Re: OT: oil profits


"McDuck" <wallyDELETEMEMcDuck@xxxxxxxxxxx> wrote in message
news:1elf24d1o15s8fea2ot8ft2mdklrbsi6jb@xxxxxxxxxx
On Sun, 11 May 2008 13:32:02 -0400, "BBrain" <widenerb@xxxxxxxxxxx>
wrote:


"McDuck" <wallyDELETEMEMcDuck@xxxxxxxxxxx> wrote in message
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On Fri, 9 May 2008 11:52:47 -0400, "BBrain" <widenerb@xxxxxxxxxxx>
wrote:


"McDuck" <wallyDELETEMEMcDuck@xxxxxxxxxxx> wrote in message
news:pv4724d7t584i2l176qbkfvtn2i5qc9ke0@xxxxxxxxxx


Government grew in the past, but it has not been growing at the
Federal level for several decades. It has grown at the state level
and, in some cases, at the local level. so you should be happy <g>.

I assume you are talking about spending growth as a percentage of GDP,
etc.
I was speaking about growth in terms of the proliferation of programs,
regulations, rules and employees. Just take a look at the growth in the
size
of the Federal Registry and you will see what I mean.


Yes, I was focusing on government as % of GDP. Or per capita, adjusted
for inflation. I don't see all that many new programs, other that
medicare D. And employees is down, I think, in absolute terms at the
federal level. I'm sure you ar right that rules and regulations have
increased --- nature of the beast.



And how are these funds acquired? Higher taxes. So it seems we are
paying
higher taxes to fund even more programs and with them, more controls.
And
how do our political "representatives" sell these higher taxes? They
divide
us into groups, then they raise taxes on one group at a time. Since any
one
group is a small minority, they have little success in fighting back.
The
most popular target right now seems to be the "very wealthy", who are
accused of "not paying their fair share". Who's next?

I do disagree strongly that one role of government is to mitigate the
inequality of wealth and income. And why in the world would you want a
system that tries to obtain this equality by penalizing the most
successful
in order to subsidize the least successful? Remember the great
experiment
with communism? As I recall, it didn't work out real well. And socialism
isn't lookig that good either. I do agree that government should strive
to
create equal opportunity for all, but to punish those who are lucky or
make
more of their opportunities than others is self defeating.

Does every conversation about fair taxes have to end up with a
discussion of Communism? The Communists did not have a tax system, or
not much of one. The USSR did have a modest tax to try to take account
of differences in family size, but certainly it did not have a
redistributive income tax.

However, Marx was on the mark with his claim that capitalism contains
the seeds of its own destruction. His point --- which we now
understand to be obviously correct --- is that unregulated capitalism
ends up with more and more wealth being concentrated in the hands of
the few, resulting in huge savings levels and little consumption (and
misery for the masses). He looked forward to the collapse of
capitalism as the entry to communism. Didn't happen because the
political process in the US and Europe intervened to end laissez faire
capitalism. And a redistributive income tax was a major part of the
solution.

I cited communism as an example of an economic sysyem that in theory would
redistribute income, thus every one would be "equal" in terms of sharing
the
wealth of society. It failed mostly because it removed the economic
incentives for the average working person, which led to low productivity,
and required a strong central planning and control system of economic
activity, which had to include total political controls to work. This is
exactly the issue I am trying to make.

Well, I guess I don't understand your point. You said high taxes on
the rich was a tax on success, and referenced the communist government
in the old USSR, which did not have any taxes to speak of. I agree
that the communist experiment in the USSR was a failure, and it was
partly due to misguided incentives. More to do with poor information
flows, which is a common malady of central planning. The Liberal view
is generally against central planning --- FDR, for example, wanted to
use market mechanisms to regulate the market. And taxation is a market
regulating mechanism.


To argue that communism as an
economic system failed because the US & Europe adapted the graduated
income
tax is a very weak argument. By the way, I don't remember advocating for
"laisserz faire" capitalism, unless you are referring to my original
remark
about government getting out of the way.

No, I was not claiming you advocated that. I was noting that the
Marxist critique (seeds of its own destruction) was a critique of
laissez faire capitalism, and a pretty good one at that.


I was making the point that I
believe that government is too large and too intrusive, and I was
advocating
for less regulation, not an end to any government role at all. But I
suspect
you already know that but decided to use the old ruse of restating the
other
persons position in extreme terms to make it seem weaker.


No, that was not my intent, and sorry if it seemed that way. It seemed
to me that you were going to the "extreme" with your references to
socialism and communism, which, in my view, have absolutely nothing to
do with high (or low) taxes.

The reason communism had no real tax system is that there was nothing to
tax! Virtually all property and all economic activity was owned and
controlled by the government. The central authorities decided how much
each
person or family was going to receive, and the individual was almost
powerless to change it. Almost the only way you could "get ahead" under a
communist government was to become part of the governing elite. Human
nature
being what it is, sure enough the governing bureaucrats cut out a bigger
share for themselves.

Yes, that is correct. Communism is a system of government where the
government controls the means of production. I was making that point
to show that your analogy to communism in discussion Liberal tax
policies was off the mark.


Most social scientists and economists agree that tax policies can be
used
to
influence economic behavior; if you want less of something, tax it, if
you
want more of it, lower the taxes or subsidize it.

Sure, partly true. I want less inequality, so who do I tax to get it?

You seem to be saying that you want to achieve equality by reducing the
wealth of the minority until it is more equal to the majority . I would
rather find ways to increase the levels of wealth for the minority uto
make
it more equal. This doesn't always have to be about higher taxes and
bigger
government programs.

I'm for both. No way that tax policy can do a whole lot for the poor
--- other than to exempt them from tax. For them, the government
programs are key. And no way that government spending can close the
gap between the rich and the middle class. Only progressive taxes can
do that. But we seem not to have a major disagreement here. Perhaps
only on the degree of redistribution, and that is a legitimate issue
for debate, as there is no right or wrong answer IMHO.


The Wall Street Journal frequently makes the argument you have made
--- that a tax on the rich is a tax on success. It is not. Someone has
to pay. Do you or anyone else think that if we tax the poor more
heavily, we will have less poverty?

Of course a tax on the rich is a tax on success (at least economic
success),
saying it is not does not make it so.
Exactly, since government itself does not create wealth, someone has to
pay
the costs of it's policies, programs and infrastucture. I'm saying that
with
less government, whoever pays will end up paying less. That's the whole
idea.
That's a bogus argument. I did not advocates increasing taxes on the poor
and you know it.

Yes, I know that, and I did not say you did. I was making a point, not
making an accusation. You said, incorrectly in my view, that a
graduated tax is a tax on success and that taxing success will mean we
have less of it. I was turning your argument on its head --- that if
you were right, than taxing the poor would mean we would have less
poverty.

Obviously, a heavy tax on people with large incomes is a tax on people
with large incomes. But it is not a tax on "success". Someone who
invents a cure for cancer and makes a lot of money might have to give
up some of that money to a graduated income tax. But that person still
would be a "success". And a guy making millions from subprime loans
and screwing over the economy is not a success, by my definition, even
if he has a lot of money. And no, I am not suggesting you favor those
creeps <g>.


In fact, the economic literature shows that heavy taxes on the middle
class reduce work but that heavy taxes on the wealthy have little or
no effect on their conduct. If someone has $50 million and is still
working hard, you can be pretty sure it is not mostly for the money.
It is for power, glory, prestige, inner demons, whatever, but not to
satisfy their matieral needs or even material wants.

Maybe your choice of economic reading materials is different than mine. In
any case I wasn't thinking of the work side of the equation, but the
effect
of reduced disposable (read investment) on the long term economic health
of
our nation. The amount of money the rich spend on consumption is so small
compared to the whole that it has no signiicant effect in the economy.
Remember, the rich don't keep their money in their mattresses any more.
They
invest it, and that is the source most capital investment in the economy.


The rich do save more than the middle class, for the obvious reason
--- they have more money than the need to satisfy their consumption
needs and wants. So, in some contexts, a tax on the rich could reduce
savings. But not in the current context. When the government borrows
money to finance tax cuts for the rich, national savings goes down,
not up.

And not to confuse savings with investment. Investment in the US in
the 1990s was high, although the US savings rate continued the
downward trend that began in the 1970s and accelerated in the Reagan
years (due in part to the Reagan deficits). right now, the government
is sending out checks to the middle class and lower to get them to
SPEND because we think we need to "stimulate" the economy. That means
we thing that industry has invested too much --- that plants are idle
or at less than full production. In this context, investment is a bad
thing, not a good thing (speaking in the aggregate --- it also good to
make really smart investments, even if investment in general is
excessive).


Economists speak of two effects of an income tax --- the income effect
and the substitution effect. The latter occurs when a taxpayer
responds to higher taxes on income by working less (substituting
leisure for working). The former occurs when a taxpayer is working to
achieve some goal (e.g., buy a house) and works even harder after the
tax is imposed in order to be able to get the money needed to achieve
the goal. For example, If I'm making $50,000 after tax and working 40
hours a week, with the goal of buying a $300,000 house, I might work
50 hours to get back to $50,000 if an additional tax is imposed that
reduces my after-tax income. The effects have opposite signs --- that
is, the substitution effect reduces work incentives and the income
effect increases them. No one knows, a priori, which is more
important. In practice, they seem to balance each other out a lot of
the time.

Well, I prefer the side that says I get to keep most of the rewards of my
work. I am concerned about what happens when people decide it isn't worth
it
to work harder, because as they make more the government takes more of it.
Maybe no one knows where that tipping point is, but I am not interested in
finding it, as the effect could be severe.

Apparently the point is above 91% <g> --- the rate from WWII until
1962. The US economy did very will in the 1950s. I agree with you that
we need to be cautious about high rates. I am not arguing for a return
to the 1950s or even the prosperous 1960s (when the top rate was 70%).


We need to be careful we
don't end up taxing success at very high rates in the name of equality.
We
could end up with a lot less of it, then who would be next? My bet is
that
the definition of "very wealthy" would be revised downward. Think of the
minimum alternative tax as a good example of how this happens.


Well, you said you favored graduated rates, so you do favor taxing
"success". Perhaps we disagree on the degree of progressivity we favor
--- don't know, as that issue was not on the table. I was arguing
against the flat-tax as a requirement of social justice.

You are right, I have no argument with the graduated tax. Why are you
injecting the flat tax into this discussion? I never even mentioned it.

But you and I did not initiate this discussion. It started with Fred
Burton's claim that a graduate tax was theft.

My point to you was that if you think graduated taxes are a tax on
"success" and you favor such taxes, then you are conceding that a tax
on "success" is fine. All we would be debating is the rate, and we
have not joined issue on that point.


As for the alternative minimum tax, I think it does not make your
point. The AMT was once a rough way of reducing popular tax loopholes
for upper-income people without facing the political problems of
taking them away from the middle class. Then congress took stuff out
of the AMT that were directed at the rich, such as the untaxed part of
capital gains. At that point, the tax was pretty stupid.

But it got worse. In 2001, when Bush and the Republican Congress
borrowed money to provide tax cuts for the rich, they refused to make
the adjustments in the AMT that had routinely been done when rates
were lowered. That fact, plus the lack of indexing of the exemption
level, created the current problem. But understand why. IF the Bush
people had not created the AMT problem by lowering the top regular
rate and not lowering the AMT rate, they would have had less money for
the tax cuts for the very rich. In effect, the upper middle class,
though the AMT, is paying for a good portion of the tax cuts for the
very rich.

I don't see how you have shown that the AMT does not make my point. It was
a
tax originally aimed at the "upper-income" group to increase their
effective
tax rates by eliminating the effect of previous revisions to the tax codes
made by Congress. It ended up affecting a lot of other groups as well and
no
one, Republican or Democrat, has been willing to take the lost revenue hit
that would result from fixing that. Maybe not the perfect example, but
good
enough for me.

No, the Dems have been perfectly willing to fix the AMT and have had
bills to do so, voted down by the Senate --- that is, by the
Republicans in the Senate. The Republicans have been willing to fix
the AMT only if the fix is done by running up the deficit. THAT is
their official position on the issue, and Bush has taken the same
position. And the Republicans created the problem, not the Dems. I can
say some nasty things about the Dems on taxation, but they have
behaved on the AMT for the most part.


Are the "rich" the only ones effected by capital gain taxes? What about
the
millions of people who own stocks, bonds or real estate? Again, why invest
if your gains are taxed at a rate that doesn't justify the risk of losses.

Capital gains are less than 10% for every income class except at the
top, where the percentage is over 60%. For low and mderate income
taxpayers, the percentage is well below 10%, but I don't have the
exact numbers before me. So, you are right that there are people in
every economic level who have some capital gains. Still, the issue is
mostly of importance for the rich.

As for risks, well, who do you want to subsidize risk taking? The tax
policy issue is why should people earning capital gains pay at a lower
rate (substantially lower rate) than people earning wages or
commissions or earning money from running a business? I think the fair
thing is to tax all sources of income the same. And, if the goal is
economic efficiency, we want the market to provide the rewards for
risk, not the government. You see, those of use who want neutral
taxes really are the market advocates. It is those (not you --- making
no accusation here) who favor special tax incentives for the stuff
they like who want the government, not the market, to control. I'm
happy to have the government regulate markets to some degree to
prevent fraud, abuse, etc. But for the most part, I do not want the
government to be regulating market incentives.


Your argument seems to be that the lower tax rates caused more people to
pay
the AMT. Obviously not so.

That is my argument, and it is correct. Not to be insulting, but if
you think differently, you are not informed on this issue. I'll give
an example. Assume the AMT rate is 28% and the top regular rates are
36% and 40%. In that case, most people making a lot of money will not
pay the AMT, since, by definition, they only pay the AMT when it is
higher than the regular tax. Some will pay the AMT, however, because
they have a lot of regular deductions (e.g., for state income taxes
and dependents, etc.) that are not decutible under the AMT. Now assume
that the top rates are reduced to 36% and 32%, with no change in the
AMT rate. Now a LOT more people will have a high AMT then regular tax,
so they pay the AMT. When Reagan lowered the regular rates, he made a
similar reduction in the AMT rate. Bush did not do so because he did
not want to take the revenue hit. It is also asserted that those
paying the AMT were clustered in the Blue states (due to those states
having higher state taxes, for one thing), and he didn't care about
those in the Blue states. I've no information on motives. But that
Bush did not lower the AMT and used the resulting revenue to finance
bigger cuts for the rich is simple fact.


The income levels at which the AMT applies were
not lowered, so it had no effect on who was hit with the AMT. The cause of
the increase in the number of people effected by the AMT is, as you say,
the
lack of indexing for inflation. As I said above, nobody was willing to
take
the hit required to fix it, so somehow this becoming a Bush/Republican
plot
to give use the money to fund a "tax cut for the very rich" just doesn't
wash.

Lack of indexing is about 30% of the problem and failure to drop the
rate is abut 70% of the problem.


To paraphrase someone else, "Does every conversation about fair taxes have
to end up with a discussion of Bush and the Republican Congress?" Somehow
I
knew it would get to this. The evil Bush and his Republican cronies are
really the bad guys, not high taxes.


I think a discussion of fair taxes in the US does end up having to
address what Bush and the Republicans did with tax policy on their
watch. In any event, you raised the AMT issue, not me, and I simply
explained how the problem arose. I did not characterize Bush or anyone
else as evil. But I certainly think that the tax policies of Bush and
the Republican Congress were bad for America.

McDuck, as usual, it is always enlightning to have a conversation with you.
I think in the end it comes down to us having some very different viewpoints
on the roles and responsibilities of government in our country. I think we
could debate this issue for a year and not resolve our different viewpoints.
That's what makes it interesting. In any case, thanks for sharing yours.


.

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