Daily Kos Cognitive Dissonance

Recall (ha) that  55 Colorado sheriffs filed to overturn new gun laws in Colorado and that there are some recall elections coming up.

From email today:

"This is it, Mike. Tuesday is election day in the NRA recalls of two Colorado Democrats and both races are neck-and-neck. Can you chip in $3 to Democrats John Morse and Angela Giron, the two Democrats targeted by the NRA, to help the get out the vote in these final two days?

The NRA pushed for these recalls. They flooded these races with big money attack ads, kicking in $350,000 according to their last spending report. They said that winning in Colorado would cause a “wave of fear” to wash across state legislatures nationwide—paralyzing any new gun laws at the state level.

Oh, the money the evil NRA is using to buy this election, the horror. The unfairness of it all. The NRA "floods" the race with "big money attack ads". Spends $350K! 

But then something amazing happened. The Daily Kos community stepped up and, with the help of 12,906 contributors nationwide, we’ve almost matched the NRA dollar-for-dollar in these races.

 

Is the Daily Kos not doing *exactly* what the NRA is doing? Spending big money and flooding the races--"dollar-for-dollar"? Outsiders (not Coloradans) driving the money in the races? Actually, it's much worse:

Anti-recall groups have raised $3.1 million while pro-recall groups have raised $266,231. These numbers do not include non-profits that have raised and spent money in the recalls but do not have to disclose their contributions. [http://gazette.com/interactive-map-who-donated-to-the-colorado-recall-election/article/1505839]

It's very interesting to me that 

Democrats are leading three-to-one in the early voting period, but election day turnout is expected to be anemic and both campaigns are getting ready to make their final get out the vote expenditures. Simply put, these elections could come down to just a few votes on either side.

I sincerely hope that the early-voting ballots (essentially absentee mail-in votes) are thoroughly vetted. I have little doubt that these mail-on votes tilting to Democrats represents a huge potential for fraud. The Kos basically says as much when they note that once "real" voting starts, their margins are likely to be chopped down to nothing (harder to create fraudulent votes in the voting booth than in the mail). Already fraud reports are being denied by the Clerk in one district, while Democrats are papering local college campuses to get students who just arrived to use their same-day voter registration to vote. 

El Paso County Commissioner Peggy Littleton took issue with Colorado College students who she said were dropping off 10 ballots at a time last week at early voting centers.

"Initially, it concerned me because they were bringing in several ballots for each person," said Littleton, who confronted the students about it.

But under the law, a person is allowed to drop off up to 10 ballots.

[http://gazette.com/county-clerk-discounts-voter-fraud-allegations-in-colorado-recall/article/1505965]

News cast this AM mischaracterized market reaction

Paraphrasing…”The stock market has fallen over 400 points in the last two days over fears of government gridlock and the impending fiscal cliff.”

The impending fiscal cliff was impending last week, Monday, Tuesday…what happened between Tuesday and Wednesday?

All polls and expectations were that Democrats would retain control of the Senate and Republicans would retain control of the House, which is exactly what happened. So status quo. The iffy element was the Presidential race, which was nearly a toss-up heading into election day.

If there is to be gridlock, it would be with Pres. Obama and the sitting Congress, especially with respect to the impending fiscal cliff:

• The Obama (née  Bush) tax cuts expire Dec 31 unless something is done by Pres Obama and the sitting Congress. The election has changed nothing about that situation.
• The Obama payroll tax cut expires at the same time, again unless something is done by Pres Obama and the sitting Congress. And again, the election has changed nothing about that situation.
• Many of the Obamacare taxes take effect on 1 Jan 2013, once again unless something is done by Pres Obama and the sitting Congress. And once again, the election has changed nothing about that situation.  
• Finally, because Pres Obama and the sitting Congress failed to enact the requisite $1.2 in spending cuts required by the debt limit legislation, Pres. Obama and the sitting Congress will face the automatic spending cuts to defense, Medicare, and many other spending programs. Those cuts take effect 15 Jan 2013, before the new Congress is sworn in, so yet again, the election has changed nothing about the situation.

It seems to me that the only thing that has changed is that before the election, there was a good chance that Pres. Obama would lose. Wednesday morning, he has won his re-election and cemented in four more years of his administration. Surely this is what the market is reacting to, not some fear of government gridlock?

Venezuelan Voters not Deterred by "Undue Burden"

A growing number of states have passed voter ID laws requiring voters to present a state-accepted form of identification. In each an every case, Democrats have challenged the laws and in almost every case have lost those challenges--the recent stay in the Pennsylvania case is one "victory" for the left, albeit a minor one as the law will go into full effect following the upcoming elections.

These laws are meant to prevent voter fraud of several kinds. The least important of these is so-called "in-person voter fraud" or "voter impersonation". More important, however, is the ability to filter out illegal immigrants from voting as well as citizens who's residence (per their ID) conflicts with the voter registration indicating that they should be voting in another district or even another state.

Democrats' primary response to these laws is a cry of racism. For some reason "people of color" are purportedly more likely to be impacted, because they are poor, uneducated, and more likely not to have a driver's license. It's never been clear to me how poor, uneducated white people are not going to be impacted equally, but maybe they all have driver's licenses?

Bear in mind that, recognizing that not all citizens possess current and valid forms of ID, states passing these laws have a number of provisions for free IDs, so there is no "poll tax" implication. Also, anyone who still has not managed to obtain an ID before Election Day can still cast a provisional ballot, which effectively gives them more time to get ID or simply swear an affidavit.

With all of the public discussion, with all of the free IDs available, it seems to me that the problem here is that some people simply cannot be bothered to make the slightest effort to ensure their vote will be counted.

The Supreme Court has rejected the arguments regarding undue burden:

There is no question about the legitimacy or importance of the State's interest in counting only the votes of eligible voters. Moreover, the interest in orderly administration and accurate recordkeeping provides a sufficient justification for carefully identifying all voters participating in the election process.

For most voters who need them, the inconvenience of making a trip to the [Indiana] BMV, gathering the required documents, and posing for a photograph surely does not qualify as a substantial burden on the right to vote, or even represent a significant increase over the usual burdens of voting.

And yet, the fight continues state-by-state, with Democrats making the same tired--and rejected by the Supreme Court--arguments.

I say all of the above so that the following offering of a counterpoint is more stark.

Recently Venezuela held an election, an election that is widely considered to be rigged to favor the current President-cum-dictator-for-life Hugo Chavez. Elections in Venezuela allow expatriots to vote, by appearing in person at a Venezuelan consulate.

There are some 20,000 U.S.-based Venezuelans, many who left their home country to escape the predations of the Chavez government, living in the Southeast. Earlier this year, the consulate in Miami was closed after the US State Department expelled the consul after she was implicated in an Iranian plot for a cyber-attack against the U.S.

Voters only recourse was to make a trip to New Orleans, the next closest consulate.

Thousands of U.S.-based Venezuelans flocked to New Orleans by bus, car and airplane to vote.

Venezuelans around the world also came out to vote en masse: An anti-Chavez Venezuelan television station showed people traveling to a consulate in Germany to vote, and others voting in Panama.

Sequera said the closure did not deter the thousands who turned out, chanting "Venezuela" and waving their nation's flags from cars. A street party unfolded as voters left the convention center, where votes were cast because New Orleans' consulate couldn't handle the crowds. Vendors sold food and drinks to the cheering crowd.

"We're tired of the situation at home, and we've come together to make a stand for change," he said.

Alexandra Viamonte...moved to the Florida at age 17 because she saw few opportunities for higher education in Venezuela. So she moved in with an aunt while studying English and medical technology. She married a man originally from Cuba, and together they have five children. However, most of her extended family remains in Venezuela, and she fears their fate if Chavez wins another term.

Chavez, however, underestimated the resolve of voters in the U.S.

"He thought that we wouldn't drive almost 900 miles to vote, but he was wrong," she said. "We have the opposition we needed."

[http://www.chron.com/news/article/Venezuelans-to-vote-for-president-in-Louisiana-3926136.php]

As expected, Chavez has "won" the election, but I was encouraged by the attitude of these people who had to make a very long trip to cast a vote in a rigged election, especially when compared to people who would rather complain, cry racism, and file suit than make a trip to the local DMV for a free ID.

Obama Ad: Simply False

An Obama ad running now belies logic…

“But chances are you pay a higher tax rate than him.”
“Mitt Romney made twenty million dollars in two thousand ten but paid only fourteen percent in taxes…probably less than you.”

The implication here is that the viewer of this commercial is *likely* to pay more than 14% in federal income taxes. On some forums, I'd have to explain the difference between "chances are" vs "there's a chance" as well as "probably" vs "perhaps" (not to mention the difference between "imply" vs "infer"), but I think most people understand the distinctions.

Knowing something about the distribution of taxes, I was incredulous. So I hopped onto the IRS website to check the most recent data (2009). According to the IRS, the average effective tax rate paid by the lower 99% of the nearly 140 million tax returns was only 8.43%.

But funny things happen to number when you average in cumulative blocks like that. For example, if there are ten people in a room, where nine have $1 in their pocket and one has $100, it is accurate but uninformative to say that the average is $10.90. So I checked the CBO site too.

The CBO reports the data differently than the IRS, breaking down tax returns by income quintiles (and a few sub groups). According to the CBO, the lower four quintiles have effective income tax rates of -6.6%, -0.8%, 3.0% and 6.0%, respectively. That is, 80% of all tax returns have effective tax rates below 6%. According to the CBO data, you'd need to be in the top 10% by income before your effective tax rate hits 15%.

It seems to me that the odds of a viewer of that ad paying more than Romney's 14% is about 1 in 10 or thereabouts--hardly rising to the level of "chances are" or “probably” when comparing Romney’s 14% effective rate to the effective rates of the a random person watching the ad.

If you think what Romney paid was too little, argue that point. But stop making false statements.

My family's effective income tax rate last year was 21.36%. That's about 5% higher than the Obama's tax rate, and we made less than half of what the Obama's reported. It would be wrong for me to put out an ad saying "Chances are you paid a higher rate than Pres. Obama." even if it happened to be true for me.

Food stamps vs Corporate Welfare

A common question lately has been juxtaposing the food stamp costs against the most recent Cato report on "corporate welfare" e.g., "$80 billion-a-year food stamp program or corporate welfare $100 billion a year?"

This is a false dichotomy, which frames the question as a an either/or issue, ignoring other alternatives. Of course, this is a common tactic of the logic-challenged.

I ask: "How about cutting or even eliminating both?"

I've long been on record here and elsewhere that I believe in the "beggars can't be choosers" school of thought. While I don't want anyone to starve, neither do I think that I should be required to effectively hand over cash so that the hungry can shop for whatever goodies they feel like--from roasted rabbit with butter, tarragon and sweet potatoes even up to fast-food! How about making food-stamp program a voucher for rice and beans and vitamins?

Then we can cut corporate welfare at the same time.

• According to that Cato report the single biggest item in the corporate welfare list is FHA mortgage subsidies at $15.739B. Cut 'em.
• Second largest is National Institute of Health, Applied R&D at $13.845B. Let big pharma do their own research. Cut it.
• Third biggest is Farm Services Agency, which as far as I can read their documentation is farm loans, at $11.863B. Cut 'em.
• "Energy supply and conservation" is another big one, at $9.834B. I can only guess at what they spend their money on, but I wouldn't be surprised to find Solyndra in that pile. Cut 'em.
• Advanced Technology Vehicles Manufacturing Loan Program, $4.834B. Call those loans, then cut the program.
• Foreign Military Financing, $5.2B. Cut it.
• Small Business Administration (loans programs as far as I can tell), $3.157B. Cut em.
• NASA, Applied R&D, $2.799B. Cut it.
• Broadband Technologies Opportunity Program, $2.227B. Cut it.
• High-speed rail, $1.251B. Cut it.

Below this you start getting into a few billion here and a few billion there. Cut it all!

Funny, though, there's no line item here "Shovel money into Wall Street coffers." I was convinced by liberals that this was the primary use of corporate welfare.

The FairTax is not regressive (part II)

A few years ago, when I first learned about the FairTax, I was curious about how ti compared to the current tax code, especially with respect to progressivity. So I did some spreadsheets...

In 2004, federal income taxes paid as percentage of income:

Group, Income Limit, Effective Tax Rate

Top 1%     >$328,049 23.49%

Top 5%     >$137,056 20.67%

Top 10%    >$99,112  18.60%

Top 25%    >$60,041  15.53%

Top 50%    >$30,122  13.51%

Bottom 50% <$30,122   2.97%

The 2005 US Poverty Line for family of 4: $19,350, so the FairTax prebate would be $4450.50.

Using those numbers, and adding a slots for very low income of $10,000 and a very high income of $1M, let's look at Fair-Tax, assuming all income is spent on Fair-Taxable stuff:

Spending 100% of income: (income, net FairTax paid, effective rate)

Income	FairTax	Effective
$10,000.00	-$2,150.50	-21.5%
$19,350.00	$0.00	0.0%
$30,122.00	$2,477.56	8.2%
$60,441.00	$9,450.93	15.6%
$99,112.00	$18,345.26	18.5%
$137,056.00	$27,072.38	19.8%
$328,049.00	$71,000.77	21.6%
$1,000,000.00	$225,549.50	22.6%

Clearly, the really poor had negative tax rate, because the prebate is based on poverty level income, so someone earning income below the poverty line will receive prebates that are larger than the taxes they actually paid. People exactly at poverty-line had 0% tax rate, as expected. The rich people who spend all their income pay a pretty high rate 22.6%, approaching the 23% limit as expected.

Jacking up savings, since saving (not spending money) is how to "manipulate" the FairTax. Note, savings rate is around 1% on average in US; experts recommend at least 10%.

Spending 99% of income, saving 1%:

Income	FairTax	Effective
$10,000.00	-$2,173.50	-21.7%
$19,350.00	-$44.51	-0.2%
$30,122.00	$2,408.28	8.0%
$60,441.00	$9,311.92	15.4%
$99,112.00	$18,117.30	18.3%
$137,056.00	$26,757.15	19.5%
$328,049.00	$70,246.26	21.4%
$1,000,000.00	$223,249.50	22.3%

Spending 95% of income, saving 5%:

Income	FairTax	Effective
$10,000.00	-$2,265.50	-22.7%
$19,350.00	-$222.53	-1.2%
$30,122.00	$2,131.16	7.1%
$60,441.00	$8,755.86	14.5%
$99,112.00	$17,205.47	17.4%
$137,056.00	$25,496.24	18.6%
$328,049.00	$67,228.21	20.5%
$1,000,000.00	$214,049.50	21.4%

 

Spending 90% of income, saving 10%:

Income	FairTax	Effective
$10,000.00	-$2,380.50	-23.8%
$19,350.00	-$445.05	-2.3%
$30,122.00	$1,784.75	5.9%
$60,441.00	$8,060.79	13.3%
$99,112.00	$16,065.68	16.2%
$137,056.00	$23,920.09	17.5%
$328,049.00	$63,455.64	19.3%
$1,000,000.00	$202,549.50	20.3%

Spending 75% of income, saving 25%:

Income	FairTax	Effective
$10,000.00	-$2,725.50	-27.3%
$19,350.00	-$1,112.63	-5.8%
$30,122.00	$745.55	2.5%
$60,441.00	$5,975.57	9.9%
$99,112.00	$12,646.32	12.8%
$137,056.00	$19,191.66	14.0%
$328,049.00	$52,137.95	15.9%
$1,000,000.00	$168,049.50	16.8%

If people actually saved at this rate, Social Security would not be necessary...

At 10% savings rate, the poverty-line family would put away $2380 annually (10% of $19350 is $1935), plus get $445 in excess prebates due to their frugality, so it's almost as if they saved $2000 and the government (other taxpayers) "matched" them $500. If they invested that $2380 annually at 5% each year for 40 years, they'd accrue $302,655. They could then withdraw more than $15000 each year almost indefinitely, assuming the remaining principle continues to earn 5%.

The FairTax is not regressive (Part I)

An oft-heard claim about the FairTax is that it is regressive. I do not believe this is the case, human nature being what it is. For most people it is true that the more they make, the more they spend. The structure of the FairTax is such that if this is true, then the FairTax is a progressive tax.

Fair-tax.org: A regressive tax is one where the rate of tax decreases as the ability to pay increases.

Wikiepedia: A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.

These definitions seem to agree.

The Fair-Tax is not regressive. Overall, the FT is progressive, in that it is designed so that as income increases so does the effective tax rate, asymptotically approaching 23% as income increase, by assuming that annual spending is proportional to annual income (setting aside Bill Gates $1 income against billions of dollars of liquid assets in his net worth).

Yes, that is an assumption, but it is an assumption that is true for the vast majority of people, including high-income people. If that assumption is violated by an individual--a high-income miser--then in that case that individual can create an instance of a "regressive" case where that individual has managed to pay less, as a percentage of income, than normal lower-income taxpayers.

But that no more makes the FT regressive than does someone who legally structures their income and assets such that they avoid paying income taxes makes the current federal income tax regressive. That is, the income tax structure we have assumes that higher incomes (wages, rents, royalties and capital gains) will result in higher income taxes, but it is possible to have high income and pay little in the way of taxes,  for example by investing heavily in AMT-bypassing municipal bonds.

One recent IRS report counted 2,680 filers with incomes of $200,000 or more claiming they owed no taxes at all, up from just 85 in 1977. Those people do not make the current progressive--by presumption and design--Federal income tax regressive. Nor would high-percentage savers (i.e., people exercising avoidance of the Fair-Tax!) make the progressive--by presumption and design--Fair-Tax regressive.

However, we are unlikely to see people making $100,000 or $1M or more *not* spending money in proportion to their income (wealth). Consider this article ("DISENTANGLING THE WEALTH EFFECT:
A COHORT ANALYSIS OF HOUSEHOLD SAVING IN THE 1990s"), which is quite dense, but the charts and graphs at the end indicate that not only is America's savings rate (the difference between what is earned vs what is spent) very low across the board, it is *lowest* at higher income levels. 

In the U.S., household net worth rose substantially in the latter half of the 1990s and the personal saving rate decreased rapidly. Researchers have not reached a consensus about just how these two events are linked, or how to interpret the negative correlation between wealth and the saving rate over a longer time span. The movements in net worth and the saving rate are consistent with a direct view of the wealth effect, in which an increase in wealth directly causes households to increase their consumption and decrease their saving.

Previous macroeconomic research indicates that the aggregate data on consumption, income, and wealth are consistent with a significant and direct effect of wealth on consumption, whereby consumer spending eventually rises on the order of 3 to 5 cents for every extra dollar of wealth that is recognized by households and sustained over a period of time.

We show that the groups of families whose portfolios were boosted the most by the exceptional stock market performance over the latter half of the 1990s are the same groups whose net saving flows fell the sharpest from 1995 through 2000.

In addition, our study verifies that essentially all of the increased spending apparent in the aggregate data can be attributed to an increase in the propensity to consume out of income undertaken by the richest households in the U.S.

So, it seems that for higher-income, wealthier individuals, once they reach a certain level and have their nest egg--that's when they go out and buy yachts and Rolls Royces.

It therefore seems that the underlying assumption for the progressiveness of the FairTax is well-founded.

Also, note that FT would do away with several highly regressive taxes: the current Social Security/Medicare payroll deduction system is a very regressive tax, placing a heavy burden on low/middle-income taxpayers and a similar burden on the self-employed.

Exploring something else about regressive taxes: The regressivity of a particular tax often depends on the propensity of the tax payers to engage in the taxed activity relative to their income. In other words, if the activity being taxed is one more likely to be carried out by the poor and less likely to be carried out by the rich, then the tax is regressive.

Since the Fair-Tax is designed to tax the act of spending money on goods and services above the minimum requirements for adequate survival--the poverty line--which is an action that is, by definition, only carried out by the more well-off. That is, the poor, by definition do not have money to spend on "luxuries"; but under the FairTax, those same poor people have a net tax rate of 0% (or less!).

It certainly also seems that people who have more money, are also likelier to have a "propensity...to engage in the taxed activity relative to their income".