Category: Tax Issues

Why We Are Driving Less

The Driving Boom, a six decade-long period of increases in per-capita miles driven in the US appears to be over. There are still millions driving, which means there are millions taking part in the Geico vs Progressive battle for the best insurance prices, but the number of drivers is not rising like it used to. From the Frontier Group:

Americans drive fewer total miles today than we did nine years ago, and fewer per person than we did at the end of Bill Clinton’s first term. The unique combination of conditions that fueled the Driving Boom — from cheap gas prices to the rapid expansion of the workforce during the Baby Boom generation — no longer exists.

If you drive a truck then you may want to purchase an ELD Device online to make driving more safe, one of the electronic logs is a great investment.
The Federal Highway Administration (FHA) reported in July on data from May, 2014, showing that travel on all roads and streets changed by 0.9% (2.4 billion vehicle miles) for May 2014 as compared with May 2013.

Here is an annotated graph of the FHA data from DShort:

Dshort miles diriven

The only other time in history that we’ve seen a similarly long time between the peak and trough was following the 1982 recession, when it took 39 months for total vehicle miles traveled to recover to its previous peak. It’s now been more than twice that long since the all-time high in vehicle miles driven, and unlike the 1980s, we don’t have a gas-tax hike to blame for it.

The research firm Behind the Numbers argues that we’re entering a new era in which Americans simply prefer to drive less. They report that it is unlikely that miles driven will eventually return to its prior trend. Among the reasons they say a sharp reversal is unlikely:

• Boomers are getting older and driving less.
• Millennials are less interested in driving, and are now the largest generation in the US.
• The trend toward living near the urban core reduces the need for driving.
• Higher gas prices discourage driving.
• Mass transportation is winning over more consumers.

As a result, Behind the Numbers thinks that tire and auto companies won’t do well in the future, since their sales are directly related to American driving. While it’s true that Baby Boomers are aging and will continue to drive less throughout their lives, the rest of their argument warrants rebuttal.

Let’s look at the relationship of miles driven to the Labor Force Participation Rate. The participation rate is the number of people over the age of 16, who are either employed or are actively looking for work. The Bureau of Labor Statistics (BLS) has been tracking this since 1948. Here is the relationship:

Graph Part Rate and Vehicle miles

Note that the left axis is the Labor Force Participation rate expressed as a % of our total population, while the Vehicle Miles Traveled is measured on the right axis, expressed in billions of miles. It is clear that once the Great Recession started, and a smaller percentage of the population had a job or were looking for work, the miles driven stopped growing and began to decline. Conversely, when the participation rate was growing briskly, America’s miles driven grew dramatically.

The long-term growth in the employment participation rate has been discussed by many, including the Wrongologist:

During the 1970s and 1980s, the labor force grew vigorously as women’s labor force participation rates surged and the baby-boom generation entered the labor market…The labor force participation rate hit an all-time peak in early 2000 of 67.3%…And labor force participation has since dropped to 63%.

So, when the number of people working declined starting in 2007, miles driven declined. THAT may explain what is happening more clearly than “Millennials don’t like cars”, or “Mass transportation is more popular” or “Online shopping equals fewer trips”, although those may also be contributing factors. For those that are still driving on the roads, it’s worth investing in a dash cam from somewhere like BlackBoxMyCar so if an accident were to ever happen, you would have video footage to protect yourself.

Fewer miles driven means lower revenues from gas taxes. Less revenue from gas taxes means less to spend on road and bridge repair. Less spending on roads and bridges leads us toward becoming a second-world economy.

This is just one of the truly poor outcomes caused by our inability to deal constructively with the economic fallout of the Great Recession.

What can we do to reverse our national losing streak?

We do not have what it takes to leave the dysfunction of our politics behind. We have a self-reinforcing system based on our politicians scuffling for money from corporations and therefore, performing as trained monkeys for their lobbyists.

You must get out and vote. You must work to drive turnout in November. We, the people, have to get back in the game, or our losing streak will continue.

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The Irony Burns at Burning Man

If you have never been to Burning Man, your perception is likely of a white-hot desert filled with 50,000 stoned, half-naked hippies doing sun salutations while techno music thumps through the air and a big wooden statue of a man gets torched on the penultimate night. From the New York Times:

….let’s go over the rules of Burning Man: You bring your own place to sleep (often a tent), food to eat (often ramen noodles) and the strangest clothing possible for the week (often not much). There is no Internet or cell reception. While drugs are technically illegal, they are easier to find than candy on Halloween. And as for money, with the exception of coffee and ice, you cannot buy anything at the festival. Selling things to people is also a strict no-no. Instead, Burners (as they are called) simply give things away. What’s yours is mine. And that often means everything from a meal to saliva.

That is what it was like 10 years ago. Not anymore. As the desert week of art, sunburns and egalitarianism has grown, it sold out all available tickets. Scalpers ran up ticket prices, and the demographics began to shift upwards. People went from spending the night in tents, to renting RVs, to building actual structures. More from the NYT:

We used to have RVs and precooked meals, said a man who attends Burning Man with a group of Silicon Valley entrepreneurs…Now, we have the craziest chefs in the world and people who build yurts for us that have beds and air-conditioning…Yes, air-conditioning in the middle of the desert!

The NYT reported that his camp includes about 100 people from the Valley and Hollywood start-ups, as well as several venture capital firms. And while dues for most non-tech camps run about $300 a person, he said his camp’s fees this year were $25,000 a person. A few people, mostly female models flown in from New York, get to go free, but when all is told, the weekend accommodations will cost the party goers over $2 million.

So, starting today, San Francisco will resemble a ghost-town, with empty Google buses and Starbucks gone quiet as the city’s tech community descends on the Nevada desert. And this year, there is a Burning Man Traffic Mitigation Plan. All vehicles entering Black Rock City will need a $40 vehicle pass, and only 35,000 such passes are available.

Imagine: The wealthy icons of Tech partying with hipster representatives of the 99% who buy their products. Guess that means we can hate the multinationals who are working inversion deals to pay fewer taxes, but shame on you for hating Apple, Google and Microsoft. They go to the desert with the rest of us.

Now, gentrification is inevitable in any city. This is just another gentrification of large, public events. Think about South By Southwest (SXSW), the film, interactive, and music festival and associated conferences that take place early each year in March in Austin, Texas. First held in 1987, now it has corporate sponsors. Same with Coachella, the music festival that began in 1993 at one of the Wrongologist’s favorite places, the Empire Polo Club in Indio, California. (We go in January for an annual dog show, not for polo or the music festival in March).

These radical, egalitarian things morph into an amusement for the 1% just like the Hamptons, Jackson Hole, Ibiza or private islands. Its radical spending, and radical conspicuous consumption instead of the ideal of Burning Man, which is self-expression. Now, the ticket revenue is $20.4 million, ($300 x 68,000 tickets). There are no vendors allowed to set up inside the event but there are plenty of rich dudes on the inside ready to monetize and network.

In the words of Cyndi Lauper, “Money changes everything!” You know that’s true for Burning Man, since a featured guest speaker this week is Grover Nordquist, noted tax hater. It is doubtful that he would have attended this in earlier years, when it was a collection of just the naked 99%. Jon Stewart commented on Grover’s visit:

Burning Man is organized around 10 Principles. Here is number 3: (emphasis by the Wrongologist)

In order to preserve the spirit of gifting, our community seeks to create social environments that are unmediated by commercial sponsorships, transactions, or advertising. We stand ready to protect our culture from such exploitation. We resist the substitution of consumption for participatory experience.

Can you imagine what they could have done to Woodstock had it become an annual event?

This year, how about a huge moving sculpture of Burning Man jumping the shark?

 

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What’s Erbil Got to do With It?

David Brooks:

We are now living in what we might as well admit is the Age of Iraq. The last four presidents have found themselves drawn into that nation because it epitomizes the core problem at the center of so many crises: the interaction between failing secular governance and radical Islam.

While Lawrence of Arabia said “on to Aqaba”, President Obama says, “on to Erbil”.

From the 2-time Pulitzer Prize-winning Steve Coll, writing in The New Yorker:

To the defense of Erbil: this was the main cause that drew President Obama back to combat in Iraq last week, two and a half years after he fulfilled a campaign pledge and pulled the last troops out.

More from Coll:

Erbil is the capital of the oil-endowed Kurdish Regional Government, in northern Iraq. There the US built political alliances and equipped Kurdish Peshmerga militias long before the Bush Administration’s invasion of Iraq, in 2003.

Erbil was the most stable place in Iraq until ISIS got near there. That caused Mr. Obama to draw a Red Line he has been thus far, unwilling to draw elsewhere in the Middle East, despite the urgings from politicians to his right. Mr. Obama, speaking with Tom Friedman in an interview last Friday:

The Kurdish region is functional in the way we would like to see…It is tolerant of other sects and other religions in a way that we would like to see elsewhere. So we do think it is important to make sure that that space is protected.

Kurdistan’s economy has boomed, attracting investors from all over. But, Kurdistan has one notable deficit as the model Middle East US ally: it isn’t a state. Nor is it a happy partner in the Iraqi national unity government. So, given that, Mr. Obama’s explanation of his rationale for war seems incomplete.

Did we say there are American oil companies on the ground there? Or, that there are American oil workers on the ground there? ExxonMobil and Chevron are among the oil and gas firms drilling in Kurdistan under contracts that compensate the companies for their political risk-taking with unusually favorable terms. Along with them came the usual sub-contractors, the oilfield service companies, the accountants, the construction firms, and logistics firms.

More from Steve Coll: (emphasis by the Wrongologist)

It’s not about oil. After you’ve written that on the blackboard five hundred times, watch Rachel Maddow’s documentary “Why We Did It” for a highly sophisticated yet pointed journalistic take on how the world oil economy has figured from the start as a silent partner in the Iraq fiasco.

Mr. Obama has a duty to defend American lives and interests in Erbil and elsewhere, oil or no. But, rather than evacuating US citizens, he has ordered a months-long aerial campaign to defend Kurdistan’s status quo. Why?

The DC Spin Doctors will say that it is essential to help a unified Iraq become capable of containing and defeating ISIS. But the status quo in Kurdistan also continues oil production by the international firms. We hear no mention of that, or how badly an evacuation would play for Democrats in the November elections. So, back in Iraq we are.

A little history: ExxonMobil cut its deal in Erbil in 2011. The GW Bush administration did not force Exxon’s predecessor American oil companies such as the Dallas-based Hunt Oil, to divest from Kurdistan. Bush’s team allowed the wildcatters on the ground to stay there, while insisting that Erbil’s politicians negotiate an oil-revenue sharing and political unity deal with Baghdad.

The Kurds in Erbil didn’t see the point in a final compromise with Baghdad’s Shiite politicians, so as each year passed, and the Kurds got richer, they attracted more credible and deep-pocketed oil companies as partners, and they looked more and more like a de-facto state. Steve Coll concludes:

And so, in Erbil in the weeks to come, American pilots will defend from the air a capital whose growing independence and wealth has loosened Iraq’s seams, even while, in Baghdad, American diplomats will persist in an effort to stitch that same country together to confront ISIS.

So we have another case of “Privatizing the Profits and Socializing the Losses”. The oil companies may or may not pay US taxes on the profits from their operations in Kurdistan, but Americans will surely pay the costs of Obama’s defense of Erbil.

We are defending an undeclared Kurdish oil state whose geopolitical appeal is as a long-term non-Russian supplier of oil and gas to Europe. We don’t hear that spoken about in polite or naïve company.

Or in our main stream media, which is neither polite or naĂŻve.

So, American forces are now using weapons (mostly air power) to destroy other American weapons captured by ISIS forces in Iraq, which the ISIS combatants have been using to capture even more US armaments, which Americans, in turn, will have to destroy at some point in the future.

Steve Coll reminds us that the historical Al Swearengen, Mayor of Deadwood, SD was a character in the HBO Series Deadwood. On the show, he once said that life is made up of:

“one vile task after another”

 

And so is American policy in Iraq.

 

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What’s The Matter With Kansas?

“Masquerading as a man with a reason
My charade is the event of the season
And if I claim to be a wise man
Well, it surely means that I don’t know” – Kansas, 1976

The state, not the group. In 2010, Republican and former US Senator, Sam Brownback was elected governor on promise of restoring the state’s economy. In 2012, he signed a massive tax cut into law, arguing that it would be a big boost the economy. Eventually, he hoped to eliminate individual income taxes entirely:

I think we can, I really do…The experiences in some other states have been that when you cut income taxes, your sales tax increase more than makes up for your income tax cut

Supply-side economics was the basis of his optimism. Tax cut proponents like economist Arthur Laffer insist that if you cut taxes deeply enough, the resultant boom in economic activity will boost revenues. It’s magic, painless. It’s what every politician wants. And Sam Brownback and the Kansas legislature went all-in: In 2012, the Kansas legislature:
• Cut individual tax rates by 25%
• Repealed the tax on sole proprietorships and other “pass-through” businesses
• Increased the standard deduction

In 2013, the legislature cut taxes again, passing a measure to gradually lower rates even more over five years. By 2018, the top rate, which was 6.45% in 2012, will fall to 3.9%. The Center on Budget & Policy Priorities (CBPP) has a nice summary of the tax changes.

So what happened after all those tax cuts? Revenues collapsed. Kansas reported that it took in $338 million less than expected in the 2014 fiscal year and would have to dip heavily into its reserve fund. From June, 2013 to June, 2014, all Kansas tax revenue plunged by 11%. Individual income taxes fell from $2.9 billion to $2.2 billion and all income tax collections plummeted from $3.3 billion to $2.6 billion, a drop of more than 20%. Keep in mind that these are actual year-over-year declines in revenues, not projected shortfalls in revenue. They come at a time when the national economy is recovering, and most other states are enjoying increases in tax collections. The cuts, largely benefiting the wealthy, cost the state 8% of the revenue it needs for schools and other government services. As the CBPP noted, that’s about the same economic effect as a midsize recession.

Yet, there were excuses from Brownback in the past few weeks:

It’s the price of creating jobs

Since the first round of tax cuts, Kansas job growth has lagged the US economy. So has Kansas personal income. While more small businesses were formed, many of them were individuals taking advantage of the newly tax-free status by redefining themselves as businesses, now allowed under the Kansas tax code. Kansas’ non-partisan Legislative Research Department estimates Brownback’s tax cuts will cost the state $5 billion in lost revenue by 2019. To put that in perspective, Kansas currently has an $8 billion annual budget.

As a result, Moody’s cut the state’s debt rating in April for the first time in at least 13 years, citing the tax cuts and a lack of confidence in the state’s fiscal management.

Kansas is required to balance its budget every year, so when its surplus runs out, further spending cuts will be necessary. The declining revenues have necessitated extensive cuts in state education funding, according to the CBPP.

Brownback is up for reelection, but given the problems with his economic program, he is having trouble in the polls. A recent poll by PPP shows that Brownback’s approval rating has plummeted. In the most recent poll of the race, Democrat Paul Davis leads Brownback by 6 points.

You don’t cut revenue based on a theory. If you cut revenues, you cut your expenses by the same amount. You don’t gamble on possibilities, you make sure you will be fiscally sound. By cutting revenues and hoping for a large return because a THEORY says it should happen, means Brownback was gambling with the future of the State of Kansas.

Has Brownback never heard the adage: “Don’t gamble what you cannot afford to lose?”

Some of those old adages are pretty sensible, while some governors are not.

 

 

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Republicans Want To Repeal Obscure Tax Law

Reuters reported last week that the Republican National Committee (RNC) approved a resolution that adds the repeal of an Obama administration law to its 2014 platform. The law is designed to crack down on offshore tax dodging.

The legislation that the Republicans are targeting is called the Foreign Account Tax Compliance Act (FATCA). What is FATCA? According to Wikipedia, FATCA requires US citizens, including individuals who live outside the US, to report their financial accounts held outside of the US, and requires foreign financial institutions to report to the IRS about their American clients.

Although FATCA was passed by Congress in 2010, it will go into effect on July 1, 2014. It requires foreign banks and investment funds to report to the IRS all assets they hold that exceed $50,000 belonging to US citizens – whether those citizens are living in America or abroad.

The genesis of the law was a 2010 tax-avoidance scandal involving a Swiss bank. One result of FACTA was that last August, Switzerland signed a separate treaty with the US, ending a longstanding tax dispute between the two countries, that gave the IRS unprecedented access to
Swiss accounts held by Americans and US green card holders.

Banks in most tax havens are planning to abide by the new rules because of hefty fines (the IRS can withhold 30% of dividends and interest payments due to the banks from US accounts) since failure to comply with these regulations could seriously impact banks’ ability to do business in America. A successful indictment could bar the bank from the US marketplace. Because of that threat, FATCA is driving a rapid expansion of a network of bilateral, tax-related information-sharing agreements, negotiated by the US Treasury and its overseas counterparts amid heightened global concern about tax dodging.

So, do Republicans want to allow rich individuals and wealthy companies to continue to hold money in off-shore banks without subjecting these monies to federal taxes? Apparently,
and they also want to attract votes and funding from Americans living abroad. The US expatriate community is violently opposed to the law, and some have legitimate concerns about losing
their banking relationships in the foreign country where they live. Their banks are concerned that the costs of flagging the accounts of Americans and maintaining separate reporting formats for them may too high for the less-than-$50k accounts that the US is not interested in. In 2013, nearly 2,400 expatriates gave up their US citizenship or turned in their green cards, some at
least, in an effort to avoid US taxation.

Reuters quotes Solomon Yue, an RNC official from Oregon:

I see FATCA just like Obamacare…It will attract American overseas donors

So, Republicans are eager to use FATCA as a campaign and fundraising issue against the Democrats in the Congressional mid-term elections in November. Repeal seems unlikely, but another issue that raises the political temperature could help defeat Democrats.

The RNC has set up a petition site at MoveOn.org that has about 2200 signers, quite a few from overseas. They have also set up a Repeal FATCA site. Here is a quote from the disinformation available there:

All this supposedly is justified by FATCA’s claim to “recover” lost taxes of less than $1 billion per year – enough to run the government for about two hours. (In fact, the way the U.S. Treasury plans to enforce FATCA, it would probably lose more money than it would take in!)

The Republicans seem to be saying that we don’t need $1 billion if it causes increased tax payments. Politically, it seems strange that this issue should become a hot issue for the Republicans, who are taking a beating in the polls over their stand on income inequality.

On the other hand, US wealthy individuals (Mitt Romney) and corporations that are able to use tax havens and have been able to hide behind account secrecy, would be very happy to see Mr. Boehner take up a bill to repeal FATCA. Foreign banks, many of which contribute to US political campaigns would also like to see the bill repealed

No one is asking the rich to pay unfairly – they already get all kinds of tax breaks − but
to encourage tax evasion seems to be far beyond the Republican’s usual pale.

How about having the rich simply pay their fair share and watch the federal deficit which they
are so concerned about, fall, without requiring Americans to give up food stamp subsidies or funding for long term unemployment benefits? So next time you hear Republicans talking about cutting the deficit, ask them why they are for tax evasion as opposed to tax compliance.

Hopefully, someone will ask Mr. Boehner why repealing a law that will promote the harboring of hidden money and continued tax avoidance is in our best interest. We know it is a key loophole for Mr. Romney. So Mr. Speaker, please tell us again why repealing laws is more important that strengthening them? They were passed for a reason. Maybe you should start pushing for our laws and regulations to be followed, rather than repealed.

Many other countries are striving for better education, better healthcare, a more engaged attitude about our planet and environment, a willingness to regulate guns and business with an eye toward the best interests of the people.

Thanks to US conservatives, we’ve headed in almost the opposite direction.

For Republicans, as long as rich people don’t pay more, undermining our country is okay. There’s just no restraining Republicans if the restraint we need involves the rich. And if responsible politicians try, the conservatives cry, “government overreach” or “socialism.”

But that’s just a red herring, an excuse so that they can continue to pillage America
for all they can get.

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