Unable to find a winning issue this campaign season, the Democrats have decided to resurrect an old favorite: class warfare. What was once perennial issue, though, has become a harder sell now that Wal-Mart employees own stock and factory workers have (discount) brokers. But envy is rooted deep in human nature and the Kerry campaign knows that it can be used to their advantage. As the Las Vegas Review explains:
In this campaign season, the Democratic Party has taken on itself the daunting challenge of convincing voters that George Bush's tax cuts have hurt them.
Well, they can't do that, exactly. Every American's effective individual income tax rate went down in 2002 and 2003, by averages of 1.1 percent and 2.2 percent, respectively. And average effective individual income tax rates will drop by 2.4 percent for the taxes due next April. (The drop is actually 3 percent if you count all federal taxes, according to the Congressional Budget Office.)
It's not unusual for a family with household income of $75,000 to have paid $2,000 less in income taxes after the Bush tax cuts than they paid before.
So the Democrats have instead turned to an old theme -- jealousy. OK, they argue, your tax rate may have dropped by 1.3 percent last year if you're in the lowest fifth of wage-earners who pay taxes (many pay none at all, of course -- rendering it difficult to cut their rates). And your taxes may have dropped by 1.7 percent if you're in the "middle quintile" of wage earners -- the $51,000 club. But rich people's taxes dropped by 3.1 percent! Don't you see? It's a subsidy for the rich!
Well, not exactly. While it may appear counter-intuitive, history shows that lowering the tax rates causes the wealthy to pay more in taxes, not less:
The Mellon Tax Cuts (1921, 1924, 1926)
Top tax rate fell from: 73% to 25%
% of taxes paid by the rich: Before -- 44.2%; After -- 78%
Change: The "Rich" paid 33.8% more in taxes.
Revenue Act of 1964 (Kennedy Tax Cuts)
Top tax rate fell from: 91% to 70%
% of taxes paid by the rich: Before -- 11.6% After --15.1%
Change: The "Rich" paid 3.5% more in taxes.
Economic Recovery Tax Act of 1981 (Reagan tax cuts)
Top tax rate fell from: 70% to 28%
% of taxes paid by the “ultra rich“ (Top 1%): Before -- 17.6% After -- 27.5% % of taxes paid by the “very rich“ (Top 10%): Before -- 48%; After -- 57.2%
Change: “Ultra rich” paid 9.9% more in taxes; “Very rich” paid 9.2%
The Economic Growth and Tax Reconciliation Act of 2001 (Bush tax cuts)
Top tax rate fell from: 39.6% to 33%
% of taxes paid by the “ultra rich“ (Top 1%): Before – 31.6% After – 32.3% % of taxes paid by the “very rich“ (Top 10%): Before – 63.5%; After – 66.7%
Change: “Ultra rich” paid .7% more in taxes; “Very rich” paid 3.2%*
(By contrast, the middle class pays 1% less (from 6.4% to 5.4%) than before.)
The Republicans obviously realize something the Democrats don’t: if you want to “soak the rich” all you have to do is cut their taxes.
*Congressional Budget Office Report, "Effective Federal Tax Rates Under Current Law, 2001 to 2014" (August 2004)
1
Joe your figures are deceptive, not to mention questionable. I handed out million in tax refunds this year and folks making over 200,000 were laughing all the way to the bank. The average refund for folks in that bracket increased by thousands, in some cases tens of thousands, over what their liability would have been prior to the Tax Act of '01. I've been toying with putting up a hypothetical example of a tax return to illustrate this, although such a post is not tremendously exciting for most folks :)
I'll only make a couple of brief observations and then I have to hit the sack-I've been working late prepping taxes. And maybe I'll have some data for you in a few days we can kick around.
Over 200K earners paid more in over all taxes last year because they took advantage of the TA to recognize huge unrealized gains in real estate and stocks, plus, unlike the middle class, they made more money last year. They did not pay more on their personal income tax return on their earned income percentage wise. They enjoyed much larger deductions than before for a variety of items and on accelerated A & D schedules detailed in the TA of '01.
One small exmaple, the deduction for SUV's was raised from 20,000 dollars to 100,000 dollars. IOW, a business owner could buy two hummers, claim he used them for business, and adjust his AGI by that expense, up to 100k. I saw this loophole get taken advantage of a few hours ago as I stayed up working on a client's return all night to get it stamped by Aug 16 (Aug 15th being a weekend). What a brilliant energy policy eh? We're not suing enough oil, we MUST use more...
It's a little puzzling to me why anyone would argue FOR a tax cut from a Supply Side if the end result is HIGHER tax revenues...let that sink in for a bit. If what you say were all there is to it, then the whole underlying alleged economic benefit for the TA of '01 WOULD NOT EXIST.
It's almost grotesque to argue that rich people should get a windfall in the middle of a war at the expense of the Federal Deficit which is ballooning becuase of Iwreck. We pay that deficit Joe, you and I.
Lastly, the class warfare rejoinder is absurd. You damn well better believe class warefare is in your interests and never, ever, forget it!
The reason you and I have so many benefits is because at some point in the past our ancestors picked up a rock, or a club, or a gun, and stormed onto the social landscape and demanded better treatment from their feudal corporate masters. Unions, child labor laws, minimum wages, workers compensation laws etc. All arose from refusal to allow the rich to exploit the labor of the working classes. Class Warfare saved our asses Joe.
Without it, you and I would almost certainly be peasants with little or no rights held rigidly in our repressive economic circumstances by a mix of ideology and threat of force.
Everytime one of your buddies retires after 20 years of service to a pension and healthcare for life, they should be thanking their lucky stars that in the past folks fought the rich and powerful, often at the cost of their lives and liberty, for that privilege. Everytime you send your kids of to school instead of to a sweat shop making clothing you should be thanking the brave pioneers who took to the streets and got their heads bashed in by hired goons to secure that privilege for your children. And it goes on and on.
I don't know how much history you're had the chance to take, you sound like a fellow who enjoys learning so I hope you've had a chance to take at least some, but our history as a nation in the 20th century is replete with examples of people demonstrating, striking, and organizing, to secure the privileges which we all now enjoy and which you would have us give back to avoid offending the rich.
Vote for who you wish of course. But it's hysterically funny to see someone such as yourself, who works their ass off passionately defend giveaways to the wealthy simply because the President happens to share their specific faith. But then, that's exactly what the GOP is counting on. As long as you stay focused on abortion, gay marriage, and swallow the line that this is unfair class warfare, you're doing their bidding well and their elite Lords are happy with you.
posted on 08.17.2004 2:26 AM2
~DS~ is right! Why trouble ourselves with millions of slaughtered innocents and the debasing of the foundational family structure when we can instead rise up in revolution against our bourgeois, capitalist pig oppressors and usher in a glorious worker's paradise?
From each according to his ability!
To each according to his need!
3
What do the CBO and OMB know? Either their charts and numbers are deceptive, or yours. Unless you got some kinda inside connection to the IRS, I'd bet a million dollars you're wrong.
posted on 08.17.2004 7:18 AM4
...now that Wal-Mart employees own stock and factory workers have (discount) brokers
The workers control the means of production. Now, if we can just get the state to wither away...
posted on 08.17.2004 8:05 AM5
You can go to Table 4 of the chart to get the differences. Look at what happens to the top 1% tax burden. It drops between .4% points and 1.8% points, depending on the year. It also drops for the poorest of our poor, the lowest quintiles. Where it goes up is in the fourth quintile and the "upper quintile" where the increase in thed upper quintile is being felt by those below the top 10% line. Average income for the lowest quintile, using 2001 numbers (last year) was $14,900. For the fourth quintile, first who is sharing the extra burden, it was $76,600. That would be something like two parents working $38000 a year job, nothing stellar. The top quintile's average is $202,000, but it has to be remembered that this is skewed heavily by the upper brackets of this quintile. As evidince, the top 10% average is $259,000 whereas the top 1% average income is $1,050,000. Since the burden of the top 10% and up drops that means that the brunt is being felt by families making between $55,000 and $150,000 (I'm rounding here). The average income in 2001 was $76,600. That is smack dab in the middle of the bracket. The extra burden then is being felt by the middle class, not the "rich" nor the lower class.
John Kerry is talking about getting the share of the top 1% to 2% back up and lowering it fro the other 98% by repealing the tax laws for these upper upper income brackets and passing new laws to help shore up the middle class--the engine of the US economy for the 20th century. I fail to see the problem here.
posted on 08.17.2004 8:08 AM6
BTW, I favor a national sales tax on everything except stable food and clothing items (thus not affecting the very poor) with no deductions for anything. That way the tax system encourages people saving and investing. It also means that it doesn't matter if I earned my money through appreciation of investments or through back breaking labor I get to keep all of it. It would mean that billionares such as Warren Buffet would probably see their tax rate dwindle whereas those like Donald Trump would see it sky rocket--since it is based on their consumption not their production. It would also get rid of the 5 cents on the dollar overhead of running the IRS. Sounds good to me, but I don't think the politicians will give up control of the purse strings so easily.
posted on 08.17.2004 8:13 AM7
DS --
The figures themselves are NOT questionable, but the INTERPRETATION may or may not be...what you and Joe both fail to point out is that "the rich" included in those figures comprises not only individuals with high incomes, but corporations as well. It is from the tax cuts to corporations where the increase in revenues comes. Because while corporations save money initially, they also increase their spending (on production materials, property, and payroll) all of which increases the relative amount of tax they pay.
As for Joe's figures, it's important to note that those figures are showing TAX RATES versus the EVENTUAL total of taxes paid, or to put it another way, the total amount a particular group contributed to the whole of national revenue.
Typicaly, those on the left complain that this is comparing apples and oranges, but it is NOT. Individual tax rates have an obvious and inarguable outcome on total revenue. If those taxes are too high (or too low!), revenues decline. There is indeed a happy middle where revenues are optimum. This is called the Laffer Curve (google it if you want to). Again, those on the left (who are usually Keynesians) disagree with this (but with absolutely NO contrary evidence). In fact, the mathematical and economic concepts involved in the Laffer curve are at LEAST six centuries old, and were first suggested by a muslim state advisor in 15th century Turkey.
"Soaking the rich" only depresses business. However, as Adam Smith pointed out, soaking the poor does the SAME. So to those right-wingers reading this, go back and read Adam Smith (my experience is that most righties have read neither Marx nor Smith). In my opinion, Smith would most likely have applauded the labor movements of the late 19th and early 20th centuries. Precisely because they were recognizing the economic value of what it was (labor) they had to offer.
Some regulation of business is necessary (just like foul lines are necessary in baseball), some taxation is necessary. Too much of either however is ultimately a bigger burden on the poor. Again to the righties, too much of a swing in the direction of lowering taxes has an equally adverse effect...there can be too much of a good thing, and frankly I think that Mr. Bush's next tax cut may be crossing that line....
posted on 08.17.2004 8:17 AM8
John Kerry is talking about getting the share of the top 1% to 2% back up and lowering it fro the other 98% by repealing the tax laws for these upper upper income brackets and passing new laws to help shore up the middle class--the engine of the US economy for the 20th century. I fail to see the problem here.
The problem is the approach doesn’t work. After all, the country’s wealthiest people don’t rely soely on their earned income (do you think Bill Gates is worried about his paycheck?). Kerry, who fall in that income group, knows that rich people will do whatever they can to avoid high taxes. Our entire economic history shows that the higher the taxes the more likely they are to be avoided. The “rich” will simply move their money into another form of less taxable income. That is what they have done in the past and that is what they will do in the future.
Kerry is malicious but not stupid. He knows that raising taxes will actually reduce the revenue that flows into the treasury. He just doesn’t care. The Democrats know that it is a selling point to feed off people’s jealousy and will exploit it for votes. That’s the only reason they keep beating this dead horse in the face of mountains of evidence that it doesn’t work.
posted on 08.17.2004 8:21 AM9
Eric,
The figures in the CBO numbers are share of individual income tax burden. It does not include any corporate income taxes. As evidence, look at the sum of the quintile's tax burdens--it is 100%. I agree with most of your points however. Businesses do need to be regulated and taxed, just not excessively. I also believe that Bush's tax cuts crossed the line as well. I we repeal it for the top 2%, those making well over $250,000 (average of the 5% line), then we recover something like $180 billion in tax revenue. Will that stifle business? Did it stifle business in the 1990's when the tax rate was higher? No. End of story
posted on 08.17.2004 8:24 AM10
Asshat,
The number[s] Joe quoted for tax rates are accurate (upon my brief inspection anyway. I'm a little burned out on taxes right now)
The conclusions he drew, that lower tax rates punish the rich with higher taxes, are a little strange.
The whole idea behind tax cuts as an economic stimulus is to encourage investment in business which is turn will lead to more employment and more consumer spending. By increasing employment and consumer spending, total revenue from payroll taxes goes up despite each individual taxpayer paying less of a percentage of their income in taxes. This is the basics of Supply Side Economics. It can work, it has worked in the past. But it only works if the people who's taxes are cut actually pay less in taxes than they would have otherwise in the same circumstances.
As Joe pointed, there were much higher tax rates in the past and each time those rates were reduced it provided a big fiscal kick to the economy. Unfortunately our democratic system being what it is, government spending continued to spiral upwards and our deficit began to grow. That deficit now threatens to wreak havoc and after being chicken littled in the 80's most Americans simply don't listen anymore to warnings about the national debt.
But the conclusion he's drawing here is that by cutting taxes, the rich are paying more. On the surface, this can also be correct but it's awfully deceptive and I'm sure Joe made some wealthy people cackle in delight with the subterfuge he pulled.
If you cut capital gains to 10%, a wealthy individual might decide that's a good time to take a cap gain in stock such as Dell or MSFT in which he has a whopping huge cap gain. The result is he pays more taxes than he would have had he not taken advantage of that lower cap gain rate.
But in terms of the ratio of income taxes to earned income, the rich are paying far less and the middle class, 40k-75k are paying slightly more on average. It is class warfare, Joe is correct on that. But the folks in the crosshairs are the same folks who've always been the targets, the middle classes, not the rich.
Of course, the rich cannot come out and openly work to screw the middle classes like this these days, nor would such a strategy be effective in a democracy. In a feudal society or one in which only privileged (White or male or Saxon etc) people get to vote or wield power, the rich would simply beat the living crap out of the middle classes and the poor until any trouble makers were dead and resistance was squelched.
That’s pretty much the way it was for millennia.
But democracy changes all that. The middle classes and the poor would simply vote in politicians who enacted laws to prevent the rich from pulling those shenanigans given the chance.
So the rich have to distract the middle class anyway they can and, better yet, enlist them to carry on the fight to protect the rich. That’s not an easy task when you think about it.
You’re basically asking a peasant to defend his feudal master from paying the peasant more money and providing greater benefits.
So it takes real skill; they do that a number of ways. Appeals to fairness, pushing emotional buttons like family values or 'morality', appeals to religious prejudice i.e. stem cells or gay marriage, appeals to patriotism, and of course the most favored technique of either party, appeals to fear AKA wagging the dog. In short, anything which takes attention away from the what's going on with taxes.
What you guys are doing here is falling for a combo of those above tricks. Mostly its religious prejudice I see at work. Not surprising this being an evangelical Blog, but there’s a bit of misplaced patriotism and plenty of misplaced fear. Like I say this is a free country and naturally you can make up your own minds.
Just remember, the rich are COUNTING on you to continue doing everything in your power to take on their tax liability. It’s not easy for them to come right out and say they want you to subsidize their wealth, they need you guys to do that for them. So they'll go along with bans on ESC's or harp on prayer in schools, because after all their kids don't go to public schools and they can travel abroad to get any treatment they want. They'll go along with a Constitutional Ban on Gay Marriage and they'll wrap themselves in the flag becuase after all, being gay is OK if you're loaded and it's not their kinds who will end up having their face burned off from an Iraqi IED.
That's basically the scam. It's a trade off just like anything else in politics.
(Note: Because of the change in cap gains rates, many hi end company employees and owners now have their pay structured in cap gains from company stock rather than salary specifically to lower their tax liability)
11
Joe,
Stop drinking the GOP koolaid. The CBO numbers do include capital gains taxes, not just payroll taxes. You are right that the ultra rich pay good money to work all the loopholes in the system. However that is happening regardless of if they are paying an effective rate of 38% or 36%. Bill Gates has a net worth north of $50 billion. If he had that in a CD earning 3% (Microsoft stock is up %5 over the last 365 days) that would be an income from capital gains alone of $1.5 billion. He is then looking at a tax savings of tens of millions of dollars. It's worth it for him to pay an accounting firm $1 million to save him tens of millions of dollars. Saying that the extra 2% points is going to cause a drastic change in this behavior is nonesense
posted on 08.17.2004 8:31 AM12
But in terms of the ratio of income taxes to earned income, the rich are paying
far less and the middle class, 40k-75k are paying slightly more on average. It
is class warfare, Joe is correct on that. But the folks in the crosshairs are
the same folks who've always been the targets, the middle classes, not the rich.
The problem (as I’ve pointed out before) is that terms like “middle class” and “rich” are relative. Take, for example, the median income of a family of four in West Virginia ($47,550). While you may think that a couple making 75K a year is “middle class”, the West Virgnians may see them as “rich.” After all, the couple is making 58% more than they are! And people in Connecticut? The whole dang state is rich! (median income: $81,891)
I can tell you that from my experience (re: being poor), most people aren’t jealous of the Warren Buffets and the Bill Gates of the world. They are envious of the people who are making just a little bit more than they are. If you live in a trailer you envy the guy with a brick house. If you have a two-story home you want a McMansion. We all want what our neighbor has.
What you guys are doing here is falling for a combo of those above tricks.
Spoken like a true Marxist. ; )
posted on 08.17.2004 9:02 AM13
Let's get real, government revenues are ASTRONOMICAL. What neither side is willing to do is what is actually necessary - CUT SPENDING!!!! Too many agencies, bureaucracies, regulation, redtape, pork! Department of energy, of education, the IRS, etc.etc. etc. Too much pandering, too much buying of votes. This is where the real fight is. Unfortunately, nobody has the stomach for it.
posted on 08.17.2004 9:05 AM14
BTW excellent analysis of a tiny example of the losers from the Bu$h Tax Cut: Charities.
http://slacktivist.typepad.com/slacktivist/2004/08/the_dotorg_cras.html
To sum it up, the Bu$h tax cut is a 6 - 12 % funding cut across the board to everything from the Red Cross to the Salavtion Army.
posted on 08.17.2004 9:06 AM15
America is not free of the the class system quite yet.
After all, the first thing every child learns in America today is that they are not going to grow up to be President unless they have at least a few million stashed away.
Our current President has never had to struggle to make rent. He has never had to decide if his child was "sick enough" to justify a costly trip to Doctor. He doesn't have to worry about saving for both his retirement and that of his parents at the same time due to the high cost of health care.
While this doesn't mean he isn't capable of empathizing with the average American, his life has been so different from them that he might as well have grown up on the moon.
Joe, if you truly don't think money matters, then kindly give me all of yours.
posted on 08.17.2004 10:16 AM16
In the past, high tax rates on the rich resulted in different behavior - the rich would invest a great deal of effort in sheltering their income from taxation. When taxes were lowered, their behavior changed. There was not as much gain from finding tax shelters, and so the income became taxable, albeit at a lower rate.
That is why lower taxes resulted in increased revenue and higher real dollar amounts from the richest Americans. One cannot simply consider percentages, one also has to consider behavior. HIgh tax rates create incentives for tax evasion behavior (of both the legal and illegal sort). When taxes are reasonably low, those incentives begin to dissipate to the point where it is no logner cost-effective for the rich to avoid taxation.
posted on 08.17.2004 10:19 AM17
You can blame this on the Bu$h tax cuts too (NY Times 6/22/2004):
Americans gave an estimated $240.72 billion in 2003, a slight increase from the previous year, according to Giving U.S.A., an annual survey of charitable contributions published by the A.A.F.R.C. Trust for Philanthropy, a unit of the American Association of Fundraising Counsel, and compiled by the Center on Philanthropy at Indiana University.
Estimated giving in 2003 equaled roughly 2.2 percent of the nation's gross domestic product, the fifth year since 1971 that charitable contributions exceeded 2 percent of the total output of goods and services.
"This occurs despite rather unsettling times," said Henry Goldstein, chairman of the Giving U.S.A. Foundation, which released the survey. "The economy is in what I would call partial recovery; there's a war, there's a threat of violence, there's a political campaign that is nasty, and yet philanthropy is really quite robust."
posted on 08.17.2004 10:40 AM18
After all, the first thing every child learns in America today is that they are not going to grow up to be President unless they have at least a few million stashed away.
How many Millions did Bill Clinton have stashed away? one of the few things I admire about the 42nd president is that he proved it is still possible for someone with humble origins to become president.
I think any good Govenor of any state has an equal or better chance of becoming President compared to any fat cat Senator.
posted on 08.17.2004 10:43 AM19
You can blame this on the Bu$h tax cuts too (NY Times 6/22/2004):
Americans gave an estimated $240.72 billion in 2003, a slight increase from the previous year, according to Giving U.S.A., an annual survey of charitable contributions published by the A.A.F.R.C. Trust for Philanthropy, a unit of the American Association of Fundraising Counsel, and compiled by the Center on Philanthropy at Indiana University.M
ROFL! No Hank you can blame that on Al Qaeda. Charitable contribution for 9-11 charities skyrocketed and peaked in the latter half of '02 and the first half of '03.
Try backing out those charities and see where your charitable contributions end up for '03. Hint: It's a net loss of billions from '02 and '01.
I do have something you can blame Bush for though, related to charities ... the proposed changes in estate tax alone is going to be devastating for most name brand large charities. Most large charities depend on a number of charitable trusts such as CRT's or Charitable Remainder Trusts.
You establish the CRT with a stated charity as the end beneficiary. You then place an asset such a stock or piece of property which has greatly appreciated in value inside the CRT. You can sell the asset, and pay no capital gains tax on the proceeds which you can then invest in income producing securities such as bonds. You can remove investment income from the CRT and upon your death the remainder transfers to the charity.
But Bush’s estate tax limit will reach 10 million in 2010 and then disappear completely. Then it resumes at current rates unless it is made permanent; and this is exactly what Bush is lobbying vigorously to do. That will eliminate the advantage of CRT’s and with them a major source of funding for the charities, many of whom provide essential services to the poorest and least fortunate members of our society. IOW, the poor will pay for this one.
Let's look at a few names Bush plans to gut:
The Salvation Army, The Red Cross, The American Cancer Society, YMCA and YWCA, Shriners, Habitat for Humanity, Easter Seals, Hospice, Meals on Wheels, Good Will Industries; need I go on?
How about something that may hit closer to home for the religious folks on this Blog: Campus Crusades for Christ, Catholic Relief Services, Lutheran Services in America, Big Brothers & Big Sisters, Special Olympics, The Boy Scouts of America, …
Every one of those charities, and many more, is bracing for a 6 – 15 percent funding cut across the board if Bush is successful, and that’s on Estate Tax cuts alone!
And what are we getting for this? So that folks who stand to inherit millions of dollars won’t have to pony up taxes on the amounts over one million? This is part of what you folks are defending. It’s pretty disgusting that the rich are hoping to con you into their camp on this. What’s amazing is that you’re falling for it.
When I listen to folks debate the Bush tax cuts I'm often sturck again and again by the utter ignorance displayed by the staunch apologists for the wealthy.
It's astonishing that anyone would enter into the fray armed with nothing more than a political opinion and remain completely clueless about what it is they're defending. God almighty at least READ the freaking thing before you shoot your yaps off .
20
Joe writes
"Kerry, who fall in that income group, knows that rich people will do whatever they can to avoid high taxes."
Bush also knows this and also foolishly tried to uhis fact to argue against higher taxes on the rich! Specifically, Bush said that high taxes on the rich are a failed strategy because "the really rich people figure out how to dodge taxes anyway."
The tax system can never be truly fair without collapsing upon itself in red tape. But some kind of balance has to be achieved. As Joe pointed out, the term "rich" depends to some extent on where you live.
But at some point, rich is "rich." If you can stop working today and live off your interest in a nice apartment in New York City or San Francisco for the rest of your life without worrying about medical costs, if you can afford an extra mansion, if you can afford a yacht and a sailboat and a hummer, if you can afford a sports franchise, then you are RICH. And I advocate taking at least 30% of your income and giving it to the government in exchange for what the government has provided you: the opportunity to live like a damn pig.
posted on 08.17.2004 11:46 AM21
Eliminate coveting and the Democrats have no platform.
posted on 08.17.2004 12:03 PM22
"...folks who stand to inherit millions of dollars won’t have to pony up taxes..."
Complaining about estate tax reform based on the 'liquid wealth' wealthy paying (or not paying) death taxes on cash assets is missing the point. Estate tax reform is necessary to solve the 'family farm' problem, where the cash poor but supposedly asset (land) wealthy have to sell their family land and thus get out of the family business in order to pay the tax burden.
(And aside from this issue, I have never understood why death is a taxable event. I do understand why sales of goods and income are taxable events based on society taking a share of the transaction for providing the stable infrastructure to support the transaction, but I do not see how that applies to death and inheritance.)
23
"Estate tax reform is necessary to solve the 'family farm' problem, where the cash poor but supposedly asset (land) wealthy have to sell their family land and thus get out of the family business in order to pay the tax burden. "
Yeah this is a really HUGE problem, worth abolishing the estate tax and losing the money the government earns from that tax ... which is used to subsidize farmers who grow more food than Americans can consume.
Give me a break.
posted on 08.17.2004 2:31 PM24
Quadko a number of laws have been passed to exempt family farms from estate taxes and allow legal transfer to heirs. The most recent is the Property Transfer Act of 1996 which addressed the probelm long before Bush Tax Cuts became a battle cry of the oppressed millionaires.
Again I strongly suggest researching issues ahead of time before repeating urban myths. The following is a reasonably good layman's resource for estate Taxes re: The Family Farm
Estate Tax Myth #1: the Estate Tax Forces Heirs to Sell Family Farms and Businesses
Proponents of Estate Tax repeal cite its impact on family farms and family-owned small businesses as a major reason for repeal. They argue the estate tax forces families to sell their farms and businesses to raise the cash to pay their estate tax bill.
This argument sounds plausible but is largely a myth. It is used as a cover for a proposal that would primarily benefit a small number of extremely wealthy families.
Despite the fact that the argument has been made over and over again for years, no one has found an example of a farm that was lost because of estate taxes.
Source http://democrats.senate.gov/~dpc/pubs/107-2-176.html
25
Spoken like a true Marxist. ; )
Spoken like a true McCarthyist Joe ;)
That's an example of using fear. For the record Joe, I'm not a commie. LOL, I'm a libertarian leaning Republican.
I retired at age 38 in 2000-after growing up in a foster family, paying my way through grad school, saving money like a miser, and teaching myself the world of stocks, bonds, and real estate, plus a little luck. If it wasn't for the high cost of Health Care and boredom, I'd never have to work again a day in my life.
I moved to Florida in '01 to spend my remaining years working a job, any job, at the Space Center..it's a childhood dream, I'm a space race kid.
Heh, turns out those aren't so easy to get ... I've done some outsourcing for USA (United Space Alliance) but so far, no KSC fulltime job for me.
So I'm here managing people's investments and helping them integrate their finances/taxes.
What I suggest folks do if they want to understand the tax code and start to learn about it and how to use it to benefit themselves is to take a simple basic tax course.
Block offers them for under 200 bucks in almost every city with a population over 50,000. And if you do well in the class many tax prep firms like Block, Jackson-Hewitt, Liberty, etc, will likely offer you a part time job during tax season where you can make a few bucks..it's great for retired people who have a pension Joe and who don't want a full time year-round job. I think you might enjoy it.
26
Rampant consumer debt due to the uncontrolled "I must have everything now" mentality is just as much to blame as al Qaeda for the reduction in giving. Let's all get our individual acts together before blaming everything else for the economic woes of this country. Personal responsibilty has been gone so long, we've forgotten what it feels like.
posted on 08.17.2004 3:51 PM27
I'll check up on it, thanks for pointing out the links. My comments are coming from several discussions with a few friends who grew up on farms, discussing their own fears and family experiences. Their goal was 'teaching and correcting' me (the suburbanite) what is important to them and what they think of the death taxes.
I am reassured that steps have been taken to alleviate the fear; nevertheless it is a real (if unnecessary) fear, and real fears guide political realities. Given that truism, I would expect a lot more reassurances to be a part of the estate tax discussion. The real fear also likely means people will fight estate taxes just to keep it far from their doorstep.
And I still don't understand why death is a legitimately taxable event. :)
(Tangent 1: I would expect anything officially marked 'republican' or 'democratic' such as that link to be spun so hard it becomes suspect when presented as a global truth. What else would they say- "We want to steal farms?" Still, point taken.)
{Tangent 2: Taxing "illegally- obtained income" is a reason not to drop the estate tax?! However true the rest is, that is simply silly and detracts from the argument. -from Myth#2.)
posted on 08.17.2004 4:04 PM28
Quad I agree BTW. Taxes in general suck. It's basically extortion.
Pay me, or I'll hurt you is how taxes are collected.
Throughout most of recorded history what passed for a government was nothing more than the most ruthless, successful gang on the block. That's still sadly the situation in many countries today.
We're lucky though in this day and age, and in this country; we actuallty get some accountability from the folks who hand out our money and we usually get something to show for it..roads, schools, weapons, and so forth. If they screw up really bad 'we the people' can fire them. It's not an I-deal but it's not a BAD deal ;)
posted on 08.17.2004 4:10 PM29
My understanding of the "logic" of Federal taxation is that it is NOT about raising money, it's about purchasing votes and power. In some countries, the rich purchase votes with their own money and we call that "corruption." In our country, politicians purchase votes with OUR money and they call it "representative democracy."
There is no logic to the Estate tax. The money in the estate has already been taxed at whatever the Federal tax rates at that time were. The wealthy, unless they are careless, don't pay this tax. There is an army of well educated professionals who spend their lives planning how to avoid it. So it's probably not a very effective money raising tool, except for the middle class person who has scrimped and saved and invested and doesn't know about estate planning, or a farmer whose land has appreciated wildly under him while he plowed it.
The money is ours. It is NOT the US government's. Tax cuts didn't give anyone money they "didn't deserve," it just let them keep some more of what was really theirs in the first place. (Unless you believe that the wealthy really didn't earn their money, don't deserve it, etc. Except for occasional schlocks who marry money, like Kerry, the wealthy people that I know personally work their behinds off for it.) Why is it fair to take 40% of one person's check and 5% of someone else's just because one is larger? Strikes me as obviously unfair, on the face of it.
posted on 08.17.2004 4:22 PM30
Estate Tax Myth #2: Estates Have Already Been Taxed Once
Proponents of estate tax repeal argue that the estate tax is fundamentally unfair because it taxes money that has already been taxed once. Their claim is that the wealth in the estate was already taxed once, as income when it was first earned as the estate was building up.
That argument does not hold water. It ignores the important role that the estate tax plays in our overall tax system, that of a "backstop" to the income tax. A significant amount of estates, particularly of large estates, represents income that has never been taxed.
Unrealized capital gains. Capital gains are not taxed until an asset is sold and the gains are realized. If a taxpayer does not sell an asset before death, the asset's basis is increased to its value at the taxpayer's death and included in calculating the value of the estate (a "step-up in basis"). Most estates are too small to owe estate taxes and these unrealized capital gains are never taxed. But for large estates, a portion of unrealized capital gains can be taxed - for the first and only time - through the estate tax.
Larger estates are also more likely to have a significant portion of unrealized capital gains. One recent study estimates that unrealized capital gains make up about 37 percent of estates worth more than $1 million and about 56 percent of estates worth more than $10 million.
Proponents of estate tax repeal effectively acknowledged the false nature of their own double taxation argument by including a provision to replace current law's step-up in basis with a carryover basis. This would allow an asset to be taxed when ultimately sold, rather than as part of an estate. Although probably unworkable - a similar provision was enacted in 1976 and repealed before it ever went into effect - this provision acknowledges that a significant portion of estates have never been taxed.
Untaxed income. Not all income is taxed. Some income, particularly illegally-obtained income, is never reported. Some taxpayers evade taxes. Others reduce their taxable income through legal means. Tax shelters and other devices often allow taxpayers to avoid paying tax on all of their income; such approaches are more likely to be used by higher-income taxpayers whose estates are more likely to ultimately be subject to the estate tax. For these taxpayers, the estate tax serves an important role in backstopping the income tax. Estate tax repeal would increase the appeal of income tax avoidance by removing this backstop.
Source http://democrats.senate.gov/~dpc/pubs/107-2-176.html
posted on 08.17.2004 4:50 PM31
Jimbo asks
"Why is it fair to take 40% of one person's check and 5% of someone else's just because one is larger? Strikes me as obviously unfair, on the face of it."
Except when you consider that the person making 5 million bucks a year has clearly benefitted a great deal more from our government's GENEROUS laws than the person making $15,000, it turns out to be quite fair.
Seriously, jimbo, what's up? Are the richest people in the United States not rich enough in your opinion? Gates, Trump, Ellison, etc. not earning enough to satisfy your heightened sense of fairness?
If you're really bothered by the high tax rates on the rich, you're free to send them some of your own money, you know. Nothing is stopping you from doing your part on an individual basis to ensure that the ultra-rich continue to receive as much of their "hard-earned" money as possible. And god knows all those white men at the tippy top of the ladder deserve every penny of it. They worked oh so hard. Brutally hard work. Seriously. The jet travel alone would wear most people down.
Or are you one of those guys who believes that a 40% tax encourages people to be lazy and stop trying to accumulate money?
posted on 08.17.2004 5:23 PM32
I wonder how successful DS is in convincing his clients that their focus on minimizing taxes and on passing on the largest possible inheritance to their children is selfish and greedy.
Fact is, the "estates" of most people is largely comprised of "untaxed capital gains", as if a capital gain naturally should be taxed. People's residences and their 401k's represent by far the largest portions of the middle-class family's net worth. As the retirement plans are liquidated, the capital gains convert to income, which benefits the government, as income taxes for most people are higher than capital gains taxes. But does DS propose a tax on the "untaxed" capital gains implicit in the inheritance transfer of the residence? A $150,000 home in the suburbs that was bought for $35,000 twenty years ago would carry a tax bill of about $13,000, plus more for state and local taxes, if applicable. Do you think this is fair?
Should we not, at the least, index capital gains taxes to inflation, to factor out government's role in inflating the value of the asset on paper, but not in real terms? Shouldn't CD investors in most years get a reduction in income taxes on the dividends because inflation typically cuts into 2/3 of the gains? Because an asset that grows by 2% per year isn't really growing at all, but the heavy hand of the IRS is still there with its hand out.
The government doesn't need more taxes. From anyone. Damn, they collected $2,200,000,000,000 last year!!! And spent even more!! Why doesn't THAT bother you liberals?
posted on 08.18.2004 9:21 AM33
DS--
"One small exmaple, the deduction for SUV's was raised from 20,000 dollars to 100,000 dollars. IOW, a business owner could buy two hummers, claim he used them for business, and adjust his AGI by that expense, up to 100k. I saw this loophole get taken advantage of a few hours ago as I stayed up working on a client's return all night to get it stamped by Aug 16 (Aug 15th being a weekend). What a brilliant energy policy eh? We're not suing enough oil, we MUST use more..."
I assume you didn't tell your client what you just posted here. How do you live with yourself, collecting money from people you despise? I presume you also despise the tens of thousands of blue-collar workers who build SUV's, and who vote Democratic. I assume that you believe that every business owner who buys an SUV doesn't use it for business-related reasons, such as: hauling equipment and tools, towing trailers, etc. And, if he wants one, why shouldn't he be allowed to have one? Did the government tell you what kind of car you could buy? Do you feel cheated because HE got a tax deduction for his vehicle and you didn't? And, he can't merely "claim" to use them as business--if you prepare returns as you claim, you know this. He has to provide mileage logs, receipts--unless you're just fabricating them? Is that what you're doing? Making up the numbers, then getting on here and bitching that he's paying you to make up the numbers? You've never prepared a tax return that forces data inputs like number or percentage of miles used for personal reasons, then the program automatically calculates your appropriate deduction?
And, while we're on the BS subject of fuel consumption, there is nobody more insufferable than the liberal left when it comes to environmentalism. Streisand and Cruise and Affleck with their private planes and stretch limos and hummers and 20,000 sq ft mansions telling the rest of us that we're using too much of the earth's precious resources? That I should conserve?
But, as long as they use their free time to bash George Bush, they get a pass from the rest of the pathetic, hypocritical, greedy, hateful Left. If Affleck and Cruise think they pay too much in taxes and use too much fuel, let them send in some more money to Washington, and take the carpool lane to Universal Studios. Until then, they should shut the hell up.
posted on 08.18.2004 9:39 AM34
I don't despise them at all Kevin. In fact I really, really, appreciate them.
I try to make my people as much money as I possibly can and I try to save them as much money as I possibly can. I'll stay up late at night reading the tax code and discussing it with other pros if I can save them 40 bucks. I enjoy doing it, and my job is to help the actual preparers (I'm on a team, we each have specialized jobs) prepare their taxes and make sure they get the absolute best deal legally possible.
That goes regardless of how I feel about the client in question. Now in practice, most people tend to do business with you because they like you and you get along well with them. So I like all my clients. This particular client I happen to like a lot and he/she is a raging liberal who fully understood the ridiculousness of the SUV deduction and who utilized the deduction legitimately as it is written in the Tax Code. It's also a relative, and yes; they do read this Blog when I call them up and bug them about it. So if they're not worried about, why the hell do you care?
I really don't have any moral judgments to make on the concept of taxation in general. I'm conflicted on the topic. Forcing people to pay money under the threat of harm is distasteful in the extreme. But that's how our roads, schools, police, social services, military, etc, are paid and equipment financed. I think compared to many countries and compared to many past cultures, we get a pretty good deal for our money.
But when I see Bush or Cheney (Or Clinton or Kennedy) lying about the tax code or tax cuts, when I witness first hand the rich being given a break at the expense of the middle classes, when I understand how the cuts work and how they benefit not just the average millionaire, but the mega-mega wealthy, when I see our deficit spiraling out of control because of cutting a trillion dollars of revenue in the middle a dumbass war no one can justify, when I have to pitch into to buy my cousin-in-law body armor months after 87 billion has been appropriated from tax payers ostensibly to ‘fund our troops, well it makes me a little sick Kevin and I’m going to speak out about it. That’s called democracy and free speech.
I'm sorry if you don't like the facts pertaining to Bush's changes to our current tax code, but I didn't write them. Direct all complaints to the WH or to your local Congressional Reps.
Lastly, the tone of your post is puzzling I offer facts garnered from expert knowledge and long experience in the field being discussed to counter the claims and address possible misunderstandings prevalent on this topic, and your response is to ignore all that and go for the ad hom. I’m quite capable of flaming the living crap out of you Kevin, I’m an old hand at this, but I assume that’s not what either Joe or his readers want to witness.
If you want to have rational productive discussion and a healthy exchange of viewpoints on tax policy, or evolution, or politics, or damn near anything, then I’m fascinated Kevin, I’m your guy.
Now how about we discuss tax policy as was the htread header and try to behave like adults?
35
Sorry. Still don't see how a tax cut for Jack Welch equals more to pay for you and me, when we're getting tax cuts too.
Government spends too damn much money. Period. But you don't see the liberal left and their defenders saying "no" to prescription drug benefits or taking on massive and unconstitutional education measures and staggeringly expensive welfare promises. In fact, they always say--not enough. More spending is always the answer for these people.
Rhetorical question: if our federal budget were $2 trillion, and federal revenues (taxes) $2.2 trillion, would you be arguing that the rich should pay more in taxes? Hopefully not.
Revenues isn't the problem. Spending is. The fact that I happen to believe in supply side economics is secondary, but it is true: tax cuts do create jobs, do expand the economy, do result in increased government revenues. Using your example above, your liberal hypocritical environmentalist relative wouldn't have bought his new SUV's if the government didn't give him a tax break. Fine. So he's happy. So the guys who made them are happy. So the gas station attendant on the nearest corner is happy. More money for everyone, which gets taxed again.
I know a little bit about taxes too. I'm on the tax committee for the largest trade association in my state, I'm a CMA, and spent eight years as the controller of a manufacturing company doing what I do now, which is pensions and retirement accounts management and estate planning. I'm always surprised to hear people in my profession say that their clients aren't paying enough in taxes, or that they are "laughing all the way to the bank", when most of the savings gets plowed right back into the business, creating new jobs, new capital needs, new customers, new rounds of taxes later.
posted on 08.18.2004 11:12 AM36
Joe:
He knows that raising taxes will actually reduce the revenue that flows into the treasury.Then why wasn't that the case when Reagan raised taxes, or when Bush 41 did it, or when Clinton did it? posted on 08.18.2004 11:45 AM
37
DS writes
"I’m quite capable of flaming the living crap out of you Kevin, I’m an old hand at this, but I assume that’s not what either Joe or his readers want to witness."
For the record, I might be willing to pay a couple bucks to watch you flame the living crap out of Kevin. ;)
Personally, I'm in favor of an income CAP, adjusted for costs of living in county of primary residence.
posted on 08.18.2004 1:40 PM38
No, in fairness we should have invaded Saudi Arabia first, and pumped the place so dry that the earth caved in. Fine. And as far as I'm concerned, we should pump out the oil equal to the amount that we're putting in--let the iraqis pay for their own rebuilding with the oil coming out of the ground. But when you adjust oil prices for inflation they are still substantially below what we were paying in the 70's. Even with no new refineries built, even with higher taxes. And, it's a little disingenuous for the Left to argue about energy dependency when they are the ones who have caused it: No drilling in Alaska, no more domestic refineries, no nuclear power, and they're even shutting down windmill farms in the west because birds occasionally run into them. If we're in bed with the Saudis, you can thank the Sierra Club and liberals as much as you can anyone else.
The same arguments re: Iraq were used during the Marshall Plan. Why are we rebuilding the economies of Japan and Germany, the architects of the Bataan Death March, Pearl Harbor, and Auschwitz? Why are we wasting precious resources in the Berlin Airlift when we have so many unemployed veterans at home? Good question. I happen to feel that the Marshall Plan was an investment in world stability, bringing Japan and Germany into the fold of civilized and industrial nations, and making one very solid ally (Japan) and one notional one. But there were plenty of isolationists even then, saying we're throwing money away on people who don't deserve our help.
Whether or not Iraq proves true also only time will tell.
You didn't answer my question: if the US Govt were spending $2 trillion, and brought in $2.2 trillion, would you cut taxes on the rich? Fact is, poor families pay less than zero in taxes--the Earned Income Credit can be claimed even for families who pay zero income tax, so they in fact get a free check, courtesy of whom? But I don't see the liberals racing around to shut these off.
posted on 08.18.2004 3:24 PM39
The Marshall Plan worked out pretty well and I sincerely hope the Iraqi boondoggle works out one tenth that good. Right now though it looks exactly like an ill-conceived, unwarranted, shameless oil grab for the benefit of a slect group of favored giant multinational corporations.
Bear in mind that Iraq did not attack us or declare war on us, or even pose a serious threat to the US,unlike the Axis in WW2. Whereas Al Qaeda did all those things. Nor is there an opposing world super-power to contend with like there was in Europe and Asia at the time. So there are some problems with that analogy although your point is well taken.
Sorry missed the question about the budget vs revenue.. If we had a bduget surplus and eventually zeroed out the debt or even make serious progress on it, I would be all for a tax cut for everyone.
40
Kevin:
If we're in bed with the Saudis, you can thank the Sierra Club and liberals as much as you can anyone else.It sounds good, but it's really not true. Nuclear power has never been cost-effective in practice, because of the gargantuan startup costs, and the ongoing cleanup costs, of which we still don't know the full effect. And we could drill for oil under every inch of US soil that's not already open to drilling, and the most optimistic estimates show a grand total of maybe four years worth of oil from all sources combined -- and it would take ten years for any of it to come on-line. The largest such source is ANWR, and the most optimistic estimates put it at a 2 year supply for US consumption; more realistic estimates say that roughly 180 days worth of recoverable oil exists there.
I agree with you on the wind farm issue, but there are ways to correct that without shutting them down, and many are already implementing it.
If environmentalist "whining" from "the left" is to be blamed for part of our energy problems, then all-or-nothing thinking from the right is at least as much to blame. For every leftist you hear complaining about fossil fuel use, you'll hear another rightist complaining that alternative fuels can never successfully replace fossil fuels. To which I say: so what? Doesn't it still make sense to get as much energy as possible from such clean alternative sources, even if those sources can never completely supplant fossil fuels?
This is why the Bush energy plan so angered me: it virtually ignored alternative energy ideas. We should be offering mondo tax credits for efficiency and renewable energy, rather than focusing on rolling back environmental protections and pursuing pie-in-the-sky "clean coal" technologies, etc.
posted on 08.18.2004 4:33 PM41
Kevin writes
"If we're in bed with the Saudis, you can thank the Sierra Club and liberals as much as you can anyone else."
Okay, Kevin, I'll admit that my blood pressure went up a notch after reading your li'l rant against those nasty Leftists and their granola crunching energy-depending ways. And I am disappointed that I couldn't inspire you to pop off about my income cap proposal. ;)
But I've come to realize that the arguments you make are very quickly becoming irrelevant so it's not worth me getting upset about. In a short period of time, we'll all be on the same page about oil, global warming, and related environmental issues. It's too bad it'll have taken the "Rightists" 40 years to get on board, but it'll come as something of a relief to not have to listen people arguing that we have so much oil left (when, in fact, there is very little left, if we assume present rates of consumption continue), that global warming isn't "proven," that alternative energy sources "will never work," etc., etc.
posted on 08.18.2004 5:17 PM42
I'm afraid the situation is probably more dire than most people realize Tgirsch. Nuclear fission reactors would cost over five trillions dollars to build in the required quantities and they would take millions of people to build and maintain in those numbers and within the allotted time. That's assuming economies of scale. Had we begun many decades ago, this might be a viable alternative. It no longer is.
Solar Light cells using current technology would necessitate plating a surface area in the neighborhood of 5-20 % of the entire land area of the US with photovoltaic material. The materials used to construct highly efficient solar cells are quite toxic, very expensive, and produce large amounts of hazardous waste as a by product which would need to be disposed of by deep injection wells(Or allowed to slowly poison us). The wells alone would cost hundreds of billions to build and safely maintain. Such a change in surface thermodynamics would also play hell with thermal absorption and resulting weather patterns in an unpredictable and potentially disastrous way. Similar problems arise from windpowered turbines.
Ethanol's require more petroleum to produce than they equivalently yield. That's completely out.
Hydrogen Fuel Cells require commercial grade molecular hydrogen. Hydrogen is the most reactive substance in the periodic table and does not exist naturally in sufficient quantity in molecular form to even be a viable economic possibility. There are no hydrogen mines. The requisite EV's to break hydrogen out of compounds such as water is greater than the energy released by proton fuel cell exchange techniques. The nearest source of significant pure atomic hydrogen is the Lunar Regolith.
Economic Hydrogen Fusion does not exist and is not on the horizon. Funding for fusion power has been repeatedly cut under all WH's.
We basically have two choices for a transition fuel to mitigate the effects of declining world wide oil production:
1. Compressed Natural Gas-can run cars and other internal combustion engines virtually unaltered. This will to keep our railways and shipping going
2. Coal can produce electricity in power plants
In addition there could be some benefit from building tidal basins to produce hydroelectric power and exploiting some geothermal sources; although neither of those will come close to doing the job without help from other sources of energy.
Lastly, there are techniques which convert the momenta of vehicles to angular momentum, rather than wasting it all on braking. Hybrids store it as electricity, flywheels store it as kinetic energy.
Sadly both parties have happily ignored these problems for decades and the current WH is actively destroying funding and removing what tax incentives did exist to develop any of these technologies.
Changes in environmental law and in energy polices have allowed unrecoverable oil deposits, such as the 4 trillion barrels of road tar in the Orinoco Tar Belts, to be classified as reserves. This is misleading because they're too viscous to pump up a pipe in meaningful quantities and far too deep to mine.
This spike in oil prices is just the beginning folks. Assuming Saudi Arabia or Kuwait does not go fundamentalist and keeps producing cheap oil, and until the Ghawar, Rumulia, and Al Barqen fields completely water out, the real fun will start in less than five years. Successful exploitation and proper reservoir management of untapped reserves in central Russia, around the Caspian Basin, would help a great deal and might buy the world another 5 to 10 years depending on how large and robust they turn out to be.
I almost feel sorry for whoever wins this next election. Our entire food production, processing, and distribution systems run on cheap oil. Our military sucks down gas like a an addict sucks down drugs. And we all burn oil madly in the US in our SUV's and homes.
If Peak Oil Theory and Hubbert are right, and so far they've been completely born out by empirical data, the next WH may well preside over the most dangerous period of massive upheaval since WW2.
43
or, maybe people will start driving less and flying less in the face of higher prices. or, maybe new oil fields will be discovered. or, we should have run out 25 years ago if these models were accurate, just like food and water and trees.
of course, if you believe what you're saying, I'm confident that you are 100% long oil futures. and that you have LEAPS positions on all the major oil companies, and are short all the firms that rely heavily on oil and gas, like transport companies and major retailers.
posted on 08.18.2004 9:39 PM44
I suspect you're right that people will travel less. And I hope I am wrong about the problem. It could be worse than the 70’s.
Newsflash: Huge Gas explosion near Houston. Oil near 48 bucks a barrel.
Incidentally, it's not about running out of oil. There's a great deal of oil in the ground, it's about getting it to market cheaply and in large quantities.
We might come up with new techniques to loosen up tar belts. Outside of injecting CO2 or steam into the reservoir, perhaps a microbe which 'eats' it and produces a less viscous waste product which can be pumped and refined will be engineered, or some kind of nanobot. Or maybe even a chemosynthetic bacteria that makes oil directly. This involves technology; genetic research. Some fundamentalist bioethics groups object to ‘playing God’ in this manner.
(Technology really is important to way of life people, vitally, critically, so: Which is why some of us get a little stressed out when folks diss science and work to prevent science from being taught early, taught often, and taught right.)
Kevin, I make no guarantees, this is not a solicitation to buy anything and I'm not going to get into a discussion about what I do or do not currently own. I could get tossed right out of my job and barred from the Industry if I started making specific recommendations on a public message board. My business is one of the most highly regulated industries in the nation.
Past performance is meaningless etc. This is just some friendly off the cuff general bull session stuff.. These could be total losers. If you give me your e-mail I'd be willing to discuss it further, but I still can't make any kind of specific recommendations unless you live in a state in which I’m licensed and all that kind of stuff.
Look for companies which make power plants…specifically power plants which utilize NG.
Companies which make components in the NG infrastructure …. Pipes, valves, trucks, etc. NG Infrastructure looks like a bottle neck right now.
There are hedge funds which go directly short on the NASDAQ 100 or T-notes. Go to the Rydex Homepage and poke around for some examples.
There are funds which invest directly in natural resource companies of all kinds. There are I-shares that track petroleum infrastructure stocks.
There are several small domestic oil producers based out of Texas, AZ etc who have barely survived the last 10 years of low oil prices. Now that oil price are higher some of them might do very well and some are very cheap right now. Hardly anyone is paying attention to them.
There is the Commodities Index and funds which stay long (or short).
In the event of collapse of the dollar, there are all kinds of managed currency hedge funds out there.
During periods of extreme volatility and breakdown, ‘stuff’ holds value better than paper. Gold, antibiotics, bullets, chemicals, water,…lots of survivalist angles.
Needless to say, never play with money you can’t afford to lose, never invest in anything you don’t understand, and never invest in anything you aren’t willing to accept total responsibility for. Do your due diligence, don’t listen to the nice retired postal employee neighbor across the street who thinks he’s a day trading genius because he has an account at CyberCorp and watches CNBC all day. Don’t listen to the slick Wire House Salesman who makes a great impression but will look at you in utter confusion if you ask what the derivative of e^x is.
I think one of the best moves anyone could make right now is to pay down debt. Consolidate credit cards, pay down mortgage balances. That kind of thing.
posted on 08.19.2004 8:01 AM45
Kevin I meant to add that this is not my idea about oil production peak. It's been around for years and it's not any kind of 'secular-atheist-commie' theory.
In fact, the guy who has taught me the most about it is Glenn Morton. A devout evangelical Christian. Gelnn told me last night that his Oil Site has been getting much higher trafic in the last two weeks. If you want to learn more about the threat go here:
http://home.entouch.net/dmd/Oilcrisis.htm
46
I think my problem, DS, is that I've heard all of this before. In the 1970's Malthusian economics was all the rage: we're running out of everything in the face of an exploding population. Well, it ignores human behavior. In the Western world, population is actually falling; our replacement rates are less than zero. Japan, Western Europe, Canada, all have birth rates of under 1.5%.
And, the prices of these commodities have fallen in real terms since then. How could we be running out of materials when prices are collapsing? Well, we use them more efficiently. We recycle more. We waste less. This is true of not only the raw materials inputs but the labor component as well. The miracle of the 1990's was the year-on-year double digit INCREASES in productivity rates.
I just don't believe that in the event of skyrocketing prices, which you foresee, that human beings will just sit there. We will buy fleets of cars with fuel cell technology, which will improve dramatically with demand, and, ironically, its price will fall. And, these same rising prices will make the tar pits in Alberta all the more compelling: at $26 per barrel it's a waste of time. Now, who knows?
I've heard all the stories about global cooling. Then global warming. Then we're running out of trees, of all things. Then the whole in the ozone, which turns out has always been there is is affected more by the sun than anything else. I just turn it off anymore.
I've never been bullish on commodities. The former Soviet Union is sitting on top of more coal, more oil, more tin and copper and steel and potassium and palladium and platinum and gold than they can get to in 20 lifetimes. They merely lack the engineering expertise to get to it. But that's changing, with the formation of partnerships with American (primarily) firms. And, though your information about Texas companies and oil service firms might be sound, we've been through more boom-and-bust cycles in oil, even in the face of skyrocketing demand, that it's just too risky. Unless you're Jed Clampett and find yourself sitting atop a giant pool of oil, why take the gamble?
And I still maintain that nuclear is the answer. Even the French have figured that much out. How many millions of barrels of oil can be saved with a few bricks of fissionable material? If oil prices do what you say, we're going to start building nuclear plants again, and oil prices will fall.
I just don't think the Left gives much thought to how human beings behave, in the face of higher taxes, higher prices, higher tariffs, higher regulations, whatever. They assume that behavior is static: if NYC sells a million packs of cigarettes a day, and you raise taxes by $1 per pack, NYC should see new cash of an extra million per day. Unfortunately, people now buy in New Jersey or Pennsylvania, and NYC LOSES money. And the Left never sees it coming.
posted on 08.19.2004 12:06 PM47
"I just don't think the Left gives much thought to how human beings behave, in the face of higher taxes, higher prices, higher tariffs, higher regulations, whatever. They assume that behavior is static."
Rubbish, Kevin.
And the fact is, that some behavior is static in the face of higher taxes, prices, tariffs, regulations, etc. I am not aware that Californians changed their driving habits in any signficant way when gas prices shot through the roof here. In fact, the number of gas-guzzling SUVs purchased increased.
How do you explain this "irrational" behavior Kevin? Gee, I wonder if it could have anything to do with the fact that a certain fraction of the population will believe anything that they are told by corporate advertisers? You know, just like a certain fraction of the population witll believe anything that are told by the Cato Institute (which is certainly not biased towards industry in any way, right? I mean, how could it be?)
posted on 08.19.2004 12:47 PM48
Kevin I hope you're right. My concern is that the data looks legit and the theory of peak oil has been borne out again and again. And while there are large deposits of oil, there are few remaining large untapped fields of recoverable oil.
Remember, it's not just growth of the population that does it, its growth of modern industry. China will surpass the US next year in total energy usage. If everyone in China used one third as much energy as everyone in the US, China would be using the entire global production of oil; over 80 million bbl/d, by themselves. That's not even considering India and Indonesia who are also industrializing.
But oil production has fallen every year since 2000. We may have hit the Global Hubbert Peak already. We’ll know by this time next year. If oil prices continue higher, but production falls globally even though the fields are pumping full tilt, that’s pretty much it.
Think about what happened in Texas in the 70’s and early 80’s. Oil went from a couple of bucks to over 40 bucks a barrel. But production in Texas fell during the same time period. Why would oil producers not produce as much as possible when the price for their product shot through the roof? That’s what classic economic theory would predict. But oil is not a paper product, it’s a finite resource, not an elastic quantity. IOW, they didn’t produce more to take advantage of the highest prices in the history of the business because they couldn’t. Not becuae it was all gone, but ebcuase they had reached the max limit of production for what was there. That's a subtle concept and I suggest everyone let it trickle around in their head. It's not how much oil is in the ground, it's how quickly we can get it to market.
And while I agree completely that humans innovation will triumph and that this is not the end, it might be the end of an economic era of depending solely on machinery that runs on cheap oil. It would spell the end of muscle cars, gasoline powered SUV's and so forth. It would spell the end of gas guzzling tanks, ships, and aircraft; or make them horribly expensive to operate anyway at a time when the economy and thus tax revenues, are contracting more violently than they have since the Great Depression.
I'm not trying to scare anyone, but this is a real concern, among many real concerns, and it's an example of why ignoring empirical data for ideological or political reasons can be a very bad idea.
Tax wise, to get this thread back to the original topic, it make sense to use tax incentives to encourage conservation and development of alternative energy sources. Even without an oil production decline, our present course still leaves us vulnerable to foreign geopolitical events we have no control over.
But what we're doing right now is backasswards. We're gutting many of those programs and giving tax incentives for the exact opposite. It's just nuts.
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DS writes
"ignoring empirical data for ideological or political reasons can be a very bad idea."
Sadly, this obvious concept is *itself* ignored by some people for ideological or political reasons!
posted on 08.19.2004 2:02 PM