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Posts Tagged ‘federal budget’

A Beer Story: Tax Cuts for the Wealthy

Posted by Tony Listi on March 21, 2008

The wealthy pay most of the taxes, so it should be no surprised that they get a larger percentage of the tax cut total back!  It is only fair. 

——

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,’declared the sixth man. He pointed to the tenth man,’ but he got $10!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’

‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia

Posted in American Culture, Budget, Spending, and Taxes, Economics, Government and Politics, Poverty | Tagged: , , , , , , , , , | 24 Comments »

Farm Subsidies: Welfare That Resists Reform

Posted by Tony Listi on November 6, 2007

As a traditionally agricultural school, this is something all Aggies need to think about. A&M receives a lot of funding from govt., both state and federal, but I think this is wrong and harmful in the long run, no matter where the money goes. 

http://www.ibdeditorials.com/IBDArticles.aspx?id=278893934599144  

By VICTOR DAVIS HANSON | Posted Friday, November 02, 2007 4:30 PM PT

The House in July passed another five-year, multibillion-dollar farm support bill. The Senate now has its own version under discussion. And we can probably expect that the compromise bill that passes will be at least the $286 billion allotted by the House.

Here we go again with payouts that have neither logic nor morality.

The farm subsidy program currently in place pays out over $7 billion directly to larger farmers for a few select crops like corn, cotton, rice, soy and wheat. But it pays nothing to most other — often smaller — farmers of fresh fruit and vegetables.

Yet the former group of farmers is hardly in more need of welfare than the latter. And soy or rice isn’t more critical to the American diet than fresh fruit and vegetables.

Federal farm bills originated in Depression-era America when commodity prices crashed, forcing tens of millions of bankrupt small farmers to turn to the federal government to survive.

But that’s ancient history. Today’s corporate farm is about as similar to a 1930s homestead as a massive air-conditioned tractor combine is to a team of horses.

In the last two years, farmland and produce prices have soared. They are likely to remain high as newly affluent populations in India, China and much of Asia have the cash to import American food on a massive scale.

Anxiety Relief

These farm giveaway bills are always justified by promising to ensure Americans inexpensive food, the survival of family farmers and national agricultural independence. But the opposite has occurred. Consumer food prices are rising each year. There have never been fewer family farmers. And in terms of gross sales, the nation is importing almost as much food as it exports.

Recall the embarrassing history of recent farm bills. The 1996 Freedom to Farm Act made a deal with subsidized farmers: They still got federal crop support money regardless of how much acreage they planted or the market prices they received for their harvests. In exchange, growers finally agreed to be weaned off government money over seven years.

That promise was broken. Once the cutoff date neared, big producers panicked that they might have to live up to their end of the 1996 bargain.

In the general anxiety following 9/11, fresh excuses for farm subsidies were cooked up — with the buzzword word “security” included in the title of the new bill. So the Farm Security and Rural Investment Act passed in 2002, and now again a new farm bill is up for consideration.

What will be the excuse for passing this 2008 bill? More promises to quit in several years? Increased worries over terror?

Apparently, this time the angle is ensuring “alternate fuels” in the form of grain-based ethanol. But ethanol isn’t the panacea it’s made out to be.

Along with the energy consumed to make ethanol, the switch over to millions of acres to corn fuel production has already meant crop shortages and high returns to farmers, from cotton to wheat and soy. And if we really want ethanol to supplant gas, it would be far cheaper to let Brazil export us sugar-based ethanol without high tariffs.

To The Wealthy

The result is that 21st-century prospering farmers have absolutely no need for this federal relic. Republicans should disavow the program on the grounds it goes against their professed creed of free markets, self-reliance and small government.

Democrats have even less reason to vote for these big giveaways to large and often corporate farms — two-thirds of the direct payouts going to the wealthiest 10% of growers. Isn’t corporate welfare at odds with the little-guy, egalitarian concerns of traditional liberals?

If these farm bills are illogical and contrary to the beliefs of both parties, why then do they continue?

Hint: They seem to be passed in election years — 1996, 2002 and soon 2008. While few farmers are left, a lot of farm senators and congressional representatives still exist — as well as electoral votes in a dozen key rural states.

Agribusiness lobbyists fund politicians’ campaigns. In return, grateful politicians promise donors someone else’s federal dollars. Then both groups think up creative ways to keep the money rolling in.

The $280 billion-plus farm bill is not the largest waste of federal funds, but it is the most unnecessary — and dishonest.

We are running federal budget deficits — this year’s is about the size of the proposed multiyear farm bill — and are engaged in two costly wars in Afghanistan and Iraq, and spending billions in anti-terrorist security at home.

So why also give away more billions to the affluent of an industry that, overall, is doing quite well?

The shameful thing is not that the farm bill will probably pass, but that it was even introduced.

© 2007 TRIBUNE MEDIA SERVICES, INC.

Posted in Budget, Spending, and Taxes, Farm Subsidies, Government and Politics | Tagged: , , , | 4 Comments »

THE SHRINKING DEFICIT

Posted by Tony Listi on October 9, 2007

The Congressional Budget Office (CBO) has released its preliminary estimates for Fiscal Year 2007 that ended September 30, and the federal budget deficit fell again, this time by 35 percent to $161 billion, says the Wall Street Journal.

There’s more:

  • Since 2004, deficit spending has tumbled by $251 billion, which is one of the most rapid three-year declines in U.S. history.
  • The deficit as a share of the economy is down to 1.2 percent or about half the average of the last 50 years.
  • This improvement is especially remarkable given the $150 to $200 billion a year of post-9/11 expenses for homeland security and the wars in Iraq and Afghanistan.

Moreover:

  • Americans coughed up a record $2.568 trillion in taxes to the IRS in 2007, or 6.7 percent more than in 2006.
  • This means federal receipts have climbed by $785 billion since the 2003 investment tax cuts, the largest four-year revenue increase in U.S. history.
  • Income, dividend and capital gains tax rates were all cut in 2003, but individual income tax receipts have soared by 46.3 percent in four years, with payments by the wealthy accounting for most of the windfall.
  • Last year’s increase in individual income payments was 11.3 percent, or more than double the rate of growth in nominal GDP.

The overriding lesson here is that the best antidote for deficits is faster growth, not tax increases.  The budget deficit has declined more rapidly this decade in the wake of the Bush tax cuts than it did in the 1990s in the wake of the Clinton tax increases.  CBO is still forecasting a balanced budget in 2010, but if Congress gets its way on spending and taxes, all of this progress will be short-lived, says the Journal.

Source: Editorial, “The Shrinking Deficit,” Wall Street Journal, October 9, 2007.

For text:

http://online.wsj.com/article/SB119189497675953035.html

For more on Economic Issues:

http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

Posted in Budget, Spending, and Taxes, Government and Politics | Tagged: , , | Leave a Comment »

 
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