How To Talk To Your Friends About Tax Cuts

The following conversation is a rough approximation of one I just recently had with a few of my co-workers:

Them: Do we make enough money that we will benefit from these tax cuts? Or are we getting screwed like everyone else?
Me: Do you itemize?
Them: No.
Me: Everyone who doesn’t itemize is going to benefit from this.
Them: What? Really? That can’t be right. Let me Google that. Oh damn you’re right. I wonder why nobody talked about that?

In case you think I’m making this up, feel free to consult The Washington Post, who provides this friendly chart, showing you approximately how much of a tax cut you’ll be getting.  It varies from state to state – generally better results for red states, and less favorable results for blue states, due to the elimination of the state and local income tax deduction.  But (and I really can’t emphasize this enough), that only matters if you itemize.

 Using California as a blue-state example, let’s take a look at the breakdown of who gets a tax break and who doesn’t.  Sure looks like a lot of green on that chart, doesn’t it?  And that’s for single people, for married couples with two children, the chart is entirely green.  But getting back to our point about itemization, let’s focus in on that very bottom row, for people taking the standard deduction, yet again, it’s entirely green.

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Who actually itemizes their tax returns?  The Tax Foundation provides a useful summary.  Only 30% of tax returns are itemized, so two out of every three people are essentially guaranteed to be getting a tax cut here.  And itemization, of course, becomes increasingly common the more money you make – meaning that the wealthy are far more likely to be harmed by changes that penalize itemization.  This graph provides a nice summary:

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To summarize, the GOP tax bill provides tax cuts for virtually everyone who does not itemize, which is a group that mostly includes low income people.  It occasionally, but rarely, will lead to tax increases for people who itemize, a group that mostly includes high-income people.  This general pattern holds true across all states and demographics.  Be sure to make this clear to your friends and family.  They have largely been sold a bill of goods about this plan which claims it’s all about huge tax cuts for the rich with nothing of substance for the lower or middle class.  This is patently false.

To answer my co-worker’s final question:  “Why hasn’t anyone talked about that?” I’d suggest that the answer is twofold.  The left is dishonest – left-wing politicians and their paid shills in the mainstream media have intentionally and deliberately lied about this bill in their obsession with trying to tear down Trump.  And the right is stupid – they’ve spent all their time talking about “job growth” that’s supposed to happen from the corporate tax reduction, trying to defend unpopular trickle-down economics rather than focusing on the one major huge win from this legislation – the doubling of the standard deduction.

In any case, the facts are clear.  People who do not itemize (which are typically lower-income people) are getting a tax cut.  Period.  Now go out there and make sure everyone understands this.

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Lower Taxes Are Good – Even If the Deficit Rises

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Avoidable

Treasury’s Tax Reform Analysis Confirms Republicans Don’t Give a Damn About the Deficit – Hit & Run : Reason.com

The fine folks over at Reason want you to know that they’re super concerned that the GOP tax plan making its way through Congress might… brace yourselves everyone… raise the deficit! 

Oh no!  Not the deficit!  That sounds really bad!  Surely all proper libertarians can therefore agree that this is terrible legislation which must be opposed!

…But just for fun, let’s stop and think about this for a second.  What is the deficit exactly?  It represents the amount the government must borrow to finance operations when the revenues produced from taxation are less than the expenses required for various spending programs.  The equation then, would be:  Spending – Taxes = Deficit.  Since there are two variables, there are then two ways the deficit could be increased, by raising spending, or by lowering taxes.  Everyone onboard so far?

Libertarians believe taxes are bad [citation needed].  But they do not, necessarily, believe that spending is inherently bad.  Spending is bad because the source of the spending is typically taxation, which is theft.  If Bill Gates voluntarily donated a billion dollars to a centralized agency to spend funding various social programs, there is no valid libertarian criticism.  It would be a voluntary act of charity which harms no one.  In fact, this sort of logic is the very foundation of much of libertarian theory as to how society wouldn’t collapse without the state.  It’s the non-voluntary aspect of taxation which makes the system immoral, not the spending aspect.

So, if taxation (theft) decreases, this is a morally good outcome.  Even if spending remains constant.  Because taxes are inherently immoral in a way that spending is not.  There is no libertarian reason to complain about lower taxes resulting in a higher deficit.

But wait!  If the government lowers taxes without cutting spending (or receiving voluntary donations from billionaires), they’ll just inflate the money supply!  We’ll still have to pay the inflation tax!

 Now we get into a slightly more coherent and nuanced criticism – often made elsewhere, but notably absent from the Reason piece linked above.  It is correct that if governments cannot raise the funds needed to finance their spending via taxation or donation, they will end up monetizing the debt and printing money, leading to inflation.  Which results in a simple question – would you rather pay a straight up income tax now, or pay the inflation tax later?

And the obvious answer is that you’d much rather pay the inflation tax later. 

 This is not just a matter of opinion; one option is clearly superior to the other.  Even putting aside the time value of money (income tax is stolen from you immediately, before you even receive the money, while debt monetization is a process that typically takes several years to fully materialize – and money today is more valuable than money in the future), there’s a pretty major and obvious way that inflation is a better outcome than income taxes:  Inflation is reasonably easy to avoid.

If you’re anyone who earns an income, it’s virtually impossible to legally avoid the income tax (and difficult to avoid it illegally).  But there are a whole lot of ways to avoid inflation!  I’ll bet libertarians have even heard of some of them!  For example, did you know that it’s possible to exchange your federal reserve notes for various inflation-resistant assets such as:

 

 

 

 

What’s that?  Reason is aware of all of these things and has written about them before?  Well that’s weird.  Given that they acknowledge that there are several different types of assets one can own to immunize themselves against government money-printing, they should be far less concerned about inflation than about the unavoidable income tax, should they not?

And yet here they are, pitching a fit over an increased deficit, even though it means the total amount of theft in society is going to go down.  One is hard-pressed to think of any logical reason to take this particular position other than the same tired anti-Trump virtue signaling we’ve come to expect from the official arbiters of approved opinion.  Any organization that is unwilling to celebrate lower taxes is, quite simply, undeserving of the label “libertarian.”

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Because I Got High (Obama Remix)

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This Is Not The “Libertarian Moment” You’re Looking For

hdzwzq71-300x300You’ve heard it a million times by now… Trump and Hillary have record-breaking negative favorability ratings.  They are both facing significant opposition from forces within their own parties who solemnly vow that they will never support them.  One is facing a civil trial for allegedly defrauding customers in a huckster sales-pitch “educational” program, the other is fearing a potential federal indictment for mishandling classified information.

Surely this is it – the moment we’ve all been waiting for.  With such unpopular mainstream candidates, this is finally the chance for a third-party, if not to win the election, then at least to steal a significant share of the vote, make a real impact, and signal to disenfranchised citizens across the country that they are no longer beholden to a corrupt two-party system.  The libertarian party is especially well-positioned to cash-in, as it has some awareness and credibility (particularly among young people) and is the only third party to have ballot access in all 50 states.  Gary Johnson is already polling at ten percent!  How could we ever have a better opportunity than this?  It’s everything we could possibly have hoped for!

Too bad there’s no chance it’s going to amount to anything.

I am officially predicting that the Gary Johnson (recently selected as the libertarian nominee) will receive less than 2% of the popular vote in November.  (As a frame of reference, he got 0.99% of the vote in 2012).

There are several reasons why the libertarian party generally and Johnson specifically are doomed to failure-as-usual.  First, let’s deal with the “likeability” factor.  Polls on favorability are generally treated as a proxy for how much the candidate is personally liked by voters – not necessarily a measure of “how much do you agree with the candidate’s positions.”  Given that Hillary essentially admits she wants “more of the same” from the Obama days, and that many of Trump’s “extreme” positions (preventing immigration through physical barriers, using torture, targeting non-combatants in military strikes, granting preferred immigration status to certain groups over certain other groups) are in fact already current policy (even if people don’t realize it), it would seem that negative judgments about the candidates are rooted mainly in personality and/or character – rather than on their stated policies.  In other words, people hate Trump and Hillary personally, but they don’t particularly hate the policies that either candidate advocates for.

But what about the #NeverTrump conservatives and the BernieBros?  They have spelled out detailed objections to the actual policies advocated by the candidates of the party with which they normally identify.  The neocons attack Trump for not being a “real conservative”.  They hate that he isn’t sufficiently pro-war, pro-life, or pro-gender exclusive bathrooms.  Meanwhile, the main policy objection to Hillary from Bernie supporters is that she is a puppet of establishment interests headquartered on Wall Street.  She doesn’t want to raise the minimum wage high enough, she doesn’t want to raise taxes high enough, and she isn’t going to create enough new entitlement programs.  Basically, conservatives hate Trump for not being conservative enough, and liberals hate Hillary for not being liberal enough.

Enter the libertarian!  Fiscally conservative and socially liberal!  Something for everyone to love, right?  Maybe – but more importantly, also something for everyone to hate.  Why would a social conservative who hates Trump for being too liberal support someone who is pro-choice, pro-drug legalization, and was ahead of even Obama on the gay marriage bandwagon?  Why would young millennial socialists support a candidate who, last time around, campaigned on the basis of having vetoed countless bills for new spending programs and who advocates a fair tax system (aka, tax cuts for the rich, tax increases for the poor)?  In both cases, voting for Johnson would require them to compromise on some of their most deeply held principles… and if they were willing to do that, they’d go ahead and just vote for Trump or Hillary.  The whole point of a third-party protest vote is that you don’t have to compromise your core beliefs.

Let’s also address the polls supposedly so favorable to Johnson.  As far as I can tell, the polls where Johnson does as well as ten percent are “three way match-up” polls where respondents are presented three choices and three choices only:  Hillary, Trump, and Johnson.  Unfortunately, no actual voter will be presented with this choice come November.  Technically speaking, they will be presented with two choices.  The first choice is whether to even bother voting at all.  Given the spectacular failure of third parties (leading to the popular notion that voting for one is “throwing your vote away”) – the most logical decision for someone who hates both Trump and Hillary is to stay home entirely and just pass on voting altogether.  But even those who value the act of voting and desire to “make their voice heard,” will be presented with a different set of options.  The ballot they actually see will include Trump, Hillary, Johnson, numerous other third party candidates (likely to include candidates from the Green Party and Constitution Party who will be much more in line with the beliefs and preferences of socialists and neocons), and a write-in spot.  If you want to vote for someone other than Trump or Hillary, you will have several options in addition to Johnson.  It would seem as if ten percent represents his absolute ceiling in the most favorable of conditions:  that all of the people who really hate Trump/Hillary actually show up to vote, and that he wins nearly 100% of those votes.  Call me crazy, but I just don’t see that as terribly realistic.

While on a superficial level conditions may appear right for this to be the election where a third-party challenger finally shows legitimacy, further analysis indicates the opposite.  Most of the claimed justifications for libertarian success are simply hollow and fail to stand up to serious scrutiny.  Not only is Johnson a terrible representative for the ideas of libertarianism in general, but he will be a failure as a candidate as well.  Don’t believe the hype.

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So, Are All Men Naturally Rapists in Waiting, Or Not?

Exhibit 1:

Social Club at Harvard Rejects Calls to Admit Women, Citing Risk of Sexual Misconduct – The New York Times

A male-only club at Harvard is being pressured to admit female members.  They don’t want to do this.  One of the justifications they give for keeping the club gender-exclusive is that it might lead to increased sexual assaults.  The left strongly rejects this sentiment, characterizes it as victim-blaming, and states that separating the genders is “at odds with the aspirations of the 21st-century society.”

 

Exhibit 2:

Here’s Why Women Everywhere Will Delete Uber On April 19 – Dose – Stories Worth Sharing

A former Uber driver is launching a competing service – it’s just like Uber, only it caters to women only.  It will only employ female drivers and will only accept female customers.  The justification provided is that it enhances the safety and privacy of women and decreases the chances they will be sexually assaulted.  Their lawyer is quoted as saying “we are confident that our hiring of women drivers constitutes a bona fide occupational qualification, where doing so is necessary to uphold the privacy, safety and security of our drivers and riders.”  The left is applauding this service for providing much-needed relief from the obvious dangers of co-ed taxi cabs.

 

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So which is it, people?  Is the mixing of genders inherently dangerous, or isn’t it?  It’s almost as if there’s an obvious double standard in play, such that women should be allowed to have their own gender-exclusive clubs, businesses, and services, but men should not.  That excluding women from a male only gathering is sexist and wrong, but excluding men from a female only gathering is progressive and in the best interests of public safety.  But no, that couldn’t possibly be the case – after all, the only thing these people want is gender equality, right?

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The Best Book on the Soviet Union I’ve Ever Read

51mxbky0yklBehind the Urals – John Scott

Typically when I read a book that is relevant to the interests of this blog, I simply write a brief mini-review in the “Reading List” section and call it a day.  But this book was so fascinating to me that I thought it deserved a post of its own.  It should be required reading for anyone who is interested in communism generally or the Soviet Union specifically.

The book is essentially a collection of the observations and musings of John Scott, an American of socialist leanings who, in the 1930s, confronted with the great depression in America and hearing so much about the wonderful revolution taking place in Russia, decided to learn a trade (welding) and emigrate to the Soviet Union.  He ended up assigned to Magnitogorsk, formerly a barren wasteland hardly suited to grazing the animals of nomadic tribes, destined to be converted to a center of production and industry by sheer force of brute manpower due to Stalin’s desire to have industrial production located far away from the western border (so that invading armies wouldn’t be able to disrupt industry).

What makes the story particularly interesting is how refreshingly honest and objective it is.  Scott obviously supports the ideals of socialism, and even seems to have a certain fondness for Stalin himself.  And yet, this doesn’t prevent him from describing the situation exactly as it was.  He details the astoundingly low standard of living faced by most of the workers.  He acknowledges how unfair and counterproductive it was for the communists to disenfranchise the kulaks (formerly wealthy peasants who were stripped of their possessions and treated essentially as prisoners following the revolution).  He details the chilling effect of the political purges of the late 1930s and the overall callous disregard for the value of human life.

But following these descriptions, there is usually something of an afterthought.  A hint of justification for the crimes and misdeeds of the Soviet regime.  Scott discusses how despite all of the hardship, there was a certain sense of accomplishment and camaraderie among the workers.  He describes returning to America and being astounded by the significantly higher standard of living, but still feeling a bit sad for his friends and family who seemed to fear losing it all at a moment’s notice (as opposed to the Russian worker, who had little to fear because they had already been through so much hardship).  While my instinct is to castigate the author whenever he goes in to one of his “Yes it was bad, but think of the difficulty of what they had to accomplish!” sections, I hesitate to do so, because I think his story and his analysis speak to a deeper part of the human psyche that is often left unexplored.

Generally speaking, I believe that human beings are incredibly flexible and mentally adaptable to their circumstances.  Despite how most of us read of various terrible historical scenarios and say to ourselves, “I could never stand something like that!” I’m quite certain that if we were forced into such an environment, the vast majority of us would eventually adapt and get along well enough.  We would accept our circumstances for what they are, and learn to do the best we could within them, finding success and happiness where we can, savoring the “little things” in life, etc.  This adaptability of the human spirit has potentially broad significance towards political theory in terms of just how much the government can get away with.  The Soviet experiment (along with other oppressive regimes around the globe) was a giant test of exactly this sort of theory.  Even though their daily life included things that to us seem like unimaginable hardships, the average Russian was essentially a normal person, just wanting to work, make some money, raise a family, and enjoy life.  Scott’s book goes a long way towards emphasizing and reminding us of the universal humanity we all possess.

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Gun Control As Regulatory Capture


Obama ‘best gun salesman’ on Earth: Stock picker

We’ve seen this logic invoked before when Obama has talked about gun control, and as a result, gun sales have risen and the share price of gun maker stocks have gone up.  Something about it has always rubbed me the wrong way, but I didn’t really put it all together until today.

The core premise is that when Obama threatens gun control, it causes people to hurriedly buy guns out of fear that, in the near future, they might have difficulty buying said guns.  Therefore, sales spike, and since sales are up, shares in the companies who make the guns go up.  But there is a fundamental problem in this analysis – the increased sales are not additional sales.  No new demand is created.  These are people who planned, at some point, on buying guns anyway – they just have to do it sooner rather than later.

In economics, this is known as “demand shifting.”  The most famous example of government policy leading to demand shifting is probably the much lauded “cash for clunkers” program, which it turned out didn’t really help the economy in the long-term at all.  It didn’t cause people who weren’t going to buy cars at all to buy them – rather it just caused people who were going to buy a car anyway to do so sooner than they otherwise would have.  So a particular company, let’s say Ford, sells more cars than they would have today, but it comes at the cost of selling fewer cars than they otherwise would have in some future period.

But let’s leave cars behind and return to gun stocks.  I don’t want to get too into the weeds of your intro college finance course, but let’s review some of the basic concepts involved here.  A stock is essentially a certificate that entitles you to a share of a company’s future profits.  The price of a stock is, essentially, an estimate of what a company’s future profits will be, divided by the total amount of shares that exist.

If all that’s going on here is demand shifting, it doesn’t make any sense that stock prices for gun companies would rise by a significant amount.  While it’s true that “money today” is better than “money in the future,” interest rates are near zero and time preference doesn’t go nearly far enough to explain why the stocks would rise by so much.  Wall Street analysts are very smart people who research stocks in detail and forecast for the long-term.  So what’s going on here?

My theory is that Wall Street analysts are approaching this situation with the theory that any new gun control regulations will benefit the large gun companies.  This runs contrary to the typical news media coverage of government regulation which stipulates that big business hates regulation and favors small government.

This is completely untrue.  Most regulation of industry is lobbied for by the biggest companies in a particular industry.  Typically, representatives of the largest companies serve on the regulatory commissions and often literally write the regulations in question.  Generally speaking, big companies like regulation because they will control it, and they are so large that it will be easy for them to comply with it.  But smaller competitors (and hypothetical future competitors that do not yet exist) will not have such direct involvement in defining the regulations, and the burden that regulations represent will be much more difficult for them to overcome.

This phenomenon is known as “regulatory capture” and is the process by which large companies use the government to help them eliminate competition and make higher profits than they otherwise would have.

My guess is that this is exactly what Wall Street expects to happen regarding gun control regulations.  Large players like Smith & Wesson and Ruger will be able to influence gun regulations and will be able to easily adapt to them.  But smaller companies will not, and the increased burden of regulation will make the industry less attractive to entrepreneurs, thus discouraging new entrants from competing.

So beware the media narrative that Obama and the big gun companies are bitter enemies, and don’t buy into the incredibly short-sighted analysis that short-term demand shifts leading to sales spikes are influencing stock prices in a major way.  Something else is going on here, and it’s the same story we’ve seen again and again throughout history.  The government is embarking on a massive scheme that will reduce competition and benefit a few large companies at the expense of everyone else.  Rather than heroically resisting the encroaching tyranny of the federal government, the gun companies are hoping to wield government force as a weapon against their competitors.  If you think they will succeed, these stocks are probably a good buy.  Otherwise, it’s a massive overreaction that will surely spell disaster for investors.

 

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