Math Challenged Democrats

I just saw a news article on MSNBC relating to the Senate vote which failed to pass legislation which would have extended tax cuts for 'all but the highest' income levels. Accompanying the story was a picture of Democrats standing next to a big poster with the headling 'GOP Plan'. The poster was supposed to show how unfair the Republicans are being to the middle class and said the following:

Middle class family making $60,000 ... get $2,500 Make $1 million ... get $43,000 Make $100 million ... get $3,800,000

This information is supposed to show you how unfair the Republicans are to working people. However, if you think about this information for more than a few seconds you would actually see that all three income groups are being treated fairly equally. Unfortunately there is a large percentage of the population, including most of the media, who would simply look at these raw numbers without actually thinking about what they represent. Naturally Democrats would rather pander to laziness or ignorance than to have an honest debate about the subject. There are two things to consider with the information presented by Democrats. First is the notion that any taxpayer is getting anything from the government. Taxpayers don't get money from the government when they get a tax break, they get to send less money to the government. Obama and Democrats continue to act as if all income belongs to them and they get to decide how much each person gets to keep. Since this isn't the case, a more honest wording would be:

Middle class family making $60,000 ... send the government $2,500 less Make $1 million ... send the government $43,000 less Make $100 million ... send the government $3,800,000 less

This still leaves us with the second problem that the uninitiated would still have the impression that high income earners are somehow getting a better deal than middle class workers. As usual, the Democrats, and those involved in class warfare, like to fool people with big numbers. However, if you break down the chart by percentage a different story would be told:

Make $60,000, send the government 4.17% less in taxes. Make $1,000,000, send the government 4.3% less in taxes. Make $100,000,000, send the government 3.8% less in taxes.

Doesn't quite have the same 'evil' ring to it, does it?

Is it a tax or forced savings?

When the subject of taxation is brought up, particularly in who shoulders the most burden, defenders of Obama's tax plan like to claim that it is the lower and middle classes who have the tax burden, and those in the top 5% who aren't paying their 'fair' share. This flies in the face of the facts which clearly show that those making over $250,000 pay a far greater share in federal income taxes than do the remaining 95% of earners. Ah, but this excludes the payroll tax, say Obama's supporters. When you factor in that regressive tax, things change.

So here's my question. For years we've been told that the payroll tax, i.e. FICA, is going to fund Social Security and Medicare. Social Security is continually sold to us as a form of retirement savings. Social Security payments are made in a decreasing proportion to the amount of money collected from payroll taxes over an employees working career. Those who make less and paid in less, receive a higher percentage payback than those who earned more and paid in more. So, if people are getting a retirement benefit based on their 'contributions' to Social Security via FICA, doesn't that mean that FICA isn't really a tax? Isn't it more of a forced savings plan? If so, then we certainly shouldn't be counting FICA as part of a persons tax burden any more that we should be counting any savings the person makes as a tax burden.

On the other hand, if people want to claim that FICA is a tax, then let's admit that Social Security is nothing more than a welfare program and simply eliminate it. If we want to keep the payments, have them come from the general fund. Eliminate the payroll tax entirely. At least then we might be able to have a rational discussion about true tax burden, rather than having FICA muddy the waters.

How to make the Michigan economy worse

There is a petition drive going on in Michigan to place a ballot proposal on the November ballot which would force the state government to come up with a plan for universal health care in Michigan. If passed, the bill would amend the state constitution to require that the government "make sure that every Michigan resident has affordable and comprehensive health care coverage through a fair and cost-effective financing system". Not content with policies which have put Michigan's economy in the dumpster, our governor, Jennifer Granholm, threw her support behind the bill because she says that it would help Michigan businesses become more competitive. Of course this won't really happen, but what it will do is saddle Michigan with the prospect of higher taxes and more misery long after Granholm has left office. Thanks, but no thanks.

While it is certainly true that some of Michigan's largest employers (read Big 3 auto makers) might benefit from reduced health care costs, she completely ignores the fact that the costs have to go somewhere. If the Big 3 isn't paying it, then it will either fall to other employees or more likely individual citizens. A constitutional amendment which contains nebulous terms like 'affordable' and 'fair' and 'cost-effective' is like opening a Pandora's box of unfunded entitlements. Every lawyer in the state will be suing on behalf of some client to claim that the state isn't doing enough to provide 'comprehensive' coverage. Every medical practitioner of all stripes will be lobbying to have their service included in the package. This amendment will be an economic disaster for the state. If costs can't be controlled, you can bet that subtle rationing and new nanny state laws will be passed to ensure that people don't live a lifestyle which is too 'costly'. Unfortunately, economic realities never seem to get in the way of politicians who want to act like benevolent dictators, handing out 'goodies' to the populace. Both this ballot proposal, and our governor, just need to go away before they do any more damage.

More on the new Michigan Services Tax

It's a well established fact that when you tax something, you get less of it. It's one of the main reasons why people say we should raise gas taxes, or raise the cigarette tax. Raising the tax will supposedly reduce demand and help people stop smoking or driving too much. For some reason, however, people (politicians in particular) seem to forget or ignore this little fact of life. Granted, the amount of reduction is based on the price elasticity of demand, but in general you will see a reduction in the amount of something purchased if you raise its price. Adding a services tax will raise the price of most services and therefore less of it will be purchased

Pro tax editorials and commentary seem to be focusing on services purchased by individuals and they remark that the cost to an average household may only go up a couple hundred dollars. What they ignore is the cost the new services tax imposes on businesses which purchase services. For example, many companies have started outsourcing janitorial services. This allows the business to focus on its core competency, which probably isn't in providing janitorial services, and it allows janitorial service companies to form and benefit from economics of scale. The net effect is that businesses save money on services, and the services company is able to provide employment. Now, when the services tax kicks in, some companies may find ways to cut back on the janitorial services they use. When they do, janitorial service companies will have to cut back on their employment. Who suffers the most, the worker for the janitorial company.

You may argue that the company purchasing the service can just pass their extra costs on to their customers. Quite possible. However, it puts this business at a competitive disadvantage over companies in other states which aren't subject to these additional costs. One of the arguments put forth by our politicians to support this tax is that it will strengthen Michigan and make it more attractive. However, by increasing business costs, they are making Michigan companies less competitive. In addition, companies which may be thinking about relocating to Michigan will have to take these increased costs into account in deciding whether to come here or not. Companies already here have reasons to consider moving elsewhere. Anyway you look at it, the new tax will be harmful to the Michigan economy.

More details here