April 29, 2012

Wenzel and the Austrians only half right on Fed

Robert Wenzel lit the Fed up like a Christmas tree at a Fed luncheon he was invited to this past Wednesday. It may have been the most criticism of the Fed ever spoken within the walls of the Fed. However, there were some problems with Wenzel's critique/analysis:

1. While it is true that economics lacks the precise constants of the physical sciences, behaviors in the aggregate are predictable within margins of error that are acceptably narrow for the purposes of modeling and constructing formulas. All price-setting activity ...
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March 14, 2012

MD gas tax hits the poor
5 times harder than the rich

Maryland's proposed gas tax increase of 10 cents per gallon would hit families at the poverty level five times harder than the average family within the top 25% of tax payers. This is the epitome of regressive taxation.

For a family with income of $162,279 per year (the average income of the top 25%), the tax would equal a miniscule 0.08% of the family income based on typical gas consumption of 1,309 gallons per year. A family at the poverty level ($14,710 to $18,530, depending on household size of two or three, with Maryland's average household size being 2.6) would pay 0.38% of the family income based on typical gas consumption of 632 gallons per year. That's 4.75 times more than the wealthy household.

If anyone dismisses the significance of raising taxes almost half a percent on the poor, while not raising them even a tenth of a percent on the rich, the person probably has never lived like a poor person. If you haven't run out of gas because you've run out of money, if you gotten home with the change you scrounged from under your floor mats to ask for "$1.75 on pump #2 please" and paid with a fistful of dirty pennies and nickels, if you haven't suffered the embarrassment of going through the grocery store checkout line with nothing but ramen noodles because you needed to budget for gas, then you probably can't comprehend the significance of taking another half percent of a poor person's wages, and you probably can't recognize the flagrant injustice of doing so at the same time you are taking less than a tenth of a percent of a rich person's wages.

There is little else that would rival the draconian regressiveness of Maryland's proposed gas tax. Perhaps Maryland could choose to tax groceries or heating bills. Perhaps a new tax that only applies to the first $8,500 of income -- whoops, they already did that.

I propose two much better alternatives:

1. Cut spending. Yes, the bulk of Maryland's budget goes to education, health, and public safety; however, consider the following:
   1. Half of those employed in education are not teachers. They are "other." It is possible to cut money from the $13 billion that Maryland spends on K-12 education, without cutting teachers or teacher pay.
   2. Maryland spends almost $2 billion a year on public safety (to include police and prisons). Perhaps tight times are the time to re-evaluate the war on drugs, given that about 50% of all police and prison spending is devoted to it.
   3. Maryland spends another $2.4 billion per year on higher education. Stop subsidizing frat parties and focus the subsidies on online learning.
   4. UMUC (University of Maryland University College) spends only 28% of its budget on instruction. Even adding in research and operations/maintenance, the figure is only 38%. That's 62% of a $300 million annual budget spent on administration. Does the university really need to spend $300k on a figurehead position that quits for unexplained reasons?
   5. Does University of Maryland, College Park, really need to spend $7.2M for a new house for their overpaid figure head?
   6. Do away with mandatory art classes past elementary school. By 6th or 7th grade, everyone knows who has artistic talent, and who's simply burning through art supplies. Keep it as an elective and spend a more focused, smaller amount of resources on the kids who have talent.
   7. End public pensions. Only 20% of the private sector gets them. Why does 80% of the public sector?
   8. Stop overpaying contractors who do state construction projects. Their concentrated benefits are the diffuse costs borne by taxpayers, and in the instance of the gas tax, by the poor.

2. Institute a progressive property tax, and/or a progressive vehicle registration fee and/or progressive vehicle sales tax. Such a system is straight from the WEALTH OF NATIONS, so much so that you could coin it the "Adam Smith Tax."

Regardless of your ideological preference on the spectrum of tax increases versus spending cuts, we should all agree that taxes that hit the poor five times harder than the rich are simply wrong. It is pure cowardice to go after this group that is least able to defend itself. To anyone in the Maryland General Assembly who is considering this: Grow a pair and either sock it to the rich, or take on the well-organized special interest groups who would howl at the spending cuts.

Sources:

• U.S. Energy Information Agency, gas consumption by income
• IRS 2008 tax returns crunched by The Tax Foundation
• The Urban Institute, more gas consumption by income plus commuting habits