Friday, November 30, 2012

Reason #265: Further Reading

Given that the big news story for the next month is almost certainly going to be the Bush tax cuts and the oncoming "fiscal cliff"--and given that this blog is called "Why I Enjoy Paying Taxes"--I figured now would be a good time to dig a bit into how federal income taxes actually work, and how they're applied.

Tax brackets, the ranges of income that dictate the tax rate you pay, were a fairly well-known thing even before their current spotlight. But what I, at least, didn't know until recently was how those rates are actually applied.

Number one: the Bush tax cuts don't involve tax rate manipulation so much as bracket manipulation. Rather than take the existing bracket arrangement (known as the rate schedule) and lower the rates associated with each bracket, they created a new rate schedule--causing all the existing brackets to shift.

This is especially important because of point number two: any given tax rate only applies to the specific range of income in its own bracket. In other words, if the bottom bracket involves a 10% tax rate on income up to 25 thousand dollars, after which the rate goes up to 15%, and you make, say, thirty thousand, you don't pay 15% on the entire thirty thousand, only the five thousand you made past the cutoff. Your first 25 thousand is still taxed at the 10% rate, and would be whether your total income was thirty thousand or thirty million.

Going back to the Bush tax cuts, what this means is that the actual bottom bracket, 15% up to about $36 thousand, stayed the same, but a 10% bracket was added underneath it for people making about nine thousand or less. There probably aren't a lot of people making less than nine thousand dollars a year, but for those who make, say, twenty thousand, it means that only about half their income ix taxed at 15%, and their overall tax rate comes to around 12.5%. Great, right? This is why everything above that bottom 15% is called a marginal tax rate--they only apply to the margins.

The problem with the Bush cuts, and the reason the Democrats are seeking to change them, is that all the higher brackets then shifted downwards instead of upwards, and the top bracket, 39.6%, disappeared entirely. This was helpful for everyone, really, but because there were never any tax brackets higher than $400 thousand, taking the people who make more than that from a 39.6% rate down to a 35% rate meant losing untold millions of dollars of revenue from mega-ultra-millionaires who were now being taxed according to the rules that has previously existed for people in the $200-400 thousand range.

Take a good look at the chart above this post--the dotted line is what the poorest Americans have paid in income tax over the last century; the solid red line is what the richest have paid. If Obama gets his way, the dotted line will stay where it is, and the red line will nudge back up to about 40%. Not only is that the same place is was in the late nineties, but it's ten percent less than it was in the early eighties, which itself was twenty percent less than it was in the seventies, which itself was twenty percent less than it was in the fifties.

That 90% fifties tax rate seems fucking insane until you understand how marginal rates work--all it was really saying is, there's a limit on the amount of money one person can reasonably need, and while you're free to make a hundred or a million times that limit if you can, you're damn well gonna put a greater-than-usual chunk of that money into the service of your nation. As far as I can tell, at the time, no one seemed all that unhappy to do so.

What changed?

Further Reading

Wikipedia - Rate schedule (federal income tax)

History of Federal Individual Income Bottom and Top Bracket Rates

2013 Federal Income Tax Brackets And Marginal Rates

Congressional Proposal Could Create ‘Bubble’ in Tax Code

Friday, November 16, 2012

Reason #264: Round Numbers

I am by no means an expert in Puerto Rico's history and legal status. My rough understanding, based mostly on my fairly good historical understanding of territoriality, has always been that Puerto Ricans would very much like to be a state, but the federal government has always managed to screw them out of it one way or another.

Well, in the wake of last week's election and the mixed-at-best results of Puerto Rico's statehood referendum, it looks like the situation is nowhere near that simple.

Here's the deal: according to the first part of the referendum, a tight 54% majority "disagrees" with Puerto Rico's current legal status. Given that their economy isn't doing so great and their population is shrinking as more and more people leave for the mainland United States, it's fairly easy to see how a rethinking of its role in the US could shake up a better scenario, at least where taxes are concerned.

According to the second part of the referendum--technically--61% supported statehood, as opposed to 33% for "sovereign commonwealth", whatever the hell that is, and 6% for balls-out independence, which I believe is a Jeffersonian term. However, a large enough portion of voters only filled in the first part of the referendum, such that if you counted all the blank ballots as tantamount to a vote for "none of the above", the actual percentage of voters who supported statehood was only 45%.

What exactly these theoretical "none of the above" people would've preferred instead, I can only imagine, but given that the pro-statehood officials who were also on the ballot last Tuesday were soundly defeated, it seems clear that the statehood thing is at best controversial, if not downright unpopular.

For my part, I would be happy to have Puerto Rico become a state were it not for the fact that we're currently sitting at the nice round number of fifty--equal representation is all well and good, but give me numerical aesthetics or give me death.

Here's my proposal: since Obama's reelection, over 112,000 citizens and counting have signed an official petition to the White House to grant Texas independence, that it may become a sovereign nation of its own. some many point out that it doesn't quite work that way, but I think that from this point on we should have a sort of barter system--if a state decides they want to secede, they can only go if they convince someone else to take their seat at the table. If Texas wants to go, they can go just as soon as they figure out a way to bring Puerto Rico on board.

Of course, once Texas has seceded and the US government has taken back all the military assets and personnel currently stationed there, we may have to talk invasion--can't have a rogue nation like Texas sitting unhindered right across our border. But don't worry, Texans; I'm sure we can come up with a nice territorial option for you. Puerto Rico seems happy with theirs.

Further Reading

Did Puerto Rico Really Vote for Statehood?

Obama’s Re-Election Inspires Southern Secessionists

Official Petition for Texan Secession

Thursday, November 8, 2012

Reason #263.5: Redistribution

I'm taking the week quasi-off in honor of Election Day, but I did want to follow up briefly on Reason #258 from a few weeks ago. For all the fretting over Citizens United in the last couple years, and for all its brazen trampling of election law, what did it actually accomplish on Tuesday?

  • Foster Friess - Friess Association - $2.5 million
  • John Joe Rickettts - Hugo Enterprises - $13 million
  • Robert Perry - Perry Homes - $21.5 million
  • Harold & Annette Simmons - Contran - $24 million
  • Sheldon Adelson - Las Vegas Sands - $53 million

That's just a small sampling of some of the top conservative donors in this election. For the record, Republican bogeyman George Soros tied with Foster Friess at around $2.5 million, coming in a little under Hollywood mogul Jeffrey Katzenburg's $3 million, while the top liberal donor was one Fred Eyechaner, of Newsweb, at $12 million. For better or worse, that money is now gone--the PACs and campaigns still undoubtedly have some of it, maybe even a fair amount of it, floating around, but those individuals will never get it back.

So what did they get for their money?

  • American Crossroads (Karl Rove) - 1.29% successful
  • Crossroads GPS (also Karl) - 14.4% successful
  • American Future Fund - 5.57% successful
  • Restore our Future - 0% successful

Note that while both Crossroads groups and AFF put some money into opposing down-ticket candidates who did end up losing, they didn't support a single winning candidate. ROF only spent money on the presidential race--about $118 million--and thus accomplished absolutely nothing.

The majority of Sheldon Adelson's money famously went to Newt Gingrich, who lost in the primaries, and Mitt Romney, who lost the election. He less-famously backed seven other down-ticket candidates, each of whom lost their own races, meaning Adelson personally earned a 0% return on his investment. Not that he can't afford it.

Altogether, even ignoring the other races, $386 million was spent specifically on either Pro-Romney or Anti-Obama causes. With absolutely nothing to show for it, that's more than a third of a billion dollars in conservative money gone forever.

Or as I like to think of it, redistributed.

Further Reading

2012 Top Donors to Outside Spending Groups

Outside spenders' return on investment

First Thoughts: Back to work

Friday, November 2, 2012

Reason #263: The Horse Race

When people talk about the results of the 2004 presidential election, they talk about Ohio. Ohio and its 20 electoral votes (now down to 18, as the makeup of Congress has evolved) played more or less the same role as Florida in 2000--it was the last state to matter on election night, and whichever way the state went, so went the presidency.

In the end, George W. Bush brought it home and won the state by around 120 thousand votes, bringing his total in the Electoral College to 286 and securing the big win. Watching from my home, I specifically remember a lot of Democratic hand-wringing over the use of Diebold electronic voting machines, and the extent to which Oho's Republican Secretary or State had made things difficult for the other side to get their votes in.

But here's the thing that always bothered me about that: say John Kerry had waved a magic wand and another 200 thousand votes had come out of the ether. He'd have won the presidency with 271 electoral votes...while still losing the popular vote by almost 3 million.

Three million votes - that's more than two percent of the total electorate that year. And he'd still have been the president.

That meant two things for me, going forward--one, John Kerry didn't deserve to have won that election; Bush didn't win it, Kerry lost it. Two, the Electoral College had to go.

The Electoral College was created as an intermediary between election by the congress, which had historically been the typical way of doing things, and direct election by the citizenry, which was only kind of the whole point of this country. Like many things about the beginning of America, it was a baby step in the right direction. Unlike many things about America, it's never really been improved upon.

That's always been kind of a philosophical problem, but the more strongly divided the country gets, the more it becomes a practical problem. The reason the disparity was so great in 2004--and more to the point I'm really making here, the reason Mitt Romney has arguably been winning the horse race (in other words, the popular vote polling) for most of the last month while never getting close in the electoral college--is that the red states are getting redder, and the blue states are getting bluer.

A majority of people in Ohio may never support Mitt Romney, but the portion that supports him (or any Republican) in places like Kansas and Alabama is getting bigger and bigger. The same goes for blue states like New York, where Obama is up by 26 points, and would win even if Hurricane Sandy had been made of fire and locusts. But even if Romney gets 99% of the vote in the red states, their proportion of the Electoral College won't go up.

Like any good liberal, I'll be happy to see Romney lose next week (and he will) no matter how much of the popular vote he gets. But the bigger issue here is that this system is built on shaky ground that only going to get shakier in the next few elections, and I think if there's one party that can get something done about it, it's the Republicans.

Look, it's very debatable whether they actively caused John Kerry to lose Ohio in 2004, but they certainly didn't help matters--and that's leaving aside the undeniable clusterfuck that was Florida in 2000. We've seen the same kind of thing in the House of Representatives ever since Obama took office. The thing is, when they want something badly enough? Republicans are amazing at bureaucracy.

It's pretty safe to say that whatever else happens, the Democrats aren't going to get the House back next week, which means Republicans will continue to have at least a modicum of power in the second half of the Obama administration. So what do you think they'll do if they decide next week that the only thing standing in their way isn't Obama, but the Electoral College?

Further Reading

United States Presidential Election, 2004 - Results

National Archives - What is the Electoral College?

Real Clear Politics: Romney vs. Obama

First Thoughts: A status-quo election?