Tuesday, July 03, 2012
Gun Walking v. Gun Sales
The debate over the Congressional contempt citation for Attorney General Holder has obscured the debate about supplying weapons to Mexican drug gangs. The gun lobby has done a great job of obscuring the fact that the US is supplying many weapons to the gangs without the ill-advised "Fast and Furious" operation. This Huffington Post article about the Mexican Ambassador to the US's testimony before Congress lays out the damage that the US sale of weapons has done to Mexico. In most cases the weapons are supplied by Americans who profit by selling them the weapons -- gun dealers and American buyers serving as shills for Mexican gang buyers. Most of the newly supplied weapons are assault weapons.
End Filibusters
The Republicans have managed to stop the wheels of government by using the Senate filibuster process on all kinds of bills that they don't like. According to Bloomberg, Common Cause is suing to stop the uncontrolled use of the filibuster. Since the Democrats took over the Senate and the Republicans lost their majority there, the use of the filibuster has gone up to 276 times in 2007-10 from 130 in 2003-06. 84 filibuster motions had been used in this Congress up until May 2012. This has effectively instituted a governing process that requires a super-majority in the Senate, and has made it difficult to the US government to function. Currently it is blocking any progress on the budget process that is leading up to the "fiscal cliff" at the end of the year, when many programs will automatically end or begin unless the Congress takes some action that is currently blocked by the filibuster rule.
Wednesday, June 27, 2012
Mortgage Deduction vs. Capital Gains Tax
I am in favor of passing Bowles-Simpson, and I would defer to them how to revise tthe tax system, but the tax system is badly out of whack and needs revising quickly and thoroughly. If people don't respect the tax code, if they perceive it as unfair, they won't pay. Everybody will be a tax cheat, as they are in many southern European countries, like Greece and Italy. That said, I wonder if it would be better to eliminate the mortgage deduction, which affects a broad portion or the population, or the capital gains tax rate, which lowers taxes mainly for the rich.
In 2006, the mortgage interest deduction cost the US $76 billion. Although it affects a broad population, most of the benefit went to the moderately or conspicuously rich. Half of the benefit went to 12% of the taxpayers, those making more than $100,000 per year. If it was eliminated, house prices would fall probably 10-15%. This article says it promoted the then-housing bubble.
Bowles-Simpson proposed replacing the current deduction with a 12% tax credit (so you don't have to itemize to benefit, since usually only the wealthy itemize). A 15% credit proposed by a GW Bush panel would have produced $388 billion from 2013 to 2019, i.e., about $65 billion/year additional revenue.
A CBO analysis points out that the capital gains tax includes a tax on any change in value due to inflation, which is not real income, but is similar to any tax on interest which does not account for inflation. On the other hand, capital gains tax is not imposed until the item is sold, which may delay taxes for years. Capital gains over time have produced between 4-7% of revenues for individuals, although they were over 10% for the latter half of the 1990s. Changes in tax rates affect behavior, but usually for a short time, a few years. If capital gains taxes are going up, people will sell assets sooner to be taxed at the lower rate, but once they are sold, the spike in selling is over. In general it is hard to predict capital gains revenues.
The conservative Heritage Foundation position is that raising capital gains will stifle the economy. It implies that rich entrepreneurs will not work if they have to pay the same taxes as plumbers or engineers. They just won't get out of bed in the morning.
A Wall Street Journal article has some specific numbers for capital gains tax receipts in fairly recent years. In 2003, receipts were $51.3 billion. In 2007 they were $137.1 billion. A rough estimate is that if these rich people (and they are almost all rich) paid at the regular tax level (35%) rather than the current capital gains level (15%) the receipts would roughly double, i.e., to $100 billion in 2003 and $250 billion in 2007. This is very rough, because rich people hold some assets for a long time, and only sell them when the capital gains tax is relatively low. If there were no special capital gains tax, sales of assets would smooth out; with they special, lower tax they tend to bunch up either just before the rate goes up, or just after it comes down. But it seems like you could estimate that the lower capital gains rate cost the US treasury about $100 billion per year during the first decade of the 2000s, or about $1 trillion over the last 10 years.
A Wall Street Journal article has some specific numbers for capital gains tax receipts in fairly recent years. In 2003, receipts were $51.3 billion. In 2007 they were $137.1 billion. A rough estimate is that if these rich people (and they are almost all rich) paid at the regular tax level (35%) rather than the current capital gains level (15%) the receipts would roughly double, i.e., to $100 billion in 2003 and $250 billion in 2007. This is very rough, because rich people hold some assets for a long time, and only sell them when the capital gains tax is relatively low. If there were no special capital gains tax, sales of assets would smooth out; with they special, lower tax they tend to bunch up either just before the rate goes up, or just after it comes down. But it seems like you could estimate that the lower capital gains rate cost the US treasury about $100 billion per year during the first decade of the 2000s, or about $1 trillion over the last 10 years.
Thursday, June 21, 2012
Means Testing Social Security
I am interested in the extent to which Social Security is reduced by means testing, since I am a retired US government employee who also qualifies for Social Security because of years spent working in the private sector. Because of my government retirement, my Social Security is severely reduced, by something like 2/3 or 3/4. I get less than $50 per month, which every month when I get it seems more like a joke or an insult than social "security." I will have to live a long time just to get back the money I have paid into Social Security, much less any "government money."
So, what about older rich people like Warren Buffett or T. Boone Pickens? Do they face limits on the Social Security they can collect? The Arizona Republic says Buffett collects $32,000 per year, or about $2,600 more per month than I do. I presume the government has determined that he need the "security" more than I do. Rep. Ron Paul admitted on Morning Joe that he gets Social Security, although he did not say how much he gets; I think he probably gets more than I do. In 2007 Sen. John McCain reported that he collected $23,160 in Social Security, or about $1,900 per month more than I do. It is harder to find out what Boone Pickens collects from Social Security, but this article says he and fellow Texan Ross Perot do collect it.
The main means test that rich people face now seems to be that they have to pay income tax on their Social Security. Payments are also reduced if you continue to work after you start collecting Social Security, but the limits are reduced as you get older. So, there are probably no limits on Buffett or Pickens, who are both over 80.
One article in the Huffington Post makes the argument that instead of means testing Social Security payments, the government should remove the limit on the amount of income that is subject to the payroll tax for Social Security, currently $110,100. Since the payroll tax rate is almost as high as the capital gains tax that most rich people pay on their income, eliminating the limit would substantially increase the income of the Social Security trust fund and do a lot to make Social Security self-sustaining.
For me personally, however, the lesson is that as a retired US government employee, I am subject to a much stricted means test than the richest people in America. Once again the 1% gets welfare paid by the 99%.
So, what about older rich people like Warren Buffett or T. Boone Pickens? Do they face limits on the Social Security they can collect? The Arizona Republic says Buffett collects $32,000 per year, or about $2,600 more per month than I do. I presume the government has determined that he need the "security" more than I do. Rep. Ron Paul admitted on Morning Joe that he gets Social Security, although he did not say how much he gets; I think he probably gets more than I do. In 2007 Sen. John McCain reported that he collected $23,160 in Social Security, or about $1,900 per month more than I do. It is harder to find out what Boone Pickens collects from Social Security, but this article says he and fellow Texan Ross Perot do collect it.
The main means test that rich people face now seems to be that they have to pay income tax on their Social Security. Payments are also reduced if you continue to work after you start collecting Social Security, but the limits are reduced as you get older. So, there are probably no limits on Buffett or Pickens, who are both over 80.
One article in the Huffington Post makes the argument that instead of means testing Social Security payments, the government should remove the limit on the amount of income that is subject to the payroll tax for Social Security, currently $110,100. Since the payroll tax rate is almost as high as the capital gains tax that most rich people pay on their income, eliminating the limit would substantially increase the income of the Social Security trust fund and do a lot to make Social Security self-sustaining.
For me personally, however, the lesson is that as a retired US government employee, I am subject to a much stricted means test than the richest people in America. Once again the 1% gets welfare paid by the 99%.
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