Tang, Time, and Tax January 10, 2003January 22, 2017 NEW APOLLO PROJECT Craig Wiegert: ‘Congressman Inslee’s reference to Tang was downright silly. He could have come up with many better examples when extolling the benefits, direct and indirect, of the space program. How about mylar and kevlar? How about scratch-resistant plastic lenses? How about GPS, weather satellites, DirecTV? For that matter, how about photovoltaics and fuel cells, to bring the conversation back to energy?’ ☞ I’m a great believer in the space program, and I hate Tang. WAIT A SECOND Nicoletta: ‘I’m a programmer and I have to deal with nanoseconds all the time. Thus – 01/02/03 04:05:06:07.’ DIVIDENDS Dan Flikkema: ‘The tax-free dividend proposal is an outrage. In fact, it’s a relative tax increase on those of us who hold all or most of our stocks in tax deferred accounts. We already lose the benefits of capital gains when they are earned within an IRA. Now my IRA/401k will accumulate lots of dividends over the years and when I withdraw them in 30 or so years they will be 100% taxable – no tax-free dividends for me. The Bush administration banks (correctly) on the fact that the general populace is ignorant. I work with a lot of middle income people (35-60K per yr) who have been completely baffled by the Republican banter. They have virtually no net worth but still believe they are somehow better off by eliminating the ‘death’ tax. They pay more in FICA tax than income tax but still want to see the top brackets lowered.’ John P: ‘As one who has worked for a large multinational corporation for the last 22 years and who has achieved an annual salary of $62K, I want you to know that there is at least one person who is not really rich that would benefit greatly from this tax cut. I currently receive about $15K in dividends in taxable accounts. If these dividends were not taxed I would have sufficient resources to be financially independent. I have worked hard and lived frugally in order to save these resources and to attempt to be financially independent. I have paid total federal, state and SSI taxes starting at 25% of my income (beginning of career) rising to 33% of my current income. A lot of points you made about whether or not the dividend tax is the best tax to cut for economic growth and for fairness are well taken. What I do object to is the view that only rich people will significantly benefit from a dividend tax cut/elimination. A dividend tax cut would make a major difference in my financial future.’ ☞ I agree. It would save you about $5,000 a year. It would save me money, too! I love it! I just have this nagging feeling that we shouldn’t be cutting off health care to 6 year olds in Oklahoma in order to cut your taxes or mine (a rhetorical stretch, but I know you see the connection) . . . and that as hard as you and I have worked, there are quite a lot of people out there working just as hard for their $22,000 and $32,000 and $42,000, who would also like to be financially independent. Not that everyone should be assured ‘equal outcomes’ . . . and not that those fortunate enough to have been born intelligent or good looking (or to the right parents or in the right country) aren’t entitled to the major edge that gives them, and the far more comfortable life that often results. My question simply is: Has the world been unduly kind to the folks making $22,000 a year and unduly cruel to you and me making more? So much so that we have to shift the current balance further in our favor? Our Republican friends scream an emphatic yes! (And have been screaming it from the moment they took office.) I say, well, it would sure be nice to have the balance shift further in our favor; but how could we possibly live with ourselves? Jim Hayes: ‘Remember the Buffett criterion that companies should retain earnings only if they can reinvest them in projects better than their stockholders. A lot of the bubble was companies retaining earnings and wasting it on takeovers or bad investments that would have been better returned to shareholders. The double taxation of dividends and the loopholes around it are part of the corrupt tax system that is complicated solely to exact contributions for Congress.’ ☞ I might not go that far, but as I said yesterday, if this had been the one plum W. had decided to try obtain for those at the top, I think it might have made pretty good sense. And if he wants to cancel all further tax cuts for the top 2% and do this one thing for them instead, I think that would be a lot better than the vastly more expensive track we’re on now. But to ADD this plum to the rest . . . well, the eyes widen in disbelief as the jaw just drops lower and lower. (And how about, switching fields, but with the same wide eyes and dropped jaws, waiting all of ten minutes after the Trent Lott affair to renominate Charles W. Pickering and the others. Is this what it means to be ‘a uniter not a divider?’) Donald A. Coffin: ‘A more defensible, change in the tax laws would be to allow corporations to deduct dividend payments from their taxable incomes. This would make the treatment of equity finance more like the treatment of debt finance (interest payments are deductible), and thus reduce the bias in favor of debt finance. It would also encourage corporations to pay dividends, if anyone really thinks that’s important. But the proposal to end taxation of dividends as personal income is simply a tax break for the rich masquerading as something else.’ ☞ Quite a few of you suggested this. Dividends are not an ‘expense,’ like raw materials or labor or rent or interest or the phone bill; they are a totally voluntary distribution of a portion of the owners’ share of what’s left after all the expenses. So it would be odd to make them a deductible ‘expense’ . . . but it certainly could be done. James: ‘I won’t address the dividend tax cut as I’ve yet to see all the details and don’t want to jump on a bandwagon until all the particulars are out. I do want to address your mention of state budget problems, specifically CA. I live in the Golden State and watched three years ago as the state struggled with how to spend a 21 billion dollar surplus. We added 40 plus thousand state employees and enacted a dozen new state programs to put this windfall to use. Now as we face a $40 billion state budget shortfall, it appears that the guys manning the till in Sacramento have no clue as to how we got here from there. It appears the highly educated, experienced officials we have elected could not anticipate the boom times would ever end. They could have called me (or you for that matter) and I would have told them (for free, yet) that the bubble was going to end and end badly, and that it might behoove them to hold spending and save some of that money for a rainy day. Now it appears that the legislators didn’t overspend, they are suffering from a ‘revenue shortfall’ (I actually heard this the other day). The problem is not that they spent too much, I simply didn’t send them enough money. So if I don’t shed many tears for the poor suffering state of CA, please don’t hold it against me.’ ☞ If the 40,000 new hires each earns $75,000 (once you add in benefits and office supplies), that’s just $3 billion of the $40 billion, so the problems must run deep indeed. But let’s assume you’re right. My question: If we are going to change the status quo and send the federal deficit further into the red to boost the economy, is the best way to do that to cut taxes preponderantly for the best off? Kathi Derevan: ‘Being in one of those ‘top’ income categories, I will say that I feel fortunate to pay more in taxes than most people earn in a year. You can not convince me that the rich work harder than the young mother who cleans houses to support her children, or the men who wash our cars and pick up our trash. A tax break for the rich on the backs of the working middle class and poor is outrageous. I long for a President that will use our taxes to ensure that an elderly person never has to choose between filling prescriptions or buying groceries. That a young mother doesn’t have to calculate whether she can afford to seek medical help for her sick child.’