Those immortal words rolled off the tongue of then Vice President Spiro T. Agnew in the early 1970's. Richard Nixon picked Agnew to appeal to Conservative voters. Although later convicted of tax fraud and forced to resign as VP, Mr. Agnew's wonderfully alliterative phrase has stayed in my mind these intervening 40 years or so, and actually bring a smile to my face when I recall them. My memories of Mr. Agnew were of a smiling, happy man who loved to play golf and didn't spend much time working (so was the perfect VP). Although he could be very denigrating and condescending in what he actually said, he was always upbeat and positive in how he said it. His "Nabobs of Negativism" barb was directed at the press that dared to question Republican notions of how to run the country.
In some respects Spiro seems have have been the archetype of what is now the quintessential Republican. He was a man so sure his instincts were always right and so sure he had special understanding that he was disdainful of research, facts or other opinions, except to the extent some single fact might be cited to support what his gut told him to do.
Not to say only Republicans can have those characteristics. Here in California two democratic members of the legislature are gone as a result of indictments relating to their hubris. But democrats are wildly individualistic, they are sort of like cats, independent and impervious to what others think. Republicans are more like dogs, they have to fit into the mores of the pack. So the most dominant can lead the whole pack astray.
It tickles my sense of irony that Agnew's words so perfectly describe the modern Republican party. Certainly blaming the other guy is a basic political gambit, but the Republican party has taken it to ludicrous levels. They started ripping Obama the day he was sworn in and have spent the last 5 to 6 years trying to villify him, They were pretty up front about the fact everything they did the first four years was what they deemed would allow them to beat Obama out of a second term.
Examples are legion. When Obama continued and expanded the bail-outs George Bush started, instead of dealing with the reality we needed to hold our noses and accept the medicine the country needed because of their silly policies during the 10 years they ran Congress, they saw it as an opportunity to rip him up one side and down the other. They acted like frat boys who had a decade long wild party and ended up setting the house on fire and now were complaining the firemen are using too much water to put the fire out.
Since Obama was reelected their new strategy is to do nothing and hope to get Republican majorities in Congress in 2016. They have turned Congress into the most expensive and unproductive debating society the world has ever see, blocking even something as obviously non-partisan as allocating money to take care of the Veterans of the wars Republicans so confidently led us into a decade ago. It would cost too much money they say. Makes perfect sense if your world view is about your needs, while you are oblivious to your obligations. The wars are winding down so we don't need them anymore, no point in spending money on Veterans.
I once was was a Republican. Many of the high minded principles they traditionally have espoused need effective representation so they can be a consistent influence on government policy. There are Republicans, I am sure, who are serious about doing good things for the country. But the reality is the discipline the current party enforces, stemming from the basic incompatibility of the coalition they have thrived on, has made them irrelevant, drifting away from the views of the majority of the American people, and left them on the verge of a lifetime achievement award for being the ultimate nabobs of negativism.
Thursday, March 6, 2014
Tuesday, March 4, 2014
Banker's bonuses
Entertaining but at the same time disheartening tidbit in the Economist Business overview (3.1.14)
The British Government bailed out the Royal Bank of Scotland during the crash of 2008-09 and the British Government is still the majority shareholder. Since the bailout the Bank consistently posted big losses. For 2013 the bank lost around 13 billion dollars. Yet the bank still doled out bonuses to executives that amounted to about $800,000,000.
What can you conclude? Only thing that occurs to me is the interchangable club that runs both banks and government treasury's has a different measure of success than the rest of us.
The British Government bailed out the Royal Bank of Scotland during the crash of 2008-09 and the British Government is still the majority shareholder. Since the bailout the Bank consistently posted big losses. For 2013 the bank lost around 13 billion dollars. Yet the bank still doled out bonuses to executives that amounted to about $800,000,000.
What can you conclude? Only thing that occurs to me is the interchangable club that runs both banks and government treasury's has a different measure of success than the rest of us.
Sunday, March 2, 2014
Thoughts on Achieving Stability and Prosperity in our economy
The discipline of Economics is a wild and woolly place were anyone with a notion can probably find data to support it. But when you cross-check economics against history, the outlines of what tax policies a government should pursue to maximize stability and prosperity are pretty clear. Here are a couple of basics that recent history has highlighted.
I. Don't view Corporations as cash cows to fund all your government activities. Corporations are fictional entities we create to encourage risk. As fictional entities they are both highly mobile and highly adaptable, so taxing corporations is rather like trying to catch a greased pig.
The way to deal with corporations is:
A. Surcharge the products they sell as an access to markets tax. The more they sell to us the more they pay. Thus if they are a domestic corporation that sells mostly overseas, they pay little tax, encouraging them to stay here even if our labor costs are higher. Domestic corporations and foreign corporations get treated equally so it is difficult for other countries to lure away our corporations by offerring lower tax rates.
B. Have some sort of retained earnings tax so Corporations can't stockpile huge amounts of cash. Any cash they have been sitting on for more than two years has to be either kicked out to shareholders as dividends, paid to employee's, or they are taxed. The longer the corporation holds funds, the higher the tax. As we have seen since the crash a few years ago, Corporations have not been investing in new enterprises that create jobs, they have been stockpiling cash or buying back their own shares (which is really a way of paying income to the people who own their shares, or share options, without their having to pay taxes). The lack of enthusiasm among corporations for investing in new ventures that creat jobs has been a big contributing factor to our languishing economic recovery.
C. Stock options as a compensation for Corporate employee's should be taxed just like any other ordinary income at the value of the stock at the point it vests. Stock options began because people thought it would motivate management to care about the long term success of the Corporation. But it is pretty clear that generally corporate management no longer pays much attention to long term planning, everything they do is about pumping up the Corporate share price in the short term to make their options as valuable as possible because that is what is best for them personally.
However, we should also create a mechanism where stock options could be treated beneficially under the tax law if the options go into a trust that provides the employee can't touch the principal until 7 years after the employee leaves the company. This would make stock options a more viable tool to motivate managers to plan for the long term health of the Corporation.
D. All of these are reasonable steps to require from Corporations in return for the huge benefit society confers by granting limited liability. Limited Corporate liability imposes major costs on society, we should be compensated for those costs and we should design tax law to shape corporate compensation schemes to guide their behavior towards conduct that benefits society, not just the owners of the Corporation.
II. Go back to steeply graduated income tax rates. Basic Government funding should come mostly from people. Government should be to serve the people, the people should therefore support the government to the extent they benefit.
A simple fact is that the more assets you have the more benefits you get from government. On top of that allowing wealth to concentrate in a few hands undermines the purchasing power that drives a healthy economy. Concentrated wealth makes the rich relatively richer but in reality they are poorer than if the wealth is more dispersed because there is less money circulating in productive parts of the economy.
So income tax rates should meet the following criteria:
1. Be based on computations of the mean income of a full time worker in this country. People up to that mean pay a modest tax. Above the mean rates should increase until they become very high on people who make a lot of money. The wealth of the wealthy is protected by Government, they should pay the lions share of costs of the institutions that provide that protection.
2. The mean should be adjusted every two years to reflect the most recent data, and the graduated rates should be percentages of the mean, so that both growth and inflation is computed into the system to avoid stealth taxation or stealth tax avoidance.
I. Don't view Corporations as cash cows to fund all your government activities. Corporations are fictional entities we create to encourage risk. As fictional entities they are both highly mobile and highly adaptable, so taxing corporations is rather like trying to catch a greased pig.
The way to deal with corporations is:
A. Surcharge the products they sell as an access to markets tax. The more they sell to us the more they pay. Thus if they are a domestic corporation that sells mostly overseas, they pay little tax, encouraging them to stay here even if our labor costs are higher. Domestic corporations and foreign corporations get treated equally so it is difficult for other countries to lure away our corporations by offerring lower tax rates.
B. Have some sort of retained earnings tax so Corporations can't stockpile huge amounts of cash. Any cash they have been sitting on for more than two years has to be either kicked out to shareholders as dividends, paid to employee's, or they are taxed. The longer the corporation holds funds, the higher the tax. As we have seen since the crash a few years ago, Corporations have not been investing in new enterprises that create jobs, they have been stockpiling cash or buying back their own shares (which is really a way of paying income to the people who own their shares, or share options, without their having to pay taxes). The lack of enthusiasm among corporations for investing in new ventures that creat jobs has been a big contributing factor to our languishing economic recovery.
C. Stock options as a compensation for Corporate employee's should be taxed just like any other ordinary income at the value of the stock at the point it vests. Stock options began because people thought it would motivate management to care about the long term success of the Corporation. But it is pretty clear that generally corporate management no longer pays much attention to long term planning, everything they do is about pumping up the Corporate share price in the short term to make their options as valuable as possible because that is what is best for them personally.
However, we should also create a mechanism where stock options could be treated beneficially under the tax law if the options go into a trust that provides the employee can't touch the principal until 7 years after the employee leaves the company. This would make stock options a more viable tool to motivate managers to plan for the long term health of the Corporation.
D. All of these are reasonable steps to require from Corporations in return for the huge benefit society confers by granting limited liability. Limited Corporate liability imposes major costs on society, we should be compensated for those costs and we should design tax law to shape corporate compensation schemes to guide their behavior towards conduct that benefits society, not just the owners of the Corporation.
II. Go back to steeply graduated income tax rates. Basic Government funding should come mostly from people. Government should be to serve the people, the people should therefore support the government to the extent they benefit.
A simple fact is that the more assets you have the more benefits you get from government. On top of that allowing wealth to concentrate in a few hands undermines the purchasing power that drives a healthy economy. Concentrated wealth makes the rich relatively richer but in reality they are poorer than if the wealth is more dispersed because there is less money circulating in productive parts of the economy.
So income tax rates should meet the following criteria:
1. Be based on computations of the mean income of a full time worker in this country. People up to that mean pay a modest tax. Above the mean rates should increase until they become very high on people who make a lot of money. The wealth of the wealthy is protected by Government, they should pay the lions share of costs of the institutions that provide that protection.
2. The mean should be adjusted every two years to reflect the most recent data, and the graduated rates should be percentages of the mean, so that both growth and inflation is computed into the system to avoid stealth taxation or stealth tax avoidance.
Tuesday, February 25, 2014
How the 1995 Changes in Capital Gains Tax on Homes Plays out in Berkeley
I live in a neighborhood in North Berkeley where a lot of people bought their house 30 or 40 years ago when they were young. They bought the houses at various times of course but generally the ones that have lived here the longest paid under $100,000. The houses now sell for around a million dollars.
Their houses were relatively expensive when they bought 30 or 40 years ago, compared to housing in other parts of the state or country, and they are still relatively expensive compared to other parts of the state or country. Relatively the value of the house hasn't changed, the big dollar increase is mostly simply inflation. They haven't really gained much over all those years.
Before 1995 the homeowners in our neighborhood could have sold the house and as long as they rolled the money over into buying a replacement residence they would face no capital gains. They could downsize to a smaller house and stay in the neighborhood where they have lived there whole life and where all there friends reside. But Congress in 1995 threw out the old rollover rule that had been the law for at least 50 years. Instead now when you sell your house you get a flat Capital Gains exemption of either $250,000 or $500,000, depending on whether you are married or single.
That $250,000 / $500,000 exemption probably still works pretty good for folks in parts of the country where house prices have always been lower. But it is crippling in the markets where housing is more expensive. Older people who want to sell are staggared by the size of the potential capital gains tax, and the tax would effectively leave them without enough money to buy a new place in their neigborhood. To move or downsize they would have to pay a big tax and then have to move somewhere cheaper to afford housing. So they stay. As a result almost no houses are for sale in our part of town, which means that when a house comes on the market, very wealthy folks sweep in and snatch it up. A house a little further up the hill came on the market last year. It was not in very good shape, so was offered at $600,000. Almost immediately a developer stepped in, offered $950,000. The developer prettied the house up and sold it a few months later for somewhere around $1,300,000.
One of our elderly neighbors had to move into a residential care facility. Her children, who live out of town, couldn't sell the house to pay for the care because the tax obligation would have been so crippling. So they are left renting the house, unable to sell the house until their mother dies, at which point they get a stepped up basis (so in the eyes of the tax man they don't have any gain) and the tax obligation goes away.
Berkeley, and I am sure a lot of other neighborhoods in this country, are tangled up in a classic catch 22. Inflation, and the real estate bubble that the capital gains tax changes contributed to, has driven the price of the houses up to the point where many people can't afford to move. So they don't, and the lack of inventory drives the prices up even higher, making moving impossible for even more people. Young people can't afford to buy, older people can't afford to move.
Thanks, Congress.
Their houses were relatively expensive when they bought 30 or 40 years ago, compared to housing in other parts of the state or country, and they are still relatively expensive compared to other parts of the state or country. Relatively the value of the house hasn't changed, the big dollar increase is mostly simply inflation. They haven't really gained much over all those years.
Before 1995 the homeowners in our neighborhood could have sold the house and as long as they rolled the money over into buying a replacement residence they would face no capital gains. They could downsize to a smaller house and stay in the neighborhood where they have lived there whole life and where all there friends reside. But Congress in 1995 threw out the old rollover rule that had been the law for at least 50 years. Instead now when you sell your house you get a flat Capital Gains exemption of either $250,000 or $500,000, depending on whether you are married or single.
That $250,000 / $500,000 exemption probably still works pretty good for folks in parts of the country where house prices have always been lower. But it is crippling in the markets where housing is more expensive. Older people who want to sell are staggared by the size of the potential capital gains tax, and the tax would effectively leave them without enough money to buy a new place in their neigborhood. To move or downsize they would have to pay a big tax and then have to move somewhere cheaper to afford housing. So they stay. As a result almost no houses are for sale in our part of town, which means that when a house comes on the market, very wealthy folks sweep in and snatch it up. A house a little further up the hill came on the market last year. It was not in very good shape, so was offered at $600,000. Almost immediately a developer stepped in, offered $950,000. The developer prettied the house up and sold it a few months later for somewhere around $1,300,000.
One of our elderly neighbors had to move into a residential care facility. Her children, who live out of town, couldn't sell the house to pay for the care because the tax obligation would have been so crippling. So they are left renting the house, unable to sell the house until their mother dies, at which point they get a stepped up basis (so in the eyes of the tax man they don't have any gain) and the tax obligation goes away.
Berkeley, and I am sure a lot of other neighborhoods in this country, are tangled up in a classic catch 22. Inflation, and the real estate bubble that the capital gains tax changes contributed to, has driven the price of the houses up to the point where many people can't afford to move. So they don't, and the lack of inventory drives the prices up even higher, making moving impossible for even more people. Young people can't afford to buy, older people can't afford to move.
Thanks, Congress.
Sunday, February 16, 2014
How Inflation Relates to Unemployment Levels
(An abstract of my take on an Economist article reviewing recent research findings - 2/1/14 p.66)
Economists have been surprised by how low the unemployment rate is in the US and Britain a few years down the road from the financial collapse. And even though both Britain and the US now have relatively low unemployment rates, they seem to be driven by totally different circumstances.
Britain's economy has been pretty stagnant since the economic downturn, but they didn't lose many jobs and in fact now have more people working that before the downturn, but productivity per worker has been falling.
In the US growth has been stronger, but most of the drop in unemployment relates to people leaving the work force, not the creation of new jobs, and productivity per worker has continued to rise. There are actually fewer people employed in the US that before the recession began, but productivity is up.
New research suggests the key is that inflation in Britain is about 3.1% while inflation in the US is 1.8%. In Britain, even though workers have had modest wage increase, Britain wages have, in real terms, fallen by 7.8% since the crash, while the price of the goods and services companies provide has gone up, so employers can afford to increase production and hire people.
In the US, since inflation has been much lower, real wages have fallen far less, US workers have actually seen a 2% overall rise in wages since the crash, so workers are still relatively expensive compared to what companies can get for their goods and services.
The related economic concept is called "sticky wages" - the notion workers are very resistant to taking a pay cut directly, but are somewhat oblivious to loss of purchasing power through inflation. So in a recession with mild inflation employers find it hard to get people to accept wage cuts, so must push their workers to be more productive. The increased productivity per worker means the employer doesn't need to hire more people.
A related concept noted in the article is the possibility the big losses banks absorbed in the financial collapse made banks more inclined to require tangible assets that will act as security before they will make a loan. So companies who rely on lots of machinery are better placed to be successful to get financing, and thus can expand and drive growth in the post recovery, but companies who rely more on workers and less on machines can't get financing necessary to hire more people to expand production.
Economists have been surprised by how low the unemployment rate is in the US and Britain a few years down the road from the financial collapse. And even though both Britain and the US now have relatively low unemployment rates, they seem to be driven by totally different circumstances.
Britain's economy has been pretty stagnant since the economic downturn, but they didn't lose many jobs and in fact now have more people working that before the downturn, but productivity per worker has been falling.
In the US growth has been stronger, but most of the drop in unemployment relates to people leaving the work force, not the creation of new jobs, and productivity per worker has continued to rise. There are actually fewer people employed in the US that before the recession began, but productivity is up.
New research suggests the key is that inflation in Britain is about 3.1% while inflation in the US is 1.8%. In Britain, even though workers have had modest wage increase, Britain wages have, in real terms, fallen by 7.8% since the crash, while the price of the goods and services companies provide has gone up, so employers can afford to increase production and hire people.
In the US, since inflation has been much lower, real wages have fallen far less, US workers have actually seen a 2% overall rise in wages since the crash, so workers are still relatively expensive compared to what companies can get for their goods and services.
The related economic concept is called "sticky wages" - the notion workers are very resistant to taking a pay cut directly, but are somewhat oblivious to loss of purchasing power through inflation. So in a recession with mild inflation employers find it hard to get people to accept wage cuts, so must push their workers to be more productive. The increased productivity per worker means the employer doesn't need to hire more people.
A related concept noted in the article is the possibility the big losses banks absorbed in the financial collapse made banks more inclined to require tangible assets that will act as security before they will make a loan. So companies who rely on lots of machinery are better placed to be successful to get financing, and thus can expand and drive growth in the post recovery, but companies who rely more on workers and less on machines can't get financing necessary to hire more people to expand production.
Thursday, February 13, 2014
Why Republican's Are Losing Credibility with Voters
Yesterday House Republican's, despite their dismal appeal to voting hispanics, decided not to allow immigration reform to happen this year, evidently out of fear of backlash from their base in the coming primary elections. Of course that wasn't why they said they were not going to act. Their party line justification was that "they can't trust Obama to enforce the law."
This was a laughable excuse on many levels, but the real irony was that the Economist magazine that just hit the newstands was ripping Obama because he has in fact deported far more people than any President in history.
It has been apparent to those of us in California (particularly former Republican's like me who are somewhat sympathetic to some Republican ideals) that the national Republican party is going down the same path that led the California Republican party to the irrelevancy of having no Republican who holds statewide office, and large Democratic majorities in both house of the legislature (and, embarrassingly - now that Republican's are shut out California's economy is climbing back on its feet).
There is delicious irony in all this. Republican's tend toward take no prisoners election tactics. They have put a high value on gaming the system to gerrymander districts to maximize the value of Republican votes, they worked at suppressing voter turnout, they pounded on gays to exploit peoples prejudice, now they are reaping the harvest. Everyone but the far right has relaxed about gays, and now Republican districts are so right wing they cannot do what even big business Republicans realize the nation needs without subjecting House members to vicious primary challenges. We are probably a couple of election cycles from a complete shutout of Republican influence, but Republican irrelevancy is becoming more and more likely all the time as House Republicans publicly contort themselves to please their base.
This was a laughable excuse on many levels, but the real irony was that the Economist magazine that just hit the newstands was ripping Obama because he has in fact deported far more people than any President in history.
It has been apparent to those of us in California (particularly former Republican's like me who are somewhat sympathetic to some Republican ideals) that the national Republican party is going down the same path that led the California Republican party to the irrelevancy of having no Republican who holds statewide office, and large Democratic majorities in both house of the legislature (and, embarrassingly - now that Republican's are shut out California's economy is climbing back on its feet).
There is delicious irony in all this. Republican's tend toward take no prisoners election tactics. They have put a high value on gaming the system to gerrymander districts to maximize the value of Republican votes, they worked at suppressing voter turnout, they pounded on gays to exploit peoples prejudice, now they are reaping the harvest. Everyone but the far right has relaxed about gays, and now Republican districts are so right wing they cannot do what even big business Republicans realize the nation needs without subjecting House members to vicious primary challenges. We are probably a couple of election cycles from a complete shutout of Republican influence, but Republican irrelevancy is becoming more and more likely all the time as House Republicans publicly contort themselves to please their base.
Tuesday, February 4, 2014
Post Office Blues
About a month ago I ordered stamps online from the Post Office, to be delivered to my PO Box. A few days later I find a torn mailing envelope in my PO box from the "USPS Stamp Fulfillment Services". It is empty and has a sticker on the outside of the package that says "Received in Damaged Condition".
I immediately go to the counter at the local substation where I have the Post Office box and eventually end up talking to the guy who says he received the empty torn package and put a label that it was damaged on it and put it in the PO Box. He tells me to come back the next day and talk to a Supervisor because he doesn't know what to do. I come back the next day and after standing in line forever get told I have to go to the main Berkeley Post Office and talk to "the" supervisor.
I went home and emailed back to the email address that had told me my stamps had been shipped and informed them the package had arrived empty. I never got any response to that email.
So I went to the main Berkeley Post Office, stood in line forever to be told the Supervisor wasn't available but the Clerk would pass on a message. Being dubious I asked instead for the Supervisors email address so I could contact the Supervisor directly. I went home and emailed the Supervisor and got back an immediate message that the address was invalid.
So then I went to the USPS web site, found this page for Customer Service and emailed to that address. The web page said they will respond "within 24 hours". That was on January 24, now 11 days ago. I have never heard one word from the USPS.
What drives me crazy about this is the package was never out of the PO hands. It went from their shipping facilities, presumably on their trucks and airplanes, to my PO Box, and it was ripped and emptied somewhere along the way. But they seem to have absolutely no interest in taking responsbility for solving my problem.
I often and irritiated with the policies of the AT&T's, Comcasts etc of the private sector, but at least they realize that keeping customers happy means they need to respond to problems.
I immediately go to the counter at the local substation where I have the Post Office box and eventually end up talking to the guy who says he received the empty torn package and put a label that it was damaged on it and put it in the PO Box. He tells me to come back the next day and talk to a Supervisor because he doesn't know what to do. I come back the next day and after standing in line forever get told I have to go to the main Berkeley Post Office and talk to "the" supervisor.
I went home and emailed back to the email address that had told me my stamps had been shipped and informed them the package had arrived empty. I never got any response to that email.
So I went to the main Berkeley Post Office, stood in line forever to be told the Supervisor wasn't available but the Clerk would pass on a message. Being dubious I asked instead for the Supervisors email address so I could contact the Supervisor directly. I went home and emailed the Supervisor and got back an immediate message that the address was invalid.
So then I went to the USPS web site, found this page for Customer Service and emailed to that address. The web page said they will respond "within 24 hours". That was on January 24, now 11 days ago. I have never heard one word from the USPS.
What drives me crazy about this is the package was never out of the PO hands. It went from their shipping facilities, presumably on their trucks and airplanes, to my PO Box, and it was ripped and emptied somewhere along the way. But they seem to have absolutely no interest in taking responsbility for solving my problem.
I often and irritiated with the policies of the AT&T's, Comcasts etc of the private sector, but at least they realize that keeping customers happy means they need to respond to problems.
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