Posts filed under “Philosophy”

Tax Rates, Inequality, and US Deficits

Its Friday, after what was for me a long and annoying 17 days. But the shutdown is over, US markets are at all time highs, and Bob Shiller got his Nobel (more on this tomorrow).

You might think that I would be at peace with the current state of the world, but life is never that simple. You see, I have assumed the task of explaining things which require explaining. By some quirk of fate and an odd academic background, I find myself with skills in simplifying complex matters. Whether OCD or over-compensation for some other defect, this is my lot in life. (I made peace with it long ago).

As we discussed yesterday, amongst all of the background nonsense since October 1, the noise about the deficits was not really about budget deficits at all. Rather, it was about a decidedly narrow ideology held by a small percentage of Americans. Their belief is that government should be much smaller. This is a legitimate political ideology, one that has persisted over the centuries.

Their approach to this philosophy, however, is far less intellectually honest. Rather than having a full on debate on that subject — a debate they are likely to lose — they have chosen a very different approach. This time around, they made the deficit a proxy.

Because of what I do for a living, I found this offensive. Deficits impact fixed income, an important part of portfolio planning. They impact available credit, capital for investment, in a broad and varied way. Hence, the deficit is a genuine issue, a real problem that should be addressed in a mature and responsible way. It can be easily solved using intelligent solutions, but for the ideologues in Washington DC (and elsewhere) who refuse to treat it as the basic mathematics and accounting problem it actually is. The way the Tea Party and others have treated the deficit reminds me of the approach Meredith Whitney took to Municipal Debt. Both groups are stunningly ignorant about their subjects, while possessing the skills to allow them to exploit the topic, hog the spotlight for themselves and other tangential pet issues.

The Tea Party, like Whitney, turned an important question of debt and credit and solvency into one giant PR clusterfuck.

Back to our issue of taxes (next week, I will address spending). Amongst Industrialized Nations, the United States has amongst the lowest tax rates in the world, especially for those folks (like myself) who reside at the top of the income scale.

To demonstrate this, I want to point to the IMF’s World Economic and Financial Surveys: Taxing Times. It is chock full f great charts and data and other interesting results of the IMF survey.

The two below caught my eye. They are rather instructive for our discussion of taxes and deficits in the US.

The first looks at major industrial nations, and compares what the IMF calls their Revenue-Maximizing Tax Rates (blue line) versus their actual top rate (red dot).

As you can see, some countries — Denmark and Sweden — are at the top of the revenue maximizing ranges. Other countries — Canada and Germany — are at the bottom of their revenue maximizing ranges.

Then there is the United States, which is simply far off the scale, way below the bottom of its revenue maximizing range.

If your concern is deficits, than you must take notice of how much money the USA is leaving on the table. I am not suggesting that the role of government should be to maximize their tax revenues, but rather to suggest that if you want to close the deficit, you need to at least be in a defendable range. The US is not.

 
click for ginormous charts
Top Marginal Rates
Source: IMF

 

Not coincidentally, when we look at shares of Net Wealth held by the bottom 50% of he population versus the top 10%, the United States is off the scale. We are the most unequal nation in the world.

 

Shares of Net Wealth
Source: IMF

 

The inescapable conclusion presented to us by this data is that our tax policy is responsible for both the world’s greatest inequality among developed nations, and our ongoing deficits.

If you have a better explanation for our current conditions, or the net results of our tax policies, I would love to hear it.

 

 

Source:
Fiscal Monitor Taxing Times
World Economic and Financial Surveys
IMF October 2013
http://www.imf.org/external/pubs/ft/fm/2013/02/fmindex.htm

Category: Economy, Mathematics, Philosophy, Taxes and Policy

Being A Long Term Investor in a Short Term World

Its Friday, and today is the day I usually like to wax philosophical about a variety of things. It seems this week we have done a good deal of that already (see this and this). Given those posts, let’s briefly discuss the issues investors have with the artificial construct we call Time. What’s that you…Read More

Category: Investing, Philosophy, Psychology

Yay! Its a No-NFP Non Farm Payrolls Friday !

Okay, so here is the deal: We have no report of the NFP data today. The net impact of this? Nothing. Total loss to the investment community? Nada. Actual impact to the economy? Zilch. There are two things we need to understand about this report: The first is what makes it significant; the second is…Read More

Category: Employment, Philosophy

An Illustrated Book of Bad Arguments

Click for full book Source: Book of Bad Arguments   I deal with bad arguments all the time, constantly swatting away silly arguments and foolish rhetoric. This little book does a nice job summarizing them all.  

Category: Philosophy, Really, really bad calls

Whats Your Forecast?

Its Philosophy Friday, and I want to discuss in broad terms the same interesting conversation that keeps coming up: Over the past few weeks, I keep getting that question: Whats your forecast for the economy? Where will interest rates be at the end of the year? Are Jobs going to improve? And of course, the big…Read More

Category: Apprenticed Investor, Philosophy, Really, really bad calls

W. Edwards Deming: 14 Points for Management

“Long-term commitment to new learning and new philosophy is required of any management that seeks transformation. The timid and the fainthearted, and the people that expect quick results, are doomed to disappointment.” -W. Edwards Deming Dr. Deming’s Ideas Dr. Deming’s famous 14 Points, originally presented in Out of the Crisis, serve as management guidelines. The…Read More

Category: Corporate Management, Philosophy

Outcome or Process Oriented?

Well, that was a busy week, wasn’t it? The non-Taper, the Lehman anniversary, oh, and our little launch has kept your humble author rather busy. Since its Friday, the day I like to get all philosophical on y’all, let’s reflect on a simple issue: What is more important to investors, their process or their results?…Read More

Category: Investing, Markets, Philosophy

Greatest Resignation Letter Ever

This was awesome: Dear Barton: You have a man in your employ that I have thought for a long time should be fired. I refer to Sherwood Anderson. He is a fellow of a good deal of ability, but for a long time I have been convinced that his heart is not in his work….Read More

Category: Employment, Philosophy

Loose Items

I am going to skip the my usual Friday Philosophy as this week has been enormously insane for me, out late for work every night, with lots of meetings every day (and tonight is another holiday). But I do have a few things I want to discuss/tease/show you: • There are still a few tickets left…Read More

Category: Markets, Philosophy

The Big Picture Conference: Scheduled Speakers

I am thrilled to tell you about the 5th Annual Big Picture Conference coming up on October 8th in New York City. We are extremely excited about the speakers, topics, even the venue itself. And, we are expecting our largest audience yet. I wanted to personally invite you as a reader of the Big Picture to what we…Read More

Category: Investing, Philosophy, Psychology