Taxes

Booze and Minnesota

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A few times Dan and I have joked that Wisconsin has the highest per-capita drinking in the USA. I’m sure that Minnesota isn’t far behind, with winters just as brutal as those in Wisconsin and not too much sunlight during those dark days and nights.

It is summer now in Minnesota and the state is shut down. As it turns out, apparently that isn’t a big deal. They don’t let all the prisoners out of jail, they just shut down the inessential services such as the annoying bureaucracy that requires you to get innumerable permits and papers to conduct your daily business. These not-so-essential state workers total 22,000 in Minnesota; probably a great batch of employees to cut next.

The new Democratic governor in Minnesota, Mark Dayton (wealthy heir who turned into a stone-redistributionist Dem) actually ran on a platform of taxing the top 1%, which is literally the stupidest thing in the world from a state tax perspective, since THOSE ARE THE PEOPLE THAT CREATE ALL THE JOBS IN MINNESOTA. As it is, you’d have to be nearly out of your mind to live in the darkness, snow and miserable mosquitoes (in summer) of Minnesota in the first place; but to put dis-incentives for the rich to live there is even more insane (note – I worked in Minnesota for many years and long winters and met some of the nicest, smartest people in that hard working state. But they are still insane for living in that weather).

As in Illinois, with our governor Quinn, the Democrat eked out a win (with 43% of the vote in the case of Minnesota) and then took this as a “mandate” to implement all of their programs as if they were Roosevelt trying to get the country out of the great depression (although that didn’t work so well, either). In the case of Quinn he raised Illinois taxes 67%, abolished the death penalty, appointed his cronies to state positions, and didn’t cut any spending. Awesome. In the case of Dayton, his plan was to raise taxes on the richest to 13.95%, on top of the Federal rates. Unclear in his plan is WHY anyone wealthy would intentionally stay in Minnesota to have all of their income taxed away while many other states with better climates (Florida, Texas) don’t have any state income tax AT ALL.

I think Dayton was crazy enough to hold out forever, as a populist. Unfortunately for him, the state was running out of booze. Apparently bars need to fill out a permit for $20 or so in order to buy booze and as they expired the bars would have to shut. Miller was going to have to shut down their operations for a clerical snafu (they overpaid so the state sent their permit back) and not distribute booze at all.

I really do think that the impending stopping of alcohol in the state of Minnesota helped precipitate a resolution to this budget standoff, where the governor gave in on his plan to drive all job-creators from the state.

Hats off to the Minnesota legislature for standing firm. Unlike Illinois, where not only do the dems run our legislature but our red representatives aren’t creative enough to flee the state at the prospect of a giant tax increase, like they did in Wisconsin to attempt to block Walker’s reforms.

Cross posted at LITGM

Obama, Tax Policy, and Manufacturing

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Fact #1: Obama has been giving many speeches about how much he values American manufacturing and also introducing various initiatives which he claims will be help manufacturing businesses

Face #2: In his recent budget proposal, Obama proposed the elimination of LIFO inventory accounting for tax purposes. This would generate additional business income tax revenues for the government of an estimated $72B by 2016.

In what universe do the above two things go together?

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Waking Up to the Behavioral Impact of Taxes

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The current administration has continually protested the lower rates signed into law by the previous administration and initially acted as if there was no impact on behavior based on the act of raising tax rates.

However, the administration IS interested in getting re-elected. Thus some new “incentives” have been put into place to incent economic activity, such as a tax credit for capital expenditures that makes them completely deductible in the current year. Since large capital expenditures are usually deducted over many years, this is a significant one-time tax holiday that major companies will consider seriously while planning for uses of their free cash flows (or available financing).

This tax credit, however, is diametrically at odds with the administration getting re-elected, because it provides FURTHER encouragement for companies to replace people with automation. And as the jobless rate remains high, the government starts casting about for more solutions to a problem that they really care about, which is getting people back to work so they aren’t disaffected voters (never mind the deficit, the total economy, or other factors).

While the government tried to make labor a bit less un-favorable with a social security tax holiday, the 2% is on the employee side (yes, yes, I know that this factors into wages in the long run, but not in the short or medium term), this type of change isn’t going to make businesses hire more in the short term.

Thus now the government has decided to look at other incentives to try to get companies to hire people, such as a more extensive payroll tax holiday, as they discuss in this NY Times op ed piece.

The administration apparently doesn’t feel any uneasiness with the blatant contradictions in their policies; officially they say that raising taxes “on the rich” doesn’t incent behavior, but here they are starting to see that businesses DO respond to incentives, and that in order to try to get businesses to hire they might want to use tax policies to further this end.

In fact, our tax policies are a complete mess. Not only do businesses want a fair tax climate, they want a PREDICTABLE tax climate. Since businesses are (all) run by high net worth individuals, it also makes sense to have a predictable tax climate for businesses as well as individuals. No one would have foreseen that we would go an entire year without an estate policy; think of all the years of lawyers and various “shifting” transactions that could have been avoided. Likewise, this one time tax break for capital is something that businesses will have to consider for years to come; perhaps the best bet is just to wait to invest until a better tax deal comes along.

I would love to hear the administration explain why taxes DO incent behavior sometimes (like when the administration wants you to hire people) but DON’T incent behaviors at other times (like when they raise rates and expect you to work just as hard as you did before and keep investing and hustling for years to come, knowing that a large chunk of it is going to go to the government in taxes). That would be a good you tube for Goolsbee. (also hilarious that when you put in his name the auto-correct in my computer comes up Goebbels).

Cross posted at LITGM

Coolidge- Summing up

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I promise this is the last post of this series.

Coolidge believed that the wedding of government and business would lead to socialism, communism or fascism. Hoover considered Henry Wallace a fascist for supporting the McNary-Haugen bill. Hoover, ironically, was to bring on the Depression by progressive measures that might have been called a form of fascism. The farm bill would be re-introduced under Hoover and die. Only during the New Deal would it find enough support to become law. The summer of 1927 was peaceful and prosperous. It was the summer of Babe Ruth’s 60 home runs. The Yankees would win the World Series and end up with a winning percentage of 0.714, still unsurpassed. In September, Gene Tunney defeated Jack Dempsey in the fight marked by the “long count.” The “Jazz Singer” came out that fall, the first talking feature picture. Charles Lindbergh flew the Atlantic in May of 1927. He and Coolidge were much alike yet different. Both were shy and diffident but Lindbergh was happy to cash in on his fame while Coolidge refused all offers after he left office.

Coolidge arranged for Lindbergh to return to the states aboard the US cruiser, Memphis, where he was met by a crowd and by cabinet members, then there was a huge parade through New York City. Lindbergh and his mother stayed with the Coolidges at the temporary White House where Dwight Morrow, close friend of Coolidge from Amherst, introduced the young aviator to his daughter Ann. Aviation stocks, along with many others, soared and the Dow Jones Average by year end was at 200, the record high.

In his December 6, 1927 State of the Union message, he mentioned an economic slowdown and asked for the same things he had been requesting; sell Muscle Shoals, help farm cooperatives and keep spending down. In May of 1928, he complained to reporters about Congressional spending. “I am a good deal disturbed at the number of proposals that are being made for the expenditure of money. The number and the amount is becoming appalling.” He managed to get another tax cut passed including a cut in the corporate tax rate. The surplus that year was $398 million.

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The Coolidge Presidency III

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La Follette ran for president in 1924, as feared by the Republicans, but on the Socialist ticket and got little support from mainstream voters. His issue was “control of government and industry by private monopoly.” Coolidge ran a low key campaign and, as he had done in Massachusetts, did not name his opponents. His speeches were not in campaign style but on general subjects like “What it means to be a Boy Scout,” and “The duties of citizenship” including, of course, the obligation to vote. He used radio addresses very effectively long before Roosevelt adopted the medium. Coolidge’s voice, unlike most politicians of the era, was well suited to radio but could not reach the back of large crowds. In a 1927 poll on radio personalities, Coolidge came in fourth, after three musicians.

One of Coolidge’s radio talks had a profound impact on a nine-year-old boy who had put together the crystal set on which he heard the president. It was 1922 and Eugene Fluckey was nine years old. What he heard was “Press on. Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education alone will not; the world is full of educated derelicts. Persistence and determination alone are important.” The boy was so awestruck that he scribbled down the president’s words. He would later become the most decorated submarine captain of World War II and completed 12 war patrols without the loss of a single man in his crew. He was awarded the Medal of Honor and five Navy Crosses. He and his ship, the USS Barb, were known as “the galloping ghost.” Fluckey later told the story, “Silent Cal did not speak often but when he did people listened.”

Some of Coolidge’s refusal to campaign was certainly his depression after the death of his son. Some was a recognition of his own abilities, or lack of them. In his Autobiography, he says, “When he went, the power and glory of the presidency went with him. I don’t know why such a price was exacted for occupying the White House.” Dawes took up the slack and enjoyed campaigning. His delivery was electric. One said of him, ” It was said that he was the only man in the world who, when he spoke, could keep both feet and both arms in the air at once.” His principal themes were LaFollette and the Democrats. For LaFollette, it was “red radicalism.” He spoke out forcefully against the Klan in August but was warned that it could hurt the ticket and he left that topic alone thereafter. Davis, the Democrat, in spite of being warned, attacked the Klan forcefully but nobody was paying much attention. Oddly enough, he would be the opposing counsel in 1954 for Brown vs Board of Education opposing school integration.

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