Taxes

State Tax Policies

by

Tax rates vary significantly by state. The states with the lowest income tax rates, and most importantly the lowest “marginal” rates (the tax rate on your last dollar of income) tend to attract the wealthy and entrepreneurs and have higher rates of growth. Florida, Texas and Nevada in particular benefit from this type of tax regime. As an Illinois resident, virtually the only positive element of the tax situation in Illinois is that we have a “flat”, non-graduated state income tax rate at 3%. In all other areas (property taxes & sales taxes in particular) our rates are onerous and damaging to the business community. To see the income tax rate on a state-by-state basis, check out this site here and put in your state to see the tax brackets and the marginal tax at the highest income rates.

As states get into financial trouble, the situation is getting even worse. California has very high marginal rates, and continuous attempts to raise taxes (although the fact that tax increases must be approved by 2/3 of the legislature gives Republicans some say in that state), at a top rate of 10.3%! Admittedly this is a bit of a simplification, because states with progressive tax brackets like California typically allow for more deductions, while Illinois at 3% pretty much just takes your Federal taxable income and applies the rate with few distinctions. Changing Illinois to a graduated rate requires changing the state constitution, which is a big barrier to never ending schemes to move to this type of arrangement. Another factor on state taxes is that they are deductible against Federal taxes, although in fact the amount of the deduction is lower than it may appear because you have to cross the standard deduction before you can deduct the taxes, and there may be other income limits on deductions.

For wealthy individuals, the problem is acute. If you live in California, you may be taxed at up to 10.3% on your last dollar of income, while across the state border in Nevada you face ZERO state income taxes. This can be a big difference.

Read more

Michigan Employment

by

When I was back in college they had on campus interviewing. At the time in the very late 80’s we were in a midst of a recession and I was pretty open to talking to virtually any company.

I received a call from a recruiter and he started talking to me about an opportunity with Ryder trucking. Then he said something that I’ll never forget

“It’s in Detroit and don’t hang up”

The words ran together very closely and with urgency so it is obvious that this was a common problem, even then – as soon as people even heard the word “Detroit” they simply hung up the phone as a non-starter. I didn’t hang up on the guy (I was too polite back then) but I certainly viewed it as some sort of last ditch, about-to-be-homeless type of opportunity.

I have since worked near Detroit (in the vast suburbs) and I don’t want to slam the place based on stereotypes. The suburbs are very nice and the whole area seems to function OK – you might go into the city proper for a sporting event (which has security) but that’s about it.

This Wall Street Journal article reminded me of that time with the recruiter as it describes how white collar employees, often managers with years of experience in fields like marketing and technology, are finding themselves being laid off from the auto makers and related industries in Michigan. I’m sure that many, if not most, are hard working people just trying to do their best in a difficult situation. Since the housing market in Detroit has pretty much collapsed as well, people can’t sell their houses (except at a huge loss), and it isn’t obvious where they’d go, so they are just remaining in the state and are trying to make ends meet however they can. One former manager that they profile is now a janitor.

Read more

An Important Qualifier

by

Via Instapundit comes a major  (albeit British) media report that the Tea Party protest in Washington turnout could be as high as two million.

As impressive as that no doubt upper-limit estimate is, I think that the raw number leaves out an important qualifier.  To be    truly accurate, the report should say:

Two million people with jobs…

Getting hundreds of thousands of kids, the professionally unemployed  and government workers to show up isn’t that hard (especially if someone buys the bus tickets). Getting two million middle-class, middle-aged people with jobs, careers, children and businesses is way, way more impressive.

We can safely assume that for every individual who made it to the protest that there are dozens of people whose grown-up obligations prevented them from attending.

That thought should keep Obama and Pelosi up at night.

[update (2009-9-13 10:17pm): I should point out that I don’t think anyone really believes that two million people showed up in Washington. One percent of the entire U.S. population is 3 million people so two millions gets you two thirds of the way to one percent of the entire population. I don’t think there is a city in world that could handle that big an influx of people. Washington D.C. itself only has a population for 590,000 so having nearly four times the population of the city show up is really not credible no matter what the senior Democratic leadership thought. On the other hand, having hundreds of thousands of people, most who have never protested before, show up is significant and puts the tea party in the big leagues no matter how you cut it.]

[update (2009-9-13 6:53pm): For unknown reasons, all comments by Hippeprof were deleted from the thread below. This issue is being investigated and we will try to recover the comments. If anyone else saw their comments disappear please email me at the link to the upper right.]

[update (2009-9-13 8:02pm): 20 comments were found to have been removed by the spam filter. We have restored them and I will be cleaning up duplicates and removing the “hey, what happened to my comments?” post in order to keep the thread clean.]

[update (2009-9-12-10:16): The technical problems have resurfaced. Your posts may not show properly. We may have to freeze the comments. If you have an important point to make  you can email at the link to the upper right and I will add your comment to thread manually as time permits.]

The Coming Debt Repudiation

by

In-Cog-Nito sent me a pair of links, to an article entitled Why Default on U.S. Treasuries is Likely, and a shorter summary of the article. Troubling reading indeed, but still, RTWT.

It is not literally impossible that the Federal Reserve could unleash the Zimbabwe option and repudiate the national debt indirectly through hyperinflation, rather than have the Treasury repudiate it directly. But my guess is that, faced with the alternatives of seeing both the dollar and the debt become worthless or defaulting on the debt while saving the dollar, the U.S. government will choose the latter. Treasury securities are second-order claims to central-bank-issued dollars. Although both may be ultimately backed by the power of taxation, that in no way prevents government from discriminating between the priority of the claims. After the American Revolution, the United States repudiated its paper money and yet successfully honored its debt (in gold). It is true that fiat money, as opposed to a gold standard, makes it harder to separate the fate of a government’s money from that of its debt. But Russia in 1998 is just one recent example of a government choosing partial debt repudiation over a complete collapse of its fiat currency.

Zimbabwe option, anyone? Or the alternative of tax rates exceeding the peak from World War II — forever.

Have a nice day.

Advice for Charlie Rangel

by

You.. can be a millionaire.. and never pay taxes! You can be a millionaire.. and never pay taxes! You say.. “Steve.. how can I be a millionaire.. and never pay taxes?” First.. get a million dollars. Now.. you say, “Steve.. what do I say to the tax man when he comes to my door and says, ‘You.. have never paid taxes’?” Two simple words. Two simple words in the English language: “I forgot!” How many times do we let ourselves get into terrible situations because we don’t say “I forgot”? Let’s say you’re on trial for armed robbery. You say to the judge, “I forgot armed robbery was illegal.” Let’s suppose he says back to you, “You have committed a foul crime. you have stolen hundreds and thousands of dollars from people at random, and you say, ‘I forgot’?” Two simple words: Excuuuuuse me!!”

Steve Martin