How can a flat tax of 14.5 percent work in a country where government spends 40 percent of GDP?

7

Rand Paul has proposed a flat 14.5 percent tax on personal and business income (somewhat sadly for Democracy, he chose to publish his proposal in a subscription-only article in the Wall Street Journal). Except that it isn’t truly a flat tax because he is preserving subsidies to realtors and home builders:

I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed. For low-income working families, the plan would retain the earned-income tax credit.

He adopts one of my pet ideas (see 2008 economic recovery plan): “All capital purchases would be immediately expensed, ending complicated depreciation schedules.” (I actually proposed more flexibility than this.)

Rand Paul’s idea would seem to fit Singapore very nicely. This page says “Government expenditures are equivalent to 14.4 percent of the domestic economy.” But how could it possibly work in the U.S., especially considering that Paul proposes to eliminate payroll taxes (currently themselves close to 14 percent)? Government spending is roughly 40 percent of GDP (chart). Only about half of the total is spent by the federal government, however, so in theory Rand Paul’s idea isn’t as crazy as comparing 40 percent and 14.5 percent. But comparing 20 percent and 14.5 percent still leaves a deficit of roughly 5.5 percent of GDP, no? Or even larger if you consider that Paul is preserving subsidies for housing and exempting lower-income Americans. This chart shows that the federal deficit is not typically as high as 5.5 percent.

Currently the federal government collects about $3 trillion per year in revenue (Treasury) and spends $3.5 trillion (Wikipedia), resulting in a deficit that is 3 percent of GDP ($16.77 trillion). If all of GDP were taxed at 14.5 percent there would be only $2.43 trillion in revenue. It would take a flat tax of at least 18 percent, with no housing subsidies built in and no exclusions for people earning less than $50,000 per year, to yield the current level of revenue. A tax of 21 percent would be required to collect as much in taxes as the federal government currently spends (and spending is forecast to rise from Social Security and Medicare for the elderly plus various kinds of welfare for Americans whose labor is not worth the new, higher minimum wages (see The Redistribution Recession)).

[The Feds do get some revenue from excise taxes, e.g., on alcohol, tobacco, aviation fuel, etc., (pie chart) but I don’t think these are large enough to change the analysis. These boosts have to be balanced by reductions due to fraud. Here’s an LA Times article on how Americans created 7 million fictitious children for tax purposes. Also see “History of Divorce” in which Americans in the aggregate claim to be paying more alimony than they admit to receiving.]

How could Rand Paul’s idea possibly work?

Related:

Kansas court officials giving Kansans more to fight about

ø

“Kansas child support payments could see increase” is a TV news story about a court-run process in Kansas that will make it more lucrative to obtain custody of a child (they are seeking public comments through June 22). To me this is interesting because, as noted in the Kansas chapter of Real World Divorce, it is already more lucrative to collect child support in Kansas than it is to go to college and work (in the case of two children from two different mothers, a plaintiff father just needs to find defendant mothers who each earn at least $145,200 per year). Child support in Kansas, for anyone suing a middle-class defendant, will exceed what married couples actually spend on children (see UCLA Economist William Comanor’s analysis). Child support is also potentially unlimited. A person could join the Top 1% in Kansas in terms of spending power simply by having sex with a high-income Kansan (somewhere around $1.5-2 million per year).

[In theory this system can be used by both men and women, but March 2014 Census Current Population Survey data show that 100 percent of Kansans surveyed who were collecting child support were women.]

To me this is interesting as an example of a bureaucracy’s urge to grow. Judges apparently like watching paid attorneys arguing in their courthouse and will adjust the rules as necessary to keep the plaintiffs coming. See this Electronic Frontier Foundation discussion of how the rules in the Eastern District of Texas, a popular venue for patent plaintiffs, are different from those in other federal district courts (also listen to this NPR story or read this arstechnica story: “And those trials tend to be short, as it can be tough to put on an effective defense, especially with multiple defendants. Trials are often over within a week; the invalidity trial over the Eolas patent, a case with the potential to affect the future of the whole Web, took place in all of four days.”).

What other examples can readers come up with for government bureaucracies that change the rules so that more business will come to the bureaucracy?

 

Advice to software development interns

13

I took on an 18-year-old as an intern for some Web development work. He had taken AP Computer Science, a Python programming course in high school, and Harvard’s CS50: “CS50 is designed not only for concentrators in computer science but also for non-concentrators. More than just teach you how to program, this course teaches you how to think more methodically and how to solve problems more effectively. As such, its lessons are applicable well beyond the boundaries of computer science itself. That the course does teach you how to program, though, is perhaps its most empowering return. With this skill comes the ability to solve real-world problems in ways and at speeds beyond the abilities of most humans.”

In addition to this academic training he arrived with a vast expertise on building Windows-based PCs, especially for gaming.

The assigned task was building a Web-based narrated slide show (previous posting on the subject) using this open-source SMIL-based tool as the building block. To accomplish this he had to learn much that was new, but nothing that was deep. For example, he needed to learn how to edit text on a Unix server (Emacs, of course!), enough CSS and JavaScript to understand and modify the open-source code, etc.

Here are some specific-to-programming items that could have made him more effective:

  • use Google and Web-based resources before interrupting the person who hired you, e.g., if you want to know how to do something in Emacs for which crib sheets are readily available on the Web and can be printed out
  • assume that the person who hired you will have superior strategies for solving problems but not superior knowledge of syntax
  • assume that you’ll have to teach yourself a new language or tool; “I need to spend the next 3 months taking a class in JavaScript” before I can be productive on this new assignment is not something an employer would expect to hear from a programmer. [It seems that his elite public high school and Harvard had both prepared him to be spoon-fed information; a typical assignment would include a couple of pages of code with a few missing lines to fill in.]
  • start simple and build out; if you can’t understand a file of CSS, for example, take all of it out and add it back in one line at a time; if you don’t know JavaScript spend half a day building small programs before trying to understand a larger program that you’ve downloaded
  • if there is a bug, strip the system down to the minimum number of lines of code that still exhibits the bug

Here are some general life-as-an-employee items:

  • If you’re cc’d on communications regarding meeting times with other people and need to talk to them or arrange something with them, reach out directly via email, cc’d your supervisor. Don’t use your supervisor as your secretary.
  • Don’t rely on your supervisor to keep schedules, remember tasks, etc. A senior programmer is not a secretary or project manager.
  • Use all available resources. Ask questions in Web forums, ask for help from anybody that you know that has relevant knowledge. The most successful workers are generally those who bring in expertise from beyond the organization.

What did I learn? That grit is perhaps the most important determinant of success as a software developer. The most effective developers simply won’t quit until a problem is solved. One reason I think programmers often stay up until 2 or 3 am is that it bothers us if something isn’t working. So we keep at it until we collapse. We call in favors from friends and colleagues for help if we are stuck. I would go so far to say that if a person can cheerfully walk out of the office at 5 pm without having solved any problems then he or she should probably pick a career other than software (Real World Divorce shows that there are a lot of easier ways to make money here in the U.S. and this posting shows that a not-very-driven-programmer will likely have a short-by-modern-standards career).

Air Force One operating cost: $206,337 per hour

8

A reader emailed me “Obama Cracks Down on Airplane Emissions, Buys Massive New Air force One”. The most interesting item is the hourly operating cost: $206,337 (compare to about $25,000 per flight hour to charter (source)). If American Airlines spent this much during the 7-hour flight from London to Boston it would cost $1.44 million for the trip in operating cost (i.e., not including the capital cost of the aircraft) or about $3500 per passenger (i.e., a round-trip coach ticket couldn’t be sold for less than about $7000 plus taxes and fees).

Some numbers on the pilot side of the drone wars

3

“As Stress Drives Off Drone Operators, Air Force Must Cut Flights” is a New York Times story with some numbers to quantify the drone wars from the pilots’ side. It seems that taxpayers are funding 1,200 Air Force drone pilots. They handle about 65 flights per day (nearly 24,000 per year or about 20 flights per year per pilot; given the minimum of 14 hours of endurance for a drone it may be the case that more than one pilot is needed to handle a typical flight). Based on these demographics it seems that drone pilots are roughly 10 percent of all Air Force pilots.

[The drone-flying job is probably one of the best in the Air Force from the perspective of keeping a marriage together or reducing the damage from a divorce lawsuit. As noted in the “Practical Tips” chapter, serving in the military invites disaster in family court:

Attorneys described active-duty military personnel as “sitting ducks” for divorce, custody, and child support plaintiffs. “If you were serving in Iraq for the last year,” noted one lawyer, “how could you possibly show that you were the historical primary caregiver?” Forum shopping is easy for a patient military spouse. If sole custody of children is desired, for example, the future plaintiff can wait for the family to be moved from Arizona (50/50 custody presumption) to Massachusetts or California. If alimony is desired, the future plaintiff can wait for the family to be moved from Texas to Florida. If profitable child support is sought, the future plaintiff can wait for the family to be moved from Nevada to Wisconsin or New York.

“Military divorce rate at highest level since 1999″ (December 13, 2011; USA Today) says that the military divorce rate is slightly higher than the U.S. civilian divorce rate.

Drone pilots are most likely to be stationed in Nevada, a state where a higher-income spouse is statistically much less likely to be sued for divorce due to the limited profitability of obtaining custody of children. As explained in the Nevada chapter, child support revenue in Nevada is capped at $13,000 per year per child. That’s still comfortably above the $4300/year in increased spending incurred by the typical American couple (see the summary of UCLA Economist Bill Comanor’s presentation) and above the $6,000 per year that could be collected in Germany, but only a fraction of the cash obtainable in neighboring California, for example. As noted in the Rationale chapter, statistical research shows that there are more divorces when the cash rewards are larger:

Brinig and Allen (Family Law Quarterly, v. 45(2), Summer 2011, pp. 140-151): “Not counting custody as a gain in the calculation of child support means that guidelines will tend to ‘double count’ the award for custody. Within a [state that uses a simple percentage of the loser parent’s income], the custodial parent of a wealthy noncustodial parent gets the utility from custody, plus a high cash transfer to fund the child expenses. … Prior to the introduction of support guidelines [mandated by the Federal Family Support Act of 1988], child support awards were considered inappropriately low in many policy circles. However, the lower amounts may well have reflected the courts’ awareness that the custodial parent obtained custody over one of the most valuable assets of the marriage: the children.” In the same article, titled “Child Support Guidelines, the Good, the Bad, and the Ugly,” Brinig and Allen note that this has given parents who expect custody a “large” incentive to file divorce lawsuits and found that divorce rates went up as predicted by these incentives.

]

Follow-up on my 1099 v W-2 litigation fiesta posting

1

In 2010 I posted an article about how a lot of Americans probably could not be profitably hired as W-2 workers at the then-prevailing minimum wage (but not so many that SSDI and other welfare programs couldn’t take up the slack). BLS data on labor force participation seems to confirm that 2010 hypothesis. Last month I posted an article about how employment litigation could be a great career path for young people because the new minimum wages would create more W-2 unemployment than SSDI and other welfare programs could handle and a lot of Americans would be driven to take 1099 jobs where the net income was lower than the statutory minimum wage. It turns out that the litigation was already happening! “California Says Uber Driver Is Employee, Not a Contractor” is a New York Times story regarding a Uber driver who boosted her earnings by roughly 60 percent via an ex-post facto examination of her job. (If the $4152 she was reimbursed was for expenses, she earned $6848 before suing and about $11,000 on top of expenses after suing.)

[Separately, I am still waiting to meet an Uber driver who knows how to press the “Auto” button on a car’s climate control system and set the temperature within 5 degrees of 70. If it is cold out it is typical to find that the driver has set the temperature to 90 degrees and the fan to “high” while perhaps leaving one or more zones entirely off. If hot, the driver has set the temperature to 60 degrees but with the fan blowing unconditionally on “high” regardless of the interior temperature. I am convinced that if the automakers allowed Uber drivers to set -15 or +130 there would be a massive die-off of Uber drivers due to hypothermia and heat stroke.]

Related:

Identifying as black: Rachel Dolezal today and Boston’s Malone Brothers circa 1988

6

The media are excited about Rachel Dolezal, who identifies as black despite apparently having at least some Caucasian heritage. This reminded me of a 1988 situation here in Boston. Here are some excerpts from a New York Times story:

Philip and Paul Malone are fair-haired, fair-complexioned identical twins who worked for the Boston Fire Department for 10 years. Last month both were dismissed when a state agency ruled that they had lied on their job applications: They had contended they were black.

In 1975, the Malone twins, now 33 years old, took the Civil Service test for firefighters and failed. But in 1976, according to their lawyer, Nicholas Foundas, their mother found a sepia-tinted photograph of their great-grandmother, who, she told them, was black. In 1977, they reapplied to take the test, contending they were black.

Philip Malone scored 69 percent and Paul Malone 57 percent, below the 82 percent standard minimum for white applicants, … The twins won appointments in 1978.

[Note that the litigation surrounding this dismissal seems to have lasted at least through 1995 (seven years), according to this appeals court decision. It would truly be an all-American story if the litigation had lasted for the same 10 years as their employment!]

I think the Rachel Dolezal situation raises the same issues as gay marriage. As I noted in this May 2015 posting, how can America be a land of equal economic opportunity if someone is denied the opportunity to profit from a divorce lawsuit merely because of sex? Much of the income that Rachel Dolezal earned was from jobs restricted to Americans who identify as “black.” Can we say that we have equal economic opportunity if not everyone who wants to be black can be black?

What do readers think? Is it unfair for Rachel Dolezal to call herself “black”? If so, is there “percentage of ancestry” test that would be an agreed-upon threshold for an American’s right to claim “black” status? How could such a law be written so as to exclude people descended from, for example, white South Africans?

Home school, Shanghai school, and American K-12 all in one conversation

17

At a charity dinner on Saturday night I saw with a couple who had recently come to a rich suburb of Boston from Shanghai. The father had been home-schooled in upstate New York. He explained that he did whatever he wanted all year, including a lot of reading, and then spent two weeks each year cramming for an exam based on California standards that would show he’d learned everything necessary for his grade level (via these two weeks of work he was able to keep pace with students who physically attended public school in California for nine months). In Shanghai the children, age 5 and 11, had attended an international school that was so demanding the parents had to stay up tutoring until 11 pm some nights. Public school in the Boston suburbs, by contrast, is so easy that the children don’t need any after-school help. However, the mother now has to spend nearly all of her time managing household affairs. “We had three people to help us in Shanghai,” said the father, “but here just weekly cleaners.”

[How is it possible for an adult American to need to spend full-time maintaining a 20-year-old house? I got some insight into this the other day. The contractor’s favorite HVAC subcontractors installed a new A/C-heat pump system in our house last fall. Last week was the first hot/humid weather for Boston this year. Immediately there was a flood of water coming through the ceiling. I brought in my old HVAC contractor who explained that there are four drains on an air handler. One task for the installer is determining which drain is at the lowest point and hooking up the drain line to that one. Our unit had its highest drain hole connected to the line. There is a safety pan underneath the air handler that is supposed to catch any water that drips and, via a float switch, shut down the air handler. In some installations, however, there is a second drain line connected to a hole in the safety pan. If you intend to rely on the float switch you plug up this hole so that the water will actually trigger the float switch instead of spilling out into the attic. This hole was not plugged. Finally it is important to have a float switch compatible with the air handler. Flipping the float switch upside down did not actually shut down the system. So the original contractors did not do any of the three steps related to drainage correctly, nor did they test their own work.]

[Update: Here’s a photo from a fairly new luxury hotel in Cambridge (Le Meridien) showing the quality of local labor:

2015-06-16 12.46.31]

 

Stupid question about Greece: Is there net cash flowing in or flowing out?

9

Greece is in the news due to its imminent insolvency (can something be “imminent” and yet drag on for many years?). There is talk of money that Greece is supposed to pay creditors but also talk about bailout funds that the IMF and other countries are supposed to be giving to the Greek government. But what is the cashflow in this heavily indebted country? Is the Greek government still spending more than they collect in tax revenue, in which case presumably there must be a net inflow of cash? (let’s assume that Greeks themselves are smart enough not to lend money to their own government) Or is the Greek government no longer engaging in deficit spending and therefore they are paying down their sovereign debt, but just not as fast as creditors were promised?

Tesla day-trip: 3+ hours of charging, much anxiety; underperforming solar plant

19

Check out Boston.com for an article about trying to take a Tesla on a day trip to Mt. Washington in New Hampshire (340 miles round-trip). They spent most of the trip worry about range and more than three hours of the trip shut down for charging. What about doing all of the recharging with renewable energy? WSJ has an article about a $2.2 billion solar-thermal electricity generating plant whose input of cash ($1.6 billion from taxpayers) was presumably at least as much as budgeting but whose output of electricity is only 40 percent of the expectation.

Good reminder for engineers that sometimes the TED talk works better than the final system…

Log in