Death, Taxes and Stupidity

It's been said that the only certainties in life are death and taxes. With respect to taxes, I'd suggest that stupidity also follows along.

I have watched with great despair as politicians debate tax rates. Nowhere is this discussion more perverse and misguided than in the United States.

Tax the rich because they can afford it....say Democrats.
There is a problem of overspending not undertaxation.....say Republicans.

Both sides are being equally stupid and simplistic but I shall focus on an argument often made by Republicans.

Virtually every Republican with broad name recognition has at some point made the argument that cutting taxes will increase government revenues by stimulating the economy and creating jobs which will lead to higher tax revenue as more people earn taxable income and at higher rates.

When Ronald Reagan made this a part of platform in 1980, a fellow Republican named George H.W. Bush gave it the rather caustic label of "voodoo economics." So which is it? Do lower taxes result in higher tax revenues or do lower taxes result in lower tax revenues?

Well the truth is that both were right which only makes the debates happening now even sillier.

Take an example of a marginal tax rate of 99% which is increased to 100%. This will certainly result in lower tax revenues as people will have zero incentive to work since they will get to keep none of the fruits of their labour. So it is fairly easy to see that a cut in tax rates from 100% to 99% will increase tax revenues. My guess is that a cut from 99% to 98% will have a similar effect.

Is there a point at which cutting taxes results in lower revenues then? Well of course. A cut from 1% to 0% might increase economic activity but it most certainly will result in a reduction in taxes to zero. My educated guess would be that if you halve the marginal tax rate from 2% to 1%...then this will also result in lower tax revenue.

The above example would lead to a conclusion that somewhere below 100% there is a level at which raising taxes results in lesser tax revenue and somewhere above 1%, there is a level at which cutting taxes would result in lesser tax revenue. So somewhere between 0 and 100% is a tax rate below which cutting taxes will result in lower revenues and above which raising the rate leads to lower revenue.

So basically anywhere other than the optimal point would result in lower tax revenues. Now I don't know where that optimal level is and it might not even be the same level from one year to the next. However, I do know that the highest rate in US history was 94%. (Does that seem awfully close to 100%?) When Reagan came into office, the rate was 70%. Currently it stands at 33%.

It is most irritating when I hear politicians talking about stimulating the economy by cutting taxes. Listening to some Republicans you would think that Moses came down from the Sinai with a commandment that says "Thou shalt cut taxes....always and forever more."

Paying taxes is not like famine and pestilence where the ideal number is always lower...but you wouldn't know that from listening to some Republicans.

As my simple example shows, there would be a point at which lower tax rates would result in lower tax revenue. This should serve as a caution to Democrats as well. Raising taxes on the wealthy should not be done for reasons of class warfare or resentment. The goal should be to raise money for government operation and in doing so, they should be mindful of not creating a disincentive to earn more income.

When someone says "raise taxes on the wealthy", i often ask to what level should it be raised? Usually there is no answer because it really wasn't thought through beyond "they're rich so they should pay more." When someone says "cut taxes because it will stimulate the economy and lead to more revenues", i will ask to what level it should be cut.

Both sides simply want "more" or 'less" without asking themselves what the "RIGHT" level of taxes should be. My guess is that the United States is pretty much at a point where cutting taxes will lead to lesser revenues not more. My guess is that an increase to the marginal tax rate would lead to greater government revenues. I think it's probably 10% higher before it becomes a cause of lower revenues.

I don't know what the right number is but I do know that I don't ever hear politicians speaking of the 'right' level of taxes.

Marathon Inspiration 1984

By the time of the 1984 Summer Olympics in Los Angeles, I had entered my teens. I had grown to love sports and had begun learning important life lessons through sporting competitions.

I had watched the "Miracle on Ice" of 1980 when a team of Collegiate American Hockey players defeated the heavily favoured Soviet Big Red Machine. As a hockey fan I was thrilled to see my New York Islanders emerge as 4 time Stanley Cup Champions after so many years on the periphery. Magic Johnson and Larry Bird were going mano a mano in what was a team sport.

The lessons learned were that David can slay Goliath, teamwork can pay off and sometimes a white guy can win the NBA Championship...LOL!

Into this mix the cold war era Summer Olympics came along. For the first time, women were competing for a Gold medal in the marathon. I watched on TV, captivated, as Joan Benoit (USA) broke away from the pack and widened her lead right into the finish. She ran the final lap in the LA Coliseum without any of her competitors in sight. She crossed the finish line to the cheers of the partisan American crowd and the networks were happy.

However the truly inspiring moment was yet to come. Way back from Joan Benoit was Gabrielle Anderson of Switzerland. She had been overcome by heat and when she entered the stadium she was not a picture of grace. She looked terrible to say the least.

But she was still moving (barely). She waved away medical personnel lest she be disqualified. She stumbled around and couldn't move in a straight line and her body was leaning awkwardly the whole way.

BUT SHE DIDN'T QUIT!!!!!!!!!!!!!

Watching Gabrielle Anderson collapsing over the finish line in 37th place made quite an impression on this 14 year old boy.

Now through the magic of youtube I was able to view her finish again 27 years later and it still gave me the chills.

Joan Benoit won the Gold Medal that day. It's a common saying in sports that "nobody ever remembers who came second." True enough! For me the most memorable person at the first women's Olympic Marathon in 1984 finished 37th.

The language of the commentary is not important. If you watch the video....well judge for yourself.

http://www.youtube.com/watch?v=YZFNiuuApFU&feature=related

An Orange Tide for Ontario??T

hThe Ontario election campaign has barely begun but we have already seen the two frontrunners get bogged down in a bizarre issue.

Liberal Premier McGuinty has promised a tax credit to companies that hire foreign trained professionals.  Conservative leader Hudak has labelled it affirmative action for "foreigners".  Not true replies McGuinty, it is meant for Canadian citizens who were foreign trained but have been in Canada for less than 5 years.  Hudak has been accused of being divisive.

I find this whole issue and the reactions rather bizarre.  I don't like affirmative action as a matter of principle but I'm not sure this qualifies as affirmative action.  That being said, labeling Canadian citizens "foreigners" is completely offensive.  Am I Canadian because I've been a citizen for longer than 5 years or am I still somewhat of a foreigner?  I've always thought that when one becomes a Canadian citizen, you are Canadian from that day forward.  That being said, if this is such a great idea, why did Dalton McGuinty wait until an election campaign 8 years after he took office to present this great idea???  He could have presented it and implemented it at any time during the past 8 years.

This whole debate makes both of them look silly.  It's possible that the voters of Ontario will decide that both of them are right....about the other and vote for neither.

This silliness has created an opportunity for Andrea Horwath to woo disaffected voters.  It has been decades since Ontario's disastrous experience with an NDP government.  Former NDP Premier Bob Rae is now the leader of the Federal Liberal Party and the face of the NDP is now Jack Layton.  In other words, the NDP brand in Ontario has been completely washed clean of the Rae years by Jack Layton's success and Rae's defection to the Liberals.

It is very early and the leaders debates have yet to happen.  If Andrea Horwath can introduce herself to the voters and show that she is ready for prime time, she could pull off an upset.  The ground is fertile, can she step up and seize the opportunity?

President Obama's Jobs Plan

With the United States mired in an economic slump and fears growing of a double dip recession, President Obama did what he does best.....he gave a speech.

Obama's skills as an orator are well known.  I don't think the Oval Office has had a better orator post Reagan.  However, his plan is doomed to fail.

I have heard that one definition of insanity is repeating the same behaviour and expecting a different result.  So what is the Obama jobs plan?  Well it's a $447 billion dollar package of tax cuts and public works spending....to be paid for later.  Excuse me but haven't we seen this before?  What does anyone think that a half trillion dollar program of spending will do for the economy what three years of trillion dollar deficits did not?

Bill Gross (of PIMCO) speaking on CNN stated flat out that it will not work because the unemployment problem in the United States is a result of structural changes resulting from technological change and the migration of jobs to cheap labour countries like China.  A modest lowering of payroll taxes will not suddenly cause businesses to start hiring.  Bill Gross is right.

However let me take a step back and address a more fundamental assumption that everyone seems to be labouring under.  How exactly did it become a fundamental underlying assumption that the economy will continuously grow at rates that will lead to ever greater prosperity?  Everything I've read in my studies of economics says that boom and bust are part of something called the business cycle.  Recessions are as much a part of growth as death is to life.

Recessions aren't all bad.  During boom times, people drive more, eat more, waste more and save less.  Why wouldn't they?  Greater future prosperity makes thrifty ways seem pointless.  The environment suffers and the garbage dumps fill up while waistlines expand.  During recessions, businesses become more efficient, energy costs are costs that need to be cut, lights are turned off more and carbon emissions go down.

Stimulus spending will not work now because it simply attempts to fast forward future consumer demand to the present.  This works temporarily but there is a limit.  The downgrading of US Treasury debt to less than triple A tells us that this point is near.  That point was reached after a decade of deficit financed prosperity under George W Bush.  That is certainly not Obama's fault but it does mean that the stimulus gun has no more bullets that are effective.  Besides, bringing forward future growth to today inevitably means a hangover of low growth.

It is now time for society to readjust their expectations, live with lower growth and wait until the gloom passes.  It may take years or even a decade or two....that is simply a reflection of how long and prosperous the boom was.  It's time to recover from the hangover and there is no quick way to do it.

Jack Layton's Legacy

The passing of Jack Layton united Canada in grief today.  People who would never have considered voting for him (such as myself) were equally moved by his story and his words.

I first heard of Jack Layton 20 years ago when he was running for Mayor of Toronto.  He lost to June Rowlands.  He also had unsuccessful runs for a seat in Parliament twice before finally meeting.  It took a long time and a lot of losing campaigns before he became an overnight success.

During the mayoral campaign, Layton came across like an angry young man berating a kind old lady.  In the recent federal election, he was a very different man.  Gone was the simmering anger.  He spoke plainly in a way that voters could understand him.

One of the ironic things about the last election is that Harper campaigned against the three other parties as being in bed with separatists.  How ironic that Harper did not slay the separatist dragon but one of the men supposedly in bed with Gilles Duceppe decimated the Bloc's Ottawa headcount to a number that could be counted on one hand not including the thumb.

Jack Layton greatest legacy lies in Quebec.  Many Canadians outside of Quebec had Jack Layton's sunny demeanour and working class french to thank for sparing us the sight of separatists in Ottawa rising to ask questions during question period.  The last election was a great result for Canadian Federalism and Jack Layton was the key driving force behind Quebec's change in direction.

Since that is his greatest legacy, it is also the area in which his legacy can be most easily squandered.  Layton's successor must find a way to hold on to Official Opposition status at the very least in the next election.  If he/she does not, then the last election result will be seen as a fluke result that will not be repeated.  If that happens, then Layton's legacy will be squandered.

It will be very difficult for the NDP to do anywhere near as well as they did in 2011.  Jack Layton's presence will so dominate that his successor will pale in comparison.  A new leader from Quebec runs a high level of risk of alienating NDP voters in english Canada.  Some candidates such as, Thomas Mulcair are simply too unstable to appeal to many people in or out of Quebec.

The NDP is not my party and I have never voted for the NDP.  However as a Canadian, I fervently hope that the NDP can carry on Layton's legacy.  It was Jack Layton's presence as leader that eliminated the travesty known as the Bloc Quebecois.  All Canadians should be greatful and hope that the NDP will continue to block the Bloc from a resurgence.

A strong and durable NDP will be the ultimate tribute to Jack Layton.  RIP Jack!

The Real Downgrading of America

Today Standard and Poors downgraded long term debt of the United States from the highest rating of AAA to AA+.  The other two major agencies have not downgraded but have warned of the possibility.

This is the first time in history that US Federal government debt has had anything other than the top rating so many people haven't really ever considered this and are unsure of the consequences.  Even financial experts aren't so sure.

Many products and pricing methods in Finance are built around the concept of what is known as the "risk free rate."  This is useful for calculating things like the "Present Value" of future cash flows.  (ie.  the opportunity cost of not having money today that you could then invest at the 'risk free rate.')  Nothing is ever truly risk free but having the highest possible credit rating is as good as you can get.

There is a knock on effect of a downgrade of US Sovereign debt.  It is a principle that the Sovereign must always have the highest credit rating in the country.  The idea behind this is very simple:  A nobleman can't be AAA while the King is AA since the King can simply choose to tax the nobleman to pay his obligations.  As a result, Apple Computer may have had more cash in their bank account than the US Treasury did for a time last week, but their credit rating still cannot be higher than the Treasury.  This knock on effect may increase borrowing costs for many US companies down the line.

The Standard and Poors downgrade statement made a particular point of saying that a deficit reduction plan had to be 'credible' and that the dysfunctional way in which the Executive and Legislative branches are interacting was a factor.  I don't think that anyone who followed the recent debate and brinksmanship around raising the debt ceiling could argue with these criticisms.

As a practical matter, this downgrade may not have any big immediate effects.  There are three major ratings agencies and the others have not yet followed suit.  (if the other dominoes fall, then the USA is on the same slippery slope as Greece)

The S&P doesn't have a mandate for social commentary but their statement still pointed us to the real historical downgrading of America:  before Congress got dysfunctional, society became dysfunctional and voted that way.

The real problem is a downgrading of the values of shared sacrifice that once existed in America.  Where people once dutifully stood in ration lines to support the effort to defeat the Axis powers, people now see shopping on credit as their patriotic duty.  In a way, one can hardly blame them.  President George W. Bush and Mayor Giuliani told them to do just that.

Every debate around the budget comes down to various interest groups basically saying one of two things:

1. Cut my taxes and raise taxes on these other people.
2. Don't cut my benefits, cut someone else's.

Both Democrats and Republicans are equally guilty of this.

The 2011 Federal Budget contained spending of $3.8 trillion dollars and revenue (taxes) of $2.2 trillion leading to a deficit of $1.6 trillion.  This means that for every one dollar collected in taxes, the government was spending one $1.72.  That is an absolutely irresponsible level of spending.

Here is my suggestion for how America can fix this problem of values and get their AAA credit rating back:

1. Raise taxes on the wealthy.
2. Raise taxes on the not wealthy.
3. Cut Democratic sacred cow social programs like Social Security, Welfare, Medicare and Unemployment Insurance.
4. Cut Republican sacred cows like National Defence, Corporate welfare subsidies, Ethanol subsidies.

In short, taxes go up for EVERYONE and benefits are cut for EVERYONE.  How can this be fair?  It's fair because when $1.72 of spending exists for every $1.00 in taxes, the entire society is living beyond its means.

Those on the right will talk of how certain social programs cost too much.  By and large, these programs benefit urban dwellers and minorities.  They will ignore any talk of ethanol subsidies which benefit rural white farmers.

The left is equally guilty of playing class warfare politics of division.  They will always say that taxes should go up for the "rich".  This is a red herring because the rich already pay higher taxes and there simply aren't enough of them earning $250,000 + to fix this fiscal imbalance.  This plays right into the attitude of "let someone else pay."  Why shouldn't the middle class pay more?  The only reason nobody says that is because the middle class is where most voters are.  

My suggested plan will fix the deficit (unlike the current plans) and probably trigger a severe recession (just as the current plan will).  Recessions are painful but they are inevitable.  They are inevitable because sustained growth creates the conditions that lead to recession.  (I don't want to write a textbook here so I won't go into that much more now.)

My suggested plan would not get a single vote in Congress.  It offends every constituency and enforces shared sacrifice.  Therefore, my plan is not aligned to the values of America right now.  What a pity.

Pension Folly

An amazing argument is playing out across the public and private sectors across several nations.

This argument deals with defined benefit pension plans.

The problem is very simple to define and (in theory) just as easy to solve.  Whether we are talking about Social Security, the Canada Pension Plan or various public or private sector pension plans the problem is the same.  Current workers pay premiums that fund the benefits for retirees.  The benefits are paid out without any real connection to what those workers paid into the plan in the first place.

As an example, one pension plan I am aware of pays out (for life) based on the following formula:  2% x the number of years of service x average of your salary in the final 3 years.  If one lives a very long time, the retiree will receive much much more than was paid in.

This problem afflicts all such pension plans.  Social Security (USA) sets payments to begin at the age of 65.  At the time that the program came into inception (1935) the average lifespan of workers was 67.  Today it is around 80 and increasing.

The aging of the population and reduced birth rates has lead to projections that the worker-retiree ratio (which was 10-1) will soon reach 2-1.

In short, the program is fundamentally flawed.  It is simply not built to deal with negative demographic trends. In fact, it was always doomed to fail since the human population simply cannot keep growing forever...certainly not at the rates that it had been.

So why all the hue and cry when corporations or governments try to fix this obvious problem?  It points to a cultural shift in values.  Where such programs were once a sign that society takes care of each other, now it has become a game of hanging onto your spoils and damn the consequences for everyone else.

Personally, I don't want to saddle my children and grandchildren with debt to pay for my retirement.  If we want to avoid the fate of nations like Greece, then we need to eliminate or at least radically reform the way cherished programs like CPP work.  Otherwise we are just sweeping today's problems under the rug for our children to deal with.

If anyone wants my advice, I suggest saving enough for your retirement assuming that you will get bupkus from the Canada Pension Plan.  It's the right thing to do and the safe thing to do....cuz that might be the case anyway.

Gay Marriage - everybody seems to be missing the point

Today i'm going to blog about the Gay Marriage debate currently roiling the United States.  While the topic is certainly controversial, I don't think that my opinion will be.

The fundamental mistake in our marriage laws is not that they exclude same sex relationships.  The fundamental mistake is that such laws exist at all.

Historically the rules of marriage were governed by a religious institution and codified into law.  Now this didn't lead to much dissension when an overwhelmingly Catholic country codified the standards as defined by the Vatican.  However in this age of multicultural societies with multiple faiths, this is no longer meaningful or appropriate.

Why should the laws of Canada reflect the standards of the Anglican Church and the Catholic Church?  I'll give you an example....under the laws of Canada, marrying your first cousin is permitted.  This is surprising to many.  Marrying your first cousin is allowed by the Anglican Church and the Catholic Church.  However, it is not allowed under Eastern Orthodox Christianity.

There is no reciprocity with religious organizations.  While a marriage in a Catholic Church is recognized as legitimate under law, the same does not apply in reverse.  As one who has been divorced, I could not marry a Catholic girl in Church because in the eyes of the Catholic Church, I am still married.  Rather curious since I am not Catholic and my ex wife is Hindu.

Those who claim to oppose gay marriage ostensibly for the purpose of defending the traditional definition of marriage should be asked which "traditional" type of marriage they are defending.  Is it a Catholic/Anglican definition of marriage?  There are "traditional" marriages in other faiths such as Islam and the Church of Latter Day Saints which would be considered invalid under the laws of Canada and the United States.

Really the "threat" to a traditional view of marriage comes from attempting to codify it.

Here is a really radical idea:  Government should get out of the business of defining marriage.  It's really not the place of Government to take one religion's standards and make them apply to all.  A religious "Marriage" should be defined by the controlling religious authority.  ie the Vatican can decide for Catholics and an Ayatollah can define marriage for Shiite Muslims.

I've attended communions in Catholic churches.  Communions are not defined in law but it doesn't seem to make it any less meaningful to those who are receiving communion and their families.

As to the economic aspect of marriage such as rights of survivorship for property, pension etc, any two (or more) legally competent individuals should be able to sign a contract pooling their resources and agreeing on how to divide up assets upon dissolution of the contract.

Recently elderly sisters applied to the European Commission on Human Rights claiming that they were being discriminated against since they did not have rights of survivorship while a lesbian couple would.  They lost the case but the pointed out an obvious flaw to same sex marriage as currently applied.  Why is their sisterly relationship less valid than a same sex partnership?

In fact, if any two people should decide to live together in a platonic relationship, should their relationship not get the same recognition simply because they aren't having sex with each other?

My pension is something that I have earned by contributing.  My employer's contribution is a form of compensation.  I should be able to designate anyone I want to be a beneficiary....regardless of whether the beneficiary is a wife, husband, partner or friend.

Really I'm saying that it's a silly debate.  Government should only do what only government can do.  In this case, the Government should simply repeal marriage laws and replace them with a law allowing competent adults to enter an economic relationship if they wish, without passing judgment based on the rather bizarre issue of whether they are in a relationship where they are having sex with each other or not.

Brian Burke, Sports and Sports Writers

I often blog about sports.  Other than my angry rants about politics, sports is my favourite topic.  I've written about the importance of sport in my life from childhood til the present day.  Playing and following different sports are very good avenues for learning many of life's lessons: the value of teamwork, sportsmanship, the value of preparation and hard work.  However we sometimes forget that sport is important, in large part, because it is so very unimportant.

When I watch the Toronto Maple Leafs play my favourite sport of hockey, I know that it's not the end of the world if they should lose (Thank Goodness!!!).  When the US Olympic team of collegiate players beat the mighty Russians at Lake Placid, it was called the "Miracle on Ice."  But it was no miracle really.  There were two teams on the ice and one of them had to lose.  Yes Team USA were a bunch of collegians and the Russians were pros...it wasn't exactly Lazarus rising from the dead four days later!

With that in mind, I found it very jarring to read a column by Steve Simmons about a Canada Day visit to Afghanistan by Toronto Maple Leafs General Manager Brian Burke.

http://www.torontosun.com/2011/07/01/burke-off-to-afghanistan

Steve Simmons takes issue with Brian Burke accepting an invitation to visit our troops serving in Afghanistan on Canada day.  He seems to think it a dereliction of duty on Mr Burke's part to be available by phone on the  first day that free agents can be signed.  He says that the "optics for Leafs fans are terrible."  He calls this putting "his own self interests ahead of those of the team."

Many strong comments have been made on the Toronto Sun website in response to Simmons' column.  They are almost uniformly disgusted by what he wrote.  I took heart from the response by readers.  They were able to see the value and importance of what Burke did and were not swayed by the amazingly short sighted view expressed by Simmons.

Brian Burke has been in the news for real life matters before.  His openly gay son was tragically killed in a car accident and he has been a regular marcher in Toronto's Pride Parade.  When you saw this cranky, gruff speaking old Irishman speaking of the loss of his son, I couldn't help but think of how I would feel in his position.  This was real life and made me think of real life matters.  What if my son grew up and told me he was gay?  Well I can say without the slightest hesitation that I wouldn't love him any less.  Why would I?

I can also admit that there once was a time in my life where I would have been far less tolerant in my outlook. We all (hopefully) grow and mature and learn to see things for their real importance.  Sports were a part of that maturation process for me.

I hope everyone playing pro sports realizes that they are extremely privileged to be getting paid to play a game for kids.  I hope that most sports writers feel lucky to be getting paid to do what many guys do at a bar during Hockey Night in Canada....which is express their alcohol fueled opinions about various players.

Brian Burke obviously knows what is really important and what is not.  Steve Simmons hasn't a clue.  I feel sorry for Simmons to be living in such an insular world where free agent signings for a hockey team are more important than our troops risking life and limb in Kandahar.

Recently we saw the city of Vancouver get a black eye when some citizens didn't realize how unimportant the Stanley Cup really is.  They took to the streets and rioted when their team didn't win.  How pathetic.  It was just a game after all.

So it is with Steve Simmons.  He has embarrassed himself and his newspaper with his pathetic attempt to be serious, and in the process, showed that he should never be taken seriously.  It is certainly not a crime to be stupid......thank goodness for Steve Simmons.

BTW, Brian Burke is American.  When was the last time an American expressed his gratitude to the Canadian troops holding down the most dangerous part of Afghanistan?  Ah who cares?  The Leafs just signed Clarke MacArthur to a two year contract.

Royal Visit to Canada

The newspapers have given lots of coverage to the visit to Canada of William and Kate (aka, the Duke and Duchess of York).

The Toronto star has posted pictures of the three days they have been here so far.

http://www.thestar.com/news/canada/article/1018492--william-and-kate-buoy-spirits-of-sick-visit-children-and-couples-at-rideau-hall?bn=1

So far they have attended a cooking workshop in Montreal.....this should prove very useful since the Royal Family is well known to cook their own meals?

They also attended a ceremonial tree planting at Rideau Hall.  Prince William is shown holding a shovel.....how apt!!!

Another photo shows them visiting veterans and war brides.  This one really got my dander up!!  Will and Kate should have felt honoured to be in the company of people who have led such meaningful lives.

Why is Quebec Premier Jean Charest taking time to visit with the Royal Nothings?  I could ask the same of Prime Minister Harper.  The Governor General I can understand since he doesn't really have a job to do.

Why are our tax dollars being spent on such pathetic meaningless tributes to people who have really done nothing much in life to be worthy of such acclaim.  George Will once wrote of Paris Hilton that her's "is the purest form of celebrity, unsullied by accomplishment, she is famous for being famous."

Our Royal Family is one notch lower than Paris Hilton in my books.  At least she made a movie that was watched by many.