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Category: Taxation
Inequality in America II – Income, Taxation and Spending
Part II of our series, Inequality in America, focuses of inequality of income.
By: George Noga – May 8, 2016
There are numerous and mind-numbing statistical methods for calculating income inequality. The Census Bureau alone reports the Gini coefficient, Theil index and MLD (mean logarithmic deviation). Many of these statistics do indeed show more inequality now than in past decades; however, peeking inside the numbers is revealing. Note: Most data herein are from US Census Bureau and BLS reports published in 2013-2014.
By every measure extant, inequality rose more under Clinton than Reagan – Theil at double and MLD at triple the rate. The same is true with Obama’s first six years vs Bush 43. The Gini coefficient rose triple the rate under Obama; MLD rose 37% more; and Theil is up sharply while it fell under Bush 43. It is not a giant leap to deduce that most of the putative increase in income inequality results from progressive policies.
Despite all the esoteric statistics, we really know very little about income inequality because all the data are – to use a highly technical term – crapola! Every study is fatally flawed by inconsistencies and limitations affecting source data; the major flaws are:
- Statistics are based on AGI (adjusted gross income) and not on all income. Much income is not included in AGI, such as contributions to IRA and 401(k) plans. AGI excludes the non-taxable portion of Social Security, EITC, Medicare, Medicaid and SNAP. Every one of these, if included in AGI, would significantly reduce inequality.
- Data use household instead of individual income. This renders all comparisons between time periods and income quintiles meaningless because the number of people per household changes over time and also changes between quintiles. For example, the number of one-person households has sharply increased in recent years (mostly in the bottom income quintile) making it appear there is more inequality among households even though, in reality, there is much, much less inequality among individuals.
- Quintiles are inconsistent. The top quintile has 3.2 people per household whereas the bottom quintile has 1.7; the income in the top quintile must be spread among twice as many people as the bottom quintile. It also means there are 25 million more people in the top quintile versus the bottom. Use of household data paints a deeply flawed picture of increased inequality between income cohorts – inequality that doesn’t exist.
- Aggregate statistics don’t compare the same groups. Statistics showing inequality increasing over time don’t track the same people. New people (most poor immigrants) keep entering the back of the line, skewing all data downward. If they tracked the exact same people (and excluded new people), the data would show decreasing inequality.
Does our tax system result in inequality? In one word, no. The US has one of the most progressive tax regimens in the world. Even Social Security and Medicare are somewhat progressive when taking (as should be done) the benefits into account. Moreover, increasing marginal tax rates on the wealthy would not result in their paying more in taxes – a principle well documented and even codified in Hauser’s Law.
No discussion of income inequality would be complete without genuflecting to the so-called gender gap. However, economic analysis shows that the gap between incomes of men and women completely disappears when properly adjusting for level of education, type of degree, experience, hours worked and level of danger.
The Census Bureau also reports data on spending by income quintile. The lowest quintile spends $2 for every $1 of reported income. Some of this comes from the underground economy – which logically is the province mostly of that cohort. If we were to gauge inequality based on actual spending rather than on fatally flawed measures of income, the effect would be a signal decrease in inequality in America.
The next post in this series on May 15th addresses the $15 minimum wage.
Truths About Tax Inversions
Obama’s attack on tax inversions is nothing but liberal anti-business class warfare and demagoguery that caters to widespread ignorance and causes economic harm. |
By: George Noga – April 17, 2016
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A goal of the new MLLG blog is to be more responsive to current issues; in that spirit, this post addresses corporate tax inversions (such as the Pfizer-Allergan merger stymied by the Obama justice department) with a perspective you will not encounter elsewhere. Upcoming posts will focus on the $15 minimum wage and inequality in America including a comparison with Nordic countries – Sweden and Denmark. A tax inversion is the relocation of a US corporation’s headquarters to a lower tax nation (usually via merger with a foreign company) so that it “inverts”, i.e. becomes a foreign corporation for US tax purposes. The benefits to the inverting company are twofold: first, tax on income earned abroad is payable at the much lower foreign rate; second, foreign profits can be returned to the US without further taxation. Following are the principal truths you should know about corporate tax inversions.
As long as liberals remain in control, trillions of dollars will remain offshore and working Americans will continue to suffer low growth and wage stagnation. All this damage accrues solely because Obama chooses to flog imaginary enemies for perceived political gain while failing to deal with the real problems facing America. The next post is April 24th and begins our series: Inequality in America. |
What You Should Know about Tax Inversions
“Don’t tax me; don’t tax thee; tax the man behind the tree.”
Just Who is Debbie Bosanke – And Why Has She Become the Poster Lady for Obama?
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By: George Noga – February 21, 2012
Dear Readers:
For only the second time ever, I eschew the standard format to write more personally and directly. I have invested many hours researching this posting; if you stick with me to the end, you will be rewarded with an inimitable analysis and perspective.
Debbie Bosanke, for those of you not exposed to the White House and media spin machine, is Warren Buffet’s secretary, she who putatively pays a lower tax rate than her famous boss. President Obama is using her as an unwitting shill in his neutron bomb class warfare strategy to raise taxes to fund his hell-on-earth social welfare state. Never have I seen any issue so grotesquely demagogued, distorted, dishonest and deceptive. Consider the naked facts.
Buffet asserts he paid 17.4% in federal income tax. Although that isolated datum may be true, it is meant to dupe and hoodwink. Following is a fair and accurate calculation of Buffet’s real tax rate computed using the lingua franca of taxes by tracing a tranche of Buffet’s income through a complete tax cycle involving the following five stages.
- Before Buffet can invest, he must earn income. At the start of the cycle he earns $1 million on which he pays federal income tax of 39.6%, social security of 6.2%, Medicare of 2.9% and Nebraska tax of 6.84%. He pays $483,000 in total tax which is an effective rate of 48.3% after allowing for the deductibility of state tax.
- Buffet now takes $500,000 after tax which he uses to buy stock in a corporation. His investment is successful and the company earns 16% pretax profit for each of the next ten years. His share of the company’s income is $80,000 per year on which he (through the company) pays 35% federal tax and 7.81% Nebraska tax. The effective rate is 40.1% and Buffet pays $320,800 over the ten years.
- The company pays a 5% dividend annually; on Buffet’s share, this is $4,000. The dividend is taxed at 15% federal and 6.68% state. Over 10 years he pays $8,280.
- A decade has passed and Buffet decides to sell. Based on the aforementioned earnings and taxes paid, he nets a gain of $340,000. This is subject to a capital gains tax of 15% federal and 6.68% Nebraska. His total tax bill is $70,380.
- When Warren dies, he will be subject to federal estate tax of 35% and Nebraska inheritance tax which ranges from 1% to 18% – I have assumed 9% herein; this amounts to $379,600 based solely on the data for this tranche of income.
Buffet’s True Tax Rate is 70% in 2012 – Increasing to 80% in 2013
Buffet’s true tax rate is over 70% on this tranche of income over the entire cycle of earning, investing and leaving an estate. During the 10-year period Buffet had $1 million in individual earnings and $800,000 via his share of corporate income resulting in total income of $1.8 million; on that amount, he paid taxes of $1,262,100 – or 70.1% and not the 17.4% alleged. His reported 17.4% tax rate was based solely on step 4 of the above 5 steps, i.e. only on a single part of the cycle. His real tax rate is over four times (400%) higher than he claimed.
All this is based on current tax law for 2012. I also computed Buffet’s tax rate based on current law for 2013 and it is over 80% due to the statutory rise in estate taxes and the new 3.8% ObamaCare tax. I excluded federal and state unemployment tax, property tax, sales tax and over 20 other taxes Buffet would have paid. Moreover, if Buffet would have lost money on his stock, it would have be deductible only up to $3,000 per year.
And let’s not forget Debbie Bosanke. She shamelessly is being used as a surrogate for secretaries everywhere – the kind that works in your office and earns say $20,000 and pays little or no taxes. Bosanke hardly fits that bill. Based on the limited tax data she released, her income is at least $200,000 and could be as high as $500,000, anywhere from 10 to 25 times the earnings of a typical secretary. Bosanke’s income is inferred based on published IRS data on tax rates by adjusted gross income. Neither Buffet nor Bosanke has released their tax returns.
An Ignoble, Sordid and Squalid Spectacle
I can’t recall anything in my lifetime approaching the sheer chutzpah of the Obama-Buffet-Bosanke spectacle. It transcends political spin and crosses into a netherworld of intentional lie and deception; it froths with contempt for the American people.
- They assert Buffet’s tax rate is 17.4% when they know it is over 70% and rising to over 80% next year. They know Bosanke’s income is 10-25 times that of a typical secretary. They extract datum from only one part of the five-part tax cycle. All this is done with malice aforethought and intended to deceive and divide America.
- The President of the United States and one of the richest men on the planet jointly propagated this massive fraud and deception knowing they could count on the state sycophant media not to expose them.
- And just when you thought they couldn’t get any more scumlike, the bottom-feeding state sycophant media are flogging this deceit for all it’s worth. Even if they wished, they couldn’t get this story right because they graduate in the bottom deciles and their IQs are at least one standard deviation to the left of the norm.
- Was this hoax the price of Buffet’s recently awarded Presidential Medal of Freedom? Buffet should be shamed into returning the medal and his otherwise good reputation has been forever sullied. Also, shame on him for dragging Debbie Bosanke into this squalid affair and for using her as an unwitting political pawn.
- Perhaps the most sordid part of all this is that Obama is cynically banking on the ignorance and class envy of the American people due in part to the complexity of the tax code and his incendiary class warfare rhetoric. He is a divider, not a uniter.
The only antidote I know is to shine the spotlight of truth on this ignoble affair. In that regard, please be assured the tax data presented herein are accurate and fair as is the entire analysis. Please help me by forwarding this to as many as possible. Thank you.