Wednesday, January 28, 2015

Facebook Discussion -- Free Community College & Minimum Wage

Update: Within hours of this post the idea has already been abandoned by the White House. Too much political opposition. Too many self-absorbed, short-sighted rich Democrats along the Eastern coast, I suppose. Too bad. It was a good idea. (And the report I heard said the GOP had already started putting together a similar proposal or counter-proposal. Who knows? Maybe the Republicans will do it anyway and get the credit. Whatever...


President Obama's post-mid-second-term-elections persona has become the one many of us hoped to see in 2008. Six years later is better than never, so I'll take what I can get.

Meantime, one of his many initiatives includes a proposal to make the first two years of Community College free for students who qualify. Naturally, he has to propose a way to "pay for it" (since Congress has neglected in bipartisan fashion to balance a budget for years, audit the Pentagon or update the world's most byzantine tax code) which he has done by removing tax-deductions for 529 college savings plans. That would (on paper) generate enough tax revenue to pay for his proposal. One of my good web-buddies and Facebook friends posted a somewhat snarky swipe at the plan, which generated an interesting comments thread.

Some Facebook posts allow embedding but this one for some reason does not, so the hot link above may or may not work. In any case, I am capturing below a couple of comments to keep them from sinking into a quagmire which is the Facebook archives.
Opening comments led to this exchange...

JB: Your suggestion to means test for the deduction is a good one. It would be an excellent GOP negotiating comeback, but adjusting the deductibility threshold is very different from implying that the principle is being taxed, which is the thrust of the arguments against the idea.

I recall early in my working life when I first waded into the world of filing my own taxes and tracking deductions, I was sometimes shocked at how much I was paying in taxes. But I remembered something I heard about borrowing money. "I would be honored to sign my name to a note for a million dollars." In other words, if I were considered that credit-worthy by anyone or some institution willing to lend me that much money, I would very likely have demonstrated some remarkable aptitude for repaying the loan, even if I were penniless at the time.

Likewise, as I watched my taxes get deducted all those years I told myself that most of the people around me in the cafeteria would be honored to be paying that much in taxes. Why? because their earnings were so low, and the earnings prospects for the future, were so bad that taxes at that rate would always be unimaginable.

Your remarks about dirty politics and cronies are spot on, by the way. But let's not let those bastards contaminate rational discussions between us.

MW:  Where are you getting your numbers, Brian? The numbers I am finding do not show 50% of the working class with 529's. And number I am finding for those who will benefit from them is 80%, with a $250K of income. This is about the middle class, not the top 3% (which if you earn 250K, this is your percentile group). People who earn less than 100K (which is a generous definition: more than most tables show a cutoff of around 78K) have very few 529's. And let's be real; if you make 250K you can afford college. Now I did find a stat from the GAO and reported int the WSJ stating that 50% of 529 owners made less than 150K.... but not the working class. I think we can assume that is not the working class or even the middle class? Because 100K is in the top 20% and 150K is in the top 8-9%. So I ask how do you refer to those as middle-class economics, and proclaim the working class 50% owners of 529's.....?If it was just a poorly worded, I understand. Or a different definition of middle class, I understand. Romney was famous for suggesting that the middle class was $250K. But in reality, this is not the case. And I would also like to now how the header of the article is the first thing you read and is a completely different topic than what is addressed in paying for the break with 529's...I know that is how he wants to pay for it..... what does that have to do with someone making "bad choices"?

JB:  Don't be too hard on Brian, Michael. He's pretty well-read and has a wide range of interests. He's something of a dyed-in-the-wool Libertarian, though, and they tend to have a few blind spots. Thanks for your research, though. It's spot on. And welcome to the comments threads.

MW:  He is a decent and good man also. I have always liked Brian since we went to school. And indeed a very intelligent man. Which was why I was surprised at the header comments. And do not get me wrong; Libertarians aren't bad. I happen to support a couple of their positions myself, including the flat tax. But as an old, dyed in the wool liberal, I chuckle at some of the things i read and must comment.....LOL!

JB:  There have been a variety of flat tax proposals, but the one most talked about here in Atlanta is called the "Fair Tax." I'm not sure where it was hatched but it has an interesting feature (aside from repeal of the Sixteenth Amendment) called a "prebate." Presumably after it is in place everybody gets a monthly prebate consideration -- I suppose in the form of cash, card or other form -- to offset the necessities of living. This is the Flat Tax equivalent of the "standard deduction" or itemized deductions of our current system. It sounds okay until you realize in order to manage it, some incredibly huge clerical task would be in place to ID and track everybody in the country who would be affected! I suppose it might be made optional for those who don't mind absorbing the "tax" from the first dollar spent, but still... It strikes me as a pretty nutty idea.

In my case, I'm an old unreconstructed Sixties Liberal with roots almost in childhood -- starting about 1959 when I was still a teen.

MW:  Yes... I agree. The proposal sounds almost self-defeating...No, the flat tax I am talking about is the one that Libertarians actively pursued as a part of policy: the Friedman view. Very simple, very fair, and very little bureaucracy. I don't recall the exact figures, but I believe it was like 15% across the board for the first 50K, then would go up slightly as the income increased. Which seems to me to be fair, though those who are in the 1% would argue that they pay more. And they have a point. 

But my position is that they have more use of public projects and benefits that the average working-class man does not, such as railroads, for instance. Or shipyards, etc. The average common man will never ship things by rail or boat..... he more than likely will never ship in mass quantities ever. So with your wealth accumulation is an ever-present increasing use of the public infrastructure that you should pay more for. If a common man only uses the highway to go to work, he should pay a small amount of tax. But if a magnate uses that same highway for a nationwide fleet of thousands of trucks, then he should pay more. Even though each is a single taxpayer, the burdens would be different, and each rewarded accordingly. The common man pays less in taxes but uses less; the magnate pays more in taxes and uses more. 

Seems simple to me. I can't recall the Libertarian who first supported this, but it sounded reasonable to me. On another note, I am a child of the 70"s with 60"s hippie liberalism founded in 80's reality. I believe in peace, love and equality for all. What Republicans call a "long-haired, Commie Pinko race lover who hates America"..... though they claim to be very Christian when calling me that..... And it is not true, BTW....LOL!

JB:  I misunderstood your "flat tax" reference. I took it to be flat as opposed to progressive. What you describe retains progressive taxation, which is good. "Flat" then means the elimination of deductions. Other countries use the VAT (value added tax) which is imposed from the first step of any economic progression. The supply chain furnishing the making of a product, then, is taxed every step of the way which spreads the burden along the line. I have no idea how that is administered.

In any case, if changes are not made in how the economy works, the gap separating rich and poor will continue to grow. The most straightforward remedy is raising the minimum wage (which a number of states have already done). As it is, public assistance to those already employed full-time (and still not making ends meet) is a de facto subsidy for the employer.
No one earning the current minimum wage of about $15,000 per year can aspire to live decently, much less raise a family. As a result, almost all workers subsisting on those low earnings need panoply of taxpayer-supported benefits, including the earned income tax credit, food stamps, Medicaid or housing subsidies. According to the Congressional Budget Office, the federal government spent $316 billion on programs designed to help the poor in 2012. 
That means the current $7.25 minimum wage forces taxpayers to subsidize Wal-Mart Stores Inc.and other large employers, effectively socializing their labor costs. This is great for Wal-Mart and its shareholders, but terrible for America. It is both unjust and inefficient. 
MW:  Yes, my mistake. I have always heard it referred to as a flat tax, but it is progressive, isn't it? My bad. But I agree with you also on the minimum wage increase, though that will probably be off-set to companies by inflation of prices. I really think it is more of a band-aid to a wound and we need more control over the free market in order to permanently come up with solutions. I am a free market guy, but we need restrictions. The National Debt is out of control, because of very few free market restrictions designed to eliminate the rising costs of the poor and the inability to stop profiteering at the cost of the taxpayer or the country. 

There are things that we can do, such as the tax mentioned above, penalties for offshore havens, jail and forfeiture for crooks who scam and swindle, breaking up the monopolies of banks and such....etc. But alas, who is going to do it? Right now, Elizabeth Warren and Bernie Sanders are the only two politicians that I trust; and there is little they can do. Even when they pass a law like Dodd-Frank, Citigroup writes a rider in on the budget that guts part of it. Until we reverse Citizens United or somehow get money out of politics, then we will continue to drive up debt to pay for the poor and to run the country while the 1% own 48% of it's wealth.....Again, I agree with you; unjust and inefficient.

JB:  I see Brian already liked your comment, beating me to it. Something you wrote must have rubbed one of his conservative/libertarian sweet spots. I generally agree with all those free market arguments. After all, I spent my whole working life, from the time I finished college until retirement, in retail management. Prior to Piccadilly I was actually in what might be called middle or upper management, but the company was too little when it went Chapter Eleven to merit "middle" management (35 locations both company-owned and franchised, scattered from New England to South Florida -- and I was with the main office). All that time I should have been Republican, the party of business and free enterprise. I learned to despise the interference and inconsistencies of sanitarians, their bosses and the inconsistencies of regulatory oversight from one place to another. But all that time a heart for the common man, our customer (and source of revenue), kept my Democrat soul dominant.

All that time also gave me a healthy regard and respect for the free market. But I came to realize that the very openness that gives it life also gives rise to monopolies and selective pricing models that fudge the market or undercut competition. There is good reason that prices of food are higher in poor neighborhoods and healthcare facilities are concentrated in the most affluent parts of most metro areas. Free market enterprises are like Willie Sutton -- they go where the money is. They do whatever they need to do to get it. And they resist limitations and oversight for the same reasons that made Willie Sutton a criminal -- government intrusion into their behavior.

That said, it's important to realize that the labor "market" behaves exactly like all the others. I use scare quotes because most observers fail to realize (or are in denial) that the availability of more people looking for employment has the same effect on wages that an oversupply or under-demand for products or services has on prices. So the relationship between wages and prices is not contrary but identical. Higher wages does not, in fact, lead to higher prices. If anything, higher wages (particularly at the bottom of the scale) has the opposite effect by giving more money to the very people most likely to spend it, injecting it into the economy. People working for minimum wages are more likely to be borrowing than investing -- which may benefit payday lenders, check-cashing scams and rental businesses (hence the term "rentier class"). They are not in any position to buy an ice=cream store but they can afford to buy more ice-cream.

Rising unemployment exerts a downward force on wages in the same way that oversupply makes goods and services less costly. The result is a self-feeding downward loop pushing the minimum wage ever lower. The only reason many jobs even pay that much is that employers cannot pay even less because the law forbids it.

The principle is clear in places like Lebanon where even the children of refugees are spending their days working for fractional wages in the farms and grunt work of the Lebanese economy -- instead of going to school or staying at home where they might care for younger siblings enabling a parent to go to work. (And the heartbreaking part of that picture is that most refugees are women, their men either too old or left behind to fight.) Prior to child labor laws in America, the same exploitation of children was commonplace and widespread in both agricultural and industrial environments. (Children of migrant laborers still work the fields in America, incidentally.)

So that is why I am in favor of raising the minimum wage. That is why many states have legal state minimums higher than the federal minimum. And that is why until Congress passes legislation to increase the federal minimum the country will continue to make anything looking like an economic recovery nothing more than a sluggish effort, falling way short of the potential it might otherwise have.

In other words, the way out of our economic problems is more people paying more taxes. (I'm sure that is a position those paying high taxes would support.) The sooner more people get rich, the faster the taxpaying portion of the population will grow. Those at the bottom of the wage scale need to earn their way out of EITC and public assistance, and into the ranks of taxpayers. It's ridiculous that ACA needs to subsidize incomes up to 400% of FPL. That's crazy when you think about it.

 I agree wholeheartedly. I am in the crazy position of seeing the extremely wealthy and the absurdly poor every day. I deliver to Kiawah and Seabrook Islands in South Carolina. Kiawah is called the "Hamptons of the South". Thousands of multi-million dollar mansions ranging from 1 million for a 2 bedroom villa, to 19.5 million for the new estate off the Ocean Course. 

I talk to CFO's and CEO's and people ranging from NFL players like Dan Marino to CFO's of Honeywell and Wells Fargo. But on the way there, I deliver to huge plantations, where you see migrant workers in the fields by the hundreds, and who live in these overcrowded shacks with deplorable conditions and maybe 2 portalets and a big communal kitchen. No transportation or laundry or baths other than a couple of outside showerheads on the side of the kitchen. And the wage? Maybe $10 or $15 dollars a day. 

Immigration doesn't show up, because no one else will do the job. But these are the same folks who want to deport illegals....Hypocrisy in action. Anyone who tells you that slave-like conditions don't exist can call me and I will verify that they do. These people are off the grid entirely. They get no healthcare, or government checks, or food stamps, or education, or assistance of any kind. But the money they earn goes to feed them and their families and buy clothes at Goodwill and such. They are surviving, with no help, and yet still putting into the economy. It restores faith in humanity to see it, while at the same time, makes me ashamed that my country allows this to happen in the first place. 

And yet 5 miles down the road is paradise. Private islands, golf courses, tennis clubs, country clubs, Ferraris and Maseratis, golf carts costing more than I make in a year. It is an amazing display on the wealth gap in actual human terms. And the epitome of what is wrong. The minimum wage is a great thing and I support it, but I have seen the cost spread across the services, or the consumer. 

I saw an interesting piece a few weeks ago where the cost of giving every worker for McDonalds a raise nation-wide to $10.10 would raise the cost of a big Mac by...... 25 cents. Yep, 25 lousy cents. I would be glad to pay that. But McDonald's will not do it. It is a corporate mind-set that we got in to during Reaganomics, and it has just gotten worse. Same with the progressive income tax. They will not do it. This is why there is a Populist movement again, and it is growing by leaps and bounds. It started just before Occupy and is spreading through Ferguson protests and other areas as well. The message is starting to get out there. 

You are completely right when you say that the that the bottom needs to earn their way into the middle class, and then the "entitlements" can start ending.... but the right does not see that because it interferes with profit margins now.... and tomorrow. They do not see the big picture of the consumer spending increasing by leaps and bounds, as will the tax base, while driving demand. They only care about today. But we will see how it pans out. It is going to be very interesting in the next 10 years.....

JB: Very eloquently put. You validate important points well.
May I have permission to use that comment as one of my "status reports"?
I need not use your name (unless you prefer).

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