Dale Franks’ QandO posts
Today’s economic statistical releases:
Initial jobless claims dropped 6k from last week to 403k, but that was still 3k higher than analysts expected.
The Bloomberg index of consumer comfort fell to -48.4 from last week’s -50.8.
Existing home sales fell -3.0% to a 4.91 million annual rate in September, mainly due to a 3.6% drop in the key single-family component.
The Philadelphia Fed reports that the Mid-Atlantic manufacturing sector is stabilizing and improving as the general business conditions index rose to 8.7 from -9.8.
Most of the leading economic indicators point to sluggish growth ahead, but loose monetary policy boosted the overall index by 0.2%.
Earlier today, New York Times columnist Nick Kristoff opined on Twitter about cuts in government services. It’s not every day that you see such stupidity displayed so confidently…except from the Left:
Imagine John Boehner home in OH, seeing an escaped tiger–and getting a msg that help is unavailable due to govt cutbacks.
Well, I don’t know about John Boehner. But I do know that if I received such a message, it’d be because I was trying to call up a government flunky to haul a tiger carcass away. And if I did get such a message, my very next call would be to a good taxidermist.
It’s an interesting glimpse into the worldview though. The unspoken assumption is that, without government tiger hunters, we’re all doomed to be mauled by wild beasts. Presumably, this is because we are all tiny, little children, utterly incapable of solving our problems without the intervention of our benevolent government overlords. It’s a worldview that operates on the assumption that the government is the only adult in the room.
Note especially the all-or-nothing mindset: Either we pay for massive government services, or we’re completely unprotected. There are no other conceivable options in Mr. Kristoff’s worldview. It’s as if the very concepts of self-help or mutual aid are inconceivable to him.
And I don’t get the feeling that Mr. Kristoff regards this as a bad thing. It’s just the way it is. We have to keep ponying up money to the government to provide services, or society will collapse. Apparently, we’re just too stupid to be trusted to take care of ourselves.
It’s always interesting how the same people who are so keen on "democracy" tend to believe that the electorate is too stupid to care for themselves, but wise enough to vote on policies that directly affect their lives.
One of those things cannot be true.
Of course, spending much of his time in Manhattan, perhaps Mr. Kristoff is merely speaking from personal experience. After, they have created a city in which it is practically impossible for a law-abiding citizen to defend himself, so calling NYPD is about the only option when trouble arises. And I’m sure NYPD responds as quickly as they can, though, sadly, it probably won’t be before your wife gets a good raping. I’m certain they’ll investigate the hell out of it, though. After the fact.
You see, once you cede the power to defend yourself to others, you’re always a potential victim. This, however, is something about which Mr. Kristoff seems blissfully unaware.
What a sad, artificially constrained view of life.
Today’s economic statistical releases:
Consumer price inflation remains warm, with the overall CPI up 0.3% for the month, and 3.9% for the year. The core rate—less food and energy, or, stuff you don’t need to buy every day—rose 0.1% for the month and 2% for the year.
Housing starts in September were 658k, up 10.2% on a year-over-year basis. Housing permits, however, fell 5% to 594k, but up 5.7% from last year.
The Mortgage Bankers Association reports a short Columbus Day week saw mortgage applications fall -14.9%.
You may have noticed that there was no podcast this week, and that there haven’t been any economic statistics reports this week. That’s because I had to travel to Houston, Texas this weekend to attend the funeral of my grandmother, Mildred Davidson. Many years ago, my grandfather bought their funeral plots at Brookside funeral home, and, though the family migrated out to California, we took them back home after their deaths. My grandfather, Paul E. Davidson, died in 2003. Now, he and my grandmother are finally together again.
When I returned for my grandfather’s funeral, I didn’t have a lot of time to do much beyond see some family, and go to his funeral. This time, I spent three days in Houston, and had time to travel back to all the places I remember from my childhood.
I was born in Houston, and grew up there. My parents divorced when I was two, and my father moved back to New Mexico, where he was from. I spent most of the year living with my mother, and summers with my father, mainly in Albuquerque, NM. So, I sort of have two homes, and two sets of people—entirely unrelated to each other—who saw me grow up. It’s kind of weird. But, Houston was the place I identify as home. So, I went back to the places I remember.
Below the fold is a picture-heavy story; part travelogue, part history. If you’re interested in all about finding out about me, or my past, this is it.
Brian Micklethwait, over at Samizdata, posted this picture. It’s a bank note from Zimbabwe. It has a pretty high face value: fifty trillion dollars. If you’d like one, you’ll have to shell out three bucks or so in US dollars to get it.
Currently, that comes out to an exchange rate of about Z$16.67 trilion to the dollar. That’s pretty unreasonable, by any stretch of the imagination, if you’re a Zimbabwean. But you know what would be worse? An exchange ratio of 1:1.
And I’m still not fully convinced it won’t happen.
Today’s economic statistical releases:
Retail sales in September were much stronger than expected, rising 1.1%, and 0.6% less autos.
Export prices were up 0.4% last month, while import prices rose by 0.3%. On a year-over-year basis, import prices rose 13.4%, while export prices rose 9.5%.
Despite strong retail sales, consumer sentiment continued to slide last month, with the index dropping to 57.5.
Business inventories rose 0.5% August, in line with sales, while the stock-to-sales ratio remained unchanged at 1.28.
Today’s economic statistical releases:
The US trade balance was little changed from a deficit of -$44.8 billion in July to -$45.6 billion in August.
Initial claims for unemployment dropped 1,000 to 404,000 from last week’s revised 405,000. Last week was originally reported at 401,000. Anything above 400,000 isn’t very good.
The Bloomberg Consumer Comfort Index hovered at a historic low of -50.8 last week, as American consumer pessimism increased.
One of the interesting things about Twitter is that it can provoke some interesting policy debates, at least in my geeked out poli-sci time-line. The frustrating thing is that it’s impossible to debate these things on twitter, 140 characters at a time. So, after a brief discussion with Gabriel Malor concerning the Value-Added Tax, I’m going to have to transfer the debate to here and Ace’s place. Gabriel hates the VAT, apparently, and has, in the past, made three main objections to it:
Whatever its merits, they are outweighed by its key features: the VAT obscures for the taxpayer just how much money is being sucked up by the government; it is prone to Congressional abuse; and it is, in the words of economists, "efficient."
We’ll take these objections one at a time, but first, let’s review the liberty-damaging implications of the income tax itself.
First and foremost, it requires that you provide the government with intensely private details about your financial life—every corner of it. How much income you make, who pays you, how much you save and invest, how much interest you make from savings, etc., etc. This is information you wouldn’t willingly share with anyone, yet the government forces you to divulge it to unknown bureaucrats on pain of imprisonment. Once the government has that information, it can always be used against you in any sort of civil or criminal proceeding the government wishes to implement against you. And that’s the best-case scenario. Some worker at the IRS could illegally access your income tax records. If you come to the negative attention of a powerful politician they might decide to have you audited.
Nor is this an unreasonable fear, considering the intricacies of the 3.7 million word US Tax code. Anyone with a minimally complex tax return could probably be found to be in violation of the code. Especially since it’s almost impossible in some cases to even know what the tax code means. It’s so far from clear and concise that even the IRS doesn’t seem to know what it means . And yet, you are legally required to provide the government with the means to make your life unpleasant at the very least, and destroy it at the very worst, every time you submit a 1040, quite apart from the possibility of skullduggery by unscrupulous individuals. And if you ask the IRS for tax advice, there’s a 1 in 5 chance they’ll get it wrong. And you get a nice new lien on your house. Or a completely new house, with bars on the windows.
Next, in order to provide this information, you must spend an inordinate amount of time and/or money to ensure that the information is accurate.
The average cost for the preparation of an itemized Form 1040 and state return is $229 nationally. An “s-corp” is in the neighborhood of $665 whereas filing an Estates Form 706 could cost up to an average of $2,044…
The most recent estimates available purport to contend that individuals, businesses and nonprofits “spend an estimated 6 billion hours complying with the federal income tax code.”…
The high estimates then yield a total of tax cost to society (not including actual taxes paid) of approximately $1.165 trillion dollars 2010, relatively using 2008 GDP data.
Maybe it’s just me, but that seems…unreasonable. $1.165 trillion in compliance costs, on top of the actual tax cost is just…insane. I suspect that some portion of that money might be used to create, you know, wealth, if it wasn’t sucked up by regulatory compliance.
Whatever criticisms may be leveled at the VAT, one thing it doesn’t do is place your personal liberty at risk—at great cost to yourself—when you submit your annual tax return. Indeed, you don’t submit an individual tax return at all. Under a VAT, your income is your business, and your personal finances are completely removed from government concern. That seems like an increased measure of liberty, by which, I mean a removal of a portion of government interest in your personal life.
Gabriel Malor, alas, seems to disagree. Indeed, he seems offended by those of us who think replacing the income tax with a VAT might be a good idea.
It’s disappointing to see conservatives using the Obama-spawned budget crisis as an excuse to propose a tax scheme. Shame on them.
Now I’m sad.
But, what is it that makes the VAT so "fundamentally awful", and why should I feel shame for advocating it? Let’s start with his first objection:
Yes, you can put VAT on each and every sales receipt. But unless the taxpayer keeps and diligently tallies every receipt, he will have no idea what he’s ended up handing over to Uncle Sam.
This feature of the VAT is a tax-and-spend liberal’s wet dream because it keeps the taxpayer-voter in ignorance of how much of his property the government is appropriating over time.
Prior to 1913, this pretty much described the entire US Tax code. The Federal government was funded entirely by customs duties, tariffs, and excise taxes. All of those, of course, are hidden taxes, so, from 1789 until 1913, no one knew what they were paying in Federal taxes unless they kept and diligently tallied every receipt. Or, you know, cared. It seems to have worked out pretty well. It doesn’t seem people really worried all that much about how much of the purchase price of goods went to the Feds back in Oldy Days. Part of that, of course, was that the Federal government was pretty remote from the citizenry back then. But, I suspect part of it was also because knowing how big a cut the Federal government was taking didn’t have any relation to being sent to prison for getting it wrong.
What didn’t seem to work out well was an income tax whose top rate rose from 1% in 1913 to 90% in 1943, where it stayed until 1962 or so. Then we got a big tax cut to 70% at the top rate. If you want to look at a tax system that turned into a "liberal’s wet dream", a system whose top rate increased by 990% in 30 years seems like a good place to start. The explosion of big government didn’t start with the pre-1913 tax system. It was the current tax system that fueled the move from a minimalist to a maximalist state.
So, I’m not sure that arguing the post-1913 income taxation system is a better way to go in restraining tax increases is the way you want to go. Because it hasn’t really done a bang-up job of restraining government.
Moreover, even I don’t know what I pay—or even what I might owe—until my CPA tells me at the end of every year. My LLC has to buy all sorts of stuff. I might have to hire a subcontractor. There’s lots happening, so I don’t know what my tax burden is on a day-to-day basis. I may do work for some clients who can make it a charitable deduction instead of paying me in money. So I have to sequester thousands in income to be sure I’ve got the scratch to pay the bill every April 14th. And even then, I don’t really know what I’ve paid until the actual minute I look at my tax return. I’d trade knowing that on one day a year for not worrying about it and giving me my full cash flow to play with to upgrade software, buy new computers, etc.
The thing about a VAT is, that, unlike the income tax, you can pretty directly control how much tax you pay. You just buy less stuff. Maybe save more, since the VAT doesn’t penalize saving. Or investment. Like the income tax does. And avoiding paying the VAT doesn’t require that you forego income. The income tax does. It seems pretty apparent that the individual has a far greater degree of control over how much VAT he pays by altering his purchasing habits, and he can do so without penalizing himself in terms of income. There’s simply no way to exercise that sort of control over income taxation without making less income, or spending an inordinate amount of time burrowing through the tax code for some sort of shelter. Which may, or may not, get you audited, or sent to jail.
But you don’t get sent to jail if you don’t buy enough stuff under a VAT.
But at least that objection contains a colorable argument that makes sense. The remaining two objections are just unreasonable in terms of judging the two systems. First, there’s this:
And there, too, a VAT gives Congress even greater means to target disfavored industries and individuals. Progressive nannies can push for a higher VAT on soda and fast food. Social conservatives can push for a higher VAT on…er, morally questionable commerce. Other major targets: the oil industry (after all, they should pay more for being Gaia-raping capitalists); the pharmaceutical industry (it’s for the children, somehow); and, without a doubt, Big Tobacco (for obvious reasons).
Let’s leave aside the argument that an increase in the VAT would make every product more expensive, so I suspect people would notice that their salaries aren’t going as far as they used to.
Really, the trouble here is that Congress already has the plenary power to tax. Plenary. You can’t make Congress’ power…more plenary. This is not an argument against the VAT as much as it is an argument against, well, taxation. or, at least, the unlimited power of taxation.
There is nothing that prevents congress from slapping an excise tax on soda or fast food now. There’s already an 18.5¢ per gallon excise tax on gasoline, just as there are already massive excise taxes on cigarettes and alcohol. A Congress that wants to tax is going to tax. But I don’t think the solution to that is submit your personal liberty to the IRS. At least, it hasn’t been up ’til now. Nor do I think, in a larger sense, that the solution relies on any particular system of taxation, but rather on a restraint on spending. I think the evidence is pretty clear that a "starve the beast" taxation strategy simply doesn’t work when it comes to spending.
And let’s not kid ourselves that the income tax does not, somewhere in its 3.7 million words, do a perfectly fine job of targeting disfavored individuals. Which is something else the VAT doesn’t do. You can certainly target products with a VAT, if you want to reduce the incentive to buy certain classes of goods and services. But you can’t target individuals, and you can’t dictate economic outcomes for individuals by penalizing those you don’t like. But you can have a 90% income tax rate on successful individuals. We did it.
Our problem is not that revenue drives spending, but quite the opposite. It is the insatiable desire for more money to spend that drives the search for ever larger revenues. That is currently being expressed in the president’s "eat the rich" tax proposals, which would have the unpleasant side effect of penalizing individual success. Which, as I’ve already noted, is something the VAT doesn’t do. Limit the government’s spending to a defined percentage of GDP, and you automatically limit the desire for additional income.
Revenue is not the problem. Spending is.
And, of course, the key factor is the relationship of the individual to the state.
The last objection is equally confusing to me.
Economists laud the VAT because it is a "more efficient" means of collecting taxes. As a conservative, hell as a taxpayer, I am not in favor of more efficiency in letting the government take what’s mine.
So, are you in favor of draining 6 billion man-hours and $1.165 trillion in compliance costs from the productive economy? Are you in favor of having a massively large IRS, paying thousands upon thousands of employees to review and audit 175 million tax returns? I just don’t get this objection.
I thought that a more efficient tax code—in the sense that Gabriel seems to be addressing it here—means that we could reduce compliance costs, eliminate the time spent preparing tax returns, and reducing the size and scope of government. Those seem like pretty conservative/libertarian goals. So does removing the direct relationship of the individual to the IRS. I’m pretty sure efficiency is a feature, not a bug. A more efficient tax code is easier to comply with, and requires a smaller governmental mechanism to ensure compliance. I cannot, for the life of me, see why this would be a bad thing.
Of course, when we speak of tax efficiency, we usually are not referring to how efficiently the government gathers taxes. We are referring instead to the excess burden of taxation, i.e., "the economic loss that society suffers as the result of a tax, over and above the revenue it collects". Increasing efficiency in taxation refers to reducing the economic loss the tax imposes. I can’t really understand why anyone would be against decreasing the economic losses imposed by income taxation, which include moving people out of the work force, or into the underground economy, or reducing savings and investment.
However the term "efficiency" is being used in Gabriel’s quote above, I’m just having a really hard time understanding why it’s bad.
I want what taxes I’m paying to be SCREAMINGLY obvious.
Well…OK. Man up and keep your receipts, if it’s that important to you. Maybe buy a copy of QuickBooks.
My highest priority is not knowing to the cent the amount of taxes I pay. My highest priority is liberating myself from the direct financial supervision of the US government, and the possibility of being sent to jail or losing my house if I get it wrong. Secondarily, I’d like not to have to pay $1,000+ per year to a CPA to prepare my personal and LLC tax returns. I’m pretty sure I can use that thousand bucks for lots of things more fun than a CPA.
If the price of that is more effort tracking my federal taxes down to the penny, I’ll happily pay that to get the Feds off my neck.
Today’s economic statistical releases:
The NFIB Small Business Optimism Index rose slightly from 88.1 to 88.9.
In retail sales, ICSC-Goldman reports that chain store sales slipped 0.1% last week, to a year-on-year 2.8%. Meanwhile, Redbook reports strong year-on-year same-store sales growth of 4.8%.