Modern Economics

[Dr. Shane]

I am starting this at the suggestion of Bravus. Let's see if we can play a little nicer in this thread.

Quote:

Income taxes are similarly entered into voluntarily when you decide to enter into a contract that is defined by the government as income - no-one makes you earn any.

This is kind of long so I will break it up

Thus income taxes encourage people to stay at home and live off the government or anyone else willing to support them. Exactly. This is the argument used by libertarians and others that want to abolish the IRS.

Personally I don't subscribe to that point of view. I favor income tax and a graduated tax scale. However I think only contributions given to government-approved, non-profit organizations and state-recognized religions should be tax deductible. Tax credits should be available to encourage certain types of behavior like purchasing energy efficient cars and appliances, getting married, having children, etc. The income tax laws should be a lot simpler.

My Graduated Tax Scale Perspective

The graduated tax scale shouldn't be excessive and no one should be exempt. The way the law is now, the poor pay nothing and the highest income earners pay 35%. The wealthy paying more is justified because they have benefited more from society so as a result they return more to it. However the government has taken that principle a little too far which has just caused the wealthy to hide their income. Revenues from the rich actually increase when their tax bracket is lowered into a acceptable range.

35% is historically in the acceptable range for top income earners. Under Clinton it was 39% which isn't too bad either. It was 31% under Bush the elder. Reagon dropped it from Nixon's 70% to 50% and later to 28%. Eisenhower had it up at 91%. Trueman had it at 94%. FDR had it at 88% during the war and 79% during much of the Great Depression. During the Roaring 20's it was about 25% and Wilson had it up to 77% during WW1.

I think most of us can agree no one should have to pay over 75% of their income to the Federal government. Especially when we remember they still have to pay state income tax in many states, property tax, sales tax and various user taxes like telephone and gasoline.

High Taxes and The Economy

Economically we saw a boom in this country in the 1920s with low tax rates. FDR tied to create a boom by expanding government and creating more government employees. To fund his programs he drove taxes sky high and his best efforts failed. Government cannot create a boom. Private industry creates booms when government gets out of their way but economies run in cycles so booms will be followed by recessions. Some economists believe that Hoover's and FDR's schemes actually made what would have been a recession into a depression. The market crash of 1929 was a correction that didn't need to lead into a depression.

Sales Tax and Corporate Tax

Since corporate tax is always passed onto the consumer, it is simply a form of sales tax. This type of tax, like user taxes, seem to most people to be the most fair. Because the people using the services or products pay the tax. In most people's mind this is also a volunteer tax. The exceptions would be perhaps food and clothing which we need to buy and even where they have no sales tax, they still carry the corporate tax.

[D. Allan]

Quote:

Thus income taxes encourage people to stay at home and live off the government or anyone else willing to support them. Exactly. This is the argument used by libertarians and others that want to abolish the IRS.

if federal income taxes were abolished the govt. would have to run on donations? the people with mucho moneys would have beaucoup d'influence. come to think of it thats the way it works now anyway! duh... it all gets so complicated and depressing. with all of us contributing we should all have equal influence. the only answer is to have everybody contribute the same amount yearly in taxes, this can be done by passing laws that will insure that the income of every person will be equal. Voila! equal taxation, equal representation, equal income. am i nuts?

[Dr. Shane]

Prior to 1861 there was no income tax in the US. However there were not many government services either. The income tax was started to help pay for the Civil War and was later ruled unconstitutional by the Supreme Court. In 1913 the 16th Amendment was passed and we have had income tax ever since.

Some argue that by having a graduated income tax it discourages people from making money. Rush Limbaugh is famous for saying it punishes success. Well, if it is too high, I will agree with that. However having the top tax bracket between 30% and 50% does not seem like it will discourage too many from chasing their millions.

[bevin]

Income tax also encourages a barter economy - "I'll program your computer if you fix my car" - again a bad thing.

I agree with Shane, that rates up to 35% seem to be acceptable to people, and much over 35% really motivates them to hide or not get income.

It is not income tax per se that encourages people to live off the welfare state - it is the ability to live off it. New Zealand is one country which is experiencing problems with the welfare level for unemployed parents being high enough to cause weird behaviors.

There is this horrible bind

(a) You want children to live with their parents.

( You want children to have reasonable health and education so that they will be productive adults.

© You want adults to have reasonable levels of freedom.

Trying to achieve all three at once is a real challenge.

/Bevin

[Dr. Shane]

I guess I am missing something there. I don't see how all three of those are difficult to encourage with the tax code. I support a marriage tax credit that simply rewards marriage. The number one cause of poverty in America is single-parenthood. The tax code doesn't mandate behavior, it simply encourages it.

[Dr. Shane]

Currently I believe that no social security taxes are withheld after a person earns $97,500 in a year. So a small business owner not wanting to pay more taxes than he has to, can see that after his deductions his salary is at about that amount (which will allow him to collect full social security when he retires). Then he has the company purchase his car, his fuel and sometimes lease his home from him. There are various ways he can play with his income to avoid getting into higher tax brackets. When taxes are low, it simply isn't worth all the hassle.

[bevin]

There are lots of hassles associated with having a company provided car etc - documentation to prove it is business related, etc.

As near as I can tell, poverty is America, in the midst of plenty, is caused by some combination of poor nutrition, poor health, poor education, poor motivation, and poor choices.

In other countries, where the whole country is poor, you get many poor people who are smart, motivated, and moving up or pushing their children up.

In the USA, many of these people have already escaped poverty, and those that are still poor will escape.

What is left is those who don't want to or can't get themselves out - producing children who need help, because their parent's don't know how to help them.

/Bevin

[Dr. Shane]

I have worked for a number of small businesses where the owner's car and his wife's were owned by the company. One company I worked for gave me a minivan and told me I could use it for personal use including vacation! The same company bought an RV and employees in management were able to use it for vacation if they paid for the gas (it used a lot).

Bare statistics show that most people living in poverty in America are single parents. They may be single parents because of poor education, poor motivation and poor choices but I am not sure how poor health and nutrition play into that.

In my work in Mexico, I have known many poor people there that are smart - even some that are not well educated. I agree the phenomenon of poverty in third world countries certainly is different than that in America.

[bevin]

I have very limited knowledge of the tax code - I would want to talk to an tax lawyer before I did that, or I would be very nervous about an audit.

Poor health/nutrition leads to poor mental function leads to poor choices. The person who self-medicates their pain with alcohol, for instance. We see a lot these in our ambulances. Poor maternal health/nutrition leads to newborns that are already brain-damaged at birth.

Humans have an incredible sex and procreation drive - so they typically mate with someone of the same or better smarts/money/health - but the people who are disadvantaged in all 3 of these still have the drive, so they still pair up, and now you get children of couples that are ill-prepared/incapable of raising them out of the cycle of poverty that they are in.

We almost maximise the damage with our welfare system - we don't let them die, and we don't give them enough of the right things to break the cycle.

/Bevin

[D. Allan]

Some advocate a flat tax rate. Same for all. If elected I'll fight congress for a flat income rate. A non-graduated income. For each person, beginning when they start working (that's at the age of 5 when they begin kindergarten.)!

How about it? $50/hr? For the cleaning lady, and for the lawyer. For the bricklayer and the senator. For the 1st grader and for the graduate student. All would share in the 'wealth' equally and all would share in 'poverty' equally. The guy with Downs syndrome who cleans the tables at the mall's food court works as honestly as the the doctor who wants $300 for 10 minutes.

[Dr. Shane]

Quote:

I would be very nervous about an audit.

I know when the CPA audited the company he had to verify the RV was stored on company property and was indeed used by more than just the owner. The vehicle insurance also had to cover employees when they were on personal time. So while I am not sure of the tax law myself, I believe everything he was doing was legal.

[Dr. Shane]

Quote:

$50/hr? For the cleaning lady, and for the lawyer. For the bricklayer and the senator.

Equal pay for everyone does not work in a society of sinful, selfish people. This was tried among the colonists that first came to the New World from Europe and they died in the winter. Once they changed that and allowed for private ownership of property with the harvest being the owner's to sell on the market, there was enough food to get everyone through the winters.

Problem is that we are sinful. If we all get paid the same there is no incentive to be ambitious. People start to sluff off and see how much the other guy will pick up. Capitalism works well for a sinful society because it rewards hard work and ambition.

[bevin]

If the CPA was happy then I would be too - I wonder if the business owner was actually including it as part of the taxable income of the employees and paying the taxes.

I believe that everyone born has equal rights to the raw materials of the Earth - and that we have governments to control exactly how those rights are implemented.

This right to raw materials is fundamentally why we should have a welfare system - just as the Levites were compensated for not having land, people today should be compensated for not being given their share of the land or other resources.

However people should also be allowed to earn additional income by the sweat of their brow or by any other skill they have.

As Shane says, this is what motivates people to actually work.

An an additional "however", if people group together into larger groups and control their birthrate etc so there will be fewer of them and each will have more land etc., I don't think other groups should be allowed to take over their land by out-breeding them. However there are limits on how far this should be allowed to play out - one person should not own a whole continent!

/Bevin

[D. Allan]

Quote:

Equal pay for everyone does not work in a society of sinful, selfish people. ....

Problem is that we are sinful.... . Capitalism works well for a sinful society because it rewards hard work and ambition.

it does not reward hard work. it rewards sin and selfishness. 'ambition' is in our society to have a burning desire to have more stuff than the average person (IOW 'greed'). there are more noble forms of ambition. i often wonder why Christians are not more down on consumerism and capitialism.

[D. Allan]

Quote:

I believe that everyone born has equal rights to the raw materials of the Earth - and that we have governments to control exactly how those rights are implemented.

This right to raw materials is fundamentally why we should have a welfare system - just as the Levites were compensated for not having land, people today should be compensated for not being given their share of the land or other resources.

i'll agree to that.

Quote:

However people should also be allowed to earn additional income by the sweat of their brow or by any other skill they have.

As Shane says, this is what motivates people to actually work.

Shane is right that in this real world people are motivated by money. People should recieve rewards for their labor. But they should not be allowed to price-gouge, to take undue advantage. this is what happens when a doctor charges a cleaning lady $300 for 10 minutes of his time. he is willing to pay her, $6.50/hr. that's $1.08 for her 10 minutes! She works just as hard. If elected, i will work to eliminate this kind of price-gouging!

[Dr. Shane]

Price-gouging in a capitalist society has a limited life and the people, in a democracy, are free to regulate such prices during this limited life.

Let me give an example. When the railroad started it was basically a monopoly. They could price-gouge and the people using it had to pay. Well, given time, more railroads were built and began to compete with each other so the price-gouging took care of itself. In the mean time, the government was able regulate the industry to prevent price-gouging which President Teddy Roosevelt did.

Let's remember, the key to success in a capitalistic society is making one's goods or services available to the masses. So the best way for the railroad to succeed would not be to price-gouge so only a select group at the upper end of the income scale could ship or travel on it. The way to success would be to make railroad travel affordable to the masses so that every class would travel on it.

[Bravus]

The doctor case is not directly comparable with the cleaning lady case, because the doctor had to invest 8 years of his life and a couple of hundred thousand dollars in preparing for that 10 minutes, and has to rent an office and hire a receptionist and... those factors might not account for all of the difference but they account for some of it.

(We pay our cleaning lady $15 an hour and I tend to charge out consulting jobs at $50-100 an hour but get a little less than that as a salary, as a basis of comparison.)

[Dr. Shane]

I suspect your consulting fees are based somewhat on what those competing for that business are charging.

[Bravus]

Yep. And I agree that competition is the mechanism for price control in a capitalist system, and that in in the absence of (a) bad regulation (contrary to my more rightwing friends I do believe there is such a thing as good regulation) and ( anticompetitive behaviour (i.e. cartels, collusion, price-fixing) it usually does a pretty decent job.

Of course, to make doctors cheaper we could recognise that health care is a public good and subsidise their training. Or not...

(I do do some *pro bono* consulting type work too...)

[bevin]

Subsidies don't make things cheaper overall, but reduce the cost for the buyer - they make them more expensive by

(a) removing the incentive on buyer to shop around and avoid buying the service, and

( removing the incentive on the seller to attract buyers by keeping the price low.

So the service gets used more at a higher amount - and the supplier of the subsidy gets soaked.

/Bevin

[bevin]

Quote:

to make doctors cheaper

reduce their initial training costs - the USA schools have mastered the art of charging for the unnecessary

reduce their unnecessary workloads - computerize, use less experienced/trained staff were appropriate, promote preventative medicine

reduce their legal overheads, like NZ did

/Bevin

[Bravus]

That's partly true, but again there are more factors. One is that I'm advocating some wealth redistribution: if taxes subsidise medical training, then my consulthing fee or the doctor's fee helps to make medical care cheaper (or indeed accessible at all) for the cleaning lady. And I think that's a worthwhile thing to do, and probably better than giving the cleaning lady welfare money directly to spend on health care.

The other is that not all goods are identical and interchangable. There are medical schools that don't cost hundreds of thousands of dollars, but they don't have the reputation of the ones that do. So there's not really such a product, for which consumers shop around, as 'generic MD'. That in turn means there's little real competition in the price of medical training.

[Dr. Shane]

There are good medical schools outside the US in English speaking countries like the Bahamas and Jamaica but the AMA has lobbied for laws that make it terribly difficult for a doctor trained there to be able to practice here. This is simply to protect American medical schools for having to compete with those in near-by English-speaking countries. A better plan, I would think, is to subsidize American medical schools so they didn't cost more than those in the Bahamas or Jamaica. I am not talking about subsidizing the health care itself, which is an entire different discussion. As a general rule, I don't like subsidies but education is something the government is in the business of doing anyway.

[D. Allan]

Doctors are just one example of the effect of capitalism upon the citizen. No one is immune to the illness of taking more than s/he deserves. We're all exposed to it constantly and most of us catch it. Sometimes a person will have a spontaneous remission, and that of course is very enhancing to one's quality of life!

[Dr. Shane]

I would not agree with the idea that doctors take more than they deserve. In a sinful society, I know of no better system than a capitalism practiced in a democracy.