needed.

The results also differ by party, with two in ten (18%) Democrats thinking an armed revolution may be necessary versus more than four in ten (44%) Republicans.  That’s a lot of Republicans!  It’s also a lot of Democrats.

The survey also asked if respondents believe that: “Some people are hiding the truth about the school shooting at Sandy Hook Elementary in order to advance a political agenda.”  I feel naive to be shocked that a quarter of us does believe facts about the shooting are being hidden.

One of the poll analysts said: “The differences in views of gun legislation are really a function of differences in what people believe guns are for.  If you truly believe an armed revolution is possible in the near future, you need weapons and you’re going to be wary about government efforts to take them away.”  That sounds accurate.

As I wrote here, I once owned a .22 rifle, but not in case I needed to overthrow my government, and I didn’t get rid of it because it would be outmatched by my government’s weaponry.  I always thought democracy was the least bad of all possible arrangements for a large society.  That’s why I vote.

It’s very disturbing that three in ten Americans believe our democratic form of government may have to be overthrown.   It’s downright peculiar that they also believe their firearms could do the job.

Apr 29 2013

Taxes, Wealth and Fairness

‘Democratic’ in my previous post’s question: “What is the purpose of our democratic society’s tax system?” – means it leads to a fair outcome.  That post explores public opinion about tax fairness.  But what do we mean by a fair outcome?  Taxes are only the means; what about the end, a fair economic structure?  We now explore the previous post’s final question: “How should society’s wealth be distributed?  What do we actually want?”

Determining how to answer such questions was the life work of US political philosopher John Rawls.  His aim was to see how to establish the legitimate use of political power in a democracy; how a society with diverse worldviews can unify for action.  He developed a method (the “original position”) to proceed from our deepest ideas about justice to reach real agreement.  It works when people imagine themselves entering society in a fair position and answer using only factors their intuition considers fundamental.  Phrasing the questions is critically important.  Politicians typically phrase them not to promote agreement but amplify differences.

Professors Norton and Ariely used Rawls’ method to survey (see their Report and an Interview with Ariely) a random sample of 5,500 Americans to explore how we want society’s wealth to be distributed.  They used pairs of pie charts depicting the distribution of wealth from richest to poorest groups among pairs of nations.  They asked respondents which nation of each pair they would rather join:  ‘In considering this question, imagine that if you joined this nation, you would be randomly assigned to a place in the distribution, so you could end up anywhere in this distribution, from the very richest to the very poorest.’’

The pie charts shown to respondents were not labeled.  One showed the existing distribution of wealth in the USA.  One showed all groups having exactly the same.  The third showed another real world case, the distribution of income in Sweden.  They chose that because it is quite different from the others (income in Sweden is distributed relatively equally but wealth is not).

Presented with the pair of charts representing Sweden and the USA, nine out of ten respondents (92%) preferred the Swedish distribution.  The results were consistent across gender, political and economic divides: females 93% vs males 91%, Republicans 90% vs Democrats 93%, income less than $50,000 92% vs $50,001–$100,000 92% vs more than $100,000 89%.  There was a slight preference (51% to 49%) for the Sweden distribution over the equal distribution when they were compared directly and a somewhat larger preference when the choices were Sweden or US  (92% vs 8%) than when they were equal or US ( 77% to 23%).

Relative preference

Those answers are provocative; a huge majority of Americans appears to want a society with a relatively equal distribution of wealth.  But the question is abstract so Norton and Ariely tested the result.  Respondents were next asked what percent of wealth they believe is owned by each of the five economic groups in the United States, and what each ideally should own.  They were given the following definition: ‘‘Wealth, also known as net worth, is defined as the total value of everything someone owns minus any debt that he or she owes. A person’s net worth includes his or her bank account savings plus the value of other things such as property, stocks, bonds, art, collections, etc., minus the value of things like loans and mortgages.’’

The second set of answers is equally provocative, is consistent with the first, and is also consistent with my previous post’s findings about clarity.  Respondents vastly underestimated the actual level of wealth inequality in the US.  They said the wealthiest fifth of Americans holds about 59% of the wealth.  They actually have almost 84%.  They own fully a quarter more of the total than respondents imagine.

Consistent with the pie chart answers, respondents constructed ideal wealth distributions far more equitable than their estimates of the actual.  They want the top fifth to own not 59% of society’s wealth but roughly half that amount, i.e., 32% of the total.  They redistributed what they feel is too much from the top fifth to the bottom three, leaving the second group unchanged, making the third about the same as the second, and more than tripling the share of the poorest group.  As with the first question, the answers were highly consistent across gender, political and income groups.

Percent Wealth Owned

So, despite great disagreements over policies that affect wealth distribution, e.g., tax and welfare, a great majority of us appears to believe wealth should be distributed far more equally than we imagine it is, and we imagine it is distributed much more equally than the reality.

We have extraordinarily mistaken beliefs about the actual level of wealth inequality, and we probably have equally mistaken beliefs about our opportunity to move up in wealth.  Incomes of the lower 80% of the population have been dropping for the past three decades.  Only the top 1% has seen real growth in income.

inequality-p25_change in share of income

Furthermore, in the most recent three years the wealthiest 7% has enjoyed a 28% increase in their net worth, driven largely by the Fed’s successful efforts to boost the stock market, while the lower 93%, whose primary asset, if they have any at all, is typically the equity in their house, has suffered a further 4% loss in wealth.  The Organization for Economic Cooperation and Development (OECD) reports that among all 34 OECD nations, only Turkey, Mexico and Chile distribute their society’s wealth more unequally than we do.

unevenrecovery

Extreme inequality results when political power based on wealth shapes government policy.  That is the norm in autocracies.  It can also happen in a democracy.  Income inequality in Tsarist Russia was not so severe as ours is now.

Is the relatively equal distribution preferred by Norton and Ariely’s respondents optimal?   My guess is we would generate more overall wealth with somewhat greater incentives.  That would be good to know but we already do know our existing distribution is far from most Americans want.  And history tells us that when income from work goes disproportionately and increasingly to the already wealthy as ours does now, it can only, as my mom always said, end in tears.

I hope we will not wait for a revolution but take democratic action to better distribute the wealth our society generates.  I will explore changes to make that more likely in future posts about governance.  But first, I will explore changes that would make our tax system better fit its purpose.

Apr 24 2013

The Purpose and Performance of Our Tax System

What is the purpose of our democratic society’s tax system?  It’s very different from, say, Louis the Sun King’s France.  His Minister of Finance defined taxation as:  “plucking the goose to obtain the largest possible amount of feathers with the smallest possible amount of hissing”.   We only want to collect enough, not as much as possible.  How well does our system perform?  We have better measures than hissing:

  • Effectiveness – % of government activities it funds – is it enough?
  • Overhead – % of what is collected the process costs
  • Fairness – % of the population considering it fair
  • Clarity – extent to which the population understands what the taxes pay for

Effectiveness has two aspects.  First, a perfect tax system would, not every quarter or year, but over the long haul, fully fund our government’s activities.  By this measure, our current system is an abject failure.  The problem is not so much that the gap widens during economic downturns, e.g., lower collections and higher spending post-2007, but that what’s collected is almost always significantly lower than what’s spent.  I’ll comment below (see clarity) on why that is so.  At this point we only need acknowledge that our current tax system is seriously ineffective.

Revenue_and_Expense_to_GDP_Chart_1993_-_2008

The other aspect of effectiveness is what % is collected of the amount the system intends to collect, i.e., how much is illegally evaded.  This 2011 study by the Federal Reserve Bank says: “18-19% of total reportable income is not properly reported to the IRS, giving rise to a “tax gap” approaching $500 billion dollars”.   It is estimated that around $3T of income tax was evaded from 2001-2010.

Overhead means the cost of collecting.  By this measure, too, our system gets a failing grade.  This report, using IRS data, estimates it at 30% for the income tax system.  Local property taxes, for example, have lower overhead.  Embedded point of purchase taxes, e.g., on gasoline, have about 5% overhead.  I haven’t tried to estimate overhead for our overall system.  It would be good to get it a lot closer to 5% and have it cause less hissing.

Measuring fairness is a challenge.  How to define it?  The dictionary definition is simple, “a proper balance of conflicting interests” or “showing no more favor to one side than another” but it is not so obvious how to measure that in a tax system.  Since we are a democracy, the best way is what % of the people considers it fair.   From a recently published 131 page compendium of survey results I selected some of the most illuminating ones about fairness and clarity.

How many of us consider the current system fair?  See below.  A little under half (3% + 40%) and mostly only moderately fair.  A quarter (24%) considers it not at all fair.  Three of five, however, (59%) regard what they personally must pay as fair.  Perhaps they are the same 56% who consider that middle-income people pay their fair share?  Many more, however, (68%) feel the system benefits the rich and three of five (60%) want those who earn more than $1M a year to pay a minimum of 30% in taxes.  Two of five (40%) consider that lower income people pay too much.  Maybe they are lower income?  Fully two thirds (66%) believe everyone should pay some tax although that question is somewhat loaded.  Almost two thirds (64%) think corporations pay too little tax.

  • Would you say that our [federal] tax system is very fair, moderately fair, not too fair or not fair at all? (p. 20, Dec. 2011 Pew) Very fair – 3%,  Moderately fair – 40%, Not too fair – 31%, Not fair at all – 24%)
  • Do you regard the income tax which you will have to pay this year as fair? (p. 23, Apr. 2012 Gallup) Yes – 59%, No – 37%
  • Do you feel the present tax system benefits the rich? (p. 25, Apr. 2012 CNN/ORC) Yes – 68%, No – 29%
  • Are middle-income people paying their fair share in federal taxes, too much or too little? (p. 26, Apr. 2012 Gallup) Too much – 36%, Fair share – 56%, Too little – 6%
  • Are lower-income people paying their fair share in federal taxes, too much or too little? (p. 27, Apr. 2012 Gallup) Too much – 40%, Fair share – 33%, Too little – 24%
  • Are corporations paying their fair share in federal taxes, too much or too little? (p. 27, Apr. 2012 Gallup) Too much – 11%, Fair share – 21%, Too little – 64%
  • Would you favor requiring households earning $1 million a year or more to pay a minimum of 30% of their income in taxes? (p. 31, Apr. 2012 Gallup) Support – 60%, Oppose – 37%
  • [Should] everyone pay some minimum amount of tax to help fund government? (p. 20, Feb. 2009 Harris/Tax Foundation) Should – 66%, Current system is fair – 19%, Not sure – 15%

So, our current tax system is perceived to be less fair than we want.  Another way to look at it is in terms of results.  The tax system takes money from people at different rates and redistributes some of it to others depending on relative circumstances.  How fairly do we think it does that?   Almost three of five (57%) feel money and wealth should be more evenly distributed.  Opinions are, however, equally divided (47% to 49%) on whether the government should redistribute it by heavy taxes on the rich.

  • Do you feel that the distribution of money and wealth in this country today is fair? (p. 33, Apr. 2011 Gallup) Fair – 35%, Should be more evenly distributed – 57%
  • Do you think that our government should or should not redistribute wealth by heavy taxes on the rich? (p. 33, Apr. 2011 Gallup) Should – 47%, Should not – 49%

Another perspective is, are we paying the right amount of tax relative to government spending?  Half of us (47%) think we pay too much tax and half (47%) think what we pay is about right.   But twice as many (61% to 26%) want to pay less, two thirds (67%) are against raising taxes and almost as many (61%) are unwilling to pay more.  How to reconcile the desire to pay less with closing the government’s deficit?  Three of five (61%) believe the deficit can be cut substantially without raising taxes and more than half (53%) favors balancing the budget by cutting spending.

  • Do you consider the amount of federal income tax you have to pay as too high, about right, or too low? (p. 4, Apr. 2012 Gallup)  Too high – 46%, About right – 47%
  • Would you like to see the amount Americans pay in federal income taxes increased, decreased, or remain about the same? (p. 6, Jan. 2012 Gallup) Increase – 13%, Decrease – 61%, Same – 26%
  • Would you favor or oppose raising taxes as a way to reduce the budget deficit? (p. 55, Mar. 2011 PSRA/Pew) Favor – 30%, Oppose – 67%
  • Would you be willing to pay more in taxes to reduce the federal deficit? (p. 50, Jun. 2011 Bloomberg) Willing to pay more – 36%, Not willing – 61%
  • Do you think it is possible to bring down the deficit substantially without raising taxes? (p. 54, Mar. 2011 Bloomberg) Is possible – 61%, Not possible – 37%
  • Which would you prefer to balance the federal budget deficit? (p. 56, Jul. 2011 Economist/YouGov) Increase taxes -10%, Decrease gov’t spending – 53%, Both – 29%

Now we arrive at our tax system’s clarity.  How accurately do we understand the cost of our government’s activities and how that relates to the taxes we pay?  This is where our system fails most spectacularly.  We want to pay less taxes and we imagine we could cut government spending to make that possible.  What spending do we want be cut?  Waste!

We believe almost half of all government spending (47%) is wasted.  Where?  Social Security, the largest program?  Four of five (79%) oppose cutting Social Security spending.  There is less opposition to raising the Social Security eligibility age (44% in favor, 54% opposed).  Opinions are quite evenly divided on what we could save by raising the age of eligibility.  I don’t know what % of the population knows Social Security does not in fact contribute to the deficit – we collect more Social Security taxes than we pay in benefits.

How about cutting Medicare etc, our second largest program?  Opinions are equally distributed from a lot to not much on what that would save but three quarters of us (76%) are in any case against cutting Medicare.

Should we cut defense spending, the third largest area of spending?  Three of five (58%) oppose that but almost half (47%) think we could make very large savings by pulling out of Iraq and Afghanistan and two thirds (66%) favor doing that.  Will they oppose spending the money to invade Iran?

Since the top three areas of spending account for 62% of the total, how to eliminate that 47% of waste?  Two of every three of us (42%) believe we could make very large savings by cutting aid to foreign countries and 72% favor doing that.   Sadly, our total non-military foreign aid in 2011, $32M, is one thousandth of one percent of total federal spending.

  • Do you think people in government waste a lot of money we pay in taxes, waste some of it, or don’t waste very much of it? (p. 15, Apr. 2011 CNN) A lot – 73%, Some – 23%, Not Much – 4%
  • For every dollar you pay in federal taxes, about how many cents do you think are wasted by the government? (p. 16, Jan. 2013 Reason-Rupe) Wasted – 47%
  • In order to reduce the budget deficit, would you favor or oppose reducing spending on Social Security? (p. 60, Mar. 2013 CBS) Favor – 18%, Oppose – 79%
  • Would you favor or oppose gradually raising the age of eligibility for Social Security to 69? (p. 53, Mar. 2011 Bloomberg) Favor – 44%, Oppose – 54%
  • Savings by gradually raising the age of eligibility for Social Security to 69 would be? (p. 53, Mar. 2011 Bloomberg) Very large – 19%, Fairly large – 28%, Fairly small – 24%, Little difference – 24%
  • Would you favor or oppose significantly reducing benefits for Medicare? (p. 53, Mar. 2011 Bloomberg) Favor – 22%, Oppose – 76%
  • Savings by reducing benefits for Medicare would be? (p. 53, Mar. 2011 Bloomberg) Very large – 19%, Fairly large – 25%, Fairly small – 27%, Little difference – 24%
  • In order to reduce the budget deficit, would you favor or oppose reducing defense spending? (p. 60, Mar. 2013 CBS) Favor – 38%, Oppose – 58%
  • Savings by pulling all troops out of Iraq and Afghanistan would be? (p. 53, Mar. 2011 Bloomberg) Very large – 47%, Fairly large – 28%, Fairly small – 12%, Little difference – 11%
  • Would you favor or oppose pulling all troops out of Iraq and Afghanistan? (p. 53, Mar. 2011 Bloomberg) Favor – 66%, Oppose – 30%
  • Savings by cutting aid to foreign countries would be? (p. 53, Mar. 2011 Bloomberg) Very large – 42%, Fairly large – 30%, Fairly small – 14%, Little difference – 10%
  • Would you favor or oppose significantly cutting aid to foreign countries? (p. 53, Mar. 2011 Bloomberg) Favor – 72%, Oppose – 26%

Fed Spending Pie Chart

This is already a long post so I will make only two comments about state and local taxes.  Property taxes are considered the most unfair of all, perhaps because they may force folks whose incomes drop sharply at retirement to sell their home.  Estate taxes, primarily federal but which have also been levied by some states, are also very unpopular, which is inconsistent with our idealization of the “self-made man”.

The next post in this series will say more about fairness.  How should society’s wealth be distributed?  The cynic would expect all of us to think we personally should have more.  What do we actually want?  My analysis of our current tax system and how its results compare to what we want will at that point be sufficiently complete.   I will then force myself to establish some proposals for a better system.