Wealth and Income Inequality

Wealth and income inequality is discussed a lot today and with the economy struggling, the rich receiving a lot of the blame.  Groups like the occupy movement and other socialist/communist/anarchist groups love to throw out the statistics that the to 1 percent of the earners have a growing percent of the total wealth and income.  But is this true, and if so is it bad for America? If the rich are getting richer, are the poor getting poorer?  How has the relative Like many other political discussions, the truth is often obscured by rhetoric and grandstanding.

To analyze these claims it is important to differentiate wealth from income.  Like the debt and deficit debate, these two terms are also confused and used incorrectly interchangeably.   Wealth is a stock measure, it is the sum of all the static assets in the possession of an individual.  Things that account wealth are bank account balances, investment balances, property valuations, and the like.  Income is a flow measure meaning it is the the difference between inflows and outflows over a period of time.  Income measures include pay rates, capital gains, and interest on investments and accounts. 

Bush Tax Cuts myths: War on the Middle Class

3. The Bush Tax cuts hurt the middle class and were only a benefit to the rich

Another common criticism of the Bush Tax cuts was that they were a sort of kick back to the rich from the administration.  The US uses a progressive income tax system where the income tax you pay is determined by the last dollar you make in the year.  There are levels or brackets that determine the tax rate that an individual pays.  for example, if you make 0 to $7,000 in a year you pay only 10 percent on your income.  If you make between $7,000 and $28,000 you pay 10 percent on your first $14,000  and 15 percent on the next $13,000.  Each tax bracket is defined by these income thresholds and tax rate and they are subject to change when the tax code is amended.  This analysis focuses on the individual brackets because the married brackets follow the same patterns and the dependent deductions are too individual specific for this analysis.

The Bush Tax Cuts: Fiscal Effects on the Debt and Deficits

 2. The Tax Cuts caused the budget deficit and current national debt problem 

The second criticism of the Bush tax cuts is that they caused major budget deficits and thus greatly added to the national debt.  If this were true, from 2003 forward there would be increasing yearly deficits and greater increases in the national debt.  Like the previous analysis, the budget numbers must be normalized for population and inflation.  The population normalization is done by dividing the numbers by the total population to get the revenue and outlays per person.  The per person metrics allows analysis across years with different populations.  Inflation is normalized by using 2005 dollars for all the data.  The first portion of this analysis proved that more revenue was collected after the tax cuts than before.  That fact alone should dispel most of this myth but there is room for further analysis.

The Policy, The Myth, and The Legacy of the Bush Tax Cuts

"THE BUSH TAX CUTS"

 The policy:
Depending upon who you ask, the Bush tax cuts evoke great pride or revulsion.  The controversial tax policy of the Bush administration was passed by Congress in 2001 and took effect for the 2003 tax year.  The policy is loosely based on the Reagan supply side economic theory where lower taxes stimulates the economy which increase the tax base for the government.  Supply side economics revolves around the private sector as the major economic engine for the economy as a whole where the government holds a small but important role in enforcement of law and maintenance of infrastructure.  The theory pinpoints an economic sweet spot where the taxes are low enough to encourage economic and taxable activities but not too low where further taxation would not prevent further activity.  Economist Art Laffer created the "Laffer Curve" that depicts the visual representation of this policy.

 The theory behind the Laffer curve states that if taxes are at 0 percent, the government will collect no taxes because it will tax 0 percent of income.  If the tax rate is 100 percent, then all income will go to the government so there is no incentive to earn an income that will go directly to the government.  Somewhere in the middle is a tax rate that maximizes the tax revenue.  Most economists understand that this optimal rate is lower than 40 percent but greater than 30 percent.  The Bush Tax Cuts adjusted the income rates downward closer to 35 percent for top earners. 

Minimum Wage Myth

Everyone one should have the right to earn a livable wage, right?  No one should be stuck in a job that forces them to work in subhuman conditions for a wage that does not allow them to provide for their families.  Not raising the minimum wage will punish those who are the most disadvantaged in our society and keep people living in poverty.  These are the concerns raised over the debate to adjust the minimum wage at either the Federal or State levels.  Arguments like these are made out of pure emotion without actual data to back them up.  The debate often lacks answers to crucial questions like what effect has previous minimum wage increases had, who makes up the majority of minimum wage workers, and how do we determine to what level the minimum wage is determined?

What is the function of the minimum wage? 
The minimum wage was implemented as part of the fair standards act during the New Deal.  It's intention was to ensure that every employee no matter how unskilled or productive could earn a "decent" wage.  It was originally set at twenty-five cents when the law was past in 1938 and is currently $ 7.25.  The decent wage was originally set arbitrarily and increased infrequently as a result of cost of living and inflation demands.  The changes were rarely made in relation to actual market fluctuations in the labor market and mostly made for political gain.  Minimum wage increases are an easy way for a politician to champion a cause that endears them to a large segment of the population who can sympathize.  On the surface it seems reasonable to set a floor for the wages that a worker can earn.  The rationale came from the horror stories of underage factory workers getting paid very little for excessive amounts of work.  But what are the actual effects of minimum wage increases and is public opinion correct?

California: Pension or Bust

Public pensions have attracted a great deal of public scrutiny recently.  State budget problems add fuel to a problem that is decades old.  The media and politicians love to politicize public pensions because the well being of retired workers evokes a lot of emotion with the public.  Both sides can tell the public that the fate of many retired workers hangs in the balance and their side will protect their interests.  Unfortunately, public pensions pin public workers against tax payers when it comes to funding their retirement pension and healthcare benefits.  The higher and less restricted that public pensions are, the more the state is at risk of carrying large unfunded liabilities (i.e. mandated fiscal responsibilities without dedicated funding).  The long term effects of unfunded pensions include chronic budget shortfalls, snowballing debt, State credit downgrades, and increased interest payments leading to larger budget deficits.

Bravo!, Dr Carson, You are a true Patriot!

The Problem with Gun Legislation

 

In light of the recent tragedies in Aurora Colorado, Newtown, and Tucson have renewed debate about how we look at privately owned firearms.  Could these tragedies been prevented by a comprehensive firearm policy? Were there warning signs that were missed?  How this country proceeds depends on how we interpret the second amendment and how we define the underlying causes of gun violence.  Gun rights advocates see any regulation as an affront to their constitutional rights, while gun control advocates see the second amendment as limited to maintain public safety.  Currently Congress is debating whether a law banning assault style weapons and high capacity magazines would solve this ongoing problem.  

Although an honest debate is healthy, a few key points always seem to be overlooked when lawmakers create gun laws.   Luckily, a rather large sample size of data exists from the 1994 Clinton assault weapons ban that provides some background to past policy efforts.  This ban addressed semi-automatic rifles and high capacity magazines.  This law only applied to assault weapons made after the date the bill was signed in to law.  This law had a sunset clause that kicked in after 10 years if the bill was not renewed.    The National Institute for Justice (NIJ) produced a report on the effects of the ban and the results were mixed at best.  The NIJ stated that the impact was minimal because assault weapons were only used in 2 percent of crimes to begin with and any change would be almost insignificant.   Most of the crime data showed that high capacity magazines (10 rounds or more) were used in nearly a quarter of the gun crimes.  The report further elaborated that assault weapons with high capacity magazines are mostly used in public assaults on police and mass shootings, both exceedingly rare events.  Finally, the reduction of crime involving assault style weapons was somewhat offset by the use of more conventional pistols with high capacity magazines.  Overall the report showed that the ban lacked the proof that it made any significant decreases to gun crime (Koper 2004).

California: Wasting Away

Wasting Away

(Courtesy of CalTax)

The Conditions in California are ripe for opportunities to change course and experiment with alternatives that government leaders have shied away from for years.  Fiscal restraint and control has not been in the state's vocabulary for decades.  Government waste is sometimes hard to pinpoint and make a case for because it rarely occurs in singular occurrences.  Waste in government is a systematic problem that grows with each added layer of bureaucracy.  With each layer, the path from inputs (financial resources) to outputs (services) is not always clear.  The larger that government program gets the harder it is for watchdogs to follow the resources from start to finish.  Yes some layers of bureaucracy are necessary in a government setting to protect against fraud and waste.  At a point, all these layers can actually aid in the coverup of waste instead of its prevention.  This is story of many programs in California.

California: A Shrinking Economic Kingdom

 California: A Shrinking Economic Kingdom

The story of the Sacramento Kings is sad in and of itself but it mirrors a larger saga unfolding in the once great State of California.  The current economic conditions of the State and the response of California's lawmakers have created a grand incentive to leave the state, and now those chickens are coming home to roost. 

The Sacramento Kings are currently up for sale and in danger of leaving California for greener pastures, possibly to Seattle, Washington.  The Kings have been a vagabond franchise overall but have played in Sacramento since the 1985-86 season.  Before that the franchise had success in a few locations including Kansas City, Rochester, and Cincinnati.  The franchise enjoyed moderate success since landing in Sacramento and build up a lot of capital within the community and among the fans.  In the mid 1990's the franchise was at its pinnacle of success. The team finally had a permanent home and a healthy cash flow and fan support.  Years or poor business decisions, arrogance, and the economic recession took their toll on the Malouf family finances and they found themselves backed in to a financial corner.  Now they are looking for an out in a fashion that mirrors the economic reality in the State as a whole.

The Foundation of the Future

The reelection of President Obama comes as a rude awakening for half of America today.  In a ideology battle with two combatants that couldn't represent more divergent ideas, the progressives prevailed.  This left many asking why it happened.  Was is Mitt Romney? Was it Hurricane Sandy? Was it the changing electorate in this country?  Maybe, but there are deeper questions that the conservatives in this country have to start asking.  What does the GOP stand for, and does it represent the best for America?  Everyone's answer may differ, but it is obvious from the election that some things need to change.  The GOP has been stuck in neutral for some time and has failed to win the popular vote in 5 of the last 6 general elections.  The GOP is becoming increasingly localized and disjointed in their messaging.  Not even sincere conservatives can trust the candidates the GOP is nominating these days.  The Tea Party grew out of populous anger over Obamacare and continued as a check to the stagnant ideas in the GOP establishment.  Even the Tea Party is left at a crossroads after the complete disaster last Tuesday.  The way forward is not certain or pretty, but major changes need to be made if a conservative candidate has any chance in the near future.

General Hypocrisy

The recent "bombshell" in the election race this week has been the exposure of an undercover video showing Gov. Romney at a private fundraiser where he said, among other things, that 47% of the country does not pay income taxes and they will probably not vote for him.  Considering the realities of the electorate, this should not be news.  People who do not pay income taxes are generally divided in to two groups, social security recipients and low income individuals.  Low income voters mostly voting for the Democrats and most Social Security recipients voting for the Republican.

The outrage in the media is the most disturbing part of this story since their favorite candidate said nearly the exact same thing (in reference to Romney voters) fairly recently (see above video).  It is a clear example of the brutal double standard and obvious media malpractice when it comes to the media's coverage of most political topics.

End Game

The violence against US interests across the middle east is growing and shows no sign of slowing until the US takes effective action.  Unfortunately, President Obama has taken a foreign policy of apologizing for the actions of this country ahead of scolding the actions of the terrorists who have attacked and killed US personnel around the middle east.  The attacks are not isolated since they all obviously were planned to commence around the 11 year anniversary of 9/11.  The attacks were aided by the rampant anti-american sentiment around that part of the world.  On top of all that, the Obama administration has adopted a policy of complete abandonment of Israel in all diplomatic matters.  It all came to a head recently when President Obama declined the request of Prime Minister Netanyahu to meet regarding the increasing threats to Israel and US interests in the Middle East.  It begs the question why the President would coddle terrorists and abandon our closest ally in the region.  So what is the end game for America and the Obama administration?

Did We Build it?

      In the weeks following the "you didn't build that" remarks by Barack Obama, the GOP has capitalized on these remarks as an indictment on the views of the current Democratic regime.  The full context of the remarks are somewhat convoluted but the sentiment is consistent with view of the Obama administration that the State is necessary for a business to be successful and it is a major reason that they had the opportunity to do so.  The President said,

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you've got a business—you didn't build that. Somebody else made that happen.

     The actual context is more benign then most people are taking it but it is one more bit of evidence that points to an ideology that believes that the government is the first and most effective solution to any societal problem.  The fact that they think that the government can make decisions that have the best interests for each individual in mind, is misguided at best.  Yes, the government has a valuable role in our society, and yes they must fill a role such as building roads and providing police officers.  But the fact that these things warrant credit from to people to the government is wrong on three levels.

Obamacare Benchmarks

The Affordable Care Act (aka Obamacare) is now in place and ruled constitutional in a surprise Supreme Court decision last June.  Since it is now officially the law of the land it is important to examine how this will affect the US and it's citizens.  Noted economist, Thomas Sowell, often states that the ends that legislation aims for are not as important as the incentives it creates because the change in behavior and restrictions that is creates is the substantive effect. 

To examine the law scientifically, you must first state what the goals of the law are, how it affects individual freedom, and what the incentives it creates that could ultimately be the lasting legacy of the law.  The endangered species act is a prime example of the dangers of ignoring the unintended consequences of a policy.  It shows that land owner commonly killed off endangered species at a higher rate to keep them from using their land as a habitat and thus lowering the land value.

So what are the goals of the ACA?  The answer to this question could be different depending on the individual asked.  To pinpoint the goals of the ACA, it is best to base it on the aims of the writers of the law and on the law that it was based upon (i.e. the Massachusetts Healthcare Law). the following are the goals of the plan as per the writers of the ACA and the Massachusetts law.

1. Affordability of healthcare:  The number one issue in the healthcare debate is the affordability of care for everyone and especially the poor and low middle income citizens (and illegal immigrants).  It is undeniable that the cost of healthcare has skyrocketed in recent decades and easily outpaced inflation. The costs of purchasing healthcare are an major concern facing Americans and thus should be a central focus of any future policy.
2. Access to Healthcare: Access to healthcare can be defined in a couple of ways.  First, there are areas where their isn't enough physicians to effectively treat the populations that they serve.  This could be a question of the pure number of physicians or a question of the type of care offered.  There is also a question that links affordability of healthcare to access.  Whether this is the correct framing of the issue is debatable and will be covered in further posts.
3. Quality and expediency of Healthcare: The quality of care is directly related to the mechanism that provides the care.  This is also a highly subjective measure that can really only be judged by the individual with a historical context of their own care.  Everyone has standards for the care that they need and the services they want.  A more objective way to measure this would be the effectiveness of care and the cure and survival rates of commonly encountered afflictions.  The higher survival rate, the more effective the care must be.  This measure must also be used in conjunction with the satisfaction surveys of  healthcare professionals and their patients.
   
4. Effect on personal freedom and liberty: Above all, the government must not and can not enact legislation that violates the supreme law of the land, the Constitution.  This means that the fundamental rights of an individual can not be infringed upon with out just and due process in response to a violation of the law.  The health and security of our free union rests on our ability to protect the individual liberty and freedom of every citizen.  The litmus test for this measure is usually the Supreme Court but due to the controversial nature of the challenge of this law, it may not be clear in this situation.

Given the aforementioned measures, the evaluation of the ACA becomes more clear but not completely clear.  Each of the measures are not weighted equally because if a the law infringes upon personal freedom and liberty to a large degree, it invalidates the other ends.  This is true because there are many policy options that meet the same ends while not creating questions of constitutionality. 

Healthcare and its implications

The ACA began as a twinkle in the eye of the New Deal profits, continued as an idea of the Great Society Elites, and now is reality with the Obama and the new progressive movement.  How ever you feel about the act, it is important to look at the policy, and determine the incentives it creates.  Most laws and acts never accomplish the ends they intend to because they create incentives that usually change the landscape from the conditions the law was meant to exist. 

In the upcoming weeks I will be examining the current conditions in the healthcare sector, what the general problems are, and what the trends look like.  The next series will look at the ACA and it similarities to the Massachusetts 2006 health reform and what the effects from that reform continue to be.  Finally, the analysis will look at the ACA, its expected affects, and true healthcare reform that addresses the real issues.