Wintery Knight

…integrating Christian faith and knowledge in the public square

Jay Richards: How to end poverty in 10 tough steps

I saw that Stand to Reason’s Amy Hall blogged about a new lecture by Jay Richards, a Christian expert in economics. Amy linked to this post by Justin Taylor which summarizes the talk (above).

Summary:

  1. Establish and maintain the rule of law.
  2. Focus the jurisdiction of government on maintaining the rule of law, and limit its jurisdiction over the economy and the institutions of civil society.
  3. Implement a formal property system with consistent and accessible means for securing a clear title to property one owns.
  4. Encourage economic freedom: Allow people to trade goods and services unencumbered by tariffs, subsidies, price controls, undue regulation, and restrictive immigration policies.
  5. Encourage stable families and other important private institutions that mediate between the individual and the state.
  6. Encourage belief in the truth that the universe is purposeful and makes sense.
  7. Encourage the right cultural mores—orientation to the future and the belief that progress but not utopia is possible in this life; willingness to save and delay gratification; willingness to risk, to respect the rights and property of others, to be diligent, to be thrifty.
  8. Instill a proper understanding of the nature of wealth and poverty—that wealth is created, that free trade is win-win, that risk is essential to enterprise, that trade-offs are unavoidable, that the success of others need not come at your expense, and that you can pursue legitimate self-interest and the common good at the same time.
  9. Focus on your comparative advantage rather than protecting what used to be your competitive advantage.
  10. Work hard.

I’m currently working my way through Money, Greed and God with a friend, and we are going through it chapter by chapter. If you don’t have the book, it’s a perfect introduction to economics and how it relates to the Christian worldview. I always encourage Christians to move beyond good intentions to good results by studying economics. We are supposed to be helping the poor, but how should we do it? Economics is the science that allows us to understand which policies we should support to do that.

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Questions for proponents of government-controlled redistribution of wealth

George Mason University economist Donald Boudreaux wrote a couple of articles asking people who complain about income inequality whether their solution of letting government redistribute wealth from some people to others makes sense. After he is done asking his questions, I am going to complain a little about what it is like to study hard things and do hard work

In the first article, he asked a series of questions to the wealth redistributers.

Here were a few that caught my eye:

Do you teach your children to envy what other children have? Do you encourage your children to form gangs with their playmates to “redistribute” toys away from richer kids on the schoolyard toward kids not so rich? If not, what reason have you to suppose that envy and “redistribution” become acceptable when carried out on a large scale by government?

Suppose that Jones chooses a career as a poet. Jones treasures the time he spends walking in the woods and strolling city streets in leisurely reflection; his reflections lead him to write poetry critical of capitalist materialism. Working as a poet, Jones earns $20,000 annually. Smith chooses a career as an emergency-room physician. She works an average of 60 hours weekly and seldom takes a vacation. Her annual salary is $400,000. Is this “distribution” of income unfair? Is Smith responsible for Jones’ relatively low salary? Does Smith owe Jones money? If so, how much? And what is the formula you use to determine Smith’s debt to Jones?

While Dr. Smith earns more money than does poet Jones, poet Jones earns more leisure than does Dr. Smith. Do you believe leisure has value to those who possess it? If so, are you disturbed by the inequality of leisure that separates leisure-rich Jones from leisure-poor Smith? Do you advocate policies to “redistribute” leisure from Jones to Smith — say, by forcing Jones to wash Smith’s dinner dishes or to chauffeur Smith to and from work? If not, why not?

In the second article, he had even more questions for the wealth redistributers.

Here are the two that I liked best:

When you describe growing income inequality in the United States, you typically look only at the incomes of the rich before they pay taxes and at the incomes of the poor before they receive noncash transfers from government such as food stamps, Medicare and Medicaid. You also ignore noncash transfers that the poor receive from private charities. Why? If you’re trying to determine whether or not more income redistribution is warranted, doesn’t it make more sense to look at income differences after the rich have paid their taxes and after the poor have received all of their benefits from government and private sources?

Do you not share Thomas Sowell’s concern that efforts to “de-concentrate” incomes among the people require concentrating power among the politicians? Asked differently, if you worry that abuses of power are encouraged by concentrations of income, shouldn’t you worry even more that abuses of power are encouraged by concentrations of power?

Mark Perry of AEI saw this column, and he had two more questions.

Many extremely wealthy people (movie stars, celebrities like Oprah, businessmen like Warren Buffet, filmmaker Michael Moore, and Robert Reich for example) who are in America’s “top 1%” by income (some are easily in the top 1/0 of 1%), often complain about income and wealth inequality in America. And yet these wealthy individuals rarely take any direct actions themselves that could reduce income inequality immediately, e.g. giving away a majority of their multi-million dollar annual salaries and unburdening themselves of millions of dollars of their wealth (stocks, real estate, cars, airplanes, etc.) and living on a modest, but still very comfortable incomes of say, $200,000 per year. Isn’t it inconsistent that most of these individuals hoard a majority of their income and wealth to live lavishly without taking immediate steps to redistribute their largess to those less fortunate and reduce the income/wealth inequality they complain about?  If not, why?

Many Americans express great concern about income inequality in the United States, but seem relatively unconcerned about global income inequality. For example, nearly half of the world’s richest 1% of people live in the U.S., and the threshold required to make it into that elite group is only $34,000 per person, according to World Bank economist Branko Milanovic.  Is it inconsistent for an American making $34,000 to complain about the incomes and wealth of the top 1% in the United States and yet show no concern for the fact that he himself is in the top 1% of the world’s population based on income? Many Americans making $34,000 and above support income redistribution schemes (e.g. raising taxes on the top 1%) to reduce income inequality in America. Because they are themselves in the top 1% of the world’s population by income, shouldn’t these Americans also support redistribution of income and wealth from themselves (the world’s top 1%) to dirt-poor countries like Zimbabwe? If not, why not?

One quick point about who pays taxes in this country as it is now.

CNS News reports on a study by the Congressional Budget Office (CBO).

Excerpt:

The top 40 percent of households by before-tax income actually paid 106.2 percent of the nation’s net income taxes in 2010, according to a new study by the Congressional Budget Office.

At the same time, households in the bottom 40 percent took in an average of $18,950 in what the CBO called “government transfers” in 2010.

Taxpayers in the top 40 percent of households were able to pay more than 100 percent of net federal income taxes in 2010 because Americans in the bottom 40 percent actually paid negative income taxes, according to the CBO study entitled, “The Distribution of Household Income and Federal Taxes, 2010.”

This is where the money comes from for all our lavish social programs, which I do not even use.

My choices

I remember growing up as the son of poor immigrants and having to struggle to do well in school. When I was growing up, I didn’t learn to ride  bicycle until very late. We didn’t have a car to drive anywhere. We had a black and white TV. We took public transportation to go anywhere. I remember that we used to eat macaroni and cheese with sliced hot dogs quite a lot. We went to a sit-down restaurant for dinner less than five times as a family. I always took school very seriously from the beginning, and I remember having conflicts with the popular students, who were having more fun than me because they had more wealth and more friends and they did more expensive things for fun. I chose not to drop math, even though I struggled with it more than English and computer science. I remember my friends buying Apple IIe and Commodore 64 computers, and I didn’t have any video game system much less a computer. I would go over to their houses and play games at their houses. I never had a summer off. I was always in summer school or working, and that working summers continued through my undergraduate degree.

When the time came to go to college, I chose computer science. Some of the courses I took during that time were so hard that I cried. I had not been well-prepared for college in high school, it was a big stretch for me. I remember failing a test in second year calculus, the first test I ever failed. I can remember doing calculus problems and crying about how hard it was, and my Dad looking on wondering if he had made the right decision when he snudged me toward computer science, when I wanted to do something easy like English. But I graduated with a 3.4 GPA, and went on to graduate school, where I finished with a 3.9 GPA. I chose to do both of my degrees locally, and lived at home. I never went out drinking or to a club or anything like that. The school I chose was not the best, but I saved money, and graduating with a few thousand dollars in the bank was important to me. I didn’t want to go into debt in order to learn how to program a computer.

When I graduated, I started working in a different city, and I remember that my apartment had firebrats, which is a kind of insect infestation. I chose a modest apartment because I wanted to save money. I saved most of what I earned because I anticipated that I would soon be married and starting a family. During my career to this day, I have seen politicians express their desire to take what I earn and give it to people who were born in this country, but who made different decisions from me. Some of them dropped out of high school. Some of them had sex before marriage. Some of them drank alcohol. Some of them smoked. Some of them dropped math. Some of them chased women. Some of them drank and smoked and did drugs. Some of them went on expensive trips. Some of them went to movie theaters and bought popcorn. But I never saw these people in the computer lab at 3 AM trying to help me with my assignments. I never saw these people show up to work weekends when I was working 70-hour weeks in a startup company trying to build sweat equity.

Somehow, people in government, at all levels, have decided that I don’t deserve to keep what I earn. They have decided that other people can get subsidies, but I have to pay full price. I walk into the grocery store and see people buying better food than me, and paying with food stamps. I am paying for my groceries and paying for theirs, too. Somehow, a significant number of people in our society have decided that I should not be allowed to keep what I earn, buy the things I want, and live my life the way that I planned to live it. My earned income is my freedom to express myself, and the politicians have decided that I am allowed to get up and go to work to earn the money, but that I am not allowed to express myself using my earned income. They get to take the money I earned and express their views, instead.

To learn more about why income inequality is not something for government to solve, read this article from the American Enterprise Institute.

Filed under: News, , , , , , , , , , ,

New CBO study: top 40% of earners paid 106.2% of net income taxes collected

CNS News reports on a new study by the Congressional Budget Office (CBO).

Excerpt:

The top 40 percent of households by before-tax income actually paid 106.2 percent of the nation’s net income taxes in 2010, according to a new study by the Congressional Budget Office.

At the same time, households in the bottom 40 percent took in an average of $18,950 in what the CBO called “government transfers” in 2010.

Taxpayers in the top 40 percent of households were able to pay more than 100 percent of net federal income taxes in 2010 because Americans in the bottom 40 percent actually paid negative income taxes, according to the CBO study entitled, “The Distribution of Household Income and Federal Taxes, 2010.

[...]When the the negative 9.1 percent in federal income taxes paid by those in the bottom 40 percent is subtracted from the 109.1 percent paid by those in the top 60 percent, federal tax revenues net out to an even 100 percent.

[...]The households in the bottom 40 percent of income—which on average paid negative federal income taxes—were on average receiving many thousands of dollars in what the report calls “government transfers.” These transfers included, among other things, benefits from unemployment insurance, Medicare and Social Security, as well as from means-tested programs such as the Supplemental Nutrition Assistance Program (food stamps), and Medicaid.

“Government transfers increase income in all groups, but those increases, both in dollars and as a percentage of market income, are larger for groups with lower market income,” says the report.

According to the CBO, households in the bottom quintile received an average of $22,700 in government transfers in 2010 (including $14,300 in payments from Medicare and Social Security and $8,500 in payments from other government programs); and households in the second quintile received an average of $15,200 in government transfers (including $10,300 in payments from Medicare and Social Security and $4,900 from other government programs).

Now I have been reading articles like this one in National Review by James Pethokoukis, which talk about Obama’s rhetoric about “income inequality”. And I think that when the President goes on a rant about how much he wants to fix “income inequality”, you have to keep in mind what he is actually fixing. He thinks the people who earn the most need to be taxed more and he thinks that the people who earn the least need to be given more benefits. That’s what he is trying to fix.

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What happened to the economy after Democrats won the House and Senate in 2007?

Labor Force Participation Rate from 2007 (Pelosi/Reid) to 2013

Labor Force Participation Rate from 2007 (Pelosi/Reid) to 2013

Three data points explain what happens when government gets bigger, and job creators get smaller.

First from Investors Business Daily, Obama’s failure to reduce health insurance premiums with his big government takeover of health care.

Excerpt:

The average employer-provided family health insurance premiums have climbed $2,976 since 2009, according to an annual Kaiser Family Foundation survey released this week. They’re up $3,671 compared with the year before President Obama took office. That’s despite Obama’s repeated promises that the health care reform law he championed would cut premiums by $2,500 in his first term.

And while annual premium increases have moderated over the past two years, that’s due to trends in the insurance market largely unrelated to ObamaCare, and trends the law could actually reverse.

The Kaiser survey found that the average family premium this year is $16,351, up 4% over last year, and up 22% since 2009. After adjusting for inflation, premiums climbed an average 3.2% a year in Obama’s first term, higher than the 2.7% average during President Bush’s last four years in office.

During his first campaign for president, Obama repeatedly claimed that his health reform plan would, as he said at a Virginia rally in 2008 “lower premiums by up to $2,500 for a typical family per year.”

Now, let’s take a look the second failure, as reported by the Weekly Standard.

Excerpt:

President Obama likes to talk about income inequality, but what matters far more is the actual income of the typical American.  And how has the typical American household income fared on Obama’s watch?  Well, the economic “recovery” has now spanned an Olympiad, and during that time the typical American household income has not only dropped—it has dropped more than twice as much as it did during the recession.

New estimates derived from the Census Bureau’s Current Population Survey by Sentier Research indicate that the real (inflation-adjusted) median annual household income in America has fallen by 4.4 percent during the “recovery,” after having fallen by 1.8 during the recession.  During the recession, the median American household income fell by $1,002 (from $55,480 to $54,478). During the recovery—that is, from the officially defined end of the recession (in June 2009) to the most recent month for which figures are available (June 2013)—the median American household income has fallen by $2,380 (from $54,478 to $52,098).  So the typical American household is making almost $2,400 less per year (in constant 2013 dollars) than it was four years ago, when the Obama “recovery” began.

Importantly, these income tallies include government payouts such as unemployment compensation and cash welfare. So Obama’s method of funneling ever-more money and power to Washington, and then selectively divvying some of it back out, clearly isn’t working for the typical American family.

And finally, the third example, from the Daily Caller.

Excerpt:

 In 35 states, welfare benefits pay more than a minimum wage job, according to a new study by the libertarian Cato Institute, and in 13 states welfare pays more than $15 per hour.

“One of the single best ways to climb out of poverty is taking a job, but as long as welfare provides a better standard of living than an entry-level job, recipients will continue to choose it over work,” said Michael Tanner, senior policy analyst and co-author of the study.

The study is an updated version of one Tanner put out in 1995 that estimated the full value of welfare benefits packages across the states. The 1995 study found that such tax-free welfare benefits greatly exceeded the poverty level and “their dollar value was greater than the amount of take-home income a worker would receive from an entry-level job.”

Despite efforts to curb welfare spending, many welfare programs and benefits have continued to outpace the income that many workers can receive for working an entry-level job, which disincentivizes work, according to the study.

“The current welfare system provides such a high level of benefits that it acts as a disincentive for work,” reads the study. “Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states it pays more than $15 per hour.”

According to the study, the federal government funds 126 separate programs designed to support low-income earners. Seventy-two of these programs provide cash or in-kind benefits to recipients. This is on top of additional welfare programs operated by state and local governments.

Welfare recipients in Hawaii get the most benefits, according to Tanner, at $29.13 per hour — or $60,590 pre-tax income annually. However, the state’s minimum wage is only $7.25 per hour, according to the Labor Department. Hawaiians on welfare also earn 167 percent of the median salary in the state, which is only $36,275.

What if a fireman showed up in front of your house on your birthday and claimed that he wanted to put out the candles on your birthday cake because they were a fire hazard? What if he read out a long, passionate, prepared speech about how much he wanted to put out fires? What if he then dumped a bucket of gasoline on your cake? What if your house caught fire and he claimed that you should let him keep throwing gas on the fire to put it out? What if you found out that this person was a lawyer and a community organizer, and knew nothing at all about putting fires out? Obama was not prepared to run the economy, and, as expected, he spent a ton of money without getting the results he said he was going to get. He gave speeches about jobs and poverty and everything he’s done has been to increase unemployment and increase poverty – and now we are $17 trillion dollars in debt. Speeches about achieving objective X during a campaign don’t necessarily translate into achieving objective X. You actually have to know what you are doing in order to achieve objectives, preferably because you’ve done it before in real life.

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Why do corporations ship jobs overseas? What causes outsourcing of jobs?

World Corporate Tax Rates

World Corporate Tax Rates

Here is a news story from Yahoo News that explains the problem and the cause of the problem. (H/T Dad)

Excerpt:

Large U.S. companies boosted their offshore earnings by 15 percent last year to a record $1.9 trillion, avoiding hefty tax bills by keeping the profits abroad, according to a new report.

The overseas earnings stockpile has climbed by 70 percent over the past five years, said research firm Audit Analytics. Data in its report covers the Russell 3000 index of the largest U.S. corporations.

U.S.-based multinationals do not have to pay U.S. corporate income tax on foreign earnings as long as the earnings do not enter the United States. Accounting rules also let the companies avoid recognizing a tax expense if management intends to keep the earnings indefinitely reinvested overseas.

“It would probably be nice to have this money in our country being used in our economy, but at the moment we see it growing elsewhere,” said Don Whalen, general counsel and director of research at Audit Analytics.

Conglomerate General Electric Co (GE.N), had the most indefinitely reinvested overseas earnings, at about $108 billion, while drugmaker Pfizer Inc (PFE.N) was next with $73 billion, according to Audit Analytics.

The simple answer is that Americans believe that corporations need to pay high taxes and operate under burdensome regulations. This eats into their profits, making it harder for them to grow and expand. The plain truth is that it is easier for corporations to expand and hire in countries with lower taxes and fewer regulations. Besides, who wants to be wiped out by a nuisance lawsuit just because someone spills coffee on themselves and then refuses to take responsibility? The smart play is to just opt out completely, and that’s what many corporations do – earning higher profits in more business-friendly countries.

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