Friday, December 17, 2010

The tax cut compromise and the news as entertainment

Often tongue in cheek is the only way to smile.

Now it’s a fact. It gave rise to a discussion last week:

The Hedged Economist wrote:

Well, unless they reinstitute 99 weeks, people will exhaust their claim sooner. Life is getting interesting. Are people allowed to complain if UI is interrupted for a week or two? I can't imagine our government making people responsible for two entire weeks of unemployment. Isn't that unconstitutional? Oh well.

I get new windows tomorrow and Thursday, so I made the energy tax credit cut off. The work that will be done next year is a different story. People who chase the subsidies have to be wondering: “What comes next?” For me, it’s an asset allocation issue.

[A friend in NJ] had some new rant about Governor Christy. He blames Christy the way [friend who is a Democrat] blames Bush. I blame everyone, the short and the tall, the large and the small, you name it. I'm an equal opportunity blamer. ME? !!! You've got to be kidding.

By the way, did you check on an energy credit on the work on the second home? I don't know if HVAC and windows / insulating are separate credits or what happens with second homes? I think HVAC and insulation may be separate credits. You may have a twofer. You're probably a step ahead of me on that one.

I'm still waiting for tax rate resolution to pass. Time is getting short. I have to pay estimated taxes by the 15th. I'll bet they won't cut me slack for their inability to tell me whether I owe AMT. Have we ever gotten things messed up!! A person can't pay their taxes even if they want to.

The retired Treasurer wrote:

I think current recipients get an extension, but the 99 cap remains for those who already exhausted their benefit. This was what the Internet was saying last night. Also it seems that the AMT will be fixed. I have maxed out the credits with windows here, but the State will give some money towards the new furnace.

It is a wonderful blood bath right now has the dems are really pissed at Obama. He has lost a lot of face.

The blame game is a waste of time, unless you know how to change things.

I think we are on a very bad course of action, doing things like the 2% cut in Soc. Security contributions. The road to hell seems to be paved with trying to screw your friends and blame your neighbors.

The Hedged Economist wrote:

Now we see whether it gets passed. 99 weeks is an awful long time. You'd think it would occur to someone that maybe, just maybe, they should stop messing with people and let the economy grow. Guess there's no political gain in that. The AMT fix will be welcome. Once passed, I can pay my taxes.

The infighting in both parties is entertaining. I think just about everyone (dems, reps, independents, non-pols, and pols alike) has concluded that Obama's an empty suit.

Please, please don't take my blame game away. It's too much fun and entertainment. Besides what would the media do; start reporting facts?

You kept thinking there would be a double dip. Well, there was no double dip; GDP will soon be back to where it was before the recession started. However, the risk of a new Obama instigated recession is very real. Dems and media will want to call it a double dip because that can be used to shift blame, but we're creating a new risk. Interestingly, none of the measurers they put in place over the last two years is at all relevant to the mess they, we, are creating.

Speaking of screwing your friends and blaming your neighbor, I'm getting a kick out of the Dems’ frustration that they can't screw the "rich." Seems that they'll take 250k or 1M as a definition of rich, just as long as they get to screw someone. Never seems to occur to them that "you can't make it better for yourself by making it worse for someone else." Despite their supposed sense of community, they just can't accept that we all sink or swim together.

The 2% cut in the SS tax is an interesting illustration of just how misguided the pol class is. They cut the individual's payment, not the employer's. The logic being that individuals will use it to consume more (create demand). Like we didn't try that for 20-40 years. Americans don't have a problem figuring out stuff to buy. For goodness sake, they do it even if they don't have the money. That's how we got into this fix. The problem is that many of them don't have jobs. Seems to me cutting the employer's tax would be more direct. I know from personal experience, when meeting a payroll, taxes, government-required social insurance, etc. added about 1/3 to the cost of employing someone. Lowering the cost of employing people might encourage some hiring. But, I'm not sure any temporary measure really matters especially when employers are facing the cost of Obamacare.

The retired Treasurer wrote:

Regarding Unemployment Compensation, well, 99 weeks is a long time and I do not understand why, after 52 weeks they do not tail the amount to zero at 100 weeks--a glide path to some, a death by 1,000 cuts to others.

Regarding the cuts in the proposed package, also the media spin is that it is a cut giving people 2%. Well, going from 5% to 3% is a large cut in taxes. The rate is down by a much larger percentage than any of the other changes.

It is true that 1% of the people have 90% of the wealth. While that is scary, have you notice that 50% of the population does nothing other than live off the dole. Why should we tax you more so others can do less. Perhaps they need to show up at your house to wash the car and clean bathrooms, while your wife is out working, paying taxes, and contributing to SS for them.

The Hedged Economist wrote:

The alternative to weeks of Unemployment Compensation / Unemployment Insurance (UI) that I think would work best is some combo of X weeks and a lump sum. Then you're on your own. I haven't thought much about whether the lump sum should be up front. I think so. Years ago I had the option to take a severance as a lump sum or weeks of pay. I took the lump sum. Basically turn lemons into lemon aid.

Worked my butt off to find a new job in a week or two and thus was able to use the lump sum to pay my son’s tuition at college for a semester. Imagine suddenly getting laid-off with my wife’s college bills just ending and my son’s in midstream and making it into a blessing. Now days many companies are smart enough to realize that if the severance is guaranteed regardless of whether the ex-employee finds a new job, the ex-employee is motivated to get off of UI. That will save the employer the continuing claims.

But, UI is a sweet gig for some people who can’t budget and would blow the lump sum before they found work. I think the government just wants us all to behave like that.

As to the wealth distribution, the 1%, 90% figures seem close. I think the distribution is slightly less concentrated at the high end. Generally, the numbers aren’t too reliable. The only data on wealth that are anything other than propaganda are the results of the Fed’s Survey Of Consumer Finance. It’s only done every three years. The most recent one is almost three years old. So, the 1%, 90% is someone’s estimate. No one would go to the trouble of making the estimate unless they had an axe to grind (or can sell the estimates as we did at I’ve done this kind of work for my own edification, and it’s hairy. I did it only because I didn’t believe data I’d seen on the concentration of stock ownership. Sure enough, the estimates I made were adequate to prove to me that the data were wrong. The Fed’s survey confirmed my suspicion a year later.

The estimates are also very sensitive to how pension entitlements are handled. Some people assume the pensions are owned by the employer. That biases the numbers toward a concentration of wealth. Assume the pensions are owned by the employees and the results are different.

If one approaches it from the individual’s perspective, the pensions are also sensitive to the discount one applies to the cash flow. If you go to Http:// and plug in your and / or your wife’s pension entitlements, you’ll see what I mean. Every $1,000 of entitlement is equal to between 1 & 2 hundred k, about 150k. Increase the interest rate assumption and the number changes. But, you already know that from your work with pension funding issues. As an example, in NJ a change in assumptions resulted in a 9% change in benefits. In any case, the annuity verses pension is only a rough estimate; it’s approximate since there are differences in beneficiary treatment as well as prudent return assumptions.

But, for comparison, to get $1,000 over a comparable time frame requires about 3 hundred k in wealth, twice as much in wealth, and it carries no lifetime “guarantee.” But, when the beneficiaries die any remainder is passed on.

Did you know that your figure of “50% of the population does nothing other than live off the dole” is darn close? About 50% break even or make money on federal taxes paid, including SS. 20% pay almost all of the federal taxes, and 24% actually make money on their taxes. Many people don’t even know about the negative income tax effect at the low end. My FL friend points out that some of the break even taxpayers are SS recipients trying to get by on SS alone. But, the full 50% seems unsustainable even if some of it makes sense.

The Hedged Economist wrote:

It would be easy to misinterpret these comments. I don’t think the 2% SS contributions issue is about who gets tax cuts. For me, it is not even about deficits or stimulus. What gripes me is the total abandonment of any pretense that SS is supposed to be “self-financing” and a social insurance program.

I think it is dangerous to encourage the belief that individuals can ignore providing for their retirement. Even if SS doesn’t pay retiree’s payments that are proportional to what the individual contributed, at least everyone accepted the idea they contributed in order to get retirement and other benefits. By cutting contributions when the fund isn’t financially viable, the fiction is gone. The scramble to have someone else make the contributions is on. Further, it’s now just another welfare program. Next comes cutting off benefits to the politically weak. I think the middle class is wearing a bigger target than they know.

The Retired Treasurer wrote:

Today's thought however is the pyramid of poverty.

The very bottom is the under-six-year-olds who will be left with our debt for $$$$ and must have almost 985% of their needs given to them...i.e. parents, public schools etc The top 0ne % is the Hamptons and the top 10 percent are people we don’t know.

What gets my panties in a knot are some of the other layers... those who are stupid having learned nothing in school, and scam the system, pimp, sell drug and more,

Senior citizens who never saved and thought that they could live with family and get all they need from SS,

The often out of work...those who do as little as possible and then get benefits,

People, especially those under 40 who have a large debt load to cover the flat screen, two week vacation, two SUVs etc... and more housing than they need and big education loans.

You get the idea.

But 80% of this pyramid want to tax the upper 10 % to cover their wants and needs.

Hello, you are not entitled... but they vote themselves what they want from my pocket and the Dems tell them they are worthy of getting even more for free.

The Hedged Economist wrote:

To paraphrase:

What “gets your panties in a knot,” to use your phrase, is too many lazy a#*holes who
- think they're entitled,
- believe things should be given to them,
- think it's OK to scam the system and thumb their noises at society,
- expect others to provide for them,
- consume more than they produce and more than they need,
- and have figured out that politicians will accommodate them.

It doesn't gripe me that they want the top 10% to pay for whatever they want. I just think less of them for thinking that way. What gripes me is that they are too lazy to figure out that the top 10% can't give them everything they want. Or, perhaps they just want to continue believing in Santa.

Remember fully 50% carry the earnings-based part of the cost of Federal government. Now there are other tax sources, but the middle class is always the target for revenue raising. There aren’t enough rich, and the poor don’t have enough.

People just can’t figure out that the only way to determine the right amount to spend on government is to figure out what share of YOUR income should be spent on it. Then try to limit government, a perennial example of unbridled greed, to that amount. This entire class warfare nonsense the Dems and the media feed on…it is just a game the greedy play to get more, more, more.

The moral argument you made when we talked is too direct. I agree those who want to take from the rich need to be told: “It isn’t yours.” Unfortunately, the Old Testament teaching not to covet your neighbor’s possessions seems to be out of style, as does the basic principal of not taking things that aren’t yours or even treating others as you would want to be treated.

I am planning to use a different tact. I say that it isn’t something I can comment on since it isn’t mine. Then, I make an analogous point about something of theirs.

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