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March 31, 2005

Listen to Your Mom

Every mother teaches her children that it's wrong to steal. Mine did. Yours did. One of our earliest moral lessons is to respect property rights. Let's assume, arguendo, she's right. What are the implications of that?

When we're children, we might think about stealing a toy. Jimmy wants Alice's toy, so he goes over and takes it. (Or, if you're like me and have an older sister, reverse the genders. … I'm kidding, sis!) This is direct, one-on-one theft. The wrongness is easy to see.

As we grow a little older, we have groups of friends. If they're just social, we call them cliques. If they're violent, we call them gangs. Sometimes these groups don't get along with each other — there will be friction when they interact. Sometimes they'll purposely avoid each other. Sometimes they'll come into conflict reluctantly. Sometimes it's deliberate. Conflicts may be about many possible things, and violent gangs commit many kinds of crimes, but theft is very common. In this case, like the theft of a child's toy, the wrongness is clear.

That makes two examples. Get out your straightedge and draw the line. You know where I'm going with this.

We recognize theft is wrong when an individual does it. We recognize theft is wrong when a small group does it. Why, then, do so many people not recognize theft is wrong when a large group or a majority does it?

I've been writing a lot about Social Security lately, so let me pick on that. I don't want to pay taxes for it. That money is being taken from me against my will. It's theft, despite the approval of the majority. What principle would simultaneously condemn an individual's or gang's theft yet uphold a majority's theft?

Is government theft not wrong simply because it's the government doing the taking? What gives a government legitimacy in this case? What prevents a gang from cornering me in an alley and declaring itself a government before robbing me?

Social contract? I haven't signed one. On this standard the United States government wouldn't bind me to begin with. Besides, I'm explicitly stating my nonconsent to Social Security taxation — I won't sign on that line.

Am I arguing against court judgements, too? No. Court-ordered payments or reparations are for circumstances when you've done something wrong. "Being employed" is not a wrong. Quite the opposite, it's encouraged and regarded as good.

Government power is derived from the power of the governed. Individuals do not have the right to steal, and they cannot grant to the government a right they do not possess.

Most people comfortably believe that individual or small group theft is wrong, and simultaneously believe that large group or majority theft is acceptable. Bridging these beliefs is … nothing at all. It's an unexamined void, a weak spot in the structure of their ethical systems. Most people are unaware of the tension between their beliefs.

Your mother was right. She taught you well. But she didn't follow her logic to its natural conclusion. You should. Insist on a fully integrated, noncontradictory ethical system. If you agree that individual theft is wrong, and have no principle that condemns the gang but not the government, join me in accepting the implications. Government theft is wrong in the same way and for the same reasons that individual and gang theft are wrong.

March 30, 2005

More Snow Comments

I have a few follow-up remarks related to Snow's visit.

First, let's talk about the Secret Service. Yes, they wear sunglasses and earpieces and drive around in black SUVs. The black helicopters were kept out of visual/auditory range (or their new models are invisible and/or inaudible). Despite this being a gig with the Treasury department, there was no sign of a Friedmanesque money drop from the invisiblack helicopters.

Defying expectations, I saw only one trenchcoat, and it was brown instead of black. A little disappointing, but it didn't spoil the day.

The Secret Service is pretty good at security. A camera man left his coat under some equipment in the room, and they (eventually) noticed it and made the owner keep it with him. That unattended item would have lasted far longer at an airport.

The Secret Service agents were all men. This is sad. It would've been fun to be frisked by a hot Secret Service babe. ("Is that a weapon in your pocket or are you just happy to see me?") But with no babes, I'm glad there was no frisking.

More seriously and personally, for the past several months I've had the desire to raise the prominence of individual opt-out in the national debate about Social Security reform. Commenting on Bush's SOTU address, I said:

I intend to hold Bush to his statement that "I will listen to anyone who has a good idea to offer." I'm going to keep pushing for an individual opt-out. I don't know where I'll find my megaphone, but I'll keep trying. I've had exactly zero success asking other bloggers to trumpet the idea.

I think individual opt-out is a good idea, and I'm offering it. Secretary Snow wasn't receptive (he didn't respond on the merits at all), but he isn't President Bush. And I offer this gentle criticism to Bush: It's not enough to ask for ideas — you also need to tell people how to submit them for serious consideration.

On reflection, I don't think a megaphone is what I'm after. What I'd like to do is talk with members of the Administration in a better setting, where it would be possible to have a real conversation about ideas. Communication with the press is in sound bytes, where it's only possible to raise an issue in the form of an ambush. I'm pleased I was able to raise the issue, but I'm not happy with the ease with which he avoided the question. That's not a national dialogue, it's talking points and escape strategies.

He didn't respond to the failure of the 1983 reform. He didn't explain why I should trust the government to fix the system, when it has a track record of failure. He didn't talk about the effects opt-out would have in order to say why they were bad. He didn't address the angle of opt-out as a straightforward extension of the voluntarism that's part of personal accounts. He avoided every aspect of my question.

There is something the media could do to help. Conduct and publicize a poll of the thoughts of young people on Social Security reform. I don't mean a general poll that has an 18-35 demographic bucket — I mean a poll that's exclusively for the 18-35 group and has separate buckets for each age. Ask fundamental questions, instead of regurgitated sound bytes. The key question should be, "if the present Social Security system were voluntary, would you participate?" Other questions could ask about the perceived likelihood of means testing, peoples' expected return from the system, the level of support for various reform options (raising retirement age, raising tax rates, raising income cap, changing indexing…). Ask people if they would choose personal accounts — note that this different from asking people whether they support personal accounts being added to the system. Ask people what they would do with the money currently going to payroll taxes, if Social Security didn't exist. Pay off debt? Consume more? Save more?

A poll of the young would focus political attention on the young. Reform shouldn't just be about placating the elderly and having the young and middle-aged go along for the ride. Isn't it silly to "save the system for our children and grandchildren" without knowing what the young actually want? It's easy to say what I want: I want out.

If my goal is advocacy for individual opt-out, does my experience qualify as success? Partially. I never imagined I would be able to (briefly) speak my mind face-to-face with a member of the Administration. But I don't expect any positive follow-through from the government. In fact, my co-workers gave me a hard time and suggested I don't try to fly anywhere for a while.

This was an isolated event. I enjoyed it. But there's no momentum, no groundswell of support for individual opt-out — not yet. So, there's more work for me to do.

My consolation prize is that now, at parties, I can drop the line "Yeah, when I talked to the Treasury Secretary about it…" if the subject of Social Security comes up. That's normal party conversation, right?

March 29, 2005

Treasury Secretary Snow at FLIR Systems (Portland, OR)

I attended Treasury Secretary Snow's visit to FLIR Systems in Portland on March 28th as a member of the media. This was a stop on the "60 Stops in 60 Days" tour. As a blogger I have no credentials, and the event was supposed to be for employees and credentialed media only, but the personnel at FLIR and Treasury (and the Secret Service) were very accommodating.

Because I hadn't undergone any sort of background check (no credentials) they made me leave my camera and laptop with the receptionist. They did provide me a pad of paper and a pen, and I had fortunately brought a printed copy of the questions I wanted to ask the Secretary, so things worked out well. My special thanks to Doug Badger at FLIR. UPDATE 2005-03-29 20:35:18 UTC: Doug is in PR for the Administration, not a FLIR employee -- thanks Sarah and Steve! I thought their precautions were reasonable, and in fact I'm surprised they didn't ask to search me. (If I were running security and some random blogger came in off the street, I would've been pretty worried. At least I was well-dressed, not in pajamas.)

The Treasury Department's official press release contains the text of his speech. Sort of. It resembles the speech he gave, but there were lots of differences.

The speech didn't start at the advertised time. Media was asked to arrive at 1:15 (I did) and was told the Secretary would speak at 2:00. He spoke at 2:00 — with the company executives. It wasn't until 2:30 that he came to where the employees and media were assembled. I'm naïve, and didn't anticipate this.

There was only one other non-credentialed-media person covering the event, Steve Buckstein, President of the Cascade Policy Institute, a local think-tank that's been on my sidebar for a few months. It was a pleasure to meet him and talk with him for the half-hour before Secretary Snow's remarks. Look at the Institute's website; I sidebarred it because I agree with most of it.

Secretary Snow's remarks were given on the shop floor, not in any kind of auditorium. It's good that I had a pen and pad, because the laptop would have been useless. This location provided a photo-op for the Secretary to be seen with some of the equipment FLIR produces.

Follow the earlier link to the Treasury press release if you're interested in Snow's prepared remarks. What I was interested in covering was the Q&A with employees and the media, because you won't find it anywhere else. (I need some sort of "blogosphere exclusive" graphic to insert here.)

The first question was about the government "dipping into" the trust fund. Secretary Snow explained that there's no real money in the trust fund, that "the government doesn't have gold sitting in a safe somewhere." Actually, it does, but the Secretary's point is well-taken. I've discussed issues related to the trust fund at length in the past.

The second question asked whether Social Security might become means-tested. Secretary Snow used this question as an opportunity to highlight the broad range of options the President has said are "on the table," including changing indexing methods, means-testing, raising the retirement age, and reducing the extent that higher contributions yield higher benefits. In other words, there's no specific plan yet.

I have believed for a long time that means-testing or weakening the link between contributions and benefits is inevitable, and I'm not happy about it. In plain language it means soaking the rich, and I am angered at the notion of being penalized for being a responsible saver. As a lover of economics, I hate perverse incentives. Combining means-testing with an increase in the cap on wages subject to Social Security taxes would only add insult to injury.

The third question asked whether the changes in the Social Security system, if enacted, would be on-budget or off-budget. The question was poorly phrased, but the intent was clear: will the transition costs be weighed into the math when evaluating President Bush's pledge to cut the government budget deficit? Secretary Snow answered by talking about the importance of transparency in financial markets and how he's talked to people in the markets who are enthusiastic about the changes. He was more optimistic than Alan Greenspan, who in his recent testimony before Congress carefully pointed out that we don't know to what extent the financial markets have discounted the unfunded liabilities of Social Security. Fundamentally, Snow did not answer the question, but he may have misunderstood it.

The fourth question asked about potential changes to existing retirement accounts. Snow said that Social Security was never intended to be a person's only source of retirement income, and that FDR was clear about this when the program was enacted. Snow praised Health Savings Accounts in particular as a savings vehicle. He said that the young are notoriously poor savers, and that it's an advantage of the President's system that it forces people to save. Foot in mouth, he quickly rephrased it as an opportunity. (Thanks Steve; I missed the rephrasing.) He finished by saying that he's in favor of savings — well, at least he's clearly not a Keynesian.

It's true that the young are poor savers, but I don't think this is a problem. One of the themes of my essay on the information problem in Social Security (warning: bad jokes in there) is that it's not necessarily true that people should save for retirement all their working lives. Having those funds available to pay off debt, for example, may be the best course of action. Any system of forced retirement savings prohibits this. I'm no fan of forced savings. It increases the financial stress and indebtedness of the young. One of my prepared questions (below) was directly about this issue.

The fifth question asked whether the cut in guaranteed benefits for people choosing personal accounts would be prorated by the person's age. Secretary Snow didn't answer this question directly, instead referring people to the website. I don't think the matter was too technical to discuss, so this was disappointing. My impression has always been that the answer is "yes," so I don't know why Snow hesitated.

The sixth and final question from FLIR employees was asked by someone who self-identified as a registered Democrat. He asked whether personal accounts fix the insolvency, and also about the borrowing related to the transition costs. Snow said that the questioner was right about personal accounts by themselves not fixing the solvency problem, but said that they make a better outcome possible for workers. In my words, personal accounts don't help the government's finances but they do help the worker's finances, by giving them a higher return on their money. Snow also said that the transition costs would not affect interest rates because that borrowing would be offset by deposits into personal accounts, which are a form of savings. This is an issue I've discussed too, although as I say in that link the transition costs are not completely ignorable, due to the real interest on debt to the public as opposed to phony interest on intragovernmental debt.

After the employee questions, the press was allowed to ask a few. These were much more difficult to hear, because the reporters and television camera moved close to the Secretary and were quieter.

I went to FLIR armed with three prepared questions, unsure if I'd be able to ask any. But I was. I asked the third (fourth?) press question:

Social Security reform has already failed once, in 1983. With this record, many young people do not trust any politicians to ever fix the system, and would like to simply opt out and be responsible for their own retirements. President Bush has stressed the voluntary nature of personal accounts — why not make the entire retirement portion of Social Security voluntary, as a third option?

This question did not please the Secretary. :) I wasn't able to write down his exact response, but in essence he said that I was suggesting privatization and that he wasn't talking about privatization. It's a shame the Administration isn't committed to voluntarism, because it would be a politically powerful position.

Allowing individuals to opt out of Social Security is the reform I favor.

Secretary Snow then announced that he was leaving. There were no further media questions. Here were my other two, that I didn't get to ask, that also would have made him uncomfortable:

Social Security is structured so that people save for their retirement all their lives, including when they're young and are likely to have debts at higher interest rates than their Social Security contributions earn. Would you comment on the effects of Social Security causing higher personal indebtedness among the young? Is this a hidden subsidy for the banking industry?

Some medical researchers believe that the next few decades will bring a dramatic increase in lifespans, and that people will be active and productive well past the age of 100. If that happens, how will the Social Security retirement age need to be changed, and will it be politically possible to do it before we have another Social Security crisis?

For more on the increasing lifespan angle, see this article I wrote a year ago.

I very much enjoyed my first experience being treated as a member of the media. My thanks again to the people at Treasury and FLIR who allowed me to attend, and I hope this encourages other bloggers to become more involved in media events as well.

March 28, 2005

Spring Cleaning

Sorry I've been unusually quiet recently. I've been doing some spring cleaning and working through my list of chores I've been putting off.

The only respectable thing I've been up to is that I bought a filing cabinet and I'm organizing the piles of paper that had been growing steadily atop every horizontal non-floor surface in my house.

Would you believe I still have apartment lease papers from 2001? Those I'm throwing away without remorse. Other things are harder to part with.

Previous cleaning efforts have mostly preserved the disorder, moving it from other rooms into my office room. (I can discern the sedimentary layers.) This is the first time I've made a dent in the office mess.

UPDATE 2005-03-28 08:03:33 UTC: Threw away my records of college jobs. Kept records of my internships. Threw away apartment records. And then, of course, I found my long-forgotten little pile of letters and telephone numbers of old girlfriends (and girls I should have called but didn't), and all cleaning work halted. <sigh> It's probably poor timing to discover such a thing on one's birthday…

March 25, 2005

Aye Eye, Cap'n

You'll regret reading this. Don't say I didn't warn you.

For the past several days my left eye has been a little bloodshot. Tomorrow morning I expect it will be fine.

Why? Because I discovered I had four eyelashes in my left eye. They had migrated over to the side, so they were usually smothered between my eye and eyelid, where I couldn't feel them. Every once in a while I'd feel like I had something in my eye, but I never got anything out, and the feeling always passed quickly.

I fished three of them out with my finger. The fourth was so far to the side it was almost invisible. I lost track of it several times. I finally removed it with tweezers. (!)

I don't know how I got four eyelashes caught in my eye. And I don't know how they stayed in there for so long. Does this happen to everyone? Do dead people have little reservoirs of long-lost eyelashes around or behind their eyes?

Anyway, I think I've permanently overcome the natural aversion to touching one's own eye. I think I could switch from glasses to contact lenses now without any problem. And I'm told I look better without glasses, so maybe I'll do that… (That's my way of justifying writing about all this. If you're still reading. Which you shouldn't be.)

March 22, 2005

Irritating Sales Reps


I'm thinking of buying a new car (that's right, three months later and I still haven't done it…) so I'm also thinking about auto insurance.

I'm looking at insurance incentives. I discovered a neat one for GEICO and sent them an e-mail asking for more information:

I've read that Berkshire Hathaway shareholders qualify for an 8% discount on GEICO insurance. ( page 9.) I would like more details about this benefit. What exactly are the qualifications, is it for all forms of insurance or just auto, etc.

I promptly received the following response:

Dear Kyle:

Thank you for your email.

If you are a member, then you will qualify. You may call us at (800)841-3000 to get more information. We are available 24 hours a day, 7 days a week for your convenience.

Wow, I'm confused already! What's this talk of being a "member" all about? Is that newspeak for "shareholder", or does it mean "customer", or does GEICO run a lizard porn site on the side? (Follow link at your own risk.)

And the telephone number is wrong — that's the number for auto insurance claims service. Obviously the wrong people to talk to for a question like this.

So, I wrote back, trying to be nice about their clear failure to read and/or understand my question:

I'm afraid my question was misunderstood. You've given me the telephone number for auto insurance claims service, which is quite irrelevant to my question. I do not have a GEICO auto policy (yet) — I'm asking about a discount that might make me buy one.

<sigh> …it shouldn't be this hard. It's almost as if they don't want me as a customer. And then I remember that poor customer service is easily explained by the principal-agent problem.

See, it is good to study economics. :)

March 21, 2005

How to Argue for Social Security Reform

President Bush: I am one of the majority who disapproves of the way you're handling Social Security reform. Note that I disapprove of the way you're handling it. I'm strongly in favor of radical reform, and I would go so far as a lukewarm endorsement of your plan — but you're not handling the issue properly.

It's good that you're doing things slowly. It's good that you're asking for suggestions. It's good that you're attaching other peoples' names to various proposals. But there are two things you're not doing, and they're causing you problems.

First, make hay of the fact that former President Clinton suggested something strikingly similar to the fundamental idea of your plan in a 2002 speech to the Democratic Leadership Council:

If you don't like privatizing Social Security and I don't like it very much, but you want to do something to try to increase the rate of return, what are your options? Well one thing you could do is to give people one or two percent of the payroll tax, with the same options that Federal employees have with their retirement accounts [the Thrift Savings Plan]; where you have three mutual funds that almost always perform as well or better than the market and a fourth option to buy government bonds, so you get the guaranteed social security return and a hundred percent safety just like you have with Social Security. [source]

This simple step will dramatically undercut Democratic opposition to personal accounts.

Second, focus on the "voluntary" in "voluntary personal accounts." (Even though it's a lie because it's still a forced savings program.) You should stress that your plan for personal accounts gives people a choice. They can choose between Social Security as-is, or the modified system with personal accounts. Increasing the number of options available to people is a guaranteed political winner. The status quo is an option, so people who oppose personal accounts have nothing to complain about. If they try, respond with the (true) accusation that what they're actually opposing is giving people a choice.

"Surely you're not against choices, are you? Go ahead and tell people why they shouldn't choose personal accounts. Convince them with your arguments, but don't stand in the way of those who hear you and still disagree. It is arrogant and presumptuous to believe that you know what's best for them, but that they don't."

I particularly hope you take this second point to heart. People will quickly realize that the matter of giving people more choices applies to your reform plan just as much as it applies to the existing Social Security system. And they will ask you uncomfortable questions, such as why the whole system is mandatory in the first place. Wouldn't it be better if it were voluntary? If they believe it's a great deal, people will choose it without being forced. And if they (like me) don't, they'll be relieved to have an opportunity to escape the system.

March 20, 2005

Terri Schiavo is Gone

In other stupid government news, Congress bizarrely subpoenad Terri Schiavo and is now working on legislation that would have her feeding tube reinserted.

Have a look at this normal brain CT scan (from here) and compare it to Terri Schiavo's brain.

I'm not a doctor — and I don't even play one on the Internet — but when I compare those pictures it's manifestly clear that the person Terri was is unrecoverably gone. There's nothing to save. Let the shell of this former person die.

(And if you want to be humane about it, how about administering a lethal injection instead of waiting for her to starve to death?)

Steroids in Baseball

I generally avoided watching the news while I was on vacation. But one day I was curious. Unfortunately, that was also the day Congress was questioning baseball players about steroid use in professional baseball.

All the news channels were covering it. For a few minutes I thought I had found a safe haven in CNBC, but even they started talking about it. Arrrrr!

I don't follow baseball. But I do follow politics. And I'm outraged that baseball has become a political issue. Most people agree that baseball has a steroid problem. (I have no opinion.) And most people want to see it solved. But political solutions have an overwhelming tendency to be, well, bad. Many words were spent blaming the league for its steroid policies. The league may deserve criticism here, but it absolutely does not deserve government regulation. For any game, "cheating" is defined as breaking the rules. Whether steroid use is cheating or not depends on the rules of the game. With the rules of baseball today, it's cheating. The league is responsible for policing those rules. It may be doing a poor job, but that's the league's problem — not Congress's. Emphatically! Not! Congress's!

If Congress solves the problem by legislation, it will have an unfortunate side-effect: It will forbid any change in the rules that would allow steroids. It would outlaw, for example, the creation of a new and additional baseball league open to steroid users.

Such a league might not be popular. It would be a target of condemnation. It would probably be a financial disaster. Or, it might become an exciting display of (literally) superhuman talent. I don't pretend to know what would happen — and it doesn't matter. (And I personally don't care.) Congress should not forbid such a league. It would violate the rights of the players, owners, and fans who would voluntarily choose to participate in the "enhanced" sport.

You might disapprove of the creation of a steroid league. Too bad. That's irrelevant. One person's preferences, or a group's preferences, or even a majority's preferences are not a sufficient reason to violate the rights of others. The purpose of a Constitution defining and restricting the government's powers is precisely to protect individual rights from democratic rule. (As the saw goes, democracy is four wolves and a lamb voting on what to have for lunch.)

I blame John McCain.

March 12, 2005

On Vacation

I'm on vacation until the 20th.

Meanwhile, this is hilarious. (Thanks, z.)

March 06, 2005

Pay Extra Principal on the Mortgage?

(More personal finance? Yeah, I know. I'd rather be thinking about economics too. But it's tax season, so that's what's on the brain.)

I've been making a mistake for the past several years. I've only recently, and very reluctantly, started paying attention to tax (dis)incentives. And I've realized that the tax-deductibility of home mortgage interest makes paying extra principal a poor investment for me. (For me, not necessarily for you too.)

Let's say I have $1000 burning a hole in my pocket. If I put it toward extra principal on my mortgage, which is at 5% interest, it effectively earns me a 5% return by reducing the balance of the mortgage. (If I pay $1000 extra principal, I'm no longer paying 5% on that $1000 of the balance.) A 5% guaranteed rate of return sure seems like a good thing. Much better than CD or money market rates. It's even better than (what I consider to be) a reasonably safe investment in RAI, which has a roughly 4.5% dividend yield today.

Please no complaints about my use of the tobacco company RAI. It's just an example of a high-yield stock with a consistently good (and therefore less risky) dividend history.

Enter taxes.

With dividends taxed at 15%, a 4.5% yield is only worth 3.825% after taxes. But because home mortgage interest is deductible on Federal (25%) and Oregon (9%) income taxes, the 5% mortgage interest was only costing me 3.3% after taxes! If I took the $1000 and used it to pay down the mortgage, I save $33/yr — but if I instead invested that money and got an after-tax 3.825% dividend yield, I make $38.25/yr.

I conclude that my government, however perversely, is encouraging me to stay in debt. There are lots of safe investments returning more than 3.3% after taxes, so it doesn't make sense for me to pay extra mortgage principal. I'm going to stop doing it.

I feel obligated to mention that I would be happy to see mortgage interest deductibility go away as part of an overall tax simplification program.

A quick word about stock market risk. In this post I only looked at dividend yield and ignored capital gains or losses. Since I'm comparing against a mortgage, I think the risks of having a capital loss on such a long-term investment are modest. I don't need a capital gain to come out ahead in this situation, but of course that would be gravy.

Dividend yields change as stock prices change, but this is irrelevant. If I purchase when the yield is 4.5%, my yield on those purchased shares will remain 4.5% unless the dividend payout changes, regardless of what happens to the stock price. If the stock price goes down, my next purchase will have an even better yield. If it goes up, other companies may provide better opportunities.

UPDATE 2005-03-22 05:25:52 UTC: I left state taxes out of the above. Oregon taxes dividends as regular income, at 9% for almost everyone, so the effective tax rate on dividends is not 15%, but 24% — so a 4.5% dividend yield is only worth 3.42% after taxes. Still better than paying down the mortgage, but only barely.

Party Notes

Shocking! Out…rageous?

Loren, this one's for you. Have you heard of a game called Lightning Reaction? It's an up to 4-player game that gives the player with the slowest reaction time an electric shock. It's a bit short of the electro-shock Jenga idea, but it's still, er, powerful fun. It's a particularly good game to bring out after people have had a few drinks. The drunk lose very consistently. :)

I noticed that people have very different tolerances for electric shock. Some people were very bothered by it and wouldn't play, or only played once. Some people would drop the handle immediately if they started getting shocked. And there were a few people like me who didn't mind it at all and thought it was pretty neat.

In other party news, going in costume as a goldbug is a poor idea. None of your friends know anything about commodity money or the gold standard. They'll just be puzzled, thinking that your Transformer costume is really bad. That's not the reaction you're looking for with such an expensive costume. C'est la vie.

March 04, 2005

A Little Time Off

You may have noticed I haven't blogged for a couple days. Too busy — sorry. I'd normally catch up over the weekend, but I'm going to a party and I'm reliably informed this is the kind of party that requires recovery time.

Next week also looks extra-busy at work, and the week of the 14th I'll be on vacation and probably not blogging. So don't despair if you don't see anything new here until around the 20th.

I'll try to post another article in the ethics and emergencies series before I go on vacation (it feels like it's just dragging on and I need to wrap it up) but I can't commit to it.

My vacation will take me to the lovely state of Iowa. Yes, I know spring break in Iowa sucks. But if you're in the Ames or Cedar Rapids areas and would like to hang out while I'm there, do send me a note…

March 01, 2005

Alan Greenspan and Ron Paul

During Alan Greenspan's most recent Congressional testimony, Rep. Ron Paul (R-TX) got in his face about the gold standard. I am a rabid proponent of the gold standard (which I believe to be constitutionally required) and I regret missing the exchange between Paul and Greenspan.

In this case, I didn't have my DVR set up to record the entire hearing, and the exchange must have happened in a portion I didn't record. The prepared statements from that hearing are available, but no transcript of the Q&A. Arrr!

I've also read that CNBC cut out part of the exchange so their talking heads could make a few comments. Maybe they think Ron Paul is a loon and there's no better time to cut away, but some of us are specifically interested in this!

If you've spotted a transcript somewhere, please let me know.

Another exchange I'd love to have a transcript for is one that occurred sometime in the 1990s. Apparently, Senator Paul Sarbanes and Greenspan got into an exchange where Greenspan recommended a return to the gold standard!

Your Marginal Tax Rate

Do you know what your marginal tax rate is? Do you know that the middle class pays the highest marginal tax rates? It's true!

In the following I'm focusing exclusively on ordinary income, and I'm ignoring every kind of deduction, exemption, and credit. I'm just looking at the tax rates and adding it up. I'm also making the assumption of filing as single.

The Oregon income tax is almost a flat tax. There are only three brackets, and the highest bracket is set very low (these are 2003 numbers; I think 2004 is the same):

  • 5% on income ≤ $2,500
  • 7% on income ≤ $6,300
  • 9% on all remaining income

The Federal income tax is strongly progressive and had 6 brackets in 2004:

  • 10% on income ≤ $7,150
  • 15% on income ≤ $29,050
  • 25% on income ≤ $70,350
  • 28% on income ≤ $146,750
  • 33% on income ≤ $319,100
  • 35% on all remaining income

The Payroll taxes are simpler, and are basically flat taxes. Here I use the self-employment figures, which combine the employee and employer portion of the taxes. This is the true rate of the taxes — just because you don't see the employer contribution on your pay stub, doesn't mean it's not wages! (Half of the "self-employment tax" is deductable for income taxes, but as I said, I'm ignoring all deductions.)

  • 12.4% for OASDI (Social Security) on income ≤ $90,000 in 2005
  • 2.9% for HI (Medicare) on all income

Put these all together, and what do you get?

TaxIncome Bracket
$0$2500$6300$7150$29050$70350 $90000$146750$319100

Surprising, isn't it? A marginal dollar between $29,050 and $90,000 — the income range including the middle class and the great majority of taxpayers — is taxed at a highest rate! Higher than the marginal dollar of the very rich! The difference, of course, is the cap on wages subject to Social Security taxes. Escaping from this tax at $90,000 significantly reduces the marginal tax rate.

The cap makes sense: The very rich don't need the government's help to save for their retirement. Make them fully bear the scary risks of the finaicial markets. I hasten to add that I would be thrilled to join them in the scary financial markets instead of throwing 12.4% of my income down the black hole of a system that won't pay me back one thin dime when I retire because it will be means-tested or will have collapsed by then. (And even if the system would be fine, I still want out, because it's a moral abomination.)

Of course, you don't actually pay taxes anywhere near the rates from the table. That's due to all the deductions, exemptions, credits, etc. that I ignored. That's the complexity of the tax code, and explains why a simpler tax system, like a flat tax or a sales tax, would be able to raise the same amount of revenue at a much lower rate.

I haven't mentioned other taxes yet. I pay $0.25/gal in gasoline taxes, $0.24 to the sate and $0.01 to the county. I don't drive very much, so I basically ignore this tax. UPDATE 2005-03-03 06:48:19 UTC: And the federal gasoline tax is $0.184/gal on top of that.

Property taxes can't be reconciled with the above income table, but they're a significant tax that eats through another few percent of income.

There are also auto taxes (licensing, registration), sin taxes, luxury taxes (I think?), utility taxes on telecom, electricity, gas, etc.… It seems everything is taxed, doesn't it? At least Oregon doesn't have a sales tax on top of all the others.

And they tell you the United States is a free country. Arrr, now I've gone and gotten myself depressed…

Tiny Island