LJWorld.com

The book “What is the Matter with Kansas” can be summarized as noting that Kansans overlook their economic interests in pursuing “false” social issues. Well I play that right back to the Lawrence liberal scene. Is it in your economic interest to vote for people who keep finding ways to restrain your efforts to improve your standard of living over your family’s lifetime of work?

This is the last installment in this lengthy discussion about who is getting what and who is paying for what. If you will recall this started when Bea challenged my opinion that Mr. Obama is not focused on the middle class but on the lower half of it. If you will also recall I posted a discussion about what we mean by the middle class and established that the range is from about $25K to about $100K

An unbiased reading of the last four blogs suggests that while we are making significant effort to help the people considered poor, we are conversely asking those in the upper half of the middle class to provide a disproportionate and ever growing contribution to that effort.

I specifically posted data to show that a family starting their careers with an income of about $50K will see the government take between 40% and 60% of their life time gain. I repeat, how can you vote for people who through financial policy, tax policy, regulatory policy, health policy and all sorts of other means take more and more of your standard of living so that your ability to improve your financial circumstances is increasingly stymied.

Maybe your fellow Kansans see what is happening more clearly and reject it. Maybe they are just smarter than their liberal brethren and really do vote their economic interests!

I lied – oops will that get me “disappeared”? I found when I started to write the last part of my puzzle that it would be too long. So I will insert round 4.

The focus of this blog is to summarize many of the blogs that I have wriitten on related topics. To restate the issue I am addressing, despite attempts to reframe it, is that the Democratic Party seems to be enhancing conditions for those with incomes below $50K by reducing the standard of living of those with incomes between $50K and $250K (with real focus only up to $100K) In addition to the regulatory, tax and policy consideration addressed in the previous three installments of this blog we need to remember the following.

1. Families with incomes below about $50K pay little or no federal income tax – they are not paying for all the goods and services provided by the federal government.
2. Families with incomes below $22K receive government subsidies that cost the taxpayer (those who pay) somewhere between $22K and $35K per person considered in poverty. That money comes primarily from those with incomes above $50K.
3. Our progressive tax system is very progressive on those with incomes between $50K and $350K and then goes flat. Of course the really rich might be paying only 15% of their income while, those with incomes around $100K might be paying essentially the same.
4. Increasingly our government is mandating goods and services be provided by commercial entities avoiding the tax consequence. When those goods and services are means tested as they increasingly are, or when they apply to a service mostly consumed by those with incomes over $50K ( think health care insurance and a mandate for free reproductive services) we once again add to the loss of standard of living for those in the upper half of the middle class (not upper middle but upper half)
5. Not all or even most of the people making $100K are rich. Many are families with extensive education and experience near the end of their working lives. Finally they reach a point where they have a bit of discretionary income and the government comes along and takes it to give to others.
6. We sometimes forget to think about discretionary income (money left when all the basic and necessary bills are paid). Wien you make a million dollars a year the added costs of paying for a regulatory requirement to reduce carbon hardly dents the budget. If you make $100K those costs can be quite noticeable. If we do not shift those costs the impact on those with incomes below $50 K will be devastating.

Now I think I am ready for the last installment.

Time to look at regulatory impacts on families with incomes in the upper half of the middle class. We are all aware (or should be) that the EPA is releasing new carbon (and other pollutants) generation regulation. The EPA estimates that the costs of those will be about $90 Billion per year mostly impacting the utilities industry. The industry suggests much larger costs perhaps more than double. There are about 140 million consumers. That suggests that each consumer will see a bill increase between $650 and $1300 per year.

Westar and the KCC have not estimated the impact here in Kansas. Unfortunately we are more heavily dependent on coal for our electricity than some of our more populace coastal states . We will, therefore, likely see a disproportionate sharing of these costs. Without too much of a stretch we could easily see rate increases here in Northeast Kansas of between $1K and 2K per year. Are you ready?

Now for the interesting part. Westar has a rate structure with two levels of basic rates. For smaller consumers (small homes) the rate is about two thirds what it is for larger homes. As noted in the last blog on this subject smaller homes tend to relate to incomes between $0 and $50K while larger homes relate to those with incomes in the $50K to $250K range. Note that there is federal financial assistance for those families with incomes below about $22K.

I have no way to figure out the impacts on renters. Some are billed commercial rates prorated by the number of renters. Some have their own meters and will likely see the lower rate. Those in single family homes will at least be able to split the increase.

The point here is not about the goodness or badness of reducing carbon emissions. It is not about whether rates should be at least partially progressive. It is about my argument that those in the upper half of the middle class will get hit hardest. If, as I suspect, there will be efforts to protect the lower demand (lower income) user an even greater increase (high end estimate) will be passed on to those with incomes between $50K and $250K.

It should be noted that the 1% will probably pay for (and get a tax break for) the installation of renewable energy generators and potentially make a profit. The ability for most people in the upper half of the middle class to afford such costly investments in competition with their kid’s education is at best suspect.

So as we have seen we have fiscal policy and tax policy that impacts the upper half of the middle class disproportionately and now we have regulatory policy with the same effect. IMHO there are many more examples of such impacts but I will not bore you with the details. In the next and last blog in this series I will tie it all together. I will even answer my own question as to why the title.

This is the second in a series of blogs addressing the sharing of the burden of supporting the “poor”. In this posting I will opine about taxes. I call your attention to the earlier blog for my ground rules.

Now it is true that under this administration federal income tax has not been raised. It is also true that for many of us local and state taxes have been raised. Who raised them? Let us explore.

When Mr. Obama came into office along with almost total control of the Congress the annual appropriations were significantly increased (almost a trillion dollars). The argument was that the increase would have a simulative effect on our economy. Whether it accomplished the purpose is beyond the scope of this article,

A high proportion of the additions were reported to go to efforts to rebuild our infrastructure and to support local and state governments to continue to provide support -primarily to the poor. People were hired to accomplish the goal set. Now such federal spending is being reduced. That decision has forced local and state governments to either raise taxes to sustain the additional people and services or to make cuts to people and services enabled by the federal inflow of cash.

Douglas County chose to raise property taxes by about 20%. Now just exactly who got hit with that bill? Property taxes are reputed to be a proportional tax where the bill is related to the value of the property taxed. However, an examination of home ownership reveals that one finds few owners in the $0 to $50K income range with a substantial number in the $50K to $250K range. Clearly the majority of the bill fell on the latter. Yes, some amount of property tax flows through to renters but as I have written before only those traditional families renting a single family home might pay the full tax. Other renters pay from 50% to as little as 5% depending on the number of independent renters in a given property

Now exactly who made the decision to raise our county taxes? Our Democratic Party county leadership! The Democrats in Washington set the stage and the local property tax payer got fleeced – mostly those with incomes between $50K and $250K. Above that level of income it gets hard to generalize as the 1% have options that bury the cost of housing (to include the tax) in their business dealings.

So by public policy we have reduced the value of the retirement assets available to those making between $50K and $250K while through tax policy we have raised the costs of their real property assets (their home). What next. I was thinking we might look at regulatory initiatives. Soon. By the by is anybody going to take issue with the title?

In what seems like eons ago I posted what I thought was an innocuous blog copied from the NYT defining the 1%. In a response to a post in that thread I observed that Mr. Obama was favoring the “poor” at the expense of the middle class. I was challenged and deferred a response to a future blog because the topic is not answered by a thirty second sound bite. . This is the start of that blog. More will follow;

First of all when I suggest that Mr. Obama is doing this I mean he is doing it in his role as the head of the Democratic Party implementing party policy planks from their convention. He represents a philosophy, acting not as an individual but in support of a group. Secondly I am not referring exclusively to federal income tax. I am addressing all taxes, policies, regulations and the like. Third I am addressing wealth in the traditional sense where a lifetime of experience and education yields a growth in income and savings to be supplemented by social security. This is not about the "haves" and the "have-nots". It is about you today and you thirty years from now.

As a first example and as a matter of public policy we have been trying to hold down all interest rates. The stated purpose is to try to encourage job growth through cheap financing of business expansion (and the cost of government borrowing). An intended side consequence of this policy is to reduce the wealth of those in the $50K to $250K income group – the group that over a lifetime makes small investments to provide for a meaningful retirement.

How so you ask? Simple. People nearing and in retirement tend to make low risk investments as they are most reluctant to risk their hard earned nest egg so late in life. The government policy has resulted in those investments experiencing a zero to 1% return. How does that mater you ask, as inflation has been low. Nor really. Health care, fuel and taxes to mention a few cost components have increased significantly but those increase are little reflected in inflation calculations The results is that appropriate investment opportunities for those in the $50 to $250K income group are losing value compared to the cost of living.

Bottom line is that to help people in the $0 to $50K income group find jobs today we are reducing the future retirement standard of living of many more Americans in the $50K to $250K income group (might even be the same people). The 1% of course can invest in opportunities not as secure and essentially not available to the smaller investor. Some are seeing 20% returns.

It has been suggested we go further and start to means test social security as a way to reduce the costs of contributions by the lower income participants in the near term (or providing for a payroll tax reduction). Doing so will of course even further erode the standard of living of the $50K to $250K group essentially transferring wealth from them to the $0 to $50 crowd.

Now by no stretch of the imagination or ideological motivation can we argue that this is not a policy that favors the “poor” at the expense of the “middle” while holding the “rich” contributors harmless. It is not isolated and more examples will follow.

The NYT has an article that breaks out the professions of those in the top 1%. If it is accurate it shows some surprising and some not surprising things.

1. College professors are twice as likely to be in the top 1%

2. K-12 teachers are represented in the top 1% proportionally probably through marriage

3. Doctors and lawyers are there in spades

4. Wall Street and the financial services industry are heavily represented

5. CEOs and public administrators are heavily represented

Take a peak. Things may not be as you see them – or they may!

http://www.nytimes.com/packages/html/newsgraphics/2012/0115-one-percent-occupations/index.html?nl=todaysheadlines&emc=thab1

I was performing my daily review of news in several different sources and I came upon an op-ed by David Brooks in the NYTs. I thought it a good thought piece.

Democrats take heed if you cannot come up with a platform that does not hold the middle and upper middle class guilty for all forms of transgressions with associated punishment in the form of tax increases or benefits cuts it may be time once again for a new centrist party to emerge. Government is not evil but at times it falls into the hands of evil people!

http://www.nytimes.com/2012/01/10/opinion/brooks-where-are-the-liberals.html?nl=todaysheadlines&emc=tha212

For some reason my military pension has become an issue on here. I cannot tell whether this is so because the implications of the obligation in financial resources is huge or if it is just a personal thing with those who have no pension and envy those who do. Assuming some maturity on here let us look at the defined benefits conundrum we have created for ourselves.

The defined benefits pension programs tie back to the process government (and some large companies) used to pay their employees some twenty years ago and more. In order to deliver much in the way of goods and services governments (AND COMPANIES) held employee pay low but used deferred remuneration (defined benefit pensions and health care) as a kickers to attract employees (it also helped with retention as you had to stay around to get it). The public got the goods and services desired. The employees saw a total package that was attractive. The elected officials got reelected and the CEOs rewarded for the goodies they delivered at little apparent cost to the consumer or taxpayer.

Belatedly we have discovered the obvious. We cannot afford those promises. Private industry and their unions abandoned them some time ago under the threat of global competition. The federal government is in the process of phasing them out. Our own state is addressing the large unfunded liability. Elected officials have consistently underfunded or not funded the future costs of those benefits (they are large). That meant they could be reelected as they continued to deliver services to the population at large without extracting the full costs in taxes for those services. The bill is due.

Today, from some (who enjoyed the government services bought at low cost through promises to employees) there now come demands to end the programs abruptly. Obviously, the government employees and their unions are fighting that vigorously. Some politicians who bought those low cost services with promises now act belatedly with fiscal consideration and support precipitous termination of those plans.

For many of the long term or retired government employees who provided the services demanded by their fellow citizens for relatively low pay some twenty of more years ago there is now a sense of betrayal. They met their obligations to the state that employed them. They have always expected the state to make good on the promises it made to them, its employees. Politicians, seeking electoral survival, are moving to renege on those promises by casting the public employee as greedy citing current salaries.

Our elected officials have created this notion that government employee’s salary and benefits are entitlements in the same sense as those we provide in our social safety net. To the public employee they are contractual obligations made in return for services delivered akin to what union workers earn through collective bargaining. To the public at large they are an open ended demand on their pocketbook. To the politicians who created the mess they are an embarrassment to be avoided with blame placed elsewhere.

So people, how do we fix it? Do we simple walk away from commitments made in our name? Do we make good on those commitments at somebody’s expense (perhaps the politicians who caused the mess)? In the end the full faith and credit of our governments are involved. The next few years will reveal just how much that may be worth. It remains to be seen how righteous we will be in treating our legacy obligations to past employees.

In the meantime, moving away from those defined benefits programs for future government employees is a really good idea. Our federal government and Kansas are doing the right thing as far as the future.

A recent blog addressing the consequences of using federal income taxes to pay for the current accounts deficit and long term deficit at the federal level drew several meaningful comments. This blog will address those.

We drew the inevitable comment that equates payroll taxes to federal income taxes. That comparison is at best disingenuous and may well be considered absolute propaganda. Payroll tax is essentially an annuity that buys the payee a retirement program that includes health care. Federal income tax is the only tax we pay that funds the operation of the federal government – our largest government entity. If we remove the payroll tax from the comparison the $50K earner pays only $2500 in taxes exclusively to state and local governments. The $100K earner still pays over $21000 in taxes – mostly to the federal government to operate that government – the one with the big deficit.

There were comments about lifestyle driving the comparison. The only significant lifestyle issue is that of home ownership. The paragraph below addresses the cost implications. Changes in personal property taxes and sales taxes are small. It should be noted however, that both of those taxes are driven by consumption. Really significant differences in consumption might show a larger difference although a difference overwhelmed by the much larger payments for federal and state income tax.

Concern was expressed that a comparison of a family that did not own a home with one that did was manipulative. I went back and removed the house. The federal and state taxes increase for the non-home owning couple but the increase is offset by the elimination of the property tax. It should be noted that the end point is a reduction of about 5% attributable to the home. The real consequence is reflected when we consider increasing the tax where the total tax take of the couple without a home is significant more than the tax for someone with a home. The table below compares the differences

Tax Comparison Influenced by Home Ownership by Moderate

Since the real subject of both blogs was the significant tax increase that would be required unless we make major cuts to programs the real focus is on federal income tax – the singular tax that addresses those costs. For a couple making $100K with no kids and ho home the tax take to address the long term deficit approaches half of their income.

Total Tax Take as Driven by the Deficit by Moderate

So, how much is enough? Who should pay? Why does almost half our population pay nothing toward the operation of the federal government. Why is the percentage of tax taken from tax payers at the upper reaches of the middle class essentially equal to that paid by our wealthiest citizens when the tax take on the middle of the middle class is about 22% of that take- what happened to the progressivity we claim our system has?

A few weeks ago I promised a discussion on the implications of using taxes to support the increase of almost $1 trillion in the cost of our federal government in the last two years. This discussion addresses only that number. Additional costs to address the shortfalls in Social Security, Medicare, Medicaid and Obama Care are not addressed in this analysis although I plan to do so in the future. My analysis suggests that baring some strange new source of income, federal income taxes would need to be increased by just shy of 100% to provide the needed revenue just to stop the growth in our federal deficit.

It is my intent to remain within the “middle class” in addressing this issue. An accepted definition of “middle class” does not exist. Some consider the center quintile the middle class. That would make 40% rich and 40% poor. I use the definition used by many that the center three quintiles represents the middle class (60% of us). That leads to those with income between $25K and $100K and based on prior analysis published here I used incomes of $50K and $100K as bounds for the analysis.

I did my Quicken analysis on two families composed of a police officer and a teacher living in Lawrence. The first family represented those just starting out with two young children. Their combined income was set at $50,000 (about the average here in Kansas and representative of local salaries). The second family was thirty years along, had doubled their income and their kids were out of the house. The table below reflects their calculated taxes at today’s rates. I avoided the impact of inflation by sticking with current values.

Total Tax Take by Moderate

Now, if we commit to funding all the additional revenue to support the Democratic Party adds to our current federal budget the total tax take for the older family increases to $37,980 while the tax take on the younger family does not change. The analysis assumes we handle the increase with changes in rates and not changes in deductions which might affect the younger family.

These numbers can be read many ways. For one, our progressive tax system is working at least for those in the middle class. Two, there is a very broad variation in taxes between the center and the top of the middle class. Three, the tax take on the 53% of us that pay federal taxes is significant. Four, we would be approaching a tax take of almost 40% in direct taxes on a two wage earner family making $100K.

The question I ask those who seem to want to raise taxes to support all the many Democratic Party initiatives is a psychological one. Do we as a society really want to signal our citizens that the reward for thirty years of work is to have any gain achieved reduced by almost two thirds as a result of government tax policy? Sounds pretty steep, but that is the implied result of using taxes to pay for all the added Democratic Party initiatives.

There has been much ado lately about preserving the middle class. My analysis above suggests that the operative meaning of the word “preserving” is that all of us in the middle class will be reduced to pretty much the same standard of living no matter where we are in the earning cycle or what level of contribution we make to the society. Do we really want to do that?

Comments??

The book “What is the Matter with Kansas” can be summarized as noting that Kansans overlook their economic interests in pursuing “false” social issues. Well I play that right back to the Lawrence liberal scene. Is it in your economic interest to vote for people who keep finding ways to restrain your efforts to improve your standard of living over your family’s lifetime of work?

This is the last installment in this lengthy discussion about who is getting what and who is paying for what. If you will recall this started when Bea challenged my opinion that Mr. Obama is not focused on the middle class but on the lower half of it. If you will also recall I posted a discussion about what we mean by the middle class and established that the range is from about $25K to about $100K

An unbiased reading of the last four blogs suggests that while we are making significant effort to help the people considered poor, we are conversely asking those in the upper half of the middle class to provide a disproportionate and ever growing contribution to that effort.

I specifically posted data to show that a family starting their careers with an income of about $50K will see the government take between 40% and 60% of their life time gain. I repeat, how can you vote for people who through financial policy, tax policy, regulatory policy, health policy and all sorts of other means take more and more of your standard of living so that your ability to improve your financial circumstances is increasingly stymied.

Maybe your fellow Kansans see what is happening more clearly and reject it. Maybe they are just smarter than their liberal brethren and really do vote their economic interests!