Words have meanings Ms. Maddow

When you, yes you, Ms. Rachael Maddow, have a nationally syndicated television show, and you want to talk about the news and economics, you better know the meaning of words.

 She graduated college with a doctorate from Oxford...
Must be some British diploma mill...

Tonight she compared the combined net worth of the Koch Brothers (combined net worth of $50 billion) with the gross domestic product [GDP] of several nations. She declared "the Koch brothers have more money than..." those nations, as a list of several countries crossed the screen.

That simply isn't true. As it turns out, Rachael Maddow doesn't know the meaning of "Net Worth" or "Gross Domestic Product."

Gross domestic product is the final market value of all goods and services produced within a nation in a single year. Net worth is the total market value of all assets less liabilities. Assets include cash but also includes stock, bonds, and other things like homes. Liabilities are your debts.

In other words, net worth is the value of what you have accumulated over your lifetime, less debts. GDP is the value of what is produced in a single year.

 Rachael, buy one, you can afford it!

Notice she's comparing the value of what is produced to the value of assets less liabilities. She is making an apples to oranges comparison - it is nonsensical, illogical and wrong. It is like comparing the value of all Ford cars produced in 2011 with your retirement portfolio and house. Take note, Ford will produce another batch of cars next year and you will most likely have the same retirement portfolio and home (which may or may not have gone up in value).

In no way, shape, or form, is she actually comparing who has more cash (especially since the Koch brothers don't even have $50 billion in cash as most of their net worth is in the value of their family company and stocks they own - both of which only hold value so long as people are willing to buy the products their companies create).

To make an accurate comparison she would have to compare the Koch's $50 billion combined net worth with all the stocks, bonds, cash, value of homes, etc of every person within each of those countries. She didn't do that.

Words have meanings - apparently Maddow didn't learn the meaning of these two words at Oxford or in the real world.

Hey Kate Marshall: Keep talking!

Patrick Coolican, a columnist for the Las Vegas Sun, isn't happy about Kate Marshall (D) running for Congress. She blames the payroll tax for at least a portion of Nevada's unemployment problems. She's also not in favor of the government taking on massive amounts of debt. Best of all, she seems more interested in finding ways for government to become more efficient and effective rather than finding new ways to plunder the people. In other words, Kate Marshall fails Cooligans litmus test for Democrats.

This is ironic considering the Las Vegas Sun spent considerable amount of editorial retail space attacking Nevada Republicans for their "no tax hike" litmus test. Apparently Democrats have to be equally as rigid...expect in the opposite direction - tax, tax, tax! It's like Coolican never heard of a guy named Bill Clinton, a Democrat who oversaw reductions in U.S. trade tariffs, tax cuts in 1997 (yes, Dems seem to forget about those), welfare reform and a reduction in government deficits because of budget cuts that resulted in a budget surplus.

Cooligans errors and omissions are bigger than this alone. Lets review:

Criticizing Marshall's vocabulary, Cooligan writes,

To begin with, anyone who uses the nonword “disincent” should be disqualified from being in Congress.

Well, "disincent" is not a nonword. It is MBA/Economist jargon meaning the opposite of the word of incent. You can also use it as disincentivize or disincentive which is the opposite of incentivize and incentive respectively  So to begin with, maybe any journalist who doesn't know economic jargon should be disqualified from writing about economics.

Attacking her as being not Democrat enough, Coolican has to quote Mark Amodei; her Republican opponent. Kate Marshall correctly attacks Nevada's payroll tax as a disincentive (there's that WORD again!) toward hiring workers. She's right. Nevada's payroll tax takes a percentage of every dollar earned by every employee. In other words, the more people you hire and the more you pay each employee the more taxes you will pay. It's a stupid tax.

Amodei's rebuttal, "I can point to nothing more significant than five years of phenomenal growth and prosperity after [the tax increase]," is asinine. Marshall's point is the payroll tax reduces employment and Amodei's rebuttal (and Cooligan's reliance on it) does not negate that point. He only says: we had a few good years before the bottom fell out. It is very well likely that the payroll tax discouraged employment in the good times too, but is now exacerbated by the poor economic situation.

To demonstrate how asinine Coolican's thinking is, lets examine the Bush Tax cuts which Coolican blames on our current revenue position. Both cuts were enacted in 2001 and 2003 but the economy grew will into 2007. Government tax revenues also grew from $2.3 billion in 2000 to $2.4 billion in 2007 (in constant 2005 dollar values). According to the same logic Coolican uses to criticize Marshall, shouldn't we see years of declining revenue after the tax cuts...even in good times?

Anyway..

Next, Coolican shows he isn't really interested in the creative, outside the box thinking Nevada's government really needs. No, Coolican prefers doing the same thing over and over and over again - raise taxes! Cooligan writes,

Marshall says she would have voted no [on the tax increase], the only Democrat standing with Sharron Angle to take a butcher knife to schools and social services. Oh no, excuse me, she would “drive down costs in other ways and spend smarter.” Please.

Think about this for a moment! Have Democrats written "thou shalt always raise taxes" into stone?  This isn't critical thinking. We need more Democrats like Kate Marshall! Democrats trying to find how to effectively use the resources we already have, rather than providing the brain dead retort of "raise taxes!!!"

Coolican's central fallacy here is that he assumes every dollar the government spent last year was effective and efficiently spent. That is pure and utter nonsense, but this is what he implies every time he argues for another tax increase or criticizes someone who wants to look for savings with government spending.

Next Coolican demonstrates the ignorance on government budgeting the way only a journalist could. (The Las Vegas Sun has been notoriously bad on budget issues in the past). Without the tax increases back in 03-04, Nevada would have needed to cut a meager $100 million or so. Not a big deal over the course of 2 years. But because of the tax increases on top of an economic bubble, the Nevada state government threw themselves into a wild spending bender. In fact, thanks to the "small tax increase" the state government collected and spent over $1 billion extra...in a single biennium.

*Figures sent to me by Andrew Clinger during the Gibbons administration back in 2009.

$1 billion extra, it turns out, we wouldn't have when the economy stalled. Our state leaders - led by more brain dead thinkers - raised taxes again to keep the spending bender going.

If Democrats had been as thoughtful as Kate Marshall we wouldn't have spent our way into this mess in the first place!

Next, Coolicans claim that the stimulus packages worked and would have worked better if they had been bigger is laughable at best. There is simply NO evidence that it worked and NO evidence that it would have worked it if was bigger.  The stimulus (under both Bush and Obama) are widely regarded as failures. The federal government uses ridiculous and non-empirical methodology "saved or created" which is nonsensical to any rational and empirically minded American.

Coolican makes enough logical and economic errors in the article to write a book but I will finish off when his last and biggest error. He writes,

Another interesting fact: As a percentage of gross domestic product — in other words, the portion of our total national income — total federal, state and local taxes are the lowest they’ve been in more than 60 years, according to one-time Reagan economist Bruce Bartlett. 

If low taxes are the answer, why aren’t we swimming in good times?"

The problem is that Bartlett is being disingenuous (he knows better) and it is clear Coolican doesn't know economic terms, not that we have low taxes.

Our government spends more today than during WWII

According to the Mercatus Center at the George Mason University combined U.S., state and local government spending as a percentage of GDP is higher today than during the middle of World War II. That is simply stunning. We have big government today, not little government.

Of course, Coolican and Barlett are only talking about federal tax revenues, not what is actually spent by all government. It is true that Federal revenues as a percentage of GDP at the lowest point in some 60 years but there are two central problems with this statement.

1) By definition Gross Domestic Product (GDP) includes government spending. So when government spending increases so does the GDP - this does not mean the economy is improving however. Basically Barlett and Coolican are wanting you to look at revenues as a percentage of GDP without looking at the actual spending, which by definition is part of GDP. In otherwords they're misleading you (its likely Coolican doesn't meant to do this on purpose).

From the Tax Policy Center at the Brookings Institution.
Adjusted for inflation to 2005 dollars.

The important number is how much government spends, not what it collects in tax revenue. Since the high point in 2007 Federal revenues have fallen 21.2 percent. However, government spending has increased 30.3 percent! Every dollar the government borrows is a dollar that can't be borrowed and spent by the private sector. Nothing is really added to the economy although GDP rises or his held steady by the government spending (again only because of how GDP is defined not necessarily because government spending works).

2) Even ignoring state and local spending, Federal government spending is way up! According to the left-of-center Tax Policy Center at the Brookings Institution, Federal outlays (spending) as a percentage of GDP is at its highest point since 1945! Today, the Federal government spends 25.3 percent of the GDP, higher than in 1946.

Yes Mr. Coolican, government spending is up, not down. We have a spending problem and we need critical thinkers like Kate Marshall who are willing to look for ways to get government to work smarter not tax more.

Jobs, Jobs, Jobs

By now it should be clear that Obama is a buffoon on par with George Bush II.

Forget about starting his own war, condoning torture, killing civilians, approving political assassinations, and continuing the drug war (despite promises to end it) which continues to devastate minority communities. For three years he's talked about creating jobs and stimulus after stimulus he fails.

History will remember him as George Bush III

Reason Magazine has done a great job pointing out all the instances Obama has talked about creating jobs. Now Obama is acting as if its his number one priority and he's never given it the "old college try" till now. In reality, only the most faithful of Democrat  cheerleaders zombies party members will buy that load of BS (unfortunately there is a lot of those). They should be ridiculed with as much scorn as the Bush supporters who thought Bush was pro limited government, pro market and a capitalist.

I'm pretty certain at this point there is nothing Obama can say or do that will turn things around. But what can Nevada do to improve its own poor jobs situation?

This is where we are today - 

our leadership has tried everything but getting out of the way

Back in July, Nevada's unemployment increased from 12.4 percent to 12.9 percent. Was this just a hiccup or a new trend of continuing economic stagnation in the Silver State? I'm not sure, but we'll find out soon. 12.9 percent is worst in the nation but it is a large decline from the 14.9 percent that ravaged the silver state for 9 straight months in 2010.

But don't celebrate too fast, the bulk of the decline in unemployment stems from the fact that roughly 40,000 laborers have either left the state over the last year or given up looking for jobs all together. The situation is so bad that our labor force is about the same size as it was back in September 2007 - 4 years ago - but with 171 percent more unemployed people!!!!

Here are three simple things Nevada's government can do to create jobs:

1) Eliminate the minimum wage - at least for young people. Nevada's minimum wage is $1 per hour higher than the national average. Unemployment among the young is high and astronomically high if you're an African American or Hispanic teenager (one in three are unemployed nationwide). The fact is, the minimum wage creates unemployment. We can't afford that, neither can the unemployed.

2) Eliminate the business license fee - its $200. That sounds like a small sum, but Nevada charges that fee to small businesses, home-based businesses, and big businesses alike. Think about this for a moment. Want to be your own boss and start your own company? Nevada charges you a fee for creating your own job and jobs for other people! That is just stupid! Nevada collects $60 million from this fee during the biennium - that is another 1,000 potential $30,000 a year jobs.

3) Eliminate the modified business tax. The MBT is perhaps the single dumbest tax you can have if your goal is to create jobs. The MBT takes 0.63 percent of every dollar earned by every employee. In other words, the more people you hire and the more you pay each employee the more taxes you pay. Democrats are FINALLY coming around and realizing how destructive this tax really is...but they just want to replace it with another job killing margins tax (which taxes on gross revenue). Nevada is expecting to collect $298 million from the payroll tax this biennium - that is enough to cover the wages of 4,967 new jobs at $30,000 a year!

There are even a number of useless government programs that could be cut to pay for these tax reductions - eliminating class size reduction and pay bonuses for teachers with extra degrees alone would save the state over $400 million a year with zero damage to students. If you don't want to touch K-12 education then take the money from higher education which has become more of a drain on Nevada's economy than anything else. Seriously, what else spends $25,000 + per student but can only succeed less than half the time at producing an educated graduate? A: UNLV and UNR.

This is by no means an exhaustive list - there are lots of things the government can do. But most of what the government can do is having the government cut taxes and step out of the way and let the market start creating jobs and building new wealth.

Warren Buffett is wrong and so are you

Warren Buffett may genuinely believe that paying more taxes is the right thing to do. I don't know, I'm not a mind reader. But it is also likely he says this because he only wants to pretend he cares. After all, he could donate his wealth to the government or to those in need...right now...rather then when he's dead and no longer has a use for it.

It is also a possibility that he's advocating higher personal income taxes and higher capital gains taxes to protect the wealth he's already accumulated. One of the best ways to protect your wealth is to make sure there isn't competition and that means taking the income from others that could be used to create new wealth. After all, he's not actually advocating a tax on wealth - just income, however earned.

Again, I don't know Buffett's motivations... I just know he's wrong.

Defending Warren Buffett's claim that his receptionist pays more as a percentage of her income in taxes than he does, Gerald Swanson (a self proclaimed former employee at the U.S. Treasury) writes in the Reno Gazette Journal,

Tax on capital is 15 percent. Earned income: W-2 wages are taxed 15.3 percent (Social Security/Medicare) and income tax 10 percent to 35 percent. Combined tax on earned income at lowest level is 15.3 plus 10 equals 25.3 percent, and tax at the top marginal rate is 15.3 plus 35 equals 50.3 percent. 

Earned income is taxed more than three times as much as capital.

First, the capital gains tax is in fact 15 percent on income earned from dividends. Dividends are a share of the profits paid out to shareholders of corporations. However, dividends are paid on post-tax profits. The corporate income tax in the United States goes as high as 38 percent. In other words, the corporation pays an income tax then hands a portion of the profits over to shareholders who turn around and pay yet more taxes on the income.

Second, Gerald's math is rather ironic. The payroll tax is indeed 15.3 percent if you employ yourself. If you are employed by someone else then you pay 7.65 percent of your income and the employer pays the other half. Technically, the employee sees their income drop by 15.3 percent. Additionally, the bulk of this tax only occurs on about the first $105,000 of income. Of course, Gerald ignores this in his math.

That said, you don't assume a total personal income for the receptionist of $30,000 and a 15.3 percent payroll tax, because the payroll tax is actually 7.65 percent of her income. The other half is paid by the employer. If Gerald wants to use the 15.3 percent combined individual and employer contributions on the payroll tax he has got to add that employer contribution back into the receptionists income. He doesn't do that, he just ignores it on order to overstate the taxes she might pay.

Quick, cover your ears, don't listen to this Buffett!

Third - math time. Gerald argues that the combined payroll tax and top marginal tax rate (note Gerald ignores the $3,700 single exemptions, $5,800 standard deduction and the fact that the payroll tax falls to 2.9 percent after the first $105,000 of income) = 50.3 percent. He concludes this is 3 times higher than the capital gains tax. But when you take into account the capital gains is double taxed (once as a corporate profit and again as a capital gain) then the tax is 53 percent.

In other words, the capital gain could be as high as 53 percent while the $30,000 a year receptionist pays 25 percent - less deductions. That said, doing the taxes properly  (assuming she's single and has no dependents) means the receptionist would actually be paying about 18.7 percent of her income in taxes plus the employers contribution of the payroll tax.

Next, Warren Buffett isn't talking about a wealth tax, as Gerald seems to imply. Warren Buffett is talking about increasing personal income taxes and capital gains taxes. A capital gains tax is not a tax on accumulated wealth (the billions Warren Buffett already has) but rather the millions he makes from the billions he owns. This is why I'm suspicious of Mr. Buffett - he's already made it and by increasing taxes it makes it harder for others to challenge him or his empire. I could be entirely wrong, but this is a red flag for me.

Ah...a Buffett you can listen to without regret.

Next, in regards to deferring capital gains. I'm no tax expert - and by this point it should be clear Gerald Swanson isn't either. While it is possible to defer capital gains indefinitely, deferring the gains is not without its own costs. For example, one way to defer your capital gains tax is to lose money on other investments. Warren Buffett took some major losses in this recession so its easy to see why his capital gains tax would be lower than otherwise. It also isn't a surprise he's pro corporate bailout either. Another  way to defer capital gains is to make large contributions to charitable trusts. If you'd like to learn more talk to a CPA or a tax lawyer...just don't talk to Gerald Swanson.

Finally, the only reason Warren Buffett may pay less taxes as a percentage of his overall income is only because he a) misleads the public in regards to double taxation of capital gains income and/or 2) he pays CPAs and tax lawyers to keep his tax burden low.

UPDATE: Included the deduction and exemption amount and made a proper tax calculation that more accurately reflects what the receptionist might pay.

Texas and Taxes

Texas is booming! More jobs are created in the Lone Star State than in any other state in the Union. Texas also boasts Rick Perry who, for better or worse (probably worse), is the leading Republican candidate for President at this time. However, the "Texas Miracle" is slightly tarnished. You see, Texas implemented a gross receipts tax (a tax on revenue regardless of whether your company makes a profit). They call it a margins tax because it has certain exemptions unlike a traditional gross receipts tax. In other words it has none of the advantages of a gross receipts tax (simplicity) and all of the disadvantages of a corporate income tax (it is complex, unpredictable and unstable).

Tax and spend liberals are taking notice. John Oceguera and Steven Horsford (both leading Nevada Democrats) want to copy this tax and impose it on Nevada.

David McGrath Schwartz over at the Las Vegas Sun writes,

A favorite tax of Nevada liberals and pro-revenue business executives — a “margin tax” — is patterned after one passed by Texas lawmakers with the conservative Republican’s support. 

Opponents of such a tax in Nevada — conservative Republicans most likely to support Perry — could be forced into pretzellike contortions: supporting Perry, while railing that a tax like he helped adopt in Texas would kill jobs in Nevada.

David thinks it would be contradictory to support Rick Perry and point to the State of Texas while also opposing the gross receipts tax proposed by Horsford and Oceguera.

Not so fast David; it's time to put your thinking cap on!

David, like many other tax and spend advocates journalists, isn't looking at the big picture. He simply sees A) Texas raised taxes B) Texas created a gross receipts tax and C) Texas has the fastest growing economy in the nation. David therefore concludes that anyone who opposes tax increases as a job killer must therefore be wrong or contradicting themselves.

This isn't deep thinking.

David is simply looking at one tax and forgetting about all the rest (this is a consistent problem with Nevada journalists). Importantly, he's forgetting to look at how many tax dollars the government consumes overall.

To keep things simple lets look at tax collection data from the left-of-center Brookings Institution (please note, Brian Greenspun - David's own boss - is a board member). According to the Brookings Institution, Nevada's total tax collection per capita (that is the total amount of taxes collected from all sources divided by the total number of residents) ranks Nevada 24th in the nation. Texas, on the other hand, ranks 36th!

Nevada collects about $500 more per resident than Texas. So despite the gross receipts tax increase, Texas still has a lower tax burden. In other words, you can attack the Horsford and Oceguera's gross receipts tax plan and celebrate the Texas miracle at the same time.

Just note the major caveat - Texas would PROBABLY be doing even better if they didn't have that gross receipts tax.