–How to cure federal tax loopholes

An alternative to popular faith

The March 15, 2010 New Yorker Magazine contained a piece by Mr. James Suroweicki titled “Special Interest.” The article described a quirk of federal tax law in which private-equity fund managers pay taxes on their share of profits (also known as “carried interest”) at the capital gains rate. Mr. Surowiecki says, “If you manage money for a mutual fund or a public company, you pay regular income taxes; do it for a private fund and you pay capital gains.”

Because capital gains are taxed at a lower rate than regular income, Mr. Suroweicki feels this “loophole” is unfair and should be closed. He probably is right, though his solution is maddeningly typical and wholly wrong. He would close this “loophole” by doing away with the tax break, i.e. increasing the tax on carried interest.

Nowhere does Mr. Suroweicki suggest decreasing the regular income tax, though that step equally would close his hated “loophole,” while additionally providing a tax-relief benefit to the public. Instead he follows the popular faith that all our money really belongs to the government, and should any group find a way to send less than others to the government, the solution is to make them pay more, rather than allowing us to pay less.

The very word “loophole” has pejorative connotations: something that begs to be sealed up. Why can’t the carried interest tax rate be considered the “normal” tax, while the regular tax rates are considered the anomaly. Why must every perceived unfairness in taxes be cured by raising a tax rather than by lowering one?

The federal government does not use tax money to pay its bills. It, in fact, destroys all the tax money sent to it, and it creates new money when it credits the bank accounts of creditors. Federal spending is not limited by federal taxes. When your neighbor finds a way to pay less, this does not increase your own tax burden (though the same cannot be said for state and local taxes, as these entities do not have the unlimited ability to create money).

Yes, there is the pathological, human jealousy the have-nots hold for the haves. But, something more harmful exists: The false beliefs that we are the government, anything taken from the government comes from us, and anything given to the government benefits us.

We are not the government. We pay taxes; the government receives taxes. We are limited in our ability to spend; the government is not. We live, lust, feel, fight, work, worry, conceive and care for children. We dream of the future, but eventually we die. The government does none of these things.

It is a giant machine, a remorseless, monster grinder, only more powerful, because it has the unlimited ability to create its own fuel. Some of us fall into the grinder and lose an arm or a leg. Others escape. Mr. Surowiecki would call that escape a “loophole.” His solution: Close that “loophole” by making sure everyone loses and arm and a leg.

How about making sure no one loses and arm and a leg. How about cutting taxes to address unfairness. Has anyone ever thought of that?

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

–The bottom line on health care insurance

An alternative to popular faith

Despite all the claims and counter-claims, here are the facts about the proposed universal health insurance plan, whatever the specifics:

1. It will cover more people than now are covered by health insurance

2. It will lower rates for people who now pay high rates because of pre-existing conditions.

3. Therefore, the plan will cost money. No sleight-of-hand, no accounting tricks, can change that.

4. Trying to reduce costs by cutting pay to doctors, hospitals and pharmaceutical companies will reduce the number of doctors and hospitals and the amount of drug research – a self defeating idea.

5. Raising taxes also is a bad idea. History shows that higher taxes impede economic growth, while lower taxes stimulate it.

6. Put them all together – higher costs, no tax increases, no penalizing doctors, hospitals and pharmaceutical companies – and what is left? Federal deficit spending.

7. Increased federal deficits (unlike state, county, city, corporate and personal deficits) are infinitely sustainable, because the government has the unlimited ability to create the money to pay its bills. Despite massive deficit growth, no federal check ever has, or ever will, bounce.

8. Federal money creation has not caused inflation. In the past 50 years, the three years of greatest deficit spending – 1976, 1983 and 2009 – resulted in reduced inflation. Data indicates inflation is the result of oil prices, not federal spending

In summary, we should worry more about coverage than cost. To improve the lives of Americans (Isn’t that what this is all about?), the federal government should pay for the best possible health care insurance, and not spend endless hours trying to use magic to balance an unbalanceable budget.

Rodger Malcolm Mitchell

–Why the airlines are sick

An alternative to popular faith

3/15/10(AP) “Continental Airlines (will begin) a food-for-sale program . . . expects a $35 million annual benefit, from cost savings and added revenue. Delta Air Lines, American Airlines, US Airways and United Airlines. . . already charge for food on flights . . . Air travelers have seen a steady erosion of amenities included in the price of their ticket . . . from checked bags to pillows and blankets on board. Airlines call it unbundling the product, allowing them to offer lower base fares . . . But with so many add-on fees these days, a traveler could end up paying more when everything is added . . . . Some travelers have been packing lighter or carrying more on board flights to avoid checked bag fees. Likewise, some bring their own food on flights to avoid paying for meals.”

Has Continental addressed its problems or exacerbated them? Here are what may be airlines’ three main problems:

1. Internet pricing, which makes comparison shopping easy, driving down prices to below break-even.

2. Lack of a competitive advantage. Each airline is perceived to be a travel commodity, no better or worse for getting you from point A to point B than any other airline.

3. Overall flying hassle. Airport parking is a costly hassle. Long wait in the check-in line, long wait in the security line (“and take off your shoes”), limited carry-on, long walk to your gate, long wait at your gate (so get there 2 hours early), claustrophobic planes with 6-to-an-aisle, claustrophobic smelly bathrooms, wait hours on the tarmac, no food, retrieve your baggage (it’s lost), drag your baggage out of the airport, find a taxi.

Does anyone ever say, “I really enjoy airplane travel” (vs. “I enjoy taking a cruise” or even I enjoy driving)? So what do the airlines do? They collude to make flying even less enjoyable.

Although cruise ships are not airplanes, perhaps some lessons can be learned from them. There are cheap cruises and expensive cruises, but most emphasize on-board fun and luxury, not just the locations you visit. Some will pay to get you from home to the dock. Some will meet you at the airport, take your luggage and handle security in the most pleasant way (“Welcome, Mrs. Jones, have a Mai Tai.”) Most don’t charge extra for food (often of gourmet quality) or entertainment. Some will take care of your touring and ground transportation.

Cruise ships focus on the travel experience. By contrast, airlines send a mixed message. They focus on price, then nickel and dime you to death. They are the only industry I know that deliberately makes their customers’ buying experience miserable.

Consider another industry suffering with Internet pricing: Automobiles. If they were airlines, they would charge you to walk through a long parking lot and sit in a gloomy showroom, elbow-to-elbow with a hundred other people, charge you for those 50,000 mile warranties and sell you an unwashed car with no gas. The salesperson would charge to show you how to operate the electronics. Yes, they offer options, but don’t take it to the extremes the airlines have (“Would you like windshield wipers or just a rag?”)

My local car dealer has free parking, a gorgeous, comfortable showroom; free breakfast and lunch to all customers, whenever they come in, free Internet, free TV, and free car washes any time – and he still has competitive pricing.

Airline executives lack creative thinking. Ever hear of an airline that picked you up at your door or paid for your parking? Helped you with your luggage? Shepherded you through security? Gave you a tram ride to your gate? Fed you or gave you a recliner to sit on while you waited? Helped you with advice, maps, reservations and transportation in your destination city?

They pay their executives big bucks, to have a follow-the-herd mentality. And in this, they are just like economists and politicians.

Rodger Malcolm Mitchell

— All you need to know about the Left and Right

An alternative to popular faith

Here is all you need to know about the political Right Wing:
1. The RW wants to put President Reagan’s picture on the $50 bill, because he is the “most admired and accomplished Republican president of recent decades.” (Chicago Tribune)
2. The RW is strongly against big government and large deficits
3. President Reagan greatly expanded the federal government and up ‘til now, had run the largest deficits in U.S. history.

Here is all you need to know about the political Left Wing:
1. The LW wants to make excellent health insurance available to everyone, especially poor people and people with pre-existing conditions.
2. Adding all those insureds will require adding many more doctors and hospitals
3. The LW wishes to pay for improved health insurance by cutting payments to doctors and hospitals, by fining poor people who don’t buy insurance, and by taxing the “Cadillac” plans owned by union workers (which cover pre-existing conditions).

Rodger Malcolm Mitchell