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!

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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.

Powerball Dreams, Tax Realities

Many of us went out to buy a Powerball ticket over the last few days.  Why not?  Even a tiny, ridiculously remote chance to win a $1.5 billion jackpot is still . . . a chance to win a $1.5 billion jackpot!  How often does the average Jane or Joe have a chance at such enormous sums of money?  It’s an irresistible temptation.

according-to-math-heres-when-you-should-buy-a-powerball-ticketPart of what you are buying when you purchase a Powerball ticket under these circumstances is a chance to dream.  What would you do with hundreds of millions of dollars?  Would you quit your job, move to your dream location, buy a professional sports team, make each of your relatives a millionaire, stay in the President’s suite at the Ritz and take a champagne bubble bath, buy a Ferrari . . . or something else?  If you literally had more money than you knew what to do with, even the wildest dreams are possible.  I’m guessing that 99.9% of the people who are in the Powerball drawing — even people, like Kish and me, who never play it — have thought something like this at an idle moment:  “I know it’s unlikely that we might win, but what if we did?”  And then the enjoyable dreams begin.

The passing dreams of millions will come crashing to the ground tonight, when the drawing occurs and, presumably, somebody else will win.  It won’t hurt too much, because no one really expected to win, of course, and in any case the opportunity to dream a little about a life-changing cash payout isn’t a bad thing even if the fickle finger of fate passes us by.

Oh, and then there’s the issue of taxes — which are going to take a pretty big bite out of any jackpot.  The cash payout amount will be $930 million ($930 million!) and unless you live in a state where there are no state or local income taxes, or lottery winnings are exempt from such taxes, you’re going to pay federal, state, and local income taxes on that staggering sum.  In New York City, a single winner of the payout would walk away with $579.4 million, and then would pay another $100 million or so in initial federal taxes.

So that $1.5 billion in the headlines would be reduced to $475 million or so.  I guess we could live on that if we had to.

Tax Torn

Well, it’s Tax Day — April 15, the due date for most federal and state income tax filings.  The butt of jokes by comedians for decades.  The annual source of angst for millions of American taxpayers.  A rallying cry for conservative anti-taxers ever since the Sixteenth Amendment was ratified in 1913 and allowed the federal income tax in the first place.

My feelings about Tax Day are decidedly ambivalent.  I recognize that taxes are the price we pay for living in a free society, and I pay them willingly.  A modern military with modern weaponry, a welfare state system that tries to help the poor and elderly, and a government that shoulders far-reaching tasks like disease control or preventing alien species from invading the Great Lakes can’t be funded by the system of duties and tariffs that supported a much more limited government during the colonial era.  I also think it’s ridiculous for people like Ted Cruz to talk about abolishing the Internal Revenue Service.  If you accept that taxes must be paid, as I do, there must be an entity that collects the tax.

At the same time, it’s hard for me to feel warm and fuzzy about our tax system or the IRS.  Last night Kish and I watched the latest Last Week Tonight with John Oliver, and it tried to make viewers feel sorry for the IRS, because IRS jobs are boring, the Internal Revenue Code is constantly being changed by Congress, and IRS funding has been cut.  Good luck with that effort!  The IRS may be necessary, but don’t expect me to give it a hug, okay?  And when I sign my forms and send in my payments, don’t think I’m a nut if I wonder about the presence of unfairness in our tax code and abuse and favoritism in the highly political process by which tax exemptions are determined and tax rates are imposed.

Every year, as I look at the forms and the complicated instructions, I wonder if there isn’t a simpler, fairer way to do it.  Say what you will about the sales tax, but it’s a straightforward percentage that anybody can calculate, and it targets consumption rather than work.  If you want to soak the idle rich, wouldn’t a tax when they buy ridiculously appointed $200,000 SUVs be a good idea?  And user fees that are triggered when a specific federal service is used — say, for use of ports and customs, for airline security, or for drug or vehicle testing to ensure compliance with safety standards — also seems fair.  Couple that with an income tax and withholding system that involves fewer exemptions, exclusions, deductions, tax rate levels, and schedules, and maybe you’ve got a workable system that won’t cause so many Americans to take the IRS’s name in vain come every April 15.

529’d

State of the Union policy proposals come, often in rapid-fire fashion, and go.  President Obama’s proposal to tax “529” college savings accounts, announced only last week and withdrawn this week, may have set a record for the quickest skedaddle.

IMG_0746The “529” plans, named for the section of the Internal Revenue Code that addresses their tax treatment, allow people to squirrel away money to pay for a family member’s college tuition.  The money gets invested, taxes on any gains are deferred, and the money that accumulates in the account can later be used to pay for a beneficiary’s college, tax-free.  That’s why savingforcollege.com says that 529 plans offer “unsurpassed income tax breaks.”

The 529 plans are such a good deal that more than 7 million of them have been created.  President and Mrs. Obama have them for their daughters, for example, and put $240,000 into those plans back in 2007.  And while the Obama Administration argues that the tax benefits for those plans predominantly favor “the rich,” it all depends on how you define “middle class” in modern America.  As the New York Times points out, 10 percent of 529 plans have been established by people with incomes below $50,000, and 70 percent of the total number of 529 accounts are owned by households with annual income below $150,000.  Is a two wage-earner family that makes $140,000 really wealthy?  My guess is that most families in that category don’t look at things that way.

The President’s 529 tax plan was a trial balloon that quickly was shown to be a lead balloon, opposed not only by the people who set up the 529 accounts, and the entities that hold and manage those accounts, but by Democrats and Republicans alike.  House Minority Leader Nancy Pelosi reportedly personally lobbied President Obama to ditch the 529 tax plan on a recent plane flight.  And the optics of the proposal aren’t that great, either.  For generations, a cornerstone of American policy has been to help citizens get their kids to college — and now we’re going to tax those industrious folks who plan ahead and save for college for their kids and grandchildren, rather than letting them be saddled with crushing student loan debt as they go forward into their adult lives?  Of all of the tax breaks available in the endless Internal Revenue Code, this is the one we’re attacking?

You can argue, I suppose, about whether the 529 tax plan was good policy, but there’s no doubt that it was bad politics.  I’m guessing that “529’d” might become part of the dictionary of political slang, to be used in the future whenever an ill-conceived proposal gets raised, quickly torpedoed, and then flushed forever down the memory hole.