Income Inequality and Blinders

The impact of Obamacare, still being denied in some circles:

In January, nearly half of small-business owners with at least five employees, or 45% of those polled, said they had had to curb their hiring plans because of the health law, and almost a third—29%—said they had been forced to make staff cuts, according to a U.S. Bancorp survey of 3,173 owners with less than $10 million….

And

Given how much the President talks about income inequality, it is perhaps ironic that his signature achievement is preventing people from earning incomes.
…
ObamaCare-induced phenomenon of “29ers”—employees held below 30 hours of work per week to avoid counting as full-time workers eligible for employer-provided health insurance. As a Journal editorial explained last year, “The savings from restricting hours worked can be enormous. If a company with 50 employees hires a new worker for $12 an hour for 29 hours a week, there is no health insurance requirement. But suppose that worker moves to 30 hours a week. This triggers the $2,000 federal penalty. So to get 50 more hours of work a year from that employee, the extra cost to the employer rises to about $52 an hour—the $12 salary and the ObamaCare tax of what works out to be $40 an hour.

Hmm….

“How to Energize a Lackluster Economy”

I’m playing off Edward Lazear’s Wall Street Journal op-ed of the same title.  In his piece, he touted the benefits of a consumption tax over an income tax, but his argument flows from a number of false premises.

Lazear asserted

…over 30% of US gross domestic product is taxed away to fund federal, state, and local governments.  Tax compliance costs are also large, estimated to be around 1% of GDP.

The hidden cost of the tax system is the biggest of all—namely, the slower economic growth that results from taxing investment, which impedes the formation of capital and hinders productivity and wage growth.

So far, so good.  These taxes and their associated compliance costs are way too high (and, using 2007 data, a flat tax of 10%, with no deductions, credits, or what-have-yous that everyone pays would net the government an increase in revenue compared with the current system.  Now, whether the government needs that increase is a separate discussion).

But then he said

An easy way to remove the impediment to growth is to move toward a consumption tax by allowing the full and immediate deductibility of capital investment.

Here begins his first false premise.

The argument rests on two points.  First, consumption taxes are better for economic growth than are income taxes.

No, they’re not.  Consumption taxes are horribly regressive, and they actively hurt the poorest among us the most.

Second, allowing full expensing (immediate deductibility) of investment turns the current tax system into a consumption tax.

His second false premise is an implied one: that (income) tax structure and rates should remain essentially as high as they are, other than his deductibility of capital investment.  See above about lowering rates and eliminating deductions, credits, etc.

He went on:

Consumption taxes [his capital investment taxes] are better for economic growth because they create stronger incentives to save and invest than do income taxes.

Under an income tax, a person who consumes what he earns immediately is taxed once, specifically on the earnings that he receives in that year.  If instead he invests what he earns, the interest on that investment, which is compensation for deferring consumption, is also taxed.

This rationalization of his first false premise, though, is centered on yet a third (again implied rather than explicit) false premise: that our tax system should be used for social engineering at all—here, attempting to push money uses into this purpose instead of that—instead of solely for the three explicitly identified purposes for which taxes are permitted under our Constitution.  Those three permissible purposes are, as any grade school civics student knows, are to pay the nation’s debts, to provide for the nation’s defense, and to provide for the general welfare, which itself is explicitly defined by the next 16 clauses of Article I, Section 8.

There’s a fourth false premise (yet again, implied) that underlies all of Lazear’s argument: that businesses should be taxed at all.  Since business taxes are just another cost center for businesses, their taxes, like their other costs, are passed on to their customers—ultimately us—in the form of higher prices.  In the end, then, we pay the business’ taxes, even though it’s the company CFO who signs the check to the Treasury.

No.  Better instead to change the income tax system altogether to a flat tax (I argue for a 10% rate) that every citizen and no business pays.  No social engineering by taxation.  Full stop.

With that in place, watch how thoroughly our economy is energized.

The UAW and Its Volkswagen Union Vote Appeal

The UAW has, at the last minute, withdrawn its appeal to the NLRB of the vote it lost in Chattanooga concerning its attempt to unionize the Volkswagen plant there.  The UAW lost the vote despite having had the most favorable conditions for their side imaginable, including union representatives proselytizing in the plant during working hours while plant management was not allowed to counter-proselytize.

UAW President Bob King offered this as the rationale for the withdrawal:

The UAW is ready to put February’s tainted election in the rearview mirror and instead focus on advocating for new jobs and economic investment in Chattanooga.

Why does this not feel like an acceptance of reality, but rather that the union has something up its sleeve?  Or is my concern simply borne of the distrust created by the UAW’s routine mendacity in the past, and now my mistrust is misplaced: the union really is interested in cooperation rather than contention as the means of generating jobs?

Gary Casteel, responsible for the UAW’s southern region operations, in fleshing out King’s position,

called on Governor [Bill, R] Haslam to reinstate an offer of $300 million in economic incentives to Volkswagen.  The offer was suspended just before the union vote.

Hmm….

Desperate for Revenue

All those free perks, ranging from free food in company cafeterias, laundry services, and so on: Uncle Sugar now is looking to tax those things.  They’re in the stage currently of trying to discern who benefits—the company, which gets better productivity, or the employee who gets the goody—so the IRS can levy the tax against the “proper” target.

To what extent is this intended as a perk, a form of compensation, for the benefit of the employee, or to what extent is this just another way the employer gets the employee to work harder and longer and do things for the benefit of the employer? [David Gamage, Assistant Professor of Law at UC, Berkeley] said.

Will they come next after our coffee slush funds, the snack machines provided for free (even if we must pay for the actual snack—and which choices Momma Obama already is trying to regulate), the popcorn machines, the…?

But who benefits isn’t relevant.  The government is scratching for pennies here, and that’s a sign of desperation for money.  If the government is that needy—or even if it isn’t—it must cut spending, so its need for money is lessened.  The Feds have plenty of our money already; it needs no more of it.

Obama’s War

…on women and on minorities in general continues apace.

The Congressional Budget Office estimates that raising the federal minimum wage to $10.10 an hour would kill off 500,000 jobs…57% of those jobs are held by women.

Women would be disproportionately harmed: those 57% work out to a loss of 285,000 jobs for women.  I suppose, though, that given this administration’s current buzz, President Barack Obama and his coterie view this as a general good.

Obama’s war is just as devastating on other groups of Americans whom his mouth holds in high favor, but his actions plainly disdain.  The Employment Policies Institute has some of the sordid details.

  • For every 10% increase in the minimum wage, teen employment at small businesses is estimated to decrease by 4.6%-9.0%
  • For every 10% increase in the minimum wage, young black and Hispanic teen employment, in particular, looks to fall 4.9%-8.4%

Hmm….