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Commentary on The Capital Markets- Category [Federal Government]
2017-11-17 07:00 by Karl Denninger
in Federal Government , 297 references
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Let's cut the crap, shall we?

Tax cuts have never resulted in any sort of material improvement in the living standard of the ordinary America -- which I define as everyone other than the top 1% of earners.

It has simply never happened.

The last time the tax code was "reorganized" you got more buy-backs and stock options issued to executives.

The same thing happened with all the other tax cut packages since.

Further, when we had the so-called "Reagan Tax Reform" Tipper (yes, that's intentional; I'm speaking of the former Speaker as you got way more than just the tip!) promised to cut spending in order to make them deficit neutral.  He did not do so; no reduction in spending was ever delivered and the deficit exploded.

This will be no different.  In fact, unlike the Reagan-era game nobody is even claiming to intend to reduce spending.

The chimera of "tax cuts" being "good for business" is nonsense as well.  Almost no corporation actually pays the tax rate claimed, especially large firms.  They all cheat -- Apple has been caught in the "Paradise Papers" and others have as well.  The claim of "repatriation" leading to some sort of boom in investment and wages is nonsense as well.

The answer to corporate tax cheating is quite-simple, yet will never be implemented.  It's simply this: You pay US taxes on all economic activity that is directed toward sales and services delivered in the US.  Period.

If you put a call center in the Philippines and it takes US calls the employees there are subject to US employment taxes and all of the economic activity generated aimed at US consumers is taxed as US income.  It matters not where the work is performed -- what matters is where it is directed.

If you cheat and get caught you not only pay the back taxes you pay them twice plus interest as a penalty, and those inside your firm (or otherwise, such as auditors) who expose it get 10% of whatever they cause to be recovered.  That'll make it plenty worth it for them to rat you out.

That's it.  No more "Isle of Man" garbage, no more fancy-pants intellectual property deals, no offshore call centers to eliminate employment taxes on the people answering the phones, etc.  Nope, nope and nope.

Then the small US company is on the same footing as the large multinational.  It's the only way to make it happen.

Further, there is utterly no reason to allow capital gains rates to be taken by money managers and hedge funds.  That one's simple too: You can only take a capital gains rate if your personal funds are at risk in earning the return.  Thus the Hedge Fund folks pay ordinary income rates on those earnings, because it's not their money at risk -- it's yours.

Like most things of this sort there are reasonably-simple and elegant fixes, but there are also an army of lobbyists employed in making damn sure none of their favorite folks get hammered by any of them.

The only thing I see that's good in the proposed changes are the doubling of the standard deduction which is a definite positive for everybody, especially those in the middle class -- most of whom do not itemize.  In fact virtually nobody does with under $100,000 of income because it makes no sense to do so.  In addition, where the individual mandate to get struck (which I rate as having about a 1 in 100 probability) that would be a great thing from a standpoint of freedom -- but it will certainly crash the rest of Obamacare should it occur.

We should also get rid of all interest deductions for both individuals and corporations.  Deducting interest is a scam in that it promotes excessive leverage and punishes thrift, whether the target is a person buying a house or a hedge fund levering up to buy businesses and dismantle them.

Are any of the good things going to happen?  No.

Do I thus find the theater worth following on a minute-by-minute basis?  No.

Do all these Congressfolk on both sides of the aisle and irrespective of House or Senate deserve to be hit by an asteroid this afternoon for the bullcrap they're running on you here, will run tomorrow and continue to when it comes to this issue?

Yes.

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2017-11-11 07:00 by Karl Denninger
in Federal Government , 283 references
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Who could have seen this coming...... smiley

The National Park Service has announced a proposal to more than double the peak-season entrance fees at the country's busiest national parks, including Shenandoah, Yosemite, Yellowstone and Grand Canyon.

The park service said Tuesday that it needs the revenue expected from the fees to address its nearly $12 billion backlog of deferred maintenance. But the announcement has been met with worries that higher prices will push the parks out of reach for many Americans.

I was honestly blown away that there was a $30 per vehicle fee to come into the Grand Canyon park last summer.  For what amounts to a "day pass" for many people that's ridiculous.  Further, the camping fees are quite high and thus you would think they'd absorb the vehicle fee there, since you're already paying to be in the park in the camping fee.  And make no mistake -- we're talking about pay showers here when it comes to nickel-and-dimeing you to death -- you have to toss $2 in for four minutes of hot water.

Doubling that is prohibitive for a whole lot of people, and in fact it'll keep me out even though I can afford it.  Beyond not buying the "deferred maintenance" argument (I sure as hell didn't see evidence of that) there are all the nickel and dime "fees" along with rampant concessionaire granting that makes for utterly-silly pricing on anything inside (like a beer or a coke) more-akin to a football stadium than a national park.

Interestingly enough the one place this won't hit is the Smokey Mountains.  The reason is that in exchange for state support for cutting 441 over the pass between Cherokee and Gatlinburg both states required that the Federal Government not toll the road.

I'm not buying what the Interior Department is selling, in short.  Other than bureaucratic overhead and bloat, which I'm quite sure is rampant as in all branches of government the fact is that as usage has risen so have the fees, since they're assessed on every car that goes through the gate.

Since these parks already take 331 million visitors (by their counting) through the gate I simply don't see the funding problem, never mind that the more people come the more money they have.  Raising prices by 100% is rather more likely to result in a drop of visitors and might in fact drop visitor rates enough that it's a net negative.  Or even worse, it'll move a hell of a lot of people to the annual pass which will then provide an incentive to come even more-often, which in turn will increase damage and cost to the parks without any reasonable corresponding increase in revenue.

Leave it to government to first jack up costs through waste, fraud and inefficiency, and them come back with a demand for more money.

It's what they do.

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Why aren't we talking about this?

 DatePublic DebtIntergovernmentalTotal
 09/30//201614,173,423,516,895.825,400,021,197,040.9719,573,444,713,936.79
-09/30/201513,123,847,198,347.81 5,026,770,468,136.52 18,150,617,666,484.33
Purchasing Destruction 1,049,576,318,548.01373,250,728,904.451,422,827,047,452.46

Remember, the actual "public" deficit is the difference in borrowing between the end of the fiscal year and the beginning in debt held by the public.  The total increase in debt, including intergovernmental (mostly Social Security and Medicare) is the actual deficit and is exactly equal, on an arithmetic basis, to the destruction in your personal purchasing power that the government causes (or gain if the government runs a surplus.)

The actual deficit -- that is, the destruction in purchasing power the federal government caused last year, is the percentage of 1.423 trillion .vs. the total GDP of 18.450 trillion or approximately 7.7%.

That's right -- the government intentionally destroyed almost 8% of your paycheck and your savings last year, running a $1.423 trillion dollar budget deficit, which is roughly equal to the worst of the "great recession" when tax revenues went through the floor.

Today there is no such "tax shortfall" excuse. 

The breakdown of exactly where the ugly is coming from will be published next week.  I already know what is in there because I've been following the monthly treasury statements all fiscal year, but wish to report final "as tallied" facts -- and thus will have another post at that time.

Let me be clear: On the arithmetic if we do not stop this now within the next 4-5 years -- that is, within the next Presidential term -- our government will collapse, our economy will collapse, our health care system will collapse and both the stock and housing markets will collapse.  This is not politics, it's arithmetic.  And the worst part of it is that I am utterly certain that the "references" count, along with the "views" count on this article will both be a fraction of the politically-oriented articles I've recently posted.  That the real end of our way of life in America, a threat that is obvious, mathematically certain, not very far in the future and yet avoidable if we act now fails to garner any sort of serious attention is the real outrage folks.

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A bit of the piece I wrote before got my mind going..... I hadn't actually sat down to think about this much (other than when Bill Still was running for the Libertarian ticket), and I bet you haven't either.

But we should.

I'm going to take just our Federal budget and break it down into the following general categories for Fiscal 2013, a year for which we have the Federal Treasury Statement:

Social Security: $870 billion

Medicare and Medicaid (All): $1,113 billion

Children and Families (TANF, Energy, Children and Family Services, Adoption, etc): $50 billion

HUD (Rent, projects, operating funds, etc) + "Community Planning": $45 billion

SNAP/WIC/Etc (Food Stamps & "Free" School Lunches): $109 billion

Veterans Affairs: $143 billion, of which about $52 billion is medically-related.  The rest is (mostly) pensions and readjustment benefits.

Ok, now let's add all this up, with one exception -- Military Pensions.

I get $2,239 billion, or $2.2 trillion dollars, out of a total as spent of $4.058 trillion -- roughly 54%.

Note that the deficit was $680 billion, or one third of that spending.

So let's just take our $2,239 billion and see what we could do with it, assuming we didn't have these programs at all. In other words, let's make a few assumptions:

  • Families in the lowest quintile of income (under $27,794) pay an effective tax rate of zero.  That is, their income (all sources, including benefit checks from the government) is all theirs to spend.

  • Families in the second quintile of income ($49,788) pay few taxes, with an effective rate under 20%. That is, if we remove the taxes the gross amount they'd have to "make" would rise by about $10,000 (what they pay in taxes.)

  • There are an average of 3.12 persons per family.  Since the US population is approximately 330 million, there are approximately 100 million family units ranging from a single person to five (where the bell curve flattens to near-zero) persons.  As these are quintiles this happens to divide out nicely; there are approximately 20 million families in each quintile.

Ok, so we're going to do this instead of the programs we have now:

  • We're going to enforce the Sherman and Clayton Acts vigorously against all in the medical field.  This will result in the cost of medical care plummeting by approximately 80%.  Doubt me?  Go price procedures and drugs in Japan, India and other nations where you can get first world, cash care.  Or, for that matter, price a procedure at The Surgery Center of Oklahoma.

  • We're going to delete all of these programs and benefits outlined above.

  • For the 20 million family units in the second quintile, we're going to give each a tax credit amounting to the 1/5th of the ratable difference between their family income and the $49,788 threshold.  There is an approximately $22,000 range in this quintile so the average household will receive $2,000. That will cost $40 billion a year.
     
  • For the 40 million family units in the first and second quintile we're going to give each a further refundable tax credit amounting to 100% of the funds necessary to reach the 1st quintile threshold (average for the first quintile is $14,000 @ 20 million people) plus, for those under $40,000, another $5,000.  This will cost (20 million * 14,000) + (35 million * 5,000) or $455 billion more a year.

Note that these two direct refundable tax credit disbursements result in nobody having a family income of less than approximately $32,000 after tax.  We spent $495 billion doing it.

Bluntly: If we do this there are no more poor citizens in America unless you care to argue that a $32,000 household income is "poor."  If you do then I'll preempt your statement by telling you that you're stupid and ought to go find a high building and jump, you ****er.

End of discussion.

We started with $2,239 billion that we whacked out of the budget and have spent $495 billion of that eliminating, on a permanent basis, poverty in America.

We have left $1,744 billion each and every year.  We will not run a deficit ($680 billion) any more, and in fact will run a $400 billion surplus on purpose to start paying down the debt.  We now have $764 billion left each and every year.

That $764 billion is roughly 40% of the remaining federal budget.  We therefore will cut all taxes, income FICA, Medicare, everything -- by 30% so as to bring receipts in line with actual spending.

The result of this is:

  • A balanced Federal Budget right now and, over the space of a few decades, a zeroed Federal debt.
     
  • I did not touch the military budget, nor any of the other departments.
     
  • Those who are in the lowest quintile of American life suddenly and permanently have a reasonably middle-class lifestyle.  There is no longer any argument over whether someone will starve irrespective of their economic circumstance, other than by choice.  There are no more poor citizens in America.
     
  • I have permanently stopped all fiscally-driven inflation, and thus destruction of purchasing power, since there are no longer deficits being run.  In fact we now see purchasing power increases over time of about 2.3% annually.

  • Those who are in the second quintile will see their after tax income effectively rise to their pre-tax income.

  • And everyone, from poor on up, will see a 30% reduction in all federal taxes and fees.

Note that I left a hell of a lot of Socialism in the Federal Government due to handing out money to the lowest two quintiles.  However, I got rid of all of the government waste and corruption at once in social programs by doing it this way, and as a result what has happened is that the people in the lower economic strata got all the money instead of a quarter of it with the various scam artists in and around the government stealing the rest.

I also broke the Medical Monopolies -- everyone can now afford to pay cash for their medical care.

And, I did it while cutting taxes across-the-board by 30% while not only balancing the budget immediately, not in 10 or 20 years in some phantasm of lies and fraud, but also while putting $400 billion a year toward retiring the debt.

We're not short on money in this country, nor on taxation.

We're short on integrity and people who argue otherwise are liars.

Argue with my math; if I missed something or made an error, show me where.

PS: Before the criticism commences, let me point out that I'm well-aware of adverse selection and the arguments that can be raised in support of it, including the fact that were we to do this we might end up with a lot of people in that first quintile by choice!  After all, $32,000 as a guaranteed household income is pretty good for doing nothing!

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