Posts Tagged ‘tax’

A Taxing New Year

Another new year, and I fear it may be quite taxing.

Our nation started the year by temporarily avoiding the fiscal cliff, but we can expect a year of constant arguments over the fisc. We will become a nation of cliff dwellers. Those who hope for something else don’t understand how politics works.

The big change this year is higher taxes on “the rich”. It is almost always true that when “the rich” are taxed more, everyone else suffers. Economists can explain why. Think of it as trickle down austerity. Even the designation of “the rich” is misleading: our new higher taxes reach much farther down the income scale than is apparent. To see why, search for “PEP” and “Pease”. These back door tax increases will probably snag the unwary. Numerous other changes, often overlooked in the popular press, will ensure that most everyone feels some pain.

No one likes taxes, but lots of economists are especially concerned these days. Why? Because they know that if too much is taken by government, society suffers a decline in relative standard of living. They don’t know exactly where that threshold is, but there is troubling evidence that the US has reached or even breached that level. While much of the federal tax increase has been avoided, we still have relentless tax increases at the state level, the world’s highest corporate tax (which is built into most everything you buy), and the national debt which, to economists, is simply deferred taxes and interest. Taxes are a very big factor in determining everyone’s standard of living and the news isn’t good.

Of course, the impact of taxes could be totally eclipsed by stronger forces in the economy. No one really knows the direction our economy will take. But higher taxes have historically been bad news and too many of us are deluded in believing that “someone else” pays. For better or worse, we’re all going to take the hit. We’ll also see some benefits from government spending – the question is, as always, are the benefits worth the cost?

Tax

Tax (Photo credit: 401(K) 2013)

 

Health Care in Wonderland

Wow. The surprising Supreme Court decision has caused an avalanche of commentary. The sequence of events and the underlying logic is bizarre. The bottom line is that the mandate (“not a tax”) would be unconstitutional if it were a mandate, but it is constitutional because it really is a tax (not a mandate). You can’t make up stuff this funny!

So, we have the biggest tax increase in history falling almost entirely on the middle class, sponsored by the folks who say there should be no tax increases for the middle class. You can’t make this stuff up!

Despite the Alice in Wonderland nature of the law and politics involved, the reform is chugging on – at least mostly. Big chunks have already been thrown overboard because the administration said they were unworkable. It remains to be seen how much more will collapse under it’s own weight. And, outside government, insurance rates are skyrocketing in anticipation of Reform and employers everywhere are deciding whether they can any longer afford to provide insurance for their employees. The fun has just begun!

Meanwhile, lots of economists have described what needs to be done to fix this mess. Their plot makes sense to me, but a real solution would not sound attractive to the poorly educated voters who decide elections. Democrats won’t touch the good ideas and even the boldest Republicans offer only faint echoes.

So, where are we headed? My guess is that health care will soon get a lot more expensive and a lot more people will do without or without enough. At some point we might hit rock bottom and entertain real reform, but only after the current cast of characters in government are only an unpleasant memory. I hope I’m wrong.

Washington DC: United States Supreme Court

Washington DC: United States Supreme Court (Photo credit: wallyg)

When Words Lose Their Meaning….

Charles I, King of England

Image by lisby1 via Flickr

Whatever are the merits, or lack thereof, of a tax on estates, you are deceptively wrong to call a decision not to raise that tax a “handout.”  Because taxes are paid from resources created and earned by private citizens, resources that are not taxed are not “handed out” to the people who created or earned them; these people already rightfully own these resources.

It makes no more sense to describe government’s (non-)act of not raising taxes as a “handout” than it does to describe my (non-)act of not stealing your purse as a “handout.”  Failure to understand this fact creates the mirage that government is the source and original owner of all wealth.  Not only is such a notion of the state utterly false empirically, it is also – because it is a close cousin of the notion of the divine right of kings – the seed of tyranny.

via When Words Lose Their Meaning…..

Please forgive the cross-posting, but I’m trying to decide whether to devote my blogging time here or to my tumblr micro-blog.

Tax Consequences

Mankiw takes on the question of whether taxes are distortionary. Left leaning economists like to point out that it’s difficult for high earners to simply decide to work less. That’s true on the face of it. But what high earners can do is retire early, move to other tax jurisdictions, and invest more tax efficiently. All of these things are happening and they will happen to a greater degree should taxes rise.

The Economy

You can’t open a paper, listen to the radio, or watch TV without hearing or reading about the economy. Everyone seems to have something to say. I’ve tried to cut through the noise by capturing some of the better thinking in My Notebook.