Thursday, April 26, 2012

Perfect Example of Presidential Misdirection

Yesterday, President Obama provided the perfect example of democrat philosophy. To the casual listener, the subject was education. To the more astute, it was the price of education. The audience, Univesity of Iowa students.

President Obama said that the cost of student loans was too high when he took office. Billions and billions of federal dollars was going to banks who would then reap profits by extending loans to students where they had no risk because they were federally insured. But they would still earn a profit on those loans.

Having been in the same shoes as President Obama declared he had been, paying off student loans, I know from experience the interest rate on those loans is very low. Mine was prime plus one percent, maybe one and a half. So one could easily argue the "profit" derived from such loans was a management fee for the overhead of loan supervision.

I could spend all day on that, but that would take us off topic. Something I'm sure he wouldn't mind us doing.

He then bragged to the students that his administration had fought "tooth and nail" to remove those "middlemen" from the equation, lowering the cost of student loans.

That was his solution to lowering the price of a college education.

Let's be serious, assuming the cost of student loans actually did come down, because we all know that the government is far more efficient at managing than the private sector, who benefits from that? The provider of the loan. Not the recipient. The federal government benefits.

What's the most notable concept President Obama shared? The fact that he still wants you to take out loans. He still wants you in debt. He's just making it easier for you to get there and the debtor is now the government instead of a financial institution you prefer to do business with.

Here's a thought. Why not lower the actual price of the education? I know why, and when I say it, you will realize you know why too. But then, even if you have to take out a loan on $40,000.00, that's much less than $60,000.00. Payments are lower, the term could be shorter. All kinds of options are open. If you worked hard and were very frugal, you may not even need a loan (but perhaps that would defeat the President's idea of you still being in debt).

But I'll tell you why the President doesn't address lowering the price of the education itself. Two reasons:

  1. It's because there are no federal universities. States control education. Education has always been a states issue. Not a federal issue. Except to get political points, it's pointless for presidential candidates to talk about the price of an education.
  2. Lowering the price of an education would "require" teachers to be willing to work for less. Either less pay, or less benefits, or a smaller retirement package. Teachers unions will not allow that and those unions are substantial donors to the President's reelection bid. So he won't address that directly.
So, there you have it. In summary, the President can do nothing about lowering the price of a college education and he knows it. Even if he did was he says he did, he just made it easier to go into debt, all while talking about education. Textbook misdirection.

Wednesday, September 21, 2011

It's The Taxes, Stupid!

Recently, there has been a great deal of attention focused on raising taxes and everyone, especially the rich, paying, and I quote: "their fair share." As if one group of people should be able to decide what another group of people's "fair share" is! Seems inherently selfish to me. But that's beside the point I want to focus on.

Warrent Buffet said it just wasn't fair that his staff pay more in taxes than he does and that he, with all other rich people, should pay more. By other rich people, Warrent Buffet, and several left-leaning politicians are inclined lump sum someone who makes $250,000.00 annually with someone who is net worth is $39,000,000,000.00. Obviously they should be in the same category! Now, I realize I'm comparing annual income to net worth and that's actually comparing apples and oranges, but SO IS WARREN BUFFET. He pays capital gains tax because that's where he makes his money; whereas his "staff" pays income tax because that's how HE PAYS THEM.

His capital gains are taxed at 15% where the staff income is taxed at somewhere between 28% and 35%, a much higher percentage. For starters, in actual dollars, I doubt the staff pays more, but it is true that much more of their income goes to the taxing agencies (federal, state, municipal, etc.).

Mr. Buffet has suggested raising the capital gains tax, perhaps to even matching federal income tax levels. This thought has raised a lot of angst among the semi-wealthy people, those whose taxable income is a substantial percentage of both annual income and capital gains. The argument is made that, were that to happen, some people could easily be taxed to nearly 50% of their total earnings. And that would be a problem, because then the only people paying their "fair share" are the nearly wealthy. The wealthy don't have any annual income, just capital gains. The poor, middle income, and "getting there" people don't have any capital gains, just income...Ah, but those in the middle, let's squeeze them!

However, on the surface, doesn't Mr. Buffet's proposal have some merit? What he's saying is essentially, "People's who live off capital gains, like me, should be taxed the same as people who live off annual income." And, in my mind, this is true. But we need to do it without squeezing the middle. Why not put a stipulation out there that says, "If it's obvious that you live off capital gains, and we can see that's the case because 85% of your taxable earnings are capital gains, then your capital gains get taxed at the federal income tax rate for the amount on which you're paying taxes. However, if it's not obvious you're living off capital gains, and we can tell because it's not 85% of your taxable income, then you're federal income tax and capital gains taxes remain unchanged."

Finally, I wonder what all the senior citizens think of having their taxes go up because they live off mutual funds, 401k's, and other capital investments. Something would have to be done about that.

Thursday, November 4, 2010

Watch Out Social Security, The Fix Is In! ... And You're Out

While Social Security, in it's original conception, had certain federal guarantees many found desirable, it lacked the ability to account for two key variables. These variables change slowly, and thus can be easily dismissed in the short term. But they cannot be ignored in the long term. They are 1) a change in the ratio of people working to people retired; and 2) an increase in the average lifetime of an individual.

So that we're clear on a key concept, as people pay Social Security taxes (and every employed individual does), that money is immediately distributed to people who are retired. It is not saved for you for when you retire. The idea is that hopefully, when you retire, there will be new people paying into the system.

I know there are many solutions people have presented for the "problem" of Social Security. Here's one for your consideration:

Dealing with those still working

Identify how much each individual has paid into the system and how long they would continue to pay into the system should they work until retirement.

The governement would stop taxing for Social Security. This would be an instant 15% increase to disposable income: 7.5% for the individual and the same for the employer. As a result, other taxes would increase: income tax, taxes on profits, etc.

The governement would issue bonds to individuals that would come due in such a manner as to have completely repayed the individual their "investment" into Social Security by the time they retire. These bonds would be a collection of short, medium, and longterm bonds so that the burden of repayment could be spread out over time but still pay the individual back in full.

The bonds could be distributed in either a bell curve where the bulk of the repayments were in the medium term category or a straight line distribution where even payments are spread among the differing bond categories.

These individuals would then be responsible to provide for their own retirement. Retirement planners could assist the individuals in converting maturing bonds to other retirement vehicles.

I would suggest that these be subject heavy scrutiny with penalties sufficiently severe as to remove any incentive for fraud. It seems reasonable that the IRS, with it's vast experience of auditing could provide said oversight.

Those already retired

An analysis would be made per individual of how much individuals were receiving per anum. This would be compared against the average life expectancy of the men and women to see how much the government would have been expected to pay. The government would then take that amount plus five years of the average life and pay the individual in full.

Additional items

The government could then require companies to provide the means where individuals could take pretax dollars and invest them into retirement savings accounts (whatever vehicle that happens to be) up to some fixed percentage (perhaps an even 7.5%). In other words, employers would have to be able to take out pretax dollars and deposit it in a retirement account of the employee's choosing.

The government could also allow companies to match said investments with pretax dollars of their own but with the added bonus that for every dollar matched, the company wasn't taxed for 1.15 dollars. This would provide an incentive for employers to want to match employee retirement investments.

There should be a heavier than normal tax should an individual wish to remove money from their pretaxed retirement saving account, sufficient to strongly discourage meddling with retirement funds.

Basic personal finance and investment would be a required class as a senior in high school and as a sophomore in college.

Pro's and Con's

  • The government would instantly drop 25% of it's financial obligations.
  • People would be responsible for their own retirement. They could invest in their retirement tax free.
  • Companies would be motivated to "match" employee retirement investments.


  • People would be responsible for their own retirement.
  • Retirement accounts would be subject to the risk inherent in their retirement portfolio.
  • There is potential that the government would dramatically increase it's debt in the short term.

Ok, one thing I need help with is, what do you do with people who choose not to invest in retirement? How can you motivate them to do it? Should there be an incentive? A penalty? Both? If they don't choose a retirement method, should the government intervene?

This is very much a rough draft and constructive comments would be most welcome.

Friday, April 9, 2010

What are you morally entitled to?

This is NOT a blog on what one is legally entitled to.

If you ask the question, "what am I entitled to?" and you want to be able to answer it correctly, you need to rephrase the question as such: "What do I deserve and why?"

If you get hired to do a job for $22.00/hr and you do the job, do you deserve to be paid what was agreed upon? In my view, the obvious question is yes. The follow up question is equally easily answerable: why? Because that was what was agreed upon and because you did the work.

Now, what if you agreed to do a job for $22.00/hr. and you do the job but it was particularly gruelling, do you deserve to be paid more for that job than $22.00/hr? In my view, the answer is no, you don't deserve it. You may want it because it was harder than you originally thought. However, the agreement was for $22.00/hr.

What if it had been easier that you thought. What if your employer felt the job was actually easier than he originally anticiapated and you felt it was harder? Should you be paid more than the original amount? Should your employer pay you less? Who is right?

And what does this have to do with moral entitlement? The simple answer is, everything. You are morally entitled to receive wages for work you perform at the rate upon which you and your employer agreed. Simple as that. If you don't like it, don't "re-up" as the Army used to say. Find a different job. But you agreed to it. And why do you deserve the wage you receive? Because YOU did the work. Not Bill, not Nancy. You. Additionally, you are responsible for the work meeting the expectations of your employer. Not Bill, not Nancy. You.

In my mind, a morally straight person would never succumb to feelings of entitlement for that which they had no hand in.

Should you be morally entitled to anything that you weren't directly involved with? Should your neighbor? Say you grow apples and your neighbor has a cherry orchard. Say there is a late frost and the cherry blossoms freeze and don't produce. Is your neighbor entitled to part of your harvest at the end of the summer? No. He may need it. You may want to give it. This is not a blog on compassion. He is not entitled to it because he did no work for it. In fact, as I think about it, compassion presupposes the lack of moral entitlement. A compassionate person thinks, "Even though they aren't entitled to it, I'm going to give it to them."

Continuing along this line of reasoning, even though it's not related to entitlement per se, can a person or persons forcibly take from living person one and give to another and call themselves compassionate? That would make compassion situational and defined by to the person or persons who performed the act. To answer the question, no. They may have shown compassion for one, but at the expense of another. Not only at the expense of another, but they took by force. Taking anything by force and giving it to another is theft. There is no way around it. If a person or persons wanted to truly be compassionate, they could only accomplish this by giving of themselves, not by taking from others and giving that which they've taken.

But to return to the original question, do you deserve part of what Tom worked for? What about Bob? Joe? Nancy? No, only what you worked for and that is because you agreed upon it and worked for it.

What if Bob was a rich uncle and had just died? Does that change anything? No, you didn't work for it. Moral entitlement is as unsituational as moral compassion. They don't change because the circumstances change.

Back to compassion because it's late and I'm bouncing all around in this blog. Am I showing compassion if I force Bob to give some of his earnings, of which he is morally entitled to, to Fred? What if John, Mike and I get together and decide that the three of us are going to give some of our earnings to Fred and since we are, we're forcing Bob to do the same. No. What if Fred really really needs it. So? If the money came from Bob and went to Fred, how could John, Mike and I be considered compassionate?

Put simply, moral compassion, moral entitlements and any good and beneficial principle are, in my mind, never situational. They are positive and negative (using charges associated with magnetism as I'd hate to be called racist for saying they were black and white).

Note: I'm sure I'll write more on compassion. It's not my intention to indicate that there is no place for compassion, quite the opposite. But no person or persons cannot force an individual to give his means, thus diminishing his well being, to another and call it compassion.

Additional note: I trust I've made my point on moral entitlement, but if not it is this: you get what you work for and you work for what you get. No one should feel entitled to more than that.

Thursday, April 1, 2010

Taxes and redistribution of wealth

Here in the United States of America, since its inception, there has been a strong culture of self-reliance, of "work hard and be rewarded" and "I'll make my own way, thank you very much." This is manifest in how taxes have been applied to the citizenry. Until recent years (in the last 40 or so), taxes have generally been attributed to the direct benefit people derive from them.

For example, everyone benefits from a national defense, so everyone should have to pay for it. Some benefited more than others, having more property or means that are protected, and it seems fair they should pay more.

There is a usage tax on gasoline that makes since, provided the tax goes towards transportation infrastructure maintenance and improvement.

There was even a law passed recently that greatly increased the tax on cartons of cigarettes. The claim lawmakers made at the time was that the money received from this tax would be set aside for two purposes: 1) Help cover the increasing costs of healthcare cigarette users would require later in their lives, and 2) Cover the expenses of an anti-smoking campaign. Whether or not lawmakers have lived up their claims is debatable.

But the point is, it is generally understood that the revenue generated from taxing a citizenry should result in an immediate and direct benefit to the citizenry.

Taxing for the purpose of redistribution of wealth has always happened in the the United States. Historically, its impact generally only visible as a tax on the inheritance of an individual. Remember, we wanted, as a culture, to increase or continue feelings of self-reliance, "work hard and be rewarded for it," etc. So it makes since, from that standpoint to strongly limit how much money children inherit from the labors of their parents, since the more they inherit, the less inclined they are to work hard and be independently successful.

So, without any mitigating circumstances, it seems reasonable to me that a heavy estate tax should be acceptable. Should the government take it all? Certainly not. Should they take most of it? I don't want to get into details of how much the government should tax an estate. But remember, in a self-reliant culture, no one should feel entitled to money they did not earn themselves, regardless of their affiliation to the estate in question.

However, there has been a shift over the last 50 years or so, and a strong shift in recent years, to tax individuals in an attempt to redistribute their wealth before they die. Everyone should have a problem with this. If one works hard, one should enjoy the fruits of their labors. Others should not feel entitled to fruits for which they did not labor. To redistribute wealth prior to death removes the desire for excellence, self improvement, and hard work.

To forcibly take from the one living person and give to another living persion without the original receiving any benefit is theft, plain and simple. To take from an estate is not. They no longer live, no one should feel entitled to their estate. Taxing the estate encourages children to follow in the footsteps of successful parents by also working hard, exercising self-determination, and developing self-reliance. That estate money can then be provided, to those who seek to better themselves but are truly so far from resources at their disposal that they have no other choice but to turn to the government for assistance.