Why A “Windfall”?

If you’ve been following the aftermath of the tax reduction legislation passed by Congress and signed into law by President Trump, you’ve seen stories about how some corporations have reacted to the new law by giving their employees bonuses or cutting their charges to consumers, and other, more critical stories noting that many of the companies are giving their employees one-off bonuses, rather than more permanent raises.

windfall-money-manBut while different articles about the tax cut legislation may make different points about how the tax cut legislation is affecting companies, workers, and the country at large, the coverage does seem to have one curious common theme and descriptive element:  the tax relief provided by the new law is typically said to have produced a “windfall” for companies and individuals alike.

It’s a very interesting choice of words — and one that conveys a deeper message, too.  The Merriam-Webster Dictionary defines “windfall” as “something (such as a tree or fruit) blown down by the wind” or as “an unexpected, unearned, or sudden gain or advantage.” The key underlying concept is that the “windfall” is a lucky gift and an unearned surprise — like an inheritance from your mother’s rich second cousin whom you’d never met.

“Windfall” is a telltale choice of words in this context because tax payments necessarily have been earned by whoever is making them; companies and individuals wouldn’t be paying taxes if they hadn’t sold the products or done the work or made the investments that generated the revenue in the first place.  By calling the proceeds of a tax cut in which individuals and companies pay less a “windfall” for them, you’re really suggesting that the taxpayers aren’t entitled to their own money, the government is — and taxpayers should consider themselves lucky that, for a time at least, they get to keep more of it.

Income earned as the fruit of labor or investment isn’t like fruit blown down from a stranger’s apple tree.  You can argue about whether the tax cut was good economic or social policy, but when taxpayers get to hold on to more of the money they’ve already earned it can’t reasonably be characterized a “windfall” for them.  The fact that so many news articles nevertheless present the issue in that way says a lot about how the news media, at least, views the respective entitlements of taxpayers, and government, to the money taxpayers earn.

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A Blunt Instrument

As of January 1, 2018, Seattle has placed a tax — it’s officially called a “sweetened beverage recovery fee” — on sugary sodas and “sports drinks” like Gatorade.  Costco, the big box membership club retailer, has responded by placing signs showing consumers the specific impact of the tax on the Costco price for the product — and it’s a whopper.

video__sugar_tax_sticker_shock_0_10405324_ver1-0_640_360The Costco signs show that the Seattle tax adds $10.34 to a Gatorade 35-bottle variety pack — the kind you might buy if you were responsible for buying refreshments for your kid’s sports team to consume after a practice.  The price of the product was $15.99, but with the new tax the price is now $26.33.  The tax added $7.56 to a 36-can case of Dr. Pepper, bringing the price from $9.99 to $17.55.  Costco also helpfully added signage to explain the tax-related increase to its customers and remind them that they can avoid paying the additional cost simply by going to a nearby Costco located out of the city limits.  Some customers have told local TV stations they plan on doing just that.  There’s also been lots of social media chatter about the Costco signs and the impact of the tax on prices.

What’s the point of the tax?  Seattle evidently is concerned about obesity, which some studies have linked, at least in part, to the consumption of sugary soft drinks.  Seattle hopes that by imposing a substantial tax on soft drinks and “sports drinks,” it will incentivize people to make healthier choices.  But get this:  the tax exempts sweetened products from certified manufacturers with annual worldwide gross revenue of $2 million or less, and products from certified manufacturers with gross revenue of more than $2 million but less than $5 million pay a much smaller tax.  That exemption is a purely political decision that doesn’t make sense as a public health issue, because the size of the producer obviously doesn’t change whatever the impact of the product might be.  Seattle’s approach also focuses only on sweetened drinks, and doesn’t address products like ice cream, candy bars, “snack foods,” or frozen pizza that might also be said to contribute to “unhealthy lifestyles.”  And, of course, it doesn’t begin to address other issues that contribute directly to obesity, such as lack of exercise.

Other cities, like Chicago, have tried soft drink taxes and dumped them in the face of business opposition.  Costco is providing a salutary service by alerting its customers to the specific cost impact of the tax so they can factor it into their decision-making.  The Seattle experiment, as illuminated by the Costco signs, reminds us, yet again, that taxes are a pretty blunt instrument when it comes to trying to change behavior and achieve broader policies — and that taxes are always going to be affected by political considerations, too.

Hang On To Your Wallets

Here’s some news that should cause all taxpaying Americans to feel a cold, hard lump in the pit of their stomachs:  Congress has decided to focus on “tax reform.”

ap17306662049220Congress’ decision to pivot to tax reform has produced all kinds of news stories, most of which have headlines that can only stoke the angst.  What does the proposed tax reform bill means for the value of your home?  What kind of hidden tax brackets might be found deep in the dense language of the proposed bill?  How will small business owners be affected?  What company’s stock price took a dive because the bill proposes repealing a crucial tax break?  All of these stories, and more, can be found simply by running a google search on “republican tax bill.”

The stories are indirectly reflective of the key problem with the federal tax code, because the many different areas of potential concern they address shows just how wide and deep is the reach and impact of our federal tax structure.  Virtually every company, industry, form of property, job, trade, college, technology, and concept is affected by some form of federal tax or federal tax break.  At the founding of the republic, Alexander Hamilton may have devised a simple approach to raising revenue to fund the federal government, but those days are long gone.  Now, the tax code is a complicated morass far beyond the ken of the average citizen, with special rates and breaks and benefits and exclusions and surcharges that only experts and lobbyists understand.

So, given that reality, why should the average citizen be concerned that Congress has decided it’s time to mess around with the tax code?  Because our political class, Republicans and Democrats alike, have shown they are primarily interested in raising lots of money so they can be reelected . . . which means the risk that some special provision written specifically to help a large donor will be inserted in the dead of night simply can’t be ignored.  And with the Dealmaker-In-Chief in the White House, who’s going to really dive into the details of whatever gets passed, trying to make sure that the average citizen doesn’t get gored while the special interests get their perks and sweetheart deals?

Maybe it all will work out, and the tax code will be made more fair and equitable and easy to understand, and we’ll be able to file our tax returns on postcards like the photo op pictures are indicating.  Maybe — but I’ll believe it when I see it.  Until then, I’m hanging on to my wallet.

A Giant Insurance Company With An Army

With Tax Day now behind us, it’s worth looking, again, at where our tax dollars come from and also how our tax dollars are spent.  The Brown Bear helpfully sent me an article reporting on the Taxpayer Receipt prepared by a nonpartisan group called the Committee for a Responsible Federal Budget.  While the original article is behind the Wall Street Journal website paywall, a Fox Business reprint of the article’s text is available on-line.

ss-recipientThe Taxpayer Receipt shows how every $100 in federal taxes was spent in 2016 — and, to give a sense of the trend lines, how that same $100 was spent in 2011, too.  The result supports the conclusion memorably expressed by the line I’ve used as the headline for this piece:  the United States has become a “giant insurance company with an army.”

Why?  Because half of all federal spending goes to Social Security, Medicare, Medicaid, and health programs, and that number is growing, with Social Security spending up 17% since 2011, Medicare up 15.1%, and Medicaid up 25.4%.  Social Security gets by far the biggest piece of the federal spending pie, receiving $23.61 of every $100 in tax dollars.  Medicare places second, with $15.26.

And what about that army?  National defense comes in third, with $15.24 of every $100 in taxes paid.  That amount dropped 22.3% from 2011 to 2016, incidentally.

On the spending side, the lesson from these numbers is clear:  we’ve become an enormous social welfare state, with benefits continuing to expand.  As the percentage increases from 2011 to 2016 indicate, the growing spending on such programs is crowding out our ability to fund other programs, like transportation infrastructure, federal parks, space exploration, and every other federal initiative you can name.  And the increased spending isn’t helping the nagging problem of Social Security solvency, either.  The program is underfunded by at least 20 percent, and under current projections the Social Security Trust Fund (not exactly an accurate moniker) will run out of money in 17 years.

Oh, and here’s another interesting data point — fully $6.25 of every $100 in tax revenue goes to pay interest on the national debt.  That number is growing, too.

On the tax generation side, the individual income tax provided 47% of the $100, with payroll taxes producing 34%, corporate income taxes 9%, and customs duties and excise taxes another 9%.

Now, get back to work!

Trump’s 2005 Taxes

There was a dust-up yesterday about Donald Trump’s taxes.  MSNBC’s Rachel Maddow obtained two pages of Trump’s 2005 personal tax returns, which apparently had been leaked — by someone.  The two pages show that, in 2005, Trump reported income of $150 million, paid $38 million in taxes, primarily through the alternative minimum tax, and benefited from a continuing write-off of losses that apparently date back to 1995.

48550944-cachedThe White House bemoaned the leak of the two pages of the tax returns, noting that an unauthorized leak of tax returns is a violation of federal law.  At the same time, the White House noted that the two pages show that Trump paid a big chunk of money in federal taxes — while also pointing out that he has no obligation to pay one penny more in taxes than the law requires, a position that virtually every taxpayer heartily agrees with — and added that Trump also paid “tens of millions of dollars in other taxes, such as sales and excise taxes and employment taxes, and this illegally published return proves just that.”

In addition, some Trump supporters used the two pages of the return to refute some of the things said by Trump opponents during the presidential campaign — namely, that Trump wasn’t releasing his taxes because he was a poor businessman, his business empire really wasn’t that successful, and his returns would show that he paid no taxes at all.  As a result, some people are speculating that Trump himself engineered the leak and is using the 2005 return to play the media like a Stradivarius — by releasing limited documents that appear to refute opposition talking points, while at the same time objecting to leaks in violation of federal law.

It’s a messy story, and we’ll have to see whether we learn anything further about the source of the leak.  For now, I hold to two basic points:  (1) if Trump didn’t approve the leak and somebody in the federal government (specifically, the IRS) leaked the two pages of the 2005 return to advance their own personal political agenda, that is both illegal and a grossly inappropriate intrusion into Trump’s personal information and should be opposed by anyone, regardless of their political views, who has entrusted the government with their confidential information, via tax returns or otherwise; and (2) the returns show why presidential candidates should release their returns and why, if they object to such a release, voters should insist that they do so.  The 2005 returns indicate that Trump paid millions of dollars pursuant to the alternative minimum tax — a tax that Trump has talked about abolishing.  The public deserves to know whether political positions are motivated by a politician’s own self interest.

Testing The Impact Of Free Money

Starting this week, the government in Finland is going to do something interesting.  For two years, it will be giving free money — about $590 a month — to 2,000 unemployed Finns.

free-moneyIt’s an effort to test the theory of “basic income,” and also an attempt to try to streamline Finland’s social welfare system, where benefits vary depending on a person’s status and change whenever the status changes.  The concept of basic income posits that paying people just for being alive will make sure that no one falls through the cracks.  And the Finnish government also is hoping that the experiment will provide some evidence of just what unemployed people will do if they are given money with no strings attached.  Proponents of basic income hope that the money spurs unemployed people to start their own businesses and be more entrepreneurial.  The skeptics expect that the lucky 2,000 Finns will spend a lot of time on their couches, watching TV and eating junk food.

I’m not sure how the free money will affect the 2,000 recipients; predicting the reactions of individuals is never easy.  I don’t think $590 a month is all that much money — for example, it’s about a third of what salespeople in Finland earn, according to this chart — but if Finland has a robust social safety net, as many northern European countries do, it might be enough to allow somebody to eke out a couch-bound, video game-oriented life with a roommate or two and some generous parents.  It doesn’t seem like it would be enough money to allow people to start a business, learn a new trade, or do some of the other positive, poverty-ending things that some advocates are forecasting.  My guess is that if the unemployed folks had the drive, moxie, and gumption to start a new business, for example, they probably wouldn’t be unemployed in the first place.

No, I think the more predictable response will come from the people who aren’t getting that $590 a month for the next two years.  Somebody is paying the taxes that fund the “free money” pot, and I’m guessing they won’t exactly be happy to be paying somebody else to simply exist.  And if even a portion of the 2,000 start their own businesses, some of the taxpayers no doubt will wonder why they didn’t get the free money that would allow them to pursue their dreams.  When government is picking the lucky few, there is bound to be some resentment.  Pretty soon you end up with a lot of people wanting that free money from the government, the government bowing to popular demand, and perhaps not enough people who are working and paying the taxes that provide the free money in the first place.

All of which begs the question:  how could the “basic income” model be sustainable in the real world?  Thanks to Finland, maybe we’re about to find out.

On The Squirrel Superhighway


The bird feeder in our backyard broke, sending birdseed falling to the ground — and in the process turning our back fence into the German Village Squirrel Superhighway.  As I write this, no fewer than four squirrels are racing over the fence lines, romping through the backyard, twitching their tails, eating as much birdseed as they can stuff into their gluttonous buck-toothed mouths, and then skittering back up the trees that serve as the squirrel superhighway on and off ramps.

Squirrels are basically rats with tails, but they are industrious little buggers and fun to watch.  Hard-working and personally greedy, they are the prototypical capitalists of the animal kingdom.  When an opportunity presents itself, they are highly motivated to get their share and will do what they can to maximize their personal gain.

Now that I think of it, I’m surprised somebody hasn’t tried to tax them.