Vacation home construction drives the economy in my home town of Olive, New York. The reason is that the Democratic Party-dominated government, led by Congressman Maurice Hinchey, Assemblyman Kevin Cahill, Assemblyman Sheldon Silver and Governor Andrew Cuomo, have regulated and taxed away productive economic enterprise. Population in Ulster County, New York has grown at one third the national rate as children have fled (often contrary to Democratic-voting parents' wishes) to Republican states like Colorado and Texas. Not satisfied with the scope and extent of their economic devastation, the New York State Department of Taxation and Finance has recently won a case that is likely to accelerate it (h/t Glenda McGee).
The widely discussed case concerns a Connecticut couple who own a vacation home in the Hamptons. They do not frequent the home. They pay income tax to the state of Connecticut. The New York tax code says that a cottage is not a permanent residence. It also says that if you spend 183 days in the state then you are a permanent resident. For the first time, the courts have held that you are a permanent resident even if you never spend time at a permanent vacation home.
The ruling, recently affirmed in the New York State tax appeals tribunal, will reduce property values throughout the state. In New York City, the state can now claim that wealthy business executives from Europe and Texas must pay income tax to the City. Many will sell their apartments instead. On Long Island, many wealthy people own houses in the Hamptons but live as far away as Texas and Hollywood. These too are going to face pressure to sell rather than pay ten percent of their incomes to New York State.
The same is true in Ulster County. Here, numerous New Yorkers own vacation homes in the Town of Woodstock, whose median income is the county's highest. But a sizable percentage, perhaps ten percent, come from other states, especially New Jersey. The effect will be downward pressure on property values. There is also the question of people who live full time in Ulster County but own second homes in New York City. Will they have to pay New York City income tax even though they do not live there? This also could contribute to downward pressure on property values as they sell the second property in New York City.
Taxation interferes with property rights. Since economic progress depends on property ownership, more aggressive tax systems such as are evolving in New York will be accompanied by fewer rights concentrated at higher levels. New York's socialists imagine themselves to be egalitarian, but they are friends of plutocracy. As aggressive taxes hamstring middle income Americans, the super-rich, who can afford to pay multiple income taxes, are able to purchase property at lower values. George Soros reaps significant benefits from his contributions to the Democratic Party as the rest of the country becomes poorer and, thanks to the Democratic Party and the Rockefeller Republicans, income inequality is increased.
Showing posts with label income tax. Show all posts
Showing posts with label income tax. Show all posts
Tuesday, February 22, 2011
Sunday, February 7, 2010
How National Debt Drives Out Jobs
Many Americans are concerned about the loss of good jobs. In the manufacturing sector, especially, jobs have disappeared in favor of lower wage retail jobs. The reason is in the expansion of government indebtedness and increasing tax burdens.
In a free market money system such as existed under the gold standard and theoretically ought to exist today under the free floating currency system, if a nation imports an increasing amount, its currency ought to fall in value. Thus, if US plants close and move operations to Asia, then demand for the dollar declines and demand for the yuan or the yen increases. As the demand for the foreign currency increases, the foreign currency becomes more valuable and the dollar becomes less valuable. As the dollar becomes less valuable, it buys less foreign merchandise. Moving overseas becomes less attractive because goods sold in the foreign currency become more costly. So firms stop moving overseas and some return here.
That has not happened in the current Federal Reserve Bank/US treasury regime since the Reagan years. Rather, increasing trade and current account imbalances have not lead to a lower dollar. Rather, the yuan and other currencies have been stable against the dollar, resulting in increasing demand for merchandise manufactured overseas. As a result jobs have moved overseas. This is a process manufactured by the federal government and the Federal Reserve Bank in tandem with foreign central banks.
That is, there has been de facto pegging of foreign currencies against the dollar. This is done through purchases of the national debt. As the national debt is sold, foreign buyers including the Japanese, Chinese, Saudis and Europeans, purchase it, in so doing purchasing dollars with foreign currency in order to buy the debt. This keeps the dollar stronger. If foreign holdings of foreign debt were to be sold, the dollar would collapse. Or, if as seems to be happening now, foreign governments stop purchasing escalating quantities of debt, the dollar will weaken.
Because the dollar has been propped up, US jobs have moved out of the country to a greater extent than they would have were the dollar not propped up. The effect might be large. No one knows the damage that the de facto pegging has done to higher end US jobs.
Added to the mix is the Federal Reserve Bank's persistent monetary expansion. Despite the ongoing purchase of the national debt by foreign dollar supporters, the Federal Reserve Bank also has been purchasing national debt. Inflation since 1980 has been close to 4%, which in earlier decades would have seemed very high but has resulted in the curious belief in recent years that 4% inflation = 0% inflation. The Republicans have not helped in this regard, mistakenly claiming that the monetarist policies of Paul Volcker were due to a choice made by Ronald Reagan. That is not exactly right, because Jimmy Carter appointed Volcker and Reagan was elected because the public was angry about economic declines brought about by Volcker's monetary policies that ultimately stopped hyper-inflation. It is true that the Reagan administration permitted Volcker to continue these policies for two more years without forcing the Keynesian notion of "supply side economics" advocated by the Republican establishment in those years.
Inflation increases the degree to which foreign governments subsidize the US economy. This in turn facilitates consumption, which stimulates demand for retail sales and new homes. It does not stimulate sustainable business growth, though. Ultimately these policies will fail. In the long run, much of America will find itself unemployed, and it will take decades to rebuild a free economy, if all Americans haven't been brainwashed by the ideologically socialist school system by then.
In 1970, the real hourly wage in the United States was roughly the same as it is today. This is a dismal performance, for before the establishment of the Federal Reserve Bank and for five or six decades afterward real wages in the US increased 2 percent per year. This was especially true during the period when there was (a) no Federal Reserve or National Bank and (b) there was the highest amount of innovation in history, between 1836 and 1913. In contrast, the real wage became stagnant at the very time that President Richard M. Nixon (R) abolished all constraints on inflation and encouraged the Fed to inflate in order to boost the stock market and ensure his reelection. The boost-the-stock-market measure of the economy that began in the 1920s was perpetuated during the longest period of real wage stagnation in history, from 1970 through today.
Despite the stagnant real hourly wage, low population density regions such as the Hudson Valley and Catskills have seen massive construction of retail operations that in 1970 were primarily seen in dense suburban areas. That is, less profitable retail operations have been made profitable by two forces. The first, increasing efficiency due to Wal Mart's, McDonald's and other firms' innovation, is very much in the tradition of laissez faire capitalism. The second, low interest rates due to the Federal Reserve Bank's inflationary policies is more in the tradition of the Soviet Union's central planning agency, Gosplan. The results of the second force will be the same as in the Soviet Union.
That is, economic growth has not proceeded because of sustainable demand but because of monetary expansion. Thus, much of the American economy now depends on an unsustainable economic bubble. The bubble has been due not only to the Federal Reserve Bank but also due to foreign governments, who have bought into the curious idea that they benefit from having their workers work at very low wages in order to subsidize US consumption.
Income taxation re-enforces the lack of economic growth. Innovation depends on entrepreneurship, but entrepreneurship depends on the accumulation of capital. In the 19th century, entrepreneurs from low-income backgrounds like John D. Rockefeller could start from nothing and save a year's pay in three years, as Rockefeller did. He used that seed money to purchase a store, and then sold the store to purchase an oil refinery. In the 21st century, half or more of a middle class person's income goes to tax--sales tax, property tax, income tax, state tax, gasoline tax, etc., etc. As a result, the savings rate has been diverted to greedy teachers and bureaucrats who do not create value. Few "progressives" have ever compared the performance of Rockefeller and the American education establishment. Since 1970, literacy, numeracy and other measures have declined as ever more money is thrown at government schools. Between 1865 and 1913, the per barrel price of oil fell dramatically as Rockefeller and his organization innovated relentlessly, vastly improving the American standard of living. It is the education establishment that is greedy. They destroy and do not produce. Rockefeller by comparison was an altruistic saint.
The misallocation of resources and people is vast. It is ironic that the Democratic Party, which is responsible for framing these policies under Franklin D. Roosevelt, is the same party that claims that there is no environmental "sustainability" due to the suburbs or that over-expansion of suburban malls harms the environment. This is the fruit of socialistic planning by the Federal Reserve Bank and the central government. A capitalist economy would have done a much better job of allocating resources between current and future generations. Americans today would be much better off and would have bright prospects, but would not have as wide an array of retail merchandise or jumbo homes.
In a free market money system such as existed under the gold standard and theoretically ought to exist today under the free floating currency system, if a nation imports an increasing amount, its currency ought to fall in value. Thus, if US plants close and move operations to Asia, then demand for the dollar declines and demand for the yuan or the yen increases. As the demand for the foreign currency increases, the foreign currency becomes more valuable and the dollar becomes less valuable. As the dollar becomes less valuable, it buys less foreign merchandise. Moving overseas becomes less attractive because goods sold in the foreign currency become more costly. So firms stop moving overseas and some return here.
That has not happened in the current Federal Reserve Bank/US treasury regime since the Reagan years. Rather, increasing trade and current account imbalances have not lead to a lower dollar. Rather, the yuan and other currencies have been stable against the dollar, resulting in increasing demand for merchandise manufactured overseas. As a result jobs have moved overseas. This is a process manufactured by the federal government and the Federal Reserve Bank in tandem with foreign central banks.
That is, there has been de facto pegging of foreign currencies against the dollar. This is done through purchases of the national debt. As the national debt is sold, foreign buyers including the Japanese, Chinese, Saudis and Europeans, purchase it, in so doing purchasing dollars with foreign currency in order to buy the debt. This keeps the dollar stronger. If foreign holdings of foreign debt were to be sold, the dollar would collapse. Or, if as seems to be happening now, foreign governments stop purchasing escalating quantities of debt, the dollar will weaken.
Because the dollar has been propped up, US jobs have moved out of the country to a greater extent than they would have were the dollar not propped up. The effect might be large. No one knows the damage that the de facto pegging has done to higher end US jobs.
Added to the mix is the Federal Reserve Bank's persistent monetary expansion. Despite the ongoing purchase of the national debt by foreign dollar supporters, the Federal Reserve Bank also has been purchasing national debt. Inflation since 1980 has been close to 4%, which in earlier decades would have seemed very high but has resulted in the curious belief in recent years that 4% inflation = 0% inflation. The Republicans have not helped in this regard, mistakenly claiming that the monetarist policies of Paul Volcker were due to a choice made by Ronald Reagan. That is not exactly right, because Jimmy Carter appointed Volcker and Reagan was elected because the public was angry about economic declines brought about by Volcker's monetary policies that ultimately stopped hyper-inflation. It is true that the Reagan administration permitted Volcker to continue these policies for two more years without forcing the Keynesian notion of "supply side economics" advocated by the Republican establishment in those years.
Inflation increases the degree to which foreign governments subsidize the US economy. This in turn facilitates consumption, which stimulates demand for retail sales and new homes. It does not stimulate sustainable business growth, though. Ultimately these policies will fail. In the long run, much of America will find itself unemployed, and it will take decades to rebuild a free economy, if all Americans haven't been brainwashed by the ideologically socialist school system by then.
In 1970, the real hourly wage in the United States was roughly the same as it is today. This is a dismal performance, for before the establishment of the Federal Reserve Bank and for five or six decades afterward real wages in the US increased 2 percent per year. This was especially true during the period when there was (a) no Federal Reserve or National Bank and (b) there was the highest amount of innovation in history, between 1836 and 1913. In contrast, the real wage became stagnant at the very time that President Richard M. Nixon (R) abolished all constraints on inflation and encouraged the Fed to inflate in order to boost the stock market and ensure his reelection. The boost-the-stock-market measure of the economy that began in the 1920s was perpetuated during the longest period of real wage stagnation in history, from 1970 through today.
Despite the stagnant real hourly wage, low population density regions such as the Hudson Valley and Catskills have seen massive construction of retail operations that in 1970 were primarily seen in dense suburban areas. That is, less profitable retail operations have been made profitable by two forces. The first, increasing efficiency due to Wal Mart's, McDonald's and other firms' innovation, is very much in the tradition of laissez faire capitalism. The second, low interest rates due to the Federal Reserve Bank's inflationary policies is more in the tradition of the Soviet Union's central planning agency, Gosplan. The results of the second force will be the same as in the Soviet Union.
That is, economic growth has not proceeded because of sustainable demand but because of monetary expansion. Thus, much of the American economy now depends on an unsustainable economic bubble. The bubble has been due not only to the Federal Reserve Bank but also due to foreign governments, who have bought into the curious idea that they benefit from having their workers work at very low wages in order to subsidize US consumption.
Income taxation re-enforces the lack of economic growth. Innovation depends on entrepreneurship, but entrepreneurship depends on the accumulation of capital. In the 19th century, entrepreneurs from low-income backgrounds like John D. Rockefeller could start from nothing and save a year's pay in three years, as Rockefeller did. He used that seed money to purchase a store, and then sold the store to purchase an oil refinery. In the 21st century, half or more of a middle class person's income goes to tax--sales tax, property tax, income tax, state tax, gasoline tax, etc., etc. As a result, the savings rate has been diverted to greedy teachers and bureaucrats who do not create value. Few "progressives" have ever compared the performance of Rockefeller and the American education establishment. Since 1970, literacy, numeracy and other measures have declined as ever more money is thrown at government schools. Between 1865 and 1913, the per barrel price of oil fell dramatically as Rockefeller and his organization innovated relentlessly, vastly improving the American standard of living. It is the education establishment that is greedy. They destroy and do not produce. Rockefeller by comparison was an altruistic saint.
The misallocation of resources and people is vast. It is ironic that the Democratic Party, which is responsible for framing these policies under Franklin D. Roosevelt, is the same party that claims that there is no environmental "sustainability" due to the suburbs or that over-expansion of suburban malls harms the environment. This is the fruit of socialistic planning by the Federal Reserve Bank and the central government. A capitalist economy would have done a much better job of allocating resources between current and future generations. Americans today would be much better off and would have bright prospects, but would not have as wide an array of retail merchandise or jumbo homes.
Friday, January 23, 2009
A Taxing Question--New Yorkers ARE INSANE
How much do you pay in taxes? And what's the payback? I recently spoke with someone at the gym. In my neighborhood leftists reign supreme, and this guy was no exception. He told me that the school in Phoenicia, New York is terrible, so he sends his two kids to a private school in Stone Ridge, New York for $8,000 apiece. When I said to him, "It's terrible that we pay all these school taxes and you can't send your kids to public school," he replied, "I believe in taxes."
This individual was somewhat status conscious and self-conscious of his own status-consciousness. It is not a bad thing to "keep up with the Joneses" but enforced "liberalism" is different. He told me that he was brought up in a large house in Scarsdale and that he could afford an apartment in Manhattan as well as private school and a house here. It did not occur to him that while paying several thousand dollars in school taxes did not prevent him from sending his own children to private school, taxes likely prevent many local residents from being able to afford private schools. So, unlike my rich "liberal" friend who loves taxes and sends his children to private school, others whose children's education the taxes harm are not so rich or so lucky.
The question is: what does someone in New York pay in taxes? First off, there's Social Security. The rate in 2008 was 6.2% for employees and 6.2% for employers. Most economists agree that the employer's portion is largely a deduction from wages, so let's say the total is 10%. Medicare is another 1.45% for employee and employer, so let's call that 2.0%. In 2005, the mean household earnings for a 45-54 year old was $74,446, according to a Boston College study, so let's say the individual earns $80,000. The New York State income tax would be $4,686, or 5.8%. The federal income taxes are about $12,000, or 15%, including deductions. As well, the sales tax around here is about 8%. Also, there are premium and similar kinds of consumption taxes. Let's say 2% of income goes into sales tax. As well, property taxes are easily $4,000 for local property tax (5%) and $2,000 for school tax (2.5%) I'm not counting higher prices due to corporate taxes (corporate taxes are passed on to consumers), capital gains, license and DMV fees, tolls. So if we add up the tax bill for the average household: 10% (Social Security) + 2% (Medicare) + 5.8% (State income) + 15% (Federal income) + 2% (sales) + 5% (property) + 2.5% (sales) = 42.3%.
New Yorkers are INSANE! For 42.3% of their income they get:
Terrible schools + badly paved roads + ?
The only good thing is the snow plowing, I'll give them that. But if I spent 42.3% of my income on something and got back snow plowing, I would sue for fraud. But New Yorkers keep electing the same politicians, over and over, who keep trying to raise taxes even more.
They are INSANE!
This individual was somewhat status conscious and self-conscious of his own status-consciousness. It is not a bad thing to "keep up with the Joneses" but enforced "liberalism" is different. He told me that he was brought up in a large house in Scarsdale and that he could afford an apartment in Manhattan as well as private school and a house here. It did not occur to him that while paying several thousand dollars in school taxes did not prevent him from sending his own children to private school, taxes likely prevent many local residents from being able to afford private schools. So, unlike my rich "liberal" friend who loves taxes and sends his children to private school, others whose children's education the taxes harm are not so rich or so lucky.
The question is: what does someone in New York pay in taxes? First off, there's Social Security. The rate in 2008 was 6.2% for employees and 6.2% for employers. Most economists agree that the employer's portion is largely a deduction from wages, so let's say the total is 10%. Medicare is another 1.45% for employee and employer, so let's call that 2.0%. In 2005, the mean household earnings for a 45-54 year old was $74,446, according to a Boston College study, so let's say the individual earns $80,000. The New York State income tax would be $4,686, or 5.8%. The federal income taxes are about $12,000, or 15%, including deductions. As well, the sales tax around here is about 8%. Also, there are premium and similar kinds of consumption taxes. Let's say 2% of income goes into sales tax. As well, property taxes are easily $4,000 for local property tax (5%) and $2,000 for school tax (2.5%) I'm not counting higher prices due to corporate taxes (corporate taxes are passed on to consumers), capital gains, license and DMV fees, tolls. So if we add up the tax bill for the average household: 10% (Social Security) + 2% (Medicare) + 5.8% (State income) + 15% (Federal income) + 2% (sales) + 5% (property) + 2.5% (sales) = 42.3%.
New Yorkers are INSANE! For 42.3% of their income they get:
Terrible schools + badly paved roads + ?
The only good thing is the snow plowing, I'll give them that. But if I spent 42.3% of my income on something and got back snow plowing, I would sue for fraud. But New Yorkers keep electing the same politicians, over and over, who keep trying to raise taxes even more.
They are INSANE!
Friday, January 18, 2008
Self-Employment Income Should Be Income Tax Exempt
Self employment income should be income tax exempt. The tax code should encourage Americans to start their own businesses and to become self-reliant. The tax exemption could be limited to a number of years, such as 10 or 15, and to a maximum number of employees claimed for deductions, with a sliding scale from 0 to 25 employees, and no exemption thereafter.
Part of the moral deterioration that has occurred in America comes from the interpersonal manipulation and separation of ownership and control characteristic of large organizations. Small business is responsive to the market and proprietors are forced to deal with reality. Thus, business ownership makes better citizens than does employment in a large organization. Increasing the share of the population that is self-employed would likely improve the nation's moral tenor. As well, those who are unemployed might find that tax free self-employment earnings can assist reintroduction into the workforce.
Part of the moral deterioration that has occurred in America comes from the interpersonal manipulation and separation of ownership and control characteristic of large organizations. Small business is responsive to the market and proprietors are forced to deal with reality. Thus, business ownership makes better citizens than does employment in a large organization. Increasing the share of the population that is self-employed would likely improve the nation's moral tenor. As well, those who are unemployed might find that tax free self-employment earnings can assist reintroduction into the workforce.
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