Category: Economics

Taxes Are Always the Problem… Let’s Look at Realistic Solutions

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John Gruber points to Mike Arrington’s article that responds to Warren Buffett calling for higher taxes for the rich. Specifically, he points out the following:

What I really didn’t understand until recently though is why so many rich Americans seem to loathe their richness as much as everyone else does. Many in Silicon Valley want to tax the rich into the middle class and let government spend and spend and spend. The super rich tech elite flock to Obama, joining in the call to screw the rich as loudly as all the rest.

Gruber then goes into detail about how the economy was so much better under Clinton and then links that success directly to marginal tax rates. He pays no attention to spending and the increase we’ve seen lately. Sure, entitlement spending is up and in the long term we’re going to have to deal with it, but during Clinton’s presidency spending was lower. It’s easy to create a surplus when your budget doesn’t skyrocket due to increases in spending for food stamps, housing, etc. and yes, your taxes are a bit higher.

My problem with all of this is that everyone wants to focus on their brand of a “solution” rather than examining the problem for what it is, spending more than you’re taking in, and trying to solve that. If Democrats were a family and had $100k in debt, they’d get another credit card to cover themselves. If Republicans were in the same situation they’d, well, I’m not sure what they would do. Maybe stop paying into their retirement or going out to movies.

The answer really is somewhere in the middle. Maybe some short term credit (temporary tax increase) along with some significant cutting in short and long term programs. The problem is, this isn’t an answer to the economy’s problems, it’s an answer to the budget and debt’s problems.

Krugman’s Folly – The Texas Budget and Education

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Good ol’ Krugman,  once again leaving out important facts in order to wiggle his way into finding some Republican fiscal responsibility for any and all messes.

In his usual way, Mr. Krugman gets straight to the point with this:

And in low-tax, low-spending Texas, the kids are not all right. The high school graduation rate, at just 61.3 percent, puts Texas 43rd out of 50 in state rankings. Nationally, the state ranks fifth in child poverty; it leads in the percentage of children without health insurance. And only 78 percent of Texas children are in excellent or very good health, significantly below the national average.

What he fails to point out is that the majority of the Texas budget is spent both on healthcare and education. How do I know this? Texas conveniently publishes a fact book that you can find here (2010). Page 33 is what you are wanting to read, of $77.6 billion in state revenue, 56.3% was spent on education and 22.8% on health and human services. That amounts to around $43.6 billion spent on education (higher education and public education) and $17.7 billion spent on health and human services. The next closest item on the budget is criminal justice and public safety, which received 9.4% of the state’s budget or $7.3 billion.

Krugman is insinuating that we do not spend enough and that budget cuts will have a deep impact across the state. There’s no doubt that there will be a hit on health and human services but I think the problem is how the funds are being spent within their different agencies, not in the amount the agencies have received before. A lot of mid-sized school districts are estimating $14 million to $20 million a year being cut from their budgets if the plan goes through. If 85% of a district’s money is being spent on personnel, I’d like to see who’s earning what. My money is on the admin side making a decent chunk of change. Maybe some cuts can be made in the admin buildings without making a dent in teacher numbers.

The Texas budget crisis is this, they could cut all other department funding completely and would still have to cut some out of education and health and human services. Tax revenue for the state has dropped to around 2006 levels, which begs the question, why can’t we return to 2006 spending levels? Technically we could, but it would still require personnel cuts in education. The real question is, would it have dire consequences on your children if their classroom size jumped to 30? The research says that the jury is still out on class size having anything to do with graduation rate. Krugman is simply echoing what school districts are screaming across the state which is, “Call your representative! Education is going to die in Texas!”. It’s a little extreme isn’t it? Especially since the estimated budgets for the schools would simply return to 2005 numbers. Have our graduation rates really gone up that much since then? No.

On the chopping block for education are a litany of programs, including parts of the TELPAS program, an assessment for English language learners. While I’m sure the motives behind the program were good, the program has grown to be a beast both in terms of money and in time. And it’s what we are doing with the information we glean from the assessment that is so worrisome. Rather than spending extra time specifically with students who are not English proficient, a lot of districts simply slow the entire class down, in order to avoid the student from feeling awkward. Education’s role is not keeping a student’s social life intact, it’s to educate them.

Another item that people keep insisting would help us is dipping into the state’s rainy day fund, which sits around $9.7 billion. Yeah, that makes a lot of sense, knock down our deficit to $18 billion with our entire savings account, sounds like a stellar plan. Instead, let’s keep that money for a time when we really, really need it.

One of the things I am actually in agreement with Krugman on is the issue of taxes. Most of the state’s budget comes from sales tax and I would be alright with a 1% increase in the tax, taking the rate up to 9.25% (includes local and county collection). Before you tell me how I’m not conservative, let me just explain why this is an acceptable compromise. By raising the sales tax rate, you are not increasing franchise fees or “punishing” the poor, you are simply making it a little more expensive for people to consume. Since a lot of items are not taxable, people have the ability to avoid the taxes or significantly minimize them. The other plus is that sales tax is easy to roll back, while things like franchise taxes and property taxes have a nasty way of sticking around after being implemented.

In the end, something has to give. Either a slight tax increase, budget cuts, or a little bit of both is necessary to get this thing under control. Go to your school board meetings, look at their budget. If they are spending a lot more on administrators than on teachers, call it in to question. Maybe they can make cuts around your district without actually affecting the class room.

Racial Predatory Loans Fueled Housing Crisis

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A recent study points toward predatory lending practices aimed at minorities as the main reason for the U.S. housing meltdown.

Predatory lending aimed at racially segregated minority neighborhoods led to mass foreclosures that fueled the U.S. housing crisis, according to a new study published in the American Sociological Review.

The financial institutions likely to be found in minority areas tended to be predatory — pawn shops, payday lenders and check cashing services that “charge high fees and usurious rates of interest,” they said in the study.
“By definition, segregation creates minority dominant neighborhoods, which, given the legacy of redlining and institutional discrimination, continue to be underserved by mainstream financial institutions,” the study says.

So it’s those fat cats in their suits that have caused this ruckus.

Sure, I wouldn’t doubt that there is some predatory lending going on out there and it should be severely punished, but I’d bet dollars to donuts that Fannie Mae and Freddie Mac had some part in this as well. Either by being passive and not informing buyers about predatory loans or by not insuring that lenders did not carry on with such practices.

Education Funding

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A quick thought for Tuesday. A lot of the hubbub over education involves funding, or the lack thereof. The notion that education is underfunded is not supported by fact, instead, the facts point the other direction, that federal education spending has seen enormous growth since the 1960s.

Maybe we should be looking at how money is spent rather than how much money is doled out. Being in the education field I can guarantee that there is a lot to learn.

RIM’s Capitulation to the Saudis

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I have never been a BlackBerry user and if I have my way, I will never be one. The recent pandering to the Saudi government over data monitoring is just one more arrow in my quiver of reasons not to support Research in Motion by buying their products.

Now, I am not naive, I know the U.S. government has policies in place to monitor phone and internet traffic, but I do not see them bullying companies to turn over the data. Instead, they’re sly and probably employ a large number of hackers to help them monitor the airwaves. What bothers me about Saudi Arabia is their need to push the issue of monitoring under the guise of “safety” rather than what they really want, which is to know what their citizens are doing when they are not being watched in public. Sharia is the law of the land and as such, personal freedom takes a back seat to governmental moral “clarity” and cleansing. In plain terms, this ability to monitor BlackBerry traffic is going to be used not just to watch for terrorist activity but to enforce Sharia

The Responsibility of the Public Sector

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As we have already seen in Greece, poor management and the continued growth of government without reigns to control spending are a dangerous combination. The question this poses then is, where do we stand? At the city level, at the state level, and at the federal level, is the public sector being a responsible spender of cash? Should they be? The fact that my wife and I both work in the public sector makes this a personal issue and though neither of us would want to lose our jobs, I think the real answer is that there is a lot of waste at all levels of government.

It is my belief that the public sector should be good stewards of our tax dollars, just like we should be good stewards of our own money. Though, that may not be the best gauge with the number of Americans in debt slowly rising. What brought me to this notion of responsibility in the public sector? Observations. It seems as though efficiencies have been lost simply because they are not needed when one is spending someone else’s money. I believe it’s endemic to the idea that funds are unlimited, therefore one can spend whatever one likes. But shouldn’t it be the opposite? Shouldn’t efficiency be the norm, not the exception? Sure, we should not skimp when it comes to things that are absolutely necessary, but to spend for the sake of spending (to seal in one’s budget) is beyond wasteful, it’s idiotic.

Instead of school districts buying iPads, focus on calculators, paper, or other necessities. Technology will come eventually, but the goal is to provide education, not the newest gear, to students. The same applies to city and state services. The budgets need to be adjusted to run lean and mean. These things do not generate revenue so why should they be treated like they do? If a private company was to come in and take over a city service, I guarantee that they could find places where there is significant, unnecessary spending taking place. Not only could that company make the spending go away but they could keep service levels the same, if not improve them.

There is no reason that our public officials cannot be good spenders of our money, it’s simply a choice. Of course there might be some downgrade in service, but the end result of keeping the service around rather than possibly losing it when the budget becomes unsustainable seems worth it. With the current way we are doing things, something has to give, the question is when. We can keep that “when” at bay and still employ people and provide services that are necessary for the general public to go about their daily lives.

So, what do you think? Should the public sector be fiscally responsible or should they be free to spend as they see fit?

Lower Taxes in 2009

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I came across a quick linked post from John Gruber about the tax bills for 2009. He quotes a USA Today article saying this –

Federal, state and local taxes — including income, property, sales and other taxes — consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010.

“The idea that taxes are high right now is pretty much nuts,” says Michael Ettlinger, head of economic policy at the liberal Center for American Progress.

First, I have to point out that I think it’s hilarious what some of these lobbying groups call themselves (Center for American Progress). Don’t get me wrong, the Republicans have some funny ones too. Maybe if we just called them what they were, lobbyists, life would be a little more drab, but at least it would be less confusing.

Now, on to the real point. I don’t disagree that tax bills were lower in 2009, but I think the idea that lower taxes are what people who are unhappy with the administration want is asinine. In the USA Today article, Dennis Cauchon actually touches on the real issue, then skims right over it; The issue of smaller government with less need for our tax dollars. If the government was to run a tighter ship then tax bills could be even lower, imagine that! The other issue that the article really doesn’t address is that of the recession. If the recession was starting or in full swing in 2008, then people surely lost their jobs in 2009, making tax bills smaller out of attrition in the workplace.

Anyway, my point in all of this is, less of a tax burden is great, but when there isn’t enough money to support the budget, we should be worried. I’m sure a few years ago Greeks were glad that their tax bills were lower, now I’m betting they would just like a job.

The Deficit is the Work of Bush?

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You read that title right, now the $1.3 trillion deficit is being blamed on Bush in a February 6 editorial in the New York Times. Where to begin with this notion is something I have been wrestling with all morning. The author is correct in his assertion that Bush did little to combat the deficit but misses the mark on a few, key, factual points.

What is even more breathtaking is the Republicans’ cynical refusal to acknowledge that the country would never have gotten into so deep a hole if President George W. Bush and the Republican-led Congress had not spent years slashing taxes — mainly on the wealthy — and spending with far too little restraint.

Am I the only one that sees the gigantic factual error in that sentence? A Republican-led Congress? The 110th Congress was a Democratic majority with the only Republican leadership being Dick Cheney. The author is mincing words by trying to distract from the fact that it was a Democratic Congress that approved Bush’s plans. The Congress had the chance and the power to go against Bush’s wishes but instead they buried their heads and let things fall into place.

This leads to the other issue, the tax cuts on the wealthy. I am not even sure why this is an issue anymore, if we continue to think that taxing people who make a large amount of money a lot more than those who are in the middle class, we’ll do nothing but discourage the wealthy to keep their money here. I would argue it is more harmful to the funding of projects, to philanthropy, and to business in general to tax the wealthy a great sum more than everyone else.

You can read the article yourself and come to your own conclusions but it seems that the author is gripping at straws to try and push blame to the past for something that is a very real-time indicator of the present.

Education Software is Messy

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K-12 student management software is messy, there is no other way to describe it. Options are limited and none of them stand out as being well written or well maintained. It is sad really. Very important data is passed over, underutilized, and ignored because of the inability of the software or the software company to see actual needs and respond to them.

What school districts need is software that is lightweight, is easy to understand, simple to maintain, and can be expanded upon if needed. Right now the software that is out there only mixes and matches a couple of those items, not all of them.

There are a lot of resources spent on software, hardware, and yearly fees, and it’s unnecessary when we really dig down and look at the requirements. School districts are simply small cities that have to manage themselves, why can’t software be built around that effectively?

The biggest issue standing in the way of progress when it comes to student/district management software is too many hands seeing cool or new things and wanting them. A lot of school districts are split up into different areas, just like a company, and each of these areas oversees different pieces of information. The problem arises when none of the areas coordinate their software buying and end up with multiple tools that in the end, could have been consolidated with one tool, had there been communication.

We as software developers need to look at this as a real problem and try to fix it. If we can make affordable software for school districts that works, we can help that school district find a more affective way to use the money they saved.

Education and the Silent Trillion

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Behind all of the healthcare debates and save-face moments lies another policy proposal that is quietly making its way through the House. The Obama administration is proposing to increase its current 20% share of the student-loan origination market to 80% by July 1, 2010 and letting the remaining public sector 20% just fade away.

For decades, federally backed student loans were the most common way to borrow for college. Money was raised in the private sector, loans made and the private institutions paid a fee to the government for each loan. In return, the government covered most of the defaults which in turn, allowed the private lenders to make a regulated return. All of that changed in 2007 when Congress legislated a return so low that no private lender could make a profit holding the assets.

The administration is claiming that this will save $87 billion but there are discrepancies that the Congressional Budget Office says really only mean $47 billion in savings. Long story short, be prepared for the default rates to skyrocket and for more students to suffer as they come out of college and realize missing a single payment could cost them dearly.

Education for all! [that can afford it]