Tax Inequity and the Middle Class -- Top Issue for 2012

In an earlier political posting I pointed out that the top federal income tax rate - for earned income - has seldom been lower than it is right now.. and the rate that Mitt Romney pays on dividends is half of that.  Federal taxes, in general, are at one of the lowest points since 1912... suggesting that our current national argument about taxes ought to at least feature commensurately lower rates of anger.  Sure, let's negotiate how to simplify the system and make it more fair. But can we tone down the rage a little?

(Oh, but indignant fury is the whole point.  If it isn’t taxes, it will be something else.)

Above all, effective tax rates on the very wealthy are at their lowest since Teddy Roosevelt was president.

One response was sent in “That’s federal taxes! But state rates have gone up.”  Well, it’s a point that merits answering. So consider: (1) states vary a great deal, hence you are free to move to a low-tax state and I know many folks who have.  (2) Have a look at the Wiki site for “Tax Freedom Day.”

Tax Freedom Day 1971 to 2011 Source: Tax Foundation

Tax Freedom Day is the first day of the year in which a nation as a whole has theoretically earned enough income to fund its annual tax burden. It is annually calculated in the United States by the Tax Foundation—a Washington, D.C.-based tax research organization that is far, far from lefty, let's say. Every dollar that is officially considered income by the government is counted, and every payment to the government that is officially considered a tax is counted.

Taxes at all levels of government—local, state and federal—are included.  Have a look at the site.  Even taking all state and local taxes into account and averaged, the US falls way toward the bottom of tax rates for industrialized nations.  And at rather low rates compared to American history.

Only now have a look at the deadline for a fix that looms ahead of us in January 2013.  The Bush era tax cuts, that were supposed to result in vanished deficits (via Supply Side magic) have instead simply vanished revenue while inflating asset bubbles and rewarding passive types of parasitic income,  Do, by all means, actually read this article in the New York Times.

“We are at a revenue level that is almost the lowest in 60 years as a share of national income, too low to fund the things that are required,” Mr. Conrad said.

In 2011, federal tax revenue as a percentage of the gross domestic product stood at 15.4 percent, the Congressional Budget Office said in January. That is up slightly from the previous two years, but otherwise is the lowest percentage since 1950. Federal spending last year, at 24.1 percent of gross domestic product, was on a par with 2009, but to see such levels before the recent recession, you have to go back to 1946 and the winding-down of World War II.

...and this, from later in the article:

"The Bush tax cuts, which totaled nearly $2 trillion over their first decade, remain highly controversial. Tax cuts in 2001 lowered income tax rates at all levels, to 35 percent from 39.6 percent for the highest income earners, and to 10 percent from 15 percent for the lowest bracket. They also doubled the size of the child tax credit and made it refundable for the working poor, while phasing out the tax on inherited estates and allowing affluent taxpayers to take more deductions and credits. Even Mr. Hubbard acknowledges that in some ways the cuts made the tax code more complex.
Another round of tax cuts in 2003 reduced most capital gains tax rates to 15 percent from 20 percent, while also taxing dividends at 15 percent. Before, dividends were taxed as ordinary income, meaning a 39.6 percent rate for affluent investors.

Mr. Conrad calls the tax cuts “a profound mistake for the country on almost every level.” Still, 2001 started as a heady year, with the Congressional Budget Office projecting a federal budget surplus for the coming decade totaling $5.6 trillion. Alan Greenspan, then the chairman of the Federal Reserve, worried that the federal debt would be eliminated too quickly, leaving the world with nothing to benchmark interest rates against because Treasury bonds would cease to exist."

Really?  How charmingly naive and quaint.  And dismally stupid and an utter repudiation that such people should ever again be listened-to or allowed anywhere near power.

Read the article... and the suggested "reforms" that are being discussed. I am seriously unimpressed with most of them.  See my own suggestion on how the tax code can inarguably be simplified while avoiding the usual political wrangling. My "no losers" approach separates simplification from tax "policy" or who should pay more!  If we did this first, we'd have a sleek, sensible system in no time, and could then make policy adjustments that made sense.

Oh... but it gets worse, way worse.  See these charts revealing the "knee-capping of the U.S. middle class."  And yes, this will be the issue, for the rest of 2012.  Above all, as I suggested last time, use all this as a basis for making real-money wagers with your tea party uncles.  But get them to write it down, first.

== Ultrafast Stock Trading ==

Following up another past-posting, where I touted a Transaction Fee as a way to let humans regain some footing in stock market trading... here’s a relevant recent study. “

Ultrafast Trades Trigger Black Swan Events Every Day, say Econophysicists. The US financial markets have suffered over 18,000 extreme price changes caused by ultrafast trading, according to a new study of market data between 2006 and 2011“

But nothing will convince the mutants of the City and Wall Street. Listen to these religious fanatics spouting fervent and totally un-based incantations about "market efficiency" and "hyper-liquidity" and denouncing "friction"...  then look at the bitter fruit of their tenure at the helm of our economy.  They are mad.  Eloquent!  But loony priesthoods often are. In fact, they are out of their cotton pickin' minds... and sucking at our necks like lampreys. They are the worst enemies of true capitalism.

==  Political Miscellany ==

An interesting... pessimistic... interpretation of why Americans are using a whole lot less gasoline than they used to.


But let's finish with some optimism! My friend Peter Diamandis has an essay in Forbes, foretelling that science, entrepreneurial markets, innovation, startups, amateur enterprise and stunning breakthroughs in technology may soon unleash a tsunami of Abundance on the world, erasing poverty and helping to heal the planet, too!  Peter discusses why we are biologically programmed to view the world through a filter of anxiety, when, in fact:

"What does the world really look like? Turns out it’s not the nightmare most suspect. Violence is at an alltime low, personal freedom at a historic high. During the past century child mortality decreased by 90%, while average human life span increased by 100%. Food is cheaper and more plentiful than ever (groceries cost 13 times less today than in 1870). Poverty has declined more in the past 50 years than the previous 500. In fact, adjusted for inflation, incomes have tripled in the past 50 years. Even Americans living under the poverty line today have access to a telephone, toilet, television, running water, air-conditioning and a car. Go back 150 years and the richest robber barons could have never dreamed of such wealth."

Peter goes on to describe tech wonders looming on the horizon.  I make many of them vivid in Existence (coming in June.) But I think he leaves out one reason for our frenzied waves of anger and fear, nowadays... because rage feels great!  Sanctimony and Self-righteousness are drug highs. They can have their uses.  But when they prevent our fellow citizens from even detecting good news? Or worse, when they turn our neighbors into active obstacles to progress?  Then these sick habits are worse than heroin.