June 20, 2008

Random Thoughts on Today’s State Unemployment Report (for May)

Filed under: Economy,Taxes & Government — Tom @ 4:31 pm

Bureau of Labor Statistics Links:
- Table 3 — Seasonally adjusted (SA).
- Table 4 — Not seasonally adjusted (NSA).

Thoughts:

  • Stars of the show (SA, NSA): WY (2.9% for both), UT (3.2%, 3.0%), SD (2.9%, 2.8%), OK (3.5% both), ND (3.3%, 2.9%), NE (3.2%, 3.1%), ID (3.6%, 3.0%), HI (3.5%, 3.4%). Basically red states all, in case you didn’t notice.
  • Y’know Arnold, with California’s unemployment rate at an SA 6.8%, up 0.6% from last month, I’d say you should be more receptive to oil-drilling jobs instead of rejecting the idea. What a bitter disappointment he has been on so many levels.
  • Michigan? Holy moly. The state SA rate is 8.5%; Metro Detroit is 9.3%. Really good move re-electing Granholm, guys. Letting Kilpatrick hang around as Detroit Mayor is really bright too.
  • Without CA and MI, the US unemployment rate would be 5.2% SA (instead of 5.5%) and 5.0% NSA (instead of 5.2%).
  • Whoa — Illinois’ SA rate shot up from 5.4% to 6.4% in May. No wonder Obama moved a lot of DNC operations to Chicago. Illinois’ situation is now worse than that of …..
  • Ohio, whose SA rate went from 5.7% to 6.3%, and its NSA rate from 5.5% to 5.9%. The Strickland VP express will not be leaving the station.
  • Things would be a lot better in Ohio without Metro Cleveland’s 7.3% SA rate (7.2% NSA). Would PA be interested in an acquisition?
  • Florida under Charlie Crist has gone from 3.9% to 5.5% SA in 12 months. Sorry, Charlie; McCain would be nuts to pick you as Veep (yeah, I know, that makes Crist a leading contender).
  • Louisiana has gone from 4.5% to 4.0% SA in two months. Jindalmania, anyone? (no, not this year)

Obama’s Payroll Tax Increase Affects Earners, Not ‘Wealthy’; Media Clueless

Filed under: Economy,MSM Biz/Other Ignorance,Taxes & Government — Tom @ 2:50 pm

If, as shown yesterday (at NewsBusters; at BizzyBlog), media reporters can’t even get basic things like the fact that $1.74 x 3.5 doesn’t equal anything close to $4 right, you would think that it’s way too much to expect them to understand the difference between income and net worth.

You would be correct.

The coverage of last week’s Social Security tax-increase proposal by Democrat Barack Obama included this representation by the candidate:

To extend the life of Social Security, Obama proposed applying a payroll tax to annual incomes above $250,000, affecting the wealthiest 3 percent of Americans. The Democrat also proposed eliminating income tax for any retiree making less than $50,000.

A targeted payroll tax such as the one the Illinois senator is proposing goes after the highest earners of salaries, wages, and self-employment income, who are often but nowhere near always among “the wealthiest 3 percent,” at least some of whom receive all or almost all of their income from investments.

It’s not surprising that Obama would make the obvious income/net worth error noted above, since, as I noted on Tuesday, he doesn’t seem to even understand the difference between income and net worth. He told the same Columbus, Ohio audience that Warren Buffett had “income” of $56 billion, which is, of course, the Omaha investment legend’s net worth. Buffett’s total 2006 income of over $46 million is less than 1/1000th of his net worth, and the wage/salary component of his income is probably a small percentage of that $46 million. Oh well; focus groups probably don’t mind going after someone’s wealth as much as they would object to siphoning away that person’s income.

It turns out that even the claim that “only” 3% are “affected” may also be a bogus.

I estimate, based on reviewing 2005 IRS data (Table 1.4, downloadable at this link) and 2006 Census Bureau information (Table AVG1, downloadable at this link), that the percentage of those “affected” (i.e., socked with a ginormous tax increase) is more correctly seen as about 2%.

There appear to be just about 3.0 million taxpayers who would be have to pay additional payroll taxes under Obama’s proposal (some interpolation and inflation estimating was necessary to come up with this number). That 3 million would be:
- 3.3% of all taxable tax returns (90.6 million).
- 2.2% of all tax returns filed (134.4 million).
- 2.0% of all tax returns filed, plus an estimated 15 million (midpoint of the 10-20 million estimate here) legal nonfilers (149.4 million).
- 2.6% of all households, per the Census Bureau (114.4 million).

Which percentage should be used? I believe, unless you start adjusting for household or family size, that the 2.0% of all returns filed plus non-filers is the best approximation of all “Americans.” I guess it all depends on what you mean by “affected” and “Americans.” Maybe a reporter who reads this post might considering asking the candidate what he meant.

I have mixed feeling in bringing all of this up. The Obama campaign, once corrected, might decide that going after only 2% or so of Americans to further prop up everyone else instead of 3% isn’t a bug, but is instead a feature.

Also open for discussion: What is a “retiree” for the purposes of Obama’s $50,000 exemption from federal income tax? The answer is not as simple as you might think. Just for starters, are you a “retiree” if are 55, have officially retired from one company, and started work at another? If not, why not?

Cross-posted at NewsBusters.org.

Column of the Day: Larry Lindsey on Barack Obama’s Social Security Tax Increase

Note: I had a post up for two hours that was meant to be held until after the Pajamas Media blackout. This happened because PJM put off publishing the article until tomorrow (it was originally targeted for Wednesday), and I didn’t reschedule my post accordingly. Apologies to PJM for the brief oversight, and to BizzyBlog readers for having to pull the post. The following on Lawrence Lindsey’s Wall Street Journal op-ed covers some of the same ground, but not with the specifics you’ll see in my column.

___________________________________

Lawrence Lindsey’s op-ed in the Wall Streeet Journal today strongly criticizes Barack Obama’s proposed Social Security tax increase, and confirms what I surmised earlier this week, namely that Obama wants a historic de-linkage of taxes from benefits (bolds are mine):

Obama Turns FDR Upside Down

Sen. Barack Obama has a bad idea for “extending the life of Social Security.” He has proposed applying the Social Security tax to incomes above $250,000, in addition to the current tax on incomes up to $102,000. It’s unfair, he explained, for middle-class earners to pay Social Security tax on “every dime they make” while the very rich pay on “only a very small percentage of their income.”

Reporters cited the Obama statement without asking for the logic behind having someone making $100,000 pay on every dime and someone making $250,000 pay on just 41% of income, while someone making $10,000,000 would pay on 98.5% of income. There is no economic principle or theory of tax law that would endorse such a result.

…. Neither Franklin Roosevelt, who started Social Security, nor the intervening three dozen Congresses thought they were imposing an “unfair” system on the middle class. There is a very good and principled reason why Social Security taxes are paid on just $102,000 of income: Benefits are calculated based on that same $102,000 of income.

The fundamental principle of linking taxes and benefits was established when Roosevelt designed Social Security. He wanted to make sure that it was not a welfare system….

…. Although the formula connecting benefits to tax payments or “contributions” has evolved slightly over time, it still adheres to this basic message. Today, what Social Security terms a “low-wage” worker will pay (in present value terms) $77,197 over his or her lifetime and get $112,261 in benefits. A median-wage worker earning $42,000 will pay $171,550 and get back $187,085. A “high-wage” worker making $67,000 will pay $274,480 and get back $245,085.

Note that the previous paragraph shows that Social Security is already a bit of a welfare program already, in the sense that “high-wage” workers are subsidizing “low-wage” workers. This is a point I’ve made several times, all the way back to the beginning of this blog, and that the vast majority of Americans don’t understand. I know this, because every time I explain it in the classroom, the room temperature goes up by about 10 degrees.

But at least the current system maintains the link between taxes paid in and benefits received. The more you pay in, the more you get, even though the “more you get” diminishes at higher taxable earnings levels.

Obama would throw all of that overboard, as Lindsey notes:

Sen. Obama would do away with this principle by requiring higher-end workers to pay taxes without getting any extra benefits linked to their higher contributions. This would be a big step toward turning Social Security from a contributory pension scheme into just another welfare program.

Given who is affected, I would call it “the nearly final step.” And does anyone really believe Obama’s “doughnut hole” would survive very long in the next “fiscal crisis”? In fact, given the history of Bill Clinton’s “middle class tax cut,” I wonder if it will even survive a first draft if Obama were elected.

Lindsey also points to the incentive effects, and you really should go the final section of his piece to see how he gets to this crucial conclusion, along with his perhaps unintended slap at the candidate (in bold):

It is shocking to think that we have a presidential candidate who would make the private sector $5 poorer in order to make the government $1 richer. More likely, given the calculated political design of the proposal, no one in the Obama campaign told the candidate about the economic, ethical or historical consequences of his suggestion.

What????!!! Is Barack Obama such an ignorant newbie that he needs to be TOLD these things?

O. M. G.

Things I’d Like to Post About ….. (062008, Morning)

Filed under: TILTpatBIDHAT — Tom @ 8:08 am

….. But Don’t Have Any Time For:

  • What Michigan’s ruling ruining party is doing to the Wolverine State is horrifying, but useful. Right Michigan (HT NixGuy) somehow got a hold of the state’s unemployment numbers for May (I didn’t think they came out until this morning at 8:30 10:00). Unemployment in the Wolverine State shot up in May to 8.5% from 6.9%. That’s 3 points above the national average. It’s useful because what Jennifer Granholm et al have done to Michigan with tax increases and refusals to do anything meaningful about spending is a microcosm of what Barack Obama and his party will do to the whole country if they gain power. Yes it is.
  • IBDeditorials.com — “Haven’t heard much news coming out of Iraq recently? Consider the near silence a clear indication that things are going well there.” As yours truly noted on Tuesday, the Associated Press has already told us, in its own cryptic way, why Iraq is not worth reporting on now that the situation has improved.
  • Another gem from IBDeditorials.com — “On Thursday, Barack Obama declared he’d forego public finance for his presidential campaign, going back on a public pledge to Common Cause to do the opposite. Instead of admitting he’d be more likely to win with private finance, he blamed Republicans. ‘We face opponents who’ve become masters at gaming this broken system,’ he claimed. Never mind that the bridge-builder had assured rival John McCain’s camp that he’d talk it over with them.”
  • Michelle Malkin made a great point yesterday about the offshore oil-drilling situation — “There are two bans on drilling–one by Congress and one by an White House executive order put in place by President Bush’s father. Why won’t the son revoke that order NOW if he truly believes expanding American oil production by increasing access to the Outer Continental Shelf is an urgent priority?” Good question.
  • Along those lines — Go to this link (last four quarters are here). In return for doing everything involved in finding, getting, and producing petroleum-based products, Exxon Mobil has been making an after-tax profit of about 8% – 10% of each dollar of revenue for the past 4 years. Now go to this link. In return for inefficiently-run, pork barrel-laden highway programs, the states and the federal government collect about 47 cents a gallon in state and federal gas taxes. That’s about 11%-12% of the current pump price of about $4.08. So who’s “greedier,” and who is giving us the better deal?

Positivity: A Chinese school, shored up by its principal, survived where others fell

Filed under: Positivity — Tom @ 6:00 am

From Sangzao, China:

Sunday, June 15, 2008

SANGZAO, China: The students lined up row by row on the outdoor basketball courts of Sangzao Middle School in the minutes after the earthquake. When the head count was complete, their fate was clear: All 2,323 were alive.

Parents covered in blood and dust hugged them. Everyone cried. So did the school principal, Ye Zhiping.

“That was the single most joyful thing,” he said.

Given that about 10,000 other children were crushed in their classrooms during the devastating quake on May 12, the survival of so many students in Sangzao counts as a minor miracle.

Students and parents credit that to “Angel Ye.”

Nervous about the shoddiness of the school building, Ye scraped together more than 400,000 yuan, or about $60,000, over three years to renovate. He had workers widen concrete pillars and insert iron rods into them. He demanded stronger balcony railings. He demolished a bathroom that had been weakened by water.

His school in Peace County very likely withstood the 8.0-magnitude earthquake because he pushed the county government to upgrade it. …..

….. a personal commitment and a seemingly petty amount of cash sufficed to avert tragedy.

Ye not only shored up the building’s structure but also had students and teachers prepare for a disaster. They rehearsed an emergency evacuation plan twice a year. Because of that, students and teachers say, everyone managed to flee in less than two minutes on May 12.

“We’re very thankful,” Qiu Yanfang, 62, the grandmother of a student, said as she sat outside the school knitting a brown sweater. “The principal helped ease the nation’s loss, both the psychological loss and the physical loss.” …..

Go here for the rest of the story.