Using Obama's Senior Staff To Undercut His Tax The Rich Insanity

Before we do today's post, let me set some personal background:

1. I am not what the typical American would consider rich.
2. I drive an eight year old car and my wife drives a six year old car, neither of which cost us over $22,000 when we bought them.
3. We live in a typical American, suburban, 2,000 square foot home.
4. We do not take exotic vacations to far away places.
5. We do not own a boat (or yacht).
6. We do not own second and third homes in far away exotic places.
7. Our marginal income tax bracket in 2011 was 15%.

Thus, I personally have nothing at stake when discussing whether the rich in this country should pay more in taxes. All of the plans the President has proposed under his tax the rich class warfare will not directly affect my household.

As we have done many times in this blog, let's quickly review how the Washington political class wastes hundreds of billions of dollars a year:

• Unbiased, nonpartisan estimates put the annual waste and criminal fraud in the Medicare and Medicaid Federal programs at anywhere from $110 to $150 billion a year.
• Unbiased, nonpartisan estimates put the annual waste and criminal fraud in the Social Security system at about $100 billion a year.
• The Federal government has admitted that just one of its unemployment benefits program probably loses $17 billion a year to fraud.
• The IRS has admitted that it fails to collect upwards of $380 billion a year owed to it under the current tax code but unpaid by tax evaders.
• If the Federal food stamp program wastes money at the same rate of other Federal programs than about $7 billion a year of taxpayer wealth is lost via fraud in this program.
• Total waste just from these few Federal efforts: $515 - $545 billion dollars a year.

Thus, without going into other areas of Federal government waste (e.g. defense spending, overstaffing, bad contracting, etc.), we can easily see that the Federal bureaucracy conservatively wastes over $500 billion a year. This comes out to about $4,300 for every U.S. household every year. I am sure that every one of those households would like to see their household income increased $4,300 every year without suffering any cut back in government services if only the Washington political class ran a tighter ship.

This $500 billion annual waste is why no American, rich or poor, at this point in time should be required to pay another penny in Federal taxes. There is more than enough wealth go around, it is just that our Federal politicians waste so much of it.

But that is not how Obama sees it. It wants the higher earners in this country to pay more and more in Federal taxes even though these same earners already pay for a massive amount of the Federal bureaucracy, both in total dollars and as a percentage of total dollars. Their average percentage of income sent to Washington as taxes looks like the following distribution according to actual IRS tax return data (click on the chart for a larger view):

Consider the two tax the rich schemes that Obama has proposed:

1. In one scheme, Americans earning over $1,000,000 a year would pay more in taxes. This scheme would net the Federal government about $4.9 billion more a year in taxes. This is less than 1% of the annual amount that Washington wastes in current Federal programs. This will virtually no impact on making other Americans' lives better, reducing our national debt, or closing our annual deficits, considering the fact that the Obama administration is running deficits of voer $1 TRILLION every year.
2. In his other scheme, those Americans earning over $250,000 would pay more in taxes. This would generate about $70 billion more a year in taxes for the Federal government, only about 14% of the annual amount wasted every year. Even this $70 billion a year is only about 6% of an average Obama annual spending deficit so even this higher tax plan would do little to fix the financial state of the country.

The bottom line is that Obama and the rest of Washington's political class could get so much better returns if they focused on just plugging the leaks in current government spending rather than waste time and do all of this political posturing over taxing the rich. In addition, I would think that keeping more money available circulating in our weakening economy, either $4.9 billion or $70 billion, is a better use of this wealth than sending into the black hole of Washington. Obama said the exactly same thing several years ago in 2009: http://townhall.com/tipsheet/katiepavlich/2012/07/10/obama_flashback_last_thing_you_want_in_recession_is_to_raise_taxes

Okay, this is all a long winded set up to using Obama's staff as an example of why these are stupid tax plans. Consider the research and analysis that the Washington Free Beacon printed on July 10, 2012 (http://freebeacon.com/obamas-millionaires/):

• All of the information from the article are sourced back to the official White House website on White House staff salaries or to the original financial disclosure forms that White House personnel are required to file under law.
• Thus, a reader can verify that the Beacon article is based on official government documents and not speculation.
• According to the article, White House Communications Director Dan Pfeiffer, Press Secretary Jay Carney, Cabinet Secretary Chrisopher Lu, and senior advisers David Plouffe and Valerie Jarrett all earn the maximum White House salary of $172,200 per year.
• This top salary band places them well under the two potential tax the rich thresholds that Obama would like to see implemented, either $250,000 or $1 million, but in the upper 5% of all American wage earners.
• However, the Beacon reports, based on their own personal financial disclosure records, Jarrett’s net worth is between $3.3 million and $13 million. Lu is worth between $2.3 million and $5.2 million, Plouffe is worth as much as $3.6 million, Carney as much as $3.2 million, and Pfeiffer as much as $2.1 million.

Interesting stuff. Now consider a struggling business owner who is trying to get his or her business into a growth mode. They have thrown their life savings into this endeavor. They are trying to contribute to society by producing a worthwhile service or product. Let's assume that they are like thousands and thousands of other small businesses and they file their business and personal income tax returns together because that is the easiest and most advantageous approach for them. 

If they are like many small business earners, they have made tremendous personal sacrifices over the past few years, according to a recent Citibank survey of small business owners: 

“Keeping businesses afloat has required sacrifices on the part of both employer and employees, the survey found. Over the past few years, business owners report that they have, at one time or another, taken less profit (78 percent), worked more hours than usual (70 percent), and used their own money to help the business survive (69 percent).

“But what is most revealing is that the majority of respondents — 54 percent — say they have gone without a paycheck in order to keep the business running. And nearly one-quarter (23 percent) have gone without pay for one year or more.

Employees, too, sacrificed finances for their employers. More than one-third of owners (38 percent) said their employees worked overtime without pay; 18 percent said employees either missed paychecks or had paychecks delayed.” (see this CNBC report for the details: http://www.cnbc.com/id/47723383.)

Times are certainly tough and challenging for America's small business owners.

But let's assume that theoretical small business has gotten their business income up to $400,000 a year. Under Obama's second, and probably preferred tax the rich scheme, this business owner would likely now have to pay additional taxes on about $150,000 of his or her annual income stream.

These are additional taxes that cannot be used to expand the business. These are additional taxes that cannot be used to expand hiring or give additional benefits to employees. These are additional taxes that the small business owner will never see any advantage of paying.

And the ironic thing is that the millionaires sitting on Obama's staff, people that are financially far better off than thousands and thousands of struggling small business owners, people that have already made their fortunes and currently enjoy high salaries and outstanding benefits, will not be impacted at all. Does not seem "fair" or good economic policy to me.

Another example. Consider someone who has a net worth of $6,000,000. They have invested all of their worth in tax free municipal bonds that earn them a return of about 4% a year, tax free. Thus, they annually earn $250,000 a year but will not be paying any more in taxes. The hypothetical small business owner we created above would be paying more in taxes even though their personal and business wealth is likely far below this individual's $6 million personal wealth.

And that is the fallacy of Obama's tax the rich scheme. He wants to increase taxes on current high earners, as he defines them, which may not translate into taxes on the wealthy, as proven by our sample municipal bond investor and many on Obama's staff. Thus, he will be helping to cripple America's job creation machinery, small businesses, without any discernible impact on the economy, our national debt, or out annual spending deficit by the Federal government.

But this type of short sighted, self defeating is typical of most politicians including the President:

• Rather than do the nitty gritty work of coming come up with a coherent, fair, and economically favorable tax code overhaul, let's just tax more Americans in a helter skelter manner.
• Rather than do the nitty gritty work of coming up with a coherent, fair, and effective national energy strategy and policy, let's just throw around billions of taxpayer dollars in a helter skelter manner to near bankrupt alternative energy companies (Solyndra, Beacon, Spectra, A123, Ener1, etc.) and see what sticks, if anything.
• Rather than do the nitty gritty work of cleaning up the waste, inefficiencies, and criminal fraud that is rampant throughout every Federal bureaucracy and saving hundreds of billions of dollars in the process, let's just expand those programs to cover the shortfall of waste and tax Americans more to cover the incompetence.
• Rather than do the nitty gritty work of understanding the root causes of our escalating health care costs, let's just put another massive Federal bureaucracy in place and implement about two dozen additional taxes to pay for it without understanding how to address and resolve the underlying root causes.

Which I guess is the root causes of our problems with government and the politicians that operate it. They are unwilling, unable, or too distracted worrying about their reelection or personal enrichment to do the nitty gritty work of governing. Maybe that is why major issues never get resolved, our tax burden continues to increase, and our national debt burden is skyrocketing, not only for current generations of Americans but future generations also.

Thus, the next time you hear that the President wants to raise taxes on the rich to make our tax system "fair", remember that he is not necessarily talking about taxing the wealthy, he is talking about taxing current "high" earners. Current earners that are struggling to create viable businesses and the economic growth and jobs growth that comes with it.

Many wealthy Americans, including a lot of Obama's staff are wealthy but not current high earners, under his definition. They already made their wealth and Obama's short sighted tax the rich schemes will exempt them while penalizing the job engines of small businesses. 

It makes you wonder if Apple would still be one of the largest companies in the world from a valuation perspective if Wozniak and Jobs had been considered wealthy, under Obama's definition a few decades ago. They may have been required to pay more in taxes, under Obama's tax the rich scheme, for little in return, when they were still working out of their garages. How many potential Apple-like small business owners are working out of their garages today and will see their potential to grow hamstrung by a shortsighted and misleading tax the rich scheme?

We may never know but we do know that it is unnecessary, given the disgraceful level of government wasteful spending that goes on today.

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As far as the nitty gritty of running a government, a concept that seems foreign and undoable to many of today's politicians, may I recommend the following links to them for a starting point of actually running a viable, cost effective organization:

Revising the tax code: http://www.loathemygovernment.blogspot.com/2012/02/united-states-of-purple-fixing-our.html

Implementing a coherent national energy strategy: http://www.loathemygovernment.blogspot.com/2012/02/united-states-of-purple-presidency_09.html

Resolving our escalating health care cost issues: http://www.loathemygovernment.blogspot.com/2012/02/united-states-of-purple-solving-our_12.html

Saving the fiscal solvency of Social Security: http://loathemygovernment.blogspot.com/2012/02/united-states-of-purple-saving-social.html



We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
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http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/

It Does Not Have To Be All Gloom And Doom

It can get pretty depressing writing about the American political class. Problems and issues rarely get seriously addressed, never mind resolved. The current set of politicians seem hell bent on driving the country's financial health off a cliff.  Civil discourse over political views and stands is evil and degrading, meant to hurt feelings, not just win a political argument. Our foreign affairs strategy and results seem meager, disjointed and late. Leadership at all levels of government is thin at best.

On top of all of this, there are some major factors going on in the world that sometimes make it seem that we are out of control of our own lives and unable to shape our futures, given the following global trends:

• The average age of many countries' populations is getting older, making it increasingly difficult for government and politicians to write the checks of entitlements that their brethren promised long ago. In the United States, more and more people will be collecting Social Security in the near future but there will be fewer and fewer people to fund the pot of money needed for payouts. The aging U.S. population will quickly collapse the Medicare program unless drastic changes are made soon. So it is in many other countries.
• While the average age of populations in many countries is getting older, throughout the world there are places with a growing class of young adults that cannot find enough quality work, or any kind of work, for themselves and their families, possibly leading to unforeseen societal problems arising from this chronic unemployment situation.
• What used to be slow moving, economically backwards countries are becoming fast moving, economic engines for growth. This growth, while good for those moving up the economic ladder, puts incredible strains on all kinds of resources including food, petroleum, energy sources, water, and ores and minerals. These pressures drive up the costs on all.
• As we see in the Middle East, the drive for freedom is upsetting long established international relationships, making international affairs and alliances much more difficult to predict and optimize. When previously the United States State Department could rely on certain despots for support ("he may be a bastard but he's our bastard" syndrome), those old rules are now gone, placing additional stress and uncertainty into the world around us.
• While some countries are struggling towards freedom, others are still under the thumb of tyrants, bent on their own self gratification at the expense and possibly the lives of anyone or any country that gets in their ways. North Korea and Iran being the two biggest culprits but there are others that would rather move ahead with negative action than positive.
• The world is moving faster via the Internet and wireless communications, making it crucial that decision making processes in government, business, and one's personal life be made quicker and with less confidence then previously, further injecting stress into our lives.
• As the world's population continues to grow, the ability to feed it and the ability to keep the environment in which we live clean becomes increasingly more difficult. More people means higher prices for just about everything as the immutable economic laws of supply and demand kick in.
• In the face of these trends, our political class has been especially inept and developing integrated, strategic and well thought out plans and programs to deal with these global changes and trends. For example, in a simplistic, linear approach to finding a way to address our energy needs, the U.S. government pays billions of dollars a year to American farmers in subsides for the development of ethanol, an alternative fuel source. Unfortunately, the spending of these billions of dollars has had a minimal effect on our energy situation while diverting enough corn volume (40% of U.S. corn productions goes into ethanol production every year) to feed 350 million people a year (Source: the Week magazine, march 4, 2011). Thus, our politicians waste money through subsidies, get no bang for their buck, and contribute heavily to the world food shortage problems.

Yes, the world is a far more complicated, dangerous and fast moving place then it used to be. However, all is  not lost from a United States perspective. Consider some problems in the rest of the world:

- Although China's economy has been growing quickly and strongly over the past few years, it is still not close to the size of the U.S. economy. Its rapid economic expansion has had a devastating effect on all facets of the environment throughout the country. It's fast growth has its leaders grappling with the fact that inflation threatens to derail its economic growth, with recent inflation rates of over 5% a year as measured in late 2010. Many economists see dangerous valuation bubbles in China's real estate, stocks, and commodities sectors.

From a societal perspective, a New York Times article from several months ago reported that while China is graduating more and more students from its universities, the economic need for these graduates' skills is not present in the economy, forcing these graduates to do work far below their education levels. This could lead to long term unrest within these underpaid but highly educated citizens.

With their long term restrictions on the size of families, China is beginning to enter a period where there are not enough young, working people to care for the growing number of older, retired people. Finally, The Week magazine reported in its February 25, 2011 issue that China is faced with an epidemic of lung cancer cases, with one million Chinese dying from the disease every year, putting strains on its medical and health care institutions..

- Japan faces many of the same issues that we and other nations face. The world's third largest economic engine has been in an economic funk for over ten years. Their population is also aging rapidly, placing strains on their retirement programs. They have a crazy nuclear armed neighbor in North Korea that has previously shot missiles over Japanese territory. Tragically, they have seen part of their country devastated today by an earthquake and resulting tsunami, putting further pressure on their country to move forward in the wake of this tragedy.

- Europe has not escaped these global trends either. By being tied to each other via the Euro currency, it has yet to be determined whether this tethering will help weaker European economies to survive or will lead to the drowning of all European economies. Greece, Italy, Spain, Portugal, and Ireland are in the worst shape but they threaten to infect the healthier economies also.

All of the above is meant to show that while we have some very serious problems in this country, if we can fix what ails us as a nation, the opportunity to thrive again as a democracy and world economic power is possible, given the huge challenges facing many other nations. However, that is unlikely to happen as long as the same tired politicians with the same priorities, their own re-election vs. leading the nation, are sitting in Washington. I assume that if we had a leadership base that understood the global trends and could think strategically within those trends and the assets and attributes of the United States, we would not be in the position we are in today.

In order to change out the current leadership for new leadership that know how to put a strategic plan together, we need to change our political processes. We need some sort of term limit process so that politicians do not serve in office for thirty or forty years. Leadership needs to be refreshed periodically with new ideas.

We need to take the factor of money out of the political process so that politicians are free to lead based on a strategic plan and some sort of long term vision, not based on how much re-election campaign money a corporation, union, PAC, or other organization can throw their way to maintain the status quo. The staus quo of short term thinking got us into this jam in the first place. The world moved on, faster and faster, while our plans never kept up.

We need leaders that know how to leverage assets, trends, and opportunities. Consider Apple computer. Their iPods interact and leverage their iTunes library which is compatible with their iMacs which are compatible with their iPads which share apps with their iPhones which can play iTune selections. That is strategic planning and execution at its finest.

Conversely, our political class comes up with Cash For Clunkers, Cash For Appliances, First Time Home Buyers Rebate, the HAMP program to save mortgages, etc., all of which exist in a vacuum vs. other government programs, leveraging nothing. As a result of not being strategically tied together, they fail as individual efforts to attain their goals.

Edward R. Murrow once wrote:  "Our major obligation is not to mistake slogans for solutions."  We can get out of our current rut and funk as a nation and thrive again as a democracy and nation. However, we have to be more vigilent in identifying when the political class is pushing only slogans and demand that our election processes and the leaders that come out of it give us solutions. Apple can do it, they broke the code. We need to find a way for our political class it either break the analogous code for governing or step aside for those that can.





Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.


Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com
http://realpolichick.blogspot.com
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment