State of the Union, 2010

353 Comments

  1. Patrick Enders said:

    MPR:

    Gov. Tim Pawlenty refused Monday to sign a letter from the nation’s governors calling on Congress to pass an extension of part of the federal stimulus, a bill that Pawlenty is counting on to balance Minnesota’s budget….

    But Pawlenty’s criticism of the stimulus doesn’t square up with his efforts to balance the state’s budget. The governor didn’t mention on the show that he’s relying on federal money that hasn’t even become law yet to erase a third of the state’s $1.2 billion budget deficit.

    http://minnesota.publicradio.org/display/web/2010/02/22/pawlenty-distances-himself-from-stimulus-draws-fire/

    February 23, 2010
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  2. William Siemers said:

    John…I’m sure you realize that calling something a ‘necessity’ does not make it so. Just taking an at random look at a few of one state department’s (Agriculture) grants (money that does not have to be paid back):

    “Livestock Investment Grant – grants to persons or entities who raise livestock in Minnesota, for the purposes of improving or expanding livestock production in Minnesota.”

    “Dairy Business Planning Grant – encourages dairy business planning and modernization activities of Minnesota dairy farms.”

    “Dairy Profitability & Enhancement Teams – for producers who are looking to make some changes in their operations.”

    “Sustainable Agriculture Grant.”

    I suppose a case could be made that investment in these businesses (as opposed to say…coffee roasting) is something the state should be doing. But these are not investments which will be repaid with nominal interest, they are gifts. Gifts with strings, but gifts none the less.

    Take a look at any state department’s grants, and see if you think they are all a ‘necessity’.

    February 24, 2010
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    • john george said:

      William- I agree 100%. What I was expressing was the irony that government spending is often presented as “necessary” spending, when, as your examples demonstrate, it is not always true.

      February 24, 2010
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  3. Norm Vig said:

    Peter, William, John, Ray and all you budget experts:
    Does anybody know what the multiplier effect of bonded construction spending is?
    –State borrows money at low interest rate.
    –State spends money on construction projects.
    –Workers are hired and stop collecting unemployment and start spending money and paying taxes. The people they buy from benefit similarly, all down the line. All this generates tax revenue.
    –Materials and equipment are bought, benefiting those businesses and the state through increased tax returns. All the subcontractors and suppliers benefit.
    –The public benefits from the project. Not everybody, but a lot of people, depending on what the project is. A lot of it is transportation and education.
    –So what is the overall net return? Isn’t it positive? Especially now with high unemployment?

    On the other hand, if you lay off a lot of state employees you create the opposite effect: they don’t pay taxes, they collect unemployment and maybe other benefits, they stop spending money, etc., etc.

    Similarly, if you just cut taxes you may or may not get more investment, employment, new revenue, etc. Or those who save money on taxes may just invest it in their second home in Arizona (and maybe stop paying MN taxes altogether).

    Please explain why bonded construction is not a good idea.

    February 24, 2010
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    • Mike Zenner said:

      Norm,

      The $ spread between what the Governor and House is bonding bill appears to be $310 million, of which appears to be nothing more than stimulus pork for the representatives districts.

      http://davidbly.com/wp-content/uploads/HF2700-Bonding-Bill-Spreadsheet_1.pdf

      Northfield’s piece of the action is line 222. Note how they shortchanged the Local bridge funding(line216) by $8mil to get it.

      http://www.ci.northfield.mn.us/projects/worksengineering/2009/08/26/hwy_3__19_multimodal_transportation_study

      Point is some items were not even requested for but were thrown money anyway (eg lines 252-260,etc). Is this all “infrastructure investment” or a Keynesian spending free for all?

      February 25, 2010
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    • Peter Millin said:

      Norm,

      You forget where the money comes from. Both the bonding bill money and unemployment money comes from the same source. The net effect for citizens is the same.
      What happens when the stimulus money runs out?

      It is like going to a pool with a bucket and taking the water from the shallow end to the deep end…. no net gain just shifting resources.

      February 27, 2010
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      • Norm Vig said:

        Yes, but isn’t it better to have people employed than unemployed? You can’t think of it only in terms of “who pays” in the short run. The economy is a dynamic system, and if some employment stimulus (and multiplier effects) get it going in the right direction, that is more important than the borrowing costs and could more than offset them. As they say, you have to spend money to make money.

        February 27, 2010
  4. William Siemers said:

    Norm…I have no problem with state bonding, provided interest rates are reasonable and the state has the money (or even expects to have the money) to pay the interest on the bonds.
    Since the governor and the legislature do not seem to have the political will to cut spending and raise taxes in order to balance the budget, my non-expert opinion would be to forgo bonding until they do.

    February 25, 2010
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    • Norm Vig said:

      My point is that putting people back to work and stimulating the whole construction industry could actually help to reduce the deficit, even after paying the interest. Beyond that, infrastructure adds value to people’s lives in all kinds of other ways. If you wait until you have the interest fully covered, you would probably just slow down the recovery. That doesn’t speak to the desirable size of the bonding bill, but it should not be looked at only in terms of immediate interest costs.

      February 25, 2010
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    • Paul Zorn said:

      William:

      I’m no expert either, but strongly suspect that on the interest rate front there could hardly be a better time to borrow.

      Whether we’ll have the money to pay off the loans (paying off principal may be harder than dealing with interest, given currentrates) is a fair question. The bond markets appear to think so,as Minnesota has the highest possible bond ratings with two of three main rating agencies, and the second highest possible with the third. The prospect of Minnesota defaulting on bond payments seems to be regarded by investors as remote.

      Whether it’s wise for the state to assume additional bond debt at a time like this is a different question. Another commenter on this thread apparently thinks not; there was mention of “insanity”. Indeed, one can imagine wrong-headed purposes to which bonding might be put.

      But, IMO, there’s nothing insane about using bonding to invest in the state’s future health, welfare (in the broad sense), and prosperity, through such instruments as educational infrastructure, roads and bridges, environmental improvement, etc.

      Sure, there’s a limit to what we can afford, even at low interest rates, and some bridges really do lead nowhere. But under-investment, like not fixing the roof after a hailstorm, is sometimes the greatest extravagance.

      February 25, 2010
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    • john george said:

      William- I agree with your position on bonding. The big question, which I’m not sure anyone has any certainty, is what is going to happen with the economy. For any bonding or tax proposal to really work, it seems there would need to be some growth in the economy. This seems to be the point of discussion- what really produces growth? Does investment in infrastructure or investment in private capital produce the best results? I don’t have a good grasp of historical cause and effect in this case, so I’m really open to enlightenment. Following the Great Depression, it appears there was no quick growth until we started producing war equipment. True, the quality of our roads and municipalities increased, but the economy seemed to remain relatively flat until we, and the government, started consuming goods. This energized private industry to meet those demands, and there was relatively quick growth through the war years. Now, I am certainly not advocating starting another war, but I think there is something to be learned about the mechanics of supply and demand through those years. If the government commits to spending billions of dollars on something there is little demand for, such as light rail, then I think we will be digging ourselves into a pit. I heard about the derailment on the line between St. Cloud and the Cities this morning. The whole systen was shut down until they got everything back on the tracks and the damage repaired. This scenario doesn’t bode well in building confidence in this type of transportation system, IMO. There may be a short time span of construction activity building the system, but what do you do after that?

      February 25, 2010
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  5. Paul Zorn said:

    Somewhere above in the ether Peter recommended Thomas Sowell’s latest volume, Intellectuals and Society, wherein the author, a prominent intellectual, explains what’s wrong with intellectuals. (They don’t like the free market enough.)

    Here’s another review:

    http://chronicle.com/article/Skewering-Intellectuals/64113/

    The reviewer, Russell Jacoby, is another intellectual with a book, The Last Intellectual, that disses intellectuals (mainly for talking to themselves rather than to the general public).

    Jacoby—surprise!—doesn’t care much for Sowell. E.g.:

    Sowell has given us the Idiot’s Guide to Intellectuals, Big Print Edition. We should take him at his word. This is not a book for intellectuals. It is a gift item for conservatives who do not read.

    Isn’t this infighting fun?

    Jacoby is too modest to recommend his own book, of course, but he does plug Henry Posner’s Public Intellectuals: A Study of Decline.

    February 25, 2010
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    • Phil Poyner said:

      Do we even have a commonly understood definition of “intellectual”?

      February 25, 2010
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      • Paul Zorn said:

        No.

        Just like we have no broadly accepted definitions for “liberal”, “conservative”, “socialism”, “God”, “god”, and countless other buzzwords. Too often, these loaded words become code for “good” or “bad”.

        February 25, 2010
      • Phil Poyner said:

        Ah…well, I’m not a big fan of buzzwords myself. It doesn’t strike me that pondering the role of “intellectuals” in society is worth my while until I actually know what I am pondering!

        It would be funny if I were considered an intellectual though…I’d feel like Groucho Marx! “I don’t care to belong to a club that accepts people like me as members.”

        February 25, 2010
      • john george said:

        Phil- I thought an intellectual was any person who has read/written one more book on any partucular subject than you have? He is a little like the old definition of an expert: any person with a briefcase who is 50 or more miles from home.

        February 25, 2010
  6. William Siemers said:

    Norm/Paul…
    You are probably right that there is good reason to do bonding this year, and most years for that matter. But that doesn’t change my opinion that before any additional spending is contemplated there should be a realistic plan in place to balance the budget.

    February 27, 2010
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    • Paul Zorn said:

      William:

      I, too, would love to see more realistic thinking about budgets. IMO the main obstacles are the Governor and the Republicans, who (unlike some Republicans in this discussion) adamantly refuse to look at the revenue side.

      Understood, others may allocate the budget blame differently. But regardless of who’s at fault, freezing all bonding until reason prevails strikes me as both impractical and, worse, a way of holding ourselves hostage, as a hunger strike might do.

      State bonding is supposed to support investments in our human and physical infrastructure, and ultimately in more prosperity and a better quality of life. Deferring or low-balling needed investments is bad for all of us in the long run.

      February 27, 2010
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      • Peter Millin said:

        Paul,

        The governor has proposed a bonding bill on his own. Same stupid idea different priorities.
        Why are we ignoring the fact that we are heavily in debt? A bonding bill is nothing more than debt in a different form.
        Never mind that the bill contains a lot of job unrelated expenditures.
        Temporary very expensive jobs, that won’t last once the money runs out. As proven on the federal level.

        From where I sit it just adds another bill we have to pay back sooner or later.

        Government needs revenue to support their basic function, which are clearly defined in the constitution. Anything beyond that are “nice to haves”.
        We all have to support our basic needs at home and have to cut extras if money is tight….why not St. Paul?

        If you maintain your “nice to haves” an go in debt because of them, can you go to your boss and ask for more money that is reasonable?

        February 27, 2010
  7. Ray Cox said:

    Folks, there is actually a formula that the state has used for decades to establish the size of the bonding bill. $1B is far above that calculated rate….$800M is about right on. The Governor has a little wiggle room to come up if the Dems will come down a bunch.

    Norm, if economics were as easy as you decribe it, just printing money to have people doing some work, then there wouldn’t be much to running a state or nation. To answer your question, even though I am in a depressed industry (construction) I would much prefer a focus on balancing budgets and fiscal restraint rather than thinking up more and more government make work projects to keep some people working.

    And I agree with William that we should first be attending to our budget issues, not running to the candy jar to dip our hand in for pork projects. I will also agree that the bond climate is good for borrowing right now. But that does not change my thoughts that the bonding bill should focus on core state infrastructure. Dump all the local candy and focus on what is needed. I think a good argument can be made to expand the bonding bill slightly as long as it goes to permanent state wide projects….roads, bridges (including County bridges) University and MnSCU buildings, etc.
    .-= (Ray Cox is a blogger. See a recent post titled All Flex) =-.

    March 2, 2010
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    • Paul Zorn said:

      Ray,

      Can you give us some sense of the “formula” used for bonding? Is it some fraction of the general budget?

      Re this:

      And I agree with William that we should first be attending to our budget issues, not running to the candy jar to dip our hand in for pork projects.

      William can speak for himself, but I read him as arguing against all bonding. And I haven’t read anyone as arguing for pork-flavored candy.

      March 2, 2010
      Reply
    • john george said:

      Paul Z.- Sometimes, when you go looking for a bacon tree, you end up in a ham bush. You usually won’t find it in the candy jar, either.

      March 2, 2010
      Reply
  8. Mike Zenner said:

    Minnesota should consider establishing a State Bank like in North Dakota.

    http://www.webofdebt.com/articles/state_bank_option.php

    The article eludes to that this is the only reason for North Dakotas budget surpluses, but one other big issue for ND is energy export (oil), which unlike the whole of the US, and Minnesota as a microcosm desperately needs to address before the economy can get back on a sustainable path.

    State bank may be a way to go providing its charter of investment is limited to the States people,businesses and public funding. Just think of all the student loan interest money that is leaving the state!

    March 3, 2010
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    • john george said:

      Mike- I may be too simple in my reasoning, but for any bank to be successful, it seems there should be some money to put into it. Right now, the only thing a state bank could hold is a repository of IOU’s. My son lives in ND, and I get a pretty good inside view of the state’s workings from him. The reason ND has a surplus right now is the oil found in the western part. That, and their very conservative approach to spending this money. Minnesota has neither oil nor a conservative approach to spending. I don’t think a state bank would do anything to increase the state income. Perhaps there would be a small ammount of student loan interest that would stay in the state, but if this would be enough to offset the deficit in any meaningful way, then those students are paying waaay to much for their education.

      March 3, 2010
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      • Mike Zenner said:

        John,

        The state of ND is required to put all its tax revenues ito the bank as Reserves for the Bank of ND. Due to fractinal reserve banks are able to loan more money than is in reserve (this is legal counterfeiting). The Bank of ND acts as the Federal Reserve for the State providing money to private banks within the state. further it insures the banks in ND (there is no FDIC insurance in ND private banks).

        I am not saying this is a fixall for all the issues of state budgeting but it does keep the money closer to home.

        March 3, 2010
      • john george said:

        Mike- This would keep some of the money closer to home. All I’m saying is that there needs to be some money to put into the bank in the first place. We don’t have that right now.

        March 3, 2010
      • Mike Zenner said:

        John,

        The state must receive at least $4Bil a quarter in income tax withholding revenue and sales taxes receipts, so I don’t see how you can say they don’t have any money to deposit in their own bank. Besides the mere fact that they have taxing authority puts them in a whole different position than say a group of private investors that want to start a bank. Once the bank is established they can loan themselves all the money they need to cover the annual budget shortfalls due to fractional reserve.

        March 4, 2010
      • john george said:

        Mike- Perhaps this is my too simplistic approach, again, but I see the difference being that ND does not have a deficit. If I’m understanding the figures correctly, the $4 billion the State collects in taxes is not enough to pay the bills. If you don’t have enough to pay the bills, then where do you get anything to put into the bank? The bank is just funtioning as a distribution service for the various debts. It is not making any money, unless you want to go back to the famous overnight derivative market with the tax money. I think it should be evident where that got the country.

        I still say that the state needs to find some type of program that will increase real reprivate sector spending and investment. When that increases, then the tax base increases. Infrastructure construction puts dollars into the construction industry, but when the road is built, it produces no new products or employment. In fact, the maintainence of it becomes another liability for the State, not a source of tax revenue (aside from vehicle licenses). Manufacturing that uses the road to transport its products is what provides increased tax revenues. It seems that this is what we need.

        March 4, 2010
      • Mike Zenner said:

        John,

        I was not implying that a state bank would fix the sickly US economy but that it would help the state with its annual income by generating income for loan interest. Say the Bank of Minnesota had $4Bil on reserve it could then lend at a conservative 8:1 or $32Bil to state businesses. At an interest rate of 5% the state could earn roughly 1.6bil in interest. that is enough to cover the current budget shortfall and then some.

        As far as the economy goes I completely agree with you. We need to restart private business particularly primary industries that draw in money from exports abroad. This is going to be particularly difficult to do since America has become too expensive to do business relative to other countries around the world. High labor costs, taxes and regulations continue to drive business and jobs from this country every year, and they aren’t going to come back for a long time if ever.

        As long as we continue negative trade deficits(mainly due to oil imports) and federal budget deficits as far as the eye can see the economy will continue to stagnate. I believe that the powers that be and the federal government realize that earning from production is coming to an end, and that is why there is such a focus on the consumption end and the extraction of profits from things like Carbon trading and health care reform. This way we keep ourselves busy shuffling paper while the economy contracts to a more sustainable level, closer to where the rest osf the world is.

        Below is a link to an article that bemoans what you have been talking about:

        http://theburningplatform.com/economy/jobs-of-the-future

        March 7, 2010
  9. Paul Zorn said:

    Debt lovers and haters … check out today’s blog post by Paul (K, in this case):

    http://krugman.blogs.nytimes.com/2010/03/05/debt-is-a-political-issue/?8ty&emc=ty

    There’s probably something here for big- and small-spenders alike to disagree with. But this Nobel laureate economist seems less worked up than some of us (perhaps even me included) over debt. More than debt itself, I think, he worries about our ability to make hard economic choices, not just grandstand:

    What this means is that if you’re worried about the US fiscal position, you should not be focused on this year’s deficit, let alone the 0.07% of GDP in unemployment benefits Bunning tried to stop. You should, instead, worry about when investors will lose confidence in a country where one party insists both that raising taxes is anathema and that trying to rein in Medicare spending means creating death panels.

    March 5, 2010
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    • David Ludescher said:

      Paul: Help me understand Krugman’s argument. He seems to be saying that we should’t worry about whether America actually has money; we should worry about whether people think the country has money.

      It seems to me that the dot.com bubble, stock market bubble and the housing bubble were created by undue confidence of investors. The bubbles burst because those markets lacked the fundamentals to support the confidence. So, confidence seems to have caused the problem.

      There isn’t much doubt that America is entering a period of a government bubble. Our debt is barely manageable at these historically low interest rates. If worldwide interest rates go up, we will be the exact same position as all of the homeowners who had adjustable rate mortgages.

      March 6, 2010
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      • Paul Zorn said:

        David:

        I don’t claim any special economic expertise. But your paraphrase—

        [Krugman] seems to be saying that we shouldn’t worry about whether America actually has money; we should worry about whether people think the country has money.

        seems to me not fully fair to what (I think … I don’t speak for others) K. is saying.

        If I’m right, K. would mainly agree with your first clause. Indeed, we shouldn’t worry unduly about whether America has money — it does have money. Present very serious problems notwithstanding we’re the richest country the world has ever known, with a huge economy and immense assets. Other rich countries, and we ourselves, have managed large debt in the past, and we can still do so — especially when debt is incurred as investment in wealth-producing things, like education.

        Re your second clause: I think K would say (i) yes, we should worry what people think of our debt; but (ii) the problem is not whether the US “has money” to repay debt, but whether we’ll have the political wisdom or courage to do what needs to be done to service debt, rein in spending, etc.

        March 6, 2010
      • David Ludescher said:

        Paul: The federal government is trillions of dollars in debt. Our goverments are worse than broke; they are sucking money out of private hands. Further, it has proven itself relatively incompetent to manage money. For example, it has no assets to back up the money it has taken for Social Security and Medicare. These programs are financial time-bombs.

        Frankly, there is nothing that leads me to believe that the federal government has the wisdom or courage to manage and service the debt, or to rein in spending. So, because our leaders don’t have the courage or wisdom to manage the problem, what would you or Krugman suggest next?

        March 6, 2010
  10. Paul Zorn said:

    David:

    I’ll intersperse some thoughts—without pretending to speak for that other Paul.

    You say:

    The federal government is trillions of dollars in debt.

    True. And it will hurt to reduce our debt. But keep in mind that our economy is on the order of $15 trillion per year. Our debt is large but not—yet—insupportable. It could, of course, get worse.

    Our governments are … sucking money out of private hands.

    A distasteful image … worse, I don’t get the point. Where would any government “suck” its money from if not from “private hands”?

    [The government] has no assets to back up the money it has taken for Social Security and Medicare. These programs are financial time-bombs.

    Both Social Security and Medicare have actuarial obligations, but they’re not peas in a pod, as what’s above suggests. This isn’t the place to discuss the differences in detail (there’s always Wikipedia, which has useful information on SS …), but SS-related problems seem to me much less worrisome than those related to Medicare. SS can be addressed for a long time with endurable pain (except in the political sense, where pain thresholds are low) by such things as raising eligibility ages.

    Medicare in particular and medical care in general are much bigger actuarial problems—and they’ll surely get worse if we refuse to talk seriously about nation-level approaches totaking control of our health system. The Democrats have made some halting starts at doing so. Republicans? Not so much.

    [N]othing … leads me to believe that the federal government has the wisdom or courage to manage and service the debt, or to rein in spending. … [W]hat would you or Krugman suggest next?

    Call me an optimist, but I don’t see things quite so bleakly. The “federal government” is not a fixed entity, like a person, with a fixed budget of courage and wisdom. True, we recently emerged from an 8-year run of ruinous recklessness, with high spending (much of it off-budget) and lowered federal taxes, especially for the rich. True, too, at the moment we’re running up debt even faster than before, but that’s largely attributable to the stimulus, some version of which seems to have been needed to prevent really catastrophic collapse. (That other Paul would have spent much more, by the way, and on some other things.)

    I see some chance that, after the current economic crisis passes, we might start morphing toward a more sustainable economic way of life. One good omen is that we now have a more pragmatic, reality-based administration than formerly. Or maybe we’ll have to wait longer.

    Either way, though, I see no long-run alternative to increasing the feds’ tax bite from the economy, which is now lower than average among rich countries, and could be more progressive than it is. We can’t, on the cheap, both invest in our own prosperity and make that “decent provision for the poor” that, as Dr.~Johnson is supposed to have said, is the true test of civilization.

    I’m ready to do my part. You?

    March 6, 2010
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    • Mike Zenner said:

      Paul,

      This new and different “pragmatic reality-based administration” you speak of must be from an online alternative reality game.

      compare past administration to present:

      Past Present
      illegal wars of aggression continued wars of aggression
      annual budget deficits >$300bil annual budget deficits >$1000bil
      prescription drug plan health care reform
      Gov stimulus plan $150bil Gov stimulus plan $787bil
      Wall Street gone rampant Wall Street still rampant w/taxpayer money
      created housing bubble trying to reflate housing bubble

      The difference is glaring in scale only, and maybe the guy behind the desk is now wearing a blue tie instead of a red one.

      March 7, 2010
      Reply
    • David Ludescher said:

      Paul: Another way to look at the debt is to remember that the government has no assets to support a debt. If we decided that we wanted to pay off the debt, we have no means to do so, except by taking money out of the government hands.

      I’m not sure that this administration is much different than the last. (See Mike’s comments below.) Simply put, the federal government is out of control.

      I sat on a local government committee which was considering things as silly as a tunnel under Highway 19 and a pedestrian bridge over Highway 3. These were incredibly expensive projects of little practical value. Why were we even considering these projects? We were considering them because we were trying to get federal grants that the federal government was giving away.

      March 8, 2010
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      • Paul Zorn said:

        David:

        You say:

        Another way to look at the debt is to remember that the government has no assets to support a debt. If we decided that we wanted to pay off the debt, we have no means to do so, except by taking money out of the government hands.

        Sorry to keep repeating a refrain … but I just don’t get your point. Are you saying that no government, ever, should borrow any money, for any purpose, because governments don’t have assets? And how can any entity, governmental or not, repay any debt or buy and good or service without taking money “out of its hands”? Explain, please.

        As for the rest, you asked what how I (and Paul Krugman) would deal with serious financial problems we face. I suggested that, among other things, government will probably need to increase somewhat its take from the economy, and that the operation is going to hurt.

        Paul K has not yet weighed in on what he’d do. What would you do (other than oppose tunnels and pedestrian bridges)? For instance, any thoughts on health coverage for the 10% of our fellow citizens now without it?

        March 9, 2010
    • David Ludescher said:

      Paul: I meant to say that the government has to repay the debt by taking it out of the citizens’ hands. Right now, the government is spending money without a clue how it is going to pay it back. And, that is only for the funded liabilities. The unfunded liabilities like SS and Medicare are much worse.

      As for the health care concerns now dominating Washington, most of the ideas floating around will only make matters worse. The real problem with health care – it costs too much. If it were cheaper, more people could afford to either pay for it or get insurance.

      One of my solutions would be to build a model similar to the legal system. In the legal system, if you can’t afford your own lawyer, you get a lawyer paid for by the state. And that lawyer only takes people who can’t afford a lawyer. The lawyer has incredible caseloads. But, they are knowledgeable, efficient, and can perform triage.

      March 9, 2010
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      • Paul Zorn said:

        David,

        You say:

        Right now, the government is spending money without a clue how it is going to pay it back.

        Seems to me that all governments everywhere borrow money with the same plan: to pay loans back through fees, taxes, and other incoming revenue. Some investments are wise and some aren’t, but there’s nothing necessarily “without a clue” about such thinking.

        Or maybe you just mean that we’re borrowing more than current government income can reasonably service. Fair enough, but keep in mind that one way to address such an imbalance is to boost incoming revenues — increase taxes and fees, in other words.

        If one believes that additional taxes and fees are self-evidently counterproductive, and that new government spending is always wasted, then there’s no discussion to be had. But such a view strikes me as simplistic. And it would obviate anything like the health care plan you propose for covering the poor.

        Still, I’m interested in your health care proposal:

        One of my solutions would be to build a model similar to the legal system. In the legal system, if you can’t afford your own lawyer, you get a lawyer paid for by the state. And that lawyer only takes people who can’t afford a lawyer. The lawyer has incredible caseloads. But, they are knowledgeable, efficient, and can perform triage.

        How far does the legal/medical analogy go? Would doctors-for-the-poor also have “incredible” caseloads? How would the poor with expensive medical problems be treated, or would they just be “triaged”? Would the rich with expensive medical problems have to bankrupt themselves and their families before getting pro bono medical care?

        Stuff like that.

        March 9, 2010
    • David Ludescher said:

      Paul: Additional fees and taxes are not self-evidently counterproductive. What is counterproductive is when the government is spending money that could be better spent in a free economy. Many government services, such as water, sewer, fire, police etc. are much cheaper when there is a monopoly.

      However, using taxes to build bridges to nowhere or even pedestrian bridges over Highway 3 are silly. On the federal level, both the Democrats and the Republicans are out of control. You don’t give your kid a larger allowance if he can’t live within his budget. The feds have the same problem.

      For that reason, I can’t support rasing taxes until the government is able to show some restraint. Local and state governments are hurting too. Every unit of government is going to need some help. I can certainly tell you that I have no interest in supporting a tax increase if it is going to be spent on a $500.00/foot bike trail.

      March 10, 2010
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      • Paul Zorn said:

        David,

        You say:

        What is counterproductive is when the government is spending money that could be better spent in a free economy.

        Agreed. Does anyone argue for spending more when we can spend less? The hard question is when money is indee “better spent” outside than inside the government.

        Many government services, such as water, sewer, fire, police etc. are much cheaper when there is a monopoly.

        Cheaper when there is a monopoly? Is there a missing “not”? Either way, I agree that fair questions arise here — except, perhaps, for the police. If we can outsource the police, why not the courts? Or the government itself, for that matter … boggles the mind.

        … using taxes to build bridges to nowhere or even pedestrian bridges over Highway 3 are silly.

        Agreed. Was this at issue?

        … I can’t support raising taxes until the government is able to show some restraint.

        Fair enough. How will we know when the government has met your restraint test?

        Meanwhile, any thoughts on the questions in 110.3.1 about your legal/medical analogy? In particular, is there a right to medical care analogous to our right to legal representation?

        March 10, 2010
  11. Ray Cox said:

    Paul, the debt is a huge looming issue. I believe, as many economists do, that we have arrived at a place in time where we actually do have to worry that people may not buy our debt. With the things happening in Greece, Iceland and other countries you can see how a ‘little blip’ on the debt confidence screen can create huge problems. We have never been in this debt position (without being in a World War) so it really is new territory.

    I do agree with you Paul that SS is the more manageable of the two mega, gigantic debt issues of SS and Medicare. The reason I say that is SS is fairly easy to deal with in actuarial terms and legislative terms, if we do in fact elect legislators with some spines.
    .-= (Ray Cox is a blogger. See a recent post titled Three Links Apartments) =-.

    March 8, 2010
    Reply
  12. Norm Vig said:

    Yes, there are deficit problems, but we are not Iceland or Greece. When people around the world want to invest in something secure, they still buy U.S. debt–even at extremely low interest returns. I agree that we have to put SS and Medicare on a more secure basis, but it means more revenue, not less. I hate this drumbeat from the right about deficits and national debt, especially since the Bush tax cuts and other spending is largely responsible for it. Every other developed country has been able to come up with a national health insurance system covering all–and most produce better health results than outs does–yet we somehow can’t bring ourselves to do anything about it.
    The proposed health care bill has at least a chance of controlling health care costs. Without it, health care will increasingly be priced out of the market for our citizens. The Republican alternative does nothing to control costs and would leave more and more people out of the system. This is just morally unacceptable in a modern society. We can’t just leave people to suffer and die without help in the richest country in the world. I’m sorry, there is no Christian or other religious tradition that would support that. Read Matthew 25 (the whole chapter) and see what the Bible actually says about helping the poor.
    We can’t predict when a health crisis will strike. My wife got cancer shortly after turning 65. These are not “lifestyle choices” or something–unless you think we can choose our genetic parents and grandparents. If we want to think of ourselves as a civilized society, we have to provide enough for the common good so that life and death issues are not just rationed by income.

    March 9, 2010
    Reply
  13. john george said:

    Norm, Ray, Paul, David- I may be mistaken in my understanding of SS, but I thought the whole concept behind this was that the current workers’ SS witholding is supposed to pay for the current retirees. The US Census data I could find indicated an approximate 15% growth in the work force between 1990 and 2010 (est.). The growth in the retirement age bracket was more like 30%. It appears that the discrepency in these demographics is exacerbating the SS & Medicare problems. The current tax rates are not sufficient to cover the increased costs associated with this section of the population. Had population growth and industrial growth been able to keep pace with the changes, I don’t think we would be facing the problems we now are. Even those who were able to attain financial independence through investments have seen their largess shrink or, in some cases, disappear. It seems that if we are going to have to extract a larger percentage of funds from the private sector to cover these costs, then somehow stimulating production and consumption would be the best policy. It appears that there is an increase in consumer confidence occuring right now, so that in itself should help cover some of the need. Whether it will be enough soon enough is yet to be seen. I’m not sure that the trillions of dollars we have “invested” to “rescue” some institutions are going to give us the return we really need. It is this scimitar of national debt hanging over the future generations that threatens confidence.

    March 9, 2010
    Reply
    • Paul Zorn said:

      John,

      See

      http://en.wikipedia.org/wiki/Social_Security_%28United_States%29

      for more on Social Security and its financial prospects. In particular, SS income has indeed exceeded outlays for around the last 30 years. This yearly cash-flow surplus is (says Wikipedia) likely to end soon, if it hasn’t already, but the SS trust fund (accumulated surpluses) and other resources are expected to last until around 2050 — assuming nothing else is done, which seems unlikely.

      March 9, 2010
      Reply
      • john george said:

        Paul- Thanks for the link. If I understand some of the reports correctly, this “…yearly cash-flow surplus…” cookie jar is what has been raided by various other program needs.

        I remember a news commentary by Paul Harvey about 28 years ago. He described the American economy as 12 people standing in a circle. Each man has his hands in his neighbor’s pockets, and they all think they are getting rich. Perhaps distribution is the key in these social needs.

        March 9, 2010
    • Mike Zenner said:

      John,

      Paul likes to throw the term “surplus” around but it’s merely an accounting gimmick that the SS trust fund and the Federal government are separate entities. The SS surplus is special non marketable government bonds that the federal government will soon have to start paying on. The only way for the federal government to do this is by raising taxes (SS or otherwise) or borrow(debt) more money though other government bond issues.

      From Paul’s Wiki link in the “trust fund” section:

      Social Security taxes are paid into the Social Security Trust Fund maintained by the U.S. Treasury (technically, the “Federal Old-Age and Survivors Insurance Trust Fund”, as established by 42 U.S.C. § 401(a)). Current year expenses are paid from current Social Security tax revenues. When revenues exceed expenditures, as they have in most years, the excess is invested in special series, non-marketable U.S. Government bonds, thus the Social Security Trust Fund indirectly finances the federal government’s general purpose deficit spending. In 2007, the cumulative excess of Social Security taxes and interest received over benefits paid out stood at $2.2 trillion.[78] The Trust Fund is regarded by some as an accounting trick which holds no economic significance. Others argue that it has specific legal significance because the Treasury securities it holds are backed by the “full faith and credit” of the U.S. government, which has an obligation to repay its debt. It is important to note, however, that while the Treasury guarantees the interest and principal payments it makes to the Social Security Trust Fund, the benefit payments made from the Social Security Trust Fund to American retirees have no guarantee at all.

      The Social Security Administration’s authority to make benefit payments as granted by Congress extends only to its current revenues and existing Trust Fund balance, i.e., redemption of its holdings of Treasury securities. Therefore, Social Security’s ability to make full payments once annual benefits exceed revenues depends in part on the federal government’s ability to make good on the bonds that it has issued to the Social Security trust funds. The federal government’s ability to repay Social Security, in turn, is contingent on fiscal policies taken today (which have tended to increase deficits and the percent of the budget spent on interest and principal payments) and in the future.

      Most likely scenario in a couple years will be higher SS taxes, extended retirement age and cuts in promised SS benefits.

      March 9, 2010
      Reply
      • john george said:

        Mike- Yes, I agree. I have a story about my father selling his $3000 dog years ago. At least he figured it was worth $3000, because he traded it to a fellow for two $1500 cats. Isn’t accounting wonderfull?

        March 10, 2010
    • john george said:

      William- That is a very interesting link. The only way to read the article is to pay for a subscription. Oh, well, I guess even the news people have to pay their expenses. Perhaps this is an example of how the US can get out of its debt- charge people for the services they use. It could be called user or access fees, so we wouldn’t have to use the dreaded “T” word. Wouldn’t that be revolutionary? Here all along we thought government services were free. As far as pay cuts to employees of government funded services, my wife has experienced that this last year, and it doesn’t look like things are going to get any better for some time. Even in my industry, I took a 25% pay cut last year alone. To add insult to injury, the witholding tables were changed to put extra cash in our pockets through the year. The result is a big tax bill for me this April. I had it figured out before how to come out about even between witholding and tax liability. Right now, retirement looks more like a mirage than a reality.

      March 10, 2010
      Reply
      • Phil Poyner said:

        John, I used to think that government doing something like pay-as-you-go for data was a good idea too. But then I saw the following report: http://www.nws.noaa.gov/sp/Borders_report.pdf It shows some of the economic advantages of making public data freely available, versus the Europian model where people must pay for the data (see page 5). I don’t doubt that having people pay for certain services would be advantageous, but some services actually help our economy more if they are free. So some cuts could end up being penny wise, but pound foolish…I guess the trick is to figure out which is which.

        March 10, 2010
  14. Ray Cox said:

    Mike, you are absolutely correct. SS has loaned billions of dollars to the federal government. SS is going to need those dollars back now to meet its obligations to the baby boomers. I have no idea how the US is going to finance a payback plan. We could do it through increased taxes of one sort or another….SS payroll taxes, general income taxes, capital gains taxes, a VAT and on and on. Or the govenment could figure out a way to try and borrow more funds from someone else. Or they could change the rules and alter the amount SS pays out. But either way they have to figure out something. Pretty soon we will be living on fumes.
    .-= (Ray Cox is a blogger. See a recent post titled Elevator finished) =-.

    March 10, 2010
    Reply
    • john george said:

      Ray- Here is an interesting link presenting one side of the argument for raising the income cap on SS payments, and you don’t have to subscribe to anything to read it.

      http://www.heritage.org/research/socialsecurity/wm667.cfm

      Now, a disclaimer. The Heritage Foundation is a conservative think tank, so they naturally are going to present an argument favoring private enterprise and small central government. From the reading I have done so far on this, it seems that both the Liberal and Conservative camps have their own think tanks with their own “experts.” Seems to me that it is very difficult to find a neutral analysis of the situation we are in, if there is indeed such a thing as a neutral analysis. It also seems that every aspect of our lives has been politicized, and the gulf grows ever wider with the current rise of populism.

      March 10, 2010
      Reply
  15. Paul Zorn said:

    Mike, Ray,

    Mike says:

    Paul likes to throw the term “surplus” around …

    Throw around? The word simply means the difference between income and outlay, and is used at least 7 times in the Wikipedia article.

    but it’s merely an accounting gimmick that the SS trust fund and the Federal government are separate entities.

    Has anyone asserted such a thing? Not me. What’s your point, Mike?

    Ray says:

    … Or they could change the rules and alter the amount SS pays out. …

    What “rules” do you have in mind, Ray? If Wikipedia (and Mike) tell us true, there are no payment rules.

    In any event, Ray, how do you suggest that “they” honor SS obligations?

    March 10, 2010
    Reply
  16. Mike Zenner said:

    Paul,

    Sorry, maybe I misunderstood your statement below:

    the SS trust fund (accumulated surpluses) and other resources are expected to last until around 2050

    To me your implying that there are funds stored away ((accumulated surpluses)your editorial?) that will carry the SS trust till 2050, which of coarse,as the Wiki link shows, is not the case.

    This may be true as far as “the trust fund” looks at it as an asset, with the underlying assumption that the taxing authority of the federal government assures repayment at whatever future tax levies. However, for the federal government, it’s tax payers, and fund recipients, it is an unfunded liability, requiring increased future tax revenues or spending cuts in other government programs.

    Therefore, as a taxpayer, and future fund recipient, I object to the term “surplus” when it referring to a future unfunded liability.

    March 10, 2010
    Reply
    • Paul Zorn said:

      Mike and others,

      Here’s a CBO discussion of long-term Social Security prospects (warning: the “s-word” appears often):

      http://www.cbo.gov/ftpdocs/96xx/doc9649/MainText.3.1.shtml

      Still, Mike’s concerns about SS future liabilities being “unfunded” strike me as well-founded — up to a point. Indeed, there’s no such thing as a Social Security “lockbox”, full of cash and gems and pieces of eight, ready to dole out to seniors when the time comes. (Remember the endless incantations on this subject from both candidates in, say, the Bush v. Gore election?) The SS trust fund, if I get it, consists of special IOUs — secured by the full faith and credit of the US — to repay money that has been and continues to be, in effect, borrowed by the Feds for its current operations.

      Whether this is good or bad economic practice, let alone good politics, is probably debatable. I’d be interested in a brief, scholarly reference … if “brief” and “scholarly” can be had in the same package.

      March 11, 2010
      Reply
      • Phil Poyner said:

        This is disappointing…I’m one of those people that was looking forward to being paid in pieces of eight.

        On a more serious note, I’ve yet to see a good reference on Social Security. By good I mean apolitical. It seems like each side come to the issue with a bias and simply collects information that supports whatever bias they initially adhered to. It’s very frustrating if what you’re trying to come up with is a no BS assessment of the health of SS.

        March 11, 2010
      • Paul Zorn said:

        Phil,

        Have a look at the Wikipedia site referenced above.

        http://en.wikipedia.org/wiki/Social_Security_%28United_States%29

        I have no expert opinion on the quality of its sources, and would never argue that Wikipedia is an unimpeachable source in general. But it does present a collection of arguments pro and con on various things to do with Social Security. The CBO (URL above) is also usually seen as a relatively disinterested referee.

        March 11, 2010
  17. Ray Cox said:

    Paul, the ‘rule change’ that I referred to is a simple legislative change in SS regulations. There are many that can be considered:
    * Raise retirement age
    * Raise the cap that earnings are taxed on
    * Include capital gains in SS taxable income
    * Change the formula that calculates how much SS is granted
    * etc, etc.
    I think it was during the Reagan administration when they increased the retirement age from 65 to 67. That was done to try and repair SS. But more repairs are needed if the country is going to remain solvent.
    .-= (Ray Cox is a blogger. See a recent post titled Elevator finished) =-.

    March 11, 2010
    Reply
    • Patrick Enders said:

      Ray, I particularly like your suggestions to consider:

      * Raise the cap that earnings are taxed on
      * Include capital gains in SS taxable income

      The SS tax is highly regressive. It only applies to the first $106,000 or so of income, and everything above that is SS-tax-free. It would be great to see that tax spread across the board as an even tax on all income (including capital gains), as was done with the Medicare portion of the FICA tax (which could also be extended to capital gains).

      March 11, 2010
      Reply
      • john george said:

        Patrick- Take a look at my link in 115.1. One thing to consider in raising the cap, to say $150,000, is that those people will be elligible for claims proportional to the ammounts they have paid in. One thing about people who make over $150,000/year is that they have the wherewithal to save more money toward their own retirement than a person making $75,000. The standard of living to which each aspires does have some bearing on what they can save, of course. So, when it comes time to cash in on SS payments, those with higher incomes, and supposedly less need, get a larger share. This does nothing to offset the money owed the larger population that is entering retirement age. The concept sounds good, but I don’t think it produces the needed results.

        March 11, 2010
  18. Patrick Enders said:

    John,
    I don’t think that the cap on payouts should be raised.

    March 12, 2010
    Reply
      • john george said:

        Phil- I don’t see the figures here being a whole lot different than the Heritage Foundation article. The telltale attitude behind this is expressed in the last paragraph of the article, “…In any case they can afford it…” It is this attitude that many people find odious no matter how much they make.

        March 12, 2010
      • Phil Poyner said:

        John, each person would read that differently, depending on which side of the issue you come from. I only saw it as a response to the equally absurd assertion that an increase in the wage cap was “soaking the rich” when they, as a group, were the only ones seeing true wage growth in the past decade.

        Regarding a cap on payouts, I don’t see why there has to be one. After all, when you reach higher levels on contributions the proportional amount of payout drops anyway. I’ve never actually seen the equation that goes into the calculations, but I know the difference in the amount of the payout between someone making $85K and $100K a year for the last 20 years before retirement is only about $100 a month. That’s just about enough to cover Medicare Part B.

        March 13, 2010
    • john george said:

      Patrick- This would involve ammending the law, since the pay-out ammounts are tied directly to the pay-in ammounts. My feeling is that when it comes down to it, the idea of increasing the tax rate on the upper eschelon of wage earners is driven as much by jealousy as anything.

      March 12, 2010
      Reply
      • Paul Zorn said:

        John,

        Yes, this would require amending some law. That’s not necessarily a huge hurdle, a la amending the Constitution, in this case — there have been many amendments to the Social Security act over the years. Whether any particular amendment is wise is, of course, a different question.

        Then you say:

        My feeling is that … the idea of increasing the tax rate on the upper echelon of wage earners is driven as much by jealousy as anything.

        Is this “feeling” driven by any data, or just by the general sense that envy is a near-universal human failing? Speaking of which, might greed play any role in the “upper echelon”‘s reluctance to pony up for their less fortunate?

        With respect … it seems a bit presumptuous for you to ascribe morally blameworthy motives so freely. The notion of progressive taxation for public purposes is hardly a fringe-y idea

        March 14, 2010
      • john george said:

        Paul Z.- I wasn’t inferring that a change in the law would be difficult, or even unwise, for that matter. It is just something that would need to be done for a rise in the SS salary cap to be effective for the people who really need it. As far as my “feeling” about this, it is just that- a feeling, or opinion, perhaps. It comes from the various inferences used in the liberal based studies. To say the rich need to pay their “fair share” infers that they are not doing so at this time. How do you determine a “fair share?” If everyone is taxed at the same percentage rate, then EVERYONE pays their fair share. It is an equal proportion of their total income. That is not happening now, with the earnings cap, and I have no problem lifting that as long as the payout formula is adjusted. The problem I have with progressive tax rates is that higher wage earners pay a larger percentage of their income as taxes. What makes this “fair?” Just the fact that they can “afford to do so?” That attitude does not seem to be based on any particular objective set of figures, unless everyone lives at the same economic level, such as what was tried under Stalinist style Communist Socialism.

        March 14, 2010
      • Paul Zorn said:

        John,

        You say:

        The problem I have with progressive tax rates is that higher wage earners pay a larger percentage of their income as taxes. What makes this “fair?” Just the fact that they can “afford to do so?”

        We’ve had this discussion before … . Briefly, you seem to think it self-evident that “fairness” requires everyone to pay the same tax rate, but this is far from obvious. It’s equally arguable (though practically untenable) that fairness requires everyone to pay the same amount. Or perhaps the rich, who benefit the most from society’s investments, should fairly pay a higher fraction than the poor, who barely scrape by.

        And then this:

        [Preference for progressive taxation] does not seem to be based on any particular objective set of figures, unless everyone lives at the same economic level, such as what was tried under Stalinist style Communist Socialism.

        I should probably just ignore the gratuitous, vergin-on-offensive reference to three (a hat trick!) bogeymen of conservative demonology. But do you really see progressive taxation, Stalinism, communism, and socialism as peas in a pod?

        Uff da.

        March 14, 2010
      • john george said:

        Paul Z.-No, I do not. Russian Socialism and Communist Chinese Socialism are the only two societies that come to mind where “equality” was associated with economic postion, and which was enforced by the government. Fortunately, the US does not embrace that philosophy, nor has it ever. This is just two different ideologies of how a nation might be financed. Neither are complete, IMO. What I read of Biblical admonitions to the use of money is to give it away. Having this coerced upon an individual by the government is a way to see that the concept is enforced, but it does not change a man’s heart, but that is another subject entirely. Take a look at the second link I addressed to Norm Vig. It is by a conservative analyst, but his numbers appear accurate. The analysis of those numbers is the point of discussion.

        March 14, 2010
      • Paul Zorn said:

        John,

        Russian Socialism and Communist Chinese Socialism are the only two societies that come to mind where “equality” was associated with economic position, and which was enforced by the government.

        The Soviet and Communist Chinese models (btw, socialism and communism are not identical) may have paid lip service to economic equality when it was convenient to do so. In practice, neither government came anywhere near “enforcing” equality.

        Fortunately, the US does not embrace that philosophy, nor has it ever.

        Indeed. How, then, do you see Soviet and Chinese models as relevant to this discussion? Wouldn’t, say, the rich-but-somewhat- redistributive Scandinavian model be more apropos?

        <blockquote
        This is just two different ideologies of how a nation might be financed. …

        Yes, but there’s a lot of room between us and Stalinist totalitarianism. Let’s stay focused on live questions.

        What I read of Biblical admonitions to the use of money is to give it away. Having this coerced upon an individual by the government is a way to see that the concept is enforced, but it does not change a man’s heart, but that is another subject entirely.

        Yes, it is another subject. And I’m far(!) from wanting the government to enforce Biblical admonitions across the board. I hope you’ll apply the same parsimony principle in other areas, like gay marriage.

        Take a look at the second link I addressed to Norm Vig. It is by a conservative analyst, but his numbers appear accurate. The analysis of those numbers is the point of discussion.

        I haven’t checked the veracity of the numbers, but have no reason to doubt them. As you say (more or less …) the devil is in the analysis. This analysis is not so much incorrect as incomplete: it ignores other important numbers, like the proportion of income received by the top brackets, and the fact that federal income tax is by no means the only tax out there.

        The big tax picture seems to be that state and local taxes in the US are mildly regressive, and federal taxes are mildly progressive. And yet, somehow, Stalin, Marx, Mao, and Kim Jong-il remain at bay.

        March 15, 2010
      • Phil Poyner said:

        Some of the holes in the information that Paul pointed out can be filled by using effective tax rates (EFT) rather than something like income tax rates. For federal EFTs, see: http://www.cbo.gov/ftpdocs/57xx/doc5746/08-13-EffectiveFedTaxRates.pdf
        or a simpler version that covers 1979-2006 at: http://www.taxpolicycenter.org/taxfacts/Content/PDF/effective_rate_historical_all.pdf

        For state and local EFTs see: http://www.taxes.state.mn.us/legal_policy/other_supporting_content/2009_tax_incidence_study_links.pdf
        particularly table 1-8.

        By seeing what types of taxes are paid by each economic segment of our population, you get a better sense of what segment of the population is effected by tax law changes. It makes it easier to get more information out of articles such as this one: http://www.msnbc.msn.com/id/35822798/

        March 15, 2010
  19. Ray Cox said:

    Patrick, I don’t think there would ever be enough ‘horsepower’ in Congress to completely eliminate the cap on SS tax payments while at the same time leaving the cap in place for benefits. SS has a standard formula that has always linked the two together as far as I know. John’s comments in 118.1.1 are the base of what I believe the government bases the tax cap on.

    I also think it is very important for people to remember the fable about the goose that laid the golden egg. If we think we can solve all our economic problems, in Minnesota and Washington, by tapping into the goose, or rather, trying to force the goose to increase egg production, it will not work. Too many of the geese will decide to save the golden eggs they have and retire.
    .-= (Ray Cox is a blogger. See a recent post titled All Flex) =-.

    March 13, 2010
    Reply
    • john george said:

      Ray- Unfortunately, either way, our goose may be cooked!

      March 13, 2010
      Reply
    • Paul Zorn said:

      Ray,

      The goose metaphor is fun. True to type, a lot of our “geese” even fly south for the winter.

      Still, I think this (my emphasis) —

      If we think we can solve all our economic problems, in Minnesota and Washington, by tapping into the goose, or rather, trying to force the goose to increase egg production, it will not work.

      somewhat caricatures the problem (as most amusing metaphors do, I admit). For one thing, I don’t think most people advocate that we solve all problems by cooking our geese.

      For another, the image of helpless geese being starved by heartless farmers seems somewhat at odds with the amply demonstrated fact that the rich are getting richer, not poorer. If there is danger to our geese, it may come more from force-feeding, as the French do it, than from starvation.

      , anyone?

      March 15, 2010
      Reply
      • Paul Zorn said:

        Somehow the last line dropped out of the posting above. If it fails again I’ll take it as a rebuke for pretentiousness. Here goes …

        Foie gras, anyone?

        March 15, 2010
      • john george said:

        Paul Z.- I really don’t care for gras, whether it comes foied or not.

        March 15, 2010
  20. Norm Vig said:

    John and Ray, when you talk about class “envy” and lack of incentive to invest if taxes are raised, you have to remember that the Bush tax cuts of 2001 and 2003 benefited mostly the rich. It was a lost decade for most people–median family income went down 2000-2009, but those in the top 10% (especially the top 5% and 1%) had big income gains over the decade. They seemed to have incentive enough to invest before 2001, so why not restore the previous tax rates? Why are we so afraid of how the rich might react to a more progressive tax? Whose goose has been cooked, anyway?

    March 14, 2010
    Reply
    • john george said:

      Norm- I found some interesting figures from 2006 in this Wiki-pedia link, for what it is worth:

      http://en.wikipedia.org/wiki/Income_in_the_United_States

      These are 2005 figures, according to the table. I think it is interesting that in that year, only about 7.5% of all households aspired to six figure incomes. Somehow, that doesn’t seem like a very large portion of the population to go after to fill in the need for the other 92.5% of the population. Would the $$ ammount of increased taxes on this segment produced be worth the extra effort? That question might be answered by this article link:

      http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

      Again, I posite that the answer would vary by which “experts” a person quotes.

      March 14, 2010
      Reply
      • Norm Vig said:

        John,
        I don’t know which numbers you were referring to, but here are a couple of excerpts from the online sources you cited:

        The aggregate income distribution is highly concentrated towards the top, with the top 6.37% earning roughly one third of all income, and those with upper-middle incomes control a large, though declining, share of the total earned income.[3][9] Income inequality in the United States, which had decreased slowly after World War II until 1970, began to increase in the 1970s until reaching a peak in 2006. It declined a little in 2007…

        While the median household income has increased 30% since 1990, it has increased only slightly when considering inflation. In 1990, the median household income was $30,056 or $44,603 in 2003 dollars. While personal income has remained relatively stagnant over the past few decades, household income has risen due to the rising percentage of households with two or more income earners. Between 1999 and 2004 household income stagnated showing a slight increase since 2004.

        I haven’t looked up hard information on the distributive effects of the Bush tax cuts, but I remember reading that something like half of the benefits (in terms of absolute tax savings) went to the upper 1-2% of taxpayers. Of course, they would tend to since those people have the highest incomes to start with. But if you combine the capital gains tax cuts with the income tax cuts, I’m pretty sure that those at the top got most of the reductions. That’s why liberals talk about a huge upwards redistribution of income. The Wiki article said income inequality peaked in 2006, but there may be more recent figures. Anyway, I don’t think it can be disputed that the wealthy got far more benefit from the 2001 and 2003 tax cuts (both passed through reconciliation) than did the middle-class taxpayer.

        In terms of the macroeconomy, these tax cuts contributed to both budget deficits and to the real estate bubble (lots of capital gains there). They did not produce either lasting growth or fiscal stability. So why are you guys so opposed to any tax increases?

        March 15, 2010
      • Phil Poyner said:

        Norm, just to be a troublemaker I’d like to add a couple of reports.
        The first has to do with relative economic mobility: http://www.economicmobility.org/assets/pdfs/EMP%20American%20Dream%20Report.pdf
        The second has a nice section on intergenerational economic mobility: http://www.americanprogress.org/issues/2006/04/Hertz_MobilityAnalysis.pdf
        I find it somewhat interesting to consider that if I want my kid to do better than I did, I might want to consider moving to “socialist” Denmark!

        March 15, 2010
  21. Ray Cox said:

    Folks, it is important to make a distinction between income taxes and capital gains taxes. Many of the really, really wealthy have somewhat modest incomes (but way, way largerthan probably anyone reading this) but they have significant capital gains income. What fuels America is investment of dollars. No one can build a building, create a factory, or farm land without investing capital in the effort. The more capital we have to invest in our economy, generally the better off we all are. I don’t want to see the government (continue to) be the investor for capital. One needs to remember that if we pull out X thousands or millions of dollars from a wealthy person, it will never be invested in our economy.

    As far as who pays what, the charts and articles are indeed interesting…thank you. In Minnesota I believe about 40 to 45 percent of our population pays no income taxes and in fact through the Earned Income Tax Credit they pay no taxes but get a check from the government for the estimated value of taxes (sales, gas, fuel, etc) taxes they have paid.
    .-= (Ray Cox is a blogger. See a recent post titled New Window) =-.

    March 15, 2010
    Reply
    • Paul Zorn said:

      Ray,

      The tables Phil cited suggest to me that, as you say, 40 to 45 percent of Minnesotans effectively pay no income tax. So Minnesota income tax is indeed progressive, at least at the low end. Well done, Minnesota.

      But it hardly follows that the larger state tax system, of which income tax is just one part, is equally progressive. Indeed, the same tables indicate that total Minnesota (state and local) tax incidence for the second income quintile in 2006 was about 11.5%; for the top quintile the corresponding figure is around under 11%, and for the tippy-top decile the figure is even lower, just over 10%. Not so well done, Minnesota.

      March 15, 2010
      Reply
  22. Norm Vig said:

    Phil, thanks for the informative articles. They seem to show that upward mobility (including intergenerational mobility) has declined substantially in the U.S., except at the top. More striking, they show that upward mobility is considerably lower in this country than in several others. They also seem to underline the relative economic decline (and increasing insecurity) of the middle class in this country. None of this is due only to the Bush tax cuts since some of these trends go back 25-30 years; but the Bush cuts certainly benefited the wealthy much more than those on the bottom. It is true, as Ray says, that a lot of people in the lower half of the economy don’t pay any (or significant) income taxes. But why is that? Why do they earn so little income? I don’t think it is because they are lazy or necessarily incompetent, but because our economic system distributes income so unequally. In fact, I think we rank at the top in the GINI index (that’s the index of national distributional inequality). Check it out.

    March 15, 2010
    Reply
    • john george said:

      Norm- This is just my observations, no $$ fact links, but how much do you want to pay for a Big Mac? For those folks to make a living wage, it will raise it quite a bit from where it is. Also, I work in the furniture industry. Unfortunately, many of our manufacturers have gone to off-shore production. Would you be willing to pay $1500.00 for a dresser made in North Carolina as opposed to $700.00 for one made exactly the same way in China? My contention, and it is mainly my opinion, although I have seen figures to support it, that until we get our manufacturing processes back on shore, we are going to have a hard time paying living wages to the employees. I have heard much spin about the greed in management and manufacturing that leaves just crumbs for the employees, but I think we are all guilty of bringing the economy down around us when we buy products made with cheap foreign labor rather than support our friends and neighbors in their businesses. This could also be said for internet shopping. I don’t do this, but I know my wife orders clothing items on line (no local suppliers in this case) which sends money outside the state, and probably outside the country. What do we actually save in the long run by bypassing our local businesses? I know my health insurance program pressures me to buy from their on-line source for my meds, but I absolutely refuse to do it. I still prefer doing business face to face with someone, especially when it comes to my health issues. Sorry about this long tirade, but this subject exercises me, as my fellow blogger Paul Z. would say.

      As far as people in lower income brackets not paying any taxes, are suggesting they should be paying? Or, are you still suggesting the upper income bracket does not contribute its “fair share,” and should be paying in more? I just have a hard time pointing an accusatiory finger at people who make a large income off a business they have risked their wealth, life and families to build.

      March 15, 2010
      Reply
  23. Norm Vig said:

    John,
    I agree with you that the stagnation in American wages and income are due in part to the decline of manufacturing, thanks to offshore sourcing to low-wage countries. I am not pointing fingers at anyone in particular, but the fact is that the top brackets have made off like bandits while others are not sharing in productivity increases, etc., as one of Phil’s articles showed.

    I also admire your efforts to buy locally and help the local economy. However, it is true that as a nation, income (and even more, wealth) is distributed more unequally than any other developed (say, OECD) country and moreso than in many developing countries as well. This was true even before the globalization of the past 15-20 years. So the rules of our system, including the tax system, seem to favor unequal accululation more than those of any other developed country.

    The Gini coefficient is complicated–maybe Paul can figure the mathematics out– but it does seem to show that our system distributes wealth very unequally, and increasingly so. See the tables and graph in the following Wiki article:

    http://en.wikipedia.org/wiki/Gini_coefficient

    Yes, I would to pay more for a Quarter Pounder if the money went to the workers.

    March 15, 2010
    Reply
    • john george said:

      Norm- I agree with the observation that wealth is distributed unequally in this country. Equality of distribution (sameness?) supposes that each individual is contributing the same value in labor and expertise into the GDP. How we are going to change this is where the debate is. The Liberal/Socialist camp has taken the position that the Federal Government is best equiped to do this. The Conservative/capitalist camp has taken the position that private enterprise and competition is the best way to do this. I believe that neither camp actually has the whole answer. There must be a balance between enough government to regulate greed and distribute resources to those in need (I don’t think that has actually worked well in the past, but that seems to be a goal) and enough private enterprise to support this plan. That is where the differences in political approaches lie. It seems that in the middle of the last century, there was a sense of cooperation between the political camps to at least have some agreement on this balance. Over the last 40 or so years, it seems there has been a polarization of the sides to the point where hardly anything productive can be accomplished. I have my opinions on why that has happened, but not many here would probably agree with them. Either way, I think this stalemate in governance has contributed to the belief, held by an increasing segment of the population, that ALL government is inept and a waste of money. That opinion is short sighted at best and just plain wrong at worst. One thing that would help is a charismatic leader that could work to unite these opposing camps. I actually thought Obama might be able to do that. Now, I am of the opinion that no one short of the Messiah will be able to accomplish that. So, like the musicians on the Titanic, we continue to fiddle while the boat is going down. Agreement and compromise doesn’t necessarily mean that all the give comes from one side. Also, to desire the failure of whomever is in power in the government is to desire failure for the whole country.

      March 15, 2010
      Reply
    • john george said:

      Norm- One additonal thought on the Quarter Pounder, one good place to start would be to at least get the beef from Midwest farmers. Parity is one agriculture program that at least attempts to level the playing field between offshore producers and the American farmer. Protectionism? Perhaps it is time we begin to protect ourselves more than just millitarily.

      March 15, 2010
      Reply
  24. Norm Vig said:

    John,
    That was a good statement (124.1) and I don’t disagree with the idea of balance. We are not socialists here, whatever the Tea Baggers may say. But what I was pointing out is that the U.S. is at one extreme (the unequal) among all wealthy developed countries. That is probably due to our tradition of individualism, but it may not be where most people would prefer to be. There is a lot of room between us and, say, Sweden. Canada is a good example.

    Unfortunately, as you say, our politics have become so polarized that we are paralyzed in dealing with most problems. I have to say (and you probably won’t agree with this) that I blame mostly the conservatives who have taken over the GOP. Have you noticed that since 2006 the Republicans almost always vote 100% for the party line? It reminds me of the old Supreme Soviet when I used to teach Russian politics….every member raised their hand at the same time, just as we see in N. Korea today.

    It was very different 20 (actually 19) years ago when I was working for Paul Wellstone in the Senate. Paul made friends with many of the Republicans, including some of the most conservative: people like Orrin Hatch, Ted Stevens, and yes, even Jesse Helms after his initial blowup at him. Paul used to tell me that he had more personal friends on the other side of the aisle than on the Dem side. David Brooks commented well on this in his column this morning:

    http://www.nytimes.com/2010/03/16/opinion/16brooks.html?hpw

    I admit we used the filibuster once. Our staff organized a filibuster against bringing George H.W. Bush’s energy bill to the floor because it contained a provision allowing oil drilling in the Arctic National Wildlife Refuge. We prevailed on Nov. 1, 1991, and the bill went back to committee. Three months later, in February 1992, the bill passed easily (the Energy Policy Act of 1992) without the ANWR provision and with somewhat stronger support for renewable energy. I am not sorry we did it; otherwise ANWR would be full of oil rigs today. But the point is, it was still quite easy to compromise because members knew each other and could work together. The ideological barrier and lock-step party voting today is completely different.

    March 16, 2010
    Reply
  25. Ray Cox said:

    I think John makes a very, very important statement when he says

    “I just have a hard time pointing an accusatiory finger at people who make a large income off a business they have risked their wealth, life and families to build.”

    I would like to see how many of the readers of this website and others in Northfield would feel if everything they owned was suddently taken away due to a downturn in the economy. That is what has happened to hundreds of amall business ownerss…from building contractors to restaurant owners to florists… all across the country. They all signed personal guarantees when times were going good, pledging all their assets to the banks and finance companies. When things hit the skids the financiers came calling.

    My question for Norm is: What return is adequate to risk everything you own as you create jobs and try to make a living? How much more should the government take from you in the form of taxes? (Remember taxes are taken as the first dollar out of a business, not the last.)
    .-= (Ray Cox is a blogger. See a recent post titled New Window) =-.

    March 16, 2010
    Reply
    • Paul Zorn said:

      John, Ray,

      I think you overstate the case, John, with talk of “pointing an accusatory finger” and putting one’s life at risk. Whose “accusatory” fingers do you see “pointing”, and whose lives are at risk? Taxes, large or small, are not “accusations” in my lexicon.

      All rhetoric aside, I think your observation, Ray, that small business owners are hurting, perhaps disproportionately, in the present economy is right on, and I doubt that many “readers of this website” would disagree.

      How we should react to this as a society is a good question, and tax treatment of people who are hurting — whether small business owners or not — should reflect their condition. And the matter is surely complicated for small business owners, whose personal and business lives are, apparently, often intertwined. (Presumably this sometimes works to owners’ advantage as well … but we’re talking now, not then.) Perhaps tax codes can/should be changed to disentangle these things.

      This—

      What return is adequate to risk everything you own as you create jobs and try to make a living?

      too is a good question. I’d be very interested to know how you, Ray, would answer it. Should government back-stop risky investments? If not, how would you recommend that government help with this problem?

      March 17, 2010
      Reply
      • john george said:

        Paul Z.- The “accusation” is that the very rich do not pay enough of their wealth in taxes. Again, my question is- What is enough? Also, if you take a look at Bill Gates as just one example, he has bypassed the government to give directly to the areas of need. When you make that much money, I suppose you don’t have to rely upon the government to find a way to distribute it.

        March 17, 2010
      • Paul Zorn said:

        John,

        I guess you and I use words like “accusation” differently. Yes, I do think that taxes should be more progressive than they are — which implies that the very rich could and should pay more than they do now — I don’t “accuse” anyone who ponies up what the law requires. My beef is, in some sense, with the law, which I think should give greater weight than it does to ability to pay.

        How much, you ask, is enough?

        I like “how much?” questions, but this one is more complicated than one number or percentage can fully answer. What kind of answer are you, John, looking for? A maximum number of dollars? A maximum percentage of income?

        Whatever the form of the question, it’s complicated because, for one thing, the answer depends on things we can never predict in advance. Who knew, for instance, that we’d incur immense expenses associated with Iraqi and Afghan wars? And future costs of medical care—with or without any possible changes now in the offing—are both huge and impossible to predict with confidence.

        The question depends, too, on what you or I mean by “enough”. We may disagree, for instance, on how medical costs should be paid in the society. (As you know, we now have socialized medicine for one large group, self-financed medicine for another, and little or no medical coverage for still others.) Given that we now spend around 15% of our economy for medical care, the government’s role in paying makes a big, big difference to “how much is enough”.

        So much said, I’d venture a few numbers. Government at all levels now spends something like 30% of our economy. If health care changes come about, as I hope, this figure will presumably rise, but with the offsetting effect of individuals spending less than they now do on health care. If, say, the 30% figure rises to 35%, then the additional money would have to come from somewhere, and a good portion of that would have to come from income taxes. I’d estimate that, to accomplish this, income tax revenue at all levels of government would need to rise by something like 15%. (If you now pay 20% of your income in income tax, for instance, a 15% increase would take that rate to 23%.)

        So … there are some numbers, for what they’re worth. How much do you think is “enough”?

        March 18, 2010
      • john george said:

        Paul Z.- I am glad to see that you are in the same conundrum as I. Neither one of us has a good idea of what is enough for this “super rich” few percent of the population to pay, and how to even go about determining that ammount. If we approach the need from this standpoint, as just an example, and hold the 95% of the population that makes less than a quarter million/yr. at the present levels, but increase the tax rate on the other 5% to cover the billions of dollars we are short in the budget, that would be one method. But, what would this do to the economy? I suppose the likes of Bill Gates and Warren Buffet could handle this and still have something left to live on. I read an opinion in another thread on this blog that went something like this- Just because someone has a right (or ability) to do something, that does not make it right. I thought that was a rather profound statement, and one that could be used in about any situation where there are opposing views.

        Did you get a chance to read this article on this link I posted in 121.1, and I repost here?

        http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

        I think the writer makes some observations that have merit.

        March 18, 2010
  26. Norm Vig said:

    Ray, I don’t know what a fair return on risk is; I guess it depends on what kind of business you’re in, and how risky it is. I know that small business has taken a terrible beating during this recession, and I certainly sympathize. I don’t care how much money people make, but I do think those who make a lot should pay at least as much (and I would say, progressively somewhat more) than the average taxpayer.

    I heard last night that the health care bill about to pass Congress (maybe) contains a 35% tax cut for small business. The jobs bill that has passed (with bipartisan support!!!) also contains tax credits for employers who hire new workers. Maybe these will help. Hang in there, we all have the highest respect for you.

    March 17, 2010
    Reply
    • john george said:

      Norm- I response to your comment-
      “I don’t care how much money people make, but I do think those who make a lot should pay at least as much (and I would say, progressively somewhat more) than the average taxpayer.”
      according to the figures, they presently do. How much more are you suggesting they pay?

      March 17, 2010
      Reply
      • Norm Vig said:

        The top rate has been much higher in the past than it is now. I am not suggesting it should go back to the highest levels, but I do think the Bush tax cuts were unwise and should be allowed to expire. Let’s also remember that a lot of corporations and wealthy people (and I am talking about the really rich) pay little or no income taxes because of loopholes in the tax codes that allow them to shield their assets. People in other countries seem to be able to bear higher tax burdens and still have incentives to invest (not to mention providing universal health care, etc.)

        March 17, 2010
  27. Ray Cox said:

    I’m not going to go into great detail about how business taxes and personal taxes work, but one of the major problems with the ‘tax the rich’ mentality is that most of the ‘rich’ are not really rich. The vast majority of jobs in America are created by small business owners. By far and away most of these owners are organized as LLC’s, Sub-chapter S corporations, or LLP’s. In each case every dime of earnings flows through to the personal income tax return. But in many, many instances the dollars are not really there, and/or the dollars are being put to use to grow the business and keep people working. So a business owner who shows $250,000 of income might actually take home $75,000 of income….but pays taxes on the full $250,000. Taking another $25,000 of taxes from this person will simply push them to close shop. I’d much rather see these people stay in business, keep their employees working and paying taxes, and not try to chase them away.

    The whole percentage tax rate is something that should be put aside. High earners in Minnesota pay considerably more in income taxes than low earners….period. I will never buy into the rhetoric that adds in estimated amounts paid for real estate taxes, sales taxes, gas taxes, insurance taces, etc. etc. and arrives at the percentage figures that show that the ‘rich’ are not paying enough. With the exception of income taxes, virtually all our other taxes are optional. If you don’t want to pay real estate taxes, then live in a modest home. If you don’t want to pay cigarette taxes then don’t buy them. If you don’t want to pay gas taxes then walk or ride a bike. But we need to quit trying to use percentage of income as a basis for looking at taxes.

    Paul, my answer to you on what we can do to help our business is two things: 1) don’t enact new tax burdens and 2) don’t enact all sorts of new regulations. Let our businesses grow and flourish if they can. I am not advocating for reducing any taxes. As I did when serving in the legislature I’m fine leaving our taxes as they are. I have less of a problem increasing direct benefit fees if that is needed, as fees are typically related to optional activities (smoking, hunting, fishing, etc). But our tax structure seems fair as it is. However, we then need to create spending budgets that are in line with our revnue…something the legislature has failed to do in recent years.
    .-= (Ray Cox is a blogger. See a recent post titled New Window) =-.

    March 17, 2010
    Reply
    • Randy Jennings said:

      Ray,

      Maybe you should go into more detail about your scenario. It is probably theoretically possible that a business owner might generate $250K in revenue with no offsetting expenses or deductions, but it is highly unlikely that he or she will pay taxes on every dollar of revenue. In your example, whatever caused the revenue to shrink from $250K to take-home pay of $75K were probably deductible costs of doing business. If that business owner was paying taxes on every dollar of revenue, he or she needs a new accountant, not tax relief.

      March 18, 2010
      Reply
  28. William Siemers said:

    Ray…regarding your example…”But in many, many instances the dollars are not really there, and/or the dollars are being put to use to grow the business and keep people working. So a business owner who shows $250,000 of income might actually take home $75,000 of income….but pays taxes on the full $250,000. Taking another $25,000 of taxes from this person will simply push them to close shop.”

    As you know wages and salaries are above the line expenses. Maybe the owner invests in a piece of equipment or machinery, or a building, or buys a competitor out, in order to ‘keep people working’. But that is a choice and an asset that is then owned and can be depreciated. Alternatively, the same equipment, machinery etc. can generally (at least before the credit crisis) be leased, and the use then expensed as well. It’s up to the owner.

    Most of the comments here have been about rolling back the Bush era tax cuts. I agree with that. Many small businesses were thriving prior to those cuts…I don’t think that removing them will cause the sky to fall for small business.

    Otherwise, I agree about the pretty much meaningless ‘tax inequality’ per centages. The lowest ‘quintiles’ supposedly pays a greater per centage than does the highest quintile. The way this is calculated is very creative: sales taxes and corporate taxes make up the majority of the lower quintiles percentages. But in MN, food and clothing are not taxed, so what are the poor paying these sales and corporate taxes on? Furthermore, I don’t see how the compilers of this list can assume that all corporate taxes are passed on to begin with.

    I think we can go back to pre-Bush era federal income tax rates without disrupting the economy in any significant way. Maybe the increase could be phased in to appease the right about potential negative effects. But let’s mute the rhetoric about addressing ‘fairness’ for the poor in the tax code. We have many programs to address absolute poverty. Reducing, if not eliminating, absolute poverty should be a continuing goal of society. Relative poverty is another matter. The poor will always be with us. Income inequality is part of the economic system. One might say it’s the basis of the system. We need a tax increase on the richest folks to reduce the deficit, not to eliminate the ‘unfairness’ of being relatively poor.

    March 18, 2010
    Reply
  29. I think we can reduce the need to tax so much. Govt systems are terribly inefficient bloated things that need to have efficiency experts go over with a fine tooth comb, or a big toothed comb would do also. I am not talking about the protective services, but the office stuff is real torture, slow, everlasting, mind numbing torture to both the govt employee and those they serve. I am all for creating jobs, but let’s create jobs that have a innate purpose towards improving life for all of us, rich or poor. How about it? Any courses being offered, any retired people looking to help us out with free classes? Any articles being written? Anyone? Anyone at all?

    March 18, 2010
    Reply
  30. Paul Zorn said:

    John,

    In 126.1.3 you say:

    Paul Z.- I am glad to see that you are in the same conundrum as I. Neither one of us has a good idea of what is enough for this “super rich” few percent of the population to pay, and how to even go about determining that amount.

    I don’t fully buy this paraphrase of my supposed views. I guess I don’t feel quite as clueless as this might suggest.

    Yes, taxation poses difficult questions, including yours: how much should the top 5% pay? But the difficulty arises less from any mathematical complexity than from the ill-posed nature of the problem (I asked for some clarification above, and didn’t get it) and from irreducible uncertainties about the future.

    None of this implies, however, that we should just throw up our hands in defeat. Doing nothing, after all, amounts to doing something — what we’re doing now. I believe, as I’ve said, that adding some progressivity to our tax system is a good thing — even if nobody can say exactly how much progressivity would solve all of our problems forever.
    More …

    If we … hold the 95% of the population that makes less than a quarter million/yr. at the present levels, but increase the tax rate on the other 5% to cover the billions of dollars we are short in the budget, that would be one method.

    I hear the rustling of a straw man. I’ve never recommended, and don’t plan to soon, that these favored few solve all our problems, even if they could. But they (and I, who am not in this category) could do more than they/we do without undermining the foundations of capitalism.

    You ask:

    Did you get a chance to read this article on this link I posted in 121.1, and I repost here?

    Yes, and I commented on it above, to the effect that it addresses only income taxes. The big picture is … uh … bigger.

    March 19, 2010
    Reply
    • john george said:

      Paul Z.- You did not give me any firm figures, either $$ ammounts or % of income, that you think would be fair. That is the only point at which we both are. I don’t have a definite figure, either. The example I gave, re. just increasing the rate for this income level, was just that- a point of discussion. To say we are giving up by doing nothing is to suggest that the whole government will discentigrate around us if we don’t raise the taxes on the rich. They are paying 28% now, so I don’t believe this is an accurate result of making no changes to the tax code. Would you prefer 35%? 40%? 50%?

      As far as what the article investigated, there was more than just income tax adjustments with the Bush proposal. It included different rates on capital gains, also. The figures are in there. The result of this was a net increase in tax revenue, not a decrease, so to say the Bush tax cuts ruined the country and the economy is not really accurate. The thing he failed to do was curb the growth of government spending. Reagan was able to accomplish this, so his cuts worked. Bush’s would have worked, also, had the size of government growth during his presidency not outstripped the increase in tax revenue.

      Also, regarding your request for clarification, I’m sorry, but I’m not understanding what you are asking me to clarify.

      March 19, 2010
      Reply
      • Norm Vig said:

        John, I wonder where you get those numbers that show that the Bush tax cuts led to an increase in revenue, not a decrease. In her commentary on Congressman Ryan’s proposals in this morning’s Strib, Rep. Betty McCollum suggests the opposite, as have most accounts:

        “As for how Ryan would reduce the deficit, he thinks providing hefty tax giveaways to the wealthiest Americans is a good idea. According to the Tax Policy Center, the Ryan plan cuts taxes in half for the richest 1 percent of Americans — those earning more than $633,000 per year. For the really wealthy, the top one-tenth of 1 percent, Ryan offers an average tax cut of $1.7 million a year. That is in addition to the extraordinarily generous tax cuts high-income households would get from making the Bush tax cuts permanent. Let’s not forget that former President George W. Bush’s 2001 and 2003 tax cuts alone have added $1.7 trillion to the national debt between 2001 to 2008.”

        Hmmmm.

        March 20, 2010
      • Paul Zorn said:

        John,

        You say:

        You did not give me any firm figures, either $$ amounts or % of income, that you think would be fair.

        Actually, I *did* mention some specific figures, such as the idea that the total revenue from income tax might need to increase by something like 15% if government assumes a larger role than it plays now in health reform. This would imply that people now in the 28% marginal tax bracket might move up to 32% or 33%. Keep in mind, by the way, the difference between absolute and marginal tax rates.

        Whether a 33% marginal tax rate is “fair” or not (I think it is; I suspect you don’t) is another interesting discussion. I’m glad to have that discussion, but let’s acknowledge that “fairness” depends on philosophical/moral/you-name-it principles, and so can’t “fairly” be summarized in a single number or percentage.

        More …

        To say we are giving up by doing nothing is to suggest that the whole government will [disintegrate] around us if we don’t raise the taxes on the rich.

        Another straw chap … this was not my point, and I said nothing about government disintegration, whatever that may be. I’d rather defend my own views than somebody else’s caricature of them.

        Still more …

        … there was more than just income tax adjustments with the Bush proposal. It included different rates on capital gains, also. … The result of this was a net increase in tax revenue, not a decrease, so to say the Bush tax cuts ruined the country and the economy is not really accurate. The thing he failed to do was curb the growth of government spending. Reagan was able to accomplish this, so his cuts worked. …

        Tax cuts may sometimes stimulate the economy, but the idea that tax cuts increase tax revenue has been broadly debunked. Here, for example, are some quotes (find them and much more in Wikipedia; search on “supply side economics”) … note the pedigree of the the first quote-ee:

        Greg Mankiw, former chairman of President George W. Bush’s Council of Economic Advisors, offered similarly sharp criticism of [supply-side economics] in the early editions of his introductory economics textbook. In a 1992 article for the Harvard International Review, James Tobin wrote, “[The] idea that tax cuts would actually increase revenues turned out to deserve the ridicule…”[19] While few modern economists claim that tax cuts will completely pay for themselves, some empirical and theoretical research suggests that tax cuts do help to pay for themselves through increased economic growth, though the end result, even conservative economists contend, will be a significant reduction in revenues.

        You could clarify things for me, finally, but (i) explaining what you mean by “fairness” in this area; and (ii) offering some of your own suggestions, including numbers, for how government should be financed.

        March 20, 2010
      • john george said:

        Paul Z.- I’ll take a stab at clarification. 1) I personally do not like the term “fairness” when it comes to evaluating tax burdens. It seems to be a subjective term, and I think produces more separation in the general populace than unification. There must be some standard by which actions are judged as “fair” or “unfair.” We really do not have anything like that in this country.

        2) As far as financing the government, this must be done through taxes, since benevolence is not really an inborn trait in anyone. It is a quality that must be trained and nurtured. There are two sides to the argument going on right now. One is that the government is too large for the economy to sustain it. The other is that we have all these programs that cannot be ended, so we must increase the taxes to support this largwer government. It is a little like a sparrow hatching a cookoo chick in its nest. The cookoo chick grows larger faster than the sparrow chick, thereby exhausting the parents’ efforts to keep it fed and starving out the sparrow chicks. What I’m trying to differentiate here is the difference in the philosophies by which we are approaching the problem. We may not know the results of our economic tinkering until some time has elapsed. What is a fear for some people (and I admit, it is hard to validate it with hard figures) is that we will come to a point in time and say, “Oops!”, and at that time have no way to reverse the effects. One hard fact that has contribted to these fears is the increase in the national debt over the last year.

        March 21, 2010
      • Paul Zorn said:

        John,

        You say:

        1) I personally do not like the term “fairness” when it comes to evaluating tax burdens. It seems to be a subjective term …

        Yes, fairness is a subjective concept. I’m sorry you don’t like the term, but is there a better one? And shouldn’t we all, like it or not, worry about the fairness/equity/justice/impartiality/reasonableness/propriety/rightness/ of our tax system?

        There must be some standard by which actions are judged as “fair” or “unfair.” We really do not have anything like that in this country.

        If you’re just saying again that “fairness” is difficult to define and achieve, then I agree, and that will also be so, not just “in this country” but everywhere. So let’s do what we can based on our own good-faith ideas of fairness; there’s plenty of room for improvement.

        Re your paragraph 2., again, with respect, I think you caricature one side of the (legitimate) role-of-government debate with talk of cuckoos, sparrows, etc. A less tendentious way of framing the question, I think, is in terms of public investment in the public good. Some investments are wise and others foolish; the hard part is telling the difference.

        March 22, 2010
      • john george said:

        Paul Z.- I agree with your comment,
        “Some investments are wise and others foolish; the hard part is telling the difference.”
        I think we are probably both realists when it comes to evaluating things as uncertain as economic trends and people’s preferences. In fact, I think that if either of us had a sure fire way of doing that, we could probably live much higher than we do. You are the type of liberal with whom I can at least have a discussion. Thanks for taking the time. Now, on to the next job of making this health care bill actually work, as Jane has so aptly suggested.

        March 22, 2010
  31. Ray Cox said:

    Randy, the point I was making is that if a business owner pays herself $75,000, but as part of that reports income of $250,000, it is highly unusual that the $175,000 is just sitting there ready to be drawn out of the company. You are correct in that there most likely are all sorts of assets that are purchsed with the money. And they are not necessarily deductible costs of doing business. There are a variety of tax options available to businesses that may be used….or they may not be used. For example, businesses may elect to take a full Section 179 deduction for a piece of equipment, up to the allowed limit. Or they may elect to depreciate it over a period of years. Etc. Or, as William points out, they may lease it and have a deductible expense. But the bottom line is if we can keep capital flowing in businesses it will generally create more jobs and opportunity for people.

    Randy, I believe I understand what you are meaning about how business taxes work, but why not let businesses keep and put more of their earnings at work…then tax it when they take it out of the company? You can do that if your are a C corporation, but then you tax it when you earn it, and it is taxed again when it is taken out of the corporation. That is why most businesses organize as subchapter S or LLC’s.

    William, I agree with you that allowing the the tax cuts to expire will not end America as we know it. But I also believe that allowing them to expire will create a huge stress in an othewise fragile economy. I’m sure we can absorb the tax increase back into the system…but what will be the cost? Caterpillar announced today that their best estimate on what the Obamacare health plan will add to their corporate expense is $100 million. How will they compete with Komatsu if that new burden is placed on every trackhoe, dozer and packer that they make? We have to figure these things out before we charge ahead with untested and unknown plans.
    .-= (Ray Cox is a blogger. See a recent post titled New Window) =-.

    March 19, 2010
    Reply
    • Randy Jennings said:

      Ray,
      My observation is that tax cuts like those the Bush administration pushed through increase wealth (the rich DO get richer), but do not necessarily increase employment or the kind of business investment you describe. As evidence I’d cite the increasing concentration of wealth we’ve seen over the past decade, and the struggle we are having rejuvenating employment, even as the stock market surges back toward its pre-recession levels. Wealth is again being “created,” even as employment and per capita income stagnate. We aren’t going to address this disparity by lowering taxes.

      I’d probably be pretty supportive of your idea that an individual business owner, with his or her own money at risk, should be given better tools and opportunity to retain earnings and invest in his or her business, increase employment, and so on. BUT, and to me it is an enormous but, the cost of operating society still must be covered, and right now almost no one seems to think those costs are being shared equitably. Every special interest — left, right and center — claims it carries more than its far share.

      With respect to your hypothetical business owner: you make a good argument for thinking more carefully about how we tax small businesses. You don’t need the hyperbole of claiming every dollar of revenue is taxed when, under any corporate structure or business scenario, that is highly unlikely. If you’re talking about a small business owner who generates a $250,000 PROFIT, but only takes out $75K as an owner’s draw, then how the remainder is taxed becomes a more interesting and likely question. Again, I’d suggest that we have a Byzantine set of rules, deductions and credits, which Jane or any good CPA will probably be able to use to reduce that number. In the scope of the national economy, therein lies the problem. That’s how we get an Enron, with its “special purpose entities,” the special purposes of which were to evade taxes and primp the corporate balance sheet. That’s not your small business scenario, I know, but another point on the spectrum.

      Remember Steve Forbes and the flat tax? Maybe he was on to something.

      March 20, 2010
      Reply
  32. Jane Moline said:

    Ray: If a Sub S makes 250,000 and only takes out 75,000 in salary it is usually because they are avoiding SS tax (on about 30000), and the other 175000 is definitely available to them–if they spent it on capital improvements they deducted it and they do not have 250,000 of income.

    There is a move to force all S Corp income out as earned income since S corp owners often manipulate their salary to avoid SS tax.

    Most people will not close shop just because their expenses went up 25,000–if they are making 250,000 and now are making 225,000, they may not like it, but I don’t know any that are closing up shop.

    On the other hand, I have plenty of clients losing money just trying to hang on through this recession–they don’t have to pay much in taxes–like none–but that is not enough to keep them going–if the economy does not pick up, I think we are going to see a lot more people going under.

    The Bush tax cuts were for the wealthy and made the wealthy wealthier–they did not stimulate the economy at all. Bush tax polices are big losers. When we have had fairer tax policies–wehre the wealthy have paid a more proportionate share–we have had a more stable business economy. And the wealthy did not pack up and move to Italy.

    Right now we could stimulate the economy by moving to universal health–which would remove a big huge business expense off of businesses–and schools and local governments. That would help everybody.

    March 19, 2010
    Reply
  33. Ray Cox said:

    So Jane, how much do you think it will ‘stimulate’ my business if Obamacare passes? We have HSA insurance which does not qualify as an allowable insurance plan, so I will be forced to pay an additional 8% payroll tax. Or I can abandon the private insurance President Obama has said over and over I will not have to do….and sign up for some government plan. Or, I can shut the doors and simply not deal with any of this any longer. From what I know that is the choice. How will your clients that are barely hanging on, including me, going to view this plan as a savior to business as you indicate? To me it just looks like we will have a gun at our heads…either pay up and slide further down the economic decline, or join some government plan…or quit business.

    Also, there are a lot of other reasons that owners don’t take all their earnings out of a subS….working capital needs, requirements for performance bonds, and on and on. The idea that all subS organizations simply arrange their salaries around SS is a falsehood that the liberal left has been spreading for years. Business owners generally do what is wise to do to stay in business.

    I don’t know how much more you want the ‘wealthy’ to pay in taxes. See the earlier postings on that issue. I think most people understand that the percentage comparisons that became so popular 5-6 years ago don’t hold water and were just another way to try and create a drive raise taxes. It has not worked very well because the basic premise is so flawed. William summarized it very well in #129.

    Finally, where would that huge business expense for health care in the schools and local government move to?
    .-= (Ray Cox is a blogger. See a recent post titled New Window) =-.

    March 19, 2010
    Reply
    • Randy Jennings said:

      Ray,
      All of your challenges to Jane re: the cost of health insurance are completely valid, so why is it so difficult to reach the logical conclusion that what the nation needs is a single-payer, universal national health plan? We will not control costs until two things happen: 1) EVERYONE gets into the risk pool, and 2) we come to grips with the fact that we cannot afford to provide all possible services to all people. Before anyone is tempted to go all Palin on me and start shrieking about “death panels,” let’s acknowledge that we already ration care in this country, we just don’t do it openly and rationally.

      I completely support your observations that the cost of health care is an undue burden on employers large and small. Although it made sense at the time, coupling health insurance to employment has proven to be a big mistake, saddling American businesses with a cost burden not shared by our global competitors. We can continue to stubbornly go it alone, in our individualistic, capitalistic way, or we can admit that other nations have been more rational in accepting the cost benefit trade-offs of dealing with health care as a national, not a commercial, problem.

      March 20, 2010
      Reply
    • Paul Zorn said:

      Ray, Randy, et al.,

      There’s an interesting discussion here, but it seems to me to conflate several interesting but different issues that ought to be disentangled.

      Issue One: how personal and small business taxes are or should be linked or de-linked. Knowing even less about this question than I do about other things I feel free to bloviate on, I’m glad to watch from the sidelines.

      Issue Two: the proper role of businesses, large or small, in providing and/or paying for employees’ health care. I’d like to see that role diminish to zero. A single-payer system seems the cleanest and IMO wisest way to achieve this. But it’s not the only possible approach. A government might, for instance, simply require everyone to buy some package of health insurance on the open market; the poor would need subsidies. Such a plan might be wise or silly, but it gets businesses out of the picture.

      Issue Three: progressivity (and how much) vs flatness of income tax rates. I want progressivity. Ray, you seem to agree (correct me if I’m wrong, of course) at least qualitatively, as you support Minnesota’s present mildly progressive income tax structure. My (data-free) hunch is that most of us want some progressivity.

      But some want more than others. Randy, your quick nod to the flat tax is interesting — are you going all Forbes-ian on us?

      March 20, 2010
      Reply
      • Randy Jennings said:

        Paul,
        No, I’m not going all forbes-ian on you. The piece of Forbes’ flat-tax idea I found interesting was the simplicity of a uniform treatment of income. You could do that with a flat tax (and it could still have an indexing component that expects more of people who have more), with a value-added tax, or with some other scheme. The system we have is expensive to operate, siphons off resources that could be put to more productive uses than compliance with tax regulations, invites fraud and abuse, and it doesn’t raise the funds we need to operate government.

        Personally, I’d want to build in a “progressive” foundation in the form of an income threshold below which we extract no income taxes and in fact provide benefits related to health, education, shelter, etc… Ray’s comments about small business owners has gotten me thinking that perhaps we need to distinguish between businesses where an individual owner is 100% at risk, from those where the risk is dispersed among shareholders. I want to think about this a little more, but I might be sympathetic to a tax policy that extracts a lesser tax burden from the individual, at-risk business owner, and a larger tax burden from the investor class. At a minimum I would eliminate the distinction between ordinary income and capital gains.

        As long as I am bringing back chestnuts from the past (like Forbes), how about Huey Long? Back in the early 1930s, the senator from Louisiana’s Share Our Wealth program certainly fit the “progressivity” bill… See

        http://en.wikipedia.org/wiki/Share_Our_Wealth#The_death_of_Huey_P._Long

        March 21, 2010
      • Paul Zorn said:

        Randy,

        Thanks for not being too Forbes-ian. As for Huey P. Long, I’ll reserve judgment, but suggest you begin your campaign with a hit song:

        The official slogan of the Share Our Wealth movement was “Every Man a King,” which also became the title of a song co-written by Long in 1935 to promote his proposal.

        Seriously, I like simplicity in taxation, especially if it can be had along with other important virtues, like progressivity, fairness (a sticky concept, admittedly), proper treatment of business income, encouragement for charity, etc. Whether great simplicity is really compatible with a large and complicated economy remains (to me, anyway) to be seen. I think the jury’s out.

        The flat-tax-with-income-threshold system you (and your buddy Steve, for that matter) describe is, IMO, best thought of as a two-rate (or one-step) program: Income is taxed at 0% up to some threshold $L, after which a new rate, r%, kicks in. The live questions concern values of L and r .

        March 21, 2010
  34. Tracy Davis said:

    Jane, I must need a new accountant. I’m OBVIOUSLY using the Sub(S) all wrong.

    March 19, 2010
    Reply
  35. Jane Moline said:

    Hmmm. Tracy, I think you have a good accountant. My remark to Ray is that if one is making 250,000, one is not about to close up shop because taxes increase by 25,000. I do not advocate increasing said taxes–just that Ray’s remark is unrealistic.

    Also, Tracy, if your S corp is making 250,000 and you are maxing out your salary at 108,000, you might want to discuss with your accountant why you are doing this in these hard times when you might be better off saving some of those funds for working capital in the future when your income goes down.

    But… I am guessing here that most S corps are not making 250,000 that they are setting aside for working capital. Due to current economic conditions, many of these companies are struggling to pay their work force, let alone leaving anything over for the business owner–so they are not paying much in taxes, either–and if they are like any of my clents that are struggling, they are deciding to cancel their health insurance benefits because they just cannot afford them right now.

    On the other hand, I believe in a progressive tax system–that taxes the wealthy at a higher rate then the less-wealthy–after all if you make 100 million and had to pay 50% in taxes, you still have 50 million left…(that is an extreme example, and we don’t have 50% rates even for those Wall Street traders who are taking it all home as capital gains and paying no more than FIFTEEN percent, not 50, on their millions.)

    The problem is that we need to have some taxes to pay for services, and the Republican mantra is NO TAXES are good taxes–which sounds really good to most people because they don’t want to pay taxes someday when they are rich….but reality is that a great number of people don’t pay much in taxes–but the Republican mantra scares them anyway–so we are freezing up our government because of hysterical bias against taxation.

    So tell me, Ray, did taxation hurt your business or the economic downturn? What has made us suffer–the taxation that we are all going to get because we voted for Obama or the failed economic policies of a greedy selfish Republican president and his cronies?

    March 20, 2010
    Reply
  36. Ray Cox said:

    Jane, you being the CPA in the crowd, might have the best answer to what hurt me and many other small businesses in 2008-9. When a company loses substantial dollars in a given year, but has accumulated and banked assets over a 30 year period of time, whose money is lost?

    To answer yor question, the economy has made things very, very difficult in my business and a lot of other businesses. But struggling to pay real estate taxes (with the special state general tax), license fees, registration fees, etc during a time when there are no earnings is equally hurting for these buinesses.

    Jane, SOME Republicans may be crying the mantra of no taxes, SOME may be crying the mantra of no new taxes, and many may be crying the mantra of evalute what is truly needed and create fair funding to support it. Painting all Republican’s with the same brush is the same as saying all Democrats are latte drinking, Volvo driving, snobs who want to confiscate 90% of everything you own and create a government that regulates everything you do. I believe what most people want is a government that is not frozen, but one that communicates with itself and more importantly, with the people….then creates policies that make sense and work.
    .-= (Ray Cox is a blogger. See a recent post titled New Window) =-.

    March 21, 2010
    Reply
    • john george said:

      Ray- Hear! Hear! I think many people, no matter what their political stripes, are tired of the stagnation of movement we seem to be experiencing in government. I also think that positive movement is not going to happen until we stop pointing fingers at one another. I keep listening for a unifying voice out there in all the clamor.

      March 21, 2010
      Reply
    • Phil Poyner said:

      Aw man….do I really have to get a Volvo?? 😉

      March 21, 2010
      Reply
  37. Patrick Enders said:

    Back to the original topic:

    Let’s critique the speech and his first year in office.

    It took a little more than a year, but President Obama just accomplished something pretty darned big tonight – bigger than any other progressive reform in my 40-year lifetime.

    Yes we can. And, in this case, did.

    March 21, 2010
    Reply
    • john george said:

      Patrick- Let’s hope it works.

      March 21, 2010
      Reply
    • Phil Poyner said:

      Unfortunately it ain’t over until the fat Senate sings (again)…and so the legislative theater continues. I know the Senate feels they have the votes, but still…

      And John, I may be a liberal but I’m just hoping for the best as well. This whole process has been enough to leave anyone feeling uneasy.

      March 21, 2010
      Reply
      • Patrick Enders said:

        The Health Care Reform bill has been passed by both the Senate and the House – and, I think, signed into law by the President.

        The only thing left is a second bill that, if passed by the Senate, will make a few small financial fixes to the overall plan. Even if that were to somehow fail, the principle reforms will remain the law of the land.

        March 22, 2010
  38. Patrick Enders said:

    Well, there are two things that reduce those worries. First, Harry Reid sent the House a letter signed by more than 50 Senators pledging to pass reconciliation. Second, since this bill contains some very common sense improvements to the law that has just been passed, it will look quite silly if the Republicans spend all their time trying to prevent the repeal of the “sweetheart deals” and the like that they have been quite right to criticize.

    For a contrary opinion:

    The key decision that made reconciliation problems an irritant rather than a roadblock was to treat tonight’s expected passage of the Senate bill as the victory and to sign the bill immediately. Back when Republicans thought they could stop the Senate bill by stopping the reconciliation fixes, any problems in that package posed considerably more danger to the Democrats. Now, passing that package is a bonus.

    Plus, if anything popular gets struck from reconciliation and left out of the final fixes, Democrats can bring it back through the normal order and let Republicans spend their time filibustering something they’ve repeatedly said they think Democrats need to do for the good of the country. Insofar as Democrats want to hit Republicans for being obstructionist above and beyond actual policy disagreements, that will be the perfect example.

    http://voices.washingtonpost.com/ezra-klein/2010/03/hollow_reconciliation_threats.html

    In the end, I could live with those things, and even with a major setback in the next election for Democrats, because for once, they did something really great for the country.

    Elected majorities come and go. Obamacare, like Social Security and Medicare before it, will be with us for the rest of our lives. And that will be a very good thing.

    March 22, 2010
    Reply
  39. Jane Moline said:

    It ain’t pretty but it passed. Now we can get down to the real work of making it work.

    And Ray–you know that with every dollar your business loses it is YOUR dollars–every dollar of “deductions” are YOUR dollars–people who think businesses are getting some big benefit by paying expenses are living in an alternative reality–and one of the reasons our tax policy is so important–all these dollars are real dollars to somebody–

    There was a very interesting proposal made to the Minnesota legislature some years ago that would have had ALL children to age 18 coverend under a universal health insurance policy (all Minnesota kids). Corporations were projected as saving money as they would not have to offer expensive family medical coverage–only coever their employee and maybe spouse–but it was paid for by a modest corporate tax. Corporation were reasonable skeptical–would the modest corporate tax be increased to pay for other services? So corporations opposed it –but what it showed is that corporations would save money if MORE people were covered by health insurance and corporations were relieved of that “deduction.”

    The fact is that if we covered everyone in the United States with health insurance total costs would come down–critcism of this new law is that it does not go far enough in requiring coverage for all–we are still not covering 20 million Americans and many more are on the brink of losing their coverage due to economic conditions–they lose their job or just can’t afford the premiume any longer–while the penalties for not having coverage are not steep enough to encourage compliance or pay for that coverage.

    Now that we have it we will have to see how we can make it better.

    March 22, 2010
    Reply
  40. One thing that has been overlooked is the fact that lots of people don’t want professional medical assistance. Some just want to die when it’s their natural time.
    It’s not something to be feared. We all die. All of us.

    Furthermore, if a person is so ill that they are going to die within a year or so, let’s say for an example, they are not going to be paying any insurance premiums if
    they are poor, or if they are just too handicapped to work…and there are lots of people like that. I don’t know if there are already provisions,but hopefully they’ll be corrected soon if there are.

    March 22, 2010
    Reply
  41. Ray Cox said:

    Jane, I’m not sure how if I follow your logic in stating that if we cover more people our health care costs will go down. The people we are covering don’t pay for the health care coverage. We are doing that right now, although in a rather inefficient manner. But I don’t see how costs will go down.

    While many readers are lauding the great health care bill just passed, time will tell us all how it will serve America. Some think we just witnessed the end of America in that we will take on so much more debt over the next decades that it will bury us. Others think it is the best thing since sliced bread.

    It is important to remember there is no free lunch—-someone somewhere will be paying for anything new that is added to America’s expenditures. It is also important to remember that in 1965 the goveernment actuaries estimated that in 1990 medicare would spend $9 billion on its health care program….we ended up spending about %63 billion. That of course is why medicare is in so much financial trouble. Have the recent actuaries done any better on estimating costs? Will our government really pull out $500 billion from medicare in the next decade? Will our government really tax ‘cadillac’ health care plans to pay for plans for others? A jitter in any one of these items will make the health care plan just passed look like a disaster in short order.
    .-= (Ray Cox is a blogger. See a recent post titled New Window) =-.

    March 22, 2010
    Reply
  42. Paul Zorn said:

    Ray,

    You raise some good points.

    Whether insuring people now uninsured will actually drive total costs down remains to be seen. But, as you say, our current “policy” of caring for these folks informally, off budget, is far from cheap. It seems quite possible that the savings involved with better organized health care will at least offset the additional insurance costs.

    The same logic, by the way, could be adduced to argue for more, not less, coverage of undocumented (aka, illegal) workers. This would be my druthers. But such reasoning seems politically toxic, and has gotten nowhere in the present legislation. To the contrary, it appears that these workers will be forbidden to participate even at their own expense, and so will presumably continue to receive only the highest-cost emergency room services. Feels to me like a bullet in the foot.

    Another good point:

    … there is no free lunch — someone somewhere will be paying for anything new that is added to America’s expenditures.

    Quite right. But let’s acknowledge that our present health system– excellent in some ways, poor in others, but far more expensive than any other in the world—is anything but a free lunch either. I don’t think it’s obvious either way whether the present legislation will help “bend the cost curve”; achieving that will probably require much more than legislation. But doing nothing is unquestionably expensive.

    … in 1965 the government actuaries estimated that in 1990 medicare
    would spend $9 billion on its health care program …

    Yes, it’s very difficult to predict the future, especially for something like medical care, which is driven mainly by non-actuarial developments, like better but more expensive technology. We’ll just have to do the best we can.

    In any event, for all the undeniable issues health care raises, with or without new legislation, I’m proud of the country for trying, however imperfectly, to face up to some of the hard financial and also moral questions that health care policy entails.

    March 23, 2010
    Reply
  43. I don’t know what has changed really. I remember back in 1990, I fell and went in an ambulance to the hospital and I was charged $50 for an elastic bandage that I did not use and that I recently purchased from Walgreen’s for $3.49. I was told after much digging around for someone to talk with me that I was paying for those who couldn’t pay, without my permission.

    March 23, 2010
    Reply
  44. Ray Cox said:

    Bright, you identify what one of the problems with the legislation just passed is….adding more people to the insurance pool that don’t pay anything. Maybe the government will figure out how to deal with that, and deal with exploding health care costs. If they don’t we may all look back to March 21, 2010 as the day America died.

    Paul, I agree that our health care system is expensive. That is why I so much wish Congress decided to deal with that issue instead of a simple expansion of benefits.

    It is very difficult to predict expenses into the future. The main reason that is so is because of actions Congress takes in the intervening years. If medicare would have been left completely alone I’m sure the spending gap would be far smaller. The drug expansion of a few years ago will most likely add more billions to the growing shortfall.

    At some point we either elect fically responsible leaders, or I guess we just melt down into some other form of government or society.
    .-= (Ray Cox is a blogger. See a recent post titled New Window) =-.

    March 23, 2010
    Reply
  45. Paul Zorn said:

    Ray,

    You say:

    … adding more people to the insurance pool that don’t pay anything … Maybe the government will figure out how to deal with that …

    Well, the legislation does deal with that; it provides subsidies to the poor to buy private health insurance. How else would you propose that health care for the poor be provided, and paid for?

    … and deal with exploding health care costs.

    Health care costs are indeed much too high, and they got that way with a lot of non-governmental help. Government has some responsibility to “deal with” this problem, but (a) the present legislation, rhetoric notwithstanding, is far from a government takeover of health care, so the ball is not entirely in goverment’s court; and (b) but “not-government” certainly doesn’t have an enviable cost containment record up to now.

    If they don’t we may all look back to March 21, 2010 as the day America died.

    Let’s keep things in proportion. Here are some numbers and a question from economist Uwe Reinhardt’s blog:

    Start with the $950 billion price tag over the next decade for federal subsidies toward the purchase of private health insurance. Divide that amount by $34 trillion, the current projection for total national health spending over the next decade even in the absence of health reform.

    You will get 2.8 percent. Does that, then, constitute a government takeover of our health system?

    No.

    March 23, 2010
    Reply
  46. Norm Vig said:

    Johh, Ray, Bright et al., there is a nice article by David Leonhardt in the Times today on the potential redistributive effects of the health care reform:

    http://www.nytimes.com/2010/03/24/business/24leonhardt.html?hp

    See the graph on incomes and taxes, and note especially these two paragraphs:

    “Since 1980, median real household income has risen less than 15 percent. The only period of strong middle-class income growth during this time came in the mid- and late 1990s, which by coincidence was also the one time when taxes on the affluent were rising.

    For most of the last three decades, tax rates for the wealthy have been falling, while their pretax pay has been rising rapidly. Real incomes at the 99.99th percentile have jumped more than 300 percent since 1980. At the 99th percentile — about $300,000 today — real pay has roughly doubled.”

    And let’s not resort to apocalyptic language (“death of America”) in regard to this bill, which only encourages the crazies. If the Republicans want to challenge its constitutionality, fine, but all this stuff about armed rebellion, “reload” (Palin), and threats to members of Congress who voted for the bill are totally un-American. All we need is some more assassinations or bombings.

    March 24, 2010
    Reply
  47. David Ludescher said:

    David Brooks has an interesting editorial in today’s Mpls. paper on the politics of the passage and its meaning.

    March 24, 2010
    Reply
  48. Paul Zorn said:

    David L,

    I found Brooks’s editorial interesting, too.

    Here’s a link:

    http://www.nytimes.com/2010/03/23/opinion/23brooks1.html?src=me&ref=general

    I find Brooks an interesting and thoughtful commentator, and always worth reading. Here he congratulates Democrats, including Speaker Pelosi and President Obama in particular, for their persistence and toughness in making this legislation happen. He also observes, appropriately in my view, that coming years will require a much more adult approach to paying for the things we want, probably including a consumption tax and increased investment in education — and he’s pessimistic about either party mustering the seriousness to do what’s needed.

    Some of Brooks’s points I find less convincing. For instance, he seems to link our runaway health costs with our being a “geriatric” society. Sure, we all tend to use more health care as we age, but that hardly explains our high costs relative to, say, Japan, which has a much older age profile than ours, but far lower health costs. Something other than geriatrics has clearly been at work.

    Brooks also complains about the cost of a new health care entitlement, thus:

    This country is in the position of a free-spending family careening toward bankruptcy that at the last moment announced that it was giving a gigantic new gift to charity.

    Paying our bills is unquestionably a problem, and one of these days we’ll need to get serious. But while we’re speaking of feckless acts of charity, perhaps the Bush tax cuts, another gigantic gift, but in this case to the least needy, should also be mentioned.

    What’s your take, David? (Since moving to Minnesota many years ago I’ve learned that, up here, “interesting” can mean anything between bad and good.)

    March 24, 2010
    Reply
  49. David Ludescher said:

    Paul: I think that Brooks has a nice manner of presenting the obvious.

    I too admire the tenacity and toughness of most of the Democrats to get this passed. I thought that it was dead a couple of times.

    From what I have heard this is hardly a bill for which the Democrats should be self-congratulatory. It reminds me a little of all the people who were walking around congratulating themselves for electing a president based upon the fact that he is one-half black.

    I too am quite pessimistic that either the Democrats or the Republican have the courage to solve the problems that they just made bigger with the passage of this bill. Now, today, ahora is the time to deal with the cost issues. No one that I know thinks that this bill will reduce the costs. The Congressional Budget Office was fed fake numbers, so they calculated and came up with fake numbers.

    America does have high health care costs, and geriatrics is a large part of the costs. The fact that many, if not all, developed nations have lower health care costs means that there is a way to have lower costs. But, it certainly doesn’t mean that Congress knows the answer, or if they did, that they have the ability to implement it. And, I saw no need to present a 2000 page bill that few have read and even fewer understand. If there ever was a time for incremental changes to see if we are headed in the right direction, this was the time.

    That said, I think Brooks’s main lament is that the party that once inspired him to believe in the American people and their government just wasn’t there in this debate, or in the vote.

    March 24, 2010
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