Archive for the 'Finances' Category

21
Feb
15

The Minimum Wage and Magical Thinking

My mother always told me that money doesn’t grow on trees, but apparently it does in some people’s world. It is baffling to think that people think that if you raise the minimum wage that there won’t be effects felt elsewhere. Do they think that companies (owners and CEOs) are just simply going to eat the loss? Or that patrons will simply buy the same food, at the same rate, for an increase fare? Magical thinking indeed. Original by  is found here.

If all other factors remain equal, the higher the price of a good, the less people will demand it. That’s the law of demand, a fundamental idea in economics. And yet there is no shortage of politicians, pundits, policy wonks, and members of the public who insist that raising the price of labor will not have the effect of lessening the demand for workers. In his 2014 State of the Union Address, for example, President Barack Obama called on Congress to raise the national minimum wage from $7.25 to $10.10 an hour. He argued that increasing the minimum wage would “grow the economy for everyone” by giving “businesses customers with more spending money.” A January 2015 working paper by two economists, Robert Pollin and Jeanette Wicks-Lim at the Political Economy Research Institute at the University of Massachusetts Amherst, claims that raising the minimum wage of fast food workers to $15 per hour over a four-year transition period would not necessarily result in “shedding jobs.” The two acknowledge that the “raising the price of anything will reduce demand for that thing, all else equal.” But they believe they’ve found a way to “relax” the all-else-being-equal part, at least as far as the wages of fast food workers go. Pollin and Wicks-Lim argue that “the fast-food industry could fully absorb these wage bill increases through a combination of turnover reductions; trend increases in sales growth; and modest annual price increases over the four-year period.” They further claim that a $15/hour minimum wage would not result in lower profits or the reallocation of funds away from other operations, such as marketing. Amazing. Pollin and Wicks-Lim calculate that doubling the minimum wage for 2.5 million fast food workers would cost the industry an additional $33 billion annually. They further calculate that reduced turnover will lower costs by $5.2 billion annually and that three years of sales growth at 2.5 percent per year and price hikes at 3 percent per year will yield $30 billion in extra revenues. Let’s consider turnover first. Pollin and Wicks-Lim claim that an increased minimum wage will substantially reduce the costs of employee turnover, saving money that can now go to pay higher wages. The two fail to grapple with, much less refute, a devastating response to this idea from no less a liberal than the Nobel-winning economist and New York Times columnist Paul Krugman. In his review of Pollin’s 1998 book The Living Wage, Krugman wrote: “The obvious economist’s reply is, if paying higher wages is such a good idea, why aren’t companies doing it voluntarily?” (That question goes unaddressed in the current study.) Krugman continues, “But in any case there is a fundamental flaw in the argument: Surely the benefits of low turnover and high morale in your work force come not from paying a high wage, but from paying a high wage ‘compared with other companies’—and that is precisely what mandating an increase in the minimum wage for all companies cannot accomplish.” So scratch $5.2 billion. What about Pollin and Wicks-Lim’s sales growth projections? Well, sales don’t always grow. McDonalds reported a sales decrease of one percent in 2014. Some analysts think that fast food sales may have peaked in the United States. But there’s a deeper problem. In the absence of the higher minimum wage, employers would generally hire more workers to meet any increased demand for fast food. Boosting the minimum wage means that the revenues that wohave otherwise been used to hire new workers is not available. The end result: fewer jobs created and more folks unemployed. Pollin and Wicks-Lim recognize that raising the price means that people will eat fewer hamburgers and fries. They calculate that a 3 percent per year price increase results in a 1.5 percent per year decline in what sales would have been, which means that revenues would increase by 1.5 percent. Then they assume that the price increases won’t affect the underlying 2.5 percent annual sales growth rate. (Rising prices never slow sales, apparently.) Pollin and Wicks-Lim roughly generate the revenues they want to cover the higher wages by calculating that a three-year increase in prices and sales growth will net $10.6 band $19.8 billion, respectively. Adding these to the postulated turnover savings of $5.2 billion yields $35.6 billion, which handily covers the extra wage costs of $33 billion. Voila. Since all companies would have to pay the new minimum wage, they argue that all fast food joints wouldn’t have to fear that competitors would try to lure their customers away by lowering their prices. In this scenario, the restaurants get to sell fewer burgers than they would otherwise have done while making more money which they then fork over as higher wages. Aficionados of cheap tacos, hot dogs, and burgers are the big losers. But doesn’t selling fewer burgers imply a need for fewer employees? Never mind. Going through the artful assumptions in this scenario brings to mind the hoary old joke where a physicist, a chemist, and an economist are stranded on an island with just a can of soup to eat. The physicist says, “Let’s smash the can open with a rock.” The chemist says, “Let’s build a fire and heat the can first.” The economist says, “Let’s assume that we have a can-opener…” Meanwhile, two new studies by economists using actual wage and employment data have just been published. Both find that in the real world, the law of demand still applies to labor. In the first paper, Andrew Hanson of Marquette University and Zack Hawley of Texas Christian University analyzed how low wage employment would be affected in each state by the imposition of a national $10.10 per hour minimum wage supported by President Obama. The Hanson/Hawley study takes into account how wages relate to the varying cost-of-living levels among the states. First they report the number of workers in a state that earn less $10.10 per hour. Next they apply the widely agreed upon formula that for every 10 percent increase in wages there is a corresponding 1 to 2 percent decrease in demand for labor. They then straightforwardly estimate that boosting the federal minimum wage from $7.25 per hour to $10.10 per hour would result the loss of between 550,000 and 1.5 million jobs. States with higher numbers of workers making less than $10.10 per hour would lose the most jobs. Georgia, for example, would lose 51,000; Illinois would lose 65,000; Texas would lose 31,000; and Wisconsin would lose 34,000. The second study, published in December by Jeffrey Clemens and Michael Wither of the University of California, San Diego, parses how the actual increase of the federal minimum wage from $5.15 to $7.25 per hour between July 2007 and July 2009 affected the employment rates of low-skilled workers. Using U.S. Census employment data, they can focus specifically on how low-skilled workers fared when the minimum wage rose as the Great Recession proceeded. They compare what happened to the employment rates of low-skilled workers in states where they were generally earning below the new minimum wage versus those where low-skilled wages were already higher. They refer to the first set of 27 states as being “bound” by the increase and the second set as being “unbound” by it. The minimum wage, they show, exacerbated unemployment. Their analysis starts in December 2006, when the employment-to-population ratio—defined as the portion of working-age Americans (ages to 16 to 64) in the labor market—stood at 63.4 percent and ends in December 2012 when it had dropped to 58.6 percent. They estimate that by the second year following the $7.25 minimum’s implementation, the employment rates of low-skilled workers “had fallen by 6 percentage points more in bound than in unbound states.” In other words, job losses were considerably higher in states where unskilled workers had been earning less than the new minimum. Overall, they estimate that the minimum wage increase “reduced the employment-to-population ratio of working age adults by 0.7 percentage points.” That would have boosted the 2012 employment-to-population ratio from 58.6 to 59.3, which implies that there were 1.4 million fewer jobs than there would have been had the minimum not been increased. The conclusion is clear. Defying the law of demand will end up harming lots of the people minimum wage proponents aim to help.

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19
Feb
14

Credit score: 650 vs 800

As someone that takes pride in being fiscally responsible I found this graphic to be interesting.

Credit score_650 vs 800

21
Apr
11

Redistribution of YOUR life doesn’t work?

.

A young woman was about to finish her first year of college.  Like so many others her age, she considered herself to be very liberal, and among other liberal ideals, was very much in favor of higher taxes to support more government programs, in other words redistribution of wealth..

She was deeply ashamed that her father was a rather staunch conservative, a feeling she openly expressed.  Based on the lectures that she had participated in, and the occasional chat with a professor, she felt that her father had for years harbored an evil, selfish desire to keep what he thought should be his.

One day she was challenging her father on his opposition to higher taxes on the rich and the need for more government programs.

The self-professed objectivity proclaimed by her professors had to be the truth and she indicated so to her father..  He responded by asking how she was doing in school.

Taken aback, she answered rather haughtily that she had a 4.0 GPA, and let him know that it was tough to maintain, insisting that she was taking a very difficult course load and was constantly studying, which left her no time to go out and party like other people she knew.  She didn’t even have time for a boyfriend, and didn’t really have many college friends because she spent all her time studying.

Her father listened and then asked, “How is your friend Audrey doing?”

She replied, “Audrey is barely getting by.  All she takes are easy classes, she never studies and she barely has a 2.0 GPA.  She is so popular on campus; college for her is a blast.  She’s always invited to all the parties and lots of times she doesn’t even show up for classes because she’s too hung over.”

Her wise father asked his daughter, “Why don’t you go to the Dean’s office and ask him to deduct 1.0 off your GPA and give it to your friend who only has a 2.0.  That way you will both have a 3.0 GPA and certainly that would be a fair and equal distribution ofGPA.”

The daughter, visibly shocked by her father’s suggestion, angrily fired back, “That’s a crazy idea, how would that be fair!  I’ve worked really hard for my grades!  I’ve invested a lot of time, and a lot of hard work!  Audrey has done next to nothing toward her degree.  She played while I worked my tail off!”

The father slowly smiled, winked and said gently, “Welcome to the conservative side of the fence.”

Also reported on HERE.

16
Mar
11

Momentum drags for fiscal deal

Congress plans to buy itself some more time next week to sort out its ongoing spending battle, but lawmakers have made little progress on the major issues stumping negotiators.

White House-led talks have borne little public fruit, and rather than moving toward a compromise on fiscal 2011 appropriations, some lawmakers seem to be hardening their positions.

So House GOP leaders have again pulled together a package of relatively non-controversial cuts in a continuing resolution (CR) that would fund the government through April 8. The current CR (PL 112-4) expires March 18.

The measure (H J Res 48), which would cut $6 billion, meets Republican demands for spending reductions. But there are early signs of discontent among conservative House Republicans, who want to make bigger cuts and tackle major policy changes as part of any fiscal 2011 spending deal, including blocking money to carry out the health care law (PL 111-148, PL 111-152).

President Obama warned Republicans against using “the budget as a way to promote a political or ideological agenda,” and he said Senate Democrats would vigorously defend any direct assault on the health care law.

“These aren’t really budget items; these are political statements,” Obama said.

What I think is interesting about the above statement is just the opposite of what Obama is saying – Democrats (and many Republicans) have used fiscal promises to obtain voters. To me, THAT is a political statement. The only political statement we are making by this budget debate is one that we can’t just hand out money to wheover and that our government needs to operate under a balanced budget just like you and me.

The simmering fight over those kinds of policy changes could threaten the behind-the-scenes negotiations on a longer-term bill to fund the government through September.

House Appropriations Chairman Harold Rogers, R-Ky., said he expects the latest CR to be passed Tuesday, but he would not predict what would happen to a future fiscal 2011 bill if it included more controversial provisions.

“One step at a time,” Rogers said.

A House-passed bill (HR 1) would clip about $58 billion out of the current federal bankroll, a number rejected by Democrats. So far, neither side has suggested any serious effort to bridge that gap.

Many House Republicans had hoped that the coming stopgap would block funding for the health care overhaul and Planned Parenthood, among other policy changes.

Those provisions were left on the cutting room floor despite a plea from Republicans Steve King of Iowa and Michele Bachmann of Minnesota to “leverage” the CR as a “must-pass” bill and force the health policy provisions through.

The exclusion of those provisions could cause some Republicans to vote against this short-term CR, according to Jim Jordan, R-Ohio, chairman of the conservative Republican Study Committee.

“We’re evaluating this one,” Jordan said.

Majority Leader Eric Cantor, R-Va., seemed confident late last week that the three-week measure would pass. Even if some Republicans defect, Democrats are likely to support this measure as they did the current CR.

Three conservative groups — Heritage Action, the Family Research Council and Club for Growth — on March 11 said they opposed the latest round of stopgap funding. They urged lawmakers to push to complete fiscal 2011 appropriations, and to do so with the controversial policy provisions included.

“The time to bring our fiscal house in order is now, and defunding organizations that work against the principles of a majority of Americans needs to be done to show that this Congress is serious,” said Tony Perkins, president of the Family Research Council.

It would be difficult for Senate Democrats to reject the package of cuts put together by House appropriators. Almost of a third of the $6 billion in reductions comes from the rescission of $1.74 billion in unused money provided for the 2010 census, which is now complete.

The measure also realizes $2.6 billion in savings by eliminating money for fiscal 2010 earmarks that were continued in the five previous continuing resolutions. The rest of the savings comes from reducing or eliminating programs already targeted by Senate Democrats or Obama.

For example, the measure would cut a $43 million program intended to help steelmakers obtain loans. It has not had a new client since 2003, and both President George W. Bush and Obama had asked Congress to withdraw funds from it.

Outside of political pressure to stick with their agenda, lawmakers in both parties have argued that short bursts of stopgap funding make the federal government less efficient.

Republican Sens. John McCain of Arizona and Susan Collins of Maine have pushed for moving a separate Pentagon spending bill. Members in both parties have said that the budget delays place special strain on the Defense Department.

Obama agreed. “We’ve got a war in Afghanistan going on. We’ve got a wide range of issues facing the country on a day-to-day basis,” he said March 11. “The notion that we can’t get resolved last year’s budget in a sensible way with serious but prudent spending cuts, I think, defies common sense.”

Still, Obama also defended several programs, such as Pell grants for low-income college students, which have been targeted by House Republicans.

Sorting out those differences probably will take several rounds of serious negotiations in which both parties will have to swallow compromises they do not love. If not, they run the risk of shutting down the government.

“I’ve communicated directly to [House Speaker John A. Boehner, R-Ohio] as well as to [Senate Minority Leader Mitch McConnell, R-Ky.] that we want to work with them to get to a sustainable discretionary budget,” Obama said. “But we’re going to make sure that we hold the line when it comes to some critical programs that are either going to help us out-educate, out-innovate or out-build other countries.”

Kerry Young writes for CQ.

Original here.

08
Mar
11

The Return of the Balanced Budget Amendment

“The balanced budget amendment has good aspects, but it is simply not good enough in dealing with fundamental constitutional change for our country.” And thus with that 23-word statement in 1997, Democrat Sen. Robert Torricelli of New Jersey sunk conservative spirits. No longer did the U.S. Senate have the two-thirds it needed to enshrine a fundamental principle of governing into the highest law of the land: that politicians should pay for what they spend.

Controversial, I know. Pfft.

Due to Democrat Torricelli’s jellyfish backbone, the 1997 Balanced Budget Amendment fell one vote short of hitting the needed threshold, which was the same margin of failure as just one year before. And liberals couldnt have been happier. Their penchant for obligating the taxpayers of tomorrow to pay for the spending binges of today remained unbroken.

Not that the dissenting senators worded their objections that way. Nope. To Vermont’s incorrigible leftist Sen. Patrick Leahy, inserting a mechanism into the Constitution that would enable our government’s books to mirror the realities American businesses and families face daily was “bumper sticker politics” and “sloganeering.” The way toward rectifying Uncle Sam’s balance sheet was, according to Leahy, “political courage,” not tinkering with the Constitution. Thirty-three of Leahy’s Democratic colleagues agreed.

Mind-Boggling Debt

Of course, by “political courage,” Leahy didnt mean reforming our insolvent entitlement systems or abolishing many of the improvident, senseless, and unconstitutional government bureaucracies and programs in existence. Nah. He meant tax increases on the rich. You know the drill, people.

Prescience, however, is not a valued commodity in Washington, D.C., as lawmakers pursue policies that are in the best interest of their reelection, not of the republic.

When the balanced budget amendment failed in 1997, the federal deficit stood at just $22 billion and the national debt hovered around 5.5 trillion — meager compared with today’s obscene figures, where we have a deficit topping $1.6 trillion this year alone accompanied by a mind-boggling debt of $14 trillion and growing.

To put our debt in perspective, Kobe Bryant makes $25 million playing for the Los Angeles Lakers. Any guesses on how many seasons Kobe would have to play in order to pay off today’s national debt? How about a whopping 560,000. That’s chilling, and quite frankly, incomprehensible.

Heck, we’ve run deficits in 54 of the last 60 years, as the National Taxpayer Union points out. That’s a figure that would make Keynes himself blink.

Ironically, Leahy was on the right track when he spoke of the need for political courage. This country desperately needs it, but it must manifest itself in the form of politicians who will defend the property rights of all Americans as opposed to the current lawmaking that treats this nation’s treasury as a personal ATM card.

The brute political courage we need is for politicians to plug Congress’s desire to ransack the appropriations process to engineer winners and losers in the marketplace and thus perpetuate a class of constituents whose inspiration to vote is driven by keeping the government gravy train on a track straight to their bank accounts.

Thanks to the midterm elections, the time for real political courage is now: The balanced budget amendment is making a comeback thanks to one veteran and one freshman senator.

“The people are calling for it. They are clamoring for it. They’re demanding it,” said newly elected Utah Sen. Mike Lee, who has 19 of his colleagues, including Jim DeMint and Rand Paul, rallying in support of his balanced budget amendment. “The American people overwhelmingly demand it, and if members of Congress value their jobs, they are going to vote for it,” he told Human Events in an exclusive interview.

Lee’s a Tea Party faithful who believes his job boils down to this bare-bones task: produce a government in the original mold of the Constitution, which is to say, one whose legislative reach is restricted and clearly defined. In other words, a federal government that looks absolutely nothing like what we have today.

Opportune Time Needed

Lee is so intent on getting a vote on his balanced budget amendment that he’s ready to filibuster the vote on whether or not to raise the debt ceiling as a tactical move.

“I can tell you that there are a lot of people who will not even consider it [a vote on the debt limit] without a balanced budget amendment first being proposed by Congress,” he said emphatically.

That’s certainly one approach — to hold the Senate hostage until real, austere statutory spending limits are adopted.

Utah’s senior Sen. Orrin Hatch doesnt see it that way. He’s looking for a vote on his balanced budget amendment too, but at a time believed to be the most opportune for passage. He hasn’t set firm timetables or made any strict demands.

“You have to have a bipartisan vote. You have to have a President that does care, and you have to have a setting in time where people can’t do anything but vote for it,” Hatch explained. “Right now, I don’t think we have that.”

If youre keeping score, the two senators from Utah both have competing balanced budget amendments floating around the Senate. In some ways, these jockeying amendments are a reflection of the Tea Party being a big kid on the block within the GOP.

Hatch, though, has been in the Senate for more than three decades, and is confident that he can get a balanced budget amendment through, which is why he’s taking a softer tone and insisting on waiting for the best moment to accomplish that.

And there’s something to be said for Hatch’s, well, “political,” approach. He’s shepherded the balanced budget amendment since 1982, when it was approved in the Senate, but torpedoed in the House by then-Speaker Tip O’Neill. And, as noted above, Hatch came painstakingly close twice in the Senate, both in 1996 and 1997.

“It’s every bit as difficult now, but it’s important that we bring it up and that we make all the strides we can,” he said.

The long-serving senator has 32 co-sponsors for his bill, including Chuck Grassley of Iowa, who is the ranking member on the Judiciary Committee.

When it comes down to it, both Hatch and Lee’s amendments have the same goal: ending profligate spending. In fact, as Nobel Laureate James Buchanan said, “The balanced budget norm is ultimately based on the acceptance of the classic principles of public finance, meaning that politicians shouldn’t spend more than they are willing to generate in tax revenues, except during periods of extreme and temporary emergency.”

Courts Involved

There are notable differences between the balanced budget amendments of Hatch and Lee, which we lay out in detail in the accompanying chart. While Mike Lee would restrict government spending to 18% of the gross domestic product (GDP), Hatch’s limits the figure to 20%. The 40-year average of tax receipts to GDP is around 18%, and Hatch knows this to be the case, but, to quote him, “If you get it too low, then you lose any chance with the Democrats.” And that, right there, encapsulates the internal friction the GOP will face with this budding Tea Party caucus going head-to-head with those who are willing to work with Democrats to deliver a final product.

But there’s more: Hatch’s proposal allows a simple majority vote to waive the balanced budget requirement when there’s a declaration of war or a designated military conflict, whereas Lee’s amendment provides no such exception. His threshold is much higher — a two-thirds vote.

When aren’t we in a military conflict? Lee quips.

There are also differences in the enforcement mechanism. Lee would grant standing in federal court to members of Congress if flagrant violations of the amendment occur. Hatch doesnt want the courts anywhere near enforcement, believing that public pressure placed on politicians instead provides the best form of accountability. Plus, “Who wants the courts doing it?” asked Hatch, alluding to their predilection toward activism.

Lee himself acknowledges that court intervention would be rare, but that the mere possibility that it could occur would add some additional incentive to Congress to make sure that it stays within their restrictions.

So far, so good.

But procedurally, how would our gargantuan budget ever get balanced? We’re dealing with trillions of dollars here, after all, a highly complex web of arithmetic. Congress must make a good-faith effort, say Hatch and Lee, to use the best possible projections of spending and receipts. Even with the accurate projections, economic conditions change throughout the year that may inhibit the Feds’ budget from being balanced, such as underestimating costs, which happens more frequently than not these days. If such a scenario plays out, and a fiscal year does end with a deficit, such spending cuts can be incorporated into the next fiscal year’s budget and make up the difference on the back end. Under both plans, by the way, two-thirds of Congress would be needed to raise taxes, so it would be more likely than not that the budget would be balanced by spending cuts, not tax increases.

Hey, were all game for that.

Naturally, getting a balanced budget amendment adopted as part of the Constitution will not be an easy feat. And not because of the numerical hurdles and multiple steps needed to get any amendment through the Constitution (the process should be difficult). It’s because Democrats will kick and scream over the severe cuts to spending that would ensue after the adoption of a balanced budget amendment.

Heck, Senate Majority Leader Harry Reid and his left-wing posse went apoplectic at a proposed spending reduction of $61 billion over the next seven months, calling it “extreme” and “draconian.” Just $61 billion. Thats it. To realize just how absurd such objections were, $61 billion is only a one-third of the money needed to cover the interest payments for U.S. bondholders this year alone.

Imagine when formal debate begins on the need to cut trillions in spending to rein in our deficit? Democrats may cut off their right arms in protest.

“This is exhibit A for why we need a balanced budget amendment,” responded Lee. “Politicians have reached the conclusion that they are the bad guys unless they say ‘yes’ to more spending, and it’s in light of that aspect of human nature that particularly tends to affect politicians, and that’s why we need a constitutional amendment.”

Unified GOP Caucus

“If this is going to get passed in the next two years,” says Hatch, “President Obama will have to step to the plate. Ultimately you’ll need presidential leadership because everybody knows that you’re not going to get spending under control until we take on entitlements as well. You cannot do it without presidential leadership.”

Remider: There’s always new presidential leadership come 2012. Well, we hope so anyway.

In the end, expect the GOP to have a unified caucus on a merger of the Hatch and Lee balanced budget amendments. It’s hard enough (almost impossible) to get one through when Democrats are in control of the Senate and the presidency, so the Republicans will need a unified front like they’ve had in the past.

A balanced budget amendment restricts the power of lawmakers, and that’s why the left despises it, and will work vigorously to defeat it. Get ready.

In the end, it is exactly what the Constitution needs. And esteemed economist Milton Friedman identified why two decades ago.

Said Friedman: “The amendment is very much in the spirit of the first 10 amendments — the Bill of Rights. Their purpose was to limit the government in order to free the people. Similarly, the purpose of the balanced-budget-and-tax-limitation amendment is to limit the government in order to free the people — this time from excessive taxation.”

If we cannot cut the Welfare State under these distressing economic conditions, then we’ll never do it. Now’s the time.

http://www.redstate.com/jasonmattera/2011/03/07/the-return-of-the-balanced-budget-amendment/

11
Apr
10

The Sixteenth Amendment Did Not Allow the Government to Tax You!

So guess what time it is – TAX TIME! For many of you it is a viewed as a time to “get a refund.” Of course, this completely ignores the fact that the government has been taking your money, interest free mind you, for the entire year. That money never even hit your wallet (or purse for you ladies) so it never really seemed like yours in the first place.

But, what is the justification for the government to take 20 or so percent of your paycheck? If you listen to the Internal Revenue Service (IRS) then they will tell you that they do.

The Law: The constitutionality of the Sixteenth Amendment has invariably been upheld when challenged. And numerous courts have both implicitly and explicitly recognized that the Sixteenth Amendment authorizes a non‑apportioned direct income tax on United States citizens and that the federal tax laws as applied are valid. In United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990), cert. denied, 500 U.S. 920 (1991), the court cited to Brushaber v. Union Pac. R.R., 240 U.S. 1, 12-19 (1916), and noted that the U.S. Supreme Court has recognized that the “sixteenth amendment authorizes a direct nonapportioned tax upon United States citizens throughout the nation.” (link)

So POOF there you have it – the courts have undoubtedly recognized that the Sixteenth Amendment allows a direct income tax on [all] United States citizens. If you are a United States citizen, then you are taxable.

United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990), cert. denied, 500 U.S. 950 (1991)

the court found defendant’s argument that the Sixteenth Amendment does not authorize a direct, non-apportioned tax on United States citizens similarly to be “devoid of any arguable basis in law.”

Broughton v. United States, 632 F.2d 706 (8th Cir. 1980), cert. denied, 450 U.S. 930 (1981)

the court rejected a refund suit, stating that the Sixteenth Amendment authorizes imposition of an income tax without apportionment among the states.

United States v. Hockensmith, 104 A.F.T.R.2d 2009-5133, 2009 WL 1883521 (M.D. Pa. Jun. 30, 2009)

the court rejected the taxpayer’s arguments that no law created an income tax and that the taxpayer was outside the government’s taxing authority. The court held that the Sixteenth Amendment allows for the taxation of income and eliminates the requirement for apportionment among the states.

IRS Publication 2105 entitled “Why Do I Have to Pay Taxes” also states,

Congress used the power granted by the Constitution and Sixteenth Amendment, and made laws requiring all individuals to pay tax.

So there you have it. There is nothing unconstitutional about the Sixteenth Amendment so you are taxable. The Sixteenth Amendment reads as follows.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

But wait…

The Sixteenth Amendment was ratified on February 3, 1913, so if it is what allowed the government to tax “incomes, from whatever source derived” then we should have an influx of people start filing starting around 1913 or 1914. Please review the chart below as I have compiled a list of the number of returns from 1913 to 2005 as well as a corresponding population. I have also added a category of the percentage of the American public filing as well as a percent increase of filings from the previous year.

Year Number of Returns Population % of Population Filing % Increase
1913 358,000 97,225,000 0.37% NULL
1914 358,000 99,111,000 0.36% 0.00%
1915 337,000 100,546,000 0.34% -5.87%
1916 437,000 101,961,000 0.43% 29.67%
1917 3,473,000 103,268,000 3.36% 694.74%
1918 4,425,000 103,208,000 4.29% 27.41%
1919 5,333,000 104,514,000 5.10% 20.52%
1920 7,260,000 106,461,000 6.82% 36.13%
1921 6,662,000 108,538,000 6.14% -8.24%
1922 6,787,000 110,049,000 6.17% 1.88%
1923 7,698,000 111,947,000 6.88% 13.42%
1924 7,370,000 114,109,000 6.46% -4.26%
1925 4,171,000 115,829,000 3.60% -43.41%
1926 4,138,000 117,397,000 3.52% -0.79%
1927 4,102,000 119,035,000 3.45% -0.87%
1928 4,144,000 120,509,000 3.44% 1.02%
1929 4,133,000 121,767,000 3.39% -0.27%
1930 3,852,000 123,076,741 3.13% -6.80%
1931 3,411,000 124,039,648 2.75% -11.45%
1932 4,083,000 124,840,471 3.27% 19.70%
1933 3,892,000 125,578,763 3.10% -4.68%
1934 4,198,000 126,373,773 3.32% 7.86%
1935 4,670,000 127,250,232 3.67% 11.24%
1936 5,486,000 128,053,180 4.28% 17.47%
1937 6,350,000 128,824,829 4.93% 15.75%
1938 6,251,000 129,824,939 4.81% -1.56%
1939 7,652,000 130,879,718 5.85% 22.41%
1940 14,711,000 132,122,446 11.13% 92.25%
1941 25,870,000 133,402,471 19.39% 75.85%
1942 36,619,000 134,859,553 27.15% 41.55%
1943 43,722,000 136,739,353 31.97% 19.40%
1944 47,111,000 138,397,345 34.04% 7.75%
1945 49,932,000 139,928,165 35.68% 5.99%
1946 52,817,000 141,388,566 37.36% 5.78%
1947 55,099,000 144,126,071 38.23% 4.32%
1948 52,072,000 146,631,302 35.51% -5.49%
1949 51,814,000 149,188,130 34.73% -0.50%
1950 53,060,000 152,271,417 34.85% 2.40%
1951 55,447,000 154,877,889 35.80% 4.50%
1952 56,529,000 157,552,740 35.88% 1.95%
1953 57,838,000 160,184,192 36.11% 2.32%
1954 56,747,000 163,025,854 34.81% -1.89%
1955 58,250,000 165,931,202 35.10% 2.65%
1956 59,197,000 168,903,031 35.05% 1.63%
1957 59,825,000 171,984,130 34.79% 1.06%
1958 59,085,000 174,881,904 33.79% -1.24%
1959 60,271,000 177,829,628 33.89% 2.01%
1960 61,028,000 180,671,158 33.78% 1.26%
1961 61,499,000 183,691,481 33.48% 0.77%
1962 62,712,000 186,537,737 33.62% 1.97%
1963 63,943,000 189,241,798 33.79% 1.96%
1964 65,376,000 191,888,791 34.07% 2.24%
1965 67,596,000 194,302,963 34.79% 3.40%
1966 70,160,000 196,560,338 35.69% 3.79%
1967 71,651,000 198,712,056 36.06% 2.13%
1968 73,729,000 200,706,052 36.73% 2.90%
1969 75,834,000 202,676,946 37.42% 2.86%
1970 74,280,000 205,052,174 36.22% -2.05%
1971 74,576,000 207,660,677 35.91% 0.40%
1972 77,573,000 209,896,021 36.96% 4.02%
1973 80,693,000 211,908,788 38.08% 4.02%
1974 83,340,000 213,853,928 38.97% 3.28%
1975 82,229,000 215,973,199 38.07% -1.33%
1976 84,670,000 218,035,164 38.83% 2.97%
1977 86,635,000 220,239,425 39.34% 2.32%
1978 89,772,000 222,584,545 40.33% 3.62%
1979 92,694,000 225,055,487 41.19% 3.25%
1980 93,902,000 227,224,681 41.33% 1.30%
1981 95,396,000 229,465,714 41.57% 1.59%
1982 95,337,000 231,664,458 41.15% -0.06%
1983 96,321,000 233,791,994 41.20% 1.03%
1984 99,439,000 235,824,902 42.17% 3.24%
1985 101,660,000 237,923,795 42.73% 2.23%
1986 103,045,000 240,132,887 42.91% 1.36%
1987 106,996,000 242,288,918 44.16% 3.83%
1988 109,708,000 244,498,982 44.87% 2.53%
1989 112,136,000 246,819,230 45.43% 2.21%
1990 113,717,000 249,438,712 45.59% 1.41%
1991 114,730,000 252,127,402 45.50% 0.89%
1992 113,605,000 254,994,517 44.55% -0.98%
1993 114,602,000 257,746,103 44.46% 0.88%
1994 115,943,000 260,289,237 44.54% 1.17%
1995 118,218,000 262,764,948 44.99% 1.96%
1996 120,351,000 265,189,794 45.38% 1.80%
1997 122,422,000 267,743,595 45.72% 1.72%
1998 124,771,000 270,298,524 46.16% 1.92%
1999 127,075,000 272,690,813 46.60% 1.85%
2000 129,374,000 281,421,906 45.97% 1.81%
2001 130,255,000 285,081,556 45.69% 0.68%
2002 130,076,000 287,803,914 45.20% -0.14%
2003 130,424,000 290,326,418 44.92% 0.27%
2004 132,226,000 290,045,739 45.59% 1.38%
2005 134,373,000 295,753,151 45.43% 1.62%

We will notice that there are a few years where there was a big jump over the previous year. The biggest one is from 1916 to 1917 going from 437000 returns filed to 3,473,000 returns filed respectively. The second big jump is from 1939 to 1940 with 7,652,000 and 14,711,000 returns filed respectively. For the first example, 1916 to 1917 there was a whopping 3,036,000 extra returns filed for a total jump of nearly 695%. Why in the world would we have that big of a jump and later a 92% jump in 1939 to 1940? If the Sixteenth Amendment was what made us liable, then what happened in 1913, 1914, 1915, and 1916 where less than 0.43% of the American public filed? Was the government (IRS) so inept that it couldn’t wrangle in millions of righteous returns? Please… give me a break.

Take a minute and think about all your friends and family. Who files? If my life, everyone I know files (with the exception of children). I would venture to say that this is true for you as well. But look at the above table. Up until 1939 less than 6% of the public filed! For our purposes we will say that only 45% of the people file taxes today – the rest are underage or wholy exempt. By using this logic we still have a gap of 39% of the public not filing. That means that almost 4 of 10 people never filed up until 1939. And when I say they didn’t file, I mean they didn’t even fill out and sign a 1040 and of course didn’t pay taxes.

WHY!?

If you are more of a visual person let’s take a look at a graph. (Click on the graphic to see full view).

This graph was made from data from the IRS SOI report found here. The population data was found from Census.gov or other websites that derived their data from the Census Bureau. All data from the above table also was derived from these sites.

So seriously. Check that graph out. The part in orange is the number of returns filed and the yellow part is the population. Why is it that up until 1939 the number of returns generally did not change? But after about 1946 the amount of returns filed tracked with the population?

Look, it is pounded into our heads that we have to pay taxes. People always have and always have ever since the conception of government. This is true and I do not question this. Tax law has been around in America since it was founded – it is in the Constitution. However, America was founded on a unique idea that there were to be rules for how people were to be taxed. You know, the whole no tax without representation? No longer was it the will of the king or queen or dictator for what they wanted. No, for the first time the We the People were to have a say in how we were to be taxed.

Along the line something changed in America. I don’t know exactly what happened but I can speculate. I do know a few things though. The Sixteenth Amendment that was passed in 1913 did not make it so that I was taxable. If it was, then how do you explain the less than 6% of the population filing before 1939? Did it really take 26 years for them to finally enforce the Sixteenth Amendment? Certainly not the IRS I know.

The better answer is that in 1939 World War II started with the United States of America entering on December 8, 1941. Later in 1942 the American government signed into law what was called the Victory Tax of 1942. What it did was “There shall be levied, collected, and paid for each taxable year beginning after December 31, 1942, a victory tax of 5 per centum upon the victory tax net income of every individual (other than a nonresident alien subject to the tax imposed by section 211(a)).” So if you wern’t paying taxes before, then you were now. This was later repealed by the Income Tax Act of 1944. But alas, two years was enough for people to get used to the government mandating that they have money taken out of their paycheck to give to the “good of the government,” which at the time of the bill was to fight the Axis of Evil.

But this still doesn’t explain why we had massive increases in people filing from 1939 to 1942 – 7,652,000 to 36,619,000 filings respectively. I have a theory but I believe it was because of the Social Security Act of 1935. Prior to this America had gone through the Great Depression – 1929 to 1939. During these times people’s lives were ruined. Their savings depleted and many were looking for help. The government has always take care of it’s people with retirement plans, unemployment benefits, temporary assistance, and other programs to help its workers out. Essentially what the Social Security Act of 1935 did was open up these programs to the general public, even if they were not working for the government. In other words, people could purchase “insurance” through the government.

I would assume that the support grew quite rapidly in the following years for the program. After all, people had just got done starving on the streets and living in the gutter – they wanted help. Of course, good old Uncle Sam was there to lend them a helping hand! In 1940 the government did a major overhaul to the tax law. The major addition was the Subtitle C taxes, called employment taxes. The language of Subtitle C of the Internal Revenue Act of 1940 is almost, if not, word for word taken from the Social Security act of the 1935. What am I saying here? I am saying that if you wanted to participate in Social Security then you had to be treated in a different manner than you were before so you could be eligible. This is why there was an increase in taxes filed from 1935 to 1939. Look at the filings from 1925 to 1935. In general the amount of people filing is 4 million. There is very little deviating in these ten years. However when Social Security became an option (1935) about 1 million people voluntarily signed up every year until 1939 – then it was coded into law and then concreted into people’s minds that their “employer” took out money via the Victory Tax. It became commonplace. It became expected.

I am not really sure if I am making sense here. We will never know exactly how or what happened with the history of taxes. I do hope that by this table and chart that I have made you DO question what the government says about “why you must pay” though. They cite the Sixteenth Amendment as the precedent for being able to tax you but it can be clearly seen that it did not. Less than 6% of people filed taxes, much less paid taxes, before 1939.

Why? Why? WHY?!

Nothing has changed with laws. If you were not taxable back in 1920 then you are not taxable today. The Code has not changed in substance, only structure of how it was written. The courts, including the Supreme Court and Tax Court, have ruled that the Sixteenth did not expand the taxation power of the government.

Stanton v. Baltic Mining Co. , 240 U.S. 103 (1916)

it was settled that the provisions of the 16th Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged, and being placed [240 U.S. 103, 113]in the category of direct taxation subject to apportionment by a consideration of the sources from which the income was derived,-that is, by testing the tax not by what it was, a tax on income, but by a mistaken theory deduced from the origin or source of the income taxed. (link)

Brushaber v. Union Pacific R. Co. 240 U.S. 1 (1916)

The various propositions are so intermingled as to cause it to be difficult to classify them. We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the Sixteenth Amendment provides for a hitherto unknown power of taxation — that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes.

[…]

…they would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned. Moreover, the tax authorized by the Amendment, being direct, would not come under the rule of uniformity applicable under the Constitution to other than direct taxes, and thus it would come to pass that the result of the Amendment would be to authorize a particular direct tax not subject either to apportionment or to the rule of geographical uniformity, thus giving power to impose a different tax in one state or states than was levied in another state or states. This result, instead of simplifying the situation and making clear the limitations on the taxing power, which obviously the Amendment must have been intended to accomplish, would create radical and destructive changes in our constitutional system and multiply confusion.” (link)

Eisner v. Macomber 252 U.S. 189 (1920)

Afterwards, and evidently in recognition of the limitation upon the taxing power of Congress thus determined, the Sixteenth Amendment was adopted, in words lucidly expressing the object to be accomplished:

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states and without regard to any census or enumeration.”

As repeatedly held, this did not extend the taxing power to new subjects, but merely removed the necessity which otherwise might exist for an apportionment among the states of taxes laid on income. Brushaber v. Union Pacific R. Co., 240 U. S. 1, 240 U. S. 17-19; Stanton v. Baltic Mining Co., 240 U. S. 103, 240 U. S. 112 et seq.; Peck & Co. v. Lowe, 247 U. S. 165, 247 U. S. 172-173. (link)

Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 (1926)

The Sixteenth Amendment declares that Congress shall have power to levy and collect taxes on income, ‘from whatever source derived’ without apportionment among the several states, and without regard to any census or enumeration. It was not the purpose or effect of that amendment to bring any new subject within the taxing power. (link)

Penn Mutual Indemnity Co. v. Commissioner, 32 T.C. 653 at 659 (1959), aff’d, 277 F.2d 16, 60-1 U.S. Tax Cas

In dealing with the scope of the taxing power the question has sometimes been framed in terms of whether something can be taxed as income under the Sixteenth Amendment. This is an inaccurate formulation [ . . . ] and has led to much loose thinking on the subject. The source of the taxing power is not the Sixteenth Amendment; it is Article I, Section 8, of the Constitution. (link, sorry I had to use wiki as I could not find a free link to the TC case)

Emphasis mine. So what is it besides the fear of the IRS that makes you eligible for taxes? Is it really the 16th like the government tells us? I’d like to know your thoughts.

06
Mar
10

Taxes: This or That

If someone came to you on Day 1 of your working life… or even now… what option would you choose?

Option 1:
The government will take out a small portion of your paycheck to help pay for services for you in the future (taxes). The services would include money for if you become unemployed, money for if you should you become disabled, and money for when you get old and want to retire (among other things, but let’s just go for these items).

Option 2:
The government does not take anything out of your paycheck (no taxes). If you fall on unfortunate times the government will not help you out – unemployed? Too bad. Disabled? Too bad. Want to retire? Hope you saved.

Option 1 offers you more of a safety net. However, Option 2 gives you more money up front to save, spend, and possibly invest and make more in the long run.

What would you pick?




Quotes:

"We are apt to shut our eyes against a painful truth... For my part, I am willing to know the whole truth; to know the worst; and to provide for it." - Patrick Henry

"Politicians and diapers both need to be changed, and for the same reason." - Anonymous

"Right is right, even if everyone is against it, and wrong is wrong, even if everyone is for it." - William Penn

"Naturally the common people don't want war; neither in Russia, nor in England, nor in America, nor in Germany. That is understood. But after all, it is the leaders of the country who determine policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country" - Hermann Goering

"I know that nothing good lives in me, that is, in my sinful nature. For I have the desire to do what is good, but I cannot carry it out. For what I do is not the good I want to do; no, the evil I do not want to do this I keep on doing." - Romans 7:18-19

"Twenty years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover." - Mark Twain

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