Friday, October 31, 2008

Taxation and Pensions

State and local governments cannot print their way out of budget issues like Uncle Sam, but they CAN get bailed out by Uncle Sam.  (Be careful what you ask for, you may GET it.)


Much of the cause of this tsunami of tax increase proposals is due to the Obama phenomenon. Political consultants have told their clients in government that this is an ideal time to put tax measures on the ballot because the presidential candidate is driving low-income voters to the polls who will be inclined to support higher taxes for those they see as more prosperous than themselves.  

Cynical politicians have gleefully taken the advice, and are proceeding with a policy that can best be summed up as -- with apologies to Admiral Farragut -- "Damn the economy! Full taxation ahead!" How else can they ignore the fact that our state is in a recession and taxpayers are in a vise?
Politics really does have a significant effect on production, savings, spending, etc... (Your politics may or may not be offended by the above... TFB.  It is what it is.)

Let us take California as an example:

CA is going to go 60/40 for a liberal Democrat.  This same plurality has elected a legislature that has led CA to ruin.  This is not a coincidence.  Balancing tax revenues with spending is IMPOSSIBLE when your constituency is the "give it away life should be fair" Left, and, as we have seen from the Bush Administration, no piece of cake for the "Tough Love" Right, either.

In the final analysis (and you ain't gonna like this one bit) the Left is not employed (for the VAST most part) in enterprise, law enforcement (ever met a Liberal State Trooper?),  the military (ever met a Liberal Special Forces Operative?)... any more than the Right is employed in Academia or Social Work.

Taxes, my friends, flow from tax payers (The Right) to tax receivers (The Left).  This battle has been joined since free market capitalism raised its head from conception of the Industrial Revolution.  The problem is, the energy crisis is not in the business of taking political prisoners.  Does anybody really think that the collapse of suburban housing values and the decline in Oil imports into the U.S. are not cause and effect (or effect and cause in this case, respectively)?

Americans are going to have to go to work,  produce REAL goods (and services) export those goods (and services) and they are going to have to SAVE some of their hard earned money in the form of under-consumption.  You are going to have to pay your OWN WAY.  The credit/energy crisis facing Americans is going to reduce the number of "RICH" by a significant margin.  The middle and working classes consume the vast majority of services, they will, by mathematical necessity be required to pay for it.

The problem at the state and local level is not that the "RICH" are being taxed to little, it is that the state and local governments have over promised/over committed on pensions to government retirees, as well as over promised "services".

We have more police, fire protection, trash pickup, parks, etc... than we can afford to pay for.  Simple as that.  We are not addicted to Oil so much as we are addicted to economic growth and the taxes collected as a result.  It does not matter "WHY", or "WHO", any more.  "SHOULD" does not matter any more, either.  WE WILL spend less on these services, we will STIFF the beneficiaries of these local and state pensions (one way or another), and the Federal Government WILL bailout the pension system.

Only when they bailout the pension system they will bailout EVERYBODY... Everybody will get some of that pension money.  This accomplishes some key goals for the government.  The U.S. needs INFLATION - BAD.  Instead of sending out $600 checks to everybody, the government can bailout the pension system by promising everybody that paid taxes a pension.  This way they will not be in the position of asking the have nots - taxpayers - to bailout the haves - local, state, corporate, etc... retirees.  The have nots will not go for it.  The government NEEDS to inflate.

This is going to happen, one way or another.  

Mentatt (at) yahoo (d0t) com

17 comments:

bureaucrat said...

We've already argued about inflation/deflation. I think you are right that, in the long run, with all the new credit & even currency now being added, inflation is baked in. In the meantime, deflation rules, and THAT is everywhere (even in food and energy) right now. The energy thing just complicates everything.

I've already listed the top spending items in the Federal budget. While the rich do indeed pay a lot of tax, they have gotten a major tax break for the last 8 years. It is time for those of you making a quarter million a year or more to pay it back. Sorry. Really. We don't want to hear your whining and complaining. You're gonna get all your money back anyway! Where does the Federal spending go? Social security (big benefits for married $$ couples), Medicare & Medicaid (mostly goes to old people, unless you want them dying on your front lawns), interest on the debt (Jeffers alone probably has enough Treasuries to cover Alabama :) ) & defense (the rich hold the stock). The poor did not move our factories to China -- the rich did. So, yes, are taxes going up and benefits going down? Obviously. But we have clearly identified the persons responsible for it, and isn't Charley the broke-ass town drunk.

A Quaker in a Strange Land said...

Bureaucrat:

I am one of those folks who are going to get taxed.

Well I WAS, anyway.

My wife and I have decided that we are going to get by with less, and that I am going to slow my career down SIGNIFICANTLY. I would never have paused and reflected on this until I heard all of the "tax those making over X" bullshit coming from the Dems.

So, I am not going to work as hard. I have already cut back staff. That is MY response to the tax thieves. I am going to spend more time parenting, playing in my garden, surfing, exercising... and I am going to spend less time working to pay taxes. Drop dead, tax increase. I quit.

Every guy (or gal) making 250k to $1MM per year is going to do this calculation, at least a little bit. Let me tell you what that means for the economy...

The guys making more than $1MM, well if you they are still making that in this economy you have them by the gishgas, but there will certainly be many fewer of them. The higher the tax rate, the more tax cheating you have as well.

bureaucrat said...

I won't even bother with the "aaaawwwwww" cause you don't deserve it. ;) However, as capitalists, we do have a duty to make money, and making a relative killing on energy is my goal. If 2009-2010 will be horrible, slowing down a little might not be so bad. I have already downshifted: DVDs vs. theaters, grow potatoes, walk/train everywhere -- no vacations, new cars or sharp clothes so far. There's nothing wrong with that. The kids have to be shown to find fulfillment in real things, not spending.

Anyway, in my govt. retirement year 2024, at age of 57, I should get a pension of around $3,600/mth AND social security of around $1,548/mth for starters, rising to $2,345 at age 67, plus my rents & investments. Inflation adjustments also :) Will I get it? I hope so.

I want my government benefits! Don't hate me cause I'm beautiful. Haha!

Anonymous said...

“The necessaries of life occasion the great expense of the poor. . . . The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. . . . It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”

-Adam Smith, quoted in the New Yorker, October 27 2008

The Eisenhower Administration had a 90% tax rate and the USA was just doing fine in the '50's. I tired of hearing conservatarians whining about taxes.
Oh, and you should cut back and spend more time with the kids. Money can't buy them love.

A Quaker in a Strange Land said...

Bureaucrat and Anon:

I don't give a good fart how you feel about how I run my life. You live yours the way you see fit and I will do the same (unfortunately, you are electing politicians that don't see it that way, so I am not going to work hard to support their programs with MY taxes). I am sharing with you what happens when you enact tax increases. Big producers work LESS. Pay LESS taxes. That will be me... and a bunch of other folks.

I have been working on a book on and off for a while. I might as well become a tax receiving Liberal Democrat while it is fashionable, and live off of my dividends and interest. THough I don't know what I will do with myself. Might be time to start that little restaurant I have dreamed about....

bureaucrat said...

You are no more gonna give up the life you were meant to lead (a professional investor who can see the forest AND the trees) than am I gonna give up the cushy government job I was lucky enough to fall into. But I guess I can't make my point clear: the Federal tax money is going for stuff everyone agrees is good stuff -- retirement for old folks, necessary health care, interest payments for borrowed money, and useful regulation. The money going to build locomotive museums in Pennslyvania and for ostrich toenail studies is SOOOOO small in the big picture ...... 98% of taxpayer money is going for proper causes. Feel proud paying taxes -- you're doing the right thing. How long we all can continue to do this, however, remains a question ...

Anonymous said...

I think bureaucrat kinda of has it figured out. Sure taxes will pay for peoples retirement. Other peoples retirement while we get screwed. It will pay the interest on debt, other people incurred while we get screwed.

So I guess we are not all in agreement that it is being spent on worth while endevors.

PS I am a Gen Xer that doesn't give a $&%^ about you Baby Boomers.

Anonymous said...

Hey Beaurocrat!

You're one of those libs that think that money is actually worth something. It is NOT worth anything. It is a medium of exchange, where one thing of value is rated against all other things of value. It is only worth what there is to buy with it. You sit there in your cushy federal job and probably produce nothing of value. Yet, you feel safe and secure that Uncle will take care of you. In 2024, your pension may be worth $1000000 a month, yet you may have to wipe your butt on Ben's face, because it is the cheapest paper you can find.

It take HARD WORK from millions to produce all the things we like and need. When the government handouts for sitting on your butt become greater than the rewards of honest labor, as has already happened for the bottom 25% of the population, real economic problems follow. This is a continuing trend that will be sped up by the freaking Marxists who have usurped the Democrats and will likely get control of both Houses and the presidency. They will continue to demoralize and diminish the productive segment of the population. It is doom and ruin and you are not safe in the least. It can get much much worse before it gets better. (If it ever gets better!)

bureaucrat said...

It's so cool! People actually are reading what I say! I didn't even think Jeffers read what I say! ;)

I was born in 1967. I'm a baby buster. I will be stuck paying for the baby boomers' retirements while at the same time supervising their overindulged, bratty kids.

Here's how I see it .... everyone will still get basically what they've always gotten, just in inflated dollars. Social security, Medicare, Medicaid, interest, defense and my pension will all continue to be paid in badly-devalued dollars. The Fed/Treasury is injecting credit, and very recently cash, right now, so the inflation is baked in the cake. My goal is to be invested in commodities (in real assets) as much as possible by 2010. Believe me, I didn't waste 4 years and $60,000 to get a degree from Northwestern to sit and do little work. I just know a good deal when I see one. Every office job in America has the same "work only half the time" kinda outcome.

Anonymous said...

Hey Bureaucrat!

You're missing the point. Take the rose colored glasses off and listen. What Greg and I are getting at is that the United States has been consuming more than it produces for years, and it's getting worse. When the credit string runs out, and we actually have to live on what we produce, it will be a truly day of unhappy enlightenment.

We're in trouble now, and as our society continues to reward sloth at the bottom and reckless, counter productive, financial rape at the top, we will become poorer and poorer. It doesn't matter about inflation or deflation. Money does not constitute wealth. Wealth is possession of the ability to produce the things that people need at the best price. And, the value of money is exactly what there is to buy with it. As we make less of the stuff people want and need, we become poorer. PERIOD.

With the exception of production of food and a few other items, the US AIN'T wealthy NO MORE. And is the case less and less. When the credit string runs out, and we can't buy our shortfall in production from the Chinese and the Sheiks, expect the value of what your earn and save to fall by well more than half. This will happen in one big dull thunk. Most everybody will be wiped out.

Do you really think you will remain whole while the people actually producing the wealth take a 50% or 75% hit? Don't count on it.

bureaucrat said...

On a more optimistic note .... :)

The whole point of this blog is to comment on the oil situation worldwide.

Here is my comment:

Today,we are importing twice as much as we export, tis true. Much of that importing is oil. But the "globalization" thing is blowing up, because it will cost more to ship all this shit from overseas versus making it here. The scarce oil & higher oil price will guarantee that. The Chinese & Indian thing is over. The factories are coming back here, or at least near here. So, "consume more than we produce" isn't a set- in-stone thing. This would normally mean more jobs for Americans, and I think that is what is gonna happen. We have to rebuild the national grid and transition to electric cars, and while credit will be impared for awhile, it won't be forever. In the meantime, I'm gonna assume commodities are the way to go, and the American business community will get thru this massive revamp in purpose. And, yes, I will retire with SOMETHING in 2024. I hope. :)

Unrepentantcowboy said...

Despite depictions of right wing radio hosts, Obama is not a far left candidate, but instead a moderate centrist.

McCain comes from similar territory.

Despite constant supplications to lower taxes and smaller government, George Bush created the largest government deficit EVER.

Inflation is a hidden tax as is deficit spending. Allowing trade deficits with foreign countries to mushroom out of control borders on criminality.

Most real working class people (the ones that actually produce something) are about halfway apolitical. And damned tired of both mainstream parties.

They're tired of seeing American jobs getting exported and large multinational corporations and banks raping them for their last dime.

Poor welfare recipients aren't the only ones on the government tit. What about all those folks in the tall glass towers drawing big wages and producing nothing? Their jobs are a direct result of government favoritism purchased by lawyers and lobbyists, and unfair predatory business practices.

Work you say?

Even farmers have gotten in on the act (and I am one of those). Bunch of miserable slimeballs farming for insurance and subsidy checks.

We deserve what we have coming.

Dan said...

Getting back to oil, have you seen the leaked portions of the IEA report?

“the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report… The agency says even with investment, the annual rate of output decline is 6.4 per cent.”

After that analysis they still expect: “oil consumption in 2030 to reach 106.4m barrels a day, down from last year’s forecast of 116.3m b/d.”

These clowns have been drinking their own Kool-Aid.

A Quaker in a Strange Land said...

Dear Anon @10:59 am

Please! If you keep making sense you will f&*%k up everything!

Nothing is accomplished by castigating each other - that is what our Repubs and Dems have shown us to be true - so let us have a rational coexamination of the FACTS.

And, as you so eloquently pointed out, increasing taxes on our most PRODUCTIVE citizens will only decrease production. Some of this MUST be accepted at some point - we will HAVE to consume only that which we produce for the very reason you pointed out: The credit to the U.S. will decline in real terms at some point. Once our lenders realize that net imports of Oil into the U.S. have peaked and is going into permanent decline... well, that will be that.

BTW, I was born in 1961 - technically a boomer, but not by Social Security's measure. Retirement age for my birth year is 67, not the boomer's 65.

I just received my SS statement and I can tell you that I will NEVER, EVER, receive anywhere near the money (compounded) that I have paid into the system that was promised to me. THat money was stolen, and now they want to steal more.

MY answer? F*&^k me once, shame on you, F&^$^k me twice? Shame on me.

See you guys in the lineup at my favorite break at Deerfield Beach. SUrfing beats working at high tax rates everyday of the week.

A Quaker in a Strange Land said...

Dear Anon @10:59 am

Please! If you keep making sense you will f&*%k up everything!

Nothing is accomplished by castigating each other - that is what our Repubs and Dems have shown us to be true - so let us have a rational coexamination of the FACTS.

And, as you so eloquently pointed out, increasing taxes on our most PRODUCTIVE citizens will only decrease production. Some of this MUST be accepted at some point - we will HAVE to consume only that which we produce for the very reason you pointed out: The credit to the U.S. will decline in real terms at some point. Once our lenders realize that net imports of Oil into the U.S. have peaked and is going into permanent decline... well, that will be that.

BTW, I was born in 1961 - technically a boomer, but not by Social Security's measure. Retirement age for my birth year is 67, not the boomer's 65.

I just received my SS statement and I can tell you that I will NEVER, EVER, receive anywhere near the money (compounded) that I have paid into the system that was promised to me. THat money was stolen, and now they want to steal more.

MY answer? F*&^k me once, shame on you, F&^$^k me twice? Shame on me.

See you guys in the lineup at my favorite break at Deerfield Beach. SUrfing beats working at high tax rates everyday of the week.

Anonymous said...

bureaucrat, your comments and mindset are very baby boomeresk..

I think the proper term is self serving.

A Quaker in a Strange Land said...

Dear Anon @ 9:42 am:

How well stated! And said with dignity, decorum, and civility...

Dear Bureaucrat:

He has a significant point. One that we ALL must be held accountable for.

Best wishes.