A One Man Think Tank

Of Ice and Pen – My Writer’s Manifesto

Posted on February 13, 2016 by tonyj126

I’ve gained a few pounds the past month-and-a-half. Probably not coincidentally, I have been spending quite a bit of time writing this blog during that same period. It’s actually not the writing that’s the problem; it’s the research. I can write without breaks for a few hours when I don’t have to stop and look something up. Researching one item isn’t the issue though – it’s when that one thing leads me to another, then another, and I end up in a research rabbit hole. This is especially true for the America Great series – federal budgets, appropriations bills, tax plans, etc. It’s at those times that I visit the fridge or the pantry for solace.

That’s the pen part of the title, although I do my writing on an iPad instead of with a pen. About a year ago, I took a little writer’s retreat. I attempted to outline my future novel with a pen and legal pad, but while it began as an outline, it grew into paragraphs, narratives and scenes with each new page. I switched to the laptop and the same thing happened. This may be a result of listening to a lot of audiobooks during long drives; I hear the narrators’ voices speak my words as I write them down. I think that’s a plus, but doesn’t it go against advice that is generally given to aspiring writers. My ideas seem to come out pretty much fully formed, but I can’t seem to help going back to tweak things instead of working through to a completed first draft.

Since I don’t seem to be ready to finish that first draft, I decided blogging would help me gain the discipline and practice I feel I need. This was not an original idea. It’s been about five years since I first felt the call to educate the public about political, economic and religious matters in the hope that the country would become less divided, and perhaps begin working together to address the needs of all. This was certainly an ambitious goal, but that’s the thing about being called – it’s not about you. There’s a certain freedom in that. You don’t have to worry about the outcome – that’s not in your hands.

That, however, goes against my nature. I am the type of person who thinks he can do a better job at a wide range of tasks than the vast majority of people out there. A quick example, I hired a contractor to change some interior walls in a rental property. His crew put up a few walls, taped and covered the seams with joint compound. I did the sanding, priming, painting and put on the baseboard. It was at the baseboard stage that I discovered how wavy the walls were – they dipped in and out by about 3/4-inch. My walls, when I have done them, are perfectly straight. It takes me 10 times as long, but they are perfectly straight.

So back to the blog. I had owned AOneManThinkTank.me for nearly a year at this point, but hadn’t been using it. I knew it was time to start, but of course, I was busy with a lot of other things. Not counting the introduction which dated back to the beginning, it took me ten more months to write my first post once I made the decision to blog.

The ice part of the title has to do with – you guessed it – winter. I am by no means a capital “R” runner, but aside from hiking in the mountains, it is my preferred form of exercise. (I don’t live near any mountains.) A twenty to thirty minute run burns a decent amount of calories, curbs my appetite for a while and can be fit in at several different points of my day. I can’t run outside it when it’s icy though. A couple years ago, I slipped on the ice and torn the meniscus in my knee. It’s healed now, but I plan to go through the rest of my life without slipping on the ice again. I probably won’t meet that goal.

Winter started late here in the northern part of the Eastern time zone. I was able to run outside through most of November and December, and occasionally in January. I have never been a fan of running on treadmills, so my exercise program has greatly diminished with persistent ice on the roads and bike trails. In combination with the more sedentary lifestyle that comes from a writing regiment, I gained about five pounds in a week. There were a few other culprits in this drama with cheese playing a crucial, but delicious role.

So I feel called to do the writing, but I want to keep my weight in control. I need a writing plan, a research plan, an exercise plan, and a get other things done plan.

My Writer’s Manifesto (It’s the authoritative part of my brain directing the creative part.)
Writing Plan
Write for three to four hours in the morning after taking care of the dog and having breakfast. Write again after your wife goes to bed until midnight or 1 am. When you get back to the novel – work all the way through – don’t keep reediting the first thousand words. Try an outline again – maybe you will have acquired that skill by then.

Research Plan
Take one of the morning writing blocks for research when needed. Leave the house and go to a coffee shoppe or the library to make food less accessible, or at least more expensive which has the same effect on you. Take very good notes so you won’t loose much writing time when you need to locate something.

Exercise Plan
Go to the gym a few times a week after the morning writing or research block. You’re already paying for the membership, so run on the treadmill & do some weights – it’s good for you. Run outside when it’s not icy; cross country ski if there’s enough snow.

Get Other Stuff Done Plan
When the writing block is over, let it be over. You can still continue to think about where the storyline or blog post is going, and feel free to take notes, but get that other work done. There are people relying on you.

Well, that’s it. Now that I have thought it through and written it down, I’ll probably not look at it very often. Conceivably I could keep a spreadsheet tracking my progress every day, but I think it would be counterproductive. I believe that frequent periodic tracking would point out the failures more than the successes. We humans are just built that way.

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The America Great Series – Intermission (i.e., Summary to Date)

Posted on February 11, 2016 by tonyj126

After all that research and pretty detailed blog posts about federal spending, budget resolutions, and presidential candidates’ tax plans, it seems to be time for a break. We’ve hit intermission. It’s time to leave your seats, go out to the lobby, get a glass of wine or an IPA, and ask your partner, “Are you enjoying the show?” Or, since I am beginning this on Super Bowl Sunday, “What do you think of the game so far?” I’m not actually asking that question. I much prefer to write the posts that don’t require mind-numbing research.

I thought it might be time for a recap. My objective with this series is threefold:
1. To learn how the federal government receives and spends money & how that affects the economy,
2. To spread the message in easy to understand parts, and
3. To propose a solution for the country’s deficit problem.

That last one might be kind of hard. Also, I’m not sure I’ve been doing that good of a job on breaking the process into easy to understand parts. Hence, this summary.

Part I: Isn’t America Great?
Yes – the dollar is a reserve currency which lowers our interest rates about 0.5% and increases the chance of business success, the navy keeps international trade safe which reduces the cost of products around the world, we have clean air and water, wonderful cities, National Parks, excellent medical care, and so much more.

Parts II & III: What Republican Presidential Candidates Mean and Taxes, the Economy & Jobs
A review of the republican presidential candidates’ websites shows that, as a group, they consider the current tax system to be the biggest problem that detracts from America’s greatness, followed by the sluggish economic recovery and insufficient job growth. I have been exploring how the government collects and spends money, and the impact of tax policies on job creation or loss.

The Equation
I came up with the following equation to estimate the net job growth that would result from changes to the federal tax code and spending:
Net Job Growth =
# Jobs Created by Individual Income Tax Cuts +
# Jobs Created by Business Tax Cuts –
# Jobs Lost from a Simplified Tax Code –
# Jobs Lost due to Federal Government Spending Cuts (to minimum government size) +
# Jobs Created by Increased State & Local Spending (transfers from federal gov.) –
# Jobs Lost to Inefficiencies in State/Local vs. Federal Management of Services +
# Jobs Created by Increased Social Security & Medicare Spending for Baby Boomers

When I came up with that equation on December 29, I had little idea of the time and effort needed to work all the way through. The 6 posts in this series since then have only partially worked on the 1st and 4th items on the right side of the equation. This is going to take a while.

Part III-A: Minimum Size of Federal Government
The Budget Process
1. The President submits his budget request to Congress in February for the fiscal year that begins on October 1;
2. Congress holds a hearing to question administration officials about the President’s proposed spending (not this year though – Congress’ way of expressing that the President’s input is not valued);
3. Each House of Congress develops and passes their own budget resolutions;
4. Select members of the House and Senate finance committees meet to hash out the differences between the two budget resolutions and come up with one that is acceptable to both chambers;
5. The House of Representatives and the Senate separately approve the joint budget resolution and a joint committee is charged with writing appropriations bills to authorize the discretionary spending;
6. The President signs the appropriations bills which then become law.

My Calculation for Minimum Government Size Based on Conservative Ideologies
I took the 2015 budget, added funds to national defense and cut other discretionary federal spending to arrive at a $3.65 trillion “minimum size of federal government” versus the 2015 actual spending of $3.626 trillion. That number was based on complete or substantial cuts in federal spending on science research, environmental protection and cleanup, foreign aid other than to Israel, housing & community, international peacekeeping, and many other programs. I did not include cuts in mandatory spending because that is based on previously passed laws and would require new laws to change the disbursements.

Part III-B: What Does the Congressionally Approved Budget Say for FY 2016?
Congress passed a budget resolution which promises to balance the budget in nine years. How?
1. Overestimate real GDP growth and inflation leading to higher revenue projections than the Congressional Budget Office indicates;
2. A bit of trickery (setting budget for Overseas Contingency Operations/War on Terror very low; spending in 2015 for Government-Wide Savings, but removing the forecasted reductions for 2016+);
Excluding spending from the budget that almost all expected to authorize (e.g., the Medicare Doctor Fix addressed at the end of 2015).

For FY 2016, Congress approved a budget of $3.8224 trillion in spending – a 5.4% increase versus the approved budget from the previous year. Discretionary spending is $1.1197 trillion and mandatory spending is $2.7027 trillion. The year-over-year increase is largely driven by Medicare, Transportation & Social Security. Approximately 10,000 Baby Boomers retire every day from now until 2030, so the budget will continue to grow.

Interlude: Budget Deficits and the National Debt
The federal budget deficit is the amount that the government spends minus the amount it receives in income. For fiscal year 2015, the deficit was $438.496 billion. Because of deferred taxes and increased spending approved by Congress and signed by the President at the end of December 2015, the deficit is expected to grow to $544 billion in fiscal year 2016.

The national debt is the total amount of money that the federal government owes to investors, that is, holders of treasury bonds or notes. There are two measures of national debt – gross federal debt and federal debt held by the public. Gross federal debt is the total difference between income and spending since the republic began. Some of that debt, however, is held in federal government accounts for specific uses, primarily Medicare and Social Security – that’s where your FICA withholding taxes go. When those balances are subtracted from the gross federal debt, you get the federal debt held by the public. At the end of FY 2015 on September 30, 2015, the debt held by the public was $13.117 trillion.

Part III-C: How Do Tax Cuts and Increases Affect Jobs and the Economy
In a scientific working paper with complicated math, Owen M. Zidar of the Booth School of Business at the University of Chicago reported that tax changes for the top 10% earners has statistically no impact on the economy or job creation/loss in the two years following the change. Tax changes for the bottom 90% earners, on the other hand, impact the economy and affect job growth or loss substantially. For a federal or state tax cut of 1% of a state’s GDP targeted at the bottom 90% earners, job growth is about 5% over the following two years.

Part D-1 & D-2: How Would the Presidential Candidates Tax Plans Affect Federal Revenue
I started with five hypothetical families with incomes of $14,250, $35,500, $63,300, $105,700 and $306,300. I used the 2014 TurboTax program to figure out the total taxes paid or refunded for each family and compared that to how each of the presidential candidates tax plans would affect the tax situation (except for Fiorina who has not put out a plan). Results (total change in federal taxes from these five families):
Clinton: $0 (0%)
Sanders: +$6,657 (+9.5%)
Bush: -$1,107 (-1.6%)
Carson: +$7,851 ((+11.2%)
Christie: -$8,081 (-11.5%)
Cruz: -$51,408 (-73.4%)
Kasich: -$12,195 (-17.4%)
Rubio: -$12,287 (-17.5%)
Trump: +$2,582 (+3.7%)

No candidate has put out a complete tax plan and I made some assumptions about adjustments, credits and brackets in order to perform the calculations.

That’s the summary of the work to date. I hope it’s easier to digest.

Posted in Economics, Make America Great Series, U.S. Politics, Uncategorized | Leave a comment

The Centrist Awakening

Posted on February 10, 2016 by tonyj126

I saw a bumper sticker the other day which read “Don’t Believe Everything You Think.” There are a couple ways to interpret this phrase, and I’ve decided not to look it up online until the very end of this post. I’m getting tired of all the research I’ve been doing for the America Great Series – I just feel like writing now.

My interpretation of the bumper sticker: We all have preconceived notions about things; don’t rely on them – check them out. That’s pretty much my mission with this blog, although I hope all this research & daily writing is honing my skills, and I may make a career at it someday. Of course, my interpretation of the bumper sticker message may be wrong and that’s why I won’t check it out until I’m nearly finished with this post. In this age of computers that fit in our pockets (for men anyway – my wife tells me that useful pockets are a rarity in women’s clothes) we have little excuse not to check out the “facts” we believe. That’s the thing about beliefs though – why would you check out something you’re sure about?

Perhaps this is more an issue of thresholds. I have a high threshold for belief – I want to see the facts. That is one reason why I have a hard time believing everything that is described as “true” by any one religion. This doesn’t mean I’m not a spiritual person. I have been a regular(ish) church attendee for decades and have been involved in lay leadership much of that time. My last stint ended a few weeks ago. I was the treasurer and member of the vestry (governing board) for an Episcopal church. I like the Episcopal Church for their acceptance of a wide range of how people believe. While not official Church doctrine, the following statement sums up the feeling of the place: “There’s a lot of truth in the bible, and some of it actually happened.”

So what does this have to do with the title of this post, “The Centrist Awakening” other than as the potential title of my first novel. I wrote that as a joke, but that could work.

So, you know how in dystopian novels and movies, the heroes and heroines arise from the dregs of the oppressive society that gains control following the calamitous event? Those heroes and heroines beat very long odds and survive perilous situations (well, most of them survive) to lead the downtrodden to victory against their oppressors. And then the book or movie ends. Did you ever wonder what happens after the victory? Well, we have some real world examples.

The Arab Spring began with mass protests following the very public suicide of a merchant in Tunis – a powerful demonstration of the complete desperation he felt over corruption and abuse by those in power. The desperation was shared by the downtrodden masses in other countries and protests spread, especially after the fall of Tunisia’s government. Other governments fell and all of a sudden, the people who were in charge were those who had previously been the losers in the old order. The Arab Spring was just like a post-apocalyptic novel. Of course, the story didn’t end with the victory; we can see what happens next.

I’m afraid the news is not good for the the heroes and heroines of the Hunger Games or Divergent. People who have been oppressed for generations have a difficult time leading, especially if there is a military command still around. If you managed to bring down the government and destroy the military, you will probably find another country ready to step in and begin a new repressive regime, or a terrorist organization ready to take over large sections of your territory and kill or punish anyone with differing beliefs. It’s a good idea to keep your military around, but don’t piss them off.

The other example went very differently. The collapse of the Soviet Union in 1989 and subsequent division into many countries had the potential to end in chaos. A couple factors helped avoid that disaster. First, the developed countries in the West were all eager to assist in the transition from a communist to a capitalist system. Unlike impoverished Tunisia, the Soviet Union had a huge military including nuclear weapons capable of destroying the world many times over. It is no wonder that the U.S. and Western Europe were so helpful. After the decades-long Cold War, there was a real chance for peace and prosperity. Western companies were also very interested in developing Russia’s oil industry and selling many of our Western products to its people.

Second, those who eventually came to power in Russia did not come from the downtrodden lower classes, but from powerful government agencies. Putin in particular, as head of the KGB intelligence service, had leadership skills and a ruthlessness that allowed him to steer the country in the direction he wanted. That direction made him and his inner circle of industry leaders wealthy and powerful. Russia did not fall into the cycle of chaos that we are seeing as a result of the Arab Spring largely because the country went from one powerful governance to another and the Western countries overlooked things they did not like because the new Russia was less likely to shoot nuclear missiles at them.

So, again, why “The Centrist Awakening?”

Okay, so while I’m not calling the U.S. a dystopian society, there are plenty of signs this presidential election season that the masses are rising up. The two biggest signs – Donald Trump and Bernie Sanders. People are angry at the state of the government and country and unlike those post-apocalyptic novels and films, there are many possible targets for that anger.

The conservative media has placed blame firmly on the President’s shoulders for seven years, but also blames anyone in government who is not on the right – or far right – of the political spectrum. The liberals have their own media sources and spread nearly the exact opposite message – be left, or be left out. There are some moderate voices, but they are generally discounted or mocked by those appearing on conservative and liberal outlets. All criticize Congress and their approval numbers are much lower than the President’s. Finally, we can blame the country’s problems on the poor for costing so much money since they won’t take care of themselves, and on the rich for being so greedy and leaving too little money to ensure a good economy and a thriving middle class.

So we Americans can be angry at the President, Congress, those on the left, those on the right and/or those in the middle. We can be angry at the rich and the poor. We can even be angry at political correctness which means that some people are more concerned about not offending someone than solving the country’s problems. While we don’t have a central dystopian government in this country to hate, we have engineered a situation in which just about anyone is fair game.

So, back to the bumper sticker. What if the angry people actually researched the things they believe and figured out whether they’re true or not. One example comes to mind. Early last year, someone on Fox News claimed that Christians could not go into Birmingham, England because the city has been taken over by Muslims and it wasn’t safe. Since my wife & I had a hotel reservation there a couple months later, you might think that I was concerned with that news. I wasn’t, but that’s because I take everything with a grain of salt that comes out of the mouths of guests that appear on the conservative or liberal shows where there are loud voices and disrespectful language. I can tell you that Birmingham is a delightful city and not at all as advertised on Fox News programs, although they should have warned me about how hard it was to drive out of Heathrow, on the left side of the road in the dark. (Fox did retract the Birmingham claim very quickly.)

So what if all these angry people started checking the facts? What if they didn’t just accept as truth the statements that come from liberal and conservative media, or from the candidates’ mouths? There are sites online build to check the political claims – http://www.factcheck.org, for example. If a fact checking movement started, I believe those of us in the middle wouldn’t feel so lonely. I think there could be a movement to the center.

You know it’s an acceptable statement for adults in this country to say “I don’t like math.”? School children pick up on these statements – many made publicly by celebrities – and emulate the sentiment. Now they don’t like math and don’t put a lot of effort into doing well in the subject. Especially in math and science, U.S. students perform poorly when compared to those in other developed and many undeveloped countries in which educational success is a source of pride.

Similarly, I have a problem with the statement “You should never discuss religion or politics in polite company.” If that is considered normal behavior and you are breaking the rules to talk politics, we leave the political discussion to those who have extreme views and media outlets, and the angry masses are only fed the far right and far left agendas.

For this reason, I believe Donald Trump is a blessing. You didn’t expect that, did you? Because he has made this presidential race exciting, it’s harder to escape the discussion, and it’s going to bring in those with centrist views. As this presidential campaign works its way through the calendar, I suspect – and hope for – a growing interest from the political middle.

That could lead to real change in government and real solutions to the problems caused by years of Congressional inaction. Well, it could if there is anyone from the political middle on the ballot from which to choose.

Now let’s check what the bumper sticker really means. Don’t Believe Everything You Think is the title of a few different books, all with different subtitles. The first seems to be by Thomas Kida and was published in 2006; Thubten Chodron published one in 2012. Kida’s book focuses on six mistakes people make such as “We seek to confirm, not to question, our ideas” and “We prefer stories to statistics.” Chodron’s book is more of a mindfulness aid by way of fourteenth-century Buddhist teachings. There is also a song by Lee Bryce with that title. So my interpretation of the bumper sticker message pretty much matched Kida’s book. It feels good to confirm my idea. Oh, wait….

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The Policy of Low Expectations

Posted on February 9, 2016 by tonyj126

For most of my life, I have employed what I like to call The Policy of Low Expectations, or PO*LE’ (in my family, we pronounce it with two syllables and make it sound French). We joke about it a lot, but it has a useful function. If you expect a party, movie, sporting event or whatever to be fantastic and it’s not, you may be disappointed even if it’s still very good. If you go in thinking it may not be that great, you’re much more likely to come out happy.

Normally, I’m a glass half-full kind of guy. I tend to be optimistic about the current situation or how things are going to work out. I can generally find a bright side when people are upset about something or have a general complaint about the state of affairs, but it’s different if it’s a movie, vacation or other thing in which I’m spending money. That’s probably the key – money. If it’s costing me something, I prefer to have low expectations and be pleasantly surprised.

If you’ve been reading my recent posts, that glass half-full thing might seem out of character. Yesterday, for example, I posted that several of the presidential candidates’ tax plans would bankrupt the country rather quickly. But here’s how I’m an optimist; I am convinced that I can get the word out and inform the electorate so the voters make wise, informed decisions in November. You must admit, that’s pretty optimistic (or perhaps delusional).

The development of the Policy of Low Expectations began when I went to see a movie with my girlfriend in high school. Before you jump to any conclusions about what my high expectations might have been, it was related to the movie, not the girlfriend. Every funny scene in the movie – and there weren’t many – had been shown in the television commercials. Talk about disappointment. This policy was refined when my wife and I watched Women on the Verge of a Nervous Breakdown a second time many years after the first showing. I swear that we were in tears from laughing so much the first time we watched it, but it just wasn’t all that funny the second time. So, now I prepare myself. Something I enjoyed so much upon first exposure may not be as good the next time. We’re headed to Italy for the second time soon, but it’s hard to have low expectations about Italy.

On some news program last night, I discovered that I am not the only one with this policy. The Clinton campaign has been lowering expectations because of what could be a large Sanders victory in today’s New Hampshire primary. They have been reminding people that New Hampshire neighbors Sanders’ home state of Vermont, so of course he has an advantage. Now if Clinton comes within 10% of Sanders’ totals, it will be viewed by many of her supporters as a victory.

Both Clinton and Trump – especially Trump – learned the hard way that high expectations in Iowa last week made both of their results seem like bad losses. Clinton won the caucus, but by such a slim margin after losing a huge lead over the past few months. The media helped raise the expectations for Clinton when they reported that, because Sanders’ support was geographically limited to a few college towns, he would not be able to win the caucus which benefitted the candidate with the greatest support throughout the state. With these expectations, Clinton’s narrow Iowa win seemed like a defeat.

For Trump, the expectations were even higher – he set them there. Even when the polls showed a race too close to call, he declared that he would win because he never lost anything. His 3.3% loss to Cruz – 8 awarded delegates to 7 – was viewed as much more of a defeat than the numbers showed. I don’t think Trump ever really understood the Iowa voter. Cruz’ comments that Trump had New York City values was a very clever attack. For most of the republican caucus-goers in Iowa, farm and fundamentalists issues are the most important. Cruz’ past criticism of ethanol subsidies – his most important negative in Iowa – was overcome by Trump acting arrogant, calling the voters stupid for a history of choosing candidates who do not become the party’s nominee, and his New York City values, as labeled by Cruz.

Imagine instead, if in the days leading up to the caucus, Trump had said something about how appreciative he is for his Iowa supporters and that he knows the people have a tough choice to make. He would acknowledge that the high percentage of evangelical voters in the state have an important decision to make, but he hopes they will agree with Rev. Jerry Falwell, Jr., that he is the right choice for the country. Then he could throw in his endorsement from Sen. Chuck Grassley and thus remind the voters about Cruz’ past position on ethanol subsidies. There could have been a different outcome, or if the same, he could have spun it into a victory by saying it was an uphill battle considering Cruz’ support from evangelicals.

So voting has begun in the New Hampshire primary and both Clinton and Trump have taken lessons from Iowa. The Clinton campaign has lowered expectations and is probably ready to spin the results, and Trump has been much nicer to the New Hampshire voters than he was to those in Iowa. Some of the other candidates for the republican nomination have been lowering their followers expectations as well. This is especially true for the three governors – Bush, Christie and Kasich. All have invested heavily in New Hampshire and they have decent poll numbers, but there’s an interesting quirk about how delegates are awarded from this primary.

The 20 delegates are divided proportionately based on the vote, but only to candidates who receive at least 10%. The delegates that would have gone to the candidates who received less than 10% of the vote go to the winner of the primary. Let’s take the latest Emerson poll put out yesterday: Trump – 31%, Bush – 16%, Kasich – 13%, Rubio – 12%, Cruz – 11%, all others total 16%. Delegates would be awarded as follows from the proportional vote: Trump – 6, Bush – 3, Kasich – 2, Rubio – 2, Cruz – 2. The 3 delegates corresponding to the 16% of the vote received by the other candidates goes to the winner of the primary – Trump in this scenario. With these numbers, Trump would receive 6 more delegates than his closest rival.

Have the candidates lowered the expectations enough to spin the results as victories, but not so much that they lose votes? It will be interesting to see the results and listen to each campaign’s statements tonight. It might be very entertaining, but of course, I have low expectations about how much I will enjoy it.

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Part III-D-2: Let’s Look at All the Presidential Candidates’ Tax Plans (America Great Series; Taxes, Economy & Jobs)

Posted on February 8, 2016 by tonyj126

In my last post I created five hypothetical families at different income levels and calculated the federal taxes paid, or refunded as a credit, by each household with the current tax code for 2014, and with the flat tax proposed by Ted Cruz. Today we’ll use those same hypothetical families to compare the tax plans from all of the presidential candidates.

My primary source was the “Comparing the 2016 Presidential Tax Reform Proposals” page from the Tax Foundation, an organization generally described as “pro-business.” They have a nice interactive page in which the user can select the candidates and types of taxes he or she wishes to view and the candidates’ proposals are summarized. As of this writing, “This chart includes every concrete tax proposal offered by presidential candidates since January 1st, 2015.” Updates are regularly added and the last update is from February 3.

My goal is to determine only the effect on federal tax collection for each of the hypothetical families, so I won’t use any of the Tax Foundation’s predictions about how the economy will react to the change in federal tax burden. For some candidates, there is more complete information on their own websites, so I have visited those as well. I’ll hope to make this data a bit more accessible and meaningful in this post.

Quick Review of the Hypothetical Households
All families have two parents and two pre-school aged children. The incomes are the average for each fifth of the households which filed federal tax returns in 2014 (those fifths are called quintiles). In this post, “1.” is used for the fifth with lowest average income and “5.” is used for the highest average income quintile.
1. $14,250 income, all from wages; both parents work; no childcare expenses, no mortgage interest paid or charitable gifts given;
2. $35,500 income, all from wages or interest; $200 given to charity; no mortgage interest or childcare expenses;
3. $62,800 from wages & $500 from capital gains distributions or qualified dividends; $6,000 in child care costs so both parents can work; $4,000 placed in a Health Savings Account (HSA); $1,200 contributed to a Roth IRA; paid $5,000 in student loan interest;
4. $100,000 in wages; $5,700 in capital gains distributions or qualified dividends; 4% saved in company sponsored 401(k)’s; $14,435 mortgage interest (based on 3rd year of 30 year mortgage for $300,000 at 5%); $4,000 to charity; $3,936 in state taxes plus $500 in personal property taxes; $5,000 in real estate taxes; paid $5,000 in student loan interest;
5. $240,000 in wages; $46,300 in partnership income (common for doctors and lawyers); $20,000 in capital gains and qualified dividends; 10% of wages to 401(k); $16,625 in mortgage interest paid (based on 13th year of 30 year loan for $500,000 at 4.5%); $15,000 to charity; $8,856 to state taxes and $800 for personal property taxes; $10,000 in real estate taxes.

The Candidates’ Plans
Abbreviations: CTC=Child Tax Credit, EITC=Earned Income Tax Credit, AMT=Alternative Minimum Tax, AGI-Adjusted Gross Income.
Clinton: 4% surcharge on >$5 million in ordinary & capital gains income; higher capital gains rate for investments held between 1-6 years; income-based itemized deductions cap to match the amount allowed for the 28% tax bracket; new $1,200 credit for caregivers; new 30% AMT rate on individuals earning >$1 million; carried interest income taxes at ordinary rate; new high-frequency financial transaction tax.

Sanders: Add 2.2% to all existing brackets and add 37%, 43%, 48% and 52% new brackets (52% for >$10 million if filing jointly); capital gains taxed at ordinary tax rate for households with income >$250,000; income-based itemized deductions cap to match the amount allowed for the 28% tax bracket; eliminate income-based limitation in itemized deductions; eliminate AMT; new 0.2% family leave payroll tax; pay social security tax on incomes >$250,000; eliminate personal exemption phase-out; new financial transaction tax with credit for low income earners; carried interest taxed at ordinary rate.

Bush: 10%, 25% & 28% tax rates (per Bush website; Tax Foundation show the top rate at 35% for jointly filing households >$141,200); $22,600 standard deduction for joint filers; capital gains tax rate not for market gains & dividends, but for staking capital in a business; eliminates net investment income surtax; remove state/local taxes from itemized deductions & caps each of the other items except charity (real estate taxes, medical, mortgage interest & points, etc.) at 2% AGI; no income based limitation to itemized deductions; doubles EITC for childless filers & extends to 21-24 year olds; eliminates AMT; exempts employee portion of social security tax for workers >67 years old; eliminates personal exemption phase-out; carried interest taxed as ordinary income.

Carson: 14.9% flat tax on all non-investment income; standard deviation + exemptions adjusted to 150% of poverty line; no tax on interest, dividends or capital gains; eliminates itemized deductions; foreign tax credit is only credit; eliminates AMT; exempt Social Security benefits; no adjustment to income for 50% of self-employment tax.

Christie: Three tax brackets – 8% low & 28% high; “…keep returns simple by reducing deductions and giveaways.”; only charity and mortgage interest included in itemized deductions; no payroll tax for <21 or >62 years old.

Cruz: 10% flat tax on all income; $10,000 standard deduction per filer & $4,000 exemptions; only charity and mortgage interest (up to that for $300,000 principal) included in itemized deductions; expand EITC by 20% & modernize; keep CTC; eliminates AMT; eliminates payroll taxes; up to $25,000/year deduction for putting money in savings account.

Fiorina: No specific proposal.

Kasich: Three tax brackets – 28% max; 15% rate for capital gains; increase EITC by 10%.

Rubio: For joint filers, 15% to $150K, 25% to $300K & 35% for >$300,000; eliminates all itemized deductions; all taxpayers can deduct charitable contributions and mortgage interest; $4,000 refundable personal tax credit for joint filers, with phase-out between $300,000 – $400,000, instead of standard deduction; eliminates AMT; consolidates higher education credits into $2,500 tax credit which phases out between $97,000 – $121,250 for family of four; new partially refundable CTC up to $2,000/child (phases out between $300,000 – $400,000 for joint filers); keep current CTC; 0% capital gains rate.

Trump: For joint filers, 0% to $50K, 10% to $100K, 20% to $300K, & 25% for >$300K; eliminates net investment income surtax; phases out itemized deductions except mortgage interest and charitable contributions; eliminates AMT; carried interest taxed at ordinary rate.

To evaluate the taxes paid by each hypothetical family, I had to make some assumptions for the plans.

Assumptions & Decisions
Clinton: New caregiver credit is refundable, but ignored in these calculations because there are no details on her website; ignored high-frequency financial transaction tax; all assets which generated capital gains held more than 6 years;

Sanders: Ignored financial transaction tax & credit for low income filers; assume family leave payroll tax collected from both employers and employees;

Bush: For joint filers, 10% to $40K, 25% to $141,200, 28% >$141,200; keep CTC and Additional CTC; eliminate student loan interest adjustment and child & dependent care credit;

Carson: 150% of poverty line = $35,775;

Christie: For joint filers, 8% to $37K, 18% to 187K, 28% for > $187K; keep standard deduction, exemptions, EITC, CTC & capital gains rate; eliminate student loan adjustment, additional CTC & child and dependent care credit;

Cruz: EITC amounts increase by 20%; Additional CTC is eliminated;

Fiorina: Cannot evaluate because no specific plan has been put forward;

Kasich: For joint filers, 10% to $40K, 20% to $150K, 28% for >$150K; EITC amounts increase by 10%; no change to standard or itemized deductions, exemptions, existing credits & adjustments other than EITC; eliminate AMT;

Rubio: 1st quintiles receives 50% of new “partially refundable” additional child tax credit & 2nd quintile receives 75% and 3rd, 4th & 5th quintiles receive 100%; no student loan interest adjustment

Trump: Reduce existing exemptions & credits with increasing income (Trump’s website uses “deductions” when “credit” is more appropriate because low and most middle income filers only use the standard deductions, but there are a number of credits targeted toward these income levels): no student loan interest adjustment or child & dependent care credit for quintile 4.; no credits for <$50K (“I Win” postcard can’t have credits); capital gains taxed at ordinary rate; keep CTC.

The Results
Drumroll please. The total federal taxes paid for each hypothetical family – including Social Security and Medicare taxes – and the changes in taxes paid/refunds received for each candidate’s plan is presented below (except Fiorina).

Negative numbers mean less tax collected/higher refund. Positive numbers mean lower refund/more federal taxes paid.

Quintile 1. – Average Income $14,250 – Current Tax Law: Receive Net $6,058 from Federal Government
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$29
Bush: $0
Carson: +$7,148
Christie: $0
Cruz: -$494
Kasich: -$546
Rubio: +$3,286
Trump: +$7,148

Quintile 2. – Average Income $35,500 – Current Tax Law: Receive Net $1,428 from Federal Government
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$232
Bush: $0
Carson: +$4,144
Christie: +$1,267
Cruz: -$2,024
Kasich: -$288
Rubio: +$2,469
Trump: +$4,144

Quintile 3. – Average Income $63,300 – Current Tax Law: $5,515 Net Federal Taxes Paid
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$703
Bush: -$221
Carson: +$3,316
Christie: +$57
Cruz: -$5,305
Kasich: -$701
Rubio: -$1,291
Trump: -$741

Quintile 4. – Average Income $105,700 – Current Tax Law: $11,016 Net Federal Taxes Paid
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$1,297
Bush: +$3,259
Carson: +$6,204
Christie: +$2,052
Cruz: -$6,446
Kasich: -$100
Rubio: -$1,131
Trump: +$6,059

Quintile 5. – Average Income $306,300 – Current Tax Law: $61,022 Net Federal Taxes Paid
Difference under Candidates’ Plans:
Clinton: $0
Sanders: +$4,397
Bush: -$4,145
Carson: -$12,960
Christie: -$11,457
Cruz: -$37,139
Kasich: -$10,560
Rubio: -$15,619
Trump: -$14,028

Total Change in Federal Taxes Collected Under Each Plan
Clinton: $0
Sanders: +$6,657
Bush: -$1,107
Carson: +$7,851
Christie: -$8,081
Cruz: -$51,408
Kasich: -$12,195
Rubio: -$12,287
Trump: +$2,582

As I researched the topics I’ve written about over the past month or so, I have learned a lot. I’ve always had this quest for knowledge – and the ability to play devil’s advocate – but as I look over these numbers, I see some value in the saying “ignorance is bliss.” What should I do now? I have explored the expense side and the revenue side and quite frankly, some of these tax plans would bankrupt the country quickly if they ever passed; others would bankrupt it more slowly. Several candidates are banking on the assumption that cutting taxes for the wealthy stimulate the economy. Research has shown that this is not the case, or certainly not within a 5-7 year business cycle.

What should I do? I should do exactly what I am doing, although perhaps in a less wordy format. I’ll work on that.

Posted in Economics, Make America Great Series, U.S. Politics, Uncategorized | Leave a comment

Part III-D-1: How Would Ted Cruz’ Flat Tax Plan Affect Federal Income Tax Revenues (America Great Series; Taxes, Economy & Jobs)

Posted on February 5, 2016 by tonyj126

Update: During subsequent research into the presidential candidates’ tax plans, I found a page from the Tax Foundation which contained additional information on the Cruz Flat Tax Plan. The differences to what I had used are: the standard deduction is for each filer, not for a single return; the Earned Income Tax Credit will increase by 20%; and the only itemized deductions allowed are for charitable deductions and mortgage interest. This information has been used to update the numbers below.

Okay, I know that candidates will make a lot of promises which are nearly impossible to keep once the new president is sworn into office. That is the case with the candidates’ tax plans. On the republican side, there is universal agreement that federal taxes need to be cut in order to stimulate the economy and create jobs. The research is clear that tax cuts and tax increases which are targeted at the wealthy do not have an effect on the economy or jobs in a normal business cycle (see my last post). That, however, is not the focus of today’s efforts. I will simply look at the taxes paid by five hypothetical families at different income levels under the current system and under the flat tax plan proposed by Ted Cruz. I will evaluate other plans in a later post.

Quintiles
Economists and government agencies that study the economy divide the country into fifths (quintiles). Each quintile was made up of 16,346,000 households in 2014. For that year, the average income before taxes for each of the quintiles was (Tax Policy Center):
1. $14,250,
2. $35,500,
3. $63,300,
4. $105,700, and
5. $306,300.

The range for each quintile was (per the Census Bureau):
1. $0 – $29,100,
2. $29,101 – $52,697,
3. $52,698 – $82,032,
4. $82,033 – $129,006, and
5. $129,007 – billions of dollars.

The average after-tax income was (Tax Policy Center):
1. $13,800,
2. $32,700,
3. $54,600,
4. $88,100, and
5. $229,400.

Some of you may find the average income numbers for the top 1% interesting: pre-tax income of “a little over $2 million” and after tax income of $1.34 million. Remember that this is the average for the top 1%. The lowest income that puts a household into the top 1% was around $380,000 in 2011. I haven’t found recent update to that number, but considering the rich are getting richer and the poor are getting poorer, it has probably crept up. At the rate income inequality is occurring, in fact, it is more likely to have jogged up.

My Hypothetical Households with Average Income for Each Quintile
For this experiment, all families have two parents and two preschool aged children. In reality, there are so many variations including marriage and filing status, child support payments or alimony, income from federal and state agencies in the form of Social Security or income assistance programs. I couldn’t look at them all, so here’s what I decided to use.
1. $14,250 income, all from wages; both parents work; no childcare expenses, no mortgage interest paid or charitable gifts given;
2. $35,500 income, all from wages or interest; $200 given to charity; no mortgage interest or childcare expenses;
3. $62,800 from wages & $500 from capital gains distributions or qualified dividends; $6,000 in child care costs so both parents can work; $4,000 placed in a Health Savings Account (HSA); $1,200 contributed to a Roth IRA; paid $5,000 in student loan interest;
4. $100,000 in wages; $5,700 in capital gains distributions or qualified dividends; 4% saved in company sponsored 401(k)’s; $14,435 mortgage interest (based on 3rd year of 30 year mortgage for $300,000 at 5%); $4,000 to charity; $3,936 in state taxes plus $500 in personal property taxes; $5,000 in real estate taxes; paid $5,000 in student loan interest;
5. $240,000 in wages; $46,300 in partnership income (common for doctors and lawyers); $20,000 in capital gains and qualified dividends; 10% of wages to 401(k); $16,625 in mortgage interest paid (based on 13th year of 30 year loan for $500,000 at 4.5%); $15,000 to charity; $8,856 to state taxes and $800 for personal property taxes; $10,000 in real estate taxes.

I used my 2014 version of TurboTax to figure out how much tax each of these hypothetical families would pay or receive in credits. I worked quickly and didn’t do much double-checking, but I managed a tax preparation office a few years ago and still have a good feel for what forms were needed for each hypothetical family.

With the current tax code – for 2014, that is – the tax situation for each family is:

Lowest Quintile
Total Federal Income Taxes: $0
Earned Income Credit: $5,460
Additional Child Tax Credit: $1,688 =
Net Federal Income Tax: -$7,148
Social Security and Medicare Taxes withheld: $1,090 =
Net Federal Income and FICA Taxes: -$6,058

Second Quintile
Total Federal Income Taxes: $730
Child Tax Credit: $730
Earned Income Credit: $2,877
Additional Child Tax Credit: $1,267 =
Net Federal Income Tax: -$4,144
Social Security and Medicare Taxes withheld: $2,716 =
Net Federal Income and FICA Taxes: -$1,428

Third Quintile
Total Federal Income Taxes: $3,911
Child and Dependent Care Credit: $1,200
Child Tax Credit: $2,000 =
Net Federal Income Tax: $711
Social Security and Medicare Taxes withheld: $4,804 =
Net Federal Income and FICA Taxes: $5,515

Fourth Quintile
Total Federal Income Taxes: $6,566
Child and Dependent Care Credit: $1,200
Child Tax Credit: $2,000 =
Net Federal Income Tax: $3,366
Social Security and Medicare Taxes withheld: $7,650 =
Net Federal Income and FICA Taxes: $11,016

Fifth Quintile
Federal Income Taxes: $44,735
plus Alternative Minimum Tax: $2,814
plus Self-Employment Tax: $1,240
plus Additional Medicare Tax: $295
plus Net Investment Income Tax for Individuals: $1,204 =
Net Federal Income Tax: $50,288
Social Security and Medicare Taxes withheld: $10,734 =
Net Federal Income and FICA Taxes: $61,022

The Simple Flat Tax Plan
Today I’ll evaluate the effect on federal revenue from these five hypothetical families based the flat tax plan proposed by Ted Cruz. I chose this plan simply because it is so easy to evaluate. There is a “Cruz Flat Tax Form 2017” on the candidate’s website and there are only 11 lines to get to “Total tax.”

On http://www.tedcruz.org/tax_plan/, Cruz states that the first $36,000 of income for a family of four would be tax-free which comes from the per filer (not per return) standard deduction of $10,000 and the personal exemption of $4,000. From this site and additional sources, I found that the only itemized deductions allowed are for mortgage interest and charitable contributions, payroll taxes will be eliminated, the Earned Income Tax Credit will be expanded by 20% and modernized with “greater anti-fraud and pro-marriage reforms,” and that the Child Tax Credit remains in effect.

One question arises from “The Child Tax Credit will remain in place….” The Child Tax Credit is a non-refundable credit and a household doesn’t receive the credit unless there are taxes due. The Additional Child Tax Credit is refundable and can generate a tax refund even if a family paid in no federal income tax, but Cruz didn’t specifically mention that credit in his plan, so I didn’t use it. Similarly, will the EITC be based on the same criteria that is used now, but the amount increases by 20%, or with the credit remain the same, but the criteria be expanded so that 20% more people are eligible? Not sure – I used the first scenerio.

For my five hypothetical families, here are the results:

First Quintile
Total Tax, 2014 Tax Code: -$6,058
Total Tax, Cruz Flat Tax: -$6,552
Difference: $494 additional federal tax refund
Percent Federal Tax Savings: 8.2% higher refund

Second Quintile
Total Tax, 2014 Tax Code: -$1,428
Total Tax, Cruz Flat Tax: -$3,452
Difference: $2,024 additional federal tax refund
Percent Federal Tax Savings: 142% higher refund

Third Quintile (Assumes HSA & IRA contributions go to deductible USA’s instead)
Total Tax, 2014 Tax Code: $5,515
Total Tax, Cruz Flat Tax: $210
Difference: $5,305 less federal tax paid
Percent Federal Tax Savings: 96.2% less federal tax paid

Fourth Quintile (Assumes 401(k) contributions go to deductible USA’s instead)
Total Tax, 2014 Tax Code: $11,016
Total Tax, Cruz Flat Tax: $4,570
Difference: $6,446 less federal tax paid
Percent Federal Tax Savings: 58.5% less federal tax paid

Fifth Quintile (Assumes 401(k) contributions go to deductible USA’s instead)
Total Tax, 2014 Tax Code: $61,022
Total Tax, Cruz Flat Tax: $23,883
Difference: $37,139 less federal tax paid
Percent Federal Tax Savings: 60.9% less federal tax paid

So, for these hypothetical families with incomes at the average of the five quintiles, the federal government would collect $51,408 less in taxes, or put another way, lose 73.4% of its largest revenue source. I thought that seemed high and I may have made a mistake. To double-check, I pulled out our 2014 tax return and ran the numbers through the Cruz Flat Tax Plan. For my wife & me, our percent savings would be 68.1%. I believe these numbers are accurate.

I haven’t looked at the 16% flat business tax which is also part of the Cruz plan, but the analysis presented above is worrisome. Cruz’ statement to Megan Kelly on “The Kelly File” when he released his tax plan last fall is also troubling: “Three-fourths of the revenue needed to fund the government comes from the business side rather than the individual side.” He is off by nearly a factor of ten. According to the Congressional Budget Office, corporate income taxes in 2011 were $181 billion which was 7.9% of the total revenue of $2.3 trillion (www.cbo.gov/sites/default/files/112th-congress-2011-2012/graphic/bsrevenuesprint0.pdf). Individual income taxes and payroll taxes accounted for 83% of federal tax revenue.

Ted Cruz speaks authoritatively, but he seems to have trouble with the numbers. Individual income taxes have been the largest source of federal tax revenue for many decades and a presidential candidate should know that. The Tax Foundation estimates that the plan would cut taxes on a static basis by 9.2 percent, on average, for all taxpayers. This number is so far off from my calculations that I now suspect there is a problem with the sample return on tedcruz.org/tax-plan. It is in postcard form, has only 11 lines to determine “Total tax.” It is hard to screw up.

If my numbers are correct, I do not believe that the federal government would be able to function effectively under such financial strangulation, and the federal deficit and debt would certainly balloon. Now that I have looked at the Cruz plan closely, I suppose I should evaluate the plans of the other candidates because, at least based on Cruz, they may not be accurately portrayed by those running for president.

Next Time: Part III-D-2: Let’s Look at All the Presidential Candidates’ Tax Plans (America Great Series; Taxes, Economy & Jobs)

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Part III-C: A Look at How Job Creation is Effected by Tax Cuts and Increases (America Great Series; Taxes, Economy & Jobs)

Posted on February 4, 2016 by tonyj126

Fair warning – this is going to annoy a few people. There is not a lot of agreement among economists on how tax cuts stimulate the economy or tax increases dampen it. But it is also a political and ideological issue. There are clear examples in which research that contradicts a person’s beliefs is discounted and attempts are made to discredit the research with attacks meant to confuse the public. I haven’t checked, but I would bet good money that a confused public is more likely to forget about an issue than try to clarify the situation.

I’ll give two examples – one economic and one not.

On January 16, 2015, NSAA released a NOAA report which declared that 2014 was the warmest year in recorded history (134 years of data). The average temperature was 0.69°C above the 20th century average which broke the previous annually-averaged global temperature record set in 2005 and 2010 by 0.04°C. The report, however, did not contain information on the standard deviation of the data collection. When released, that 0.09°C standard deviation could mean that either 2005 or 2010 may be the warmest year in modern history, but 2014 was slightly more likely and was certainly in the top three.

With the release of the standard deviation information, climate change deniers went to work. The first I heard about the controversy was from a friend who generally gets his information from conservative news sources. He stated that NASA and NOAA attempted to pull a fast one, and with the release of the standard deviation, 2014 may not even be in the top 10 warmest years. This simply is not true, and if you step back and look at the bigger picture, all fifteen years of this century are represented in the top 16 list of warmest years. Still, climate deniers attempted to confuse the public and they achieved their goals. Not only did they successfully sow confusion in those who got their news from conservative sources, they sowed a greater distrust in information that comes from government agencies. A Win-Win, you could say.

Now for the economic example. On April 20, 2015, the Wall Street Journal reported on a working paper published by the National Bureau of Economic Research in which the data show that tax cuts for the top 10% of income earners had almost no effect on job growth (“Tax Cuts Boost Jobs, Just Not When Targeted at Rich”). Tim Worstall criticized the Wall Street Journal for misrepresenting the paper’s conclusions in a commentary published on http://www.forbes.com a couple days later (“Tax Cuts Do Increase Employment, Do Create Jobs, The Science Is In”).

Mr. Worstall included the paper’s abstract in his piece and then used a somewhat confusing line of reasoning to suggest that abstract didn’t necessarily mean what the Wall Street Journal said it did. He, however, did not quote from the paper’s conclusion or any of the findings which would support or contradict his assumptions, just the abstract. His plan for this piece, it seems, was to confuse the readers so they would fall back on their long-held beliefs that tax cuts for the wealthy stimulate the economy. It didn’t quite work on me though – I forked over $5 and downloaded the paper.

The paper is “Tax Cuts for Whom? Heterogeneous Effects on Income Tax Changes on Growth and Employment” by Owen M. Zidar (http://www.nber.org/papers/w21035). The math is beyond me, but Dr. Zidar used post-World War II individual tax return data, 2-year job growth information by state, and percentage of high income earners by state to determine the effect that tax changes for various income groups had on job growth. He concluded that a tax cut for the top 10% income earners generated no job growth statistically, while a 1% of GDP tax cut for the bottom 90% resulted in a roughly 5% increase in employment over the following two years. If I read the graphs correctly, a 1% of GDP tax cut for the bottom 50% generates an employment growth rate of 9.5%. Keep in mind that to cut taxes for lower and middle class workers by 1% of GDP would require a very large tax rate cut because their income is so much lower that the top 10%.

A quote from the paper’s conclusion: “In particular, I find that the stimulative effects of income tax cuts are largely driven by tax cuts for the bottom 90% and that the empirical link between employment growth and tax changes for upper-income earners is weak to negligible over a business cycle frequency. These effects hold at both the state and federal levels, and are not confounded by changes in progressive spending, state trends, or prior economic conditions.”

This makes perfect sense. Wealthier people save much more of their income that less wealthy people. The high-income earners are referred to as “job creators” by presidential candidates – and many are – but unlike the impression presented by the candidates, they don’t just go out and build a factory and hire a bunch of people just because they have some extra money in their paychecks each month. Many of these high earners are doctors, lawyers and farmers who put the extra money away for retirement, unexpected expenses or perhaps purchase a vacation home. That doesn’t generate a lot of jobs.

The poor and middle class, on the other hand spend that extra money. Lower income individuals often don’t have enough money for what the rest of us consider necessities – food, clean water, reliable transportation. If they have $100 extra each month, it will be spent, and that spending stimulates the economy. Middle class individuals and families have a few more options, but they are not the best at saving for college or retirement. When employer-provided pension plans were the norm, companies put aside an average of 6% of total wages toward their employees’ retirement. Once the plans switched over to 401(k)’s, that percentage changed.

At two jobs in my past, I had the option of putting away 10% of my salary into my 401(k) and those companies matched the first 5%. I was saving 15% toward retirement, but I am not typical. The national average of employees’ wages that are placed into 401(k)’s is 1.4% – considerably lower than the 6% average for traditional pension plans. Additionally, mutual fund and 401(k) management fees, plus bad decisions by many account holders have led to poor investment performance for the vast majority of 401(k) account holders. So, in short, the middle class also spends more than they save.

So, there’s pretty good evidence to show that tax cuts for the top 10% income earners get saved and don’t stimulate the economy, while tax cuts for the lower and middle income earners lead to increased spending and job creation.

What about tax hikes on the wealthy. There’s not much evidence here, but there’s some – 1983 and 2013. The Omnibus Budget Reconciliation Act of 1993 raised tax rates on families (married filing jointly) with taxable incomes greater than $140,000. The tax rates were unchanged for those with less taxable income. Tax rates for wealthier individuals and families went from 31% to 36% and 39.6%.

Congress and the Clinton Administration anticipated an increase of $16 billion in taxes paid by the higher earners in 1993, but the increase was only $5 billion. Many fiscal conservatives point to this as an example of tax policy that changes behavior and negatively impacts economic growth, but that was not the case. Because of Clinton’s election, the wealthy shifted their capital gains and whatever other compensation they could to 1992 rather than wait until 1993 when they expected higher tax rates. Treasury Department studies suggests that about $20 billion of income was paid or realized in 1992 that would normally have been 1993 income. More importantly, the economy boomed in 1993-1994 and grew at a solid 2.8% rate in the 1992-1996 period. While there is a lot of negative news that the current economic recovery is less robust than has been the case following other recessions, there has been unimpeded economic and job growth, and a large increase in wealth concentrated at the top, following the 2013 tax rate increase on the highest earners.

There are plenty of sources that claim job cuts for the wealthy stimulate the economy. Just Google “Do tax cuts create jobs” and you will find many more sites than Mr. Worstall’s commentary noted above. The sources I trust the most are nonpartisan and have a function to fairly evaluate the variables – university economic research papers, the Congressional Research Service and the Congressional Budget Office. I tend to be skeptical of reports in sources which I feel have an agenda – National Review, Huffington Post. I sometimes think of Forbes that way, but then I saw a piece by Joseph Thorndike published two days after Mr. Worstall’s commentary. Check out “Tax Cuts For The Rich Don’t Create Many Jobs, But What About Tax Hikes?” It’s worth the read.

Next Time: Part III-D: How are Revenues Effected by the Presidential Candidates Tax Plans (America Great Series; Taxes, Economy & Jobs)

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I Have A Special Power That Can Influence the Presidential Election

Posted on February 3, 2016 by tonyj126

I’m watching a college basketball game at the moment – Virginia Tech at Syracuse. Our passions for sports teams are usually born during our youth and my teams were the New York Giants and the New York Mets – I grew up a couple hours north of New York City. During the past few decades, however, my interest in football and baseball has waned – the games are just too slow. I’ll watch the Super Bowl this Sunday, but do some writing or work on the computer at the same time. After all, 60 minutes playing time takes 3-4 times that to complete. Of course, the advertisements are fun to watch during the Super Bowl.

The sports I watch these days are college basketball, tennis and occasionally what we Americans call soccer (futball for the rest of the world). It wasn’t until I was in college that I developed my love for college basketball and my team was Syracuse. If they weren’t playing, I was usually rooting for the underdog. College basketball is a sport in which a good team can have a bad day and a not-so-great team can have a great day. Upsets happen all the time which makes it fun to watch and the action can go several minutes without a break.

My team isn’t having its best year, but there have been some good games. Syracuse has been penalized because the NCAA determined that head coach Jim Boeheim should have known a fan was providing financial favors to one or more of the Syracuse players a few years back. I actually didn’t pay much attention to the details, but in addition to a nine-game suspension for Boeheim, Syracuse has a reduced number of basketball scholarships they can offer for the next few years. Also, partly because of their reduced prospects, three of their talented younger players left the team to join the NBA.

So what does this have to do with the presidential race? Well, I have very bad luck whenever I decide to gamble which isn’t often. In late December 2014, I watched Syracuse lose in overtime to Villanova which was ranked 7th in the country at the time. It was Syracuse’s fourth loss of the young season, but the team looked pretty good during that game. In particular, the freshman Chris McCullough made some mistakes, but I could see that he was going to grow into a very good player.

While on vacation In Las Vegas a couple weeks later I made a bet. I put $20 down on Syracuse to win the NCAA tournament at 60:1 odds. I knew they were still a long shot, but I thought the odds would come down as the team began to gel and the younger players worked out the kinks. If they did win, I would get back $1,220 with my winning ticket.

Once I bet on them, things went wrong quickly. Nine days later, McCullough sustained a season-ending knee injury, and after several losses a few weeks later, Syracuse self-imposed a ban on post-season tournament play. This unilateral action was intended to force the NCAA to make a decision on the allegations of inappropriate financial assistance by a fan.

So within a week of my betting on the team, the prospects of the bet paying off became very slim with McCullough’s injury. A few weeks after that, it became impossible for me to win the bet because of the self-imposed post-season ban. I’m not saying I caused Syracuse’s problems by placing the bet, but I really do have bad luck when I gamble.

But what if I did cause the problems with the team? What if I have cosmically bad luck when I gamble because I’ve actually been very lucky in my non-gambling life? I very much prefer it this way. What if I try to use this power for good?

And that brings me to the presidential campaign. Apparently, it is legal to bet on political elections in the U.K. I think it may be possible to place a bet online, but that just doesn’t seem to have that cosmic connection needed to ensure my gambler bad luck karma. If I went to London or Edinburgh to place my bets, I’m sure the bad luck karma would be active and whoever I don’t bet on to win would become the next president of the United States.

Now I need to convince a presidential campaign to act on this opportunity. If a campaign sent me to the U.K. for a few days, I would place bets using my own money on all the other candidates, and if an option, bet against their candidate. It’s a sure thing. And the costs of airfare and a hotel are much less than that for a 30-second television ad. I would even be willing to fly coach. Do you think I can find any takers?

Syracuse won the game, by the way – 68-60 in overtime. Good thing I didn’t bet on it.

Posted in Musings, U.S. Politics, Uncategorized | Leave a comment

What Happened in 2014 in McPherson County, Nebraska?

Posted on February 2, 2016 by tonyj126

I’m going to make a bold statement here. The federal government is useful & necessary, and the country would have a difficult time functioning with a much smaller version. Why do I make such a statement – because I like to troll through government data and see where it takes me. Today it has taken me to McPherson County, Nebraska.

I wanted to write a post in which I attempted to identify wasteful federal spending and quantify it as a percentage of all spending. I would follow that up with suggestions on how to cut spending without adversely affecting low and middle class Americans, if possible. When the pentagon pays $600 for a hammer – an example from a couple decades ago, if memory serves – we can be pretty sure that it was the stockholders and executives of that particular defense contractor who benefited from the excessive spending, not the country’s low and middle income earners.

In my research, I came across the website http://www.usaspending.gov. This “is the publicly accessible, searchable website mandated by the Federal Funding Accountability and Transparency Act of 2006 to give the American public access to information on how their tax dollars are spent.” With such spending detail, I then switched the focus of my research to compare federal taxes paid to federal funds received for specific areas of the country. I was having a great time. I was also visiting with my father-in-law in his assisted living facility, and when I’m doing research, I spend more time with him – although in a somewhat distracted state.

It turns out that it’s difficult to find state and local federal tax payment information. I was not deterred; I have a scientific mind. I could use historic tax tables from the IRS with local personal income data and extrapolate the federal income and FICA tax information. I use a lot of spreadsheets in my research. That local area personal income information is available for 2014 from the Bureau of Economic Analysis, part of the Department of Commerce – another federal agency that puts out lots of useful information.

It was on that page that I read this. “The percent change from 2013 to 2014 in personal income ranged from -35.1 percent in Wallace County, Kansas to 83.7% in McPherson County, Nebraska.” While I made the assumption that a major employer shut down in Wallace County, Kansas, I was itching to find out how personal income came close to doubling in a single year in a rural county in Nebraska.

Some of you might be thinking that I don’t just have a scientific mind, but an easily distracted one as well. Or, to quote a favorite line from the Disney movie Up, “Squirrel!!!”

Some Facts about McPherson County, Nebraska
1. The population has dropped from 533 in the 2000 census to 509 in 2012;
2. The county is 859 square miles;
3. 55% of workers receive wages/salary, while 45% are self-employed;
4. 73.7% of employment is in agriculture, forestry, fishing, hunting, and mining, while the rest is in educational, health and social services;
5. The county is 98% white, while 1.3% report that they are two or more races and 0.7% are “other;”
6. Versus the rest of the state, the residents are above average earners, have slightly smaller household size and more expensive houses, but less than half the median rent price for the state;
7. While the median income is 6.3% higher than that for Nebraska, the percentage of residents living in poverty is also higher than the state average (13.9% v. 13.2%);
8. They are overwhelmingly republican with 82-83% voting for the republican candidate in the last three presidential elections;
9. According to http://www.city-data.com, there are twenty ranches in McPherson County, but according to http://www.usaspending.gov, none of the ranches who received government payments in 2014 are on that list of 20;
10. The county seat is the unincorporated community of Tryon which had a population of 157 in 2010.

There is some difficulty in determining why there was such a large increase in personal income from 2013 to 2014. The largest obstacle is that we don’t have complete data for 2014. So, in some cases I have to guess. First, the research.

I attempted to gather data on the ranches in McPherson County, but there is very little information on most of them. What I did find is that most are small operations with less than 5 employees and less than $500,000 in sales for whatever year was available – the sources didn’t say. There is some confusing information. For example, Rothwell Nason Ranch Company is reported to have $100,000 in sales and 2 employees, but received $188,486 from the federal government for Agricultural Disaster Assistance and owns a Buckeye Dream Machine 2-seat aircraft (2-cycle engine powered parachute).

Petit Ranch, Inc. was established in 1978 and raises cattle for beef. Sales are $170,000 and they have 3 employees. They also received $119,186 from the federal government for Agricultural Disaster Assistance.

Moore Ranch, Inc. was founded in 2013, has two employees and revenue of $82,000. They received $353,566 for Agricultural Disaster Assistance and $8,370 for Direct and Counter-Cyclical Payments from the federal government in 2014.

Finally in the category of ranches receiving payments from the federal government, Pioneer Cattle Feeders, LLP received $281,335 for Agricultural Disaster Assistance and $8,424 for Direct and Counter-Cyclical Payments in 2014.

Other ranches in the area have 1-2 employees and revenues from $59,000 to $170,000.

Does this explain the large increase in per capita personal income from 2013 to 2014? Not really. The total of all government payments to ranchers came to $959,313. This is a 3,100% increase over the 2013 payments to ranchers, but when you divide the difference by the population, you get a per capita personal income increase of only $1,826. We need to explain an actual increase of $38,474.

So, what happened. My guess is that much more beef and pork was sold in 2014 that in 2013, and that the population dropped. The latter seems to be true. According to quickfacts.census.gov, the population dropped to 498 in 2014.

Last year also experienced record wholesale beef and pork prices. Versus 2013, pork prices rose 16.0% and beef prices rose 18.1% in 2014. This would be strong incentive to sell every animal you could sell if you were a rancher.

Could that explain the gain in per capita personal income. Maybe. Unfortunately, the data just isn’t available on the pounds of wholesale beef and pork sold in McPherson County. The per capita increase totals an additional personal income for the county of $18,704,366. The unemployment rate is 1.8% so there is likely upward pressure on wages and there is that huge increase in federal government payments to ranchers. When we account for those, we now have to explain a total personal income increase of about $16 million.

How many head of cattle would be sold for $16 million? The average wholesale price for beef in 2014 was $3.65/pound. From a 1,200 pound steer, you get a 750 pound carcass and about 490 pounds of boneless, trimmed beef. Do the math and you would have to slaughter about 9,000 extra head of cattle to increase total personal income in McPherson County by about $16 million. I suppose that’s possible, but it seems high. I guess I can’t solve this mystery.

Now a quick word on all that government data. With it, I was able to find a 3,100% increase in Farm Bill payments to ranchers in one county in Nebraska during a year with record beef and pork prices. I’m not saying that anyone did anything wrong, but the chance to get caught for wrongdoing is greater when there is a lot of data available.

I fear that the smaller federal government promised by most of the republican presidential candidates would lead to less information available to the public. Gathering and distributing all that information is a time consuming and expensive endeavor. The people who are most likely to take advantage of a lack of transparency to commit fraud are those who have the means and the talent (possibly with the help of tax lawyers) to do so. In other words, unscrupulous people of means are more likely to figure out where the government is not looking and line their pockets with ill-gotten gains.

As an example, let’s look at the IRS. After five years of slashed budgets, the IRS has cut its staff by 30% in some key offices. Investigations of individual tax fraud have plummeted by 43%, and by 58% for delinquent businesses (Washington Post). If you have people or businesses defrauding the government, it’s much less likely that the IRS will be able to figure it out now.

If the flow of available information is also reduced, other investigators will be less likely to find the fraud. Specifically, investigative reporters will have a difficult time obtaining the proof to pass the high bar of journalistic integrity – and to avoid being sued by the subject of their investigation – if the data to support the conclusions is not readily available. I find this scary.

Posted in Economics, Musings, U.S. Politics, Uncategorized | 2 Comments

A Shift in How to Help the Less Fortunate

Posted on February 1, 2016 by tonyj126

In 1988 there was a short-lived television series called Probe staring Parker Stevenson and co-written by Isaac Asimov. My wife & I may have watched all 7 episodes, or perhaps just the first one, but the plot of the pilot stuck with me. I suppose I should say “spoiler alert” now, but it has been close to 30 years and it’s not available on Netflix, so I’m not sure it matters.

As I remember the first episode – “Computer Logic” – Parker Stevens’ character and his new secretary are thrust into an investigation of a series of strange accidents. One of those was witnessed by the pair – a pedestrian was struck and killed in a traffic accident where light was green, but the walk sign instructed the pedestrian to cross. The culprit was an artificial intelligence computer program. A programmer planned to improve the city’s services and cut costs by letting logic dictate the best way to meet the people’s needs at the lowest costs. Thus the AI program.

It wouldn’t have been a good episode unless something had gone horribly wrong and the protagonists saved the day. So how did it the plan fail? That is why I remember the show after all these years.

The developer of the computer program believed the superior logic and emotional detachment of an artificial intelligence would be able to run the city’s programs most efficiently. He designed the program to take over other municipal computer systems so it would control the entire automated functions for the city. When the AI was in control of all those functions, it – like the humans who had those duties in the past – discovered that it was difficult to meet all of the population’s needs with the limited resources provided. That’s when the AI took in one additional piece of information that made the calculations so much easier. It began to listen to Christian radio broadcast and inputted the information that when people die, they go to heaven and exists in a condition of eternal joy.

The AI concluded that people who served a purpose to society should be supported in their endeavors until the point when the cost of their existence outweighs the value. At that point, they should be killed so they can go to heaven and live in a much better state than this earthly existence.

I am a logical person and the logic in that episode seemed perfectly reasonable IF YOU ACCEPT that heaven exists, that it is for everyone, and is as wonderful as portrayed in paintings, televangelists’ messages and hymns. But what if it doesn’t exist, or it’s not for everyone, or it’s not as portrayed in exalted accounts. In my opinion, people can have beliefs, but they cannot be sure. They cannot truly know.

This is why I am concerned about politicians, especially those running for high office in the United States, who profess their conviction that the bible is the inerrant Word of God, and state that it is their religious beliefs guide their actions.

I believe that the Torah, Christian Bible, Quran, and other religious texts can provide good moral compasses that can guide our attitudes and actions toward our fellow inhabitants in the world. But, I do not believe they should be taken literally. The Taliban, ISIS and Al Qaida are perfect examples of how a small part of the whole can be taken out of context, overemphasized, and turned into an extreme variant of a loving faith.

The same is true for other religions, of course. Slavery is the perfect example. In Jewish and Christian religious texts, the references to slavery are numerous and specific. Slavery is an acceptable practice. Slaves are descendants of Noah’s son Ham who snickered and told his brothers when he found Noah naked and passed out drunk. As a result, Noah cursed Ham’s descendants to become the slaves and servants of the descendants of his two brothers. In Christian epistles – epistles are letters of instruction to groups of people – instructions are given that it is inappropriate to use church funds to purchase a slave’s freedom, and that a slave should take Christ’s example and be the best slave he can be.

Throughout Christian history the Church has used the bible to keep the established order. In brief, the argument can be summed up as, “If you’re a slave, God wants you to be a slave. If you’re a surf, God wants you to be a surf. If you are rich and powerful, God wants you to have that privilege.” Using this line of thought, it wasn’t much of a stretch to conclude that if you took actions which were perceived as being against the Church – like claiming that the earth revolves around the sun, not the other way around – you were working against God himself. Bad things happened to people who were charged with working against God.

So, what does this have to do with how we treat the less fortunate?

I have attended church leadership workshops several times. The workshops are for priests and lay leaders and provide practical advice on the nuts and bolts of running a church. In my Christian denomination, Episcopal, the lay leaders include the vestry (governing board) and officers (wardens and treasurer). During one of these workshops, a member of a church community in a small city noted a ministry they had which was designed to help the homeless. She characterized the program as “a hand up, not a hand out.”

She didn’t go into details about the program, but my first impression was that she didn’t think very highly of the homeless. I picked up a sense of blame and accusation. That may not have been the case, but my first impressions tend to be pretty good. Still, the “hand up” strategy is a good one. Provide real, tangible assistance to give the homeless person the skills he or she needs to become a functioning member of society, and give housing and food assistance for a period of time to allow these skills to develop.

That “hand up” idea can be found in many federal programs that help those in need, but you can also find the “hand out” programs. Proposals to cut federal spending target both of these program types. While federal spending (outlays) rose 6.7% from the 2015 fiscal year budget to the 2016 fiscal year budget, the following program cuts were made:

-1.2% for Supplemental Nutrition Assistance Program
-1.2% for unemployment insurance grants to states
-4.9% for rehabilitation services and disability research

It seems to me that some members of Congress are moving away from that “hand up, not a hand out” idea to a “it’s God’s will” idea – just like in the Middle Ages. Especially true for conservatives, the plan seems to be to provide the best climate for business and don’t worry about the people. If businesses do well, they hire more people and everyone is better off. If some people are left behind, it God’s will. In fact, throughout Christianity, there is the theme that people who suffer in this life will be rewarded in the afterlife.

And that brings us back to that computer program from the first episode of Probe. Like that artificial intelligence, some members of Congress seem to have included their conviction – as opposed to belief – that God has a plan in their reasoning about the function of government.

If you accept this “truth” as reality, you write laws and set funding levels to allow those who God wants to succeed the opportunity to do so. In fact, when you reduce assistance to the less fortunate, you are presenting opportunity for people to pull themselves up and become great. Just look at Ben Carson. He is a true success story and he would certainly tell you that it was God’s will.

But shouldn’t we pay attention to other parts of the Torah, Bible and Quran which instruct us to help those in need? What if the data show that favoring businesses at the expense of the low income population does not help the less fortunate after all? What about the recent research which shows that while the rich are getting richer, the poor are getting poorer? This is true in the United States and in the world as a whole. Doesn’t that tell us that an environment designed to help businesses thrive does not appear to help the less fortunate after all?

I wonder what a loving God makes of all this. One could imagine a scenario in which God looks upon creation and shakes his/her head wondering where people got these ideas. Perhaps, thinks God, a benevolent overlord could help out humanity. Maybe a system that is capable of quickly and completely evaluating all factors and making logical conclusions for the betterment of mankind. Sounds like a job for a benevolent artificial intelligence program, don’t you think?

Posted in Economics, Musings, Religion, U.S. Politics, Uncategorized | Leave a comment

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A One Man Think Tank

Of Ice and Pen – My Writer’s Manifesto

The America Great Series – Intermission (i.e., Summary to Date)

The Centrist Awakening

The Policy of Low Expectations

Part III-D-2: Let’s Look at All the Presidential Candidates’ Tax Plans (America Great Series; Taxes, Economy & Jobs)

Part III-D-1: How Would Ted Cruz’ Flat Tax Plan Affect Federal Income Tax Revenues (America Great Series; Taxes, Economy & Jobs)

Part III-C: A Look at How Job Creation is Effected by Tax Cuts and Increases (America Great Series; Taxes, Economy & Jobs)

I Have A Special Power That Can Influence the Presidential Election

What Happened in 2014 in McPherson County, Nebraska?

A Shift in How to Help the Less Fortunate

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