Ken's Project Blog

July 22, 2011

Paul Krugman – Not so good with the math

Filed under: In The News,Politics,Taxation — Ken @ 6:09 pm

Back in August of last year, Paul Krugman attempted to rouse the rabble with his column “Now That’s Rich,” wherein he laid forth the following proposition when describing the extension of the so-called “Bush Tax Cuts for the Wealthy”:

But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the country.

Now, I don’t have a Nobel prize in Economics like Mr. Krugman, but that comes out to $360 Billion – am I right, check my math, that’s $3 million times 120,000 – yep, $360 Billion. That’s what Mr. Krugman says the tax benefits of the top 0.1% of income earners (with an average income level of about $8.4 million/year) would get $3 million each back in tax savings…

But if I follow through to the very handy link Mr. Krugman provided to taxpolicycenter.org and read their report entitled “The Debate over Expiring Tax Cuts: What about the Deficit?” I find that the average increase in tax savings provided to the top 0.1% of income earners would be $310,140. How could Mr. Krugman be so far off?

Later in the column, Mr. Krugman mentions that ten years of the tax cuts the Republicans wanted to keep in effect (on the top 1%, not just the top 0.1%) would cost $680 Billion over the course of ten years – how weird that he wouldn’t catch that internal inconsistency in his own article – how can one year of tax cuts for the top 1% cost $68 Billion/year, while the tax cuts for the top 0.1% (a subset of the 1% just mentioned) would cost $360 Billion/year?

Either Mr. Krugman made a simple error (it’s possible, but doesn’t the New York Times have editors and researchers to catch these things) or was Mr. Krugman trying to intentionally confuse the discussion with his alarmist numbers – either way, it’s another nail in the coffin of his credibility.

Sources:

nytimes.com: Now that’s Rich

nobelprize.org: The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008 – Paul Krugman

taxpolicycenter.org: The Debate over Expiring Tax Cuts: What about the Deficit?

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You Don’t Get It

Filed under: In The News,Politics,Taxation — Ken @ 5:27 pm

Rep. Jan Schakowsky is caught in this radio interview trying to explain how Social Security works, that the “Social Security lockbox” exists, and that Social Security is fully-funded and can make payments for the next 25 years or so… Yet without a debt increase the Social Security checks can’t go out. When the hosts of the radio show call her on the seeming contradiction of statements, she tells them they just “don’t get it.” I’d like to take a moment and make sure you get it.

Let’s take a look at each of her statements, and consider them individually:

Social Security is a ‘pay-as-you-go’ system

Ok, fair enough – that means that each year, social security receipts essentially cover the payment of benefits for Social Security recipients, and until last year (2010) that was true. The year 2010 was the first year that Social Security was forced to supplement receipts to meet its obligations, but those supplemental funds didn’t come from the general funds of the federal government, they came from the “lock box,” which was funded by the surpluses of previous years, when Social Security’s receipts exceeded their obligations.

The Social Security ‘lock box’ exists

Yep, it sure does – and what a great name that ‘lock box’ name is, by the way – it implies that the surplus funds have put away, and they can not be used for any other expense – that the Social Security surpluses are secure, until needed. Well, sorta…

See, the lock box is really an account that is full, but not of cash money, but instead with interest-paying federal securities, much like the Treasuries we sell to investors and foreign countries like China. In fact, the so-called ‘lock box’ actually has about $2.5 trilion in these federal securities, which accounts for about 1/6th of our national debt, currently $14.3 trillion). All the surplus funds working Americans have paid in to Social Security over the years have been invested in our national debt, so if our government were to default on its debts, it would also be defaulting on the debts owed to the Social Security ‘lock box’.

Social Security is fully funded for the next 25 years

This is also a true statement – based on the latest projections from the Congressional Budget Office as the so-called ‘baby-boomers’ leave the workforce and transition from Social Security contributor to beneficiary at the estimated rate of 10,000/day for the next 19 years, Social Security will be able to meet its obligations by relying on both payroll contributions and by drawing down ever more from the ‘lock box.’ The CBO estimates that the trust fund and payroll contributions will run out in about 25 years.

But without timely access to its ‘lock box’ funds that are tied up in federal securities, it is possible for Social Security to run the risk of not being able to meet its obligations to beneficiaries.

As shown in the above video, the regular, monthly payroll contributions for Social Security will be sufficient to fully fund the August benefits checks without having to increase our debt ceiling to allow Social Security to borrow needed funds (which they have never done before, by the way) or take funds from our general receipts to fund those payments (again, something they have never done before). The only way Social Security checks would not be sent out would be if:

  • the federal government were to seize all August Social Security contributions, starving Social Security of its regular revenues AND
  • the federal government were to fail to repay enough federal securities to the Social Security ‘lock box’ to allow it to meet it’s August obligations using funds from the “lock box”

Both would have to happen for Social Security to not be able to meet its obligations in August if the debt ceiling isn’t raised.

So where are we now in the debt ceiling crisis?

In the Senate, the ranking Republican Sen. McConnell has proposed a bill that would allow the President to raise the debt ceiling in three installments, to a level that would allow the federal government to fund its operation through Fiscal Year 2012, based on implementing certain proscribed spending cuts before raising the debt ceiling each of the three times (While far from ideal, many in leadership on the left have praised this as a possible ‘Plan B’ should other options fail.)

In the Congress, they approved a so-called “Cap, Cut, and Balance” bill that would bring federal spending to a more manageable 20% or less of GDP over a number of years, would enact cuts in the levels of federal spending to achieve the goal of reigning in spending, and would set in motion a process to enact a balanced budget amendment to the Constitution, similar to the balanced budget requirements currently in effect in 49 out of our 50 states. The debt level would be allowed to rise under this bill, allowing us to run deficit budgets until the balanced budget amendment would be in place. This “Cap, Cut, and Balance” bill was defeated today in the Senate today.

The President has announced that he will only sign off on a debt level increase that provides sufficient “headroom” for the deficit to grow through the next election (through calendar year 2012), AND the legislation must include new tax revenues. Send him a bill lacking either, and he has said he would not sign it… Leading at least one reporter to ask his spokesperson why vetoing a bill that doesn’t meet his requirements and causing the government to fail to meet all its obligations is preferable to signing a bill with cost savings and increases the debt ceiling. The President’s spokesman didn’t really have an answer to that question.

Sources:

YouTube.com: You Don’t Get It: Congresswoman Agrees With President Americans Too Stupid

hansenreport.wordpress.com: Social Security and Debt Limit Debate

Laura Ingraham on ‘Shared Sacrifice’

Filed under: In The News,Politics,Taxation — Ken @ 4:58 pm

From the above video:

Laura: Taxing the upper 1 or 2% income earners in this country does not get us to the math. We have to shrink government – putting more burdens on the people that actually create jobs – hey, like NBC – we don’t need to do that.

Matt: I think everybody agrees that there’s gotta be some changes in that side, the Gallup…

Laura: Matt, when Washington starts sacrificing instead of actually increasing the salaries of individuals within the Executive Offices of the Presidency – when they start sacrificing then we can talk about the real meaning of sacrifice to the American people.

Matt: Recent Gallup poll said that only 20% of Americans think that spending cuts are the only thing that should be on the table when they talk about this, so they are talking about increasing revenues… They are talking about raising taxes on the 1%, on corporations, even the corporate jets which is only a few hundred million…

Laura: That was a scam, and that was a lie – the fact that the media allowed him to get away with that for five seconds was absurd…

That recent Gallup poll point has tripped up a few commentators, the way they accomplish that staggering 80% “want tax increases” number is a bit misleading (not inaccurate, but they lump several responses to get to that number):

Using their same math, I could argue that 96% of Americans want spending cut, that would be just as accurate.

What I feel the above poll indicates is three groups of individuals – those who think most/all savings should come from spending cuts, those who think it should be equally split between spending cuts and tax increases, and those who think it should be most/all tax increases, which breaks out this way:

  • Mostly/Only with spending cuts – 50%
  • Equally with spending cuts and tax increases – 32%
  • Mostly/Only with tax increases – 11%

The resounding, clear mandate from the American people suddenly isn’t so clear or resounding.

Sources:

breitbart.tv: Laura Ingraham exposes Obama’s ‘Shared Sacrifice’ Lie

YouTube.com: Laura Ingraham Exposes Obama’s ‘Shared Sacrifice’ Lie

hotair.com: Did Obama lie about White House salaries in Twitter town hall?

gallup.com: On Deficit, Americans Prefer Spending Cuts; Open to Tax Hikes

President Obama’s Op-Ed in USA Today

Filed under: In The News,Politics,Taxation — Ken @ 12:11 pm

President Obama wrote an Op-Ed that was published over at usatoday.com, I wanted to take a close look at the following paragraphs from his Op-Ed:

That’s why people in both parties have suggested that the best way to take on our deficit is with a more balanced approach. Yes, we should make serious spending cuts. But we should also ask the wealthiest individuals and biggest corporations to pay their fair share through fundamental tax reform. Before we stop funding clean energy research, we should ask oil companies and corporate jet owners to give up the tax breaks that other companies don’t get. Before we ask college students to pay more, we should ask hedge fund managers to stop paying taxes at a lower rate than their secretaries. Before we ask seniors to pay more for Medicare, we should ask people like me to give up tax breaks they don’t need and never asked for.

The middle class hasn’t just borne the brunt of this recession; they’ve been dealing with higher costs and stagnant wages for more than a decade now. It’s just not right to ask them to pay the whole tab — especially when they’re not the ones who caused this mess in the first place.

Now, let’s step through it and see what I found interesting:

“That’s why people in both parties have suggested that the best way to take on our deficit is with a more balanced approach. Yes, we should make serious spending cuts.”

The last proposal from the President/Democrats planned to cut $2 billion in spending in FY’2012 – is that his idea of “serious spending cuts”? The bulk of his proposed cuts would take place under another President/Administration – if you want to cut spending, cut it, cut it right now – don’t propose tying the hands of future administrations with obligations you are unwilling to make yourself.

“But we should also ask the wealthiest individuals and biggest corporations to pay their fair share through fundamental tax reform.”

The top 1% of income tax filers pays 38% of all income tax revenues, yet only account for 25% of all income – the bottom 47% of tax filers pay 0% of all federal taxes, and the bottom 50% of tax filers pay 2% of all income tax revenues. Seems to me, the “fair share” of the top 1% of tax filers pays about 50% more than “their fair share” – 25% of income should pay 25% of taxes, right?

“Before we stop funding clean energy research, we should ask oil companies and corporate jet owners to give up the tax breaks that other companies don’t get.”

What exactly are those special tax breaks that oil companies and corporate jet owners get? As Warren Buffett pointed out earlier this week, only corporate jets that are used for business purposes are deductible, same as p,ant equipment, railroad locomotives, or other capital expenses with few exceptions. I’d like to see an enumerated list of the “special” tax breaks you imagine oil companies get.

“Before we ask college students to pay more, we should ask hedge fund managers to stop paying taxes at a lower rate than their secretaries.”

Their lower rate generates more income tax revenue than all the secretaries – history has proven that lowering the long-term capital gains tax rate increases revenues, increasing it lowers revenues – is your goal increased revenue or the perception of fairness?

“Before we ask seniors to pay more for Medicare, we should ask people like me to give up tax breaks they don’t need and never asked for.”

Then don’t claim the tax breaks you are entitled to, Mr. President – they aren’t required, ask your tax accountant, he’ll explain that deductions are optional. President Clinton didn’t have to claim a deduction for his donated used underwear when he was Gov. of Arkansas, but he choose to do so.

“The middle class hasn’t just borne the brunt of this recession; they’ve been dealing with higher costs and stagnant wages for more than a decade now. It’s just not right to ask them to pay the whole tab — especially when they’re not the ones who caused this mess in the first place.”

They did enjoy the “brunt” of the benefit of the so-called “Bush Tax Cuts for the Wealthy” – those earning under $250,000 or $200,000/year got about $3 Trillion in tax savings, those above that so-called “Millionaires and Billionaires” line got less than $1 Trillion in tax savings.

You can see the entire Op-Ed over at usatoday.com.

Sources:

usatoday.com: USA Today Op-Ed

hansenreport.wordpress.com: “I will gladly cut spending in ten years, for a debt increase today”, Shared Sacrifice, Warren Buffet on Private Jet Deductions

labrador.house.gov: Transcript: Labrador Appears on “This Week” with Christiane Amanpour

YouTube.com: Obama: Raise Taxes, Capital Gains – “For Purposes of Fairness”

nytimes.com: Clinton Taxes Laid Bare, Line by Line

accountingtoday.com: Tax Cut Extensions Would Ratchet Up National Debt

July 19, 2011

Warren Buffett on Private Jet Deductions

Filed under: In The News,Politics,Taxation — Ken @ 5:28 pm

In this clip from CNBC, Warren Buffett, CEO of Berkshire Hathaway, discusses the source of the much-vilified “deductions for corporate jets” and explains his three situations regarding the deductiblity of his fractional jet ownership: he has a fraction of a jet for purely personal use, no deduction (not a business expense); his corporation has a fractional jet for purely business use, that is 100% deductible for 2011; and he has bought a fractional jet for use by his three children, for which he pays a very significant gift tax on (approaching 50%, as I understand it).

So where did this 100% deduction for corporate jets come from? The New York Times explained it pretty well back in September of 2010:

Stimulus measures enacted at the end of the Bush administration and continued in 2009 allowed businesses to depreciate 50 percent of qualified investments. A separate administration proposal to benefit small businesses with tax cuts and loans, which has been pending in Congress much of the year and remains blocked by Republicans in the Senate, would extend this smaller tax break through 2010.

Mr. Obama would expand this to 100 percent through 2011 and make it effective retroactive to this Wednesday, regardless of when Congress might approve the proposal. [emphasis added]

Source: nytimes.com

Did you notice that the “special deduction for corporate jets”, and almost every other capital investment expires at the end of 2011?

The most telling part of the discussion, after describing what is and is not deductible with regard to corporate jets, is this line at the end of the clip:

Buffett: “I don’t really see where a business aircraft is different than a business locomotive.”

I think Mr. Buffett is failing to take into account the class warfare aspect of this issue – and did

Sources:

YouTube.com: Warren Buffett disagrees with Obama’s rhetoric about jets

mrctv.org: Warren Buffett Not a Fan of Obama’s Corporate Jet Rhetoric

nytimes.com: Obama to Propose Tax Write-Off for Business

July 18, 2011

Why won’t Republicans raise taxes?

Filed under: In The News,Politics,Taxation — Ken @ 8:00 pm

An excellent point from one of my favorite Journalists, Major Garrett on Chris Matthew’s Hard Ball:

“…look at the political realities. You didn’t raise taxes in the lame-duck session when you had 59 Democrats in the Senate and almost 260 in the House. Don’t expect Republicans to raise taxes when we own the House of Representatives and have six more Senate seats. Operationally, as a matter of politics that doesn’t work.”

Sources:

breitbart.tv: Major Garrett Explains to Chris Matthews Why GOP Won’t Raise Taxes

“I will gladly cut spending in ten years, for a debt increase today”

Filed under: In The News,Politics,Taxation — Ken @ 5:36 pm

Jon Karl: (on President Obama’s “Grand Compromise”) “It’s only two billion in cuts in 2012, which will never fly with these guys…”

Watching Cokie Roberts and Rep. Raul Labrador discuss the debt limit “crisis” reminds me of the character Wimpy in the old Popeye cartoons, who would “Gladly pay you Tuesday for a hamburger today.”

Sources:

breitbart.tv: GOP Rep to Cokie Roberts: Why Does Compromise Always Mean Raising Taxes Now and Cutting Spending Later?

YouTube.com: hamburger

President Promises Veto

Filed under: In The News,Politics,Taxation — Ken @ 3:25 pm

President Obama has promised, in a White House statement of administration policy, to veto the so-called “Cap, Cut and Balance” bill that the House will vote on tomorrow.

The measure would cut spending in Fiscal Year 2012 by $111 billion, cap future spending at 19.9 percent of gross domestic product and would allow for the debt ceiling to be increased if a balanced budget amendment is approved by Congress and sent to the states.

Source: thehill.com

The White House continues to conflate the debt crisis with threats of Social Security insolvency, ignoring the fact that Social Security is a lender to our national debt, not a source of increased debt:

The administration lambasted the “Cut, Cap and Balance” proposal as setting out “a false and unacceptable choice between the federal government defaulting on its obligations now or, alternatively, passing a Balanced Budget Amendment that, in the years ahead, will likely leave the nation unable to meet its core commitment of ensuring dignity in retirement.” [emphasis added]

Source: thehill.com

Social Security has sufficient funds to meet its obligations for the next 25 years based on the surplus in its so-called ‘lock box’ and on-going contributions from workers, according to the Trustees of Social Security and Medicare trust funds , without having to tap into the federal government’s general funds. I fail to see how “balancing the budget” or limiting the government’s ability to borrow money in the future impacts what is essentially a self-funded program independent of the general budget.

I contend it is this administration that is presenting the American citizen the “false and unacceptable choice” between defaulting on Social Security obligations or increasing the debt ceiling, and it seems Senator Harry Reid agrees with me (or vice-versa) on Social Security’s solvency:

Of course, he uses an older number that says it will be solvent for 40 years, soon after the above interview was taped the Trustees of Social Security and Medicare trust funds came out with a revised budget outlook that restated the solvency of Social Security to about 25 years.

Even the widely acclaimed factcheck.org basically supports the assertion that Social Security is self-sustaining for the next 25 years or so, but they insist that because the federal government has borrowed monies from the Social Security ‘lock box’ and that it will have to borrow money to repay the interest and principal on those loans, that Social Security contributes to the deficit. Factcheck.org is wrong – blame for interest payments belongs to the borrower, not the lender.

Sources:

thehill.com: Obama officially threatens to veto ‘Cut, Cap and Balance’

YouTube: Democratic Senator Harry Reid (On NBC’s “Meet The Press”) On Social Security: Everything’s “Fine”

socialsecurity.gov: Trustees Report Summary –
Status of the Social Security and Medicare Programs

factcheck.org: Democrats Deny Social Security’s Red Ink

Shared Sacrifice

Filed under: In The News,Politics,Taxation — Ken @ 12:07 pm

Federal Income Taxes (from 2008)

Many politicians are claiming that the Millionaires and Billionaires (as defined by them as individuals earning over $200,000/year, couples filing jointly earning over $250,000/year) need to pay their fair share in these troubled economic times – we need shared sacrifice.

Well, let’s take a look at where we are now – it is claimed that the top 1% of taxpayers earn 20% of all income, so it would stand to reason that they should be shouldering about 20% of our annual federal income taxes, right? Guess what – they don’t. Not even close. Do you know what percentage of the federal income tax receipts the top 1% are paying? Thirty-eight percent – nearly two times their “share,” based on their percentage of income earned…

So when the President and leaders on the left claim that they want “shared sacrifice” remind them of the above numbers (top 1% earns 20% of all income yet pays 38% of all federal income taxes), and then add this other fact: the bottom 50% of taxpayers pay only 3% of all federal income taxes.

The purpose of federal income taxes, as well as all other federal fees and taxes, is to fund the operation of the government, not to punish the successful to benefit the needy. If the government needs more money to fund its operation, fine, but don’t assault one group of Americans under cover of “shared sacrifice” – it’s more like “piling on”

Before joining the crowds calling for increased taxes on the wealthiest Americans, I think it is important to understand what the top 1% are currently paying in federal income taxes.

Sources:

taxfoundation.org: http://www.taxfoundation.org/news/show/250.html

irs.gov: SOI Tax Stats – for All Returns: Selected Income and Tax Items for FY 2008

thefreedictionary.com: pile on

July 15, 2011

It’s for their own good

Filed under: Health Care,In The News — Ken @ 12:31 pm

Before I go any further – the title of this piece is cynical, it was intended to draw in the reader, OK? Thanks…

A recent study, analyzing mortality rates and causes between prisoners and the general population has found that black males are half as likely to die at any given time than black males outside prison. Specifically, black prison inmates were 30-40 percent less likely to die of heart-related problems or cancer than if they were outside of prison.

Why? As was reported at reuters.com the cause appears to be related to the availability of health care:

Less than one percent of men died during incarceration, and there was no difference between black and white inmates. But outside prison walls, blacks have a higher rate of death at any given age than whites.

“What’s very sad about this is that if we are able to all of a sudden equalize or diminish these health inequalities that you see by race inside a place like prison, it should also be that in places like a poor neighborhood we should be able to diminish these sort of inequities,” said Evelyn Patterson, who studies correctional facilities at Vanderbilt University in Nashville, Tennessee.

As noted by study author Dr. David Rosen, from the University of North Carolina at Chapel Hill:

“For some populations, being in prison likely provides benefits in regards to access to healthcare and life expectancy”

But before you get too excited, he added this sobering comment on some of the negative aspects of imprisonment in an email to the reuters.com reporter:

“it’s important to remember that there are many possible negative consequences of imprisonment — for example, broken relationships, loss of employment opportunities, and greater entrenchment in criminal activity — that are not reflected in our study findings but nevertheless have an important influence on prisoners’ lives and their overall health.”

So, in the eyes of Dr. Rosen, apparently being in prison has it’s pros and cons.

Let’s not forget the man who reportedly robbed a bank to get much-needed, potentially life-saving medical attention, yet failed to either steal enough money to secure a felony charge or to go down the street to a free clinic that would have provided him the care he needed at no cost. It seems, Mr. Verone, the first-time bank robber had a plan – after a series of mis-steps he made the calculated decision to rob the bank, go to prison for three years, and then retire in Florida on his social security benefits… He reportedly already went condo shopping before he pulled his big heist.

Unfortunately, his un-armed robbery of exactly one dollar may not provide him all the ‘benefits’ he planned on, since his robbery wasn’t a robbery (in legal terms), but merely larceny – a lesser crime with a much smaller penalty. Mr. Verone has said he would consider being a repeat offender to ensure he gets all the medical treatment he needs.

Sources:

reuters.com: Black men survive longer in prison than out: study

Newsbusters.com: MSNBC Hypes Story of Man Who Robbed Bank for Prison Health Care, Leaves Out Free Health Clinics in His Backyard

wcnc.com: Man seeking health care robs bank for $1

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