Check this out. "Punishing the rich" my ass. Apparently our substantially (but inadequately) progressive tax regime falls off the map once you get to the very, very top of the economic pyramid.
The top 400 taxpayers in this country paid taxes, on average, equal to 18% of their reported income in 2005. They paid 30% in 1995, and they have gotten much richer since then - they now make on average 235% of what they made in 1992. And in 2005 a third of the top 400 taxpayers actually paid less than 15% of their income in taxes. The comparatively small cut taken from the rich has apparently led Progressive Plutocrat Warren Buffet to extend the offer of a $1 million bet to every Fortune 400 member that they cannot show that members of the Fortune 400 pay, on average, a higher percentage of their income in taxes than their receptionists do.
This reduction in tax burden is largely a result of the steep cuts in the capital gains tax since 1997 (28% before 1997, 20% until 2003, 15% since). About 54% of the income of the top 1% comes from capital gains - the percentage is almost certainly much higher for the richest 400. The dividend tax cut obviously didn't help either. The result of these policies is that, since 1995, the annual tax burden of the very wealthy has decreased by $25 million per filer. That's a federal revenue loss of $10 billion annually. That's even enough to fund the war for 25 minutes.
Raw data here.
Interestingly, according to that bastion of left-wing thought, the Heritage Foundation, total federal tax revenue is just over 18% of GDP. That means the hideously wealthy bear an average federal income tax burden that is slightly less, as a percentage of their average income, than total federal government revenues as a percentage of total national income (GDP). Of course there are other significant federal taxes to consider in evaluating the burden any income group bears in financing the cost of the federal government, like payroll taxes and the estate and gift tax. But including these taxes isn't likely to change much. The extremely rich pay a comparatively miniscule percentage of their income in payroll taxes since so much of their income is not from work and the social security payroll tax exempts any work income over $101,500. And the estate and gift tax is tiny in terms of its effect and the amount of revenue involved. (1% of federal revenues vs. 35% for federal payroll taxes). Not to mention, it can be largely avoided with a modest amount of tax planning.
So it would appear that the average federal tax burden borne by the hyper-wealthy as a percentage of their income isn't much more than the burden borne by the economy overall, and it is almost certainly much lower than the tax burden imposed on most of the middle class. This is because anyone who earns all of their income from work pays 7.65% of their gross income in payroll taxes; so if you don't have any capital income and you pay more than 10.35% of your gross income in income taxes, you will end up paying a higher percentage of your income in federal taxes than people in the top 400. In other words, a single person (or a married person who files separately) who earns all of his or her income from working, makes more than about $61,500 a year, and takes only the standard deduction pays a higher percentage of their income in federal taxes than the average person in the top 400 does.
(Note: My analysis does not include the indirect burden of the corporate tax on the very wealthy. Including this amount in the analysis would increase the percentage burden borne by the very rich, especially since financial wealth is so heavily concentrated among the very wealthy. But I really don't think including it would change my analysis very much, since the corporate tax is only 10-15% of federal revenues and my suspicion is that the very very rich earn a disproportionate amount of their income from investments in exotic hedge funds and private equity funds, which are usually organized as partnerships and therefore not subject to the corporate tax. And I really have no feasible way of including it either.)
Saturday, April 12, 2008
Friday, April 11, 2008
Noah Chompkins Interview
So I got the chance to ask Chompkins a question or two on my friends' radio show. It was cool. I will add a link to this post if the interview becomes available online. He made a few points that are pretty basic, but very true and bear repeating.
1. Exploiting "comparative advantage" through free trade policies is not, in fact, how countries have actually successfully developed throughout economic history. They have developed through the use of high protective trade barriers and massive government intervention, subsidization, and direction.
2. The globalized, liberalized capital markets we have today actually move massive amounts of speculative capital all over the place rather than finance productive investment to any significant degree. They are a destablizing rather than productive force.
3. Most important technological developments that form the basis of our high standard of living have involved significant amounts of government research and financing.
4. Globalized capital markets also have had a huge hand in promoting global inequality. They allow investors to work as a "virtual senate," by withdrawing capital from a country en masse whenver they don't like that country's economic policies. If you look at the period in our history when we had some social democratic policies, it was during a period when we, and the rest of the world, had significant capital controls in place.
5. Economic growth since ~1975 was slower than between 1945-1975, and post-1975 growth has been highly inegalitarian. Income for the middle and bottom of the income distribution has stagnated and even fallen since 1975, while it has increased immensely for the wealthy during that period. Furthermore, economic growth from 1945-1975 (which was egalitarian) was correlated with improving social indicators (infant mortality, life expectancy, health metrics, etc.), while economic growth since that time has actually accompanied the deterioration of such social factors.
Overall I was struck by how moderate-social democratic Chomsky came off. I agreed with him on just about everything he said.
1. Exploiting "comparative advantage" through free trade policies is not, in fact, how countries have actually successfully developed throughout economic history. They have developed through the use of high protective trade barriers and massive government intervention, subsidization, and direction.
2. The globalized, liberalized capital markets we have today actually move massive amounts of speculative capital all over the place rather than finance productive investment to any significant degree. They are a destablizing rather than productive force.
3. Most important technological developments that form the basis of our high standard of living have involved significant amounts of government research and financing.
4. Globalized capital markets also have had a huge hand in promoting global inequality. They allow investors to work as a "virtual senate," by withdrawing capital from a country en masse whenver they don't like that country's economic policies. If you look at the period in our history when we had some social democratic policies, it was during a period when we, and the rest of the world, had significant capital controls in place.
5. Economic growth since ~1975 was slower than between 1945-1975, and post-1975 growth has been highly inegalitarian. Income for the middle and bottom of the income distribution has stagnated and even fallen since 1975, while it has increased immensely for the wealthy during that period. Furthermore, economic growth from 1945-1975 (which was egalitarian) was correlated with improving social indicators (infant mortality, life expectancy, health metrics, etc.), while economic growth since that time has actually accompanied the deterioration of such social factors.
Overall I was struck by how moderate-social democratic Chomsky came off. I agreed with him on just about everything he said.
Taxation of Business Income
Sorry all, but I have another dry tax policy post. This post is in part to respond to some previous comments and in part to make some comments about the proper tax treatment of business income.
Brother Vorms had an interesting take on the dividend tax. I don't disagree with his conclusion, but when we're talking about dividend tax rates we have to remember that the tax code imposes an entity level tax on corporations (i.e., the corporate income tax). Bear with me here.
Federal Tax Treatment of Business Income
Dividends
Say Corporation X made pre-tax profits of $100 last year, and would like to distribute this amount to its shareholders in the form of a dividend. The tax consequences are as follows. The $100 in profit will be taxed at the corporate level at a rate of 35%. The amount left over for the dividend is therefore $65. There is no corporate tax deduction available for a dividend paid to an individual. The $65 dividend payment will then be taxed to the individual recipient at a rate of 15%, leaving a total after-tax payment of $55.25 (65 – [.15 * 65] = 55.25). This gives an effective tax rate of 44.75% on the dividend.
Interest
Say the same corporation has $100 in pre-tax profits before taking into account the payment of interest on debt. Further assume the corporation is closely held, and it owes the debt to the owner. Finally, assume the corporation owes $100 in interest to the owner in the current year.
The interest payment (if the debt is considered bona fide, which is a whole issue unto itself) is a deductible expense to the corporation. So the corporation will face no tax on the $100 of pre-interest profits ($100 in gross income offset by a $100 interest deduction). The interest income is then taxable to the individual owner at ordinary income rates. Assuming the owner is the highest marginal tax bracket (35%), the income will be taxed one time only at a 35% rate. The total effective tax rate is therefore 35%.
This same analysis applies to interest paid to bondholders. Interest on deposit accounts, savings accounts, CDs, money market accounts, etc. is also taxable only once, to the individual payee (i.e., at a maximum rate of 35%). Investors may be able to make more after-tax money by investing in high-dividend stocks than savings accounts or CDs, but this is because the pre-tax rate of return is higher for corporate stocks, not because the overall effective tax rate is lower.
Capital Appreciation
Assume again that Corp. X has $100 in pre-tax profits. Assume that in this case, however, the corporation decides to retain the earnings. The corporation is now holding onto $65 extra in post-tax dollars (remember, a corporation’s profits are subject to the corporate tax), so the value of its market capitalization should theoretically be worth $65 more (not necessarily a true assumption for a large publicly traded corporation, but it is probably true for closely held corporations. Anyway, the assumption is for simplicity’s sake and does not alter the analysis).
Say the owner of Corp. X’s stock (assume there is only one) wants to liquidate his interest after the corporation’s stock increases in value by $65. When he does so, he will face a 15% capital gains tax on the $65 increase in value (in addition to any previous appreciation in value). Concerning the increase in value of $65, he will owe capital gains tax of $9.75 (or a reduction of capital loss worth the same amount), again ending up with $55.25. Just like in the case of a dividend, he will face a total tax rate of 44.75%.
Although the treatment of capital appreciation (in the context of corporate stock appreciation only) and dividends is similar, there are some very important differences from a general policy standpoint. First, the capital gains tax is only imposed upon realization, so in the case of capital appreciation, the taxpayer gets the benefit of deferring the tax until he cashes out (i.e., the time value of the deferred tax amount). Taxes will be due immediately upon receipt of the dividend. So in present value terms, the tax burden on the capital appreciation is lighter. By the same token, however, capital gains can be washed away before the taxpayer cashes out. Dividends are cash in hand. So capital gains may be less desirable in some contexts because the gains are subject to future capital risk. But this is a matter of finance, not tax treatment. Strictly speaking in terms of the government's take, the tax treatment of capital gains is more generous than the treatment of dividends because of the deferral issue.
But the main difference between the two as a matter of general tax policy is that most capital gains are not in the form of appreciated corporate stock. An absolute majority of capital gains are in the form of appreciated real estate. A lot of capital gains reflect appreciated partnership interests or various other noncorporate investments as well. So most capital gains do not reflect income that has already been subject to tax (and recall from my previous post that most capital gains are not taxed at all). Dividends, on the other hand, are by definition (under the tax code, anyway) paid out by an entity that is in fact subject to the corporate tax first. So the reduction in the rate of dividend taxation is far more justifiable than the capital gains preference from the standpoint of ameliorating the “double taxation” distortion (i.e., the tax at the corporate level and then again at the individual shareholder level).
Partnerships, LLCs, and S-Corporations
Partnerships, LLCs, and S-Corps are not subject to an entity level tax. Items of income are allocated directly to partners, members, or stockholders. Therefore, X LP or X, LLC or X, Inc. (subject to subchapter S) will pay no direct tax on the $100 of income. The tax items “flow through” to the partners or shareholders, who will (again, assuming a 35% rate) once again face a total tax rate of 35%. And when an owner of an interest in any one of these entities sells the interest, any resulting gain (which, remember, was not subject to any entity level tax) will be taxed at the 15% capital gains rate.
Economic Distortions
So you can see that dividends are actually the least favorably treated form of business income, even with the 15% tax rate in effect. This is as a result of the separate imposition of tax at the corporate level. Now granted, this analysis is simplified for the purposes of demonstration. It assumes away evasion, mischaracterization, tax-exempt forms of income, and special deductions and credits. As a result of some combination of these factors, along with the fact that of course some corporations do, in fact, have no income in any given year, only 1/3 of all corporations pay any corporate tax at all in any given year. But this fact doesn’t change much.
Say a corporation successfully avoids tax at the corporate level by posting an artificial tax loss, and therefore any dividend payments will only be taxed once, at the 15% rate. But the same thing would happen in the context of capital appreciation: the $100 of income would only be taxed once, at a 15% rate, when the owner cashed out. And of course an S-Corp, LLC, or partnership can just as easily hide or legally exempt income as a traditional C-Corp can, so any income from these investments would never be taxed at all to the individual owners. The only difference is for interest payments, which would still be taxable to the individual recipient at the ordinary income rate (maximum of 35%) whether the corporation had a loss or not. And of course interest paid from a savings account or CD is always taxable at ordinary rates as well. But as long as the corporation paying the dividend has taxable income greater than or equal to the amount of the dividend for the year (which you would think it usually would if it’s going to be paying out a dividend), the dividend faces the highest effective tax rate. Furthermore, if the corporation didn't owe tax on the profits it used to pay out the dividend because the income was tax exempt interest on municipal bonds, the shareholder could have avoided tax altogether by just investing in tax exempt bonds directly.
So the tax code actually creates an artificial distortion against dividend income, not in favor of it. Interest payments are deductible in full by a corporation, while dividends are not; this creates a distortion in favor of debt and against equity. Some commentators say this leads to excessively high debt/equity ratios among American corporations. The taxation of both corporate income and dividends also creates a distortion in favor of corporate retention of earnings, since capital appreciation is not taxable until realized. And because income from corporations is subject to two levels of tax (the corporate level, and then the dividend or capital gains tax), the tax code creates a distortion in favor of partnerships, LLCs, and S-Corporations and against investment in traditional C-Corporations.
It’s interesting to note, though, that for all the howling about the burden of “double taxation,” the difference in tax burden is by no means in a 2:1 ratio; rather it is 44.75% / 35%, or 1.28:1. This is not “double” in terms of the actual tax bite. The use of the term always bugs me for that reason.
For what it’s worth, I personally think an ideal tax world would have no tax at the business entity level, and would simply allow each item of income to “flow through” to the individual owner(s). That said, I would subject such income to very high, progressive, and uniform rates of taxation – regardless of whether it is capital gain, a dividend, or interest, and regardless of whether the entity that paid it is a corporation or an LLC. This would eliminate arbitrary differences in effective tax rates. But since we live in a world that is very far from ideal, and since the corporate and dividend taxes are among the most progressive taxes in town (they only hit the people that own stock), I support the maintenance of both. The top 1% own something like 50% of the total value all outstanding corporate stock, so for now we should keep corporate and dividend taxes as high as possible if we value progressivity over economic purity (which of course I do). The only problem is that under current law we’re letting massive private equity and hedge fund partnerships totally off the hook by not requiring them to pay any entity level tax at all. If we’re going to stick to an entity level tax regime, this makes no sense.
And Vorms is totally right about the timing issue. Rich people do cash out capital gains en masse whenever rates are lowered. Sometimes right-wing economists use the increase in capital gains tax revenue immediately following a capital gains tax cut to support the idea that lower rates actually increase income. This is obviously ridiculous, because the increased revenue just reflects the fact that people have held off to cash out until the lower rates take effect.
Brother Vorms had an interesting take on the dividend tax. I don't disagree with his conclusion, but when we're talking about dividend tax rates we have to remember that the tax code imposes an entity level tax on corporations (i.e., the corporate income tax). Bear with me here.
Federal Tax Treatment of Business Income
Dividends
Say Corporation X made pre-tax profits of $100 last year, and would like to distribute this amount to its shareholders in the form of a dividend. The tax consequences are as follows. The $100 in profit will be taxed at the corporate level at a rate of 35%. The amount left over for the dividend is therefore $65. There is no corporate tax deduction available for a dividend paid to an individual. The $65 dividend payment will then be taxed to the individual recipient at a rate of 15%, leaving a total after-tax payment of $55.25 (65 – [.15 * 65] = 55.25). This gives an effective tax rate of 44.75% on the dividend.
Interest
Say the same corporation has $100 in pre-tax profits before taking into account the payment of interest on debt. Further assume the corporation is closely held, and it owes the debt to the owner. Finally, assume the corporation owes $100 in interest to the owner in the current year.
The interest payment (if the debt is considered bona fide, which is a whole issue unto itself) is a deductible expense to the corporation. So the corporation will face no tax on the $100 of pre-interest profits ($100 in gross income offset by a $100 interest deduction). The interest income is then taxable to the individual owner at ordinary income rates. Assuming the owner is the highest marginal tax bracket (35%), the income will be taxed one time only at a 35% rate. The total effective tax rate is therefore 35%.
This same analysis applies to interest paid to bondholders. Interest on deposit accounts, savings accounts, CDs, money market accounts, etc. is also taxable only once, to the individual payee (i.e., at a maximum rate of 35%). Investors may be able to make more after-tax money by investing in high-dividend stocks than savings accounts or CDs, but this is because the pre-tax rate of return is higher for corporate stocks, not because the overall effective tax rate is lower.
Capital Appreciation
Assume again that Corp. X has $100 in pre-tax profits. Assume that in this case, however, the corporation decides to retain the earnings. The corporation is now holding onto $65 extra in post-tax dollars (remember, a corporation’s profits are subject to the corporate tax), so the value of its market capitalization should theoretically be worth $65 more (not necessarily a true assumption for a large publicly traded corporation, but it is probably true for closely held corporations. Anyway, the assumption is for simplicity’s sake and does not alter the analysis).
Say the owner of Corp. X’s stock (assume there is only one) wants to liquidate his interest after the corporation’s stock increases in value by $65. When he does so, he will face a 15% capital gains tax on the $65 increase in value (in addition to any previous appreciation in value). Concerning the increase in value of $65, he will owe capital gains tax of $9.75 (or a reduction of capital loss worth the same amount), again ending up with $55.25. Just like in the case of a dividend, he will face a total tax rate of 44.75%.
Although the treatment of capital appreciation (in the context of corporate stock appreciation only) and dividends is similar, there are some very important differences from a general policy standpoint. First, the capital gains tax is only imposed upon realization, so in the case of capital appreciation, the taxpayer gets the benefit of deferring the tax until he cashes out (i.e., the time value of the deferred tax amount). Taxes will be due immediately upon receipt of the dividend. So in present value terms, the tax burden on the capital appreciation is lighter. By the same token, however, capital gains can be washed away before the taxpayer cashes out. Dividends are cash in hand. So capital gains may be less desirable in some contexts because the gains are subject to future capital risk. But this is a matter of finance, not tax treatment. Strictly speaking in terms of the government's take, the tax treatment of capital gains is more generous than the treatment of dividends because of the deferral issue.
But the main difference between the two as a matter of general tax policy is that most capital gains are not in the form of appreciated corporate stock. An absolute majority of capital gains are in the form of appreciated real estate. A lot of capital gains reflect appreciated partnership interests or various other noncorporate investments as well. So most capital gains do not reflect income that has already been subject to tax (and recall from my previous post that most capital gains are not taxed at all). Dividends, on the other hand, are by definition (under the tax code, anyway) paid out by an entity that is in fact subject to the corporate tax first. So the reduction in the rate of dividend taxation is far more justifiable than the capital gains preference from the standpoint of ameliorating the “double taxation” distortion (i.e., the tax at the corporate level and then again at the individual shareholder level).
Partnerships, LLCs, and S-Corporations
Partnerships, LLCs, and S-Corps are not subject to an entity level tax. Items of income are allocated directly to partners, members, or stockholders. Therefore, X LP or X, LLC or X, Inc. (subject to subchapter S) will pay no direct tax on the $100 of income. The tax items “flow through” to the partners or shareholders, who will (again, assuming a 35% rate) once again face a total tax rate of 35%. And when an owner of an interest in any one of these entities sells the interest, any resulting gain (which, remember, was not subject to any entity level tax) will be taxed at the 15% capital gains rate.
Economic Distortions
So you can see that dividends are actually the least favorably treated form of business income, even with the 15% tax rate in effect. This is as a result of the separate imposition of tax at the corporate level. Now granted, this analysis is simplified for the purposes of demonstration. It assumes away evasion, mischaracterization, tax-exempt forms of income, and special deductions and credits. As a result of some combination of these factors, along with the fact that of course some corporations do, in fact, have no income in any given year, only 1/3 of all corporations pay any corporate tax at all in any given year. But this fact doesn’t change much.
Say a corporation successfully avoids tax at the corporate level by posting an artificial tax loss, and therefore any dividend payments will only be taxed once, at the 15% rate. But the same thing would happen in the context of capital appreciation: the $100 of income would only be taxed once, at a 15% rate, when the owner cashed out. And of course an S-Corp, LLC, or partnership can just as easily hide or legally exempt income as a traditional C-Corp can, so any income from these investments would never be taxed at all to the individual owners. The only difference is for interest payments, which would still be taxable to the individual recipient at the ordinary income rate (maximum of 35%) whether the corporation had a loss or not. And of course interest paid from a savings account or CD is always taxable at ordinary rates as well. But as long as the corporation paying the dividend has taxable income greater than or equal to the amount of the dividend for the year (which you would think it usually would if it’s going to be paying out a dividend), the dividend faces the highest effective tax rate. Furthermore, if the corporation didn't owe tax on the profits it used to pay out the dividend because the income was tax exempt interest on municipal bonds, the shareholder could have avoided tax altogether by just investing in tax exempt bonds directly.
So the tax code actually creates an artificial distortion against dividend income, not in favor of it. Interest payments are deductible in full by a corporation, while dividends are not; this creates a distortion in favor of debt and against equity. Some commentators say this leads to excessively high debt/equity ratios among American corporations. The taxation of both corporate income and dividends also creates a distortion in favor of corporate retention of earnings, since capital appreciation is not taxable until realized. And because income from corporations is subject to two levels of tax (the corporate level, and then the dividend or capital gains tax), the tax code creates a distortion in favor of partnerships, LLCs, and S-Corporations and against investment in traditional C-Corporations.
It’s interesting to note, though, that for all the howling about the burden of “double taxation,” the difference in tax burden is by no means in a 2:1 ratio; rather it is 44.75% / 35%, or 1.28:1. This is not “double” in terms of the actual tax bite. The use of the term always bugs me for that reason.
For what it’s worth, I personally think an ideal tax world would have no tax at the business entity level, and would simply allow each item of income to “flow through” to the individual owner(s). That said, I would subject such income to very high, progressive, and uniform rates of taxation – regardless of whether it is capital gain, a dividend, or interest, and regardless of whether the entity that paid it is a corporation or an LLC. This would eliminate arbitrary differences in effective tax rates. But since we live in a world that is very far from ideal, and since the corporate and dividend taxes are among the most progressive taxes in town (they only hit the people that own stock), I support the maintenance of both. The top 1% own something like 50% of the total value all outstanding corporate stock, so for now we should keep corporate and dividend taxes as high as possible if we value progressivity over economic purity (which of course I do). The only problem is that under current law we’re letting massive private equity and hedge fund partnerships totally off the hook by not requiring them to pay any entity level tax at all. If we’re going to stick to an entity level tax regime, this makes no sense.
And Vorms is totally right about the timing issue. Rich people do cash out capital gains en masse whenever rates are lowered. Sometimes right-wing economists use the increase in capital gains tax revenue immediately following a capital gains tax cut to support the idea that lower rates actually increase income. This is obviously ridiculous, because the increased revenue just reflects the fact that people have held off to cash out until the lower rates take effect.
Wednesday, April 9, 2008
The Federal Government: Corrupt as Hell?
I think we can all agree that this kind of thing (original report here) is highly undesirable, is a breach of public confidence, and should be punished severely. But before we form a lynch mob with pitchforks and torches to demand the abolition of the federal government, let’s try to establish some context.
First of all, the amount of money we’re talking about here (i.e., money involved in unapproved transactions plus the value of unaccounted for property) is about $7.5 billion, or 0.28% of the federal budget for the year examined (FY2006). This is obviously a fair amount of money in absolute terms, but it’s by no means the apocalypse in the context of the whole federal budget. And this amount reflects all purchases that did not comply with proper approval procedure and all “pilferable” property that cannot be accounted for. Some of these purchases may well have been for legitimate expenses and some of the unaccounted for property may have simply been misplaced.
Another way to evaluate the extent of the problem is to take the amount of money involved, and divide it by the total federal workforce. If we divide $7.5 billion by the 2.6 million people in the federal workforce (including postal workers, who are included in the study), we get an improper payment of $2,885 per federal employee. This sounds like a fairly significant amount, but again, by no means earth-shattering. Moreover, the vast majority of these transactions are almost certainly made or authorized by people at the very top of the federal employment hierarchy, since these are presumably the only ones who can authorize major purchases on a regular basis (actually only about 300,000 federal employees have purchase card accounts). As an anecdotal example, one top executive at the Department of Agriculture was responsible for embezzling $642,000, considerably bringing up the average for everyone. And though this executive did embezzle quite a bit of money, it bears noting that $642,000 is peanuts compared to the amounts of money embezzled by private sector executives in the Enron era.
Finally, I think it’s interesting to look at how much different parts of the income distribution have to shell out to finance such improper activity. The top 1% of income earners in this country make, on average, $1.1 million/yr. and account for 40% of all federal income tax receipts. (Note: income taxes account for 69% of general federal revenue, i.e., excluding payroll taxes, so I only account for 69% of the cost of improper activity here. If included other taxes, the cost to the very rich would increase a bit but the cost to everyone else would stay about the same). This means that each person in the top 1% pays, on average, $690, or 0.063% of their income to finance improper federal purchases. Of the next 9%, or people earning between $100,000 and $350,000, each person pays on average $57.25 to finance such activity. And each person in the bottom 50% pays, on average, $1.04 towards such improper transactions; people in the bottom 40% don't pay anything at all. So when Uncle Gloz or Uncle Vinez come to town and talk about how their tax money is being wasted, you should ask them how much money they make. Because chances are, they’re paying less than the cost of a bottle of second rate champagne.
That said, by all means, we should implement tighter controls. If we have any of this crap, then we have too much of it.
First of all, the amount of money we’re talking about here (i.e., money involved in unapproved transactions plus the value of unaccounted for property) is about $7.5 billion, or 0.28% of the federal budget for the year examined (FY2006). This is obviously a fair amount of money in absolute terms, but it’s by no means the apocalypse in the context of the whole federal budget. And this amount reflects all purchases that did not comply with proper approval procedure and all “pilferable” property that cannot be accounted for. Some of these purchases may well have been for legitimate expenses and some of the unaccounted for property may have simply been misplaced.
Another way to evaluate the extent of the problem is to take the amount of money involved, and divide it by the total federal workforce. If we divide $7.5 billion by the 2.6 million people in the federal workforce (including postal workers, who are included in the study), we get an improper payment of $2,885 per federal employee. This sounds like a fairly significant amount, but again, by no means earth-shattering. Moreover, the vast majority of these transactions are almost certainly made or authorized by people at the very top of the federal employment hierarchy, since these are presumably the only ones who can authorize major purchases on a regular basis (actually only about 300,000 federal employees have purchase card accounts). As an anecdotal example, one top executive at the Department of Agriculture was responsible for embezzling $642,000, considerably bringing up the average for everyone. And though this executive did embezzle quite a bit of money, it bears noting that $642,000 is peanuts compared to the amounts of money embezzled by private sector executives in the Enron era.
Finally, I think it’s interesting to look at how much different parts of the income distribution have to shell out to finance such improper activity. The top 1% of income earners in this country make, on average, $1.1 million/yr. and account for 40% of all federal income tax receipts. (Note: income taxes account for 69% of general federal revenue, i.e., excluding payroll taxes, so I only account for 69% of the cost of improper activity here. If included other taxes, the cost to the very rich would increase a bit but the cost to everyone else would stay about the same). This means that each person in the top 1% pays, on average, $690, or 0.063% of their income to finance improper federal purchases. Of the next 9%, or people earning between $100,000 and $350,000, each person pays on average $57.25 to finance such activity. And each person in the bottom 50% pays, on average, $1.04 towards such improper transactions; people in the bottom 40% don't pay anything at all. So when Uncle Gloz or Uncle Vinez come to town and talk about how their tax money is being wasted, you should ask them how much money they make. Because chances are, they’re paying less than the cost of a bottle of second rate champagne.
That said, by all means, we should implement tighter controls. If we have any of this crap, then we have too much of it.
Words of Wisdom
I've been skimming Noam Chomsky's wikipedia entry recently in order to prepare to ask him a question on Thursday on my friend's radio show. I came across this awesome quote:
"Anarchists propose other measures to deal with these problems, without recourse to state authority. I agree. But this is irrelevant to the problems faced by the Ravenswood workers, poor people dying of TB, hungry children, TODAY. It would be a gesture of extraordinary contempt for suffering people to approach them with the suggested slogans, which translate into real life terms: down with OSHA and support systems, etc., because they interfere with the freedom of individual -- wait for us to construct a different society some day. And that gesture of contempt would be met with dismissal, or worse, and properly so.
"One can, of course, take the position that we don't care about the problems people face today, and want to think about a possible tomorrow. OK, but then don't pretend to have any interest in human beings and their fate, and stay in the seminar room and intellectual coffee house with other privileged people. Or one can take a much more humane position: I want to work, today, to build a better society for tomorrow -- the classical anarchist position, quite different from the slogans in the question. That's exactly right, and it leads directly to support for the people facing problems today: for enforcement of health and safety regulation, provision of national health insurance, support systems for people who need them, etc. That is not a sufficient condition for organizing for a different and better future, but it is a necessary condition. Anything else will receive the well-merited contempt of people who do not have the luxury to disregard the circumstances in which they live, and try to survive."
Read the whole interview here.
"Anarchists propose other measures to deal with these problems, without recourse to state authority. I agree. But this is irrelevant to the problems faced by the Ravenswood workers, poor people dying of TB, hungry children, TODAY. It would be a gesture of extraordinary contempt for suffering people to approach them with the suggested slogans, which translate into real life terms: down with OSHA and support systems, etc., because they interfere with the freedom of individual -- wait for us to construct a different society some day. And that gesture of contempt would be met with dismissal, or worse, and properly so.
"One can, of course, take the position that we don't care about the problems people face today, and want to think about a possible tomorrow. OK, but then don't pretend to have any interest in human beings and their fate, and stay in the seminar room and intellectual coffee house with other privileged people. Or one can take a much more humane position: I want to work, today, to build a better society for tomorrow -- the classical anarchist position, quite different from the slogans in the question. That's exactly right, and it leads directly to support for the people facing problems today: for enforcement of health and safety regulation, provision of national health insurance, support systems for people who need them, etc. That is not a sufficient condition for organizing for a different and better future, but it is a necessary condition. Anything else will receive the well-merited contempt of people who do not have the luxury to disregard the circumstances in which they live, and try to survive."
Read the whole interview here.
Looser Workplace Saftey Regulations: $100.
Higher Productivity Through Violent Supervisors: $45.
Avoiding USJD Prosecution: Priceless.
NYTimes article about increase in "deferred prosecution" during Bush Administration.
Seems to be nothing more than: pay off the government and we'll overlook imposing criminal charges.
I sure hope the government uses that money wisely!
http://www.nytimes.com/2008/04/09/washington/09justice.html?ex=1365480000&en=58c28f6ae10c2e4a&ei=5124&partner=permalink&exprod=permalink
Seems to be nothing more than: pay off the government and we'll overlook imposing criminal charges.
I sure hope the government uses that money wisely!
http://www.nytimes.com/2008/04/09/washington/09justice.html?ex=1365480000&en=58c28f6ae10c2e4a&ei=5124&partner=permalink&exprod=permalink
Distribution of Income Growth
Do see this (original report here) on rising economic inequality by state. Interestingly, the analysis excludes capital gains, which of course are extremely concentrated among the wealthy. So it will substantially understate overall income inequality.
When I have time, I will put together a more detailed post regarding income growth trends since Reagan.
When I have time, I will put together a more detailed post regarding income growth trends since Reagan.
Tuesday, April 8, 2008
Americans Afflicted with 'Governmental Reliance Syndrome'
The work of GOPUSA definitely has to become a regular feature around here.
Move over Star Parker, here comes Bobby Eberle of THE LOFT to tell you dumb fucks at Working Socialism to get over your bad case of GRS* right away!
http://www.gopusa.com/theloft/?p=687
*Governmental Reliance Syndrome, Source: GOP DSM V.
Move over Star Parker, here comes Bobby Eberle of THE LOFT to tell you dumb fucks at Working Socialism to get over your bad case of GRS* right away!
http://www.gopusa.com/theloft/?p=687
*Governmental Reliance Syndrome, Source: GOP DSM V.
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