Archive for October 19th, 2011

The Tax Policy Center, a joint venture between the Left-leaning Urban Institute & Brookings Institutions, has declared that Herman Cain’s 9-9-9 plan will mean a tax increase for wage earners between $30,000 and $40,000. As a static, effective-tax-rate model, that is likely to be true. However, the analysis does not include the effect on the Consumer Price Index.

As most rational people know, corporations do not pay taxes in the sense that they pass that cost along to the purchaser of the goods. In my business, for instance, we are an ‘S’ Corporation. That means that the net income from the business is taxed at the individual rate. For the purposes of the discussion, let’s call that rate 30%. Under the 9-9-9 program, that tax rate drops to 9% — a difference of 21%. The same cost reduction will happen to my competitors.

I wish that I could keep that 21%, but I can’t for one compelling reason: competition. To win business, price is always a factor (not always the primary factor, but always a major factor). So, prices will come down and average margins for my industry will, once again, reach 3-5%. This price competition between market participants means that the prices that consumer will pay will come down by, in my example, 21%. But, even if they only come down ~12%, the consumer will net out ahead by paying the new low price plus the 9% sales tax. (Note: There is a multiplier effect, too. A business who buys printing from me will experience lower print purchase costs. That lower cost will also be passed along to their customers and ultimately down the line to the consumer.).

As Herman Cain said, “Do the math.”

Now, if you want to debate how long the 9% sales tax will stay at 9% (or if a “luxury” sales tax will be added to boats, planes, etc.), that is a worthy discussion. But, please, enough of the trivial analysis of the tax rates themselves. A strong, vibrant economy that is growing jobs and lowering prices is a very real outcome of Mr. Cain’s plan. It is a serious proposal.


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I’m a data guy. I admit it. It’s much easier than being dogmatic. Just review the data, and it will generally tell the story. I’ve had my opinions on the “Occupy Anywhere” folks, assuming that they were leftists. Now comes the data (Oh, I was right)…

Douglas Schoen, a veteran Democratic Party pollster, sent a researcher from his polling firm down to Zuccotti Park last week to conduct a professional survey of the protesters in New York. Now, surveys error margins require two things that many polls today fail to achieve: a random sample and honest answers. I expect that since the researcher was actually in the crowd that he was able to get a random sample of “protesters”. I question the honest answers a bit since answering questions in front of others can lead to responses designed to elicit group approval. But, I’ll give the researcher the benefit of the doubt.

The full results can be found here.

28% are over 40 — aka former hippies or Woodstock wannabes, perhaps?

0% are Republicans — I’m shocked! Shocked!

1/3 are unaffiliated or are Democrats. In other words, fully 66% don’t belong to any organized political party! (See Will Rogers).

74% of those who voted in 2008 voted for the President — Again, I’m shocked.

48% of those planning to vote in 2012 plan to vote for the President — oooh, bad news for the President. A 26% drop. Rick Perry is so happy.

52% have protested in the past. Ahhh, not a new movement, just former hippies & Woodstock wannabes…


——Now let’s get to the goals of the protests — and this is where the whole thing falls apart:

What frustrates you the most about the political process in the United


  • 30% Influence of corporate/moneyed/special interests
  • 21% Partisanship
  • 15% Joblessness
  • 7% Corruption [Charlie’s note: good thing they’re not in Delaware, NPR’s 4th most corrupt state]
  • 6% Income inequality
  • 3% Our democratic/capitalist system
  • 3% Stagnant middle class wages
  • 2% Entrenched bureaucracy
  • 2% Bush tax cuts
  • 2% Obama abandoned left
  • 2% Military spending
  • 2% Federal Reserve
  • 5% Everything

What would you like to see the Occupy Wall Street movement achieve?

  • 35% Influence the Democratic Party the way the Tea Party has influenced the GOP
  • 11% Break the two-party duopoly
  • 9% Engage & mobilize Progressives
  • 9% Promote a national conversation
  • 7% Direct Democracy
  • 5% Overhaul of tax system: replace income tax with flat tax
  • 4% Radical redistribution of wealth
  • 4% Dissolution of our representative democracy/capitalist system
  • 4% Single payer health care
  • 4% Pull out of Afghanistan immediately
  • 8% Not sure
So, the majority are angered about “Influence” peddling & “Partisanship”. To address these problems, their solutions are “Influence the Democratic Party”, mobilize “Progressives” , have “national conversation”, and “break the “duopoly”.
Since the President was the largest recipient, ever, of money from Wall Street firms, there seems to be a sharp disconnect between the protesters voting for the President, the President’s actions, and the protester’s future intentions to support the President & Progressives.
To address “Partisanship”, they want to “mobilize Democrats [and] Progressives” while having a “national conversation” to break the “duopoly”. John Kerry couldn’t have said it better himself.
No wonder half of them are un/underemployed. With critical thinking skills and decision-making capacity like this, there must be a government job waiting for them, somewhere.

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Tea Party Taxes and Government Waste

The above chart shows tax rates by income category. As you can see, except for outliers like Warren Buffett, most high-income individuals pay higher tax rates than low income individuals. You can see that there is a cluster of sub-$100,000 earners who pay higher taxes rates (cluster A) than do “millionaires & billionaires”  that pay around 24% effective rate (cluster B). But, in raw numbers, that is not a lot of folks. The chart excludes the 10% of each category that are outliers (e.g. 90% of the people who make an income of between $250k & $350k pay an effective tax rate of between ~23% & ~34%. 10% of those earners either pay higher or lower tax rates.). Warren Buffett, as mentioned before, is a fairly extreme outlier even in his category’s 10% of outliers.

So, I recommend that for folks like Warren Buffett, who 1) refuse to pay their assistants a decent wage relative to their own; 2) who structure billion dollar deals that guarantee their low tax rate; & 3) who then ask to be taxed more, we should create a higher tax rate for them. We could call it the Buffett tax. The Feds could place a little check box on the 1040 IRS form where this group of outliers can put their mark and pay some reasonably confiscatory rate. 110% comes to mind.

I only make this recommendation because Mr. Buffett has asked to be taxed more despite the fact that he could structure his deals so that he would be subject to higher taxes. Of course, I find it odd that he complains about his tax rates after he has set them through his own actions. For a pretty smart guy, he seems a bit muddled on this point.

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