Tag: Minimum wage

MLLG

Taxation in Biden’s America

George Noga

Taxation in Biden’s America

Do the wealthy and corporations pay their fair share?

GEORGE NOGA
March 17, 2024

President Biden’s State of the Union (SOTU) screed demagogued corporations and the wealthy, alleging they do not pay their fair share of taxes. He repeated his ersatz claim that no one with income under $400,000 would pay a penny more in taxes. This post lays waste to these and other Biden assertions, whose only aim is to divide Americans by income and to engage in unrestricted class warfare based on disinformation.

person holding paper near pen and calculator
Paying Income Tax

Do the Wealthy Pay Their Fair Share?

The top 1% of earners paid 42.3% of all federal income taxes¹ which is the highest in 20 years. That same 1% reported 22.2% of income (AGI) which means that cohort paid roughly double its share of income in taxes. The wealthy’s share of taxes was even higher because AGI excludes income from 88 government programs for low-income Americans, refundable tax credits and debit cards loaded with food stamp benefits.

The top 5% of earners reported 38% of AGI, but paid 63% of all income tax.² The lowest 50% of earners reported 10.2% of AGI and paid 2.3% of all income tax. When adjusting for credits such as the EITC, the bottom 60% paid only about 1% of all federal income tax. The top 1% paid an average tax rate of 26%, while the bottom 50% paid an average rate of 3%. To put a finer point on it, the wealthy in the US pay a far higher share of taxes than in Sweden and in every other developed nation.

As progressive as are federal taxes, deep blue states are even worse. In California and New York, the top 1% of earners pays 40% of all taxes. As high earners decamp California for friendlier climes, it has caused a budget deficit of $70 billion.

Tax Increases for Under $400,000 Income

Several of Biden’s tax increases directly raised taxes on low-income Americans; the increase in cigarette taxes comes immediately to mind. However, tobacco taxes are penny ante. The killer tax increase on low-income and middle-income Americans is inflation. And yes, inflation is a tax – just like any other tax. Economists of all stripes consider inflation to be a tax. Biden’s inflation, caused by blowout spending, costs families earning under $400,000 a whopping $7,000 per year in inflation tax.

Biden’s inflation has raised mortgage rates to multi-decade highs and added around $700 per month to new mortgages and to variable rate mortgages. Home ownership for first time buyers is nigh impossible. The rate on credit card debt (now at an all time high) has gone up 6 percentage points, or 30%. All these Biden-created inflation costs lay waste the budgets of Americans earning below $400,000.

Do Corporations Pay Their Fair Share?

It bears repeating that corporations do not pay taxes – only people pay taxes. Wouldn’t it be wonderful if we could magically impose taxes that no human had to pay? Studies have shown that 96% of all corporate income taxes are passed along to consumers as price increases. Thus, if Biden and his progressive cool-aid drinkers raise corporate taxes, the real burden will fall on low and middle income Americans.

In his SOTU speech, Biden resurrected his stale canard that some big corporations pay no income tax. The poster child for this is Amazon, which in some recent years paid no corporate income tax because in prior years it suffered humongous losses which, pursuant to law, Amazon was able to carry forward to offset income in subsequent years. Another case in point is FedEx, which owed no income tax due solely to lawful depreciation on its large fleet of new aircraft. However, both Amazon and FedEx paid billions each year in payroll, state and local taxes.

Warren Buffet and His secretary

Biden’s SOTU also repeated another red herring, i.e. some billionaires pay tax at a lower rate than their secretaries. This assertion made quite a stir in 2012 when Warren Buffet said he paid tax at a lower tax rate than his secretary, Debbie Bosanke. Indeed, it is possible that Buffet (or anyone) with income only from capital gains could pay a lower rate than someone with only ordinary income. However, that is only one of many parts of taxation and far from the whole story. Before anyone realizes capital gains, he/she must first pay income tax and then invest with after tax funds.

I computed the total taxes over the entire cycle on this tranche of income (including ordinary, dividends, corporate, capital gains and estate) and determined that Buffet would have paid overall taxes of 70% to 80% – far, far higher than Ms. Bosanke.

Raising the Minimum Wage

To complete Biden’s SOTU circle of disingenuity, he trotted out the minimum wage. Markets determine wages, not governments. However, far from helping those most in need, raising the minimum wage actually hurts them by putting the poor, young, minorities and low-skilled out of work. The minimum wage affects less than 1% of all workers and for only 6 months or less. Most earning minimum wage are not poor; they have household income over $60,000 and consist of spouses and teens living at home.

Taxation in Biden’s America

After a half century on the public payroll, Biden must be conversant with the facts reported in this post. If he isn’t, it is ignorance on an unimaginable scale. If he does know the facts, it can only mean he chooses to ignore them to incite class warfare. Either way, it is condemnable. To cap it off, Biden really does not want to soak the rich, i.e. his biggest donor base; he merely wants the appearance of doing so.

1      Based on official IRS data for 2020 – the most recent year for which data are available.

2     Tax Foundation data as reported in The Wall Street Journal.

© 2024 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

Ten Truths About Minimum Wage

George Noga

Minimum wage is the poster child for the law of unintended consequences.

Ten Truths About Minimum Wage

By: George Noga – June 20, 2021

We have written often about minimum wage, but this is our first post entirely on that topic; it contains much new material and updated statistics. Like most liberal bromides, the minimum wage harms the people it is intended to help. Here are ten truths about the minimum wage and the harm it causes the most vulnerable Americans.

1. The poor need jobs. Most people in poverty don’t work; raising the minimum wage makes it harder for them to find jobs. Those on welfare or unemployment don’t benefit.

2. Median household income $66,000. Those on minimum wage, like spouses and teens living at home, are part of solid middle class households; they are not poor.

3. Median age 24, 60% in school. A majority of minimum wage earners are young students; they are not full time workers trying to support a family.

4. 1% affected, 6 months or less. Nearly all (99%) workers earn above the minimum wage and virtually no heads of households or full time workers are affected. Those who do earn the minimum wage do so for an average of less than six months.

5. Increased cost of living. Child care workers earn $11/hour. A $15 wage would raise the monthly cost to families by $250 and would force many poor people to quit work to care for their children. Raising grocery workers to $15 would hike food costs.

6. The EITC is cut. Any benefit from a higher minimum wage would be substantially negated by a reduced earned income tax credit and is a disincentive to working.

7. Unemployment increased. Whenever the minimum rises, businesses automate and relocate. When the price of anything (labor) goes up, there is less of it.

8. Total wages decrease. Although hourly rates will rise to the new minimum, total earnings will go down due to fewer hours worked. When Seattle raised its minimum wage in 2016 to $13/hour, the earnings of low-wage workers actually declined.

9. Most vulnerable harmed. All the aforementioned problems with minimum wage disproportionately harm uneducated, poor, minority, low-skilled and young workers.

10. Differences between states. There are glaring differences in $15/hour between say Mississippi and New York. Mississippi would experience increased costs of over 40% in child care and other low-wage services; restaurants would all but cease to exist.

The ten truths and statistics listed supra are hard facts, not opinion. Economists of all political persuasions are near-unanimous in opposing raising the minimum wage. Why therefore is a $15 minimum wage an article of faith for progressives?

The answer is the same as for other progressive shibboleths: (1) it is about socialism, not economics; (2) they are virtue signaling; (3) it is all about intentions, not results; (4) it is a sop to labor unions by reducing competition for lower-paying jobs; (5) they know their media sycophants will shill for them; and (6) liberalism is a lie.

Markets determine wages, not governments. Regardless of the law, the real minimum wage always is zero, zilch, nada, niente, scratch, nix, zip, nothing – and that is the wage more and more workers will receive if the minimum is raised to $15 per hour.

Our next post is about inequality of wealth in America.

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More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

$15 Minimum Wage – Soaking the Rich

George Noga

Taxpayers are not like sheep, docilely waiting to be shorn.

$15 Minimum Wage – Soaking the Rich

By: George Noga – March 14, 2021

With Democrats back in power, we revisit two of their leitmotifs beginning with the minimum wage, which they champion despite opposition from economists of all political persuasions. Markets determine wages, not governments and $15 is vastly different in NY vs. WV. The biggest problems with the minimum wage are:

1. It disproportionately puts the poor, minorities, young and low skilled out of work. It is economic strychnine; whenever the minimum rises, businesses are incentivized to relocate and/or automate. When the price of anything goes up, we get less of it.

2. Fewer than 1% of workers are affected. Of those affected, most earn minimum wage for six months or less. It impacts virtually no heads of households or full time workers. The few workers helped are hugely outnumbered by those who lose their jobs.

3. Most minimum wage workers are not poor. The average household income for someone earning the minimum wage is nearly $60,000. Spouses and teens living at home benefit – like the kid who delivers your pizza to buy gas for his SUV.

4. The poor need jobs, not a higher minimum wage. Most people in poverty don’t work and raising the minimum wage makes it harder for them to get a job. Those receiving unemployment or welfare do not benefit. The real minimum wage always is zero.

5. The earned income tax credit (EITC) is cut. Any benefit from a higher minimum wage is substantially negated by a lower EITC and is a disincentive to working.

Labor unions support minimum wage mostly because it prices the poor and minorities out of the labor market, reducing competition for lower paying jobs. Support also comes from liberal virtue signalers inflating their self esteem. As with other feel-good bromides, it enables soft-headed liberals to flaunt their pristine intentions.

Why it is Impossible to Soak the Rich (except for one way)

Following are the main reasons it is impossible to soak the rich. As a former CPA tax professional, this is a subject about which I have considerable first hand knowledge. Please see our 3/3/19 post on our website (www.mllg.us) for more in-depth analysis.

1. Tax revenue is a constant 18% of GDP (20% in good times, 16% in bad times). This has been valid for the past 75 years and is explained by Hauser’s Law; see infra. Whether tax rates are 92% or 28%, the IRS collects the same 18% of GDP in taxes.

2. Elasticity of taxable income: Analyzing returns before and after tax increases reveals that high income taxpayers paid less at the higher rate than at the earlier lower rate. Moreover, the income of the truly rich is mostly capital gains – not ordinary income.

3. The rich are not the same people. High income taxpayers are mostly different people each year. If someone sells a family business, that taxpayer is “rich” for that one year only. It is impossible to soak the rich if they change from year to year.

4. There is no way to identify the rich. Government has data only for income, a poor surrogate for wealth. You can’t soak the rich if you don’t know who they are.

5. There aren’t enough rich. There are too few to make soaking them worthwhile. You can’t soak them by taxing businesses; they simply pass the cost on as price increases.

6. The rich will take countermeasures: Most of the wealthy got that way for good reasons; i.e. they are bright, resourceful, hard working and definitely not docile. They will adjust (and quickly) to any measures designed to soak them.

Hauser’s Law works because taxpayers are not sheep docilely waiting to be shorn. When rates are raised, they work, save and invest less; barter; retire early; hide, defer and underreport income; convert ordinary to capital gains and defer gains until there are offsetting losses. They employ tax shelters; shift income to lower bracket family members; seek tax free income; shift income to corporations; establish pension plans; exploit ambiguities and loopholes; lobby aggressively for tax breaks; move, even to outside the US; enter the occult economy; use top tax professionals and much more.

There is one (and perhaps only one) way to soak the rich, i.e. with lower tax rates. Hauser’s Law also works in reverse; when rates go down the rich are disincentivized to further lower their taxes. When rates drop, the rich pay a much higher share of taxes than before; it works every time. Progressives won’t do it because they don’t really want to soak the rich; they only want to appear to be soaking the rich.

Next on March 21st, we begin our series: Laboratories of Democracy.

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The $15 Minimum Wage

George Noga
Progressives believe putting poor people out of work is now a moral imperative.
The $15 Minimum Wage
By: George Noga – March 10, 2019

        Jerry Brown said raising the minimum wage “puts a lot of poor people out of work”. He elaborated, “Economically, minimum wages don’t make sense, but morally, socially and politically it makes sense“. This was a rare moment of truth for liberals, who believe creating unemployment among the poor now is a moral imperative.

         The minimum wage has been a liberal leitmotif for 80 years, since its inception in 1938 at $.25 per hour, even though it is antiempirical and thoroughly discredited by economists of all persuasions, who are near unanimous that it is economic poison, harming the people it purports to help. Even children with lemonade stands understand when the price of anything (labor) goes up, there will be demand for less of it.

        As with all progressive causes, there are two groups of supporters. At the core, there always are special interests, in this case labor unions, whose contracts contain automatic differentials over minimum wage. Unions also support it because it prices the poor and minorities out of the labor market, thereby reducing competition for lower paying jobs. The second group are virtue signallers doing it for self esteem. Like all other warm, fuzzy, feel-good bromides, it enables soft hearted and soft headed liberals to retreat into their plastic bubbles and to revel in their pristine intentions.

         Following are but five of the problems with the minimum wage:

1. It is bad economics, disproportionately harming the poor, minorities, young and low skilled by putting them out of work. Every time the minimum wage goes up, hundreds of thousands of jobs are lost. Each increase further incentivizes businesses to relocate and/or to automate. More robots anyone? It leads to greater inequality in America.

2. It involves less than 1% of workers. Most who earn minimum wage do so for six months or less; virtually no heads of household or full time workers are affected.

3. Most minimum wage workers are not poor. The average household income for a family with someone earning the minimum wage is over $50,000; they are spouses and teenagers living at home – like the kid who delivers pizza to buy gas for his BMW.

4. Those in poverty need jobs, not a higher minimum wage. A majority of those in poverty don’t work and raising the minimum wage makes it harder for them to find jobs. Remember: the real minimum wage always is zero, zilch, nada, niente.

5. The earned income tax credit is reduced. By lowering the EITC, the benefit of a higher minimum wage is substantially negated and creates disincentives to work. Moreover, those receiving unemployment and welfare do not benefit in any way.

          In our last post on Hauser’s Law (on our website: www.mllg.us) and this post on minimum wage, we sought to address timely economic issues in an insightful, factual, principled manner not usually found in the media; I hope we succeeded. Please feel free to email us at mllg@cfl.rr.com with any questions or comments; we will try to respond, but please allow some time as we do not frequently check that email.

       Of course, we couldn’t resist taking our usual jabs at progressive politics even though we have many left-leaning readers, who I appreciate and from whom I hear regularly. I would like to believe that this blog prompted some of them to reconsider their positions about raising marginal tax rates and the minimum wage.

Next on March 17th: SunRail, AOC, Covington KY students and incivility.

Inequality in America V – Putting it All Together

George Noga

Surprising answers to questions about inequality in America

By: George Noga – May 29, 2016

   Even socialists agree inequality from newly created wealth (even massive wealth a la Gates and Jobs) is an unalloyed benefit to society because it is the best metric for how well an economy is innovating, becoming more productive and responding to the needs of all people. Inherited wealth is mostly dissipated in a few generations, heavily taxed and often used charitably. Last, if Social Security and Medicare benefits were capitalized and included in wealth measurements, inequality would plunge markedly.   At the outset of this series, I promised to explore and to answer many questions about inequality in America based on facts and logic. Following are the answers.

    It is nigh impossible to get an accurate picture of inequality of income due to deeply flawed statistics based on AGI and household income, inconsistencies between income cohorts and flawed comparisons that don’t track the same people over time. One conclusion is certain. Accurate data would show much less inequality of income. Progressives oppose disparity in pay between CEOs and workers but are okay with similar clefts for athletes and movie stars. Steve Jobs took a nearly bankrupt Apple and created $750 billion of value; he made $2 billion, or 0.27%; was he overpaid?

    Data based on spending shows sharply less inequality; the lowest income cohort spends $2 for each $1 of income. There is no inequality based on taxation (including payroll taxes) as America has one of the most progressive tax systems in the world. Nor would a $15 minimum wage reduce inequality; less than 1% earn the minimum and their average household income is $50,000. Young, poor, minorities and the unskilled are harmed by minimum wage laws. The truly poor need jobs not a higher minimum wage. Progressives claim a moral imperative to increase the minimum wage knowing aforehand it creates unemployment. Where is the morality in that?

    The chasm between reality and rhetoric is wide. All measures of inequality, Gini, Theil and MLD, are markedly worse under Clinton compared to Reagan and under Obama versus Bush 43. Inequality is fueled by progressive policies including: (1) tepid economic growth; (2) higher taxation; (3) opposition to school choice; (4) energy policies; (5) ObamaCare; (6) opposition to trade; and (7) spending, debt and deficits. It is progressive dogma that creates inequality despite its self righteous rhetoric.

    All metrics show less inequality in Europe; however, we must ask if that is a good thing or a bad thing. Many Europeans lead lives of quiet desperation with no economic mobility and a permanently moribund economy; they even refuse to reproduce or to defend themselves. Europe produces no innovations in electronics, software, drugs or even pop culture. The former USSR would have scored favorably on measures of inequality as does Botswana; where everyone is poor, there is no inequality. The Gini coefficient for happiness in America is the highest in the world; that says it all!

    There are some things we should do to reduce inequality. Foremost is to stop corporate welfare as wealth created by government is illegitimate. Too big to fail needs to be eliminated as this is but another form of government largess. Capitalism must be based on both the carrot and the stick. Most Americans understand and accept inequality created by the marketplace; their beef is with government playing favorites.

    At its beating heart, inequality is mostly an imaginary problem. The vapid dogma of progressivism is incapable of solving real problems; therefore, it creates a series of phony problems for political maskirovka. As demonstrated in this series, progressives have created the very inequality they now hypocritically rail against. In sum, inequality in America is not a serious problem except when created by government.

The next post June 5th entitled “Hurricane Warning” is particularly pithy.

Inequality in America IV – Reality versus Rhetoric

George Noga

There is an abyss between what progressives say and do. They vehemently condemn inequality while advocating policies that create and exacerbate it.

By: George Noga – May 22, 2016

    There is a staccato drumbeat from progressives asserting there is a grave and metastasizing crisis of inequality in America. In this fourth part of our series, we reveal the specific policies of Obama and progressivism that result in greater inequality.

1. Tepid economic growth is the 900-pound gorilla. Under Obama, coming off a bad recession, there has never been a year with 3% growth. It is the worst economy ever under these circumstances. The lack of growth is due to Obama’s policies for taxes, regulation and health care amidst great uncertainty. A languishing economy coupled with tiny wage gains is radioactive for poor and minorities and exacerbates inequality.

2.  Black youth unemployment is over 50%. Obama refuses to consider a temporary entry level wage. Instead, he wants to increase the federal minimum wage by 40%.

3.  Higher taxes are like steroids for inequality. Obama’s tax increases on dividends, capital gains and small business constrain capital investment and are a death-knell for job creation. His refusal to lower the corporate tax rate keeps trillions locked up abroad instead of financing jobs at home. Tobacco taxes have skyrocketed, disproportionately harming the poor; one pack a day costs $1,000 a year more in taxes – more inequality.

4.  Opposition to free trade is harmful. Obama deserves credit for the TPP; however, progressives led by Clinton and Sanders are demagoguing it to death and want to kill it. The underclass benefits more than any other group from free trade. For liberals however, obeisance to labor unions trumps the welfare of the underclass.

5.  Opposition to school choice keeps poor kids in failing schools. School choice is not only the civil rights issue of our time, it is a potent economic issue. Liberals choose to pander to teachers unions while throwing poor kids under the school bus. Lack of school choice could very well be the number one contributor to increased inequality.

6. Higher prices for food and energy wreak havoc on the poor. Food prices have surged due to Obama and progressive support for ethanol subsidies. Energy takes 25% of the income of poor families but only 10% for a high income household. The average price of a kilowatt hour was up nearly 40% under Obama – until the recent drop in oil and gas prices – which occurred despite, not because of, Obama’s policies.

7.  ObamaCare is a disaster and poor Americans bear its brunt. Health care costs are rising along with taxes to fund it while access and quality of care plummets. Doctor shortages, rationing and death panels will have more impact on the poor. Meanwhile, the legions of 29ers and 49ers are growing due to perverse incentives in the ACA.

8.  Obama’s spending, debt and deficits savage savings. Poor elderly Americans have seen incredibly low interest rates damage their lives. For every $25,000 a retired couple has in savings, monetary policy under Obama costs them $100 per month.

9.  Increasing the minimum wage fuels inequality. Progressives claim a moral imperative to raise the minimum wage knowing it costs poor and minority jobs. The real minimum wage always is zero, and that is exactly what the wage will be for many.

10.  Obama has created a poverty trap. If a low-middle income family with children has a second worker enter the labor force, the effective tax rate on the extra earnings is up to 80% due to phaseout of benefits. Under Obama, the number of single earner households has increased 2.6 million and households with no earners by 5 million.

    Every one of the above factors increases inequality and every one is a creature of progressive dogma. The difference between progressives’ rhetoric and reality is indeed a bottomless abyss. Progressives created the inequality in America they now demonize.

Part V, the final post in this series, is scheduled for May 29th.

Inequality in America III – The $15 Minimum Wage

George Noga

Advocates of the $15 minimum wage agree it is bad economics but justify their support on moral grounds. What is moral about putting poor people out of work?

By: George Noga – May 15, 2016

   The reference in the preheader is to California Governor Jerry Brown. His actual quote is: “Economically, minimum wages may not make sense but morally, socially and politically it makes sense. . . .” The previous year Brown stated raising the minimum wage would “put a lot of poor people out of work“. It seems that for progressives, creating more unemployment among the poor now has become a moral imperative.

    Governor Brown has company. As with all progressive causes, there are two groups of supporters. At the core there always are special interests, in this case labor unions. Many union contracts contain automatic built-in differentials over minimum wage. Unions also support it because it prices the poor and minorities out of the labor market, reducing competition for lower paying jobs. The second group consists of do-gooders who are both soft-hearted and soft-headed; they are, in-effect, shilling for the unions.

    Minimum wage has been a leitmotif in America since 1938 when it began at $.25 per hour. In nearly eight decades since, it has been thoroughly studied by economists and there is virtual unanimity among them that the economic effects are harmful. Economics doesn’t get more basic than when the price of anything (labor) is increased, there will be less of it. Children with lemonade stands understand this. Following are some other things you may not know about minimum wages in America.

1. Minimum wage affects less than one percent of all workers and most who earn the minimum wage do so for six months or less before receiving raises. Virtually no heads of households or full time workers earn the minimum wage.

2. The average household income for a family with someone earning the minimum wage is $50,000. Most receiving the minimum wage aren’t poor; they are spouses or teenagers living at home, like the kid who delivers pizza to buy gas for his BMW.

3. A majority of those in poverty don’t work; they need jobs, not a higher minimum wage. Raising the minimum wage makes it much harder for them to find jobs.

4. The young, poor, minorities and unskilled are disproportionately harmed by raising the minimum wage. Raising the minimum reduces the EITC (earned income tax credit) thereby negating much or all of the benefit of a higher minimum wage.

5. There is consistent and copious empirical evidence that raising the minimum is a death-knell for the poor and minorities; every time it goes up, they lose hundreds of thousands of jobs. With each increase, business has more incentive to automate or to relocate (if it is a state increase) and to put even more people out of work.

    It seems clear enough that raising the minimum wage does not reduce inequality in America; it does the opposite. Even though only one percent of workers earn the minimum, that still amounts to 1.25 million people. The last increase resulted in over 300,000 jobs lost – nearly all poor and minority. That is a recipe for more inequality.

    Progressives claim a moral imperative to raise the minimum wage, even knowing it puts poor people out of work. They do this for their own self esteem. However, the real minimum wage always is zero, zilch, nada and not what progressive kool-aid drinkers deign to make it. And zero, zilch, nada is exactly the wage many more poor people will receive with a $15 minimum wage. I have one word to describe this: immoral!

Part IV of Inequality in America – Reality versus Rhetoric – will be posted May 22.