Wednesday, July 23, 2014

Piketty's Taxing the Rich More Heavily Doesn't Help Poor: Education Does

Thomas Piketty's New York Times best-selling book, Capital in the Twenty-First Century has created quite a stir among armchair economists, sociologists and politicians. Among Piketty's most embraced, rebuked and naïve recommendations for reducing income inequality is to raise income taxes on high income earners.

U.S. tax collection data since 1996 crush the soundness of this proposal. In 1996, taxpayers earning more than $200,000 paid an average tax rate three times that of workers making less than $50,000, and two times that of taxpayers earning between $50,000 and $200,000. By 2011, those making more than $200,000 paid almost seven times the average tax rate of taxpayers earning less than $50,000, and 2.5 times that of workers earning between $50,000 and $200,000.

Furthermore between 1996 and 2011, the bottom half of income earners' portion of total federal income tax collections dropped from approximately 10% to 2.5%. During this time period, the degree of income inequality rose as measured by the Gini Coefficient. The expansion in the U.S. Gini Coefficient from 39.3 in 1996 to 47.7 in 2011 indicates greater inequality.

If taxing the rich more heavily does not reduce income inequality, what does? Education!

In 2011, the ten states with the greatest degree of income equality had a high school graduation rate of 90.7% and the ten states with the greatest degree of inequality, had a much lower high school graduation rate of 59.1%. Furthermore, the latest U.S. employment data shows high school dropouts have an unemployment rate almost three times that of college graduates, and average annual earnings roughly 42.6% that of college graduates. Reduce income inequality, don't drop out!

Saturday, June 21, 2014

Cutting Coal Electricity Generation: More Costly for Red States

This month under provisions of the Clean Air Act, signed by Richard Nixon in 1970, President Obama proposed new carbon limits on electricity generation. The goal of his initiative is a 30 percent reduction of carbon emissions from electricity plants by 2030, three-fourths which come from coal usage.

The latest data from the Energy Information Agency show that residential electricity customers in the 25 states generating electricity from coal pay 20 percent less per kilowatt hour than customers in the 26 states and DC that use no coal in the production of electricity.

Furthermore, 11 of the 12 highest electricity cost states use no coal in the making of electricity. Data indicate that reducing coal's share of electricity production (from a national average of 28.3 percent to 20.0 percent) by expanding the share produced by renewable energy will increase the cost of electricity by approximately 19 percent. However, this increase in cost will not be shared evenly.

Blue states, those that placed their electoral votes for the Democrat presidential candidate in each of the last four elections, paid electricity prices 43.2 percent higher than states that voted Republican in the same four elections. Not surprisingly, 16 of the nation's 19 Blue states used no coal for electricity creation, while only 5 of 22 Red states used no coal for electricity production.

Purple states, those that split their electoral votes between Democrat and Republican presidential candidates, paid 23.3 percent more for electricity production than Red states, and 5 of the 10 Purple states use no coal in the generation of electricity.

Thus in addition to environmental and health concerns, the new policy interjects potential political issues into the President's announced policy.

High electricity price state with high coal usage (not were your want to be): Alabama, Alaska, Arizona, Colorado, Pennsylvania, Maryland, New Mexico.

Low electricity price state with low coal usage (this is were you want to be): Georgia, Idaho, Iowa, Nebraska, North Carolina, Oregon, South Dakota, Washington.

High electricity price with low coal usage: California, Connecticut,DC, Delaware, Hawaii, Maine, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, Rhode Island, South Carolina, Vermont, Wisconsin.

Low electricity price with high coal usage: Arkansas, Kansas, Kentucky, Illinois, Indiana, Louisiana, Ohio, Oklahoma, Mississippi, Missouri, Montana, North Dakota, Tennessee, Texas, Utah, Virginia, West Virginia,

Ernie Goss

Sunday, June 15, 2014

Boeing and Cantor Lose for Same Reason

Last week Eric Cantor lost an election and Boeing Company stock lost almost 5% in value. What do they have in common?

This is from my June newsletter (Goss Eggs section). "Once again Congressional Democrats and Republicans are bonding to advance bailouts for some of the nation’s biggest corporations (especially Boeing). This time it is funding for the Depression era relic, the Export-Import bank.

The bank hands out loans, capital and credit insurance to support U.S. firm’s sales abroad. Last year, the bank’s authorizations exceeded $27 billion. Why should the U.S. taxpayers guarantee loans that private lenders reject?" Ernie Goss

Wednesday, May 21, 2014

Taxpayer Bailouts Ahead for Insurance Companies and College Students

After Solendra, AIG, Fannie Mae, Freddie Mac, and General Motors picked the pockets of the U.S. taxpayer, two other groups are waddling over to feed at the public trough.

The first group, insurance companies. Section 1342 of the Affordable Care Act forces taxpayers to make insurers whole from losses they incur selling policies below costs on the ObamaCare exchanges through 2016. The government payouts are designed to hide the 2014 premium increases that would be required to support insurance companies that have enrolled too few young healthier citizens, and too many older, less healthy folks. Without the taxpayer bailouts which will require higher taxes or federal debt, insurance companies would have to raise more visible premiums to avoid large losses and/or bankruptcy.

The second looming and ominous rescue “victim” is the American college student whose debt has doubled to $1.1 trillion since 2007. By the end of 2013, enrollment in the plans—which allow students to rack up big debts and jettison the unpaid balance regardless of amount after a set time period— has surged to more than 40 million debtors. President Obama’s 2011 revised plan required student borrowers to pay only 10 percent a year of their discretionary income in monthly installments.

Under the plan, the unpaid balances for those working in the public sector (e.g. IRS) or for nonprofits (e.g. NORML) are forgiven after 10 years. As a result of federal government over feeding, universities have increased tuition at a rate twice that of medical care, and three times that of all consumer prices over the past decade. Next, watch for Pfizer, maker of Viagra, to be soliciting a bailout to straighten out its financing. Ernie Goss.

Thursday, April 17, 2014

State Aid Fuels Local Spending Growth and Higher Property Taxes

Politicians running for statewide office routinely promise to reduce property taxes, which are actually set at the local level by local officials.

Instead of focusing on the real problem, which is overspending at the local level, governors and legislators promise to increase state aid to local units anticipating that the funds will be used to limit the growth in property taxes and local spending. This approach has proved futile in terms of economic outcomes.

Between 2000 and 2011 as a share of gross domestic product (GDP), the 26 states that increased state aid to local government raised property taxes by a median of 0.31 percentage points while the 24 states that reduced state aid to local units expanded property taxes by a smaller 0.26 percentage points. Furthermore over the same time period, the same 26 states that increased state aid boosted local spending by 1.05 percentage points while the same 24 states that reduced state aid enlarged local spending by a smaller 0.27 percentage points.

Thus, past data show that not only did state aid not provide property tax relief, as customarily promised, property tax burdens and overall local spending actually rose more quickly for states that grew state aid more swiftly.

What should state policymakers do instead? States should limit the increase in state aid to local units to the growth local population plus the increase in prices. This action would tend to reduce state tax burdens and encourage local political leaders to limit growth in local spending.

Ernie Goss

Friday, March 14, 2014

Affordable Care Act, Social Security and Medicare: Shifting Income from Young to Old

More than 25 percent of the U.S. population (including President Obama) was born between 1946 and 1964. U.S. society has made, and continues to make, economic promises to these baby boomers that must be ultimately shouldered by the nation's youth. Not only are the 25 percenters leaving the workforce at very high rates (consuming instead of producing), they are draining the U.S. Treasury via higher Social Security (SS) benefits and greater Medicare spending.

Over the past decade, SS outlays soared by 70 percent and Medicare expenditures rocketed by 135 percent, enlarging the nation's debt to $16.5 trillion. This debt, which is the largest in the galaxy and more than 100 percent of GDP, will ultimately be paid by the 60 percenters (those born after 1964) via higher taxes.

Furthermore, the Affordable Care Act (ACA) is charging higher insurance rates for the young and healthy to subsidize the insurance coverage for citizens born before 1965 who tend to be less healthy. For example, Forbes estimates a 27-year-old male will sustain an insurance premium increase of 30 percent more than that faced by individuals over 64.

The U.S. should take steps to reduce this mammoth wealth transfer from young to old by:
Raising the SS retirement age 2 months per year until reaching 70 years of age;

1. Increasing the Medicare eligibility age from 65 to 67;
2. Cutting the yearly SS inflation adjustment; and
3. Adjusting ACA premiums for age, or likely health care costs.

By slowing the growth in SS and Medicare spending and by reducing ACA subsidies for older Americans, the U.S. would avoid the stagnation and looming tax burdens for the nation's youth.

In 2012, 40 percent of U.S. males ages 18 to 31 lived with their parents. Federal spending policy should help junior exit the basement, not exile even more of our youth to the cellar.

Ernie Goss

Wednesday, February 19, 2014

Can the Poor Afford Solar Energy? Low Income Consumers Baked by High Priced Alternative

Between 2008 and 2012, according to the Bureau of Labor Statistics, Americans making less than $20,000 increased the share of their paycheck going to cover utility and fuel bills from 25% to 29%. During this same period of time, Americans earning more than $70,000 decreased the proportion of their income spent on utilities and fuel from 5.4% to 5.0%.

That is, the percent of income devoted to utilities and fuel is significantly higher and rising for low income consumers, but substantially lower and falling for higher income consumers. At the same time, electricity generation by solar/wind grew by 73% but by fossil fuels declined by 4%. This occurred despite the fact that according to the U.S. Department of Energy, the costs of solar electricity generation is approximately double that of conventional coal and almost triple that of natural gas.

In addition to higher direct costs, all taxpayers are picking up the tab for the failure of solar energy companies. Federal tax supported Solyndra, Evergreen Aolar, and SpectraWatt filed for bankruptcy in August 2011 alone. In fact according to GTM Research, one-fifth of tax subsidized U.S. solar panel manufacturing folded as of August 2011.

Germany has demonstrated the folly of current U.S. solar policy. Despite 2013 renewable subsidies in Germany of 16 billion Euros ($21 billion), electricity prices have soared by 17% over the past 4 years. No wonder just last month, German Chancellor Angela Merkel backed a plan to cut German’s green energy subsidies while the U.S. moves steadfastly into the costly solar abyss.

Unfortunately, the U.S. taxpayer and consumer, especially those of low income, are getting scorched by the expansion of solar electricity generation with no end in sight.
Ernie Goss.