History of Public Unions and the 1981 Patco Strike

Public employee unions are a major force today. It wasn't always that way.

President Kennedy in 1962 by Executive Order granted federal employees the right to form unions. They were not given the right to strike or bargain wages and benefits. They still can't.

In 1981 The Professional Air Traffic Controllers Organization, or Patco, struck illegally. As a result, then President Reagan fired thousands of air traffic controllers, and non-union replacements were immediately hired and trained. The Patco union's strike was broken.

Describing the historical importance of what happened, a reviewer of the book "Collision Course" in A New President, and a Union's Last Stand has this to say:

" FOR 30 years, Ronald Reagan’s breaking of the federal air traffic controller strike has often been seen as a turning point in United States history, the moment when labor unions began an inexorable decline and when political conservatism came of age.

The columnist George Will celebrated the defeated strike as a sign that years of liberal permissiveness had ended. “In a sense,” he wrote, “the ’60s ended in August 1981.""

Later the book's reviewer says that President Reagan took this strike breaking action reluctantly:

"The book says that the Ronald Reagan of early 1981 was no union buster, that he had been reaching out for union support and that, in Patco’s case, he agreed to grant concessions more plentiful than any ever granted to a public employee union by an American president. It was Patco’s hubris, contends Mr. McCartin, an associate professor of history at Georgetown University, that forced Mr. Reagan’s hand and led to the union’s subsequent implosion.

“Collision Course” charts the rise of Patco and other public-sector unions over the course of 20 years, from the moment that President John F. Kennedy allowed government workers to bargain collectively. This power, however, came with strict limitations; unions like Patco were not allowed to strike or bargain for higher wages. Their negotiations with the government typically revolved around working conditions."

Finally, the reviewer details how Patco lost its way:

"By and large, the new Reagan administration took little notice of Patco. The union had endorsed Mr. Reagan in the 1980 election, after cutting a closed-doors deal in which Reagan advisers, while promising few specifics, made it clear they would look kindly on union demands. But Patco leadership emboldened by the deal, demanded pay raises. In June 1981, Mr. Reagan actually gave in, granting the union what Mr. McCartin shows was possibly the most generous set of concessions made to a federal public employee union in government history.

It wasn’t enough. The rank and file rejected the deal, setting the stage for a strike that, in retrospect, had little to do with salary. This was about respect, about a deep-seated anger at years of perceived humiliation at the hands of F.A.A. supervisors. It was only after the union rejected the government’s offers, Mr. McCartin demonstrates, that Mr. Reagan took his historic hard line. Any controllers who struck, he vowed, would be fired. And they were fired, in the thousands. Supervisors and military controllers filled in, and replacements would be trained and hired. For the most part, the public applauded while unions cringed. The cause of organized labor was set back years, if not decades."

The fundamental question raised by the Patco example is when enough is enough for the union. If the union keeps winning every game played, it tends to keep pushing for more. That's what happened to President Reagan, previously an ally of organized labor, having been a union president himself in earlier days. But when pushed too far, Reagan took firm and resolute action. He stood up for taxpayers and the general public.

And taxpayers and the general public benefited from Reagan's resolve, as did the flying public.

Today many public sector unions have reached a point with states and cities where their negotiating strength is evident. Maybe we're approaching the enough is enough stage again.

If so, is there another Reagan or even several Reagans in the state and city houses? Let's hope so.

I guess the 1981 Patco strike's real message is that enough may not be accepted as enough unless and until someone representing taxpayers has the guts to stand up and set things straight.

Thanks. Bob.

Why U.S. Economic Growth Must Outpace Debt Growth ... And Why It Won't without the Private Sector's Resurgence

Speeding Dragon, Hidden Debt Pile tells the simple story of the Chinese economic juggernaut and its impact on a nation's finances.

It also serves as a reminder of why a resumption of solid private sector driven economic growth in the U.S. is the only viable way to solve our many financial and employment related issues.

That's because sustainable and meaningful economic growth will turn large debt related problems into much smaller ones.

The referenced article contains lessons from China that we in America need to both hear and heed:

"Objects in the rearview mirror may be closer than they appear, but China's rapid growth means objects in the rear view of the world's economic powerhouse are actually shrinking at a rapid rate.

In 2011, China's gross domestic product came in at 47.1 trillion yuan ($7.4 trillion). That represented nominal growth of 17.5% from 2010, a blistering pace that makes many of the problems of debt and credit that trouble investors and hang over valuations for Chinese stocks appear a little more manageable.

Take local-government debt. The government's auditor put the number at 10.7 trillion yuan at the end of 2010. That was equal to 26% of China's GDP. In 2011, it shrank to 22%. Even if weaker demand and reduced inflation mean a slightly lower nominal growth rate in 2012, by the end of the year local-government debt could shrink to 19% of GDP. The debt may be creeping up, but not enough to push the ratio in the wrong direction.

Investors also worry about China's credit binge, which saw the ratio of loans to GDP soar from 96% at the end of 2008 to 119% at the end of 2010, as loan growth ran far ahead of GDP. An expanding economy means that ratio is also moving in the right direction—down to 116% in 2011. That reduction reflects the fact that banks' loan books are expanding, though not as fast as GDP.

China's happy situation stands in stark contrast to that of neighbor Japan, crisis-ridden European countries and the U.S., where slow or even negative growth does little to make the debt problem smaller.

Growth hides a multitude of sins. The trouble for China's competitors is that achieving any significant increase in nominal growth without a large portion coming from higher inflation looks hard to do."

If growth indeed covers a multitude of sins, which it does, then excessive government spending and high deficits make an already difficult debt problem that much harder to solve.

Simply stated, if a country's GDP growth exceeds its incremental debt addition for a year, the sovereign's financial condition improves. Accordingly, solid economic growth is THE key ingredient to a nation's financial health and well being.

To repeat, if GDP growth outpaces deficits as a percentage of GDP, that means things are getting better. The relationship of economic growth to increases in debt represents the key to a nation's financial well being.

Conversely, and as an example, if a nation's annual deficit as a percentage of its GDP is 5% and GDP grows less than that, that country's financial situation will become worse. It's just math.

In our case, we have debt of ~$15 trillion and annual deficits of ~$1.2 trillion. That's 8%.

If our deficits were to be reduced by 50% to $600 billion, that would still represent 4% of GDP.

With an estimated less than 3% growth in GDP in 2012 (and for several years thereafter as well), deficits would have to be at or below $450 billion to keep our financial condition from becoming worse.

Ain't gonna happen.

That's why a focus on reduced government spending accompanied by solid private sector economic growth is job #1 and the key to our financial future.

The sooner we seriously address this dangerous imbalance between economic growth and operating deficits, the better our chances to reverse our nation's deteriorating financial condition.

This financial stuff involves simple math and is actually quite easy to understand. I wonder why our politicians don't seem to want to talk straight to us about it and what we need to do.

Maybe it's because they have no clue about what to do.

Or perhaps it's because they do know what would be required-- a much smaller government and a much bigger private sector.

Thanks. Bob.

Public Sector Pension Plan Investments ... Guess Where the Money's Going?

One part of government says private equity investing is somehow bad, but other parts of government embrace it by entrusting more public sector employees' pension funds to private equity managers.

In truth, private equity is just another form of free market capitalism, but it's become a bad thing to do these days in political circles. Think Mitt Romney and Bain Capital.

Public sector union officials like to say in public that private equity is bad. In private these same people proceed to invest their members' retirement funds in these funds run by the "bad guys." What gives?

Just presidential politics. It sucks.

So when reflecting on whether you believe private equity to be bad or good, let's just chalk up the union leadership's differing public chatter and private investment investing to the difference between talk, which is cheap, and action, which is much more revealing.

As Ralph Waldo Emerson said when contrasting talk to action, "What you do speaks so loudly that I cannot hear what you say."

In any event, public sector pension plans are investing a rapidly growing percentage of their members' pension fund assets with private equity funds. Yes, THOSE private equity funds.

Public Pensions Increase Private-Equity Investments tells what's happening with respect to the growing closer relationship between public employee pension funds and private equity managers.

Here's a brief excerpt from the most informative article:

"Large public pension plans are pouring more money into private-equity funds, deepening ties between government workers and an industry currently under the harsh glare of U.S. presidential politics.

Big public-employee pensions had about $220 billion invested in private equity in September, or 11% of their assets, according to Wilshire Trust Universe Comparison Service, which tracks the holdings of pensions, foundations and endowments.

That is up about $50 billion from a year earlier, when such investments accounted for 8.6% of large pension funds' assets. A decade ago, pensions with at least $1 billion under management had just 3% of their money with private equity.

Private-equity funds buy companies, restructure them and try to profit by reselling them at a higher price. That approach, particularly with respect to the fate of workers at companies they buy, has become an issue in the Republican campaign because Mitt Romney formerly led private-equity firm Bain Capital."

The article provides insight into the unions' love-hate affair with private equity and their fiduciary reasons for investing in private equity funds:

"Pension-fund officials say they increasingly are turning to private equity in an effort to hit annual return targets of 8%. Over both the past five years and the past 10 years, private-equity returns were more than double those of the S&P 500 stock index and the Dow Jones Industrial Average . . . .

As of September 2011, median private-equity returns for large public pension funds over the past five years was 6.6%, according to Wilshire Associates. Median stock-market returns for those funds were a negative 0.9% over that same five-year period. . . .

Today, pension-fund managers "would say you may be breaching your fiduciary duty if you avoid this asset class," said Bill Kelly, a lawyer at Nixon Peabody who has worked with pensions and private-equity firms for 30 years.

Wilshire said private-equity investments surged last year as a percentage of pension-fund holdings partly because pension funds' existing investments in private equity increased in value while other holdings, such as stocks, were mostly flat."

As I said earlier, let's all keep a much needed sense of humor as we listen to the politicians this election season. Some of this stuff you just can't make up.

But it is entertaining in a sad kind of way.

Thanks. Bob.

Varying Prospects for Economic Growth in Illinois, Indiana and Wisconsin ... Union Power and Right-to-Work Legislation

Now it's really getting interesting. Illinois is in dire straits financially, Wisconsin's government is under siege and Indiana is about to become the first midwestern industrial state to adopt right-to-work legislation.

These are three very big deals and need to be watched carefully. What happens in these states the next few months may tell us a great deal about our fellow Americans and our country's future global competitiveness.

Indiana Moves Closer To Right-to-Work Law says the following:

"The leader of the Indiana House Democrats, Rep. Patrick Bauer, conceded Tuesday that his party faces dwindling options to block passage of what would be the nation's first right-to-work law in a decade, meaning the legislation is likely to be adopted eventually. . . .

The proposed legislation would ban contracts that require all employees to pay union dues, whether or not they are union members. Supporters say a right-to-work law would lure businesses to Indiana. Opponents say it would weaken unions, leading to lower wages and worse working conditions. . . .

Lawmakers on both sides say . . . the bill is almost certain to be adopted. . . .

There are 22 right-to-work states—Oklahoma was the latest to adopt such legislation, in 2001—but most have low unionization rates. Indiana Gov. Mitch Daniels and fellow Republicans in the Indiana legislature have sought to make the Hoosier State the first right-to-work state in the heavily unionized upper Midwest, home to many of the nation's manufacturing jobs. The resulting fight has engulfed the session and drawn thousands of union protesters and the eyes of the nation to the Indiana statehouse."

See also Hoosier Breakthrough for an update.

And here's a related story about unions' attempting to unseat a governor. Big Labor's Wisconsin Vendetta says this:

"They swore revenge for his offenses, and last week Wisconsin Democrats delivered what they say are a million signatures for the recall of Republican Governor Scott Walker. If they do make the ballot and cause a recall vote as early as this spring, they'll have to campaign against reforms that have already saved taxpayers tens of millions of dollars and rescued the state from a budget crisis. Game on.

Since last summer, unions have fired every weapon in their arsenal at Mr. Walker and state senators who voted for his collective-bargaining reforms for government workers. Union members must now contribute a very reasonable 5.8% of salary toward pensions and 12.6% toward health insurance, and unions must collect dues from members, rather than having it done by the government. In their pique, Big Labor waged and lost a bitter fight over the election of a state Supreme Court Justice and spent millions trying to recall Republican state senators. . . . Last year state senator Spencer Coggs called Mr. Walker's plan "legalized slavery" while others predicted disaster for school districts and public services.

It's not turning out that way: The Apocalypse has not arrived for services, and Mr. Walker was able to balance the state budget without new taxes or looming deficits."

The article concludes by telling it like it is:

"The reforms have also let school districts introduce competition to reduce health-care costs. Under the old rules, most school districts bought health insurance through the WEA Trust, a virtual monopoly provider and a creature of the Wisconsin Education Association Council (teachers' union). By freeing districts to consider other insurers, the reforms have saved districts millions of dollars, sometimes without even changing their plan.

The . . . Appleton school district was able to save $3.1 million over the previous year, despite continuing to get insurance through WEA Trust. With other insurance options available, WEA Trust had to cut its prices to keep the business. Based on statewide media reports, . . . estimates (are) that as of September 74 local units of government were saving some $162 million.

In mid-December, Wisconsin taxpayers got evidence of the direct benefits of reform in their latest property tax bills—an average annual increase of 0.3%, the smallest since 1996. Potential Democratic challengers to Mr. Walker. . . will have to explain why the state should punish Mr. Walker for reforms that are helping taxpayers and local governments save money.

The only loser here are government unions that have less control over state and local politics. With the state no longer automatically withdrawing dues for the unions, labor leaders face the prospect of smaller checkbooks to buy politicians and intimidate reformers.

Mr. Walker reduced that influence on behalf of taxpayers, and the only point of the recall is union retribution designed to show other politicians that they don't dare cross that line. If Big Labor can't take out Mr. Walker after so much effort, Wisconsin-style reforms might well spread to other states. The Wisconsin recall fight is the statewide election of the year, with implications for taxpayers nationwide."

And finally, don't forget the stakes for the citizens of Illinois, sitting adjacent to both Indiana and Wisconsin. Please see the posting of January 24 titled "Federalism and Interdependency ... Illinois, Wisconsin and Greece" for an analysis of the many problems facing Illinois. They aren't easy but they must be addressed and solved.

Thus, Indiana is about to break the unions' stranglehold on the industrial midwest. As this occurs, the state will become more attractive to employers and boost its chances for both economic growth and job creation.

Indiana's improved competitive position as a good place to locate companies will have a negative impact on Illinois as a result. Then depending on what the good people of Wisconsin decide to do about their governor's recall, Wisconsin's future economic prospects will either improve or get worse, too.

If Wisconsin voters exercise sound financial judgment, this could bode even worse for the good folks who live in Illinois.

We'll definitely all need to stay tuned throughout 2012. What happens in these three midwestern states will signal clearly what will be going on in the nation as a whole.

Union power, state fiscal responsibility and voter judgment are all in play. To be sure, 2012 isn't just going to be an important presidential election year.

What happens in Illinois, Indiana and Wisconsin will tell us a great deal about the potential future global competitiveness of our heavily unionized industrial midwestern states.

Let's hope the citizens and political leaders of each state do what's right for their future well being and that of their country as well.

But whatever they do, it will speak volumes about the state of the union--The U.S. federal union of independent and interdependent states, that is.

Thanks. Bob.

Taxes and Fairness ... A Dumb Idea

The top 1% of earners pay 37% of federal income taxes.
The top 5% of earners pay 59% of taxes.
The top 10% of earners pay 70% of taxes.
The top 25% of earners pay 87% of taxes.
The top 50% of earners pay 98% of taxes.

According to my rough math, if the top one million earners, representing considerably less than 1% of taxpayers, each "donated" an additional $1 million to our federal government, that would equal $1 trillion of "new" money for the government to spend, invest or waste on behalf of the people. In other words, $1 trillion of greedy fat cat MOM would voluntarily become government OPM.

Then our trusted government officials would act as the responsible public servants they are. And soon we'd be well on our way to both a full and complete economic recovery and end up with a fair society for all. Right?

Accordingly, here's the question to ponder. What would the government do with that extra $1 trillion to make our country's long term economic and employment prospects better?

What would the tax system, the entitlements system, the energy system, the regulatory system and the educational system become, assuming improvements would be made?

In other words, would our politicians commit to revising the currently broken tax system, and if so, what would they propose? Same with Entitlements, Energy, Regulations and Education.

What's the comprehensive plan to solve our financial dilemma and get us out of this mess? Can they even put one together?

Today there is no such plan. Not even a comprehensive proposal. Just empty rhetoric and name calling.

Let's consider some facts.

Here's the IRS story on who pays what in taxes. You can decide what's fair, but this is the way things stand today. {AGI represents the group's adjusted gross income.}

Table 1
Summary of Federal Income Tax Data, 2009

	Number of Returns with Positive AGI	AGI ($ millions)	Income Taxes Paid ($ millions)	Group's Share of Total AGI	Group's Share of Income Taxes	Income Split Point	Average Tax Rate
All Taxpayers	137,982,203	$7,825,389	$865,863	100.0%	100.0%	-	11.06%
Top 1%	1,379,822	$1,324,572	$318,043	16.9%	36.7%	$343,927.00	24.01%
1-5%	5,519,288	$1,157,918	$189,864	14.8%	22.0%		16.40%
Top 5%	6,899,110	$2,482,490	$507,907	31.7%	58.7%	$154,643.00	20.46%
5-10%	6,899,110	$897,241	$102,249	11.5%	11.8%		11.40%
Top 10%	13,798,220	$3,379,731	$610,156	43.2%	70.5%	$112,124.00	18.05%
10-25%	20,697,331	$1,770,140	$145,747	22.6%	17.0%		8.23%
Top 25%	34,495,551	$5,149,871	$755,903	65.8%	87.3%	$ 66,193.00	14.68%
25-50%	34,495,551	$1,620,303	$90,449	20.7%	11.0%		5.58%
Top 50%	68,991,102	$6,770,174	$846,352	86.5%	97.7%	> $32,396	12.50%
Bottom 50%	68,991,102	$1,055,215	$19,511	13.5%	2.3%	< $32,396	1.85%

Source: Internal Revenue Service

If government received $1 trillion in unexpected and unowed tax receipts, would they proceed to waste it, or would they spend it wisely as fiduciaries of the public's funds and trust?

Stated another way, would the result be permanent change which would benefit our country and its citizens over the long haul? I doubt it very much.

So why give them any more money--even if the fat cats can afford it--unless and until government tells us what they plan to do with it?

My opinion is that we can't trust our elected officials to even try to do the right thing. The logic of OPM and politics says just that, and so does much of the evidence from our recent $800 billion "stimulus" program.

Your Tax Dollars Not at Work reviews the new book "Money Well Spent?" and supports the position that government waste results when government has more money to spend. The book describes many wasteful boondoggles associated with recent efforts to "stimulate" the economy through $800 billion in government spending.

The reviewer says this:

""Money Well Spent?" would make a compelling book-club selection for politically oriented readers, who could argue over which recipient of taxpayer funds was the least deserving. The failed solar-panel maker Solyndra has attracted a federal investigation, but there are other worthy competitors for the title. Mr. Grabell (the book's author) reminds us of the $783,000 grant to study why young people consume malt liquor and marijuana, and the $219,000 to study the "hookups" of college students. (Perhaps these research efforts could have been combined.) Then there is the $92,000 spent by the Army Corps of Engineers "on costumes for mascots like Bobber the Water Safety Dog."

Democrats said at the time of the bill's passage that it included no earmarks, or spending specially targeted by individual politicians, but this claim turned out to be false. The Senate's closed-door negotiations over the bill were described for Mr. Grabell by Mel Martinez, a Republican senator from Florida who has since retired: "It was essentially about going around the table and instead of talking about the merits of the bill, it was what goodies they could get, what pet projects and the value and the price of it." Mr. Martinez was appalled and ended up voting against the bill.

After the act was signed into law, Vice President Joseph Biden became a stimulus cheerleader and urged the local politicians who would be receiving much of the money not to waste it on "stupid things." He was asking the impossible. But what is perhaps most striking in this tale is not the waste of particular boondoggles but the program's failure to meet its own goals.

If the aim was to create jobs, why were the funds not specifically directed to areas with the highest unemployment? If the aim was to underwrite vital construction projects, why did an Alaskan village called Ouzinkie, population 167, receive a $15 million airport? "By contrast," Mr. Grabell notes, "major hubs such as Newark and Las Vegas didn't get any stimulus money. Atlanta, the busiest airport in the world, received nothing in the first round of grants."

With money carved out of the stimulus for Democratic constituencies such as government workers and for various anti-poverty programs, only about 10% of the spending, or $80 billion, was devoted to infrastructure—and very little of that total went to critical work. The political necessity to fund the "shovel-ready" projects promised by the president meant that money didn't go to the bridges most in need of repair but to jobs that could quickly clear the thicket of regulatory permitting. Repaving roads was a typical activity; less than 12% of the infrastructure spending went for work on bridges."

The reviewer concludes as follows:

"The Obama administration justified its spending blowout with an economic analysis that claimed the bill would keep unemployment from rising above 8%. More than two years later, in the spring of 2011, the rate was still above 9%. The stimulus had failed on its own terms; the promised green-jobs boom never materialized. Mr. Grabell . . . also argues that infrastructure spending helped put a floor under the construction industry and that the government funded some useful projects. He seems to accept John Maynard Keynes's view that government spending revives stagnant economies by increasing aggregate demand. "The Recovery Act failed to live up to its promise," Mr. Grabell says, "not because it was too small or because Keynesian economics is obsolete, but because it was poorly designed."

Of course it was poorly designed—politicians designed it—but given the resulting joblessness, Mr. Grabell should hardly give Keynes a pass. Summing up the stimulus, Mr. Grabell concludes: "The nation might never see such an extraordinary and flawed endeavor as the American Recovery and Reinvestment Act again." Taxpayers can only hope."

So here's the deal, my fellow Americans. Shall we trust the politicians to do better this time?

Raising taxes will give them the funds to do so. And besides, we're only talking about the fat cats paying more. It's only "fair." Right?

If we the people want the government to spend more money and take another swing at fixing our economy, here's a dumb idea with respect to how we could raise the funds for another try without growing the national debt or annual operating deficits.

First, we get all the small ball players temporarily out of the income tax paying community. We'll give 75% of our fellow taxpayers a free income tax lunch for a year.

And we'll do that by asking the top 25% of earners, who already pay 87% of income taxes, to agree to pay the remaining 13% for one year. By so doing, 75% will pay zero.

Then we'll ask the top one million income earners, aka the greedy fat cats, representing considerably less than 1% of total taxpayers, to each come up with a one time "fairness" payment of $1 million. That will get us $1 trillion to give the politicians to spend wisely on our behalf.

Or if raising the $1 trillion that way won't be possible, we'll ask people like Buffett and Romney to each pay $2 million or more. Or we'll limit the total fat cat contribution to $800 billion, an amount equal to that of the last stimulus package. In any event, we'll get the necessary money from the fat cats.

In exchange, we'll merely insist that the current government present us with an overall credible plan to get our financial house in order. It's only "fair."

And that credible plan must be one that requires all taxpayers to pay future taxes in an amount that's "fair." Maybe the bottom 75% can pay 37.5% of the total or some such thing. Whatever's fair, for sure, but we'll start at the bottom 75% and not at the very top of the income ladder. We'll get to the greedy fat cats later.

In other words, the government can tell us what's fair for 75% of the people. So that's the starting point of the "plan," along with what the politicians intend to spend. Then 75% will know about how much taxes they'll owe. We'll get to the remaining 25% now.

Then the top 25% of earners will pay the rest. And of the 25%, the government will then tell us what's fair for 80% of them, or 20% of the total taxpayer base.

That leaves the top 5% earners, and they'll pay the rest. And the top 1% can pay 80% of that amount.

If we were to do this, or something similar, all taxpayers would want to know up front how much of MOM our government is going to spend as OPM, as well as on what they intend to spend it.

If 75% of the people are going to pay something approaching 37.5% of the total government expenditures, they'll take an active interest in government spending. Then we'll be able to get government spending under control. But not until then.

This all-in requirement will cause we the people not to pay more taxes than required to operate the government effectively and efficiently.

As it is today, we get limited taxpayer involvement and concern about how our money is spent and how much of it is being wasted.

Here's the deal. Until government leaders become accountable and taxpayers, large and small, become interested and informed about what government is doing with our money, we'll continue to have runaway government spending.

As a result of continuing that wasteful and chaotic approach to government, the U.S. economic, employment and educational outlook will remain weak.

That we can't afford. It's far too expensive. And so utterly unnecessary, too.

Thanks. Bob.

What Tells Us More About a Person? ... Paying Taxes Owed or Giving Away Unowed Money?

Most of us pay the taxes we owe. That's our lawful obligation.

Some taxpayers also make charitable contributions and donations, both small and large. That's something we're not legally obligated to do.

We're free to do as much or as little as we choose to do with respect to our own money that the government doesn't take from us in the form of taxes. For example, we're free to engage or not to engage in charitable activities and donations. That's part of belonging to a free society.

So there's a big difference, at least to me, in doing something to stay out of jail and doing something with the altruistic intention of simply helping our fellow man.

That leads me to today's discussion.

Why do we so enjoy kicking fat cats around like Mitt Romney for paying the taxes he owes while ignoring the charitable contributions he makes? Doesn't that say more about us than it reveals about him? I think it does.

In the taxes paid case, Romney has complied with the law, and with respect to his altruism, he's acted according to conscience. The tax payment was a legal obligation and the acts of charity resulted from free choice.

Gifts to Charity Far Above Average reveals the combined story of taxes and charitable contributions paid by Mr. Romney compared to taxpayers generally, and President Obama specifically:

"Mitt Romney's tax returns show he pays a relatively low tax rate and gives a relatively high percentage of his income to charity. President Barack Obama pays a far higher tax rate, but gives less.

The numbers will be fuel for a debate over how much wealthier Americans should contribute in taxes. Conservatives argue taxpayers should be allowed to keep more of their money, which they in turn can distribute as they see fit. Liberals see the government as a more effective guarantor of the social safety net, and would prefer wealthier Americans bear the burden of supporting it.

The experiences of the president and the man vying to face him provide fodder for both sides.

Mr. Romney's tax-return data showed that he and his wife, Ann, gave about $2.9 million to charity in 2010, and more than $4 million in 2011. That worked out to 13.8% of total income in 2010 and more than 19% in 2011. Those are the only years of returns Mr. Romney's campaign made available.

Mr. Obama and his wife, Michelle, gave about 13.6% of their income to charity in 2010, the latest year available. That was up from 5.8% in 2009. The Obamas gave between 4.6% and 6.2% of their income to charity between 2005 and 2008. Between 2000 and 2004, before the president rose to national prominence, the Obamas gave between 0.4 and 1.4%.

The Obamas have typically paid a significantly higher tax rate than the Romneys: 25.2% in 2010 and 31.8% in 2009. That compares with the Romneys' rate of about 14% for 2010 and just over 15% for 2011.

Combining total federal income tax and charitable giving puts the two men on a close-to-equal footing. The Romneys paid 27.6% of their income to the government or to charity in 2010 and 34.6% in 2011. The Obamas paid 31.8% in 2009 and 38.8% in 2010.

Internal Revenue Service data show the average taxpayer with adjusted gross income of more than $10 million gave about 6% to charity in 2009. The average contribution from such taxpayers, who include some very-high-income individuals, was $1.75 million. The average charitable contribution for all households with itemized deductions—45.7 million households in all—was 3.8%."

So Romney pays what he owes to the government and then contributes to charity another huge sum of money. When compared to the president or other taxpayers, Mr. Romney is a great deal more charitable with his money, both in dollars and as a percentage of income.

When considered in combination, the total of what the government takes in taxes and what is donated to charity, the wealthy "fat cat" Romneys pay as a percentage of income as much as the Obamas do. They also pay a great deal more than almost all other taxpayers. So what's the problem, Mr. President and my fellow Americans?

In my view, Romney's only but very real problem is that he's rich, having been too successful in the private sector.

And unfortunately, that success has brought about the envy of too many of our fellow citizens, including far too many Democrats, Republicans and Independents alike.

To fit people's preconceived views about the inherently evil nature of greedy fat cats, lots of people choose to see only what fits their neat little prepackaged narrative of what they already "know" about the wealthy.

As a result, the motives of the rich are automatically deemed selfish, evil and they are not to be trusted.

We too often act like our government is there to protect us from the wealthy among us. Now I ask you. How nuts is that?

All this reminds me of the old story when one man says to another, "I don't have any enemies; I've never done anything nice for anybody." Or the saying that no good deed goes unpunished. Or others of a similar nature. You get the message.

Based on the South Carolina Republican primary results (Gingrich won big) as well as the President's anti-rich populist State of the Union Address, it's obvious that too many Democrats, Republicans and Indpendents don't want to face up to the reality of who pays what, and why. And it seems like most journalists and pundits feel that way, too.

Too many of we the people would apparently rather have a fed at the public trough "public servant professional" in office like Obama or Gingrich than a benevolent private sector jobs creating "evil" fat cat like Mitt Romney.

Romney simply makes too many of us uncomfortable by actually having lived the American dream.

To add insult to injury, he did so while extending a helping hand to some of his less fortunate and in need fellow citizens along the way.

Oh well, we'll get the government we deserve. Count on it.

How sad it all is shaping up to be. And how revealing, too.

Thanks. Bob.

Doubling Romney's Tax Rate at Zero Cost While Moving Him Up to a Higher Bracket than Obama

Mitt Romney released his recent tax returns. He will pay $3.2 million in federal income taxes for 2011, representing 15.4% of his income.

Romney Tax Returns Show 2-Year Income of $45 million is the way the New York Times headlined the news. All about the money he made.

The Wall Street Journal's headline was Romney's Taxes: $3 Million. All about the taxes he paid.

Here's what Romney said about his taxes, as well as what the WSJ writer gratuitously added:

"'I pay all the taxes that are legally required, not a dollar more," he said. "I'm proud of the fact that I pay a lot of taxes.' His tax bill is significantly higher than the amount paid by most Americans."

The writer of the article said that $3 million in taxes is "substantially higher than the amount paid by most Americans." Here's my question to the writer. Who among us would have ever guessed that $3 million is more than most Americans pay? Thanks for telling us.

Both of the stories are accurate, of course, but there's much more to the Romney tax story. Let's tell it.

Mr. Romney paid the government $3 million, and he donated another $3 million to his church and others. That's a total of $6 million that passed from him to others in the form of either taxes or charitable contributions or donations.

Here's my own "gratuitous" guess about Romney's charity. $3 million is probably more than most Americans contribute to charity each year.

The aforementioned WSJ article said this about the charitable contributions:

"GOP presidential candidate Mitt Romney paid a 14% effective income tax rate in 2010 after making $3 million in tax-deductible charitable donations and drawing most of his income from investments, according to a summary of Mr. Romney's 2010 tax form provided by his campaign.

Mr. Romney reported $21.7 million in income. He paid $3 million in federal taxes, slightly more than the $2.98 million he made in charitable donations. At least $1.5 million of his charitable donations went to the Mormon Church."

President Obama often says that the wealthy should play by the rules and pay their fair share in taxes. Romney played by the rules, so I guess the only question is whether he's paying his fair share.

Accordingly, I have a suggestion to make sure that he does pay his fair share in taxes.

By one simple change, Mr. Romney would pay more taxes in percentage terms than President Obama pays, in addition to the millions of tax dollars more that he already pays, thus demonstrating beyond doubt that he's paying his fair share.

{And it won't cost him one single penny to do so. But we'll cover that hereinbelow.}

My guess, while not my hope, is that President Obama will be re-elected in November. If so, that means that the American people will have chosen to trust his judgment more than that of either Mr. Romney or Newt Gingrich, one of whom will most likely run as the unsuccessful Republican presidential nominee.

So here's my "free" advice for Mr. Romney to help clean up his present fat cat greedy private businessman image, and it won't cost him a thing. He should simply agree to pay $6 million in taxes instead of the $3 million that he owes.

By doubling the tax payment, he will demonstrate in unequivocal fashion that he trusts the government to do the right thing with respect to redistributing our citizens' money fairly. He'll admit that "government knows best."

To pay for this sudden burst of "patriotism" and final acknowledgement that government knows best, Romney would simply rescind his charitable contributions and convert that money into tax payments. And it wouldn't cost him a penny to do that.

That way the new "good guy" Romney would still have an annual cash outlay of "only" $6 million, but that $6 million will represent ~30% of his income in taxes paid, considerably more than the 26.3% paid by President Obama in 2010. The NYT article says this about Obama's taxes:

"Mr. Obama and his wife, Michelle, released their tax returns in April, showing an adjusted gross income of $1,728,096 for 2010 — much of it from sales of his books “Dreams From My Father” and “The Audacity of Hope.” The Obamas paid $453,770 in federal taxes, for an effective tax rate of 26.3 percent."

I can just see the headline now. "Romney Pays a Higher Tax Rate than President Obama. And for that matter, than Warren Buffett, too. Democrats, beware!" (For more presidential political gamesmanship, see Warren Buffett's Secretary to Attend State of the Union.)

And the best part is that it won't cost Romney one single penny to rid himself of his current greedy and wealthy fat cat image in the process.

As for the "unseen" contributions to the church and other donations that Romney won't be making any longer, that's easily explained as well. In government he's trusting to do the right thing. Government knows best.

Of course, the upcoming November vote will confirm the trust the people place in President Obama's wisdom and ability to do the right thing as we the people will elect Obama to a second term.

He'll know what to do with Romney's $6 million better than Romney could ever hope to know.

Maybe that move by Mitt would start a voluntary trend of converting money from private taxpayers to the public sector. If so, the government will have even more to spend for "our collective benefit and well being." And the budget will be balanced as well. Dream on.

In sum, giving the bureaucrats $6 million with which to do good things will enable them to do twice as much harm--er--good as they can now do with "only" $3 million of Romney's money.

It's as simple as going from MOM to OPM. The new and growing American way.

Maybe then Obama will decide to join Romney and pay more of his income in taxes, too.

Obama, Gingrich, the Clintons and other "public servants" have become rich by feeding at the public or government trough. That's how they got their personal money.

On the other hand, Mitt Romney made his money the unpopular and old fashioned way. He earned it in the private sector. Today that makes him a greedy fat cat in the eyes of far too many of our fellow Americans.

Now he's being maligned for "only" paying $3 million in federal income taxes. If he took my suggestion, soon he'd be maligned for paying only $6 million. and so on.

In any case, my silly tongue-in-cheek advice is for him to consider upping the ante to $6 million, stop donating to charity and the church, and trust the government insiders to do the right thing. Apparently that's what many of "we the people" would like for him to do.

If he does, that perhaps would please the populists of both political parties.

How much more nuts can things become in this silly election season? Who knows? Time will tell.

For now, my advice for you is actually quite straightforward and simple.

Let's all keep a good sense of humor as the year unfolds. We're going to need one.

Thanks. Bob.

Federalism and Interdependency... Illinois, Wisconsin and Greece

Individual states have to balance their budgets each year, according to popular belief.

But do they really, how hard do they try, and what does it really mean when we say that states are required to have balanced budgets? Not much, it seems.

Similar to the national government, when balancing their budgets, states usually ignore their future underfunded pension and related retiree financial obligations. They also ignore the funds forwarded to them by the federal government. Often that's still insufficient for them to make ends meet.

So when economic times get even more difficult, what do they do? In the case of Illinois, they raised taxes and made a very bad situation even worse.

Then when tax receipts slowed down further and companies and individuals threatened to head for greener pastures, such as Indiana, Wisconsin or elsewhere, Illinois took on more debt, and as a result their borrowing costs have gone up even more.

Here's the truth of the matter. Many states, like Illinois, don't make a realistic effort to balance their annual operating budget. They just pretend that they do. We can call it pretend balanced budgeting.

And in this pretend vein, here's another perhaps little known fact about individual states and their balanced budget requirements. About 25% of a typical state's funding comes from the federal government.

Of course, the federal government runs a deficit and therefore doesn't have any money of its own to lend. Still, it pretends that it does and grants money to a state so the state in turn can pretend to balance its annual operating budget.

Despite all the happy talk, and even after all that pretending, Illinois still can't limit expenses to receipts. So it doesn't pay its bills.

Of course, this pretend budgeting can't go on indefinitely in Illinois. So it won't. But how will that state be rescued, and by whom?

So here's the question du jour. In our federal system of government, should financially strong states be responsible to come to the rescue of financially weak states? In my opinion, the answer should be maybe. It should depend on whether the needy state's weakened condition is deemed to be temporary or permanent?

Does the needy state have its act together, both politically and financially? Does the state have a genuine and realistic action plan to clean up its act? If not, what's the point?

In the case of Illinois and states similarly situated, it's time for unions and politicians to act as fiscally responsible adults. A good start would be by "getting a better reality" about Illinois' dire financial condition and then communicating that reality directly, openly and candidly to its taxpayers.

Now let's contrast our individual state fiscal issues to those in various European countries today.

German taxpayers properly have decided not to give Greek taxpayers a blank check. Nor will they stand behind Italy, Spain or Portugal and others unless and until the creditworthiness of these sovereigns is demonstrated.

To establish credit worthy credentials means changing the ways of Illinois, Greece and others. It means that they credibly resolve, plan and act to live within their means. And to meet their individual obligations with respect to existing debt and deficits.

Otherwise those strong states and countries who are charged with doing the bailing out of the weak would become weak states and countries themselves. Then who would be left to bail out anyone? Nobody, that's who.

As with Europe, the same is true for our federal system of individual states and national government. States shouldn't receive bailout or budget money from a national government that has no money of its own to lend.

And states and cities must not continue to make pension promises to retirees without setting the funds aside to make good on their promises. And regardless of what they choose to do, taxpayers need to be brought into the picture early in the game.

Transparency and honesty are owed to those taxpayers footing the bill. Not like today where too often politicians promise what the taxpayers only later learn what they are obligated to pay.

Now let's introduce some simple logic. There is a vast difference between independent and dependent individual components which in the aggregate consolidate into entities, including cities, states and sovereign states. People and households, too.

And to enter into a legitimate and effective system of federalism means that formerly independent states will become stronger through that association as they become interdependent with other previously independent states. So there's no room for dependent states in an interdependent federation of independent states. Nor for dependents elsewhere in a collaborative system of governance. We have to be able to stand on our own two feet before we can help others stand up straight themselves.

If a state can't or won't responsibly govern itself, it should be separated from the healthy states. There's no other fair way. Just like Greece, Germany and the other European countries.

Temporary assistance is fine, but total dependency without a workable and realistic plan for getting back to health is a dead end.

Let's recap.

Unlike the U.S., Europe is made up of independent sovereign countries.

The U.S. is a republic comprised of fifty individual and interdependent states.

The Greece Next Door tells us about Illinois' debt downgrade, how it compares to neighboring Wisconsin and what this has to do with Greece and European states.

Here's what it says:

"Run up spending and debt, raise taxes in the naming of balancing the budget, but then watch as deficits rise and your credit-rating falls anyway. That's been the sad pattern in Europe, and now it's hitting that mecca of tax-and-spend government known as Illinois.

Though too few noticed, this month Moody's downgraded Illinois state debt to A2 from A1, the lowest among the 50 states. That's worse even than California. The state's cost of borrowing for $800 million of new 10-year general obligation bonds rose to 3.1%—which is 110 basis points higher than the 2% on top-rated 10-year bonds of more financially secure states.

This wasn't supposed to happen. Only a year ago, Governor Pat Quinn and his fellow Democrats raised individual income taxes by 67% and the corporate tax rate by 46%. They did it to raise $7 billion in revenue, as the Governor put it, to "get Illinois back on fiscal sound footing" and improve the state's credit rating.

So much for that. In its downgrade statement, Moody's panned Illinois lawmakers for "a legislative session in which the state took no steps to implement lasting solutions to its severe pension underfunding or to its chronic bill payment delays." An analysis by Bloomberg finds that the assets in the pension fund will only cover "45% of projected liabilities, the least of any state." And—no surprise—in part because the tax increases have caused companies to leave Illinois, the state budget office confesses that as of this month the state still has $6.8 billion in unpaid bills and unaddressed obligations.

It's worth contrasting this grim picture with that of Wisconsin north of the border. Last winter Madison was occupied by thousands of union protesters trying to bully legislators to defeat Republican Governor Scott Walker's plan to require government workers to pay a larger share of their health-plan costs, and to shore up the pension system by trimming future retirement liabilities. The reforms passed anyway.

In contrast to the Illinois downgrade, Moody's has praised Mr. Walker's budget as "credit positive for Wisconsin," adding that the money-saving reforms bring "the state's finances closer to a structural budgetary balance." As a result, Wisconsin jumped in Chief Executive magazine's 2011 ranking of each state's business climate—moving to 17th from 41st. Illinois dropped to 48th from 45th as ranked by the nation's top CEOs.

Yet Mr. Walker, who balanced the budget without new taxes, is the governor facing a union-financed attempt to recall him from office this year. If Wisconsin voters want to see where a state ends up without the kind of reforms that Mr. Walker made, they need only look to the Greece next door."

In sum, the union and political leaders of Illinois, Wisconsin, Greece and all others similarly situated must start telling the truth about their financial status and obligations.

Then they need to ask the taxpayers to decide what to do about it.

After all, it's their money that's being spent.

Thanks. Bob.

Roswell, Georgia ... An Example of Structural Suburban Long Term Unemployment Issues

Long-Term Unemployment Ripples Through One Town reveals details of the current recession's effects on the Atlanta suburb of Roswell, a middle class community.

The article serves as a stark reminder of how this lengthy and deep U.S. recession has affected life in many U.S. suburbs as well as how unprepared these communities were to meet the unforeseen challenges.

In brief here's the Roswell story:

"ROSWELL, Ga.—The waiting list for subsidized housing here, just 40 families long a year ago, is up to 500. The number of children eligible for free or reduced lunch is up 50%. A little more than a year ago, the Methodist church began seminars for marriages strained by job losses.

Roswell is a pre-Civil War cotton mill town that grew into a wealthy bedroom community of Atlanta as the metro area prospered. More than half the city's 88,000 residents have four-year college degrees. But Roswell sits in a region with an unusually severe case of long-term unemployment: About 40% of the unemployed in the Atlanta metro area in 2010, the most recent local data available, were out of work for a year or more versus the national average of 29%."

Broadcast journalist Edward R. Murrow once said that "The obscure we see eventually. The completely obvious, it seems, takes longer."

With that in mind, let's use Roswell as an example of the many troubling aspects of our nation's structural long term unemployment problem:

"'This is what people saw in Europe: You had large groups of people who hadn't worked in a long amount of time," says Betsey Stevenson, former chief Labor Department economist and now a visiting professor at Princeton University. "I am really quite fearful that 10 years from now we're going to look back and go, 'Why didn't we fight this harder?"

The longer people are out of work, the more likely their skills are to become obsolete—particularly at a time of rapidly evolving technology. "You are in your 40s, 50s or 60s, and you are suddenly out of work," said Jonathan Warner, director of community and economic development at Chattahoochee Technical College, which has its main campus in Marietta, Ga., the next town over from Roswell. "What are you going to do? Who is going to hire you? The smart ones come to us to get retooled.'"

One basic issue for Roswell and similarly situated suburbs is how to address the widespread issues raised by structural unemployment in their middle class communities:

"Unemployment is, at first, a personal struggle. But as it persists, the ripples spread throughout a community.

Local governments in the arc of wealthy suburbs north of Atlanta don't have the infrastructure to deal with thousands of middle-class residents who have been out of work for six months or more. They never had the need before.

"I haven't experienced this kind of impact in my lifetime," says Jere Wood, a 63-year-old lifelong resident of Roswell who has been its mayor since 1997. "This isn't the first time a lawyer's lost his job, but it's the first time a lot of them have lost their jobs." Unemployment in the Atlanta metropolitan area in which Roswell sits was 9.8% at last tally, well above the national average.

The roster of Roswell residents collecting Social Security disability benefits, often the last refuge of those who can't find work, is up nearly 16% since 2007, mirroring the national increase. Local charities are serving residents who once earned six-figure salaries. Unemployed parents scramble for fee waivers to keep children in after-school sports."

But it's not just Roswell that is experiencing this huge issue of quasi-permanent unemployment conditions for a community's residents. Not by a long shot, as the chart below shows.

Our U.S. long term employment dilemma is not a temporary one. Short term government spending won't do anything to cure the patient. But our society needs to recognize its severity and that the private sector's jobs machine is the only viable long term solution. But how?

Well, stopping the government assault on private sector job creators, including especially energy companies, would be a most welcome first step. Curtailing government spending would be a nice second step. And reducing taxes wouldn't be a bad idea either.

We need to come to grips with the simple fact that government spending programs, whether stimulus related or not, won't make a genuine dent in our very real structural and global competitiveness issues.

Our politicians have been acting for several years as if we're only experiencing a severe but temporary slowdown. It's severe, for certain, but there's nothing temporary about the lack of jobs issue.

In a fundamental sense, we are facing enormous structural issues which must be attacked and resolved, although there's no short term or painless way to get back to the "good old days."

So even though the vast majority of our politicians have no clue what to do, they could at least admit as much and get out of the private sector's way. The lack of government "help" would be a great way to start the process.

In the meantime, through ongoing government intervention and regulation, we're becoming more socialistic like Europe each day. And that's not a very hopeful sign for America's future. A role model Europe's clearly not, unless as an example of what not to do. Free lunches for all are the most expensive kind.

In simple terms, our tendency toward more of a welfare state can't continue indefinitely.

We simply can't afford to maintain existing social security, medicare and medicaid benefit programs without implementing big tax increases. And if we do that, we'll have lost our way.

Waiting for our problems to remedy themselves with the passage of time is foolhardy. We must aggressively resolve and then act to improve our global competitiveness.

To be sure, things on the jobs front will continue to improve somewhat even if we do nothing, but only temporarily and not all that much. Besides, the structural employment problems aren't going away anytime soon.

Unless we initiate steps to free the private sector and support its efforts to get us back on our competitive feet globally, our best days will be behind us. And that must not be permitted.

It's time to stop the platitudes and begin the restoration of American growth and competitiveness.

Otherwise the Roswells of today will come to represent the entire U.S. of tomorrow.

There's time to get the job done, but there's no time to waste. So let's stop pointing fingers and get busy figuring out the best path forward for Roswell and for the rest of us as well.

Thanks. Bob.

Romney's Taxes ... What's Fair?

Following up on yesterday's general posting about taxation and fairness, let's specifically discuss Mitt Romney's tax situation today.

After being accused of raiding companies with his private equity firm, Mitt Romney is now taking heat about paying ~15% in taxes. Although it's not clear what the 15% refers to, we'll assume it to refer to federal income taxation.

My first question would concern why anybody would want to run for president in the U.S. But it's a free country, so if that's what people choose to do, it's their right to do so.

So let's not feel sorry for Mr. Romney or anybody else willing to play the silly game of running for president. That said, why should he or anyone else be reluctant to discuss in detail the fairness of our system of taxation?

First, let's acknowledge that Mr. Romney has never been a member of Congress. Accordingly, the taxes he pays are ones that prior and current nationally elected officials have enacted. Thus, my view is that he owes what the law says he owes. Nothing complicated about that.

Further, my strong conviction is that he's complied with the tax laws in effect over time and paid all the taxes he has owed over the years.

So here's my question. If he always pays what he owes, whatever that may be, and if he didn't vote any of those laws into being, what's the big deal?

Well, I guess the big deal politically is deciding what's fair. As with beauty, fairness is in the eye of the beholder. But let's take a swing at this issue of fairness anyway.

To keep the math simple, we'll assume Romney's taxable income was $6-$7 million for the year. If so, at a 15% rate, he paid ~$1 million in federal income taxes. One million dollars in taxes paid for a single year sounds like a lot of money to me. I wonder how much good government he thinks he got for that money.

The Lessons From Romney's Tax-Rate summarizes the overall fairness issue nicely:

"Mitt Romney has a new PR problem: his tax rate.

According to press reports, Romney said his tax rate is “probably closer to 15% than anything else.” The admission immediately lit up the left-leaning blogosphere and drew comparisons to Warren Buffett, who famously complained that his 17% effective tax rate is less than his secretary’s.

Romney will no doubt quickly become exhibit A in the argument that the rich don’t pay their fair share.

The White House quickly commented that “everybody who’s working hard ought to pay their fair share. That includes millionaires who might be paying an effective tax rate of 15 percent when folks making $50,000 or $75,000 or $100,000 a year are paying much more.”

We don’t know how much Romney earned, of course. But his example and the arguments of Warren Buffett don’t reflect the nation’s true income-tax structure. In point of fact, the 1% as a group pays a higher effective income-tax rate than the rest of the population.

According to the Tax Foundation, the top 1% of taxpayers had an effective tax rate of 24.01% in 2009, the latest year available. The top 0.1% (those making $1.4 million or more) paid a rate of 24.28%. The rate falls as you move down the income ladder. The top 5% paid a rate of 20.46%. The top 10% paid 18.71%. Those in the 20% to 50% groups had a rate of 5.58% and the bottom 50% had a tax rate of 1.85%.

In other words, the more you earn, the higher your tax rate – on the whole.

Of course, income tax rate starts to fall again at the very top of the top 0.1%. The 400 top earners in America, for instance, had an average effective tax rate of 18% in 2009. That’s because the super-rich, like Buffett and Romney, derive more of their income from investments rather than salaries. Capital gains and dividends are taxed at 15% rather than the top rate for ordinary income of 35%."

To recap, the top 10% of earners pay roughly 19%-24% in taxes. The more dividends and capital gains, the lower the tax rate paid. Still, it's usually above 20%.

On the other hand, 80% of American taxpayers pay somewhat less than 6% of their income in taxes. The bottom 50% paid 1.85 % and those in the 50% to 80% category pay an average of 5.58%.

In per person tax dollars paid, of course, there is an enormous difference between what a top 10% earner pays and what an earner at the 50% or below level pays. Nevertheless, the benefits received from the government are essentially the same in each case, regardless of the taxes paid.

So what would the "fair" tax be? In my view, it should be a number of dollars, not percentages, sufficient to cover necessary government expenditures. We would stop deficit spending at once.

So if we want our government to spend $1.5 trillion, and if there are 300 million Americans, each of us would theoretically pay $5,000. If we want to restrict those taxed to the adult population, then the tax bill would perhaps be $10,000 per household. And if we want to restrict payment to those active in the workforce, then perhaps $12,500 per person would be the right amount. Or some such thing.

{NOTE: Please forgive me for any math errors contained herein. They won't change the argument I'm making in the slightest. And that argument is the need to cut government spending dramatically. We'd do so if we all paid more than we'd like to pay but still enough to get what we need to get from government.}

Now let's discuss the progressive aspect of our current system of income taxation. I think it should be eliminated. Of course, it won't be.

In our example, government spending is assumed to be a total of $50,000 for a four citizen society.

If I earn $100,000, my neighbor earns $75,000, you earn $50,000, and the poor guy down the street earns $25,000, how much should each of us pay? Well, I would argue that to the extent we're capable, we should each pay the same amount in taxes, unless somehow one of us receives more government benefits than the others. That would be $12,500 each, or $50,000 in total taxation.

But what about the guy down the street's $25,000 in earnings? He has a hard time living on $25,000 annually. Fair enough.

Then the $25,000 earner shouldn't pay anything. In that case, you, my neighbor and I would each pay close to $17,000 instead of $12,500 as in the example above. The guy down the street would pay nothing. We still raise $50,000 in total.

Welfare is welfare, and fair play is fair play.

But our longstanding "progressive" income tax system says that the more income we earn, for some mysterious reason, the higher the percentage of that increment we should pay in taxes. Why?

Here's what makes sense to me. To begin with, let's recognize that my income is my income, as is yours. I earned it, so it should be mine to do with as I please.

How does taking a portion of it from me and "indirectly" giving it to you or my neighbor make for either a better society or a better government? It doesn't.

Although the three of us earn different amounts, assuming arguendo that we have the ability to pay, why shouldn't we still pay equal amounts in taxes? And why shouldn't we keep what's not needed for government operations? We'll decide what to do with our own money. MOM at work.

If we ever hope to control our current out-of-control government spending, we first need to get more of our people to have skin in the game. That means more people have to pay taxes. And more people have to feel the sting.

To make somebody like Romney feel that sting, maybe ~$1 million isn't enough for the progressives among us. How about $2 million? $3 million? Let me know when we get to "fairness."

But what we should be doing is deciding how much government we want and are willing to pay for as a nation. Only then should we decide who should pay for how much of that government. And somewhere in the mix, there should be a cost-benefit analysis done for all taxpayers.

That would be the "fair" thing to do, even if not popular with the "progressives."

Thanks. Bob.

Progressive Tax Percentages, Dollars, Government, Groceries and Fairness

There's a whole lot of talk these days about taxes and what's fair.

We'll discuss Mitt Romney's specific situation tomorrow, but today let's deal with the basic concepts involved with our country's system of personal income taxation.

The U.S. has long had a "progressive" system, meaning that the percentage of taxes owed on incremental dollars earned increases as earnings climb.

However, what nobody ever discusses is the dollars paid versus percentages paid comparison. Let's look at that admittedly quite different concept today.

In simple terms, assuming two able-to-pay taxpayers have different incomes, why are they required to pay different dollar amounts when "buying" government services?

It doesn't work that way with other purchases we make. Such as bread.

In other words, we buy bread and other items based on the price in dollars and not based on the percentage of our income that the purchase represents. When we go to a store to make a purchase, what we pay isn't a result of how much we earn.

So why doesn't it work that way for taxes? Why are U.S. tax percentages and amounts paid "progressive?" Politics, government power and vote getting are the primary reasons, I would argue.

Let's take the time to consider the politics of a progressive tax system, such as ours. And in this regard, politics applies equally to Democrats and Republicans as well.

In brief, politicians want to collect in taxes the most money they can but tax as many people as possible as little as possible. They also want to get the maximum number of votes possible at election time.

To accomplish those seemingly competing objectives, our progressive tax system comes to their rescue. It's politically friendly and based on straightforward political math.

So the pols play Robin Hood and try to take all they can from the relatively few voters who are deemed to be "rich" and give as much as they can to the rest of the "middle class" voting population.

They call the receiving "taxed-as-little-as-possible" group the "middle class," or the 99%, or whatever else has a feel good message. Besides, it helps them at election time.

Of course, my "third way" equal tax dollars paid approach isn't ever discussed, let along considered on its merits. The two political parties instead talk about job creation, helping the "middle class," fairness and tax rates or percentages.

Never mentioned is the concept of the various different income earning taxpayers paying taxes in equal dollars for equal government services rendered.

But why give the rich a break, you may wonder? That's not the point. Not at all. It's all about the size and quality of government and taxpayer skin in the game for "services rendered."

In my view, adopting an equal dollars in taxes paid for government services rendered approach would dramatically and immediately reduce both the current sickening size of government and its wasteful spending.

It would also curtail government's power to something approximating what the Founding Fathers intended. Public service and limited government would result. What a happy thought.

Now let's move the discussion along and return to the present political reality briefly, albeit reluctantly.

How Much the Rich Pay makes the case that the rich pay enough--twice as much in percentage terms as the middle class. Here's a brief excerpt:

"We're not sure if facts will matter in this cacophony, but someone should at least try to introduce a little reality into the debate, especially since Mr. Romney seems so unprepared to make the case.

Start with the fact that, like Warren Buffett, Mr. Romney said he makes most of his money from investments, not wages or salary. Thus his income is really taxed twice: once at the corporate tax rate of 35%, then again at a 15% tax rate when it is passed through to him as dividends or via capital gains from the sale of stock.

All income from businesses is eventually passed through to the owners, so to ignore business taxes creates a statistical illusion that makes it appear that the rich pay less than they really do. By this logic, if the corporate tax rate were raised to, say, 60% from today's 35% and the dividend and capital gains tax were cut to zero, it would appear that business owners were getting away with paying no federal tax at all."

Taking the other side of the argument, liberal columnist Paul Krugman sums up his position that the top earners don't pay enough in Taxes at the Top.

"But the larger question isn’t what Mitt Romney’s tax returns have to say about Mitt Romney; it’s what they have to say about U.S. tax policy. Is there a good reason why the rich should bear a startlingly light tax burden?

For they do. If Mr. Romney is telling the truth about his taxes, he’s actually more or less typical of the very wealthy. Since 1992, the I.R.S. has been releasing income and tax data for the 400 highest-income filers. In 2008, the most recent year available, these filers paid only 18.1 percent of their income in federal income taxes; in 2007, they paid only 16.6 percent. When you bear in mind that the rich pay little either in payroll taxes or in state and local taxes — major burdens on middle-class families — this implies that the top 400 filers faced lower taxes than many ordinary workers.

The main reason the rich pay so little is that most of their income takes the form of capital gains, which are taxed at a maximum rate of 15 percent, far below the maximum on wages and salaries. So the question is whether capital gains — three-quarters of which go to the top 1 percent of the income distribution — warrant such special treatment.

Defenders of low taxes on the rich mainly make two arguments: that low taxes on capital gains are a time-honored principle, and that they are needed to promote economic growth and job creation. Both claims are false."

Krugman concludes his argument for "fairness" as follows:

"So Mr. Romney’s tax dance is doing us all a service by highlighting the unwise, unjust and expensive favors being showered on the upper-upper class. At a time when all the self-proclaimed serious people are telling us that the poor and the middle class must suffer in the name of fiscal probity, such low taxes on the very rich are indefensible."

So who's right? Neither, in my opinion. Consider another point of view, if you will. Mine.

Let's stipulate that we pay roughly $2 for a loaf of bread at the grocery store. Everybody pays the same amount, no matter how much we earn. A loaf of bread costs $2, pure and simple.

But with taxes, we talk in percentages and not in dollars paid for the government we've "purchased." Why?

In other words, what's the difference between buying bread and buying government services?

If someone earns twice as much money as I do, he's not required to pay twice as much for groceries, gasoline or other items that we each buy in equal amounts. We both pay the same thing, since we buy the same thing.

Why doesn't it work that way for government?

The straightforward if not understood goal of the politician is to get as much money as possible from as few voters as possible.

So they go after the relatively few (as a percentage of the whole) high income earners. As famous bank robber Willie Sutton said when asked why he robbed banks, "That's where the money is."

By going after the "few with the most," the "middle class" taxpayers ostensibly get a pass--but not really. I say not really because if it's deemed to be a free lunch we won't pay attention to the quality or amount of government that we're getting.

That results in power to the pols and definitely not in power to the people. It's a political magic act!

Let's sum up.

The remedy is simple, at least in my view. To the extent we're each capable of paying for the government we're "buying," let's all pay the same amount of dollars. Just like when we buy bread at the grocery store.

What if we did that? Here's my bet.

The size of government would drop dramatically and immediately, and taxes on the middle class wouldn't increase much, if at all. But we'd all then forever after be vigilant about what we're purchasing from the government. And those in government would deliver value for services rendered or suffer the consequences at the next election.

The basic point or goal isn't to reduce taxes on the fat cats and top earners.

Instead it's to reduce the size of government to an amount equal to what the vast majority of our people think it's worth and are willing to pay to "buy."

So let's think in terms dollars and not percentages when deciding what is the right thing to do.

Then if we need more money, as a last resort, the high earners can make up the shortfall.

We'll just decide how many dollars we need and send them the bill in dollars for the excess. But only after at least the top 80% of the voting public have paid the basic freight--in equal dollars.

By the way, my bet is that the fat cats would pay the shortfall immediately and welcome the opportunity to help the cause.

E Pluribus Unum.

Thanks. Bob.

Presidential Politics ... Funding Pipeline Jobs and Teaching Positions

Our politics is hitting rock bottom these days. It's shameful, in fact.

President Obama is called The Anti-Jobs President on today's Wall Street Journal editorial page. I beg to differ. He's for some jobs and against others.

To gain clarity about Obama's bifurcated approach, just think about public sector versus private sector employment, and political supporters versus political opponents.

In fact, our President is all for raising taxes to pay for more public sector jobs. As proof, just recall his recent so-called American Jobs Act proposal when he urged Congress to approve additional taxpayer funds to support hiring more teachers.

What uses taxpayers may have for creating jobs themselves with their money is never of concern to him. He's confident that the government can make better decisions about spending that money than those who earned it. Besides, most of the high earners he intended to tax probably won't vote for him in November, while most teachers will. So he wants to create more taxpayer funded public sector jobs.

Accordingly, he isn't anti-all-job creation efforts. The President simply prefers government created and taxpayer funded public sector employment.

On the other hand, he's apparently opposed to specific private sector energy related jobs which don't require taxpayer funding. Or maybe he's just against serious North American energy independence efforts. Or perhaps he doesn't like the Canadians.

Now let's review the aforementioned editorial. After summarizing the reasons offered by the President for not approving the XL pipeline private sector jobs creating project, which would be market driven and therefore at zero cost to the taxpayer as well as a serious step toward North American energy independence, Obama's pipeline delay decision is summarized:

"This is, to put it politely, a crock.

Keystone XL has been planned for years and only became a political issue after the well-to-do environmental lobby decided to make it a station of the green cross. TransCanada filed its application in 2008, and State determined in 2010 and then again last year that the project would have "no significant impacts" on the environment, following exhaustive studies. The Environmental Protection Agency chose to intervene anyway, and the political left began to issue ultimatums and demonstrate in front of the White House, so President Obama decided to defer a final decision until after the election.

The missed economic opportunity was spelled out Tuesday by Mr. Obama's own Jobs Council, which released a report that endorsed an "all-in approach" on energy, including the "profound new opportunities in shale gas and unconventional oil." The 27 members handpicked by the President recommended that he support "policies that facilitate the safe, thoughtful and timely development of pipeline, transmission and distribution projects," and they warned that failing to do so "would stall the engine that could become a prime driver of U.S. jobs and growth in the decades ahead."

Only last week the White House issued a "jobs" report praising domestic energy production, but that now looks like political cover for this anti-jobs policy choice."

The editorial concludes with these comments:

"Environmentalists seem to think they can prevent the development of Canada's oil-rich tar sands, and that their rallies against Keystone XL will keep that carbon in the ground. They can't, and it won't. America's largest trading partner will simply build a pipeline to the Pacific coast from Alberta and sell its petroleum products to Asia instead, China in particular.

Such green delusions are sad, and Mr. Obama's pandering is sadder, though everything the country stands to lose is saddest. If Mitt Romney and the other GOP candidates have any political wit, they'll vindicate the Keystone's "national interest" and make Mr. Obama explain why job creation is less important than the people who make a living working for the green anti-industrial complex."

So there we have it. Let's sum up.

Political posturing trumps job creation in the private sector.

Political posturing trumps efforts at energy independence.

Political posturing trumps serious efforts at fiscal sanity.

Presidential politics this year will be in large part about pandering to supporters; public sector employees, environmentalists and the unions.

It will also include populist efforts to make the fat cats pay their "fair share."

Before 2012 has ended, we'll see how many jobs this approach is likely to create or save. Like the President's, for example.

Politics sucks.

Thanks. Bob.

Breaking News ... What A Circus!!!!!!!! ... Santorum's Looking Good in South Carolina

Here's another factoid to consider about South Carolina and beyond.

Looks like more good news for Santorum.

Today three things have happened in his favor.

(1) He won Iowa, (2) Perry dropped out of the South Carolina Republican primary, and (3) Newt's ex-wife just dropped a bombshell.

Gingrich's Ex-Wife: He Wanted an Open Marriage reports the following:

"Newt Gingrich wanted an open marriage, former wife Marianne Gingrich said in an interview with ABC News.

ABC just put out a video clip and excerpts of the interview, which is scheduled to air on Nightline tonight after the GOP presidential debate in South Carolina. Ms. Gingrich, who was married to the former House speaker for 18 years, said she is disclosing details of her marriage now to tell voters what she knows about Mr. Gingrich’s character. The two divorced in 1999, after, she says, Mr. Gingrich had suggested an open marriage that would allow him to continue an affair with Callista Bisek, the congressional aide who later became his third wife.

Ms. Gingrich told ABC’s Brian Ross that after Mr. Gingrich made that suggestion, “I just stared at him and he said, ‘Callista doesn’t care what I do’… He wanted an open marriage and I refused.”

The interview has caused a stir, airing so close to Saturday’s GOP primary in South Carolina and at a time when Mr. Gingrich has had some success positioning himself as an alternative to front-runner Mitt Romney. The Gingrich campaign Wednesday night sought to limit damage from the interview with Ms. Gingrich, the second wife, releasing an open letter from his daughters from his first marriage to officials at the network."

You can't make this stuff up.

So be sure to tune in for the next episode of "As The World Turns."

Thanks. Bob.

Pipeline Jobs ... Obama Says Not Yet ... The Pressure's On

President Obama is trying to punt on the Keystone XL pipeline project. He said not yet yesterday.

But despite his non-decision on the merits, it ain't over 'til it's over. Politically he's in a box and my guess is he'll say yes before this is all over. We'll see.

If approved, the Keystone XL pipeline project would create 20,000 well paying new jobs for U.S. workers. The American public supports the project.

All President Obama has to do is say yes, but he has a problem with a part of his Democratic political base. Union officials and blue collar workers want him to say yes, but the "green" lobby wants him to say no.

Now two representatives of the companies who would perform the work have weighed in with facts. So has the author of the bill requiring the President to act within 60 days, Senator Richard Lugar, Republican of Indiana.

Both companies and the Senator have written straightforward letters strongly supporting approval of the pipeline project. In addition to creating 20,000 jobs, it would strengthen our North American U. S. energy supply as well. What's not to like?

Job Creation and our Choices contains both the initial Times editorial and the various letters responding thereto. Here are what the pipeline company officials and Senator Lugar have to say in support of the pipeline project:

"To the Editor:

Re “Where the Real Jobs Are” (editorial, Jan. 2):

TransCanada has been constructing and operating natural gas and oil pipelines for more than 60 years. We know what it takes to build multimillion-dollar pieces of infrastructure — the amount of equipment, the materials and the number of workers.

The $7 billion Keystone XL pipeline is the largest infrastructure project planned in the United States right now. It will create 20,000 jobs: 13,000 in construction, 7,000 in manufacturing.

Construction of the 1,600-mile pipeline is broken down into 17 pipeline spreads, or sections, with 500 workers per spread — that’s 8,500 workers.

Keystone XL also needs 30 pump stations, each requiring 100 workers — that’s 3,000 jobs. Add in another 600 jobs that will be needed for the six construction camps and tank construction at Cushing, Okla.

A project of such magnitude needs construction and management and inspection oversight — the 1,000 workers here brings the overall Keystone XL total to more than 13,000 direct, on-site jobs. These are new, real American jobs — not person-hours; there is no double counting here.

The $6 billion Keystone pipeline that has safely delivered more than 160 million barrels of oil to the Midwest since the summer of 2010 created 9,000 construction jobs. This is a reality that our opponents cannot ignore.

The Keystone XL project is also expected to create 7,000 manufacturing jobs involving companies like Welspun, Cameron, Siemens and dozens of others. Based on all of this practical, factual data, the employment benefits of Keystone XL are very clear.

ROBERT JONES
JAMES MILLAR
Calgary, Alberta, Jan. 3, 2012

Mr. Jones is vice president of Keystone Pipeline System. Mr. Millar is manager of corporate communications and media relations for TransCanada.

To the Editor:

You say in your editorial that President Obama should reject construction of the Keystone XL pipeline because “this is precisely the moment for him to argue the case for alternative fuel sources and clean energy jobs.” Such an argument is a false choice.

Opportunities for more efficient buildings and wind and nuclear energy address electricity needs, not transportation needs that depend on oil. Thus, they will have virtually no effect on our dangerous foreign oil addiction.

I am lead author of the bipartisan language requiring President Obama to act on Keystone XL in 60 days. Your editorial is wrong in asserting that there is not enough time for a decision. The three-year environmental impact analysis has been completed, and strong environmental requirements are built into the legislation.

The Times is correct that “American voters are smart enough to see through the ridiculous pipeline gambit.” A recent Rasmussen poll indicated that voters favored the pipeline by 53 percent to 29 percent, with only 17 percent undecided, showing a strong understanding of the issues involved.

RICHARD G. LUGAR
Washington, Jan. 4, 2012

The writer is a Republican senator from Indiana."

Things are getting interesting. The pressure's on.

We'll stay tuned.

Thanks. Bob.