Tuesday, June 26, 2007

"Thou shalt not covet.." or graduate thy neighbor's taxes

Not everyone may have excelled in story problems in fifth-grade math, but these should be pretty easy.
A Catholic, a Jew, and a Muslim are sitting next to each other at Tony's Sports Bar and Grill and each orders a $2.50 Bud Lite. Which one should the bartender charge $4.18 for the beer?

A heterosexual, a homosexual, and a transvestite order identical, $14 pizzas at Como's. Which one's bill should be $23.38 (not including tip)?

A 55-year old married man and a 25-year old single woman are on opposite sides of the island at Citgo on the corner of Nine Mile and Central roads. Both pump 10 gallons of $3.09 regular unleaded. Which one should pay $39.55?
The correct answer to all of them is, "None of the above." Why? To treat one person differently than another simply because of their religion, sexual preference or identity, age, or marital status would be discriminatory. Charging someone more for something simply because they're different is discriminatory. It penalizes them for being who or what they are.

Let's try one more.
An average Bloomfield Hills tax payer making $185,000/year and the average Ferndale tax payer making $45,000/year both file their 2007 state income tax returns in April, 2008. Which one should pay a 67% higher rate on their income?
Is your answer still, "None of the above?"

Both the Detroit Free Press and Detroit News are reporting polls that show growing support to amend Michigan's constitution to allow taxing some residents at higher rates than others. For politicians, a graduated income tax's purpose is to save them from making hard budget decisions by increasing the amount of money they have to spend. It's a proverbial win-win for politicians because they can solve their budget crisis and pander to the majority of voters who don't count themselves among "the rich."

But why would citizens be in favor it?

In the movie, The Silence of the Lambs, FBI agent-in-training Clarice Starling (played by Jodie Foster) is trying to profile a serial killer called Buffalo Bill with the help of famed psychologist and serial killer, Hannibal Lecter (played by Anthony Hopkins):
Hannibal Lecter: First principles, Clarice. Simplicity. Read Marcus Aurelius. Of each particular thing ask: what is it in itself? What is its nature? What does he do, this man you seek?
Clarice Starling: He kills women...
Hannibal Lecter: No. That is incidental. What is the first and principal thing he does? What needs does he serve by killing?
Clarice Starling: Anger, um, social acceptance, and, huh, sexual frustrations, sir...
Hannibal Lecter: No! He covets. That is his nature. And how do we begin to covet, Clarice? Do we seek out things to covet? Make an effort to answer now.
Clarice Starling: No. We just...
Hannibal Lecter: No. We begin by coveting what we see every day. Don't you feel eyes moving over your body, Clarice? And don't your eyes seek out the things you want?
It wasn't until recently I finally appreciated the difference between jealousy, envy, and coveting. The difference isn't as subtle as I had once thought.

Jealousy is how you treat, guard or hoard something that belongs to you--or that you think belongs to you. Jealous men are described that way because of their reactions to the attention wives or girl friends may attract. Jealous companies may lavish on their employees and simultaneously not allow them to attend seminars or join professional organizations for fear of losing them. Jealousy can hurt the thing your jealous of by suffocating it.

Envy is wishing you had something someone else has. You may be envious of a friend's talents or a neighbor's large-screen television or weed-free lawn. You may be envious of a co-worker's promotion or office and wish they were your own. Envy might motivate you to learn more, save more, or work harder so you may have what others have. But envy can become harmful to yourself when you go into debt to keep up with the Joneses or jeopardize your career with demands or ultimatums of your employer.

Coveting starts out as envy, but instead of using it as a motivation to do more ourselves it becomes a reason to take from others. Coveting makes us vandalize others' property instead of improving our own, sabotage others' careers instead of developing our own, seduce another's spouse rather than romancing our own, or become complicit-in or advocate raising others' taxes disproportionately higher than our own.

What are graduated income taxes?

Graduated taxes are designed to take a greater percentage of taxes from "the rich" than they are "the poor" or "the working class." The premise being "the rich" can afford to pay a greater percentage of their income than those that are not "the rich." A simple formula might be that every return less than $100,000/year in gross income would be taxed at the current 3.9%, income up to $200,000 at 6%, and perhaps those over $200,000 at 7%. The tax is called graduated because it gradually increases as gross income increases.

Of course it misses the point that "the rich," by their inclusion in that nebulously-defined stereotype, already pay more than the rest of us who fancy themselves excluded from that club. A tax return with an adjusted gross income (AGI) of $200,000 at a flat rate of 3.9% pays $7800 in state income taxes. That's four times as much as a tax return showing $50,000 AGI paying $1950.

Notice that I said "tax return" and not "tax payer." The difference is important.

According to a breakdown of Michigan's 2004 income tax, tax returns for couples filing jointly made up 41% of Michigan returns, but paid 74% of all income taxe. "The rich" aren't "the rich" because of their individual incomes. As far as their tax returns are concerned (which is all that matters because that's where graduated taxes will be assessed) "the rich's" tax returns will be penalized with graduated taxes because it combines two incomes. To borrow again from Michigan's 2004 Income Tax summary:
Married taxpayers filing jointly reported 69.8 percent of AGI and paid 73.9 percent of the Michigan income tax. Married couples tend to be older and earn higher wages, due to greater accumulated human capital. Human capital includes formal education plus skills acquired through work experience and on-the-job training. Couples also have an additional potential worker.
Some quick math tells us the average combined income of couples filing jointly was $91,544 and filing as a single was $27,800. If we applied the same graduation to Michigan's income tax as the IRS does our federal returns would indicate joint filers will pay a 28% higher tax rate than single filers, and the average Bloomfield hills tax return would be taxed at a 67% higher rate than those from Ferndale.

So, under at least one graduated income tax model (the IRS') people who are older and earn higher wages due to more formal education, work experience and on-the-job training will be rewarded with income tax rates over one and two-thirds times higher than younger people with less education, experience, and training.

If tax policy is supposed to encourage good behaviors and discourage bad ones, or to incent that which furthers a healthy society and dis-incent those that do not, exactly what goals do graduated income taxes promote?

I scream, you scream, we all scream for...

The funny thing about "the rich" is nearly everyone wants to be a member of this supposed by-invitation-only club. If we spent as much time going to school, working harder, saving money, investing money, taking risks, and reading trade magazines to improve our family's lot as we do watching TV, arriving late, leaving early, extending breaks, buying what we can't afford, and reading The National Inquirer or The New York Times, we might discover membership to "the rich" isn't by invitation--it's by ambition.

When we outwardly despise that which we want to become--or are afraid of becoming--we exhibit something the psychology profession calls reaction formation: avoiding a strong desire by taking a strong, opposite position. We'll gleefully increase their taxes and cry foul at their rebates but regularly buy lotto tickets. Many people desire greater income but despise those that have already achieved it (or appear to) and so proceed to persecute them, thinking "the rich" not as people who have worked for their rewards but as the beneficiaries of undeserved good fortune.

That sounds a lot like coveting to me, and discrimination isn't any better. Think about that the next time someone tries promoting graduated taxes. Ask them if they favor graduated taxes because they're bigoted, in denial, or because they covet.

Monday, June 11, 2007

Hold on to your wallets

Microsoft founder, Bill Gates, delivered a commencement address to Harvard Graduates last week. In his speech he encouraged them to be charitable with something called "creative capitalism."
"We can make market forces work better for the poor if we can develop a more creative capitalism—if we can stretch the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering from the worst inequities," he said.
Gates knows what he's talking about. Since mid-80s his company has aggressively copied, purchased or suffocated companies with technology superior to Microsoft's. Lately Microsoft has taken to exploiting our broken US patent system and threatening its competition with patent lawsuits. Apparently that's where he learned to "stretch the reach of market forces so that more people can make a profit." Maybe he meant to say, ".. so that more Microsoft divisions can make a profit."

Imagine how different Microsoft may have been if Gates hadn't dropped out of Harvard and was similarly influenced by another infinitely wealthy person advocating then what Gates is today.
Gates also said we can press governments around the world to spend taxpayer money in ways that better reflect the values of the people who pay the taxes.
Here's a simple question: Who do you think better represents "the values of the people who pay the taxes," a) government or b) the people who pay the taxes? If you selected b it's a good bet you believe you know your values better than the government does. It's important to remember it doesn't matter which party controls the governor's mansion, state legislature, white house or congress. No one knows your personal values better than you do--except perhaps the charities cashing your checks.

Gates went on to say:
"If we can find approaches that meet the needs of the poor in ways that generate profits for business and votes for politicians, we will have found a sustainable way to reduce inequity in the world. This task is open-ended. It can never be finished. But a conscious effort to answer this challenge will change the world."
Gates seems convinced the solution to poverty can be found in politics. All at once he admits it can't be solved but proposes the government be responsible for administering our charitable dollars in perpetuity (for recent Harvard grads, that means forever).

It's hard to argue with success, but being rich doesn't make Gates right. I recently learned that from Dr. Timothy Dowd in his Introduction to Logic class at Oakland Community College. True, OCC is a long way from Harvard, but the lesson is worth more than Harvard's tuition. The fallacy is called argumentum ad crumenam, which is Latin for "argument to the purse." Admittedly, Gate's purse is bigger than most, but his success is in the software business, not social policy, and it's in software business management and related technologies (like monopolies).

Like dropping out, Gates wants graduates to do what he says and not as he does. Bill's not donating his foundation's billions to the government. He's spending those dollars consistent with his and his wife's values. Warren Buffet, another of the world's richest men, also contributed $1 billion to Gate's foundation. Apparently, Buffet doesn't trust the government to reflect his values either.

But Bill says you should.

Bill's talking-down to his audience may be evidence of arrogance or paternalism--or guilt. Until we learn otherwise let's give Bill the benefit of the doubt and believe he just wants us to to help him, through our taxes, donate to causes he believes in. Wait... that's just like another open-ended task of paying to upgrade Windows from 95 to 97 to XP, Vista and whatever comes after that because Microsoft's revenue is a cause Gates believes in.

Hold on to your wallets. There's a whole new graduating class from Harvard planning to help you empty it.

Friday, June 01, 2007

If it's not the chairman himself, I don't want to talk to 'em

Today the Washington Times is reporting the Republican National Committee is seeing a donor fall-off. Rumor has it the grass-roots are disappointed with the President's immigration policy. When solicitors call for donations, instead of getting checks for $10, $20, or $50 they're getting an earful--and none of it is what they want to hear.

Lately, I admit to be among the people hanging-up on republican fund raisers, calling me with an important (recorded) message from Newt Gingrich or sometimes even the president himself. If Gingrich, chairman Mike Duncan (national party chairman), Saul Anuzis (Michigan party chairman) or even the president want to talk to me they can call me at home themselves.

The only time I hear from these guys is when they want money. When they ask for money it's so the party can defeat the evil Speaker Pelosi or to defend itself against the fund raising powerhouses of Hillary Clinton and Barak Obama. It's always so we can do battle with democrats in general or specifically by name.

In my head, the party has become less about politics than it has fund raising. It's in constant fund raising mode. I even get calls for races in other states. Every arm of the party wants to make sure it has enough money to beat the democrats.

I want to know if they have enough ideas.

Instead of calling people and asking for money they should be calling folks asking for clues. They seem to have forgotten what drew us to the party in the first place. Republican leadership seems to have become less about fiscal responsibility and smaller government than about beating Hillary Clinton. Why doesn't Mike Duncan just change the party's name to the Anti Hillary Foundation--doing business as the Republican Party? At least their corporate name would reflect their corporate mission.

Like any good company, political parties need salesmen, but they also need a product. Exactly what is the Republican Party product these days? The party of Lincoln used to sell social conservatism, fiscal responsibility, a strong military, strong borders, federalism, states rights, lower taxes, and constructionist judges.

Michigan's most recent gubernatorial election wasn't about product (billionaire Dick DeVos) as much as it was an anti Granholm campaign. The party didn't help DeVos articulate his ideas to citizens and DeVos couldn't debate a governor who had overseen swelling state deficits and a crashing economy rivaled only by two other states devastated by hurricanes. That's about as easy as it gets.

Two big things, I think, sabotaged DeVos' campaign--his refusal to back Michigan's Civil Rights Initiative (MCRI) and the lack of any primary competition. When a billionaire announces his candidacy it basically eliminates the competition (unless they're also billionaires). In a party focused on sales more than ideas it mattered little what great ideas other candidates may have had. As a result DeVos went head-to-head with a beauty queen (Granholm) before he proved he could go head-to-head with a grandmother (Nancy Cassis).

As it turns out, billions in sales without a product can't beat a beauty-queen from Canada.

The MCRI passed because it was all about product.

If I could place a plaque on every State or National Republican officers desk similar to Bill Clinton's "It's the economy, stupid," it would say "It's the product, stupid."

And without a product, the Republican Party is looking kind of... well... let's just say lost.