by | ARTICLES, BLOG, CONSTITUTION, ECONOMY, GOVERNMENT, TAXES
Capital gains are the profits realized from the sale of an asset and are included as part of taxable income. A handful of states have favorable rates toward capital gains (or don’t tax them at all because they do not have an income tax).
Other states tax capital gains as ordinary income. Among the most offensive states are NY, NJ, and CA. These states have concentrations of high income individuals and businesses who pay tax at high state tax rates. And they give no rate reduction for capital gains.Such tax policy discourages the sale of less productive assets and thereby reduces investment opportunities and economic growth.
Furthermore, taxes on capital gains (just like dividends) are subject to double taxation. This means every dollar of capital gains taxed to an individual has already been taxed at the entity level. No other major country double taxes this income. And for states to not even give a rate break for this double-taxed income is as mean-spirited as it is egregious.
High capital gains taxes are inequitable, destructive, and detrimental to the economy. They should be lower, not higher.
by | BLOG, CONSTITUTION, ELECTIONS, GOVERNMENT, POLITICS
There were several dozen proposed amendments to the huge stimulus bill that recently passed Congress. Many of them failed by a slim margin, but the votes were absolutely outrageous. It is worthwhile to remember these votes for 2022, as many of the Senators voted against their own constituents.
Here are some of the most notable ones:
The Cassidy Amendment, 1161: This would have “given some emergency assistance to non-public schools”, but it failed, so all of the $135 billion will go to public school and teachers unions.
The Fischer Amendment: This would have ensured that the “current laws and formulas for funding mass transit remained in place”, but instead it means that $5 billion in earmarked funds will go to New York’s system.
The Cruz Amendment 969: This would have provided “children with an option for in-classroom education instruction if the child’s local public school does not commit to re-opening to 5-day-a-week, in-classroom instruction for the remainder of the current school year and the 2021-2022 school year” but instead it means that the Democrats are still wedded to teachers unions than they are to education.
The Cassidy Amendment, 1162: This would have ensured that “the 2021 Recovery Rebates are not provided to prisoners” but instead the Democrats are giving taxpayer funds to felons.
The Cruz Amendment 968: This would have ensured that “ the 2021 Recovery Rebates are not provided to illegal immigrants” but this also failed.
The Daines Motion to Commit: This action would have supported building the Keystone XL Pipeline but instead means the irrevocable loss of jobs with Biden’s earlier Executive Action halting the project.
When political allegiance to the party line means that you vote against the very people who elected you, you deserve to be thrown out.
by | ARTICLES, BLOG, CONSTITUTION, ECONOMY, GOVERNMENT, HYPOCRISY, LAW
The most recent stimulus package gives money to one segment of the population by taking money from another segment of the population. Since wealth transfers cannot reasonably be inferred as any of the acts allowable by the federal government under the Constitution, the Stimulus Act is blatantly unconstitutional.
The recent stimulus checks from the federal government are a pure, vote buying giveaway. Neither need nor negative impact from Covid are factors in getting these payments. While some people have experienced financial difficulties over the past year, the majority of workers are doing okay or better than they were pre-COVID. Because the economy is in a strong growth spurt, there is really no need for a general stimulus at this point. (It would be reasonable to help those impacted by covid, but this is only a very small portion of the recipients). Yet these stimulus checks are being provided to all taxpayers who earn under the government-defined income threshold ($150,000 married, $75,000 single).
Now in order to pay for the stimulus, Biden is increasing taxes on the wealthy — which includes taxpayers who were above the arbitrary line and therefore ineligible to receive a check. There couldn’t be a more direct relationship of taking money from one group and giving it to another.
This very act is a constitutional violation as the Constitution does not allow for wealth transfer.
by | BLOG, CONSTITUTION, ECONOMY, FREEDOM, GOVERNMENT, HYPOCRISY, POLITICS, TAXES
On February 2nd Senator Elizabeth Warren announced that she will join the Senate Finance Committee, the committee tasked with writing this country’s tax laws. She stated, “I’m very pleased to join the Finance Committee, where I’ll continue to fight on behalf of working families and press giant corporations, the wealthy, and the well-connected to finally pay their fair share in taxes.”
Warren has often advocated for a wealth tax in the past, especially during her campaign last year for the Democratic presidential nomination. But now she is actually in a position to make proposed legislation happen. In fact, she’s promised that it will be her “first order of business.” This is wrongheaded on many levels, including fairness, constitutionality, impossibility of implementation, history of failure, negative effect on the economy, and morality.
Fairness: Senator Warren has always maintained that corporations and the wealthy are not paying their “fair share”. She has never addressed the question of what that “fair share” might be. That is not surprising, since corporations and the wealthy in the US pay a far higher share of the tax burden than is paid in virtually every other country in the developed world – and by a wide margin. This results not from very high rates, but rather from the fact that our poor and middle class – almost 50% of our population – pay almost no income tax. According to the Tax Foundation’s 2021 data analysis, in 2018 (the most recent figures available),“the top 50 percent of all taxpayers paid 97.1 percent of all individual income taxes, while the bottom 50 percent paid the remaining 2.9 percent.” Additionally, “The top 1 percent paid a greater share of individual income taxes (40.1 percent) than the bottom 90 percent combined (28.6 percent).” To add a wealth tax on top of the already extremely progressive tax system would be anything but fair.
The grotesque unfairness of a wealth tax is even more evident when it is actually calculated. This can be seen by the following example: Assume that an investor with $100M net worth in the present low interest environment (and because not all of his wealth is appreciating assets) has an average rate of return of 4%. His income therefore is $4 million. The investor would pay an income tax rate of about 45% total combined federal/state/local taxes which would be $1.8 million in taxes. Now consider a 2% wealth tax tacked on, which would be an additional $2 million. This would mean the investor would pay a total of $3.8 in taxes and he would have an effective tax rate of 95%. What’s even more sobering is that if he earns less than 4%, or if his tax rate was more than 45% (which it will be with Biden’s plans), then the investor’s taxes would be in excess of 100%.
Constitutionality: Our Constitution provides in Article 1, Section 9, Clause 4 that: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”
Both our income tax and a wealth tax would run afoul of this provision. To make the income tax constitutional we had to add the 16th Amendment. But no such amendment exists for the wealth tax. It may be that wealth tax proponents would argue that this tax is somehow taxing income potential using wealth as a proxy. But no Supreme Court, other than an off-the-charts progressive one, would approve of such strained logic. In fact, there’s currently a case before the Ninth Circuit Court of Appeals challenging Trump’s Mandatory Deemed Repatriation Tax on the ground that it is, in fact, an unconstitutional wealth tax.
Implementation: Taxing someone’s wealth requires determining the fair market value (“fmv”) of his or her assets, and then (presumably since no details are currently available) subtracting all liabilities. For anyone of considerable wealth, this would be an extraordinarily expensive, time consuming, and complicated effort. Even for assets that might have a publicly available market for valuation, it isn’t that simple. Consider volume. If someone has a substantial amount of something, you normally would apply a discount, since selling large volumes of assets can upset the market and reduce the overall value of an item.
But not everything has a value that can be determined easily. Investment in a closely held business, or real estate, or even paintings are examples of assets that are not susceptible to easy valuation on an annual basis, making it not very economically feasible to try to do so. Additionally, valuation can be determined in any number of ways — such as appraisals, discount rates, and reductions in the lack of marketability– so that valuations may be varied.
Another factor that makes valuations difficult are contingencies. For example, many assets have contingencies backed up with guarantees, and it’s difficult to value those contingencies. Finally, there is a question of liquidity/ability to liquidate or pay. Most people who have extraordinary assets like that often don’t have sufficient income or liquid assets to pay a wealth tax on them. Since many assets are not easily marketable, there could be a liquidity crunch.
Of course, a wealth tax would add even more burdensome complexity to the already byzantine tax code. The IRS would have to substantially increase its number of agents and its budget just to have the manpower to devote to compliance and enforcement. Given the IRS’s history of being discriminatory and incompetent, this is not a good thing.
Failure: It should also be noted that the wealth tax has already been tried — and failed — repeatedly. At one point, 15 European countries had a wealth tax. To date, all but four nations have since repealed it because it was ineffective in accomplishing its goals and was extraordinarily complicated and expensive to administer. Additionally, the wealth tax induced capital flight and asset hiding. For instance, in 2017 France decided to abandon its wealth tax after it caused the loss of “10,000 people with about 35 billion euros ($41 billion) in capital abroad” over a 15 year period according to the Prime Minister. Likewise, Switzerland — one of the four remaining wealth tax countries — experienced substantial tax evasion, noting that a mere “.1% wealth tax lowers reported wealth by 3.4%” according to a study by the National Bureau of Economic Research. As Switzerland has a wealth tax rate of 1%, that amounts to 34.5% in unreported assets.
Effect on the Economy: The growth of our economy is dependent on putting capital to productive use. Every time a corporation reinvests its retained earnings, or an individual puts his wealth to work by investing in an ongoing or new venture, the economy grows. This growth results in new purchases of equipment, facilities, hiring of employees, research and development, etc. Conversely, when capital is removed from the economy, such as by requiring the payment of a wealth tax, the economy shrinks. In fact, the wealth tax is a form of double taxation. Wealthy Americans already pay taxes on their income; under a wealth tax, they would then be taxed again for keeping that income in various assets. This not only punishes success, but discourages investment and savings.
Though progressives may argue that the capital taken out of circulation will be used to redistribute income to those who will spur the economy by consuming those funds, we revert back to Economics 101 – consumption has a much smaller effect on the economy than investment.
Morality: There is no moral justification to take something from someone just because they have it, even if they have a lot of it. One is reminded of the great scholar Thomas Sowell, who understands this quite well: “Since this is an era when many people are concerned about ‘fairness’ and ‘social justice,’ what is your ‘fair share’ of what someone else has worked for?” The wealthy in this country are an extraordinarily charitable group. But it should be their choice as to how charitable they wish to be with their hard-earned assets.
Senator Warren has argued that a real benefit of this tax is that it will only affect a relatively small number of people. This reveals what this tax really is – an attempt to foment class warfare by giving a large number of people (read: voters) a benefit through confiscating substantial amounts of money from a small group.
A wealth tax will certainly not bring in the revenue expected by the progressives – who relish the thought of punishing wealthy Americans in order to throw more money at their failed policies. Wealth redistribution is inherently the antithesis of the American Dream. Bastiat was right. No matter how you spin it, explain it, try to justify it, a wealth tax is simply “legal plunder.” Perhaps Senator Warren is being disingenuous (since the wealth tax would never be passed) but she will nevertheless score political capital among her constituents who do not know any better. She is taking advantage of the lack of economic knowledge among people who don’t understand the complexity and stupidity of a wealth tax.
by | BLOG, BUSINESS, CONSTITUTION, COVID, ECONOMY, GOVERNMENT, POLITICS
It is undeniable that people are hurting from COVID. It is also untenable that one of the continued solutions is an ongoing moratorium on evictions. Such a policy would seem to be blatantly unconstitutional.
A national moratorium on evictions picks winners and losers by government fiat by preferring one population (renters) over another population (landlords). The moratorium continues to allow people to live in their spaces without paying what they are contractually obligated to pay, putting the landlord at a loss. Would the same people championing this policy support the government letting people take food from a grocery store without paying for the food? How about taking clothing from a store without paying for it? It is the same thing. Those who argue that there is a moral right to housing would be hard pressed not to agree that this is also a moral right to food and clothing as well. Put it another way, the moratorium allows renters to consume their rental space for free that they would otherwise be purchasing through the payment of rent. What gives the government the right, therefore, to tell people they are allowed to consume their product — be it food, clothes, or rental property — without just compensation?
Originally, the moratorium was declared as a hedge against a perceived health hazard, namely that if people are evicted, they could contribute to the spread of COVID, and from this line of thinking was the flimsiest constitutional justification for the policy. If therefore, the government wants to assume the responsibility for avoiding an even bigger health emergency, it is only just that the government should cover the cost of the loss or rent to the landlord or guarantee that the rent is paid. You can’t have it both ways. The current policy is utterly ludicrous and puts many landlords at financial risk and ruin.
by | BLOG, CONSTITUTION, FREEDOM, GOVERNMENT
There is a renewed push for ending qualified immunity especially since the unrest earlier this summer. Qualified immunity affords police officers protection from litigation for their actions in pursuit of the law, while immunity is lost if an officer violates a citizen’s constitutional rights. At least, that is what qualified immunity was before it metastasized into a near entitlement shield for officers and other public officials. Qualified immunity does not need to be abolished but it should definitely be qualified. It needs to be turned around to what it originally meant, not what decades of SCOTUS rulings has made it to be.
by | BLOG, CONSTITUTION, FREEDOM, HEALTHCARE, LAW
Certificate of Need laws, otherwise known as CON laws, are laws required in many states and some federal jurisdictions before proposed acquisitions, expansions, or creations of healthcare facilities are allowed. They are also absolutely ridiculous and entirely based entirely on cronyism. CON laws are irresponsible, damaging to the economy, and a prime example of an assault on economic liberty.
A recent report by Mercatus noted that “Nearly six decades ago, New York became the first state to enact a CON law for healthcare services. A decade later, the federal government mandated state implementation of CON laws in an effort to control healthcare costs, increase access to care, and improve quality. When early research suggested that CON laws were failing to meet these goals, the federal government repealed the mandate, but many states kept their CON laws on the books.”
The creation of CON laws themselves were supposedly based on some economic theory that restricting competition was going to be better for consumers, but in fact, it’s the opposite. This means that it’s cronyism, not economics that put these laws into place, and that it is cronyism, not economics, that is keeping these laws intact all these years.It’s worth noting that even the federal government realizes that CON laws are terrible. They ignore basic economic principles, that when you restrict competition you get higher, not lower prices. Even though the feds undid their CON laws, the states did not, which means that the states were bent on cronyism, which was the real reason for the laws in the first place.
Ultimately, CON laws are unconstitutional because of their inherent economic favoritism. There’s no reason why some liberties should be treated differently than economic liberty and the right to earn a living should not be considered as fundamental as other rights. CON laws and their cronyism should be eliminated.
by | ARTICLES, CONSTITUTION, ELECTIONS, POLITICS, TAXES
On November 3, Illinois residents have a Constitutional referendum to change their method of taxation from a flat tax to a “fair tax.” The current system treats all Illinois taxpayers the same by levying a modest 4.95% rate. Under the proposed change, taxpayers would be divided among multiple tiers with a progression of increased rates based on higher levels of income, and both individual and corporate rates would be affected. By removing the Constitutional provision against graduated-rate taxes, the power of taxation is given to the state lawmakers who can decide varying levels of rates for various groups of taxpayers with a simple majority vote. In contrast, the flat tax provides some protection against outrageously high rates because it is impractical and politically unpopular to do so among certain segments of the population.
In anticipation of the referendum passing, the Illinois legislature passed a tax plan that would be implemented on January 1, 2021. Although the Illinois governor — like most progressive morons — has assured taxpayers that the change won’t affect most residents, the impact of the new plan will indeed have dire consequences for many individuals. The new tax rates range from 4.75% to 7.99%. While the lowest 20% of earners will see a decrease in rates, that translates into a whopping $6.00 on the median average earnings of $12,400. On the other end of the spectrum, the new plan includes not only higher rates, but also a recapture provision for highest earners, so that not just their marginal income, but their entire income, is taxed at the 7.99% rate. What’s more, the new plan does not index for inflation on marginal income levels which will result in taxes consuming a greater percentage of taxpayer income if income levels do not increase.
Businesses will also be adversely impacted. The base corporate rate will increase to 7.99%.
However, Illinois also has an additional set of taxes (called the PPRT) levied on corporate and pass-through income of 2.5% and 1.5% respectively. Combined with the new business rate, corporate income tax would be 10.49% and pass-through income tax would be 9.49%. At a time when businesses are struggling due to the pandemic, increased taxes only worsen the situation. Additionally, the business rate will be one of the highest in the nation, making Illinois a less competitive state in which to do business.
The new tax plan is intended to be a revenue raiser, originally calculated to be $3.6 billion in the first year — but that was before COVID-19. Yet the fiscal woes facing Illinois are overwhelmingly derived from massive overspending and ballooning pension obligations, and no tax hike will begin to fix it. According to Illinois Policy, the upcoming budget includes nearly $6 billion in deficit spending, with pension costs consuming more than 27% of expected general revenues. Furthermore, Illinois faces a current $4.6 billion shortfall. Without a balanced budget to restrain spending — Illinois has not seen one in 20 years — tax hikes will be inevitable. And by enacting the “fair tax,” Illinois lawmakers have the power of the purse to raise taxes and levy surcharges at their discretion.
According to revised revenue forecasts from the governor’s office, if the fair tax is enacted, the budget gap is approximately $6.2 billion; if the fair tax is not enacted, the estimated budget gap is approximately $7.4 billion. The change from a flat tax to a graduated tax imposed on Illinoisians is simply not worth the $1.2 billion in possible additional revenue when the legislature can’t even be bothered to find a way to cut spending. Governor Pritzker’s attempt to introduce equity in the tax code by making higher earners pay their fair share will hurt all taxpayers and businesses, especially at a time when the effects of COVID-19 on the economy are devastating across the board. The proposed “fair tax” is anything but for the taxpayers of Illinois.
by | BLOG, BUSINESS, CONSTITUTION, GOVERNMENT, RETIREMENT
There’s another issue with regard to the crushing liabilities of public sector pensions. Several states, such as California and New York, have a constitutional amendment that grants pension entitlement to public sector workers. In other words, once a person is working for the government and they have a defined benefit plan, they are entitled to keep it and transfer it, even if the contract runs out.
This kind of constitutional amendment says it’s a constitutional requirement to pay employees for their pensions. Now, what it should mean legally is that any pension any employee is earned, it is a constitutional obligation. But that’s not the problem. It has been redefined by the leftest political structure and judiciary to mean something else, which from an economic literacy point of view, that something is incompetent. They have defined it to pay the pension not only for what they’ve earned but also include an obligation to continue that level of funding into new contracts, even those that aren’t signed on yet. So even if a contract is over, it’s not really over. And their employer can’t renegotiate it.
In contrast, in private industries, if an employer terminates a defined benefit plan by a negotiation with a person or whatever, they can’t reduce what they already promised, but there’s an amount that is calculable and then that’s it. Whatever you’ve earned in a contract is specific to that contract. When the contract is over, you have to negotiate a new contract. The terms can be the same. The terms can be different. You may suddenly get offered a contract with no medical benefits when you once had medical benefits. By and large, contracts tend to be the same but there is no obligation to have anything in a new contract that existed in a prior contract.
But in the government world in some places, you have to give the person the same pension benefits in a new contract. Therefore, that is a whole additional cost factored into what an employee earns. The fact that he is required to be given that benefit in the future is an additional cost that is never factored into the equation. As a result, we have enormous forced sums of liabilities that add to the unreported sheets. Yet the municipalities say they are entitled to keep that same level of funding, which is economically illogical and illiterate. The crux of the problem is that the amendment is interpreted in a way that interferes with the ability for two parties to contract by giving one party extra benefits. This is both unjust and financially negligent.
by | ARTICLES, BLOG, BUSINESS, CONSTITUTION, HYPOCRISY, RETIREMENT
Over the years, I have written numerous articles on the looming problem of funding public pensions. Many states are facing severe shortfalls and it isn’t due to the economy or the recent recession or the pandemic. The main problem is accounting gimmicks that cities and states regularly do which results in underreporting their pensions. In the private sector, if someone were to underreport a pension, they go to jail for it, but the public sector gets away with it, and the taxpayer is left holding the bag.
Here’s what’s going on. A principle of normal (accrual) accounting is that if you have incurred current expenses, they have to be reported currently. You cannot delay reporting it until a future year, even if it is not paid until a future year. You have to count their costs today. So when you accrue an expense — for instance, a legal fee — you owe that money. Even if the bill arrives after the new year and you pay it that next year, you still owe it for the current year when incurred. It is a payable – that is, a liability – as of the end of the year incurred.. This is accrual basis accounting, and it’s how pensions must be accounted for in the public sector — but they’re not. And therein lies the problem.
When an employee works for a government (or any organization) in a given year, all costs associated with that employment must be recorded as an expense for that year. Naturally, the regular pay iis an expense incurred. That’s an easy enough concept to understand. But there are other things to consider — for instance, a bonus. If you have a bonus that is not paid until the next year, it still has to be recorded in the year it was earned. Now, pensions are not paid out in the year worked or the year after, but they will be years in the future and actuaries can calculate that amount. That amount is not what is booked as an expense. What is booked as an expense is what’s paid. There’s a disconnect between the funding requirement for pensions, and those funding requirements are usually less than the cost incurred.
If that amount is two billion dollars (one billion earned now and one billion in future pension benefits) you are supposed to record two billion dollars. In other words, that liability should be factored in on the balance sheet. But what’s happening instead is that they’re merely recording the one billion earned by the employee as an expense and not accounting for future payouts. There is no measure of a pension’s accrued actuarial liabilities (the current value of earned benefits in the future). The accountants are merely recording the present expenses while underreporting the future ones.
In a given year, you might incur $100 million in future payments for employees who work. So that $100 million is the true cost. Remember that even though the money is not paid for many years, you still need to know what that cost is today, and include that amount in the budget. You cannot say you’ll ignore it and not include it because you won’t pay it for twenty years. But that is what has been happening. Suffice it to say, in the private sector, it’s very onerous. You have to pay in an amount very close to what the cost is so that the company doesn’t go bankrupt and then leave the pensions hanging. That is both right and responsible. But the morons in the public sector think that because the municipality is so powerful, it doesn’t have to do the funding requirement — and therein lies the reason why they are in trouble. They only put the amount that they pay as an expense; they don’t put the whole thing. That is fraud. So now they’re falling further behind. Even if they don’t have to fund it all, they are required to keep a balanced budget, but they don’t.
What’s even more difficult, a lot of municipalities also promised other things like future medical expenses, and those aren’t even booked. They’ll just list it as an expense when it is paid. That’s not right. You can’t promise someone a benefit and have a legal obligation for the future and then not book it on your books. And what’s worst of all is a constitutional amendment in several states that grants pension entitlement to public sector workers. In other words, once a person is working for the government and they have a defined benefit plan, they are entitled to keep it and transfer it, even if the contract runs out. They have defined it to pay the pension — not only for what they’ve earned but also include an obligation to continue that level of funding into new contracts, even those that aren’t signed on yet.
These non-standard, non-accrual forms of accounting for public pensions over the past few decades have resulted in reckless — and dare I say criminal — budgets resulting in billions and trillions of unfunded liabilities that in some places are financially insurmountable. Those that have engaged in such practices should be sued criminally for intentionally filing false sheets on their pensions.
