Tax Talk

A few days ago, October 19, there was a debate, unrelated to a candidate campaign, between Senators Ted Cruz and Bernie Sanders on CNN. [Transcript here.]They had one a while back on Obamacare. This one was specifically about taxes, concurrent with a tax plan working through the legislative process right now.

screen shot from here

Ted Cruz started with this summary:

This debate is very, very simple. Bernie and the Democrats want every one of you watching today to pay more taxes. And Republicans want to lower the taxes for each and every person watching this debate.

Now, tonight I'm going to make a prediction. Bernie is going to suggest in just a few seconds that this is not really about you, this is about, "taxing the rich." That's what the Democrats always say. But here's what you need to know. Every time Bernie says the rich, what he means is taxpayers. And so if you pay taxes, he's talking about you.

And Bernie Sanders begins with, wouldn’t you know, coveting the rich and hating on those evil Koch brothers:

Let me make a prediction:

In two minutes, Senator Cruz is going to tell you that if we give tax breaks to the billionaires like George W. Bush did, like Ronald Reagan did, we're going to create zillions of jobs and you're all going to become very, very rich, that we have a trickle-down economic theory, tax breaks for the wealthiest people, the largest corporations, and, whoa, everything is good.

That is a totally fraudulent theory. Here is the reality of American society today. For 40 years, the middle class of this country, the great middle class has been shrinking. And what we have seen is a massive transfer of wealth from working families to the top 0.1 percent, trillions of dollars because of cooperate greed and an unfair tax system.

Now, the Trump Republican tax proposal that's before us today, this proposal is being pushed by Senator Cruz's campaign contributors, some of the wealthiest people in this country, by the Koch brothers, who are worth $90 billion. Why are they pushing this agenda? Because 80 percent of the tax breaks in this proposal will go to the top 1 percent.

In fact, 30 percent of the middle class will end up paying more in taxes. Forty percent of the tax benefits will go to the top 0.1 percent. This is massive tax breaks for the wealthy.

So it took one minute, just 163 words, to get to the Koch brothers, who are virtually never mentioned at Republican meetings (I attend many), or at tea party meetings (I attend even more of those), or on conservative radio, or in conservative articles. In fact, the first time I ever heard of them, it was in a left-wing pro-socialist article, claiming they had a stranglehold over all conservative thought—so I, a conservative thinker, looked them up just to know who they were. I wrote about them in May 2011.

There are, of course, exaggerations in Sanders’ prediction about what Cruz would claim: “zillions of jobs,” everybody becomes “very, very rich,” etc. So that even saying “more than zero jobs will be created” would sound like something to be flippantly dismissed. But I thought I’d look at some of the data. 

Sanders says the middle class has been shrinking for 40 years. Not sure that’s essential knowledge, but it seems measurable. So I looked it up. I think the data probably comes from a Pew Research Study. 

Screen shot from here

Today the middle class is about 49.9%. That means that’s the percentage earning a middle income. Pew Research defines that as “two-thirds to two times the national median income for your household size” or about $46,000 to $141,000 for a 4-person household. Roughly 29% make a lower-class income, which includes entry-level workers, full-time students, retirees—not simply full-time workers who can’t make ends meet, although they are among this level. Another 21% make upper incomes.

The change has been happening over 40 years. But Bernie would have you believe this is all bad news. There has been a slight growth in lower-income households: from 25.2% in 1971 to 29% in 2015, so, over about 4 ½ decades—coinciding, incidentally, with the “War on Poverty.” Hmm.

But, most of the dwindling middle class has come at the upper end: from 14% in 1971 to 21.1% in 2015. So the middle class lost 3.8% to the lower class, and 7.1% to the upper class. In other words, more people are moving up. That’s not a bad thing.

Here’s another detail: “Upper-class Americans have seen their incomes rise 47 percent, while lower-class families have gained only 28 percent.” This is not a bad thing either, if you realize the good stuff is happening to more people. Unless you’d rather see bad happen to everyone if good isn’t happening to you.

And here’s another thing to note: while lower income families aren’t gaining as fast as we’d like, it’s not mostly the same families staying in poverty over those decades. Mostly those are newcomers—new young adults, new students, new entry-level workers. Most of those people gain experience and move up.

But Bernie’s view is that those poor families are specific people losing out because specific rich people are getting their gains.

That’s what you call covetousness. And “Thou shalt not covet.”

If we needed to summarize the difference between Sander’s view and Cruz’s view, it would be that Sanders thinks it’s unfair for anyone to rise; anyone who succeeds should have their rise taken away and given to someone who didn’t rise. Regardless of difference in effort. Using the force of government.

There was a significant portion of the debate talking about Denmark. A man from Denmark posed a question:

And, you know, these are countries which—where the government spends—taxes and spends approximately twice the level of the United States. And while I am very sympathetic to many of your spending proposals, especially on the things you mention on early childhood and single-payer and the like, I also know that these are countries that heavily tax everybody, not just the rich people, middle classes. They have consumption taxes on everything of 20 percent.

So while I'm very sympathetic to what you're saying, my sense is still that you would like to spend as a Scandinavian but not tax as one, is that right?

Since Bernie talked about how we need “free” health care and “free” child care—that these are “rights” we are born with and therefore the government is obligated to provide—let’s look at the cost of “free.” I wrote about Denmark a while ago. [  2-11-2016   ] Using data that a young Danish writer offered, an ordinary working class Dane who makes $25,000 DKK a month (about $4,000, which would be $48,000/year) ends up with 9,848.71 DKK before he can start making choices about how to spend it. Here’s what I said:

That is 39.39% of your original. You have paid 60.61% of your income. If you were wealthier, you would add 15% [in taxes] earlier in the process. Not far off from what Bernie Sanders thinks those terrible rich people ought to be paying here. But note that in Denmark everybody pays, no matter how little they make.

Socialism isn’t about getting free stuff; it’s about spending 60% or more of your income on those “free” things, without market choice. Everyone pays it. There’s no getting away from it. If you’re healthy and would rather pay for minimal health care, so you can save up for a down payment on a house, you don’t get that choice. If you want faster internet or more media options than the single media company offers, you don’t get that choice.

But for all the lack of choice, you work until mid-July or later for the government and can only use what you make the rest of the year to support your food, shelter, clothing, transportation, and entertainment choices.

Meanwhile, the government is telling you how happy you must be, because of the good way the government takes care of you.

To translate the numbers in our US experience, a single person makes $48,000 a year, which feels pretty good just out of college. But the government takes $29,092.80, leaving you $18,907.20.

But your healthcare is minimal; isn’t that worth it? If you’re a young, healthy person, do you think $2,424.40 is a good deal for you? Let’s throw in child care—not quite free; the Dane says it’s about $300 a month, depending on region. So, let’s take away $3,600 from your $18,907.20, which leaves you $15,307.20 for your discretionary spending like food, housing, transportation, or travel.

Do you feel better, earning $44,000, but getting to spend only $15,307.20 the way you choose, in exchange for “free” stuff?

Bernie made the false claim that the average Dane has a better standard of living than the average American. But 70% of Americans, according to the data he used, are middle class or above, so they can buy a home, one or two cars, high-speed internet, a big screen TV, and save up for vacations, open their own businesses, prepare for their retirement, and in every other way “pursue happiness.”

Meanwhile, their Danish counterpart is less likely to own a home, more likely to live in an urban setting (in an apartment, without land), and more likely to work for the government (1 in 4).

Ted Cruz brought in statistics about socialized medicine in Denmark:

If you look at socialized medicine, there are waiting periods. There's rationing. The government says, if you're an elderly person and you need a hip replacement, it says, well, you may not get a hip replacement. We were talking about Denmark. The average wait time in 2014 for cataract surgery was 83 days...

And the average time in Denmark, which he brought up, for hip replacement was 55 days, 59 days for knee replacement.

The man asking the question believed these statistics were more negative than the reality. Anecdotally, he reported that his mother was treated for cancer within a couple of days of her diagnosis. However, I don’t know exactly where Cruz got his statistics, but he’s not haphazard about gathering and memorizing that kind of thing. My own familiarity with socialized medicine, Canada’s, involves a former neighbor’s father. He was told they couldn’t do anything to treat his cancer, and he should plan to die soon. He studied, changed his diet, and came to the US for some necessary care. No thanks to Canada’s socialized health care system, he lived six more important years while his grandchildren were growing.

The health care discussion was a side issue for this debate. But what it did was clarify the two vastly different philosophies on taxation. Despite some early dissembling, Bernie Sanders was really in favor of raising everyone’s taxes, significantly—up to Denmark’s levels, which are the highest in the world.

Bernie finally admitted that, but he believed promising all the free stuff would persuade voters:

If we can explain to people, yeah, you're going to be paying more in taxes, it's going to be a progressive tax system. The wealthy are going to pay their fair share, not the middle class, not the working class, but everybody will pay some more.

Cruz pointed out that admission moments later, and Bernie interrupted to tell him not to put words in his mouth. He forgot (or maybe didn’t pay enough attention to know) that Cruz remembers what he’s heard verbatim; it’s his superpower. And he’s better at math:

Bernie's tax plan cost over $13 trillion. That's what he's proposed raising in new taxes. And who pays for it? Well, the Democrats always talk about the millionaires and billionaires, but here's a simple fact. We could take every single person making $1 million a year or more and confiscate 100 percent of their income, everything they make, every penny, and it would raise about $1 trillion, about 8 percent of the cost of Bernie's tax plan.

That means if you want tax revenue, you don't get it from the millionaires and billionaires. You get it from the middle class. You get it from the working men and women in this country.

One of Cruz’s better points was that higher taxes slow growth, and lower taxes lead to more growth. Cruz had charts. Growth is important, because we’ll never get Congress to cut enough spending to cut the deficit. Here’s Cruz’s summary:

Obama versus Reagan, under Obama, median income increased 6 percent. Under Reagan, 17 percent. How about African-Americans? Under Obama, median income increased 8 percent. Under Reagan, 12 percent. How about women? Under Obama, median income increased 6 percent. Under Reagan, 25 percent. Young people, under Obama, 9 percent, under Reagan, 55 percent. Young women, under Obama, 8 percent, under Reagan, 73 percent. And, finally, the bottom 20 percent, those struggling, under Obama, 12 percent, under Reagan, 40 percent.

What I don’t know is whether the current tax plan is as good as we need it. But what I do know is that we Americans make better decisions about how to spend the money we earn than the government does.

Defining Socialism

We spent some time recently defining conservatism, which is a path to freedom, prosperity, and thriving civilization. I thought it might be useful to define the opposite: socialism.

It goes by other names: liberalism, progressivism, communism. There may be some slight flavor differences among these, paid attention to by those who prefer a certain appellation over another. But in Spherical Model terms, they are all southern hemisphere: some far away authority decides how to spend the wealth created by individuals, and may decide what work individuals may do. In some varieties (USSR Communism, for example) private ownership and private means of production (business ownership) are eliminated.

The Soviet Union fell about 2 ½ decades ago. That means that young people have grown up unaware of what that enemy of the United States (and enemy of freedom around the globe) meant. Now, here we are with a democrat party choosing a nominee who will be either an Alinskyite covert socialist calling herself a progressive or a curmudgeonly old guy who boldly labels himself a socialist. And they are treated by media as if they are mainstream.

So maybe we need a lesson. Let’s be clear: socialism is incompatible with freedom, prosperity, and civilization. Socialism will—it always has and always must—lead to tyranny, poverty, and savagery.

And then this hypothetical conversation happens.

“No, no,” you say; “We just want to even things out, so the system is fair for everyone.”

You want freedom, you say, equality before the law?

“Well, but the way things are, there are people who game the system, and the little guy gets screwed. That’s why there’s such an income gap.”

And by income gap, you mean that’s a bad thing, that people should have the same amount of money?

“Yes, pretty much. The rich are only rich because they’ve exploited other people.”

And poor people are only poor because…?

“Because they haven’t had the same opportunities. Everybody should get the same education advantages, and good job opportunities, and health care so they don’t get wiped out by some accident or illness.”

OK, so, no poor people are poor because they do less valuable work than people who make more money?

“Are you trying to blame the poor?”

No, I’m just asking. So, what if you’re someone with a valuable skill, and you think up something really brilliant that everyone wants. Should you be allowed to profit from it, or share any profits equally with everyone else who didn’t think it up?

“You’re just not getting it.”

No, I’m not. Because I’m aware of how much misery a controlled economy has caused in the world.

“That’s just because it wasn’t done right. We would do it right.”

And how is it you can be sure of that?

“We just would. We’re smarter.”

Umm.

Among the current Berners (Bernie Sanders fans), they fail to think of forced labor camps, rationing toilet paper (happening in Venezuela currently), the millions starved to death, not to mention the millions killed outright for being unwilling to submit, or trying to escape. No, they think about northern European socialist countries, like Sweden or Denmark, which they think is a utopia we should emulate.

They seem unware that those countries are becoming less controlling—because they have run out of money. As Britain’s Margaret Thatcher accurately said, while opposing socialist in her own country, “The problem with socialism is that you eventually run out of other people's money.”

And how do you make money? Or build wealth? You create something of value beyond what is necessary for survival. Someone needs to do the wealth building, the work.

Recently I came across a piece written by a young man in Denmark, sharing what free stuff feels like there.

Denmark, photo from here

It starts out,

I have noticed a lot of well-meaning Americans praising Denmark for our happiness and our welfare system. We’re praised for our free education, free healthcare, free childcare, short workweek and all the other things that the goodness-industry is proclaiming to define us Danes.

Then he goes on to talk about what “free” means:

“Child- and healthcare is free and students are paid to study in Denmark!” That’s a line I’ve heard a lot. It’s a truth that needs a lot of modification. A lot!

If by ‘free’ you mean ‘paid for by someone else’ you are right in the assumption that healthcare, childcare and education are almost free of charge.

He spends the rest of the article talking about where the money comes from.

Denmark, he points out, built up original wealth from Viking plunder and slavery. So they had a wealth base to draw on. And the rest of the “free” stuff comes from taxes. It’s not a simple thing to just say everyone pays X% in taxes. It depends on a lot of variables. But the writer takes us through a basic example of an ordinary working class Dane who makes $25,000 DKK a month (about $4,000, which would be $48,000/year).

Income tax is deducted automatically, before you see your money (like our withholding). These include 8% Arbejdsmarkedsbidrag, loosely meaning “labor market.” You pay this amount because you’re in the labor market. That’s 2,000 DKK.

Then subtract bundfradrag, or “bottom deduction.” This is, if I’m understanding, a tax on the part of your income that isn’t taxed. This differs year to year, but in 2015 was 41,400, which is 3,433 monthly. You subtract this from the 23,000 DKK you have left to spend in the month, which is 19,567 DKK.

Now come the Communeskat, or county tax. Counties differ, but the average is 24.9%. Which means you take away 4,872.18 from 19,567, leaving you 14,694.81 DKK.

Then comes Topskat, or “top tax bracket.” This is on over 37,000 DKK per month, or an additional 15% on anything over 449,100 DKK per year. Our example doesn’t have to subtract this, since the gross is 25,000 DKK per month.

Next comes the Sundhedsskat, or “health tax.” It changes annually, but in 2015 was 4%. That’s 782.68 in our example, leaving 13,784.32 DKK.

That’s the total of the “income tax,” that is deducted before you see your money. Our example paid 11,215.68, or about 44%.

Then come the many other taxes from various places.

Every time you pay a bill, you pay the government 25%. That means, if you buy something for 100 DKK, it will cost you 125 DKK, for the government to allow you to make the transaction. But you don’t really notice, because the price would read 125, with the tax already included, and the vendor collects and pays the tax, paying quarterly.

In essence, sales taxes, direct and indirect, mean you pay 25% of your remaining income. That’s 3,446.08 in our example, leaving 10,338.24.

Utilities have an additional Afgift, or tax. The writer’s recent 3-month electric bill was 994.64 DKK. Of that bill, 111.96 was what the electric company charges for 358 kilowatt/hours, and 30 DKK for membership (membership?), and a sales tax of 176.33 DKK. There are sales taxes involved to make the exchange, and additional taxes for use of the state-owned network, which I think is the electrical grid. In the end, out of 994.64, 853.58 DKK goes to the government—divided by 3 for 284.53 per month.

We’ll subtract that, leaving us with 10,053.71 DKK.

If you buy a TV, phone, computer, or radio, you can do so—with the usual 20% tax. (The writer sometimes says 20% sales tax, and sometimes 25%, so I’m confused, and that will mess us our numbers. But we’ll plow ahead and try to get an estimate anyway.) But if you own a device that can access some kind of transmission, you pay a Licens, or license to use Dansmarks Radio, the government-controlled media. If you own a device and don’t use it, someone will come to your door and force you to register the device. The license is 205 DKK per month. (It’s unclear to me whether that’s an additional 205 DKK per device, or a single license for all devices in the household.)

The writer refuses to own anything that needs licensing; he uses his mother’s computer and his friend’s phone. But for our purposes, let’s say you pay the license fee. That leaves you 9,848.71 DKK.

That is 39.39% of your original. You have paid 60.61% of your income. If you were wealthier, you would add 15% earlier in the process. Not far off from what Bernie Sanders thinks those terrible rich people ought to be paying here. But note that in Denmark everybody pays, no matter how little they make.

Socialism isn’t about getting free stuff; it’s about spending 60%  or more of your income on those “free” things, without market choice. Everyone pays it. There’s no getting away from it. If you’re healthy and would rather pay for minimal health care, so you can save up for a down payment on a house, you don’t get that choice. If you want faster internet or more media options than the single media company offers, you don’t get that choice.

But for all the lack of choice, you work until mid-July or later for the government and can only use what you make the rest of the year to support your food, shelter, clothing, transportation, and entertainment choices.

Meanwhile, the government is telling you how happy you must be, because of the good way the government takes care of you.

That’s the utopia. It’s also the country where Islamists went on a rampage because someone drew some cartoons they didn’t like.

Sweden has similar stories, as I wrote about in January. The solution seems to be to turn away from overtaxing and turn toward free market. Otherwise these utopian economies will collapse.

The real way to avoid tyranny, corruption, unfairness, and other aspects of oppression is to go in the exact opposite direction from socialism. Like we have in our US Constitution, guaranteed God-given rights, with free market economics, among a righteous people that take care of each other, rather than depending on government to do what charity should.

I had planned to write this piece on socialism for a couple of weeks. But this morning I found there are plenty of others who think it’s time we did some informing on the subject. One, linked today by Glenn Beck, is this 37-year-old video of economist Milton Friedman telling TV host Phil Donohue the difference between socialism and capitalism in under three minutes:

It includes this key point:

In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade.

If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

Another piece that showed up today is this post by United Families International, giving a primer on the difference between socialism and capitalism. It offers this summary:

Socialism is the Big Lie of the twenty-first century. While it promises prosperity, equality, and security, it delivers poverty, misery, and tyranny. Equality is achieved only in the sense that everyone shares equal misery.

Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives.

All I can do here is skim the surface of the definitions. You might also read this post and this post, and it’s second part.

The deceived young people seem unaware that voting for socialism is voting to place yourself under tyranny of elected elites and their appointed bureaucrats. They need to be informed. Now. While there is time.

There’s growing data showing the failure of the so-called successes in northern Europe. There are books full of details about socialism. If you haven’t read Animal Farm since you were assigned it in school, it might be time for a reread, now that you’re old enough to understand it. And pass it along to someone who hasn’t read it yet.

No one should be allowed to vote for a socialist if they’re still so uninformed that they think it’s all about being social and about getting free stuff. The rest of us don't deserve to suffer because of their ignorance.