The Buffett Rule and the reality of taxation

The Warren Edward Buffett rule or The Art of Illustrating The Unfair Tax System is legislation proposed by the Obama administration, named after the esteemed head of Berkshire Hathaway that would enact a 30% tax rate on all Americans bring in more than $1 million in income, inspired by the namesake's outrage that he pays a lower tax rate than his secretary.

In truth, I hope that Buffett would. With his wealth I would think he would have an army of accountants at his disposal to make sure he can secure every last advantage in the American tax system.

As for the Democratic Party, it's another folly (estimates put it at only a potential $50 billion in revenue that would be brought in) that is designed to score political points (by putting it voters mind that the Republican Party is still the party of the wealthy), in yet the latest example of how not to implement Keynesian economic strategies (no matter how much Paul Krugman favors legislation like this).


Candy Crowley's "spoiler" was humorous, yet true: this legislation has no chance in hell of passing. We're more likely to see Mitt Romney be consistent in his campaign banter that we would see tax-increasing legislation.


It's time to address the one thing that we long had to address: the reality of taxation. Before, I begin, there are two fundamental truths in regards to the current fiscal state of the United States government:

1. The government spends too much.
2. The government doesn't make enough money.

While the latter may seem preposterous, and there are some people accusing the government of actually being a corporation, in a way, as one of my friends put it who graduated with a degree in economics, the government is somewhat organized as a corporate firm.  The President is the chief executive, the Congress is the Board of Directors, and the constituents are stockholders. As with any company, spending is only one part of the problem: a company still needs adequate income to appropriately function. What your idea of "appropriate function" is in the eye of the beholder, in accordance to your political philosophical beliefs, of course.  For me, the function of really any government is to protect the civil liberties and civil rights of its citizens, to adequately defend the citizens of its country, and to soundly participate in a more interdependent world.

Cue the grumblings of debate. Let me stop before I digress any further.

Combine this with the expectations people have about what government should do, a distorted quandary is born. Cute pleas for tax cuts, tax credits, and the such.
So there are five fundamental facts that people should realize about "tax cuts":

1. They never pay for themselves (see the fiscal success of the Reagan and Bush tax cuts).
2. Most people do not make enough money in income to really see a benefit to tax cuts, beyond that, most people don't even pay enough in taxes to really see a benefit to tax cuts.
3. As long as private debt is high (the individual debt to income ratio stood at 112% last year), tax cuts will yield little to no economic benefit.
4. Tax cuts are a useless way to stimulate demand -- it stimulates the demand to have money to pay off debts, if you want to look at it in a smart ass, sarcastic way. Then again, in a way that is a legitimate argument.
5. Tax cuts create more fiscal issues than they resolve.

However, there are four fundamental facts about "taxing the rich":

1. Taxing the rich is of questionable economic benefit.
2. Marginal tax rates in the United States are at historical lows.
3. The wealthy actually pay more than their fair share in taxes, which may shock some people.
4. The wealthy (which for this statement, I'll consider the top 20% of income earners), for the most part still has substantial buying power after taxes over most Americans.
5. Because the wealthy take on so much of the tax burden, increased taxation on the wealthy yields little fiscal benefit, for that there are not enough Americans paying income taxes.

(Before I go any further, I wanted to elaborate on point #3. In 2009 the Congressional Budget Office released numbers that were interesting: the wealthiest 20% of Americans made nearly 56% of all pretax income in the United States, yet paid close to 70% of all federal taxes, a 14% discrepancy. The overall effective tax rate in the United States was 20.7%, which is not even top 50 in the world). Further more, the top 1% paid 28% of all federal taxes in 2007, and a 40% share of income taxes that same year. 

Now that I got "tax cuts" and "taxing the rich" out of the way, it's time to further illustrate the silliness of the American tax code:

1. 47% of American households did not pay income tax for the 2010 tax year. Of that 47%, nearly a third had incomes of $10,000 or less (which automatically puts them in the poverty threshold); of that 47%, nearly two thirds made less than $20,000; of that 47%, nearly 90% of them made less than $40,000. 
2. University of Michigan economists Joel Siemrod told NPR that while the top 10% of income earners pay 70% of the income taxes, they only make 40% of the income. It should be noted that entry into the the top 10% income club begins $110,000 for the 2011 tax year.
3.  Tax rates would have to increase by 50% on all levels to even possibly begin significant reduction of the federal deficit, Siemrod said in the same interview. However, I don't think it took into account spending cuts as it was not mentioned. 

A lot of economists are beginning to argue in favor of the value added tax system (you heard of it called "consumption tax", "luxury tax", or "FAIR tax"). While it would expand the tax base to force more people to contribute to it and end the income tax system, it comes at a cost -- it would have an adverse effect on consumption considering that a value added tax system punishes those with lower incomes. As such the cycle would begin once again in regards to loopholes, exemptions, and credits.
In truth, there are two reasons why the American tax code fails to work:

1) The tax code does not work as it was designed: For the most part, the tax code was designed to be fairly straightforward. The only issue is, the tax code got designed and redesigned for political points and pandering. The ones that benefited the most from these changes in the tax code are the wealthy and the married with children.

2) The tax code depends too much on one thing - income: As the tax code primarily depends on income for it to work properly, its vulnerable to changes in the economy and individual economic behaviors. 

So what's the solution?

A two-tier tax system that would combine two fairly brilliant ideas:

1. A value-added tax system that would equate to being roughly equal to one half of the average sales tax rate of all 50 states in the United States, with deductions placed only on food and medication.
2. A income tax system that reconciles each tax bracket to the poverty level income threshold. I wish I still had the link to where I read that idea (I do not take credit for it). The only difference would be that I suggest a multiplier system (i.e., 1.5 times over the threshold, 2.5x over the threshold, 3 times over the threshold, and so on.), with the poverty threshold formulated using the proposal by the U.S. Census Bureau put forth in 2011, which would be a vastly improved and more realistic alternative to the "thrift-basket model" that's been in use since the 1960s. 

At the same time, numerous tax credits, deductions, special case of income (i.e., a separate tax rate for capital gains taxes), and other loopholes would largely be eliminated. It forces more people to pay taxes, eases the evasion and regressive taxation issues of the value added tax system, and still maintains a progressive tax structure in regards to income.

Fareed Zakaria wrote that the best tax code would be one that can be written on two pages. Mine would take no more than five.

Close enough.

I'm well aware that I did not delve into federal spending. This post was not about federal spending -- it was about taxation, and taxation only.

The rant about tollways, the Northwest Freeway, and the South Freeway

A highly unpopular decision was made the other day when Harris County Commissioners approved a very tentative plan to add toll lanes to U.S 290 (the Northwest Freeway) and S.H. 288 (the South Freeway). How this will work out remains to be seen and relies on quite a bit -- Harris County is still owed $77 million by TxDOT over the Grand Parkway Project, better known as that-really-big-loop-that-makes-no-real-sense. This continues the massive tollway movement underway here in the Greater Houston area and the State of Texas as a whole. For those keeping score, there has been four major construction projects in regards to limited-access highways completed since 2008 -- the Katy Freeway, the eastern segment of the Grand Parkway by Baytown, the northeast section of the Sam Houston Tollway which completed the Beltway system, and the Crosby Freeway (US 90). Of those, only the Crosby Freeway has no toll lanes. I declined to include the NASA Bypass for the fact that it is only 2 miles in length.


As such, I've seen a lot of comments full of flawed logic and irritation over the infamous reneging of Harris County removing toll booths once the Sam Houston Tollway and the Jesse H Jones Houston Ship Channel bridge were completely paid off. However, the county (and as such the state) realized something -- tax revenues going into the general funds of these jurisdictions were disproportionate to what would be needed to effectively resolve the transportation issues brought on by Houston's rapid population growth (Greater Houston is now the 5th largest metro in the country at roughly 6.1 million according to a 2011 Census estimate). The issue is not really new -- it's been a reality ever since the early 1980s.


It was tollways that bailed out Harris County after the financial clusterfuck of two projects: the Beltway 8 Ship Channel Bridge and the Hardy Toll Road, both of which suffered from massive traffic shortfalls in relation to projections (for the Ship Channel Bridge it was to the degree of 58%), which left both projects stumbling into the 1990s as money-losing albatrosses. Ironically, it was the Sam Houston Tollway that saved Harris County finances with all portions of the tollways constructed on time and under budget, even if most of these projects were started late (the West Belt and the North Belt from the Southwest Freeway to the North Freeway and the entire South Belt were on time; the Northeastern portion of the Sam Houston Tollway was not). It was during this time that the purpose of tollways shifted from being a means to pay off project costs and to being a reliable generation of revenue.


In truth, I'm not crazy about tollways, but at the same time though, I understand that the following reality, considering the rather conservative lean of this state -- there would be a greater uproar amongst Texans if the state decided to increase the gasoline tax (which currently stands at 20 cents a gallon). Considering how broke the Texas Department of Transportation is, I would imagine that the gas tax would have to be increased to levels seen in California and New York (roughly 47 cents a gallon), if not higher, considering Texas is a larger state and has more state maintained highway mileage than any other state in the country. To everyone whining about the toll booths not being removed -- would you rather pay $1.30 (with the EZTag) each time you pass through the main plaza, or would you rather shell out almost 30, or possibly 40, cents more per gallon of gas and have no toll roads?


I'll take the latter -- and for conservatives and libertarians that want to trumpet the old "cut spending" shtick: Texas has a mediocre budget at it is for transportation infrastructure. If it didn't, then I'd probably wouldn't be writing this post and almost every controlled access high volume transportation project in this state wouldn't be a tollway. This is a case of Texas not having enough revenue.


Transportation in Houston is really, really bad for about four to six hours a day, 6 days a week. U.S. 290 is a total hell, and the biggest reason why I'm relieved I do not live out towards Cypress. At least heading back  down to either Pearland, Alvin, or any community really in Brazoria County, there's State Highway 35, Cullen Boulevard (FM 865), and Almeda Road (FM 521) to relieve SH 288. The plan makes some sense for SH 288 -- it is a nightmare before 9 AM and it's a living hell between 4 and 6 PM. As it goes by the Medical Center, I avoid it like the plague whenever I leave in the late afternoons from the University of Houston.


The plan, however, makes no sense for US 290, considering that there's almost no way in hell another lane could be added between Magnum and Hollister -- the throw together extended added lanes that last briefly up to Antoine are a bad enough. At least for the Northwest corridor, it's better off that Hempstead Tollway gets built, serving a similar function to the Westpark Tollway or at least widen Hempstead Road to an 8 lane thoroughfare similar to Westheimer Road with synchronized lighting to handle a higher volume of traffic.

Black America, White America, and Racial Sensitivity

The latest racial discussion and debate going on in the United States is stemming from the senseless death of 17-year-old Trayvon Martin, a Florida high school student that was gunned down in a gated community in Sanford, a community northeast of Orlando, by 28 year old self-appointed Neighborhood Watch representative George Zimmerman, who is a white Hispanic. Martin, who was wearing a hoodie, roused apparent suspicion from Zimmerman, even though Martin was unarmed and only carrying candy and a can of iced tea that he got from a nearby convenience store and was only walking back to his father's girlfriend's house to watch the rest of an NBA game he was watching.

Black activists and social activist groups, along with a massive national viral campaign, are calling for Zimmerman's head arrest for murder, vehemently disagreeing with the Sanford Police Department's assertion that  Zimmerman claimed self defense and by way of a controversial Florida law passed in 2005, cannot press any charges or proceed further in an investigation. Martin's parents started a petition on Change.org which has sense collected over one million signatures calling for a federal investigation into the shooting because they lost confidence in local authorities to do so. According to a few stories I came across, this is not the first time Sanford has had issues in regards to race and police investigations.

I'm going to take this post to explain the current state of race relations in the United States that a lot of mainstream writers are either too scared or too polite to really write about: why blacks, and now whites, are so sensitive about race.

Social sensitivity is mostly an acquired trait, as in, you're taught reason to be sensitive. Often times, it begins at the home.

If you're black, like myself, and you're my age (24), you undoubtedly have parents and grandparents that grew up during the Civil Rights Movement. And while the movement resulted in landmark decisions such as Brown vs. Board of Education of Topeka and legislation such as the Civil Rights Act of 1964 and the Voting Rights Act of 1965 -- black resentment of whites, in truth, never completely wavered. So for a significant number of us, as we were growing up, we were taught the "don't trust white people" mantra, as they believed (and they justified this based upon their experiences growing up) that whites were only out to hold back and suppress the black man.

Couple that by the limited education we receive in today's public and private schools in elementary and secondary education (or intermediate and high school for those that don't know what the hell I meant) about the black American experience -- i.e., "blacks were brought over on ships to the 'New World' in the 'Atlantic Slave Trade' by 'Spaniards, Britons, and Portuguese'...then some blacks were given freedom for fighting against the colonists in the American Revolution...then blacks were considered 3/5th of a person the U.S. Constitution...then blacks spent the rest of the 19th century and first half of the 20th century trying to end slavery and achieve equality both socially and legally" -- it only adds to that sensitivity.  It's an additional reason why I can't stand Black History Month -- it aims for black empowerment but it only reinforces black sensitivity. It's the difficulty that most activists have in separating language of empowerment and language of sensitivity, that erects unnecessary boundaries within our culture and our community.

What further adds to it is that no matter where we go as blacks, we're often subjected to pandering -- which only adds fuel to that sensitivity fire. The Democratic Party, for example, openly courts blacks for the simple reason that they are black. Jesse Jackson, Al Sharpton, and Quannel X (for those that are from Houston reading this) have made their careers out of pandering to black sensitivity with their numerous grandstanding antics and events. Affirmative action, while well meaning, is another example of pandering. In short, a lot of the time, we're not taught to look at ourselves as being human before anything -- we're taught to look at ourselves as being black before anything, and while there are positives and negatives to that, the overwhelming negative is limiting how we look at ourselves in the mirror.

Now, I'm not saying these things and trying to say that racism does not exist, because it does -- blatantly and passively -- and I'm not saying these things because I don't think that "because I'm black" is a legitimate reason to give, because there are many times out of a hundred when that is a legitimate reason as to why certain things occur. I'm saying these things because I hope that sooner or later, we have a major philosophical and cultural shift to where we adopt the ideal of "before you look at me as someone that's black, look at me at someone that's a human being" and that ideal is self-reflective and not used as a justification or defensive punch line towards someone else. However, I do realize that is a major generational shift. At the same time though, everything that I just said about black America can be said about Hispanic America, Native America, Asian America, and yes, even white America.

White America has generally always been sensitive about race, but largely it was out of a Western European egotistical attitude which further fueled a combination of fear and a distorted superiority complex over black America -- especially black men. Over time, that attitude has not changed and really, it has manifested itself into a different dimension.

Where white America still fears -- really with black men -- black masculinity (i.e.. "This black guy will whip my ass.") and still possess attitudes of cultural superiority (see, "All Pejorative Statements Made About Hip Hop Culture, Blacks and Welfare Programs, and African American Dialect, Otherwise Known As Ebonics, or to Harry Reid, The Negro Dialect"), it's not to the degree where white America will actively campaign to openly violate or restrict black civil rights to the degree that was seen in this country from end of Reconstruction to end of the Jim Crow South. In a way, it's less about white supremacy and more about "white pride" and "white separatism".

However, there's a new dimension to white racial sensitivity that has not been seen since really the Reconstruction Era. Whites, really Northern whites, during the 1870s began to resent blacks and the whole Civil Rights Movement of the 1870s, largely due to exasperation from the Civil War and the fact that Northern whites more or less stopped giving a damn whether or not Southern blacks were ensured of their civil rights. As you well know, Southern Democrats (yes, for those that don't know, the Democratic Party was black America's biggest enemy up to Franklin Delano Roosevelt's election in 1932) seized this opportunity, regained control of Southern state legislatures during the later half of the 1870s and the early 1880s and ushered in the Jim Crow era.

This attitude of white American resentment of blacks has regurgitated in the past few years as white Americans became increasingly irritated with what they feel as the federal government's pandering to black Americans at the expense of white Americans. An example of this is the current American conservative movement to more or less wind down and cripple social programs that the poor (and as a consequence a significant proportion of black Americans) depend on, even if the majority of the beneficiaries to social programs in the United States are white. A major example right now is the affirmative action case recently brought to the Supreme Court by a student (who is white) that applied to the University of Texas a few years back and was denied, feeling that it was UT's affirmative action policy more than anything that was at fault. This whole "angry, white America" has fueled the political commentaries of Glenn Beck and to a certain extent Sean Hannity, Bill Kristol, and Bill O'Reilly and also bolstered the American Tea Party Movement when it was at its peak during 2010 and 2011.

You're now also seeing more social and Internet memes such as "Why isn't there a White History Week?" or "Why isn't there A White Entertainment Network?" -- direct examples of the new dimension of white sensitivity. If I had to sum it all up into a shorter way to express this it would be: for the first time white Americans are asking the same questions about themselves and their identity that black Americans have been asking for the past two centuries.

I'll wrap this up by saying this: we're going to keep discussing race for a long time. It's unfortunate that in the mainstream media that an honest assessment of racial sensitivity is not made. Hopefully, this post gets around the way it needs to get around and opens eyes. Post-racial America will not ever come to fruition until the color of one's skin becomes secondary and not primary. As long as it is primary, then we're going to keep having discussions and we're going to keep having responses and we're going to keep asking the same questions we've been asking every time an incident occurs where race may be a question.

Correction: This isn't a post racial society

The biggest lie that has ever been proliferated since Obama being elected to the office of the presidency is not anything that has to do with the budget or the economy.

The biggest lie that has ever been proliferated since Obama being elected to the office of the presidency is a "post-racial" America.

I've admittedly never really dealt with anybody that took open issue with my race to the point where it escalated into a confrontation. Never say never, of course, yet so far it has not been an issue. However, so far, I could say that I have not.

Racism, in itself, is a mutated form of tribalism, in that for all the years that human race has walked the face of this earth, has been institutionalized in some form whether it is through slavery, legalized apartheid, racial profiling, or race- and ethnic-based immigration policies. It is the dream of many to "eliminate" the disease that is racism, however, the reality is that as long as we tie skin color to any sort of system of risk or value, whether it is propensity to commit crimes, sexual prowess, ability to perform in a professional climate, and so on, there will still exist a bastion of racism. 


However, personal convictions, which fuel racism as it is, more often than not lead to disgusting consequences -- slavery in most of the Western Hemisphere well into the latter half of the 19th century, slave trade, apartheid systems in the United States and South Africa,  mass ethnic murders in holocausts in Armenia after World War I and Germany before and during World War II, rampant discrimination, white farmers being forced to leave from Mozambique, and it goes on and on. If you are a racist, and you don't like me for being a black man and you simply want to have nothing to do with me, then that's your problem. If you are a racist, and you're waging a campaign for the systematic violation of the human and civil rights of others through systematic containment and murder, then it becomes everybody's problem.

Quite few people here in the United States -- largely, white and conservative -- will claim that this is truly a post-racial society, that political correctness now seems demonize "whiteness", that the playing field is actually level, and now it is up to black and Latino Americans to make the most of the opportunities that have presented themselves since the Civil Rights Movement concluded with Dr. Martin Luther King's assassination in 1968.  Yet, while there may be truth that self-empowerment push of leaders such as King, Malcolm X, W.E.B. Du Bois, Cesar Chavez, and Dolores Huerta has transitioned to a "you [the white majority] owe us for the past four hundred years" mentality, it is honestly a representation of an endgame that was four centuries in the making -- blacks and Latinos having a general resentment of whites because of the past transgressions committed by the white majority and whites having a general resentment of blacks and Latinos for consistently feeling like they still have to pay for the "sins of their fathers". At the same time though, blacks, Latinos, Native Americans, and Asians are more sensitive to racial issues than whites -- reaching to the point of hypersensitivity amongst Latinos and especially blacks.

However, racism does not have to be blatant -- it can be passive as well. Passive racism is most seen with racial profiling and racial bias. Generally, the latter (i.e., preferring to date someone of a certain race) is far more tolerated than the former (i.e., a police officer pulling someone over for no reason other than the color of their skin). In short, skin color and tone is always going to carry some weight of relevance. 


Unfortunately, that is the reality that we live in.

That reality was made apparent in the death of 17-year-old Trayvon Martin, a black Florida teen, who was killed by 28-year-old George Zimmerman, a white Hispanic man, in a gated community in Sanford, Florida, which lies a few miles northeast of Orlando. Zimmerman had no real reason to call 911, except to further his belief than young black men are just criminals, and further had no reason to shoot someone unarmed. It was the same reality illustrated by James Byrd, Jr's death. The same reality illustrated by Emmett Till's death. It's the same reality faced by thousands of men, women, and children that were only assaulted and slayed for the color of their skin -- "black", "white", "red", or "yellow".

So, anyone that tells you that the United States has transitioned to a post-racial society is telling you a bold faced lie. As long as we're still using skin color to judge and decide how much value they have as a human being, even to the extent of violating their human and civil rights, then racism will remain a fabric that is deeply woven in the quilt of society. 

Emotional Politics and the Real Political Enemy of Everyday Americans

Once upon a time, when the United States was in its most nascent form, it was largely reason, not emotion, that dominated American politics. The greatest illustration of this political exercise was indeed the Constitutional Convention of 1787, which established the current U.S. Constitution, where delegates and leaders convened from across the country for one predominant reason, amongst others: the Articles of Confederation was simply not working and a grossly ineffective form of government for the United States.

I want to note something before I go any further -- when I say governing by reason, I mean this as governing with critical thinking and making decisions due a conclusion brought on by critical thought, as opposed to a pure emotional reactionary form of governing. "Emotional governing", as what I call it (though someone may have already beat me to the punch with that terminology) is needless to say, dangerous. More on this shortly.

It's actually galvanizing what governance based on reason, not emotion could actually accomplish. Another example -- which this time I am going to go outside of the United States -- would be Canada's debt crisis of the early 1990s, which was the ultimate result of government expenditure was disproportionate to not only what the Canadian government could afford, but what the national tax base and what the provinces could truly flip the bill for. Chretien's Liberal Party adopted what was then a revolutionary concept of Canada's stalwart left-leaning party: fiscal conservatism. This approach was based on reason, not emotion -- the ruling party was willing to put aside ideology for the greater good for an entire country. If the Democratic Party and the Republican Party did the exact same thing (oh, you know "compromise"), then I think there would be widespread wagers across the country on mutually assured, doomsday destruction.

Fine, fine, maybe that was a little bit too much of hyperbole. Yet, one thing that concerns me, and I'm seeing this on both sides of the ideological divide, that emotional gratification, with using political ideology as a front, has been the driving force of American politics for the past century plus. 

Now, some good has come out of emotional governance. Declared wars -- such as the First and Second World Wars (especially the latter with Japan's attack on Pearl Harbor in December 1941) -- were emotional statements. Government moves during the Civil Rights Era was a product of an emotional crusade (amongst other things, notoriously), because the more antagonistic state governments were making their own emotional stand. Conversely, however, there are scores of other examples where bad has emerged from emotional governance -- Jim Crow laws, gay marriage bans, undeclared wars -- just to name a few.

However, don't get me wrong, this is not intended to be a history lesson. This is intended to be a contemporary lesson. Here we are, with another election being tagged "the most important election of our generation", with just about every single political faction in this country looking to make an emotional statement on things such as economic inequality, social inequality, nationalism, "American values", and other issues, real and purported.  So here we are, with tenured politicians from the left and right expressing themselves to voters as "saviors", "rescuers", and "enlightened individuals". This is disgusting and disturbing politics. Sure, there may be some good of it, such as pushing us to critically think about some issues, however, we're steered into an emotional response, instead of a response derived from reason. Let's look at it:

• There's the end of American unilateralism. We don't critically address it, but we panic over it -- all the while at the same time cry that other countries must strive for greater self-sufficiency and follow "America's example". Uh...
• There's the fact that financial system collapsed in 2008, and yet while I am in favor of Keynesian principles, it's fairly clear that both the Bush administration and the Obama administration acted on emotion and emotion alone.
• The health care bill might just be the biggest emotional statement of the past 25 years politically -- on both sides of the aisle.
• Leaders be damned if they would even critically look at the fact that the deficit is more of an issue with revenue than it is with spending, brought to us in part by clusterfuck tax code.
• There's no legitimate, secular reason from banning gay marriage. Gay marriage bans, and legalization, may be the greatest social emotional statements of the 21st century.
• The Republican presidential nomination race has degraded into a caricature of post-truth politics (Romney), outright demagoguery (Santorum), elitism (Paul), and hypocrisy (Gingrich).
• The Democratic Party, for the past four decades the alleged defenders of individual rights, stood by idly with NDAA.
• The Republican Party and Democratic Party do more to obstruct each other than to find solutions to alleged problems.

Need I really say more?

However, the biggest political enemy that everyday Americans have is not the politicians...it's everyday Americans. How, you ask?

By playing right along with emotional driven politics too many times of the time.