Do Senators Understand Markets?

Maria Cantwell, D-OR, one of the Senatorial Interrogators during Big Oil's recent appearance on the Hill, demanded to know what the price of the next marginal produced barrel of oil "should be". Exxon's CEO Rex Tillerson replied between $60-$70. Ms. Cantwell deduced that given the price of oil is around $100 per barrel, this disparity demonstrated the immoral gouging by "speculators". We presume that the good senator can determine who is a "legitmate" bidder for that barrel of oil and who is not.

Perhaps one day Ms. Cantwell can ask Steve Jobs what price the next marginal produced 16 GB IPad "should be". It could be as low as $260, but it actually retails at $499. This is nearly a 100% markup.

Mark Perry has made a similar arguement, summarized at his excellent blog Carpe Diem.

Socialism with a Democrat Face.

Here's a snippet of the Kudlow interview with Nancy Pelosi on CNBC today. They're discussing the Dem's desire to revoke Big Oil's tax deductions:

Kudlow: They’re deductions are the same as all the manufacturing companies.

Rep. Pelosi: So why do they need — yeah, they shouldn’t be. They shouldn’t be.

Kudlow: Why not?

Rep. Pelosi: Because manufacturing, you’re making something in America. They are — this was, shall we say, a special case for the oil companies to say we are actually not manufacturing companies, we wanted to be treated like that and that’s one to have things we want to reverse.

We are not big fans of corporate tax breaks that skew business decisions. But clearly Pelosi believes the tax code should be used as a shock collar on American industries. Expect the Dems to release their Five Year Plan soon.

Krugman: The New Deal and Great Society Worth Blowing It All Up.

In a panel discussion on ABC's "This Week", Paul Krugman suggested that the Left go to the wall to defend the Welfare State by risking default on Government debt. Retiring FDIC chair Shelia Bair was alarmed at this proposal. Silly Shelia, he's a Nobel Prize Winning Economist! Krugman knows best!

For Dad.

A Thought About Spending.

Government spending is now so large that a year's budget equals 43% of the adjusted gross income of its citizens.

Touchdown, Navy.

And If We Cut Defense...?

The DoD budget is about $600B for FY 2010. If we cut it by 25%, that's only $150B toward deficit reduction. So please, continue the delusion that Entitlements Shall Not Be Reduced...

Did GE Pay Federal Income Tax in 2010?

It seems like a straightforward question, and the New York Times claimed they had found the answer: "[GE] American Tax Bill? None."

Then Business Insider started poking around a bit and found a much more complicated story, with plenty of spin. In fact the spin is continuing. When the room stopped spinning, it appears the facts are:

1. GE did pay plenty of taxes in 2010. Payroll taxes, state taxes, property taxes, etc.


2. GE probably will pay astonishing little federal income tax in 2010; perhaps no income tax after all the tax breaks are claimed.


3. GE stands by its claim that it paid taxes in 2010.


4. The New York Times stands by the accuracy of its story.


5. Americans get infuriated at GE for gaming the tax code, and the NYT for obfuscation.

We have nobody to blame but ourselves. We all want our deductible goodies (interest on mortgage, Making Work Pay, Green Car Tax Credits, etc.) and then we become infuriated that a large company hires enough lawyers to ferret out all of the tax breaks and null out their federal income tax liability. We know what remedy should be applied: abolish most deductions and lower rates. Simplifying the tax code would devastate the Lobbying Corps, though not completely eliminate them. But it would help restore the concept of making business decisions based on markets and products, rather than tax advantages.

The top 5% of AGI earners theoretically pay at least a rate of 28% , but with tax breaks pays more like 20% , and the top 1%, who should be on the hook for 35% pays more like 23%. How about about a tax code where the top 1% are taxed at 23% and actually pay 23%?

Putting $61 Billion in Perspective.

The figure from the Cato Institute shows just how bizarre the outage over the proposed $61B cuts truly is: since 2001 the budget has increased $170B per year, over twice the proposed reduction for the 2011 budget.

If we can't summon the "courage" to cut a mere 3,5% of the increase of the last ten years, then we deserve to have our creditors force our hands and treat us no different than Greece, Portugal, and Ireland.

Famous Nappers.

The Art of Manliness discusses the midday siestas of eight great men.

Frankenbanks.

Andrew Sorkin's financial blog at the NYT reports on the status of the payback of TARP loans. What the authors reveal is troubling. It seems that the taxpayer is getting straight-armed by some banks who still owe us hundreds of millions yet are turning substantial profits or buying up other troubled institutions or loans.

Some of this makes sense: if a given bank's management is floundering, then acquisition by better management using TARP may be a cheaper long-term solution than letting the bank go belly up and sticking the FDIC with the cleanup costs.

Such a decision, however, should not be based on the acquiring bank using only cheap money from the rest of us, but on the bank risking some of their own skin. This may change the attractiveness of such purchases. Other drawbacks for subsidized acquisitions are that it is driving banks to become even larger - more "too big to fail" - and private capital investment decisions become less local.

There are a myriad of unforeseen consequences caused by Uncle Sam fronting cheap money to troubled banks for indefinite period of time. So, bankers, first things first: focus on insuring your solvency, and then pay us back ASAP.

Tax Myths.

We're still feasting on the wealth of data found at the Tax Foundation website, for example the Summary of Federal Income Tax Data.

A recent survey revealed that a majority of Americans believe the myth that the budget deficit can be fixed by eliminating "waste, fraud, and abuse".

The Tax Foundation data, however, dispels another myth, namely that a "millionaire's tax" would solve the budget deficit.

In 2008, there were 140,000 federal returns that claimed an Adjusted Gross Income in excess of $1.8M. This group is the infamous "top 0.1%", with an average AGI of around $6M. The total AGI claimed by this nefarious cabal is $839B.

Therefore, even if the IRS were to take it all, it would cover only half of the 2011 budget deficit of $1.6T. In order to cover this deficit completely, you would have to tax the top 10% of income earners at a rate of 45%, or increase their current tax rate by a factor of 2.5. Note that this bracket begins at an AGI of around $113K.That's just to cover the deficit; the current debt would be untouched.

$60B in Cuts Won't Cut It.

Here is a simple pictorial showing the relative sizes of the budget, the fraction of the budget just to pay interest on the debt, and the size of budget cuts proposed by Congers.

Those cuts won't even make the interest payment. This is simply pathetic.

More Tax Arithmetic.

Let us expand our discussion of income and tax demographics and discern what is realistic in dealing with budgets approaching critical mass. The following is the distribution of 2008 adjusted gross incomes and their accompanying federal income taxes:

Income Percentile	Income Threshold ($K)	Number of Returns (M)	AGI ($T)	AGI - Fraction of Total	Federal Tax Paid ($B)	Tax - Fraction of Total
1%	381	1.4	1.7	20%	392	38%
5%	160	7.0	2.9	35%	606	59%
10%	114	14.0	3.8	45%	721	70%
25%	67	35	5.7	67%	890	86%
50%	33	70	7.4	87%	1000	97%
100%	0	79	8.5	100%	1028	100%

So, given the President's $3.7T budget for 2012, we see that even confiscating all of the income of the top 5% of the country's earners won't pay for it. (Note that although payroll taxes are not included in this estimate, including them still leads to a rapacious level of taxation for this group.)

If we take a bogey of $300B deficit reduction - because any amount below this level is an obscenity - and require all of it be paid by income tax increases, then a 50% increase in the income tax levied on the top 5% would be needed. Constraining this increase to be consistent with the President's pledge to nail only the top 2% of earners would require a 67% increase in income taxes for the elite 2%.

To summarize: it ain't about low taxes, it's about skyrocketing spending.

Are We Taxed Too Little?

The Tax Foundation breaks down the National Adjusted Gross Income (NAGI), and total federal income tax (TFIT) paid by income brackets:

• Top 1% : 20% NAGI , 38% TFIT
  
• 5%-1% : 15% NAGI, 21% TFIT
• 10%-5%: 11% NAGI, 11% TFIT
• 25%-10%: 21% NAGI, 16% TFIT
• 50%-25%: 20% NAGI, 11% TFIT
• Lower 50%: 13% NAGI, 3% TFIT

Indeed, the lower 45% of income earners pay no federal income tax, which is fine by us, we guess, ignoring the fact that this taxpayer group is getting some of this revenue back in forms of subsidies. Where the Left gets verklempt is their "feeling" that the upper 1%, or 5%, or 10% of taxpayers are not paying their "fair share". Hmmm: the top 1% are being taxed at a rate nearly thirteen times that of the lower 50%. We would kindly ask the redistributionists to interpret the entrails of the tax code and tell us what ratio of tax liability should be to bring the universe into order.

A Letter to Our Congresscritter.

Dear Congressman Walberg,

During the 2010 election, the GOP advocated for serious budget reform. The American people concurred with their opinion and voted for a Republican majority for the House of Representatives. We now need for you and your House colleagues to demonstate to the American people that their trust placed in the GOP was justified.

The coming debt crisis is nothing less than the threat of financial insolvency of the United States. This crisis has now hit Europe, will soon hit Japan, and inevitably will be visited upon us if we do not act now. Yet the House leadership has recently backed away from any serious proposals for spending cuts; cutting thirty billion dollars from the budget is simply inadequate to prevent this looming disaster. It will take cuts of hundreds - hundreds - of billions of dollars from the budget make any substantial progress. These cuts will have to be made across the board - entitlements, defense, domestic and discretionary spending. Reductions of 25% in total federal spending are conceivable, and likely necessary in preventing our insolvency. It is not a choice of whether such austerity measures will need to be taken, it is whether they are done now on terms favorable to the interests of the United States, or otherwise forced upon us by our creditors. In either case, our current political leadership is charged with the unpleasant task of telling the American people that we cannot spend at continually accelerating rates, regardless of the nobility and good intentions of the proposals.

I ask you and your colleagues to provide the courageous leadership that is now needed to prevent financial catastrophe.

Dissipation.

Ross Douthat examines the codependent relationship between the media and the trainwreck Sarah Palin.

Palin has squandered a superb opportunity: the recipient of a quantum leap in politics during the 2008 election, Ms. Palin could have consolidated her gains with a continued competent governing of Alaska, sober study of international and domestic affairs (for example, using her experience in Alaskan energy issues to become a principal national expert), and becoming a thoughtful and temperate national political figure. Instead she has quit - quit - as governor, stars in a reality TV show, and has cashed in on the book circuit (as for her "books", Profiles in Courage they are not). She did not quite distinguish herself with her recent highly-produced video responding to the fallout from Tuscon.

You learn a lot about people from what they do with a remarkable opportunity.

No Truer Words...

You see, that's the whole point of being the government. If you don't like something you simply make up a new law that makes it illegal
- Sir Alistair Dormandy, from "Pirate Radio"

Custom-Made History.

Edward Rothstein observes how the curators of "identity museums", by pandering to resentments and grievances, are corrupting the telling of history.

The Digital, Social Networked Nativity.

A brilliant little video forwarded by a friend from Inside Catholic. Avoid Romans.