Unequal Treatment

There are a number of people out there who have a considerable issue with homosexuality, often to the point of rabid ranting and even violence. I won't pretend to understand such vehement hatred, particularly given that whether or not someone loves (or is sexually attracted to) individual(s) of the same gender is unlikely to have the slightest effect on anyone other than the parties in question and, notably, is unlikely to have the tiniest effect on those same rabid haters.

Personally, I think this world never has too much love and don't see any reason why people can't go about finding it however they choose, as long as everyone involved is a responsible party and consenting. But that's just how I see it. I don't care if someone wants to see it differently, but that opinion (no matter how extreme) should not have an effect on the parties in question given that who people love in the gay/lesbian community has pretty much no effect on us.

I think most people think much more moderately than the vocal anti-gay community, whether it personally gives people the willies or not. Most people are not so ungenerous as to wish ill on others, even if they don't understand their sexual preferences. Or, I certainly hope that's the case. However, that laissez faire attitude is currently allowing real and appreciable harm to these same individuals.

In good conscience, I think it's important to be aware that, as long as our federal government refuses to acknowledge gay marriage, a sizable portion of our populace suffers real and appreciable damage, measurable damage, that effectively make them second-class citizens. People, who have done us no ill are suffering unnecessarily and to no benefit for the rest of us. I don't see why this should continue and thought I'd point out some of it, for those of you who might have thought this was a non-issue, one of semantics only.

Even if it were semantics only, of course, I'd be against it. Our government is expressly forbidden from making laws based on religion: "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof." And there is no legal reason adults couldn't choose any other consenting adult as a lifetime companion to marry. Ironically, it's the same yahoos yelling for smaller government that demand the government dictate who we are and aren't allowed to love (as well as wanting the government to dictate what pregnant women can do to their bodies, but I digress). So I'm against precluding gay marriage on principle.

But, given the real damage it does, the harm and pain it causes, I can't see how people in good conscience can let those restrictions continue. Or how, with our constitution, they could be legal.
Let's start with taxes, since I played with these numbers while I did the other tax problems:

Think marriage doesn't make a difference? Here's a gay couple, with each partner netting:
1/2 income	Joint income	Tax	Married Tax	Difference
8500	17000	2125	1700	425
34500	69000	13375	9500	3875
83600	167200	40433	34885.5	5547.5
174400	348800	100001	92558.5	7442.5
379150	758300	244381.5	235920.5	8461

Any gay couple making professional level salaries can expect to pay thousands more in taxes every year because they aren't "married." They will not get social security survivor benefits. Insurance companies do not have to include them on policies as "family" (though this and some of the other aspects might not be true in states that permit or acknowledge same sex marriage). They may not be permitted to make end-of-life choices (despite written requests) or even visit their loved ones in the hospital as they aren't acknowledged "family."

When people wed, they put their lives in the hands of another. They agree to share their lives with another, their worldly wealth, their trust, their world with the person they love.

Shouldn't every citizen have the right to decide for him/herself who it is they are willing to trust with so much? Don't they have the right to have those choices respected by the rest of us? Right now we respect those rights for knocked-up teenagers and drunken strangers who meet for the first time the morning after in Las Vegas.

Why can't we do it for people who truly choose with their hearts?

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Creative Taxing

Last time, I focused on the math that explained why lower taxes were actually a counter-incentive to hiring more people, all other things being equal. It's not just employment, but low tax rates are an encouragement to pocket money rather than reinvest it into one's own business. Money invested in one's own company, whether in the form of property, assets, employees, what have you, make the money active in the economy in ways that squirreling away (even if not in the Caymen Islands or Switzerland) does not. Employment, obviously, helps the economy, but so do the purchase of goods and services and property.

Money squirreled away in "local" banks is put to use in the form of loans which can be part of building business as well; however, as Relax Max would likely point out, a business largely built on credit is unlikely to be as stable and reliable as a company built on its own profit.

From comments on the last post, why higher taxes is an incentive to invest in one's own company is not clear, so I'll try to explain it again.

For any considerable profit (over and above a comfortable living expense), the tax rate impinges on that profit at a defined rate. If the goal is to command the maximum wealth (as opposed to give it to the government), higher tax rates provide more incentive to reinvest that profit into a company than lower taxes. It's a way of ensuring you keep your net worth, rather than hand it to the government. Again, this isn't an opinion; it's demonstrable fact.

Let me demonstrate: say the profit for a private company is 6 million. Now, at current rates, the maximum amount of tax that could be taken by the government is 35% (it's actually less, since lower levels are taxed at lower levels, but the higher the total, the more that savings is in the noise; also, over a the ½ million mark, it's all the same rate, so it's really only the excess' taxes we're talking about). That means the most one's taxes would be is ~$2.1 million, leaving the individual to go home with $3.9 million in his pocket. 2.1 mill is a chunk of change, but you're left with quite an asset as it is. However, if I reinvested some of the 6 million in my company rather than taking it as straight profit, the government would get less of it and my net worth (in the form of my company) would be greater. Note that doing so (if invested smartly) always leads to more net worth, even if the liquidity is less. I'll show you.

Net worth (owner) = Co(baseline) + 6 mil-2.1 taxes = Company baseline+ 4.1 mil
NW w/$2mil = Co(+2 mil) + 4 mil-1.4 mil = Co(b) +4.6 mil ($2 mil in company value)
NW w/$4mil = Co(+4mil) + 2 mil-.7 mil = Co(b) +5.1 mil ($4 mil in company value)

Now, if the tax rate is 80%, the incentive to invest increases:

Net worth=Co(B) +6 mil-4.8 million= Co(B) +1.2 mil
NW w/2 mil=Co(+2) +4 mil-3.2 mil= Co (B) + 2.8 mil (2 mil in company)
NW w/4 mil=Co(+4) +2 mil-1.6 mil= Co (B) + 4.4 mil (4 mil in company)

At a lower tax rate, I get an improvement in worth of 500 grand for every 2 million I invest in the company in my net worth. However, at a higher tax rate, my net worth improves by 1.6 million with every 2 million I invest in my company and, in fact, will have a better net worth than I would taking the profit at the 35% tax rate by reinvesting 4 million of my profit in my company.

Bottom line: an effective way to keep my wealth under my own control in a high tax environment is to reinvest in my company in assets and employees. Otherwise, it goes to the government.

Relax Max pointed out that, when the tax rate was very very high in the forties and fifties, rich people all knew how to keep their money. He's not wrong; this is one way they did it. That's why many significant people became really wealthy in this time frame: but not by sitting on relatively useless excess liquid (but taxable) wealth but by building assets that contributed to their net worth while still providing jobs and services, full of assets and investments. This is not a bad thing; this is how private industry is induced to provide jobs and help stimulate the economy - by forcing them to spend money to build their companies rather than fork it over to the government.

I hope that clarified things for the confused.

By that same measure, rock bottom tax rates for "capital gains" does the exact opposite of encouraging reinvestment into a company's growth. With capital gains topping out at 15%, getting beaucoup liquid assets through direct investment, the stockholder at a public company has more to gain bleeding a company to death in quick profits than he does in selling assets that have gained in value (due to reinvestment). A investor, in that case, could readily vote for quick profit decisions rather than decisions for the good and growth of the company (and massive layoffs or selling off assets are a quick and time-honored ways to create a tidy quarterly profit).

By keeping more money from interest and dividend than one does from labor, one discourages putting that capital to work except as stock. Nor do I understand that merit in it. Today, if I make $500,000 in "long term" capital gain, I walk away with $438K in hand.. If I "earn" it through labor, I'll only have $348K. Why send that message or make that distinction? What's the benefit? I'm sure RM has the answer to that.

Well, in theory, investing in stock provides investment into the company that would improve the value of the company, but that depends on how that stock is leveraged to drive decisions. If you like to buy and sell stocks, driving a quick profit, pocketing the dividends and then selling the stock at a high level until new buyers realize the company's been gutted can make for a pretty profit if one can just hold on to the stocks for a year to qualify.

There was a time when building a company for prosperity was the goal, when people's fortunes rose and fell with the success of their companies (instead of investors and upper management walking away millionaires from companies that fail spectacularly, leaving salaried and other workers unemployed, without insurance, their retirement funds gutted). If your company succeeded, you succeeded. If it failed, you went to the poorhouse with the rest of the poor slobs. You had an incentive to make it work, to make it a success.

Right now, I think (as in my opinion) our tax structure discourages making companies that last, investing in employees and assets. It is an opinion, but I base it on the fact that higher tax rates provide a better incentive for reinvestment into companies and that people are demonstrably greedy.

I'm stepping off my soapbox now. I didn't intend to demonstrate how higher tax revenues could address our concerns for our country's deficit as well as providing for more government jobs and the option to rebuild some of the crumbling infrastructure that made so much growth possible last century. But then, surely that's obvious.

Since I've been playing with taxes, next time I'll show conclusively how refusing to allow gays to marry is discriminatory, causing real financial damage, that should be unconstitutional.

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Taxes and Employment

I started the discussion here, in case you missed it. Now, today, I've challenged myself to demonstrate that higher taxes are incentive to hiring employees, at least more of one that lower taxes. Fortunately, a commenter on the last post gave me a great segway:

"In fact, unless that new person makes more money for me than they cost me, I'm not hiring. If the person does make me money, then I'll hire (means more profit).

The fact that my net profit (after paying wages and other expenses) might be taxed greater, or less, has NOTHING to do with whether there is increased/decreased demand for what I'm peddling. "

In private industry, when it comes to hiring, it's all about making a profit. I'm not talking about government jobs, here, or contract labor where every body you hire you can charge (with a premium) to the government (because that's always profit even if they contribute nothing). That's a whole other discussion (though government cuts still impact those employee numbers).

No, in the real world of business, you hire someone when hiring them serves your interests, either allows your business to grow, provides you a skill you need to perform your business, or otherwise allows for more and/or better business. If hiring someone doesn't do that for you, most companies won't do it because that would be stupid. Whatever increased growth or business they expect from your hiring is likely to be more than they're paying you...or you won't be working very long. Companies are in the business of making money. Some are preoccupied with short term profit (which is where many a big layoff comes from) and some are focused on growth, even if short term profit suffers (a philosophy that's put Amazon.com where it is now). The latter type of company is probably your best bet in a reliable job. But even Amazon.com wants every hiree to contribute to their bottom line, the size of the company and the business it generates.

What that means is what an employee costs < what an employee generates at least in the long run (I've already said this but I'm moving toward math so bear with me). Now, for a small business owner, it's relatively simple. Their profit tends to be ~ of an individual or family's income might be - if it's much more, they might be jumping in to hire to expand it. If it's much more, they'll be cutting where they can to make a decent living. If possible. And that could mean employees. But a tax rate (~ a year's salary) are unlikely to be a deciding factor. If I'm making 167,000 in profit, whether I pay 47,000 or 42,500 in taxes is unlikely to be why I choose to do so. If I want to take home less and build my company, I'll do it. If I don't, I'll suck it in and pay the taxes.

But when we're talking lots of money, 500,000, a million, or more, it makes a difference. Let me show you. First, let's take four tax rates: current, 1944, and two other speculative rates that are somewhere in between:

Brackets	Current	1944	Trial 1	Trial 2
8500	10	41	10	8
34500	15	59	15	15
83600	25	81	28	25
174400	28	92	31	35
379150	33	94	40	45
500000	35	94	60	65
1000000	35	94	80	85
10000000	35	94	90	95

Taxes, using these rates are like this:

174400	Tax now	Take home	Tax 1944	Take home	One option	Take home	Option two	Take home
379150	110016.5	269133.5	334597	44553	124618	254532	140772.5	238377.5
500000	152314	347686	448196	51804	197128	302872	219325	280675
1000000	327314	672686	918196	81804	597128	402872	644325	355675
10000000	3477314	6522686	9378196	621804	8697128	1302872	9194325	805675
Total tax	4066959		11079185		9616002		10198748

One important thing to note, taxes aren't a straight percentage: as you'll note, the guy making 10 mill isn't stumbling home, weeping, with a measly half mill, even at a 95% tax rate because each portion of pay up until the higher brackets is taxed at that bracket's rate. Only the excessive amounts (not the base levels) get the higher tax rates. (So, no, you won't make less than the poor shmoes at the 35% tax rate - that's a myth).

But, let's say, you're considering hiring some people. Now, when you hire someone, that income you're paying out (+overhead) is pulled off your profit; therefore, the net cost to hire someone is effectively the actual cost-tax savings. For example, say it's 1944 and you're in the any of the tax brackets above 500,000 (94%), you hire someone for $20,000 (salary + benefits), but, because your tax bracket's so high, it saves you $20k x 94% or $18,800. So, for a net difference in take-home of $1200 you can hire someone worth $20k, build up your company, get that skill, grow the company. You're still short that $20k, but you're paying so much less in taxes it's almost a wash. And someone has a job.

Here's the tax savings for hiring someone ($20k) at:
Today's highest tax rates: $7K - net cost $13k
Speculated middle 60%: $12k - net cost $8k
Speculated high 80%: $16k - net cost $4k
Speculated high 90%: $18k - net cost $2k
Speculated highest 05%: $19k - net cost $1k

So, a company/individual making a profit considering hiring someone can get the same employee costing a net of $13k in quick profit or $1k, but, in both cases, building his business. Which one has the incentive to hire? If you have more than seven brain cells, the answer is obvious.

And if you think it's the guy with the low tax rate, here's your pointy hat and there's your corner.

And here's the other good news: a substantial part of those extra taxes drained away go to jobs, too.

Next time: capital gains tax rates and why they're killing employment rates.

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No tea for me, thank you. Here's why, part one. The truth about taxes

You know, it's been a while since I did anything even vaguely political.

See, for a couple of years now, I've been hearing one of the all time stupidest, most nonsensical political cries ever. For the most part, I've ignored it, not even dignifying it with an argument because, hey, isn't it obviously stupid? And the people screaming it stridently were, far and away, some of the most idiotic people ever seen on camera who weren't headed off to rehab at that precise moment. Today, of course, we'd call them potential candidates.

When stupid people scream something, over and over, on the premise that the VOLUME of your message denotes its veracity, it's a waste of time to argue it. Logical is clearly not part of the equation.

However, recently, I've been seeing more and more of the same idiocy coming from people I normally consider intelligent (if occasionally misguided). And that's not good. If otherwise intelligent people are going to be swayed by the VOLUME=truth legions of dullards, at least on concepts that can be readily disproved with a tax table, a bit of history and a spreadsheet, either (a) they're only pretending to be intelligent or (b) they never really gave it a bit of thought. And this is important and deserves a bit of thought.

So, I'm going to address the ridiculous mantra: "Smaller government! Lower Taxes! Why haven't you fixed the job crisis!"

Here's the quick and dirty answer: because the first two preclude the third. You can either have government taking a hand in reducing unemployment or you can have a small government and lower taxes. Not both.

Why? Because government can only reduce unemployment two ways: by providing jobs directly and indirectly by spending money or by changing the environment in ways conducive to encourage those with money to provide jobs. To deal with the "Great Depression" the government did both, too slowly at first, because it seemed counterintuitive, but they did both and it worked. I'll explain why.

Actually, I don't have to explain the first part. FDR rolled out a huge number of projects, building roads, dams, schools, bridges, you name it, anything to give people a paycheck, a way for self-respecting folks to put food on the table. It hurts a self-respecting person not to be able to earn a living wage and the longer it goes on, the worse it gets. As a side benefit, we got a great system of highways, clean energy sources (dams) a great deal of other wonderful infrastructure that is finally starting to fall in around us. But I digress.

Now, there are those that have argued that federal jobs didn't get us out of the depression, that the fed government couldn't have put enough people to work to change things. Rather than federal jobs, WWII got us out of the depression. Admittedly, that had a huge impact, but before you sit smugly back having pulled one over on the Rocket Scientist, ask yourself one question: all that economic growth from labor shortages with men as soldiers overseas and all the need for tanks and ships and planes - who paid for that? Who bought the ships and planes and tanks? Who paid the men overseas wages to send home? That's right, the federal government. Still a jobs program, just on a whole different scale. The depression was broken with jobs from the federal government so it can be done (without requiring that level of government expenditure indefinitely). 'Cause it has.

But let's say that makes us a little scared. So scared, in fact, of debt that we cut government spending because we don't want more debt. Well, shit, it's no surprise that if you cut government funding, you'll lose jobs. People don't realize that there are teachers at every school because of federal funds, that we have more cops and more firemen and better roads and cleaner water and air because of federal funds and the salaries they pay. A huge portion of those cuts everyone's so eager for are jobs people desperately need, either jobs that won't come to be or jobs we now have that we won't. Might want to give that some thought.

But what can we do? We can't just build up debt impossibly! We've started two wars, and, rather than solve our problems, they've added to our debt but not our employment! What are we doing wrong?

I'm glad you asked. I'll give you a hint (how they did it during WWI and WWII). And, next post, I'll explain why the notion that lowering taxes increases employment is so inherently flawed and demonstrably wrong. With real math!

First fifty years of Federal Income Tax Brackets from Wikipedia who cites their source (in case you're afraid it's all lies).

Year	$10,001	$20,001	$60,001	$100,001	$250,001	$500,001	$1,000,000
1913	1%	2%	3%	5%	6%	7%	7%
1914	1%	2%	3%	5%	6%	7%	7%
1916	2%	3%	5%	7%	10%	12%	13%
1918	16%	21%	41%	64%	72%	76%	77%
1920	12%	17%	37%	60%	68%	72%	73%
1922	10%	16%	36%	56%	58%	58%	58%
1924	7%	11%	27%	43%	44%	46%	46%
1926	6%	10%	21%	25%	25%	25%	25%
1928	6%	10%	21%	25%	25%	25%	25%
1930	6%	10%	21%	25%	25%	25%	25%
1932	10%	16%	36%	56%	58%	61%	63%
1934	11%	19%	37%	56%	58%	61%	63%
1936	11%	19%	39%	62%	68%	79%	79%
1938	11%	19%	39%	62%	68%	79%	79%
1940	14%	28%	51%	62%	68%	79%	79%
1942	38%	55%	75%	85%	88%	88%	88%
1944	41%	59%	81%	92%	94%	94%	94%
1946	38%	56%	78%	89%	91%	91%	91%
1948	38%	56%	78%	89%	91%	91%	91%
1950	38%	56%	78%	89%	91%	91%	91%
1952	42%	62%	80%	90%	92%	92%	92%
1954	38%	56%	78%	89%	91%	91%	91%
1956	26%	38%	62%	75%	89%	91%	91%
1958	26%	38%	62%	75%	89%	91%	91%
1960	26%	38%	62%	75%	89%	91%	91%
1962	26%	38%	62%	75%	89%	91%	91%
1964	23%	34%	56%	66%	76%	77%	77%

I want you to notice what the US used to do when they had wars to fund: yeah, they expected us to help pay for them. Even during (and after) WWII, the lowest brackets were paying higher taxes than our highest brackets today. Which is how they addressed the deficit problem as they put people back to work.

One more thing to notice. Higher tax brackets had a serious drop in percentage early on. Anyone else notice where? That's right, just before the Great Depression. Tomorrow, I'm going to show you why that might not just be a coincidence. Sharpen those pencils!

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