Worried about Inequality? Then Focus on Helping the Poor, not Punishing the Rich

June 2, 2014

Phineas Fahrquar:

Privatized retirement accounts are such a sensible idea. No wonder Washington won’t agree to them. :/

Originally posted on International Liberty:

I haven’t spent much time writing about Thomas Piketty’s inequality book for the simple reason that my goal is economic liberty, not equality.

That being said, I think that Piketty is fundamentally misguided even if the goal is helping the poor. Simply stated, long-run growth is the best way of reducing poverty and boosting living standards. Piketty, by contrast, focuses on redistribution – even though this would require punitive taxation, thus undermining growth and hurting the less fortunate.

This is very obvious when we look at economic performance in market-oriented nations and compare it to economic performance in countries where government plays a bigger role.

Most recently, I showed how Poland is out-pacing Ukraine.

I’ve compared South Korea and North Korea.

The data for Chile, Argentina, and Venezuela is very powerful.

I’ve shown how Singapore has eclipsed Jamaica.

And we can see that Hong Kong…

View original 725 more words


Personal Retirement Accounts Are Great…but only if You Can Stop Future Politicians from Confiscating the Accumulated Wealth

September 8, 2013

Phineas Fahrquar:

Let’s not give Obama any ideas, shall we?

Originally posted on International Liberty:

Most Western nations have huge long-run fiscal problems because of unfavorable demographics and misguided entitlement programs.

That’s the bad news.

The good news is that dozens of nations have fully or partially shifted to mandatory private savings as a pro-growth way of modernizing bankrupt tax-and-transfer Social Security systems.

But good news in the short run doesn’t mean good news in the long run if greedy politicians decide to loot the wealth accumulated in personal retirement accounts.

That’s already happened in Argentina and Hungary, and now it’s happened in Poland. Here’s part of a Financial Times report about the government stealing money from private pension funds.

Poland’s government on Wednesday took an axe to part of the country’s pension system in a bid to bolster public finances. Premier Donald Tusk said that part of the country’s obligatory pension system run by private funds would be dramatically revamped, with 120bn zlotys ($37bn)…

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Hide your IRAs: Obama admin. — “We think you’ve saved enough!”

April 12, 2013
"Shakedown"

“We’re here for your fair share.”

Or maybe it’s the off-ramp to Cyprus.

Over at lefty blog Talking Points Memo (h/t Joel Gehrke), Brian Beutler has noted an interesting item in the White House’s latest budget proposal: a cap on the amount one is allowed to save in tax-deferred accounts. Anything over that is open to the taxman.

Per the budget, “Individual Retirement Accounts and other tax-preferred savings vehicles are intended to help middle class families save for retirement. But under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.”

But how would they close this loophole?

One way experts believe financial managers avoid the current annual contribution limit to IRAs is by using IRAs to participate in investments and assigning those investment interests a nominal value vastly below fair market.

Obama wouldn’t curb this practice directly. Instead his budget calls for an overall cap of about $3 million on the net balance across all of an individuals’ tax-preferred accounts. Only have one IRA? It can hold $3 million. Have three? Their holdings must sum to $3 million or less.

The $3 million figure is approximate. A formula would set the cap at a level just high enough to finance an annual distribution of no more than $205,000 per year in retirement for someone retiring this year.

Now, I can imagine TPM is just thrilled with this; it just reeks of class warfare disguised as “fairness.” We’ve got “reasonable levels” (Defined by whom? Oh, wait…) and the ever popular “loophole,” with its scent of someone getting away with something, cheating the rest of us.

What the administration is talking about, I believe, are self-directed IRAs  and other retirement vehicles that allow you to invest your money where you see fit (1). When you sell the stock and withdraw the funds, under the rules you’re taxed at a much lower rate. It’s a great vehicle for wealth creation and the encouragement of saving for retirement.

And that’s what they can’t stand. The rules as written prevent them from taxing this sheltered wealth to fund their bloated spending, so they’re going to change the rules. Oh sure, they say this is aimed the the “Romneys” of the world, those rich people who have sheltered more the $3 million, but how long do you think that barrier will last? About as long as it takes them to realize they need more.

Rocco always wants more.

This idea to tax sheltered money isn’t new; FDR, to whom Obama acolytes compare him, has his own undistributed profits tax, to punish businesses that were holding on to cash. (Look out, Apple!) That scheme blew up in Roosevelt’s face as business investment collapsed and the nation entered a new recession in 1937-38. You can bet a move like this would have its own unintended consequences, which the social engineers at Team Unicorn would blame on anyone but their own ham-handed, grasping, greedy policies.

This is progressivism showing its face as Leviathan. Forget that it was your skill and acumen and good habits that accumulated that wealth (and, through investing it, helped others by creating jobs, &c.); forget that this is, in the end, your money, yours to dispose of as you see fit, beyond that portion needed to fund the basic functions of government.

Forget all that.

The administrative state beloved by progressives knows what’s best. It has its plans and goals for us all, because it has divined the national will. Thus all the resources of the nation are at its disposal to meet those goals.

Including your retirement accounts.

This budget is dead on arrival, thank Heaven, but don’t think this scheme is going away. Oh, no. Once broached, it’s out there, waiting.

PS: I wonder if this is where Obama got the idea?

Footnote:
(1) You know: your money, your property, your liberty.

(Crossposted at Sister Toldjah)


Eurozone Chief: Cyprus was just the start

March 26, 2013
"Obama loan officer at work."

“EU bureaucrat at work.”

Hoo, boy. I just had a feeling that, once the the EUrocracy learned it could take depositors’ money at will without a total meltdown, the temptation to do it again (and again and again and again…) would be too great to  resist. Thus we read in the Telegraph:

Cyprus bail-out: savers will be raided to save euro in future crises, says eurozone chief

Savings accounts in Spain, Italy and other European countries will be raided if needed to preserve Europe’s single currency by propping up failing banks, a senior eurozone official has announced.

The new policy will alarm hundreds of thousands of British expatriates who live and have transferred their savings, proceeds from house sales and other assets to eurozone bank accounts in countries such as France, Spain and Italy.

The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the eurozone, told the FT and Reuters that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’,” he said.

“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.”

Ditching a three-year-old policy of protecting senior bondholders and large depositors, over €100,000, in banks, Mr Dijsselbloem argued that the lack of market contagion surrounding Cyprus showed that private investors could now be hit to pay for bad banking debts.

Don’t you just love how Dijsselbloem puts it? “We’ll ask them to contribute.” As if Manuel the Madrid taxi driver, who’s put his life’s savings into a bank he thought he could trust, will get any chance to say no. If he’s lucky, he’ll wake one morning to discover that his masters in Brussels have left him anything at all.

This is just immoral. Depositors in Cyprus are being robbed to cover for the bad borrowing decisions of governments and the equally stupid lending decisions of bankers, and now Dijsselbloom and his fellow mandarins are casting their gaze across Europe and seeing a smorgasbord filled with tasty accounts waiting to have a bite taken out of them.

Let’s review an old principle of (real) liberalism that’s more and more forgotten these days: your bank account is your property, as it represents the fruits of your labor. Security in your right to property is essential to your liberty; if you do not have the first, then you lack the second. If some bureaucrat can come and take your property via a diktat dressed in legal finery, then you are not a free human being.

Desperate to save their precious Euro at all costs, the Eurocrats and the national governments are all but guaranteeing a future bank run and financial panic as frightened people take their money and try to put it beyond the reach of grasping, blundering officials and quite possibly creating the very crash they’re trying to avoid.

With establishment politicians like these, is it any wonder people turn in frustration and anger to radical politics?

PS: And I wish the EU would stop giving Obama ideas…

via Bryan Preston

(Crossposted at Sister Toldjah)


Quote of the day: Message to Obama from Cicero

February 13, 2013
"Time for a lesson, Barack."

“Time for a lesson, Barack.”

And I don’t mean Cicero, Illinois, but the great Roman lawyer and orator, Marcus Tullius Cicero (1):

“Whoever governs a country,” Cicero wrote in On Duties,  “must first see that citizens keep what belongs to them and that the state does not take from individuals what is rightfully theirs. . . . Indeed, the chief reason we have a constitution  and government at  all is to protect individual property. Even though nature led people to come together into communities in the first place, they did so with the hope that they could keep what rightfully belonged to them.”

Smart people, those Romans.

via Roger Kimball

Footnote:
(1) And whose prose tormented me in Latin classes. Caesar, Livy, Tacitus, Virgil… no problem! But Cicero? That man broke every rule of grammar you ever learned and made you thank him for it. That’s probably the real reason Marc Antony had him killed.


Spreading the wealth: ObamaCare to tax home sales?

July 15, 2012

Or shakedown?

Remember when Nancy Pelosi said we had to pass the bill in order to find out what’s in it?

Surprise!

Beginning January 1, 2013, ObamaCare imposes a 3.8% Medicare tax on unearned income of “high-income” taxpayers which could apply to proceeds from the sale of single family homes, townhouses, co-ops, condominiums, and even rental income, depending on your individual circumstances and any capital gains tax exclusions. Importantly, the “high income” thresholds are not indexed for inflation so will reach increasing numbers of middle-class taxpayers over time.

In February 2010, 5.02 million homes were sold, according to the National Association of Realtors (NAR). On any given day, the sale of a house, townhome, condominium, co-op, or income from a rental property could slam middle-income families with a new tax they can’t afford.

Just what a stagnant housing market needs, right? More disincentives to buy and sell.

Meanwhile, that nest egg you’ve built up for retirement through property appreciation? Well, in addition to any other taxes you’d have to pay, starting in 2013 you’ll pay 3.8% more, because, blast it, you’ve made enough. Don’t you understand that it’s really government that creates wealth, and therefore government can take what it needs whatever it wants, to redistribute howsoever it feels?

What is wrong with you, you kulak?

via Wayward Okie

UPDATE: The Heritage Foundation clarifies the conditions in this new tax.

There is not a new specific tax on all real estate transactions in the PPACA. But that’s not the end of the story. There is a surtax on real estate transactions that are already taxed under current law. Capital gains in excess of $500,000 from the sale of primary residences already face the capital gains tax. The new tax in the PPACA will raise the rate on these gains.

The Tax Foundation clears the air by explaining how the new tax will work:

“The bill would impose essentially a capital gains taxes on some home sales made by a limited number of taxpayers. (The health care law contains a new 3.8 percent tax on “unearned income” for high-income taxpayers. Unearned income includes capital gains.) To be hit by the 3.8 percent capital gains tax, you first have to be a married couple making more than $250,000 in adjusted gross income or $200,000 if you are single. The capital gain on the home sale must also exceed $500,000 if this is a primary home and you are a married couple ($250,000 for singles).”

Here’s an example of how the tax would work: Say a couple makes $260,000. They purchase a primary residence at $400,000 and sell it for $1,000,000. This would amount to a capital gain from the sale of their home of $600,000. Capital gains tax plus the new Medicare tax would apply to profits over and above the threshold of $500,000. In this case, the couple’s capital gain of $600,000 exceeds the threshold by $100,000. The couple would pay the capital gains tax, which rises to 20 percent in 2011 under President Obama’s tax hike plan, plus the new 3.8 percent tax for a total tax rate of 23.8 percent on that $100,000. Their tax bill in this scenario is $23,800. The PPACA adds $3,800 to the couple’s final tally in this example.

The new Medicare investment tax provides a disincentive* for business expansion. The National Federation of Independent Business (NFIB) reports, “The $250,000/$500,000 thresholds only apply to the sale of a primary residence, so the tax will hit other property sales harder.”

*I think they meant, “another disincentive, among so many.”

Again via Wayward Okie.

It’s still a rotten idea.

(Crossposted at Sister Toldjah)


This is why California can’t have nice things: idiotic local governments edition

July 6, 2012

The new flag of California?

There are so many levels of “dumbass” in this, I scarcely know where to begin. If encouraging banks to issue unsafe mortgages that are then bundled by the US government and sold into the securities market lead to a national financial crisis, how much stupider is it to seize underwater mortgages under eminent domain and leave the public holding the bag?

Answer: Lots.

Eminent domain allows a government to forcibly acquire property that is then reused in a way considered good for the public—new housing, roads, shopping centers and the like. Owners of the properties are entitled to compensation, which is usually determined by a court.

But instead of tearing down property, California’s San Bernardino County and two of its largest cities, Ontario and Fontana, want to put eminent domain to a highly unorthodox use to keep people in their homes.

The municipalities, about 45 minutes east of Los Angeles, would acquire underwater mortgages from investors and cut the loan principal to match the current property value. Then, they would resell the reduced mortgages to new investors. …

For a home with an existing $300,000 mortgage that now has a market value of $150,000, Mortgage Resolution Partners might argue the loan is worth only $120,000. If a judge agreed, the program’s private financiers would fund the city’s seizure of the loan, paying the current loan investors that reduced amount. Then, they could offer to help the homeowner refinance into a new $145,000 30-year mortgage backed by the Federal Housing Administration, which has a program allowing borrowers to have as little as 2.25% in equity. That would leave $25,000 in profit, minus the origination costs, to be divided between the city, Mortgage Resolution Partners and its investors.

“Investors.” As if anyone is going to buy a devalued mortgage that was seized by the government in an utter ravaging of private property rights? What’s to guarantee the government won’t seize it from the next investor latest sucker in the name of “helping people?” Only a fool would buy one of these, and, since successful investors aren’t fools, that means the public will be left on the hook when the inevitable defaults occur.

In the linked post (1), Ed Morrissey describes some of the many problems with this:

Furthermore, it will hand a carte blanche to local politicians looking to curry favor with residents — and we can expect them to use it as often as they think they can get away with it.  Nothing sells like populism, and nothing in populism sells better than “sticking it to the banks,” even when the “banks” really means lots of investors, large and small, who bought mortgage-based securities for retirement funds and the like.  On top of that, the process heightens the moral hazard of government intervention, which then encourages people to take irrational and damaging risks by expecting private gain with public loss.

Ed’s right, this is the spawn of the Supreme Court’s horrid Kelo decision, which ruled that a city could take real property from one private citizen and give it to another private citizen in the hope of higher tax revenue under a twisted notion of “public purpose.”  Now the county of San Bernardino and the cities of Fontana and Ontario want to extend that perverse principle to financial instruments –private property nonetheless– and shaft one set of citizens in favor of another, because the latter are voters.

I’m sure, at some point in the process of coming up with this bright idea, someone invoked the Orwellian magic words “fairness” and “social justice,” which makes it all better.

Respect for property rights is essential to ordered liberty and the economy’s well-being. All this will really do is drive troubled city and county finances further into train-wreck territory as real estate lending comes to a halt or investors demand sky-high interest rates to compensate for the risk. Hiding behind the emotional blackmail of “helping people,” these schmucks are instead going to salt their own economic fields, crippling any chance of real growth. It is a stupid, stupid plan that should never see the light of day.

Which means Sacramento will likely love it and adopt it for the whole state.

Footnote:
(1) The original article is behind a subscriber pay-wall.

PS: Graphic courtesy of The Open Clip Art Library.

UPDATE 7/27/2012: Naturally, California’s “progressive” Lieutenant Governor, Gavin “Brylcreem” Newsom, just loves this idea.

(Crossposted at Sister Toldjah)


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