Monday, December 4, 2017

American Intelligence Test: You’ll Know Tax Reform By Its Fruits

Tax Reform is in the offing with the Senate’s passage of its version of the House’s “Tax Cuts and Jobs Act” bill. The title is not an unimportant or irrelevant set of words, particularly the word ‘Jobs’. Embedded in the justification for Tax Reform is the objective, goal, ‘Promise’ of Jobs. The reason this is salient is that there must be underlying reasons that the Tax System needs to be changed, else why is it important to change it? With Republican control of the government, they are positioned to accomplish what their ideology and policies are founded upon. So, it can be expected that the new Tax System will align with, support and deliver upon those principles; and the reasons that Republicans promised will come forth as the “Fruits of their labor”.
Conveniently, the nation can and should take this opportunity to test and validate the reasons and results promised by the Republicans, the ‘Cause and Effect’ of their ideology, judgement and intelligence. Now to derive the value from this opportunity it is essential that we know what it is that can be expected from the Republican tax plan. This may not be obvious to everyone, or even most people, but if you don’t know what to expect then you won’t know if you achieved it. This doesn’t mean that everyone will agree on what to expect or how it should be measured; but without attempting to define it, we relinquish our dignity and the honor we would rightfully claim from fulfilling our duty to our American values.
What then are the outcomes, the results and expectations that are to be delivered by the Tax Reform effort? Since the House and Senate have passed their versions of the bill, it should be very easy to know what to expect. There may be some variations in the absolute values from some facets of the bills until they are reconciled and ultimately passed and signed into law; but there should be little room for misunderstanding of what direction and types of outcomes will come.
Shall we see how well you do in defining these, and how aligned you and your Congress are in the world to come? This may be the most important test you ever take. Choose wisely.
 Question A:   What are reasons it’s important to pass tax bill? Select all that apply.
(1). Reduce size of government
(2). Reduce taxes on lower income wage earners
(3). Increase wages
(4). Reduce taxes on middle income wage earners
(5). Increase tax revenues
(6). Reduce taxed on higher income wage earners
(7). Increase corporate investments in domestic production
(8). Recover tax revenues from overseas profits of US corporations
(9). Increase domestic employment
(10). Reduce National Debt
(11). Grow Small Businesses
(12). Increase portion of overall wealth held by lower and middle-class families
(13). Improve American competitiveness
(14). Increase the US’s Gross Domestic Product (GDP) level
(15). All the above

Question B:   Which reasons for tax bill can be quantified and measured? Select all that apply.
(1). Use Items from Question A as Choices for this question.

Question C:   How would you know Jobs improved because of Tax Reform?
(1). There would be more jobs
(2). Total taxable wages from jobs would be higher
(3). The rate of jobs growth would increase for a sustained interval
(4). Employment level would be higher
(5). Average wages in each tax bracket would increase

Question D:   Will your personal taxes and individual economic situation improve?
(1). Yes
(2). No
(3). Yes at first, but then No
(4). Not at first, but then Yes
(5). I don’t know

Question E:    Who benefits under new Tax Code?
(1). Everyone
(2). Wage earners under $50K
(3). Wage earners under $100K
(4). Wage Earners under $500K
(5). Wage Earners under $1M
(6). Wage Earners over $1M
(7). Corporations
(8). Small Businesses
(9). Non-wage incomes under $100K
(10). Non-wage incomes under $1M
(11). Non-wage incomes over $1M
(12). Estates under $11M
(13). Estates over $11M
(14). No One

Question F:    How would you know wages improved because of Tax Reform?           
(1). Your paystub would be higher
(2). Your level of personal debt would be lower
(3). Your cost-of-living would be lower
(4). Wages would increase above average rates that have occurred over last 5 years in each tax bracket

Question G:   Would your personal wealth increase because of Tax Reform?
(1). Decrease
(2). Increase
(3). Stay the same
(4). I don’t know

Question H:   How would you know the Economy improved because of Tax Reform?
(1). Gross Domestic Product would be higher
(2). National Debt would be lower
(3). Inflation stays below 3%
(4). Gross Domestic Product increases at a higher rate than last 8 years
(5). Wages are higher
(6). Trade Deficits are declining

Question I:      How would the distribution of wealth change in US under Tax Reform?
(1). Increase
(2). Decrease
(3). Stay the same
(4). Greater percentage of wealth is held by upper 1%
(5). Lower percentage of wealth is held by lower 99%
(6). There is no way to measure this

Question J:    Will the Nation’s Debt be higher or lower after 4 years, 8 years, 10 years? Assign each term to a category. Answer for each year range.
(1). Higher
(2). Lower
(3). Stay roughly the same

Question K:   Will Corporate investments require Government Infrastructure investments?
(1). Yes
(2). No

Question L:    If wages don’t meaningfully increase, employment rate doesn’t increase, wealth ownership for lower and middle-class doesn’t increase, and national debt doesn’t decrease will the Tax Reform bill have delivered on its “Promises”?
(1). Yes
(2). No

Question M:   How would you define “Failure” for the Tax Reform bill? Select all items that you would include.
(1). Wages versus Cost-of-Living is at or below where I am now (in 2017 dollars)
(2). Employment level is less than it is now
(3). National Debt is higher
(4). Average wages grew slower than Inflation
(5). Upper 1% control more of nation’s wealth
(6). Average personal taxes are higher as percent of income in each tax bracket except top

Now that the test is done, you may find solace in advice from the past.
Quote: My great concern is not whether you have failed, but whether you are content with your failure. – Abraham Lincoln

Answer - A:  Items 2 through 11, and 13, 14
Rationale - A:      These items are expectations, claims or promises that have been made about the results from the tax bill. It is by delivering upon these items that the nation will be better off under this governmental funding process. The needs of government will be funded as it is today via taxes. The Tax Reform is just changing how that will occur, and what must happen within the US’s economy for it to work.

This doesn’t mean that Item 1 won’t be required under the bill, but it isn’t directly cited as a reason to undertake the reform.

As to Item 12 – wealth distribution, it isn’t discussed or accounted for. This doesn’t mean that the new tax policy won’t have an impact, only that it is not a stated objective or goal against which to measure or assess the results.

Answer - B:  Items 2 through 11, and 13.   Note: 1, 12 and 14 are also measurable.
Rationale - B:      Every item in Question 1 can be measured in one or more ways, including those that aren’t implicitly claimed by proponents of Tax Reform bill. The ability to measure them should be properly understood as not inherently demonstrating a causal improvement from the tax bill without having a proper reference for what are normal rates of change in those factors. If for example GDP were to increase going forward, to assess the causal impact of the tax bill you must know how it has been changing previously to say the ‘rate of change’ changed.

Answer - C:  3
Rationale - C:      Since jobs have been increasing for over 8 years, just the fact that there are more in the future isn’t attributable to the tax reform bill. Likewise, if there are more jobs there ought to be more taxable wages going forward. This is why Item 3 is the right answer. Tax Reform to have an impact has to demonstrate a change in direction or amount relative to the run-rate that has been delivered for the past 8 years.

The above explains why Item 4 need not be caused by the Tax Reform unless it is a meaningful change above what has been already occurring in the economy. Likewise, Item 5 needs a quantifiable gain above the ‘norm’ or it’s just more ‘business as usual’ and not caused by the tax bill.

Answer - D:  5 - In the context of this test, the most informed (or uninformed) answer is 5.
Rationale - D:      I have no idea what the new tax code will do to or for you personally; hence the ‘uninformed’ qualifier in the answer above.

You probably have your own view of what the outcome will be; but it’s more a hope or expectation than a known quantity. If the answer were considered in the context of the whole nation, where that perspective is important in the total impact relative to everyone then you surely can’t know but only hope. Other questions in this test offer insight into how you would define the conditions that ought to be a basis for making that determination.

Answer - E:  Some of the people in Items 2 through 13 for at least some period of time.
Rationale - E:      That some will benefit in the initial year or two of the plan is assured if for no other reason than even politicians can’t find a way to insure only those they need to benefit will benefit. Now as to what happens over time, that will depend upon many things. The new tax code doesn’t and can’t insure anything unless the underlying factors that determine the results to the economy, the public and the nation are delivered in ways that accomplish those ‘promises’, expectations and beliefs. Such results rely upon the laws of physics, principles of economic, societal reactions to those outcomes, and unfortunately decisions made by politicians.

Answer - F:  4
Rationale - F:      Your wages only increase if valued against a measure to places your wages in the proper comparative context. If your wages double but everyone else’s triples, I doubt you would find your wages actually increased.

So, just more money in your pay isn’t necessary an improvement; nor is lower personal debt necessarily tied to better wages (you may have had to file for bankruptcy). As to whether your wages are higher if the cost-of-living is lower is an item for discussion. It may be lower cost-of-living does equate to a higher wage equivalent, but you may or may not agree.

Answer - G:  4 - You might be able to answer this for yourself, but for the majority of tax-payers it depends upon how it works out over time.
Rationale - G:     For example, if you are wealthier off in the first four years by $X dollars, but are worse off in the last 6 years by $Y dollars the it will depend upon how X compares to Y.

This will be true for Corporations and Small Businesses just as much as it does for individuals. The lower Corporate tax rate doesn’t guarantee that a company will be better off; that depends upon the impact that the new Tax Code has across the entire economy. If it screws up the consumer markets it may really hurt Corporations that are directly dependent upon consumers. It will be easier for a company to make a profit with a lower rate but that doesn’t’ mean the company will.

Answer - H:  2, 4, 6
Rationale - H:      For the options given 2, 4 and 6 would be positive indicators of an improving Economy. There are conditions where a declining 2 - National Debt may not be, but that requires some severe circumstances so should that happen our National Debt is probably the least of our problems. A lower National Debt would generally be economically good news.

Items 4 and 6 are fairly good and reliable measures of economic growth, so as a measure they should be expected. Now how much they change depends upon what is normal and thus if Tax Reform has an impact then it has to increase more than that normal level of change at least over some time. It would also be expected to retain the increased level of normal improvement once any effect of the Tax-Reform effect ceased.

Answer - I:  4 – The rich will get richer (by rich, it’s the very rich {top 0.1%} that will get richer).
Rationale - I:        There’s nothing in the Tax Reform Act that is oriented to address the question or issue of wealth distribution within the nation. Add to this the changes which will occur will do little to nothing to alter the current dynamics that drive the manner in which wealth is accumulated differentially over the population.

This does raise the question of how the middle-class’s improvement is defined within the ideology behind the new Tax System.

Answer - J:  4-Years: 1,  8-Years: 1,  10-Years:  1
Rationale - J:       The general assessment is that it will be higher. Now that in and of itself doesn’t tell you directly whether that is an improvement of, an erosion of, or no real difference to the nation’s economy. However, unless there is an unrealistically drastic increase in the broad measures of the economy higher national debt will not be good for the Economy.

Answer - K:  Yes
Rationale - K:      Given the degraded nature of much of the nation’s infrastructure, the expectation that Corporations and businesses will invest in their own infrastructure will necessitate some public investment in public infrastructure. Inadequate public infrastructure will present a risk and in many locations a barrier to corporate investment. So there is an unstated, but hopefully not unrecognized, imperative for government spending that will coincide with the private sector’s investments. This alone could be jeopardy to the expectations and the assessment of the to be delivered benefits from the Tax Reform Act.

Answer - L:  No
Rationale - L:      While you may want to argue that not all these items have to be delivered for the national economy to improve because of the tax bill, it’s highly improbable that it can do so without most improving and maybe one not losing ground. It is unlikely that the benefits required to justify the Tax Reform bill can be achieved without these measurable items being part of the outcome.

Answer - M:  1, 2, 4, 5, 6
Rationale - M:     All the items except 3 would indicators that the Tax Reform bill has failed. As noted in Questions H and J more debt is highly likely to be an economic sign of failed policy, but there can be conditions where it would be neutral to positive even if unlikely.

As for the other items, they reflect contradictory conditions which the Tax Reform was to deliver. So, if these items were to be improved under the bill and they didn’t or declined then a rational description of the outcome is ‘failure’.

Tuesday, November 28, 2017

Amer. Intelligence Test: Tax Reform - When Is the Truth A Lie? – Deductions

All Americans know that our Tax System is unfair and biased. What all Americans don’t seem to know is that not all Americans agree on what it is about the Tax System that is so unfair and/or biased. This renders the popular “common knowledge” about taxes as not common, not knowledge, and most importantly as not wise. This unfortunate circumstance follows along the line of reasoning that something cannot be both true and false simultaneously if we are talking about the exact same attributes of the same ‘thing’, in this case taxes. While some attributes may be true and other attributes may be false, a given thing such as your financial Income cannot be both income and not-income. Although we find ourselves with a tax system that has different types of income that are not considered equal to one another; and because of their clear distinctions are given different tax treatments from each other. Under the current Tax System and certainly under any Reformed Tax System income will be defined, and that definition classifies something as income (true) or not-income (false) but not both for the same purpose.
What does all this have to do with Tax Reform? It means that when deciding what is true (or false) about claims made about a new Tax System, it must be measured against the appropriate and corresponding attributes that are meaningful. One might argue this is more simply put as: Claiming something is better is not the same as proving that it is better. It may be ‘true’ that your tax-bracket will have a lower rate. That doesn’t mean that your taxed amount will be. So, in the Tax Reform effort to be pursued there is expected to be significant changes to Deductions. A major argument about deductions is that many (maybe all to some) are unfair and/or biased. Let’s see if you can show how well you understand the truth (or falsity) about Deductions. 
Question A:   Since all citizens will not meet the requirements for a deduction, is it fair to give them to some but not all?
(1). Yes
(2). No

Question B:   If all citizens can use the same deduction, like the ‘State and Local Taxes’ deduction, would that mean that it is fair and unbiased?
(1). Yes
(2). Yes, but only for State taxes
(3). Yes, but only to a fixed maximum
(4). Yes, but only to the degree that their state doesn’t get more federal funding than the national per-capita federal funding
(5). It’s much more complicated than that and the rules need to reflect that complexity
(6). No, some states’ taxes are higher and give their taxpayers a larger deduction
(7). No, unless their per-capita federal taxes are higher than the national average
(8). No

Question C:   Indicate which, if any, of the following Deductions are fair and unbiased?
(1). Standard Deductions
(2). Charitable
(3). Contributions to eligible Non-profits
(4). Donations to Religious (recognized) organizations
(5). Unreimbursed business expenses
(6). Investment losses
(7). Interest expenses – All
(8). Interest expenses – Some but not all
(9). Interest expenses – Mortgages only
(10). Corporate capital investments
(11). Medical expenses
(12). All of above
(13). None of above

Question D:   Is there a distinction between a Deduction, a Tax Credit and an Exemption?
(1). Yes
(2). No

Question E:    Is there any reason that some Corporations should have deductions that are fundamentally only applicable to their industry or sub-segment of an industry?
(1). Yes
(2). No

Question F:    Is the Cost of Living the same in every state, and does the Cost of Living make a difference on one’s taxes?
(1). Cost of Living, Yes; Changes taxes, Yes
(2). Cost of Living, Yes; Changes taxes, No
(3). Cost of Living, No; Changes taxes Yes
(4). Cost of Living, No; Changes taxes, No

Question G:   Deductions are intended to:  [select the items that apply]
(1). Promote investments
(2). Insure that families can make ends meet
(3). Establish a poverty level below which no taxes are required
(4). Encourage charitable, religious and community-oriented giving that benefit the nation
(5). Allow corporations to offset losses from equipment/resources depletion over its life
(6). Provide benefits for the wealthy to reduce their tax burdens
(7). Offset expenses that put taxpayers at financial risk
(8). Improve the economic robustness of the nation’s private sector

Question H:   Eliminating deductions will make higher income earners pay more taxes and promote a stronger middle-class.
(1). True
(2). False

Question I:      What does a stronger middle-class mean: [Select any that apply.]
(1). That 60% of the wage earners earn 60% of the nation’s wages
(2). That net wealth of middle half of wage earners increases faster than inflation
(3). That the concentration of wealth doesn’t exceed a specific percentage of wages earned
(4). That total family assets increases for middle 50% of wage earners grows faster than upper 0.5%
(5). That’s the problem, we don’t know what it means
(6). That there are fewer people below the ‘poverty’ level on average over any five-year window

Question J:    Is it true that eliminating deduction will make the tax system more ‘fair’?
(1). Yes
(2). No

Question K:   Which of the following factors affect whether eliminating the State And Local Taxes makes the new Tax system “More”, “Less” or makes no difference? Group items as either an “M” or an “L”. Do not put items that make no difference in either Group.
(1). State And Local Taxes
(2). Cost of Living Index for each state
(3). Gross State Product
(4). Average / Median Incomes by state
(5). Employment rate by state
(6). Per Capita Taxes paid by state
(7). Federal spending level by state
(8). Federal Emergency Management Agency budget by state

Question L:    If the new Tax bill passes will the new Tax system be more ‘Fair’?
(1). Yes
(2). No

Answer - A:  Yes
Rationale - A:      While all citizens have the same rights that doesn’t mean that all citizens have the same circumstances nor that the nation and all its citizens don’t benefit from how taxes and deductions are applied according to those circumstances. There is also a practical aspect to this reality, there is no way to treat everyone the same since even the most similar of taxpayers are never going to be identical let alone every taxpayer being rationally comparable to all taxpayers. The proposed Reform Tax plan won’t treat everyone the same; yet like the current system we can hope it will treat everyone equally. If this seems to be contradictory, then you are on the path to wisdom and perhaps even understanding our tax system.

Answer - B:  5
Rationale - B:      The notion that you can look at one variable to determine if everyone is treated equally is foolish (I wanted to avoid the use of the word ‘moronic’). To equate everyone as being equal on all other factors is known to be false to start with. To claim that those that appear to benefit more from a deduction is not actually proving that they do. Even with the ‘State and Local Taxes’ (SALT) deduction it is possible that those who get the larger deductions are still taxed more at the federal level than their peers in other states. It so how is taxing them more than the ‘more’ they already pay “Fair”?

New York, California and New Jersey are cited as getting almost a third of the benefits from SALT so that seems unfair. But these three states also are just over 20% of the population, and their incomes account for about 25% of the nation’s income. Does this mean that they pay more taxes to the federal government than other states also? Are we getting to a point where the claimed unfairness is a dubious claim?

It’s the complexity of a diverse nation that makes the simple-minded presumption that we’ll just make it simpler and the ‘problem’ will be solved. The SALT deduction may be beneficial to the economy, the nation and even the other states; if it is then what are the consequences to their loss?

Answer - C:  13. None of above.
Rationale - C:      Every deduction on this list makes some assumptions about what is a beneficial factor to the nation; otherwise there wouldn’t be a reason to have it in the first place. The theory behind a deduction is it is justified by providing a value to the economy and nation. Deductions aren’t actually meant for the citizens personally but rather to incent them to behave in ways that are good for everyone. The fact that they are a member of the set ‘everyone’ just means that they benefit also. Even the ‘standard deduction’ isn’t really the same for everyone except numerically.

Answer - D:  2. No
Rationale - D:      Ok, I will grant you a conditional ‘Yes’ if you want to state that they are different words with different spellings; but other than that, No, they are functionally the same. Each change what you consider a taxable amount of income in some manner according to some defined requirements and conditions. They can be explained and rationalized to sound like they’re different. But at the end of the day they just affect the number that you are taxed upon; so yes, they are different, and I am sure you can tell me how one changes the number differently than the others do. But until you can show me how the math changes the numbers differently, I am just going to have to wonder about the schools your parents paid good tax money for.

Answer - E:  1. – Yes, but 2. – No if you don’t agree with the requirement in first sentence of Rationale.
Rationale - E:      Well, Yes, if you think that Congress is smart enough to figure out how to determine what corporations will benefit the nation and our economy significantly or critically only if the deduction is granted. I have no doubt that circumstances and conditions exist where a corporate deduction is far better for the nation and economy than without one.

Answer - F:  4, mostly; there is a little of 3.
Rationale - F:      The Cost of Living is quite simple. It varies from state to state across the various factors that are looked at in a Cost of Living assessment. So, no it is not the same everywhere.

Now as to taxes, there is no implicit requirement in the tax system that adjusts anyone’s tax rate or basis because of Cost of Living differences. So, this is why Cost of Living isn’t a direct tax impacting factor. Now there are some aspects of Cost of Living that do actually impact taxes but not necessarily in a ‘fair’ manner, even if we knew what was considered ‘fair’ under our tax policy which unfortunately we do not. Consider that if your Cost of Living is higher then to be ‘on par’ and on an ‘equal playing field’ with your peers in other states then your wages have to be higher which leads to the unavoidable consequence that your taxes will also be higher. There’s a positive feedback issue at work here that pollutes the “common understand” of ‘Fair’.

Answer - G:  1, 4, 5, 6, 7, 8
Rationale - G:     Deductions are to encourage things that the government supports. So, the mortgage deduction encourages home ownership which the government believes is good the for the economy and our society. Deductions for children are viewed as good for the nation since a healthy economy requires a population to maintain that economy with a family-structure that provides for children. Likewise, deduction for corporations that enable them to prosper and support economic growth has national value. Another aspect of a deduction is that it should be generally independent of knowledge about who it benefits but rather based on why the deduction is beneficial (and thought not done today, there should be a verification requirement for demonstrated benefits or it expires each 5 years).

This doesn’t mean that all deductions are therefore good or beneficial but rather that there ought to be a societal, economic and national benefit associated with them. This is not always the case mostly because they are created by politicians who can’t seem to stop themselves from providing deductions that benefit special-interests that do not meet the essential requirement(s) for a deduction. Yes, your elected politicians are not there for your good but for the good of ‘valued’ people and you are just there to help fund them.

Answer - H:  2 – False
Rationale - H:      It’s false because it depends upon things not required to be true. If you want you could argue that it’s “iffy” but again depends upon things that are not a given.

If all deductions were eliminated then it may be more likely to be true, but if only some are then there will remain paths for higher income earners to side-step more taxes. Since there is no higher tax rate applied to higher earners than today they don’t pay more unless they use a deduction that is eliminate.

There is also a potential (probability) that if one deduction is eliminated that the alternative is to shift to another that is not. It may result in higher earners paying even less in taxes.

And let’s not forget that there is a distinction between ‘earned’/wages income and other income that the wealthier are differently taxed at than the more traditional wage earners are. So do ‘higher’ earners pay more? And if the middle-class earns more which is required to restore the middle-class as an actual middle-class they may have to pay more on their earnings. Should these higher wages not correspond to higher Costs of Living the restoration of the middle-class may be another ‘promise’ in hope only without any reality to substantiate it.

Answer - I:  5
Rationale - I:        Politicians and political parties talk a great deal about restoring the middle-class but they don’t actually spell out what that would mean for those who are suppose to be part of the “middle-class”. Unfortunately, without that simple and clear understanding it’s just another nice sounding promise; and we all know what politicians’ and party’s promises are worth. There’s nothing of value in the promise that isn’t ever fulfilled.

Answer - J:  No
Rationale - J:       Look at Answers for G and H. Deductions are part of the tax system. They are neither good nor bad because they are a deduction. So you have to look at what makes any given deduction ‘unfair’. This puts you back into the root cause / root problem realm. If you don’t define your terms competently, adequately and openly then you can never achieve the results that you demand: ‘Fair’. Is it hard to do this, to define ‘Fair’? If you think so, then why exactly did you vote for the politician you voted for, because none of them has defined it either; and it is not hard to do.

Answer - K:  More Fair:  1, 2, 5  ;   Less Fair: 1, 2, 4, 5, 6, 7, 8
Rationale - K:      If you noticed that items 1, 2 and 5 are on both the More and Less fair lists. The reason is simple enough, that it’s complex but also comprehensible. Nothing in taxes, wages, wealth, employment, deductions, budgets or the economy are isolated and independent from each other. If you do not understand how these factors interact then you choose to care for what you want to be true over what is true. The reasons for such a choice can be many and varied but I doubt that ‘fair’, honorable, or anything close to our American values would be part of it.

If you want to believe then you ought to be quite clear on what it ‘fair’.

Answer - L:  No

Rationale - L:      Until ‘fair’ is competently defined, it’s a convenient fiction to expect let alone to believe that any tax system that politicians define will be ‘fair’; and competent politicians are the “unicorns” of American political parties. Of course, politicians are merely representatives of the voters; this might explain quite a lot.