Philip Greenspun’s Weblog

A Tax Day question: Why does our government have more than two taxes?

Let’s assume that the government needs money. Even a country full of highly educated hard-working efficient people such as Singapore spends about 18 percent of GDP on government (source). But why not raise this money via only a couple of taxes, thus keeping administrative costs to a minimum?

For example, our government could have a value-added tax (consumption tax) similar to our current state sales taxes but at a higher rate and with European-style policies that make it tough for anyone to cheat. To get at wealth and recover the costs of protecting property, we could have a property tax similar to the current tax but with some of the money going to the federal government as well. If the government needs more money in any given year, just crank up the rates on these two taxes.

It would be a lot tougher for lobbyists to prosper in this environment because, with only two taxes any exceptions for government cronies would be more noticeable. Perhaps citizens would also be less happy. Right now the government raises money in lots of different ways so nobody sees one huge bill. Taxes on businesses are especially good for our mood because we never see the bill at all. We pay higher prices for stuff than we otherwise would have, but we aren’t sure why.

On the other hand, there are a lot of voters who express hostility toward the complexity of U.S. local, state, and federal taxation. You’d think at least these folks would support cutting back the number of taxes to just two or three, even if the rates on those taxes went up.

[Separately, does anyone know how many different taxes we do have in the U.S.?]

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Happy Tax Day!

While on vacation in Ft. Lauderdale, a city official in a brand-new vehicle showed up at our vacation rental to present the landlord with a demand for some extra money via a recently enacted “Vacation Rental Registration Program”.  At first this seemed like a reasonable local government tax, but then it occurred to me that the owner was already paying property taxes. If the property tax is set to a rate that is adequate for funding local services, including schools, isn’t the owner of a vacation property actually overpaying already? People who come to visit for a week or two aren’t going to enroll their children in the local schools. Thus a city should be delighted that someone would turn a house that could be occupied by a family with school-age children into a vacation rental that won’t result in additional school enrollments.

Readers: What am I missing?

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A reader sent me this video purportedly of a Wisconsin child support plaintiff setting her defendant’s truck on fire (the email introduced the video with “Since Tax Day is coming up, here’s what happens when a man doesn’t pay his pussy tax”).

Readers: What do you think about this video? Searching for related terms in Google News doesn’t result in any coverage from traditional newspapers. How could an event like this not be newsworthy?

[In case you’re wondering how much cash could have been at stake, check out this chapter on Wisconsin family law.]

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A professional investor friend says that all investments can be expected to yield the same return. I have never understood the rationale for investing in commodities, e.g., gold, on the theory that they are scarce. So I would press him to say that a backyard full of oil barrels would be just as good as the S&P 500. And then that a pile of granite rocks would also be just as good. And what about a backyard full of dirt since people will pay for fill? …

“U.S. Mining Losses Last Year Wipe Out Profits From Past Eight Years” is a WSJ article that doesn’t prove me right, since of course actual performance will not equal expected. But it should be sobering for those who love scarce commodities on the theory that “they aren’t making any more X”:

The U.S. mining industry—a sector that includes oil drillers—lost more money last year than it made in the previous eight.

Mining corporations with assets of $50 million or more recorded a collective $227 billion after-tax loss last year, according to Commerce Department data released Monday. That loss essentially wipes out all the profits the industry had made since 2007.

See also “Peabody Energy Files for Chapter 11 Bankruptcy Protection”:

Peabody Energy Corp., the largest U.S. coal company, became the latest to file for bankruptcy Wednesday, underscoring the fraying future of corporate coal mining in America.

The bankruptcy of the St. Louis-based company came after similar filings by Arch Coal Inc., Alpha Natural Resources, Inc., Patriot Coal Corp. and Walter Energy, Inc., all of whom have also recently sought chapter 11 protection.

Peabody’s bankruptcy sets the stage for a potentially bitter fight among creditors for its assets, which include massive open-pit complexes in Wyoming and Australia and underground mines in Illinois.

America may never again see a coal company as big as Peabody. Founded in 1883 by Francis Peabody with $100, a wagon and two mules, according to the company’s corporate history, Peabody grew into a juggernaut, producing coal for customers in 25 countries and employing 7,600 people.

But its decline has been precipitous in recent years. In 2011, Peabody’s value on the stock market briefly touched $20 billion. It is now worth $38 million.

Readers: Who has something nice to say about this kind of investment?

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During our two weeks in Ft. Lauderdale we learned that a beachfront house costs between $3 and $8 million. Most of these are approximately the same height above sea level as a crushproof cigarette pack. If the seas are rising up to swallow Florida, as the climate change doomsayers predict is imminent, why are these houses still worth so much? Here are some possible theories…

• markets don’t believe that a serious sea level rise will happen for at least 50 years
• Federal flood insurance keeps the market buoyant, so to speak (subsidized by taxpayers in the Midwest, of course!)
• Florida beachfront house buyers are impulsive live-for-today types; anything that happens 10 or 15 years from now is irrelevant to them

Readers: How to explain the apparent paradox that (a) everyone intelligent supposedly believes that climate change will result in fairly imminent and fairly dramatic sea level rise, and (b) houses at sea level at crazy expensive?

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This week was time to return the Samsung Galaxy S7 to the Verizon store. It was fun on a Florida trip being able to use the phone in the pool, but back in the real world the party is over. (see initial review and then a post about battery life)

Trying to get out of Florida was challenging because the Uber app said that the device wasn’t supported. Back in Massachusetts I tried the Uber app again and it said that I had to reenter the credit card numbers, which I did and it still failed. The Uber app then said to contact support@uber.com, which resulted in them suggesting gender reassignment. “Hi Philip, Sorry to hear about the trouble accessing your account, Danielle. … Keep safe and enjoy your day. Jaysel”.

Making phone calls in my Boston suburb was impossible with the Samsung whereas the iPhone 6 Plus had managed to be fairly reliable despite the fanatical opposition of the Millionaires for Obama to cell phone towers. I turned on WiFi calling and the phone/network wasn’t smart enough to use WiFi in our one-bar house. While driving in Florida (superb LTE coverage everywhere), the S7 lost all data coverage for about five minutes. My companion’s iPhone 5S, also on Verizon, worked perfectly during this period.

The best thing about the phone is the camera but a photographer’s workflow from the point of exposure onward on is inferior to the iPhone’s. I couldn’t find an easy way to send a reduced-size image from Gmail on the Samsung, for example, so my data plan was being consumed to send ridiculous 5MB photo attachments to people who didn’t want anything that large. Dropbox’s photo upload feature seemed to create duplicate images on my PC, as did the Google Photos app (but of course the images that were duplicated were different between Dropbox and Google Photos).

The true deal-killers for me were the lack of battery life and the poor performance in areas with weak coverage (i.e., the United States!). I was using all of the same apps in all of the same ways as on the iPhone 6 Plus and battery life was roughly halved.

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“The Billionaires’ Loophole” is a New Yorker article on how a rich guy doesn’t pay a high enough (in the writer’s opinion) tax rate. What I think is more interesting is just the texture of how this guy got rich:

In 1975, after graduating from Duke and then the University of Chicago law school, and spending two years at the corporate law firm Paul, Weiss, in New York, Rubenstein served as the counsel to Senator Birch Bayh, Democrat of Indiana, on the Subcommittee on Constitutional Amendments. A year later, at the age of twenty-six, he joined Jimmy Carter’s Presidential campaign as a policy aide and was subsequently hired as a deputy to Stuart Eizenstat, President Carter’s domestic-policy adviser. Rubenstein helped write memos for Carter, prepare him for press conferences, and draft State of the Union addresses. … “His vision was to combine capital with politically connected people whose phone calls are accepted around the world. We laughed at him, like, Yeah, right.”

In 1986, Stephen Norris, a lawyer for Marriott, learned of a change to the federal tax code recently initiated by Senator Ted Stevens, Republican of Alaska. It allowed Alaska Native corporations, created under the Alaska Native Claims Settlement Act, to sell their paper losses at a discount to companies that could use them to reduce their own taxes. Norris started a business that matched companies with Native Alaskans and persuaded Rubenstein to leave Shaw, Pittman and join him. In a single year, they brokered the transfer of a billion dollars in losses, earning at least ten million dollars in fees. In 1987, they were on the verge of another big transfer when the government closed that loophole. The episode became known in Washington business lore as the Great Eskimo Tax Scam.

In September of that year, Rubenstein founded the Carlyle Group … Carlyle struggled in its first several years, making an unsuccessful venture into airline food, with Caterair, and losing a bid for the restaurant chain Chi-Chi’s. In 1990, though, the focus on Washington paid off. … Two members of the George H. W. Bush Administration, Richard Darman, the budget director, and James Baker III, the Secretary of State, joined Carlyle when they left the government. In the late nineteen-nineties, the ex-President himself came on board and helped position the firm to win a bidding war for one of South Korea’s top banks.

In 2007, Carlyle’s twentieth anniversary, the firm managed seventy-five billion dollars in assets, and Rubenstein made his début on the Forbes 400 list. By 2009, Carlyle’s portfolio included $1.5 billion from the New York State pension fund. According to an investigation that year by Andrew Cuomo, then the state attorney general, the pension money had been obtained in part through improper payments to middlemen by a Carlyle affiliate. Though Carlyle was not accused of any wrongdoing, it agreed to pay twenty million dollars to resolve the matter.

Anyway, you get the idea. The article is worth reading if you’re interested in the structure of the current U.S. economy.

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Who else has seen Eye in the Sky? The movie has a familiar starting point. Americans and Brits team up to fight against the international Jihad. But the Brits are portrayed as being paralyzed by bureaucracy, rules, and legal arguments. The American drone pilot and weapons/sensor assistant are paralyzed by their emotions and tenderness for a potential civilian casualty. The latter doesn’t square with my experience of US Air Force personnel. An F-15 weapons system officer said that his main concern, shared by many other officers involved with these fighter jets, was staying in the Air Force long enough to “join the check-of-the-month club”.

I’m wondering if the technology is portrayed accurately. The view from the drone, supposedly roughly 4 miles up at FL200 (20,000′), is crystal clear, as though someone had hung a high-def camera about 50′ above the ground. The people looking at the footage can easily identify individuals by their facial features. Is that practical with our current drone cameras? This YouTube video (fog of war) is more like what I would expect. The Hellfire missile takes about a minute to reach its target. Wikipedia says that it travels at Mach 1.3, which would mean just a few seconds to go 4 miles.

If you’re a fan of Helen Mirren (which I am) you’ll probably like the movie. Alan Rickman‘s final performance delighted my companion.

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Continuing the theme of “Just how do Americans manage to chalk up a lower labor force participation rate than other rich countries?” (see this WSJ chart for how we are next-to-last and falling while others are rising)

AOPA Pilot has an interesting article on a former pilot whom we taxpayers will presumably be supporting for the next 50+ years(?) with free housing, food stamps, and Medicaid:

This case involved a pilot who was criminally charged, among other charges, with transporting co-conspirators in a general aviation aircraft to various destinations in the Caribbean for the purpose of delivering the illegal proceeds of drug sales to be laundered. He defended that he never transported any drugs, nor acted as a pilot in command, nor was aboard an aircraft in any capacity that transported drugs. Nevertheless, after a jury trial, he was convicted of conspiracy to possess, with the intent to distribute, cocaine; conspiracy to import cocaine; and conspiracy to launder money. Based on these convictions, the FAA issued an order revoking his commercial pilot, mechanic, and ground instructor certificates. His appeal to the National Transportation Safety Board was unsuccessful. He then filed suit the United States District Court for the District of Columbia claiming that the lifetime revocation of his certificates was unlawful.

Did it work to fight the system?

The pilot claimed that the lifetime revocation of his certificates violated his rights under the fifth, sixth, eighth, and fourteenth amendments to the U.S. Constitution. Specifically, he claimed that the actions of the FAA and NTSB violated his “constitutionally protected interests in traveling (privately in general aviation aircraft) by air,” his “constitutional right to contract so as to earn a sufficient and adequate lawful living,” his “public right of transit through the navigable airspace” pursuant to [the Federal Aviation Act], and his Eighth Amendment right to be free from cruel and unusual punishment. None of these challenges prevailed. The FAA moved to dismiss the lawsuit, and the court granted the FAA’s motion, denying all the constitutional challenges.

What about similar cases?

An airman pleaded guilty to the crime of conspiracy to import a controlled substance. The conspiracy involved the use of an aircraft. The FAA issued an order revoking his airman certificate. The governor of Oklahoma sent a letter to the FAA administrator asking that the certificate not be revoked. The governor said the airman was from a family he knew and respected; the airman has been gainfully employed as a pilot for a medical flight service for the past three years; and the airman had no criminal record or public safety violations during the past three years. The governor would be grateful if the lifetime revocation requirement was waived, as allowed in the statute. The FAA administrator refused

[Note that I am not disagreeing with the FAA’s decision, just pointing out that when you combine (a) welfare of unlimited duration conditional on having a low income, and (b) the government prohibiting a U.S. resident from working, the result is that the “punished” person should be able to receive a lifetime of cash-equivalents from fellow citizens.]

Related:

• The Redistribution Recession

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“Bono: Time to Think Bigger About the Refugee Crisis” is one reason that I love the New York Times. Here was my comment on the article (not sure if they will approve it):

The world is awash in capital. Interest rates have never been lower. Nearly every bad idea can find funding (check the app store from your smartphone!). Thus to the extent it is possible for capital to be productively deployed in the countries that Bono visited it is already happening (some of those places have better mobile network coverage than we do here in the Boston suburbs).

As others have noted, the analog to the Marshall Plan is inapt. Funding for a country such as France, which pioneered modern aviation, to re-industrialize is a different project than funding for a country that has never been industrialized. Educated labor was scarce post-WWII due to a smaller and less connected world. Combining Europe’s educated labor with some American capital was a fairly sure bet.

[Separately, I am grateful to have been exposed to the spectacle of a guy who has stashed all of his assets in a nearly tax-free offshore trust, as previously covered by the NYT, flying from refugee camp to refugee camp in a Gulfstream G650 filled up with 44,200 lbs. of dinosaur blood. This is modern “slumming”?]

What do readers think? Bono is presumably correct that it would be better if everyone could get a good job and build an American- or European-grade middle-class lifestyle regardless of location. But 70+ years of do-gooding by developed countries doesn’t seem to have accomplished anything, unless we want to take credit for the success of the Asian Tigers under the “success has many fathers” theory. Nor has cash helped that much, even when governments have been stable. As Malthus predicted, at least in most parts of the Earth human population has expanded so that the high-level picture from a resource infusion is “more people at the same standard of living” (for example see the population chart on this page about Saudi Arabia for what happens under a best-case scenario). Perhaps the flood of migrants into Europe doesn’t represent the failure of non-European countries but rather the success of Malthus?

Related:

• NYT reader comment on the article: “The reason that no one wants to hear the opinion of people worth tens of millions and even billions of dollars is that we all know without any doubt that nothing about their lives will change if they have to pay higher taxes and nothing about their lives will change if we import another few million low skilled workers and nothing about their children’s lives will change if we import another few million non-English speaking students. They and their loved ones are completely immune to the consequences of their opinions and decisions, so they go with whatever makes them seem the most ‘generous’ and ‘enlightened’.”

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