Subsidies - What Do You Think?

[marko]

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Originally Posted by Mdlerth I believe ALL subsidies are misguided because they distort what would otherwise be most the efficient relationship between supply and demand. As a result, we will invariably misallocate resources and end up with a net less prosperous civilization. To some extent, every subsidy makes their target problem a little bit worse due to society being a trifle poorer.

This is an excellent, excellent point!
Basic economics but an angle I hadn't considered.

[NW-Bound]

One can look at Venezuela to see what happens. When crude oil was expensive at $140/barrel ten years ago, instead of exporting it and stockpiling the money, the late Chavez let people use it nearly free at pennies a liter. There were other horrendous policies with the country's food and industrial production.

The country economy is now devastated, and its people starving.

[Teacher Terry]

As a former social worker there is real poverty and hunger in this country. Please don’t make light of it.

[EastWest Gal]

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Originally Posted by FUEGO I want to keep all the good subsidies I currently receive. Because I helped pay for them gosh darn it! All those other subsidies that I don't currently get only go to lazy good-for-nothings and should be eliminated immediately. Until I qualify for those same benefits, at which point they should be immediately reinstated. Because I helped pay for them gosh darn it! <this seems to summarize the mentality of most people>

Sarcasm, I assume?

[MichaelB]

Quote:

Originally Posted by NW-Bound One can look at Venezuela to see what happens. When crude oil was expensive at $140/barrel ten years ago, instead of exporting it and stockpiling the money, the late Chavez let people use it nearly free at pennies a liter. There were other horrendous policies with the country's food and industrial production. The country economy is now devastated, and its people starving.

The economy is in collapse and many people are suffering, but I think subsidies, especially gasoline, are not significant factors. Other horrendous policies are more important contributors.

[MichaelB]

In a modern developed society there are some goals which we set for our collective selves but need some help to reach. Some of these are achieved by writing laws and regulations, others are pursued by providing financial motivation such as tax breaks and tariffs. Subsidies are just one additional way to pursue public goals. They are neither good nor bad, but they can be more or less effective. In a pluralistic, consensus building system of goverence such as ours, compromise and trade-off is a requirement, so for most programs, there will always be supporters and opponents.

IMO the biggest problem with subsidies is the same with laws, regulations and tax credits and all other efforts to influence behavior. They outlive the life of the goal and become institutionalized, taking on a life of their own.

[Independent]

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Originally Posted by ERD50 You might want to search out different sources if you want to see a diversity of thought on that subject. Clearly, the fault in your summary of that article is it is looking at a static model, and that isn't real life. They claim that expenses (taxes in this case) go directly to profits, so only the corp/investors are affected, but it is more complex than that. To illustrate, imagine 2 companies that process/distribute a commodity product, and are each able to make an ~ 10% profit through the value-added service they apply in the processing and delivery of that product. Now let's say the price of that commodity increases by 20%. If your view held true, these 2 companies would simply hold prices and take a 10% loss until they reach insolvency. Obviously, that won't happen - they will raise their prices as much as they can to compensate. The consumer will pay, either to that company, or to alternatives if available, but that also means increased expense to the consumer, or they would have been using the alternative already.

I picked that article because it was near the top of the Google return, and because it talked about a range of opinions. Not all economists think that 100% of corporate taxes are paid by shareholders. But, the argument tends to be about the allocation between shareholders and workers, they don't seem to mention consumers. When I've looked before, I couldn't find economists who claim consumers pay the CIT. Maybe you've seen something I haven't (The people quoted are using complex models.)

I agree that a flat tax that applies to all producers equally is going to impact consumers. The obvious example is gasoline taxes. I'm sure consumers pay them. But, the income tax is not flat. Different companies are at different places in terms of income vs. sales. I think that is important.

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Yes, I've heard people say that everyone will just become a corp and no one will pay taxes, but as long as any pass through to an individual is taxed as personal income, I don't think that is a problem. Like today, cheaters would need to be dealt with (like someone claiming a large % of their home as a business expense, when they only use a small den as an office one day a week).

It looks like we agree that money received by stockholders should be taxable to the individual, but not to the corporation.

The disagreement is that I think corps will defer distributions to allow owners to defer taxes. That has a value to the owners and a cost to the gov't. Note that we have very wealthy people who own privately held corps which are engaged in real businesses (not just passive investments). I think they should pay taxes this year on income earned this year.

Keeping the corporate income tax and allowing deductions for dividends, while also keeping the capital gains tax, should encourage corporations to distribute earnings as they occur. Alternatively, we could have C-corps calculate their taxable income and 1099 it to the shareholders, whether or not they pay dividends.

[Chuckanut]

FWIW, I would be in favor of doing away with the Capital Gains tax rate, and instead, adjust the CG for inflation. One set of tax rate tables for all income, and all adjusted for inflation.

However, I wonder if that won't end up making the income tax more complicated than it already is. Or maybe not? And, of course, that will lead to huge arguments over what is the most 'fair' way to calculate inflation.

Beware the Law of Unintended Consequences.

[gayl]

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Originally Posted by Independent But, I can't see stay-at-home spouses getting no SS benefits.

Still think that only those with earnings are entitled. Afterall, dbl household incomes pay in on both earnings / deserve 2 payouts. Single household incomes only pay in on 1 income / deserve 1 payout. Once the wage earner dies, then they can get that

You'll never convince me that non-earners pay into SS

[JoeWras]

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Originally Posted by Teacher Terry As a former social worker there is real poverty and hunger in this country. Please don’t make light of it.

Some people have concern about the way statistics are being thrown out on the issue. I think it is fair for them to voice their concern. That isn't necessarily making light of it.

Now, I thought the discussion earlier was really good. I.E. we have people who appear to be well fed, but basically live in an area with terrible access to food. This may force poor choices using the support system. It is more than just food, but education on food.

In my neighborhood, we had plenty of choices. Then one day recently, a big food retailer decided to close shop nearly overnight. It has made a big difference -- in a bad way! Many of us are surprised how many neighbors would walk to this retailer. They are now out of luck and need to find a way to a different store, farther away. Or... go to the gas station convenience store. Not good! Still, we are not in a desert. But this little problem has opened my eyes to the true food deserts in other parts of town. I get it now.

[Independent]

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Originally Posted by gayl Still think that only those with earnings are entitled. Afterall, dbl household incomes pay in on both earnings / deserve 2 payouts. Single household incomes only pay in on 1 income / deserve 1 payout. Once the wage earner dies, then they can get that

If all married people stayed married until death do them part, I could see one benefit paid through the last death. My suggestion is heavily influenced by the need to deal with divorces.

Note that in the case of a married couple with one income, each spouse's work record would have only half that income. I'm not sure if you caught that.

[gayl]

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Originally Posted by Independent If all married people stayed married until death do them part, I could see one benefit paid through the last death. My suggestion is heavily influenced by the need to deal with divorces. Note that in the case of a married could with one income, each spouse's work record would have only half that income. I'm not sure if you caught that.

Yes I caught that but it doesn't change my position. It's a calculated risk to stay at home & not work. But it's a lifelong one that they enter into & if divorced late in life, they have the option to start to work or accept OASDI & senior subsidized housing. Which is something like the federal poverty level

[Independent]

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Originally Posted by ERD50 That doesn't work either, unless you take into account inflation.

I agree that taxing investment income on the nominal gain instead of real gain overstates investment income. Also ...

- The issue is just as big on interest. If the bank paid 2% interest on my CD, and inflation was 2%, I don't think I had any real income. Shouldn't we CPI adjust all types of investment income?

- Capital gains get the value of tax deferral. Interest doesn't. Tax deferral has an economic value. Therefore, I would be less willing to CPI adjust capital gains than interest. If we're going to go through the math of doing a CPI adjustment for cap gains, maybe we should also do the math to adjust for the deferral.

- Most regular workers can completely avoid paying tax on most of their investment income by using tax qualified accounts. (This is obvious for Roth IRA/401k. Not so obvious, but equally true for tIRA/401k.)

- Even higher income workers can get a good deal. Suppose half my savings are in tax qualified and half in taxable accounts. The total taxes I pay on the two sides combined are still less than I'd pay in a combined taxable account with full recognition of inflation.

So it is only unusually high asset people who end up with taxable investment income that exceeds their CPI-adjusted investment income. Those people would end up paying an income tax plus an asset tax (if inflation is 2%, and the marginal tax rate is 25%, the extra tax is equivalent to a 0.5% tax on assets). From a public policy standpoint, I'm okay with a tax system that has both an income tax and an asset tax, at least for high asset individuals, especially if that's the result of using simpler rules instead of more complicated rules. Where you see a bug, I see a feature.

[Huston55]

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Originally Posted by gayl no wages, only widows benefit Agreed but how do you choose which Xspouse? [emoji48]

The ‘pleasant’ one...oh, wait.

BOOM, just solved the SS solvency problem; there are no ‘pleasant’ EXs.

[NW-Bound]

Some of SS rules are arbitrary and do not make common sense.

Take for example the ex benefit. I can see that they tried to protect wives who get divorced late in life, but one can get married for 10 years from the age of 20 to 30, not work or do anything till 62, then get 1/2 of the ex at retirement age.

Imagine if you have to share the money in your pension fund or your 401k/IRA with a coworker's ex, or ex's. You would not like it, would you? But SS is a tax, and so they can just distribute it however they want it. Until the money runs out, that is...

Hence, I like the separation of retirement savings and welfare. Kind of like separation of state and church.

Nothing's wrong with welfare, and any decent society must have it. But when the two get mingled and they can just do arbitrary things, I do not like it.

[FIRE'd@51]

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Originally Posted by Independent The issue is just as big on interest. If the bank paid 2% interest on my CD, and inflation was 2%, I don't think I had any real income. Shouldn't we CPI adjust all types of investment income?

One of the problems with CPI-adjusting interest income is what do you do to the borrower. For example, should you only be able to deduct the real interest rate on a mortgage? It seems you would have to treat the borrower and the lender the same way?

[Independent]

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Originally Posted by FIRE'd@51 One of the problems with CPI-adjusting interest income is what do you do to the borrower. For example, should you only be able to deduct the real interest rate on a mortgage? It seems you would have to treat the borrower and the lender the same way?

Since I'd get rid of the mortgage interest deduction, your specific question isn't on my radar.

However, the CD interest the is income to me is also expense to a bank. And the bank loaned my money to a business that pays the bank interest. And the business used the loan to buy inventory that sits for a while before it gets sold.

If we're going to CPI adjust investment income, does any of that need to be adjusted for consistency?

I suppose some people would say this is a good reason to only adjust cap gains. I think it's a good reason to not open this particular box.

[Independent]

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Originally Posted by NW-Bound Some of SS rules are arbitrary and do not make common sense. Take for example the ex benefit. I can see that they tried to protect wives who get divorced late in life, but one can get married for 10 years from the age of 20 to 30, not work or do anything till 62, then get 1/2 of the ex at retirement age.

Yep. And, what if that person remarries from 40 to 50, and one ex is dead and the other is alive? Or what if the first marriage were from 20 to 28 and the second from 40 to 48?

I think I proposed a simpler rule here: http://www.early-retirement.org/foru...ml#post2099279

[NW-Bound]

Speaking of paying taxes on interest that only matches inflation rate, I wonder how people felt back in the high inflation rate of the late 70s, early 80s (I just started out working full-time, and did not have much money).

When inflation ran 14%, if you kept your cash under the mattress, your $1 was worth 86 cents in a year.

If you bought CD that paid 14%, your $1 was still $1, but not after you paid tax on that 14% "income".

If you bought stocks, the price was known to drop 40% in 18 months.

Oh boy, a world of hurt. I remember that was when people piled into gold and collectibles like rare stamps, antiques, arts, etc... What a "fun" time!

[Teacher Terry]

NWB, the ex claiming on his or her ex-spouse is not hurting the person. They still give the person their full SS but the ex gets a amount equal to half.