Smug But Correct

There is something about this guy I find annoying smug even though I agree with most of what he says here. 

It is like what Alexis de Tocqueville, 19th century historian and early sociologist, famously never said:

"A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy."

Anyway the pie graphs are nice. 

When Did You Get it?

Fractional Reserve Banking.

This is an interesting historical video about our banking system and how it evolved over the centuries. 

Money, Banking, and the Federal Reserve from Mises Media on Vimeo.

The Volt

Fox's Eric Bolling was given a Volt to drive. He was not impressed.

Update on Saturday, February 18, 2012 at 6:19AM by [Positive Dennis]

Since the embed video does not work, click here for the video. Other electric cars have a larger range. 

Econ 101

I posted in a Facebook thread and decided to make it a post on my blog. Here is what I said:

If inflation was factored in I would not object to one relatively high rate for everything. I would abolish SS taxes. No deductions except the basic exemption. Obama's proposed tax on dividend income of 35% plus 44% on the remainder is absurd. 35+28.6 + 10 (ca) is 82%. Obama is brain dead.

In particular I want to discuss the high marginal tax rate that Obama is proposing as I have already discussed inflation here. (Warning, my editor referred to this post as mind numbingly boring!) 

(Calling Obama brain dead may be unnecessary hyberbole, but it is incrediblely bad policy to raise marginal tax rates this much. This is especially true as Obama may not even want these proposals to pass, he knows they won't pass. He is pandering to his base.) 

The 35% tax rate that US corporations pay is among the highest in the world. If the corporation makes money, it can then declare a dividend. Obama is proposing that the rate for that is 39.6%. So where did I get the 44%? There is a new Obamacare tax of 3.8% on investments. Most will not pay it as it only kicks in at $250,000, but it does affect the marginal tax rate. 39.6 +3.8=43.4, close to the 44% I said in my back of the envelope calculation. I did not even mention the President’s proposal to eliminate the Social Security ceiling that limits that tax.  The Wall Street Journal comments:

Well, At Least California Has BeachesSo, for a family in high-cost California taxed at the top federal rate, the expiration of the Bush tax cuts in 2013, the 0.9% increase in payroll taxes to fund ObamaCare, and the president's proposal to eventually uncap Social Security payroll taxes would lift its combined marginal tax rate to a stunning 58.4%

If the cap is eliminated this will really hammer the upper middle class. 

Of course there is also the Buffet rule.  Here is what Business Insider said of the tax:

For example, a taxpayer making $1.6 million dollars is 60% of the way from $1 million to $2 million, so his or her minimum rate would be 30% times 60%, or 18%. In practice, taxpayers in this income range tend to pay effective rates of around 25%, so the Buffett rule would typically affect only taxpayers whose incomes are high enough to require at least that minimum rate (about $1.8 million.) … Consider a taxpayer who earns exactly $1.8 million and is subject to the new minimum tax. In this case, the minimum is equal to 80% x 30% x $1.8M: $432,000. Next, assume he gets a $10,000 bonus, so that his income is now $1.81 million. The minimum is now 81% x 30% x $1.81M: $439,830. An income increase of $10,000 has led to a tax increase of $7,830 ($439,830 – $432,000) – in other words, the marginal rate on that additional $10,000 is 78.3%.

The rate gets as high as 90% at the upper end of the phase-in range before dropping back down to 30% for as long as the taxpayer is affected by the minimum tax. Combined this with state and local income taxes, as well as the new 3.8% tax on investment income beginning in 2013, and the marginal tax rate on investment income could plausibly exceed 100% within a narrow range. In other words, taxpayers in this range would have an incentive to lose money. (Bold in the original)

This does not even include the fact that some business income is a result of inflation is and is not real income. This can push the tax rate to greater than 100%. Again be sure to read the mind-numbingly boring post from last May I did on inflation.   (BTW I agree with Pam that it is boring and difficult, but that does not mean it is not important.) 

I have decided to end this post by quoting the previous post on inflation:

Mad as Hell?

Of course each of these people in these case studies are wealthy individuals deserving of a tax increase come 2013. (Sarcasm alert.) The super wealthy, of course, will not be affected as much, as they understand this and hedge their investments.

It is the moderately wealthy, the suckers, who pay and pay.  There are not enough of these people to generate real money, so the middle class is going to suffer as well. This is especially true if the entrepreneurial class stops investing and hiring the middle class to work for them.

But the real unforeseen effect of inflation is the false signals that are given to each of our people in these case studies. They think they are doing well, but in fact they are losing money. These false signals are distorting the economy and are the major source of our boom/bust history. Yes they will survive, but if they realize they are being had and that the system is stacked against them, then watch out as investment and savings plummet. If they realize that the system, Babylon the Great, has stacked the deck against them, the only rational thing to do is not play the game.