The Rubio-Lee Tax Plan

Jim Geraghty's daily must-read e-mail "Morning Jolt" discussed the Rubio tax plan a couple of days ago:

Under Rubio’s plan, the top rate drops from 39 percent to 35 percent . . . but it kicks in at $75,000 for individuals, and $150,000 for married couples. There are a decent number of individuals making $75,000 and married couples making $150,000 who will be surprised to learn that they’re in the top tax bracket in the United States. Rubio points out that there are various little steps people can take to reduce their taxable income below that threshold -- put money in a retirement account or health savings account, etc., and Rubio-Lee also includes a $2,500-per-child tax credit, which will do a lot for the parents in that higher category. (The other tax rate under Rubio-Lee? Fifteen percent. Right now, the 15 percent tax rate only applies to single filers making $9,225 to $37,450 and married couples making $18,450 to $74,900.)

If you’re a married couple with a combined taxable income of, say, $140,000, currently playing the 25 percent rate, the Rubio tax plan is terrific! Your rate is dropping to 15 percent! But if you’re a married couple with a combined taxable income of, say, $160,000, currently paying a 28 percent rate . . . Rubio-Lee’s 35 percent rate doesn’t look good at all!

Right... sort of. It's true that the hypothetical $160k earning family would have a higher marginal tax rate (35% vs 28%), but would they have a higher tax bill? Under the existing tax plan they pay $31,851.50. Under the Rubio plan they would pay $26,000, a savings of nearly $6,000. It's possible that such families would be OK with the compromise: a higher marginal rate in exchange for a pretty large overall cut and simpler calculations. The actual crossover point (where tax bills would be identical) occurs at $276,450 for married filing jointly. In this bracket the current tax rate is 33%, so the Rubio plan represents only a 2% hike.

What's also worth looking at is how tax bills change as income rises. This is, after all, the reason why we care about marginal tax rates: the higher your marginal tax rate, the argument goes, the less interested you as a taxpayer will be in increasing your income, since an ever-higher portion of your additional income goes to taxes. So consider Geraghty's hypothetical $140k-earning family. Under current law they will be paying $26,587.50; under Rubio-Lee they would pay $21,000. They are contemplating a change which would result in a $20k increase in income. How much do they get to keep? We already figured out their final tax bills, so this is easy: under current law they'd pay an extra $5,264, and under Rubio-Lee an extra $5,000. So even though their marginal tax rate is higher under Rubio-Lee, they'd still be better off when transitioning into the higher bracket.

If they contemplated another $20k increase, then we finally see the marginal rate taking effect: they'd pay an extra $5,600 under current law, but $7,000 under Rubio-Lee. However, as I noted before, they'd still be paying a lower overall bill under Rubio-Lee. Marginal rates are important, but so are overall bills.

So let's recap: Under Rubio-Lee, the top marginal rate is lowered. Actual tax bills are lowered in most cases (the most extra a married filing jointly filer would pay is $2,701 for earnings of $411,500: $111,324 under current law and $114,025 under Rubio-Lee). The marginal rate is increased as much as 7% for some filers, but for those filers their total tax bill is decreased, and marginal rates are decreased for the meaty part of the earnings bell curve (filers currently in the 25% bracket would be reduced to 15%). Nothing is perfect, but this plan seems to balance a number of factors pretty well.

Post-Election Wrap-Up

Well, Tuesday was unpleasant. We were standing athwart history, and history rolled over us like a freight train. We really can't deny that.

At the moment, at least, this is not a center-right country: it's center-left. Some would have us believe that this is due to demographics, and thus has an unstoppable momentum behind it. But I don't think that has to be the case.

In the near future, some predictions:

1. There won't be any conciliation between the parties, unless the GOP chooses to roll over. Obama won narrowly, but he's going to view this as a mandate and push his agenda as aggressively as ever.
2. We will see even more abuses of executive power over the next two, and possibly four, years. (My biggest fear is that this won't end with Obama's second term, but may become a permanent fixture of American politics. If I'm right about that, then we'd better hope we never elect an ambitious power-monger President.)
3. Taxes are going up for most people. The most obvious top-line effects will be on "the rich", but if business taxes are raised, that affects everyone. If gas is taxed more heavily, that affects everyone. And so on.
4. Health care coverage will get worse as more companies opt not to provide it to their employees. We're going to start the long march towards universal care. I predicted this two years ago and so far have seen no reason to doubt it.
5. Iran will get a nuclear weapon.

The 1% Ate Our Taxes

It's a little lame to write a post that just quotes someone else, but this is so important that I'm going to risk lameness:

...the government’s own Congressional Budget Office has just published a report whose statistics flatly contradict this claim. The CBO report shows that, while the average household income fell 12 percent between 2007 and 2009, the average for the lower four-fifths fell by 5 percent or less, while the average income for households in the top fifth fell 18 percent. For households in the "top 1 percent" that seems to fascinate so many people, income fell by 36 percent in those same years.

(This is from a recent Thomas Sowell article on NRO.)

Now look, there's no need to cry for the 1 percent. They're doing fine. But if we're going to have a national conversation about taxes, we need to know what we're talking about. The meme that the 1 percent are doing so much better than everyone else is simply wrong, and that fact needs to be known more widely.

9-9-9 vs 20%

I'm enjoying the GOP's jousting flat tax proposals. Isn't it nice to be debating the best ways to limit government, instead of the best ways to expand it?

We have two real proposals on the table here. Herman Cain's 9-9-9 plan would tax personal income at 9%, corporate income at 9%, and levy and national sales tax at 9%. Rick Perry's 20% plan would create an optional 20% flat tax, with exemptions, that taxpayers could choose as an alternative to paying existing taxes.

Of the two systems I prefer Perry's, for a few reasons.

First, it's less radical. Cain's plan radically cuts income taxes and replaces the revenue with a sales tax. This would require the United States to create a system for administering a national sales tax, and would create uncertainty both for government revenue and businesses affected by the sales tax. State sales tax policies are extremely varied: some have few exemptions, while others have various carve-outs in an effort to make such taxes less regressive. In New Jersey, there are "enterprise zones" in which sales taxes are halved. The negotiations necessary to bring about a 9% national sales tax - higher than most states' - would be complicated to say the least.

Second, it's more politically feasible. Such a major change is going to engender lobbying efforts from industries that may be negatively affected. Take an inexpensive clothing retailer - Old Navy, say, just to pick one. In many states there is no sales tax on their products because clothing is exempt below some limit. Would a national sales tax also exempt them? You can be sure they would prefer it does, and would lobby to bring about that outcome. Remember the rent-seeking behavior that went on during the negotiations for Obamacare.

True, the Cain plan is simpler. Perry's plan has been attacked as "more complicated than the existing tax code", because it adds yet another layer onto an already complicated tax system. That is true. But the end result will likely be simpler for large numbers of people. My judgment is that total hours spent calculating income tax will be lower under the Perry plan than under the current plan, and that's what really matters. If large numbers of people choose the 20% flat rate, that provides a path to simplifying the rest of the tax code, as parts of it will be rendered irrelevant.

I wish I had more confidence that either plan would ever be debated by Congress.

Careful What You Wish For

This is brilliant.

Doing Your Taxes

Jay Nordlinger writes today about taxes in America:

You know how people say, “There’s something wrong with our tax system if people can’t do their taxes on their own”? I think I agree with that. A special caste, almost a priestly caste, has grown up: tax accountants, tax preparers. They exist to help us do our taxes, or to do them for us.

Reminds me of a conversation I had a couple of weeks ago with a friend from Denmark. He was extolling the virtues of the Danish system: you give the government all your information, and they compute your taxes for you and send you a bill. Simple. I understand the allure of this idea, especially around this time of year. This year I get to file a federal return and two state returns, with major penalties on at least two of them because of some unexpected income in the year. It's a pain, and thank goodness we have software to help us.

I'd still prefer not to give the government my information if I don't have to. It's a losing battle, of course, or maybe a lost one: most of my finances are reported to them anyway in the normal course of doing business. But at least there's a chance to reverse this. Once the government is doing your taxes for you, the odds of reversal drop to infinitesimal levels.

But an even more important point is that with the authorities doing my taxes for me, I'm not as involved in the tax system. Right now I can see the loopholes: railroad workers get special treatment, as do the blind, the aged, those affected by natural disasters, and so on. It's right there on your 1040. Some loopholes are harder to find, of course, which is why we still have tax accountants. But if we turned over all preparation to the government, I lose whatever insight I currently have.

My Danish friend thought I was being a typically paranoid American. I hope my response was typical.

The Heart Warms

Michael Barone points out that Texas should be the growth model for the nation.

Menendez Wants to Allocate Your Collective Wealth

Bob Menendez (D-Cuba) makes the following assertion about tax cuts on ABC's This Week:

You can't talk about spending and being responsible about spending and then spend $4 trillion that you don't have of our collective wealth to the individuals who have the greatest wealth in the country.

I see. According to Sen. Menendez, your money, my money, and your neighbor's money is all collective wealth to be allocated to the poor, the middle-class, or the wealthy as Sen. Menendez and Barack Obama decide. This is the face of the Democratic Party, folks. We've got to eject these clowns posthaste.

Here's the video. The interesting part starts around 9:15:

Painting Yourself Into a Corner

There are riots in Brussels today as Europeans protest austerity measures by the EU and its national governments. Their "argument", such as it is, might seem reasonable: that the recession was caused by banks pushing the envelope, not by those citizens being affected by austerity, so somehow the austerity measures aren't "fair".

But how do they think governments got so flush in the first place? It was certainly due, at least in part, to a booming economy caused by banks pushing the envelope. During boom times, tax revenues is up. But you have to expect a bust eventually (unless you believed that late '90s bunk about the "end of the business cycle"). Governments didn't save up for the rainy days to come: not just European ones; the U.S. and certain states (I'm looking at you, New Jersey, and don't think I haven't noticed you, California) are just as guilty.

So here's the conundrum. Governments get rich because of an unsustainable bubble they tacitly encouraged. Social spending grew to match revenues. When the bubble burst, tax revenue fell and the increased spending suddenly blew massive holes in budgets worldwide. So austerity measures were necessary to close the holes. Now the people who benefitted from increased spending are pissed: their lollipops are being taken away. But what's the alternative? Current budgets are unsustainable, so where's the revenue to come from? You could raise taxes, but that risks killing the geese that lay the golden eggs.

You could target banks, extract as much tax revenue from them as possible, and enforce regulations and laws to prevent future bubbles. But that runs the same risk: if those banks run out of innovative options, tax revenue from them will wither.

What's happened is that we've painted ourselves into a corner. The only way to get out is to take that first unpleasant step onto the wet paint.

A Death Tax Tale

Once upon a time there was a company. This company was founded during the Great Depression, and survived that turmoil and the World War that followed it. In the 1960s it was bought by a pair of entrepreneurs who thought they could make it even better. And they did. Under their ownership it prospered. Eventually one of these owners died and his family's share was bought back by the company. That was costly, but the company survived it. The company survived other hardships as well: legal troubles, financial market struggles, moves, new products.

The company has been run by this family of entrepreneurs for nearly fifty years now. And after all of this history, it has been forced to sell itself. Why? Has the company been poorly run? Is it drowning in debt and has to find a partner to help pay its creditors?

No. The company generates millions of dollars in profits a year. It has no debt.

What is happening is simple: the second of the pair who acquired the company is aging, and so is his wife. At some point - maybe tomorrow, maybe ten years from now - they will be dead, and the estate tax will kick in. And if that happened, the company would basically be out of business, because while it is a cash cow, it doesn't have the funds to buy back enough stock to allow the family to pay those taxes. Furthermore, such buybacks would radically change the capital structure of the company, with the family possibly losing control. And all for no good reason.

Naturally, the company wants to avoid this outcome. So it is being acquired. The family and the minority shareholders get their payoffs now, and the company will be absorbed by its new partner. While the company has been lucky - the partner has pledged to run the company as a stand-alone operation, and not mess with its corporate operations or culture - they will install a new CEO, and inevitably some changes will be coming. Employees are nervous, and rightly so.

This is the sort of unintended, and injurious, consequence that Republicans talk about when they attack the "death tax." To make matters worse, in this case at least, the government won't even collect the tax. The acquisition will trigger some capital-gains taxable events (I assume - it may even manage to avoid those depending on the specifics of the deal), but those will be timed to coincide with current lower capital-gains tax rates. The 55% estate tax that will go into effect in 2011 (barring new legislation to prevent the sunsetting of the 2001 Bush tax cuts) will collect zero revenues from the company. It's hard to find a purer example of the Laffer curve at work.

Gas Taxes and BP

BP could, legally, just pay the $75 million cap on liability due to an oil spill and call it done. They won't do that, of course, because they know there'd be hell to pay in the future. Maybe they could get away with paying only the maximum this time, but the U.S. could just revoke their licenses to drill in U.S. territory, and that would have a serious impact on their bottom line. So for basically political reasons, BP is caving to the White House's escrow demand, even though it isn't technically "legal." (As an aside: I seem to remember some Presidential candidate in the last election who made a big deal about the law being the law, and that we shouldn't make exceptions when it was convenient. Who was that? Hmmm.)

All that aside, what interests me here is the question of who pays for what? We're being urged, from some directions, to create a gas tax that would cover some of the externalities of using oil. One of those externalities is oil spills. OK, then the gas tax should go to paying for them; an economically efficient gas tax would raise an amount exactly equal to the cost of the externalities.

But if we had that, then BP would be off the hook, because the government would be in charge of cleanup. That would only be fair, since after all, we would have prepaid the cleanup costs. This creates a moral hazard, though, doesn't it? If BP, via its shareholders, isn't liable for the cleanup cost, then what incentive does it have to be careful? It still has some, of course: if it's caught violating the rules, then it would owe fines and might lose licenses. But the incentives would be reduced. Certainly in the wake of the Deepwater Horizon spill, oil company shareholders should be requiring a thorough review of the safety and emergency response measures of the companies they own. The same reviews would not be a matter of fiduciary duty if the government were cleaning up the mess and paying for it instead of BP.

With reduced safety precautions, the expected result of a gas tax, then, would be that there would be more accidents, resulting in more cleanup costs (requiring higher taxes to pay for them), and more environmental damage. It could perversely worsen the situation.

Balancing the Budget

The Committee for a Responsible Federal Budget has created a useful budget simulation in which you get the opportunity to make the "hard choices" necessary to stabilize total U.S. debt at 60% of GDP by 2018. It's an interesting game. Here's how I did it:

Overall

• Reduce troops in Iraq and Afghanistan to 60,000 by 2015
• Let Bush tax cuts expire, except that lower-rate cuts are only raised by half (this was forced; I originally tried it keeping all the tax cuts, but the numbers just didn't work out)

Defense & Diplomacy

• Cut foreign economic aid in half

Domestic Social & Economic Spending

• Cancel TARP
• Freeze unemployment benefits at 2009 levels
• Cut TANF
• Cut federal funding of K-12 education by 25%
• Eliminate New Markets Tax Credit
• Cut federal funding of school breakfast programs

Social Security

• Raise retirement age to 68
• Reduce benefits by 30% (over next 70 years)
• Use alternate measure of inflation for COLAs
• Reduce spousal benefits by 33%
• Increase Years Used to Calculate Benefits (from 35 to 40)
• Include all New State and Local Workers

Health Care

• Repeal ObamaCare but keep the Medicare/Medicaid Cuts
• Raise Medicare Premiums to 35% of Costs
• Enact Medical Malpractice Reform
• Increase Medicare Retirement Age to 67
• Reduce Medicaid Funding Matches to States

Other Spending

• Cut Federal Workforce by 5%
• Reduce Farm Subsidies
• Cut Earmarks in Half

Tax Expenditures

• Convert Mortgage Interest Deduction to a 20% Credit
• Eliminate Biofuels Subsidies
• Replace Employer Health Care Exclusion with a Flat Credit

In general, my philosophy is to cut the size of government where possible, and keep taxes low where possible. I wasn't able to cut taxes as much as I would have liked, but no doubt that's because of non-discretionary spending.

More Tax Day Musings

Oliver Wendell Holmes famously said: "I like paying taxes. With them I buy civilization."

Yeah, well, couple of problems here. First of all, civilization predates taxes, and certainly income taxes. Heck, in America we didn't have internal taxes at all from 1817 to 1862. How'd we buy civilization then? The income tax only became permanent in 1913 with the passage of the 16th Amendment. So Holmes is just wrong.

Of course, a modern welfare society is just too costly to run without taxes, so today we probably need them. But that leads me to the second problem. Suppose I said: "I like paying $100 to the local deli. With it I buy a ham sandwich for lunch." I enjoy the ham sandwich. It's a very tasty sandwich. But $100 is still too much to pay for it. Likewise, just because I enjoy the benefits of civilization doesn't mean I'm willing to overpay for it.

A separate question is whether we're actually overpaying. I think it's pretty obvious we are, but there's room for disagreement here. I will leave that for another blog.

No Need for "No, Sir"

Senator Waxman has canceled the hearings I previously blogged about. Good for him.

Some Tax Day Advice

Suppose I make you an offer: either I can loan you $1,000 for a year, interest free; or you can loan me $1,000 for a year on the same terms. If you loan me the money, I promise that my credit is as good as the government's. Which deal would you take?

The answer seems obvious, yet millions of people choose otherwise when it comes to income taxes. According to Kiplinger, 78% of taxpayers got an average refund of $2,753 in 2009. They could, by changing their claimed exemptions on their W-4, have arranged things so that they got no refund, or even paid a little. And by doing so, they would have had nearly $230 per month in additional take-home pay for the entire year of 2008.

In the grand scheme of things, timing this money to come earlier (in your paycheck) instead of later (in your refund) doesn't make a huge difference. If you can earn 5% on your money - about what you'd get from a decent bond fund - then the average taxpayer is giving up no more than $100 in lost income. You can push this a bit, though. You don't have to shoot for a zero tax bill on April 15. Current tax law (and please double-check this with a real tax lawyer or accountant before you try this) says that you owe no penalty if you owe no more than the greater of $1,000 or 10% of your total tax bill. So if your bill is $10,000 and you currently get an average refund of $2,750, you can actually reduce your withholding by $3,750 throughout the year, and then pay $1,000 on April 15. That maximizes your interest-free loan potential.

When I bring this up with people who get refunds (and I'm going to a tax-refund party on Saturday, so I'll be sure to gather more anecdotes then), the most common reason people don't follow this strategy is that they think they'll just foolishly spend the extra paycheck cash instead of whatever wise thing they think they'll do with the refund windfall. But that "wise thing" is often something like paying off credit card debt. If they put their extra take-home pay to a high-interest credit card and didn't wait for the windfall, and their interest rate is 20% or more (as many are), then we're talking about maybe $400 per year in unnecessary interest fees. That's real money.

As I wrote the above about people fearing they would spend their money foolishly, I couldn't help but think this described some deep malady in modern America. We do fear we'll spend, and invest, our money foolishly. This is partly because modern life is very complicated. Even professional financial analysts miss things. How can a regular person hope to stay current with all the various tax deductions, investment strategies, credit card deals, sales, rebates, and on and on and on, that a totally with-it person might take advantage of? It's impossible. A rational response might be to just worry about the big stuff and keep one's ears open. But I think many people just give up in the face of overwhelming complexity and live in the moment.

Added to this is the fact that our reliance on regulations to minimize the caveat emptor aspect of capitalism leads (some) people to be less careful than they should be. After all, Uncle Sam is watching, right?

And speaking of Uncle Sam: if people really do fear they'll handle their own money foolishly, doesn't that reduce their resistance to being taxed more heavily? The government - supposedly - is doing something responsible with your tax dollars. We may not trust the government much, but if we trust ourselves even less, to whom else can we turn? It's just more evidence that our nation is losing - has lost? - its tradition of self-reliant individualism.

The Horror of the Rubber Rooms

Imagine a life in which you are condemned to sitting in a trailer for eight hours a day. You have no responsibilities other than to clock in when you arrive and clock out when you leave. You may play games, read, study, surf the internet, or do whatever other activities you like as long as you stay in the trailer for the appointed hours. Finally, you are paid your normal salary, with generous benefits, and have three months of vacation per year.

Such is the horrific fate of New York state teachers who have been "accused" of incompetence, or some worse offense, and who are awaiting a ruling on whether their employment may be terminated. Some of these teachers have been consigned to their trailer - dubbed a "rubber room" - for as long as three years. They tell of how they develop a camaraderie with one another, how they support new "members", of how they work to make their little corner of hell a little more livable by re-arranging the furniture or decorating the walls. One is even working on her Ph.D. in education.

Those of us who work in regular industry are lucky. If we are terminated, it happens quickly, like ripping off a Band-aid. There is no slow torture in which we are forced to continue to get paid to sit around and do nothing why a union lawyer adjudicates our case. No, ours is a kinder fate: we are released back into the rat race, to sink or swim, to find another job.

So on this April 15, Tax Day, the day you symbolically pay those rubber-room teachers' salaries, spare a thought for these poor souls.

UPDATE: WNYC had a story about the rubber rooms today. Later in the day came the news that the city is now planning to shut them down. Apparently the hit to both the city's and the union's public relation was too much to bear.

Death of Fiscal Federalism

Veronique de Rugy writes on the death of fiscal federalism.

Fiscal federalism is the idea that states should set their own economic policies rather than following directives from Washington. Libertarians have a particular attachment to the concept. If states can differentiate themselves on the basis of taxes, spending, and regulation, that gives Americans more leeway in deciding the rules under which we live. If we’re dissatisfied with the policies of the state we live in, we can register our discontent by voting with our feet and moving to another jurisdiction. This competition for residents helps keep lawmakers in check, giving them an incentive to keep taxes and other intrusions modest.

For decades, alas, fiscal power has become increasingly centralized, making a joke of federalism. Washington has taken over more and more state functions, largely through grants to state and local governments, also called grants-in-aid. Figure 1 shows federal grant spending in constant dollars from 1960 to 2013. As you can see, total grant outlays increased from $285 billion in fiscal year 2000 to a whopping $493 billion in fiscal year 2010—a 73 percent increase. Grants also account for a bigger share of federal spending: 18 percent in 2009, compared to 7.6 percent in 1960.

I wrote about this in January in relation to the Oregon state tax hikes.

Compensation in the Public and Private Sectors

Brian Lehrer on NPR discusses the following question: What is the proper social contract between taxpayers and public employees in a changing world? His guests are Bob Master, Legislative and Political Director for Communications Workers of America in the Northeast, and E.J. McMahon, who specializes in NY city and state taxes and budgets for the conservative Manhattan Institute think tank.

Why is there a "social" contract at all between taxpayers and public employees? Don't they have real, legal contracts? The "social contract" is supposed to be a concept whereby we all agree to give up some of our freedoms in exchange for mutual safety. (And yes, taxes are a form of this. Taxes represent a loss of freedom to keep all of your earnings.) The social contract certainly comes into play when considering questions of taxation and public service, but it is not between taxpayers and public employees. Rather, it is between all members of society and covers far more than merely that one relationship.

As an aside, the whole idea of the "social contract" is an attempt to legitimize the use of government force on its citizens. Taxes are sometimes described (by liberals) as voluntary or at least as a very soft form of coercion. Of course this is completely false: fail to pay your taxes and you will find yourself in jail. That's not very soft. To justify this, liberals will sometimes bring up the idea that a tax-dodger has broken the "social contract" and, as good conservatives, we are expected to defend contract arrangements. The real goal, I suspect, is to mask the naturally adversarial relationship between taxpayers and government. (Other examples of the same tendency are found in the way our taxes are deducted painlessly from our paychecks, and the fact that tax day - April 15 - is almost exactly six months from election day in early November, i.e. as far away as possible.)

Getting back to the NPR segment, Lehrer opens by suggesting that public employees get much better deals than employees of private firms and asks whether this has to change. Master concedes that they get better deals (with only token resistance), but prefers that private employees get better compensation. He views reduction in compensation for public unions as a "race to the bottom."

Lehrer then poses the following question:

If I in the private sector don't have a defined benefit pension any more; if my job in the private sector doesn't come with unions any more, so I have to work cheaper than my father did [er, what? steal bases much, Lehrer? - J]; then why should the teacher, or the cop, or the toll collector have these things that cost me as a taxpayer more in benefits than my boss is paying me at my private company?

For my home state of New Jersey, and for our neighbor New York and our spiritual and financial partner California, this is a critical question, since public sector spending has gotten so out of balance it now threatens the solvency of these states. Master lists a few concessions which the unions he represents have made to these concerns:

We have made very significant sacrifices and changes in our pension plan to try to address those questions. We've increased the pension contribution of our members in New Jersey from 5% to 5.5%, as have teachers and local government workers all across the state. We raised the retirement age from 55 to 62. In terms of direct compensation, we postponed a raise, we took ten unpaid furlough days, and we have given up a total of $450 million in compensation over the past three years.

This really shows how disconnected the unions are from reality. The pension increase is nice to see, but doesn't bring the pension plan into the black - and doesn't match what private employees have to contribute to their 401(k)'s in order to ensure a comfortable retirement (and even so it isn't ensured in the way a government-backed defined benefit pension is). An increase in the retirement age to 62? This only highlights the fact that it was 55 - fully ten years younger than a private sector employee. Now the gap is merely five years, since private sector employees of my generation will be retiring no earlier than 67, and quite likely later. Incidentally, the combination of low pension contributions and early retirement is financially devastating.

McMahon points out a few other shortcomings with Master's claimed "concessions":

In New York State, public sector workers in state government last year received a 3% across the board salary increase plus longevity steps and are due to receive another 4% next year, in the teeth of the worst recession in 70 or 80 years, when in the private sector those people who have managed to hang on to their jobs are receiving no pay increase.... Even when, in those storied days of the New Deal and its aftermath, when the old line industrial union members - pick the UAW, for instance - had defined benefit pensions - and UAW members still do. You realize the UAW pension at its peak, at its richest, is not as generous as a typical public sector pension. That's a fact. There's never been anything in the private sector by and large as generous as what most state and local government workers get in pension and benefits.

How the Social Security Administration Views the World

I just went to the Social Security Administration's Web site to check the maximum tax for 2010. They don't make this really easy to find, but I've always been able to locate it. This time, just for kicks, I clicked on their "Information For" drop-down list thinking that I'd just click on "employees" and start there.

Employees? There is no such category. OK, maybe I'm a "Taxpayer" or some synonym. No, sir. On reflection, that makes sense. The government doesn't like to remind us that we actually pay taxes (unless we haven't paid enough).

That's when I went through each category, trying to figure out which one I fit in:

American Indians/Alaska Natives: No.
Asian Americans/Pacific Islanders: No (why are these special groups singled out?).
Attorneys: No.
Congress: No (they get their own category?? there are only 535 of them! And they have their own staffs!)
Employers: No.
Financial Planners: No.
Government Agencies: No.
Government Employees: No.
Health & School Professionals: No.
Human Resource Managers: No (but this is probably where I'll find the information I was originall looking for).
Immigrants: No.
Job Seekers: No.
Kids: No. (Really? Kids get their own category in our government retirement system's Web site?)
Medicare Outreach Agencies: I have no idea what the heck this is, but I'm not a member of one.
Press: No. (Unless Athwart History qualifies. OK, no.)
Representative Payees: Um...
Representatives: What is this? I have no idea, so I assume no.
Researchers: No.
School Officials: No.
Self Employed: No.
Social Agencies: No.
Software Developers: Hey, what? Yes, I am one! Er, wait, though, do software developers get special Social Security benefits? I don't think so. This must deal with developing software to calculate benefits or taxes or something, so while I might go here to find the information I'm looking for, it's not my category.
Vendors & Contractors: No.
Veteran-Owned Small Businesses: No.
Women: No.
Wounded Warriors: No.

So there you go. I don't fit into any of the SSA's categories. They list 26 of them. As I count it, that's 11 covering protected groups (like those Asians and Pacific Islanders), 9 covering people who actually might have particular questions (e.g., Press) and 6 that I simply can't categorize (Congress? Kids?).

I guess regular taxpaying employees just don't rate. I noticed the same thing on Obama's Web site back when he was running for President in 2008. He had all sorts of categories of people he would help out. I didn't fall into a single one. Oh, well. I suppose I should take pride in this.

The Oregon Tax Hike

The recent vote to raise taxes in Oregon is being viewed by some liberals and conservatives as a shot in the arm for the flagging confidence of liberalism in America. Maybe. But many conservatives, at least, are also dismayed by the vote as another turn of the ratchet of inexorable public-sector growth. I am forced to disagree, at least in principle.

The original design of this country was based around local control. If you needed a new street in your town, you went to the town government to try to get it done. The advantage of this system was that it allowed for a lot of experimentation and competition without flinging the whole country into uncertainty and chaos. Chicago might try one system for public education; New York might try something else. An entirely different system might be appropriate for Albuquerque. Or maybe Nacogdoches wants to try something new for whatever reason. It might succeed or fail; the change might cause a lot of grief and heartache or be the start of something wonderful. But in any event, the experiment in Nacogdoches would affect only the Nacogdocheans; the rest of the country could watch what happened.

While campaigning, FDR pronounced that his administration would be exemplified by "bold, persistent experimentation". He was elected on this platform, and the experiments were suddenly everywhere, all the time. The entire business climate underwent a cold front of uncertainty; no entrepreneur wants to launch a risky new business, or expand an existing one, when the very assumptions he is operating under might be different next month.

But FDR didn't start this trend; he is more of a signpost on a long road - one reading "Caution: Sharp Left Turns Ahead". Since before his time, there has been a general shift in power from the municipalities to the states to the federal government. In most cases, federal control comes in the form of money: the deal is that you (you: the state, county, or municipality) get federal money only if you pass a mandatory seat-belt law, or whatever Congress want to control this week.

Moves like that of Oregon may signal an Oregonian desire for more government, but unless you live in Oregon that really shouldn't affect you. (In the real world, it might, since the feds have proved so willing to prop up state budgets. One reason they do this is that it keeps power flowing from state to federal government, since the more fiscally dependent a state is, the less independent it is in all other ways.) There is a grave danger that we will some day end up with thousands of local governments and our fifty state governments, all meddling and annoying us in their own ways, and mostly funded by Leviathan in the form of the federal government, meaning they are less accountable to the people they directly govern. That is a perversion of the principle of local government. Therefore we should encourage efforts by states to pay for their own outsized governments. (This does not mean that we should discourage states to shrink their governments, though, as long as they do it without offloading to the feds.)

The federal income tax makes reversing the trend a steep uphill battle, since it gives the feds so much cash to slosh around. Even when they can't quickly raise revenue through taxes, the federal government has a hugely greater ability to raise money through debt than any state does. The power of Congress to buy state compliance on any number of issues is astonishing. We would be well served as a nation to find a way to encourage power and accountability to become more diffuse and localized.