What’s a fair share in 2012?

George Rebane

[This is the transcript of my regular KVMR commentary broadcast on 27 January 2012.  In it I gently introduce the beginnings of monetary utility and mention fair division algorithms about both of which I intend to expand in future posts.]

In last Tuesday’s State of the Union speech President Obama made clear that he will not run for re-election on his record – it would be a disaster if he did.  With an historical congressional majority he has been able to pass all of his programs save the cap and trade bill which his own Democrats killed.  In spite of this, the resulting numbers are damning.

At a little above 60%, the fraction of productive age Americans in the workforce, working or looking for work, is the lowest ever.  Even with population growth, our economy has fewer jobs today than in January 2009.  And this after the so-called stimulus spending has increased our national debt by over $4T or about 40% in just three years, and costing $1.5M for every job that the administration claims to have created.  (Radio does not allow us to pause here for a minute or two to absorb this little statistic.)  Putting a ribbon around the whole thing, our employment rate at 8.5% is still higher than the 7.9% than the President inherited, while the major costs of Obamacare, hanging tax hikes, and the new costly EPA regulations have yet to kick in.  Running on his record is a definite no-no.

But not to worry, the political pyrotechnics locker is still chuck full of good stuff to loft into the air, there to create great eye candy in the sky, and take the voters’ mind off our real problems here on the ground.  The first thing to launch is the ‘fair share’ argument for the vilified 1%, with poster child none other than leading Republican contender Mitt Romney.

Before considering anything as complex as ‘fair share’, we recall that, according to the National Center for Education Statistics, in the aggregate the audience for this message is surprisingly illiterate, disinterested, almost totally innumerate, and a stranger to the issues.  In short they comprise a population that is vulnerable to what we may call sound-bite bait.  Campaign funding war chests and gotcha politics promise again to carry the day.

Actually, the average voter doesn’t think twice about the notion of fairness or fair share.  Don’t we all know what is fair?  Aren’t we all born with the same dipstick that measures fairness?  Well, actually no.  There is a whole area of decision science that deals with fairness, and what are called fair division algorithms.  It’s quite an important and complex area, much more than the familiar pie division rule – one cuts, the other chooses.

When we talk about taking money from someone by threat of force, and then giving it to others, the ground can start shaking.  The folks with their hands out consider only the dollar amounts to be taxed, which all look huge and appear to be more than any ‘fair-minded person’ needs.  But please play a little game with me.  If you had to decide between keeping, say, $10,000 in Treasury bills, or taking an investment risk that can double or lose the whole thing, you’d want to know the odds favoring your success.

If the odds worked out to 9 out of 10, then you’d probably invest.  But with success at only 1 out of 10, you’d keep the Treasury bills.  Somewhere in between there is a threshold, that if exceeded, you’d invest.  And that threshold is different for different people depending on their situation.  So let’s say your threshold for the deal that doubles the $10,000 is 7 out of 10, and you decide that the actual odds of success are about that.  You’ve done your homework, you’re ready to cash in the Treasury and put it into the business venture.

But then you hear on the radio that the feds have changed the tax code and/or regulatory environment so that your reward, instead of doubling your investment, is reduced to making just 80%.  Please note here, the odds for success are still a little above 7 out of 10.  That hasn’t changed, but your reward has.  Your decision to invest was based on both the risk and the reward.  With the reward being reduced from a return of $10,000 to just $8,000, you decide not to make the investment.  To you it no longer is a ‘fair deal’ for the money you would have to place at that level of risk.  Perhaps to someone else it still might be, but you get the idea.

Most certainly the workers and those on the dole who were expecting your investment to create jobs and pay taxes on profits, both those groups of people still think that your $8,000 return would be utterly fair.  For them you’re just a selfish ‘rich guy’ who doesn’t care for the middle class or those less fortunate.  And that’s why they will vote for politicians who promise to go after even the $10,000 Treasury bill that you have already paid taxes on and squirreled away.  Welcome to 2012.

My name is Rebane, and I also expand on these and other themes in my Union columns, and on georgerebane.com where this transcript appears.  These opinions are not necessarily shared by KVMR.  Thank you for listening.

Comments

[billy T]

Its these little issues that take ours mind off the real important stuff like entitlement reform. I want to save Social Security and Medicare for our elderly, but with this "temporary" payroll tax cut everybody's SSA/Medicare contribution is axed by 1/3 and kicks the can down the road. How many blue ribbion comissions of funding/saving SS have been formed since Reagen and nothing gets done. Obama briefly mentioned immigration reform in State of The Union Address, saying he believes in Immigrant Reform, exactly what he said in his first 2 addresses. Nothing gets done, but lets argue to keep a temporary Social Security Tax cut temporary for the next 50 years. Even Gov Brown talks about pension reform, but little has been done except tweaking the pensions for new hires. That won't solve any current problems or mind boggling pension shortfalls for at least 25 years. Even the Republican candidates for Obama's job are bogged down in tax returns, the definition of a lobbyist, and who has been faithful to his wife and who hasn't. Saw a chart the other night that showed projected deficits of the USA (per official government figures based on current and future expenditures) that made me choke. On one side was Greece's debt at 160% of GDP and the other side was the USA @ 180% debt to GDP in 2025. We aren't becoming Greece, we will show them how its really done. Lets kick the can down the road.
"But not to worry, the political pyrotechnics locker is still chuck full of good stuff to loft into the air, there to create great eye candy in the sky, and take the voters’ mind off our real problems here on the ground. The first thing to launch is the ‘fair share’ argument for the vilified 1%, with poster child none other than leading Republican contender Mitt Romney" Great paragraph, Dr. Rebane. Here is some eye candy and nose candy for monkeys: http://www.mediaite.com/online/senators-explain-how-stimulus-money-was-wasted-on-monkeys-with-cocaine-problems-and-more/

[Douglas Keachie]

Taxing what you already have? After you paid taxes on it already? How evil, but it happens every year, when we pay taxes on our homes, and our roads, etc.

[George Rebane]

DougK 932pm - indeed, as I have already pointed out in these pages. But what do you think of asset taxes? Should there be a limit to them? Should more and more of a person's post-taxed property and possessions become or remain the defacto property of the state, until they are the state's de juris property? Where does it stop?

[billy T]

Double taxation always seems unfair. You pay tax on the 100 claims you earn, then pay tax if that 100 bucks draws interest or capital gains. Such is life. Best way to never pay a dime again on the 100 bucks you have already been taxed on is to stick it in a Roth. Tax free gains no matter if that 100 bucks turns into a thousand or million. Yep, it does not seem fair. At least I-bonds and EEs are exempt from state tax....for now. Guess the way to take a risk and make some serious guaranteed money is to get an Obama grant to build an electric car or a solar panel factory....but, in reality, there is no risk involved at all in those fields cause the receivers of the handouts never miss a fat paycheck. Take our local worm farm as an small example. Would anybody put up 30-45k after looking at the business plan to start the worm farm and hire 7-9 part timers to peddle worm castings to yet to be determined customers in yet to be determined quantities? Not my money, put lets put the taxpayers money at risk, cause, after all, its not real money and the Government can print more. So, no risk, no penalties if it is the taxpayers money. Figured for 30-40k, we got to pay the head worm casting guru 5-6 months wage. Maybe less if the big worm casting bought a new computer, an office chair, printed some stationary, slapped a couple of cedar boxes together, and....ooppps, money gone, that's all folks. Guess I should be grateful it was such a tiny amount in the grand scheme of things, but a good example nonetheless. Now, if it was my after tax money put at risk, I would be screaming for an audit of the books and possibly pursuing fraud charges. But it was not my after tax money. Its was only money paid for with my taxes, thus no big deal.

[Gregory]

'billy T', unfunded liabilities of California public pension plans won't be dealt with until the state goes into the equivalent of receivership and the adult supervision can just balance things with the stroke of a pen.

I expect Brown knows Californians won't vote for large tax increases and he'll have to turn to Plan B in 2013.

[Douglas Keachie]

BillyT: "Let he who is without sin cast the first worm."

: George Rebane | 27 January 2012 at 10:00 PM

George, you and I die, the state goes on and on forever......until it Titanics into the dustbin of history, but not to worry, another one will take its place..

[Douglas Keachie]

The level of education in this country was well illustrated this evening on Jay Leno. A man in the street is asked if Congress should go on paying for some program. He replies, " oh God, Yes! Otherwise us taxpayers will wind up stuck with the bill."

[billy T]

We must FORCE these scoundrels to pay their fair share!! http://www.cbsnews.com/8301-505245_162-57367330/thousands-of-federal-workers-owe-back-taxes/

[Brad Croul]

Mark Zukerberg is looking at a $1.5 Billion tax hit this year. Bam!

http://www.ft.com/intl/cms/s/2/6dbffbce-4e8b-11e1-ada2-00144feabdc0.html#axzz1lNTLlEv6

[Douglas Keachie]

So, 1.5 billion tax hit? Calculated at 35%, no doubt. But then I'll bet he is able to afford tax shelter creations that make Iran look like the little pig with the straw nuclear factories.