The debate about taxes in Washington is always the same: raising taxes will cost jobs. But what does history say about the subject? Will higher taxes cost jobs? Is there empirical evidence to support the claim?
Before we dig in too far I must point out I am not supporting one political party over the other, nor am I advocating for higher taxes. I merely point out historical facts on how tax increases affect job growth. No nasty emails, please. Respectful comments can be added below.
Income taxes in the United States began with the Civil War and were declared unconstitutional shortly after the war. World War I brought heavy financial demands on the Treasury, so an amendment was added to the Constitution allowing income taxes as we know them today. Income taxes started in 1913 and have continued unabated to today.
The first real opportunity to reduce income taxes significantly was after WWI. Major tax cuts to the top marginal tax rates in the mid 1920's lead to rapid growth in the economy. In a few years the over-heated, over-producing nation suffered a hangover called The Great Depression. The lesson learned is that lower top marginal tax rates provide a short-term boost to the economy followed by significant economic pain caused by the encouraged ramp-up in production. The lower rates encouraged current demand and sucked up future demand until a long recession was needed to work through the excesses.
Closer to home, President Kennedy reduced the top tax bracket from 90% to 70%. The 1960's were mostly good economic times. The economic issues of the 1970's were more related to demographics, expansion of the money supply during the Vietnam War, and oil shocks. Lowering marginal tax brackets that are very high seem to work long and short term.
President Reagan lowered top marginal tax brackets, too. Heavy emphasis was placed on encouraging supply by allowing fast expensing of assets for businesses. The economy boomed as employment increased and inflation dropped. The federal government ran large budget deficits during the entire period. If Social Security had the lower surpluses of today, President Reagan's deficit spending would have exceeded the rate of today's as a percent of GDP. The stock market crashed in 1987 by 22% in one day, the largest percentage drop on record. The economy only slowed without a recession and accelerated into the end of the decade before giving way to a real recession.
Like today, the 1990's saw a Democratic president and a Republican Congress from President Clinton's first midterm elections. Deficit spending that was acceptable to the Republicans under Reagan and Bush were untenable under Clinton. A tax increase coupled with spending cuts set the federal government up for the largest budget surpluses ever. But higher taxes did not kill the economy. Rather, the economy boomed with job growth, corporate profits, and the stock market walking hand in hand. Tax increases did not kill jobs in the 1990's because the top marginal tax rate was increased to 39.6%, a historically low top marginal tax rate.
Once Clinton left office, the newest Bush presidency set out to lower taxes by a massive amount. Deficit spending was back in place. More tax cuts over the first six years of George W. Bush created only a modest number of new jobs while expanding debt, public and private. By the end of the first decade of the Twenty-First Century the economy was in shambles, government receipts declining, job losses exceeding those created over the previous six years, and nothing seemed to shake the sluggishness that set in.
Lower taxes did not help create jobs in the 2000's; slightly higher taxes gave us a job creating juggernaut in the 1990's. The tax code today has so many moving parts no one person understand the entire beast. Deductions and credits exist for every possible activity. Raising taxes by reducing deductions and credits should reduce the cost of complying with the tax code for individuals and businesses.
So the question remains: If we raise taxes will it cost jobs? It seems to me that a modest tax increase or a reduction in certain tax credits could actually encourage job growth. Any real effort to reduce Washington's red ink will require spending cuts and revenue increases.
Simplification of the tax code would provide real encouragement for businesses to hire. Businesses and individuals spend too much unproductive time gaming the tax system. A simpler tax code with fewer deductions and credits would allow certain tax rates to decline, especially for the middle class.
Remember, raising taxes are the thing to do as long as it is not my taxes being raised.
Sunday, July 24, 2011
Wednesday, July 13, 2011
It's the Jobs, Stupid
I could have titled this post Wasted Opportunity, but elected for the more in your face approach. For two and a half months (or longer) Washington has focused all its attention toward the spending limit on their credit card when the real issue is jobs. Balancing the budget on spending cuts or tax increases will only slow an already comatose economy.
If anyone is serious about bringing the national debt under control it will require tremendous effort on the jobs front. More jobs also means a better economy. In a recent article I argued that government regulation and interference is holding back job creation. The other half of the story is what the government can do to jump start the economy via job creation.
Governments around the country are cutting jobs while the private sector is adding a small number of jobs. I agree with selective downsizing of government payroll. The government should not create jobs by hiring more people. Washington can create jobs by providing focused funding. A large part of our electric grid was built in the 1930's and is in need of an upgrade; out road look like a page out of a developing country and our bridges collapse from time to time; our transportation system is outdated and more efficient, high-speed alternatives, need investment. Honing spending to targeted areas of infrastructure is the fastest way to create jobs without installing another permanent level of government spending/bureaucracy.
All the debate on the spending limit, spending cuts, and/or tax increases has created no jobs and never will. When unemployment is over 9%, why are we talking about anything other than jobs?
If we had jobs and a better economy the budget problems would largely vanish. One third of the deficit is from lower tax revenues directly related to the slow economy. Unemployed people pay few taxes, payroll or otherwise. Another third of the deficit comes from increased spending on food stamps, unemployment, and other social programs to help the people harmed by the economic conditions. The remaining third of the budget shortfall will require attention in the future when jobs are on the upswing.
Every politician in Washington that is debating the budget when jobs are the real issue should be fired. Both political parties are at fault. The only time jobs are considered is when it is used as an argument to further a political agenda.
Stop talking about the debt limit. It creates no jobs. Raising taxes or reduced spending creates no jobs. If we spent the last three months talking jobs the way we talk credit limits our economy would be humming. Our trade deficit was over $50 billion in May. There is work to do. Now we need to get out of our way and start hiring.
If anyone is serious about bringing the national debt under control it will require tremendous effort on the jobs front. More jobs also means a better economy. In a recent article I argued that government regulation and interference is holding back job creation. The other half of the story is what the government can do to jump start the economy via job creation.
Governments around the country are cutting jobs while the private sector is adding a small number of jobs. I agree with selective downsizing of government payroll. The government should not create jobs by hiring more people. Washington can create jobs by providing focused funding. A large part of our electric grid was built in the 1930's and is in need of an upgrade; out road look like a page out of a developing country and our bridges collapse from time to time; our transportation system is outdated and more efficient, high-speed alternatives, need investment. Honing spending to targeted areas of infrastructure is the fastest way to create jobs without installing another permanent level of government spending/bureaucracy.
All the debate on the spending limit, spending cuts, and/or tax increases has created no jobs and never will. When unemployment is over 9%, why are we talking about anything other than jobs?
If we had jobs and a better economy the budget problems would largely vanish. One third of the deficit is from lower tax revenues directly related to the slow economy. Unemployed people pay few taxes, payroll or otherwise. Another third of the deficit comes from increased spending on food stamps, unemployment, and other social programs to help the people harmed by the economic conditions. The remaining third of the budget shortfall will require attention in the future when jobs are on the upswing.
Every politician in Washington that is debating the budget when jobs are the real issue should be fired. Both political parties are at fault. The only time jobs are considered is when it is used as an argument to further a political agenda.
Stop talking about the debt limit. It creates no jobs. Raising taxes or reduced spending creates no jobs. If we spent the last three months talking jobs the way we talk credit limits our economy would be humming. Our trade deficit was over $50 billion in May. There is work to do. Now we need to get out of our way and start hiring.
Tuesday, July 12, 2011
Why the Post Office is Broke
The call is out: The U.S. Post Office is running at a deficit. The red ink is piling up at a rapid pace so it is time to raise postage rates to cover the shortfall. You would think under the current environment the Post Office would grasp at any stream of additional revenue. The Internet and electronic bill pay has reduced mail volumes with only one notable growth area: Netflix. Even with streaming, Netflix still provides a steady and massive volume of mail.
A few days ago I put a Netflix movie in my mailbox and raised the flag. When I returned home that evening the movie was still there and the flag still up. I called the post office to complain and was informed that if I have no inbound mail the mail carrier is not required to pickup outbound mail.
And now you know why the Post Office is broke. They drive past easy business.
A few days ago I put a Netflix movie in my mailbox and raised the flag. When I returned home that evening the movie was still there and the flag still up. I called the post office to complain and was informed that if I have no inbound mail the mail carrier is not required to pickup outbound mail.
And now you know why the Post Office is broke. They drive past easy business.
Wednesday, July 6, 2011
Blame It On the Unions
In case you have not noticed, we have labor union issues here in Wisconsin. It started when Governor Scott Walker stripping collective bargaining rights from public employee's unions. Teachers (and others) went on the offensive and have 6 Republican and 3 Democrats facing recall elections.
I do not belong, nor ever belonged, to a labor union. I have been self-employed at some level my entire adult life with the exception of 18 months early on. I believe unions have good and bad points. Nothing is all good or all bad. The truth lies somewhere in the middle.
With the above disclaimer said, I want to posit a few facts. I intend no fights; I only want people to think about it. When labor unions were on the rise and later very powerful in the United States, the United States won two world wars and lead the planet economically, in standard of living, militarily, and with a vibrant middle class. As labor unions have declined, so have middle class living standards and our standing in the world on all fronts save debt accumulation.
If unions are so bad, why is this? If unions are so good, why are they in decline? Think about it.
I do not belong, nor ever belonged, to a labor union. I have been self-employed at some level my entire adult life with the exception of 18 months early on. I believe unions have good and bad points. Nothing is all good or all bad. The truth lies somewhere in the middle.
With the above disclaimer said, I want to posit a few facts. I intend no fights; I only want people to think about it. When labor unions were on the rise and later very powerful in the United States, the United States won two world wars and lead the planet economically, in standard of living, militarily, and with a vibrant middle class. As labor unions have declined, so have middle class living standards and our standing in the world on all fronts save debt accumulation.
If unions are so bad, why is this? If unions are so good, why are they in decline? Think about it.
Wednesday, June 15, 2011
I Don't Have to Pay My Loans Either
My wife and I have an ongoing spat. (OK, I am making it up to make a point.) The argument is centered around how much we should spend on certain items in our family budget. I think we should fill the fridge with food, fund the retirement accounts, and invest for the kid's college fund. I am willing to work a few more hours to pay for these things.
My wife thinks I'm an idiot. She can't wait to move my tail out of the house and bring in a husband that thinks like she does. She says we should work even fewer hours and cut spending. Who cares about college and retirement so far in the future. As for the leaking roof, my wife thinks a patch is better than replacement. Since she holds the checkbook, she refuses to pay the credit card bill and mortgage until I agree with her and cut our income and spending. I tell her she is nuts. She says she called the mortgage and credit card company and they were fine with us paying late if it helped us get out financial house in order.
The above example is exactly how Congress is acting with the debt ceiling limit. Wisconsin Rep. Paul Ryan says he talked with U.S. debt holders and was told a late payment is fine, especially if it leads to more fiscal responsibility later.
Back to our example. The due date for the credit card comes and goes without payment. Two weeks later the wife and I kiss and make up. The credit card is paid. No harm, no foul. Right?
Wrong! The bank now knows we are willing to leave bills unpaid even when we have the money to pay. The money was available to pay the credit card. We just chose not to pay it until we agreed to get along. The bank IS okay with the late payment because the interest rate was hiked from 8% to 18%. It will stay that way for years even with no future late payments.
Back to the real world. Do you really think U.S. debt holders will be fine with a missed or late interest payment? To a point, maybe. But really? No. Debt holders will now need a higher rate to compensate for the risk. Not just the risk of hard economic times, but lover's spats, too. Treasurys will no longer be the premium cash management tool they once were. All Americans will pay the price then for the stupidity of Congress and for a long time.
The Republicans and Democrats in Congress need to stop acting like an old married couple with an ax to grind and start acting like the professionals the American people thought they hired to run the country. Americans, and the world, are counting on it.
My wife thinks I'm an idiot. She can't wait to move my tail out of the house and bring in a husband that thinks like she does. She says we should work even fewer hours and cut spending. Who cares about college and retirement so far in the future. As for the leaking roof, my wife thinks a patch is better than replacement. Since she holds the checkbook, she refuses to pay the credit card bill and mortgage until I agree with her and cut our income and spending. I tell her she is nuts. She says she called the mortgage and credit card company and they were fine with us paying late if it helped us get out financial house in order.
The above example is exactly how Congress is acting with the debt ceiling limit. Wisconsin Rep. Paul Ryan says he talked with U.S. debt holders and was told a late payment is fine, especially if it leads to more fiscal responsibility later.
Back to our example. The due date for the credit card comes and goes without payment. Two weeks later the wife and I kiss and make up. The credit card is paid. No harm, no foul. Right?
Wrong! The bank now knows we are willing to leave bills unpaid even when we have the money to pay. The money was available to pay the credit card. We just chose not to pay it until we agreed to get along. The bank IS okay with the late payment because the interest rate was hiked from 8% to 18%. It will stay that way for years even with no future late payments.
Back to the real world. Do you really think U.S. debt holders will be fine with a missed or late interest payment? To a point, maybe. But really? No. Debt holders will now need a higher rate to compensate for the risk. Not just the risk of hard economic times, but lover's spats, too. Treasurys will no longer be the premium cash management tool they once were. All Americans will pay the price then for the stupidity of Congress and for a long time.
The Republicans and Democrats in Congress need to stop acting like an old married couple with an ax to grind and start acting like the professionals the American people thought they hired to run the country. Americans, and the world, are counting on it.
Sunday, June 5, 2011
Gus What?
Now that tax season is finally winding down I have the time to reflect on what I want to do with the extra three or four free minutes I get each day. (Yes, I know it is June. I'll explain later.) This blog post will help you understand how your friendly accountant thinks. It is insightful because I see a lot of people over the year and how they manage their money, time, and lives. I recently had a brainstorm that can help you in your life if you open your mind to the possibilities.
First some background. Tax season does NOT end on April 15th; it ends around Memorial Day. Tax season begins around mid-December with setting up tax software and mailing calendars and pre-appointments to clients. Between Christmas and New Year's Day the office is fully staffed with all non-tax preparing employees and additional part-time help. Pre-appointments take a lot of time to set up in the computer. Happy Holidays guys!
January is flush with year-end payroll reports, 1099s, and W-2s. All regular full- and part-time employees begin their tax season schedule the first workday of January. A few small tax returns straggle in by mid-January with a rapid influx the last few days of the month and escalating to season heights in early February.
With a large number of smaller tax returns done, March puts the rush on corporate returns due March 15th. By now the entire office is living on caffeine to keep going. But there is no time to lollygag. The April 15th deadline is fast approaching.
All this time, from mid-December to mid-April, I promise people I'll get to my other work as soon as tax season is over. And, like clock work, the phone rings 926 times with 23, 439 emails on April 16th. Every phone call and email starts with, "Getting ready to enjoy your vacation time?" I smile, but my teeth are grinding. I roll up my sleeves and dig in hot and heavy. By about June 1st I am reasonably caught up. Then I sit back, crack open a cold one and sleep the day away until next December. Oh wait! That last bit was my fantasy. Sorry about that.
I know what you are thinking. You think I am a lucky stiff that works half the year and takes it easy the other half playing golf and other assorted distractions. Well, I am sorry to burst your bubble, but, things only slow down from the hectic to the barely manageable for the last half of the year. What the slow down does allow is for some time for personal interests.
Accountants make their money (virtually all of it) in the first half of the year. It is common to work for six months at a loss to make a nice income in the spring. Accountants are also tight with a dollar. We have to be. The paycheck we get in late April needs to last until January. Compared to most accountants, I am even tighter. My wife says it takes the Jaws of Life to open my wallet. She also says Washington and Lincoln squint when my wallet is opened from the rare glimpse of sunlight.
Accountants are practical people. At least I like to tell myself such. That extra three or four minutes a day allows me to have a nice garden. I am up to four this year and am proud to tell you I should break the 1000 pound mark for harvested potatoes this year. I also added three varieties of grapes and raspberries this year. This fall we should can 50 or more quarts of pears and another 30 of plums. I make home-made wine (dandelion, red clover, current, and grape are my favorite), can and freeze hundreds of pounds of beans carrots, cauliflower, broccoli, and anything else I was crazy enough to plant. We also dehydrate hundred of onions, pears and apples.
I tell you these things so you understand where I am and how my thought processes work. You see, I like to extend the period of time I make money. I need something to add to the garden that takes only a modest amount of work, makes good money, and takes time outside tax season only. And that leads to today's topic: Gus What?
I have a small asparagus patch that has kept me satisfied for years. But this year I bought a few more crowns and propagated what I already have. Next year my production should skyrocket over 400%; the year after should exceed 2,000% of this year's take. Within five years I hope to harvest asparagus (which I affectionately call gusses) by the ton. Asparagus sells for $3-4 a pound in local grocery stores. One acre well tended can produce between 3 and 8 tones of asparagus. It takes an hour or so to pick an acre of asparagus. Asparagus picking season is one month where I live (from mid May to mid June). Asparagus keeps well if the cut ends are placed in cold water and kept in the fridge. Asparagus can remain fresh months this way. I can see a nice new side business developing.
This morning for breakfast I enjoyed gusses cut into one inch pieces, sautéed in olive oil, mixed with scrambled eggs until completely done, and covered in Tabasco. My god, I was in heaven.
Oh! I gotta go. My wife is coming and she doesn't like me talking these fantasies. She knows I'm just crazy enough to do it.
First some background. Tax season does NOT end on April 15th; it ends around Memorial Day. Tax season begins around mid-December with setting up tax software and mailing calendars and pre-appointments to clients. Between Christmas and New Year's Day the office is fully staffed with all non-tax preparing employees and additional part-time help. Pre-appointments take a lot of time to set up in the computer. Happy Holidays guys!
January is flush with year-end payroll reports, 1099s, and W-2s. All regular full- and part-time employees begin their tax season schedule the first workday of January. A few small tax returns straggle in by mid-January with a rapid influx the last few days of the month and escalating to season heights in early February.
With a large number of smaller tax returns done, March puts the rush on corporate returns due March 15th. By now the entire office is living on caffeine to keep going. But there is no time to lollygag. The April 15th deadline is fast approaching.
All this time, from mid-December to mid-April, I promise people I'll get to my other work as soon as tax season is over. And, like clock work, the phone rings 926 times with 23, 439 emails on April 16th. Every phone call and email starts with, "Getting ready to enjoy your vacation time?" I smile, but my teeth are grinding. I roll up my sleeves and dig in hot and heavy. By about June 1st I am reasonably caught up. Then I sit back, crack open a cold one and sleep the day away until next December. Oh wait! That last bit was my fantasy. Sorry about that.
I know what you are thinking. You think I am a lucky stiff that works half the year and takes it easy the other half playing golf and other assorted distractions. Well, I am sorry to burst your bubble, but, things only slow down from the hectic to the barely manageable for the last half of the year. What the slow down does allow is for some time for personal interests.
Accountants make their money (virtually all of it) in the first half of the year. It is common to work for six months at a loss to make a nice income in the spring. Accountants are also tight with a dollar. We have to be. The paycheck we get in late April needs to last until January. Compared to most accountants, I am even tighter. My wife says it takes the Jaws of Life to open my wallet. She also says Washington and Lincoln squint when my wallet is opened from the rare glimpse of sunlight.
Accountants are practical people. At least I like to tell myself such. That extra three or four minutes a day allows me to have a nice garden. I am up to four this year and am proud to tell you I should break the 1000 pound mark for harvested potatoes this year. I also added three varieties of grapes and raspberries this year. This fall we should can 50 or more quarts of pears and another 30 of plums. I make home-made wine (dandelion, red clover, current, and grape are my favorite), can and freeze hundreds of pounds of beans carrots, cauliflower, broccoli, and anything else I was crazy enough to plant. We also dehydrate hundred of onions, pears and apples.
I tell you these things so you understand where I am and how my thought processes work. You see, I like to extend the period of time I make money. I need something to add to the garden that takes only a modest amount of work, makes good money, and takes time outside tax season only. And that leads to today's topic: Gus What?
I have a small asparagus patch that has kept me satisfied for years. But this year I bought a few more crowns and propagated what I already have. Next year my production should skyrocket over 400%; the year after should exceed 2,000% of this year's take. Within five years I hope to harvest asparagus (which I affectionately call gusses) by the ton. Asparagus sells for $3-4 a pound in local grocery stores. One acre well tended can produce between 3 and 8 tones of asparagus. It takes an hour or so to pick an acre of asparagus. Asparagus picking season is one month where I live (from mid May to mid June). Asparagus keeps well if the cut ends are placed in cold water and kept in the fridge. Asparagus can remain fresh months this way. I can see a nice new side business developing.
This morning for breakfast I enjoyed gusses cut into one inch pieces, sautéed in olive oil, mixed with scrambled eggs until completely done, and covered in Tabasco. My god, I was in heaven.
Oh! I gotta go. My wife is coming and she doesn't like me talking these fantasies. She knows I'm just crazy enough to do it.
Friday, May 27, 2011
Sprint Rip-Off Report
On the advice of another, I switched my cell phone to Sprint. Great customer service was the main reason for the switch with better prices a close second. Let me explain how it worked out.
First, the service sucked. Call quality is poor on good days and worse the rest of the time. When I called Sprint customer service they told me if I didn't like the service I could switch back to where I came from. I live in a rural area where Internet is hard to get. I use the cell phone as my Internet portal for modest speed. Sprint says they provide unlimited Internet without throttling. Two point here:
The Premium Date Add-on Charge is mandatory on all new accounts with smart phones with 3G/4G capabilities. Most areas do not get 4G. My Sprint 3G works less than half the time, including when I am at work in town. Current customers will get hosed with this rip-off fee when they upgrade their phone. I recommend you upgrade to a real telecommunications company instead.
Save yourself the high blood pressure and aggravation. Avoid Sprint.
First, the service sucked. Call quality is poor on good days and worse the rest of the time. When I called Sprint customer service they told me if I didn't like the service I could switch back to where I came from. I live in a rural area where Internet is hard to get. I use the cell phone as my Internet portal for modest speed. Sprint says they provide unlimited Internet without throttling. Two point here:
- Sprint can't throttle you back when they are so slow to start with. On multiple speed tests they run at only a third of what they promise. Dial up is only an inch away.
- Unlimited access means little when it is near impossible to download at any reasonable speed. How much can you download in a month at .08 Mbps?
The Premium Date Add-on Charge is mandatory on all new accounts with smart phones with 3G/4G capabilities. Most areas do not get 4G. My Sprint 3G works less than half the time, including when I am at work in town. Current customers will get hosed with this rip-off fee when they upgrade their phone. I recommend you upgrade to a real telecommunications company instead.
Save yourself the high blood pressure and aggravation. Avoid Sprint.
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