Category Archives: Economics

Revisiting the Estate Tax

Today the median household net worth (mhnw) is about $192 K. The average, or mean, household net worth (ahnw) is about $1500 K.

I have been leery of a wealth tax, since most peoples “wealth” is dependent on what others “say” they will pay for a property, if it were for sale. It is unrealized gains. But, once you die, your gains can be realized. This is when the taxes should kick in.

Using the mhnw as a baseline, when you die your estate can distribute up to 100 times the mhnw tax-free. In our example above, the first $19.2 M is estate tax-free. From 100 mnhw to 1000 mnhw, your estate is taxed at 50% and beyond 1000 mnhw your estate is taxed at 90%.

So, someone leaving an estate of $10 M will not have any estate taxes. Someone with an estate of $29.2 will have $5 M in estate taxes, leaving the heirs $24.2 M to divvy up, And the heirs of an estate of one Billion Dollars will have a $813.6 M estate tax bill. They earned it!

GRAS

Generally Recognized As Safe (GRAS), is the FDA’s way of allowing an ever growing number of food additives into the US food supply without specific FDA testing. It allows the vendor/manufacturer to certify an additive is GRAS rather than proving it.

It would seem that the GRAS approach is reasonable, given the the ever growing number of additives and and the minimal risk of true harm. But, there are other countries that do take the time to evaluate some additives in their food systems and then determine those additives are not safe by whatever standards they are using. This would seem to me to remove the additive from the Generally Regarded As Safe category and should require the FDA to certify the safety of the additive independently of the vendor certification.

The FDA may very well find that the additive is SAFE by our standards and allow it to be in our food supply, but it should not be on the GRAS list.

Partial Social Security Fix

The Social Security Trust Fund is running low and may not have enough income to to pay the expected outflow and it will then need to start reducing payments such that income and outflow balance. Sometime in the 2030’s is projected.

Currently an employee contributes 6.2% of income up to $160,200 (in 2023), with the employer matching that 6.2%. If they really can’t get rid of the cap on the employee’s side of the equation, why don’t they get rid of the cap on the employer’s side and let them continue to contribute 6.2% of income with no cap? That should put a bit more money into the trust fund.

Some Fast Facts & Figures About Social Security.

Tax the Tires!

I heard a story the other day about how states are looking at ways to tax EV to pay for the road taxes they no longer collect on the lost gasoline sales. There is also the issue of declining gas tax revenues because of improving fuel efficiencies without the reduction of the wear and tear on the roads themselves. Some of the ideas included charging an EV tax on annual registration renewal or taxing at the charging station (but if you charge at home and not at a charging station, no taxes?)

Why not just tax the tires? Add a certain tax based on the expected mileage of a set of tires. The actual usage of the roads will be captured by how often the tires are changed.

If we look at consider the average car gets @ 16 MPG and the gas tax is $.18 per gallon then the average tax is $.01125 per mile. So a set of 4 -40,000 mile tires would be taxed $450. A set of 60,000 mile tires would be taxed $675.

Heavy Duty Vehicles and their tires can be taxed at a different rate since the heavier vehicles put more where and tear on the roads.

It might be easier to collect the tax at the annual registration time and ignore the difference between the the folks that only put 3,000 miles a year on their cars and those that put 30,000 miles a year on them. If we assume the average car is getting 12,000 miles a year, then an average $135 a year can be collected in the registration fee.

All this is in lieu of the gasoline tax and could be applied to all types of vehicles. Although the registration tax could just be used for EV and gas taxes can stay until the last pump dies.

I forget though. The $.18 gas tax is the federal tax rate. The same process can be used for states gas taxes to add on to the figures above.

I see that the average State Gas Tax is $.31 per gallon. That comes to $ .019375 per mile additional state tax and a total of $.030625 per mile combined Fed and State Taxes. Tire taxes would be $1225 for a set of 40,000 mile tires and $1837.50 for a set of 60,000 mile tires. I can see that would cause a bit of sticker shot for the consumer. The registration cost, using 12,000 miles as the average, is $367.50 per year.

If there was a way to spread out the tire tax over a period of years, it may be a more appropriate way to tax for actual road usage. Those of us who only drive 5,000 miles a year will only be getting new tires every 10 years or so. (Do tires actually last that long?) Or maybe a combination of registration tax and tire tax such that it isn’t such a big hit at once.

Either way, the EVs do need to pay their way for road maintenance.

Let’s be progressive

Rather than trying to put caps onto salaries, in an attempt to prevent runaway wage growth, why don’t we just set up a progressive income tax such that: the more you make, the higher your tax bracket?

Everyone can start out with a base deduction plus social security insurance, health insurance and state/local tax costs, and then pay a flat rate at various steps thereafter.

My steps would be tied to the median household income (MHI) . For every multiple of the MHI, the tax rate would increase. The actual tax rate should be set such that the federal budget would be balanced i.e. the government will collect enough money to cover its expenditures for the year.

The base deduction for a single individual should be 40% of the MHI. For a household, the base deduction should be the MHI.

Minimal Wage

Once again the discussion of minimum wage is coming to the forefront of political discussion. There is a lot of vocal support for a $15 an hour minimum wage. I think that is a few dollars more per hour than necessary for a national minimum wage.

A minimum wage should be able to provide the wage earner with a basic living wage. The national poverty level for a family of four is in the neighborhood of $24,000 a year. A person working full-time, 40 hours a week, 50 weeks a year will work 2,000 hours a year. Using these numbers, $12 an hour is a reasonable minimum wage – nationally.

Now, within some urban areas (Metropolitan Statistical Areas) the effective poverty level for a family of four is much greater than national level and it would be very appropriate to tie the minimum wage to HUD’s Extremely Low Income for a family of four for an area, or to the national poverty level for a family of four, whichever is greater. Such that, in San Francisco, the ELI for a family of 4 is $44,000 so a minimum wage for that area should be $22 an hour. In Seattle, the ELI is $32,100, which would lead to a $16.50 per hour minimum wage. In the Bronx, the ELI is $31,300, which will lead to a $15.65 per hour minimum wage.

We have the facts and figures derived from the various government departments that track this data, such as the Census Bureau, HUD, Social Security, the Fed, HHS, etc. Let’s use this data responsibly and keep on top of the growing economy and the wage gap. And the numbers can change every year as the economy grows and we don’t strand people at an old wage for many years while the politicians pontificate.

Interesting view on the growth of wages

I came across this link to SSA income data. I see that the average salary/wage is growing faster than the median salary/wage. So this shows that the majority of the workers continue to get more and more relatively poorer than the “average” worker.

In the upper left of the SSA page is a link to yearly breakdowns of the annual wages. Here is a link the 2017 numbers. It shows the breakdown of the number of earners in each income band, up to 205 people who earned more than $50,000,000. The total of those 205 people was $19,954,445,874.88 for a average of $97,338,760.37 each.

In 2016, only 143 people earned more than $50M with an average of $100.7M each.And in 2015, it was 202 people with an average of $91.4M each. Looks like a lot of volatility at the top.

An interesting page to fiddle with to see where the inequity grows.

Getting your money’s worth

It occurs to me that people who make large amounts of annual income in the United States do so because of the general infrastructure that the US provides. All the way from easy transport, financial support, security protections, and a stable business environment, along with a lot of other good things. People who can take advantage of all these positives, demonstrated by increasingly large incomes, don’t think they should pay for it. Let the working stiffs, who are barely surviving from paycheck to paycheck, who aren’t benefiting from the glorious infrastructure that America provides, pay the bulk of the cost. This doesn’t seem fair or equitable.

Trust

We have set up Trust Funds to help cover growth and costs. There is Social Security, Highway, Post Office, Military Retirement, etc. These funds collect money from use taxes and the like, with the expectation that it will be spent sometime in the future. It is setting aside money collected today to pay for a rainy day.

But Congress, in its infinite wisdom, has made the revenues collected and distributions part of the federal budget. So the money collected on the sunny days is counted as Federal Income and the money spent on rainy days  is subject to political debates, every time.  The Highway Trust Fund is a good example. We have gasoline taxes that go into the fund and should go to pay for highway repairs ten or twenty years down the road. If the Fund is On Budget, then some or all the monies go into the General Fund controlled by Congress and when it comes time to actually repair the bridges and roads Congress won’t provide the funds because it is not politically expedient to spend the money and increase the deficit.

Take the trust funds off-budget and the money in-out flows don’t count towards the federal budget. If the Fund actually needs an infusion of cash, then  Congress can debate if it is deserved instead of debating whether to payout monies that should already be in the fund or not.

Infrastructure support. If we build infrastructure we need to expect and plan to maintain that infrastructure for the ongoing future. Highways, airports, pensions, these are all part of the infrastructure we need to maintain the society we are building.  If we don’t want the building to collapse, with us in it, we need to keep it repaired and growing. Congress is not doing that.

Even cities and states should be setting up trust funds to maintain the public infrastructure of roads, sewers, water mains and public buildings. These shouldn’t be subject to debate every time a bridge collapses or water treatment plant fails.

Saving for a rainy day is an axiom that is based on common sense. It isn’t always easy to see a large nest egg being built up and not used when you have so many ‘better’ things to spend it on, but it needs to be done.

Take the Trust Funds off budget.

 

 

Amended Proposal(s)

I really do wish that they (the powers that be) would take social security income and outgo off the budget books.  In my earlier post I was talking about a $3.8 trillion budget, but 880 million of that is Social Security which is already covered by the Trust Fund and should be ignored for our calculations.

So let us use a budget figure of $2.9 Trillion

$13.1 Trillion in total personal income.

$6.1 Trillion in deductions.

$7 Trillion available income to cover the budget.

Then a 41% tax on all income over $53,000 will cover the budget.

Alternatively, looking at the 2013 budget broken out, if we take the income tax income – $1.36 Trillion ($1,359 Billion) and add the deficit – $0.9 Trillion – Then we need to cover $2.26 Trillion and the remainder to $2.9 Trillion is covered by the estate, corp, etc. taxes.  Oops, they are including $959 Billion of SSA trust income which is $76 Billion greater than the SSA outgo and we want to keep the SSA out of the calculation so lets add the $.076 Trillion to our total and we need to cover  $2.34 Trillion to meet the budget.

So a 33% tax on all personal income over $53,000 should be able to meet the 2013 budget.

I am using high level swags here. The $6.1 Trillion in deductions is really a worst case where everyone in the low median half is counted with a $53K income. A more realistic total deduction is probably less than $5 Trillion since the total income of the lower median group is less than $2 Trillion and the total deduction would be the $3.1 Trillion from the higher median group and the actual total income of the lower median group.

My google-fu is weak. I am trying to find out what percentage of the total annual personal income is for the folks in the  lower median group, and I can’t find an exact number. It appears to be in the 20-25% range, or lower. I saw one graph that might have been 15%.  So if the Total income is $13.1 Trillion the Lower Median total income is somewhere in the $2 Trillion-$3 Trillion range