Retreat from the cliff part 2

Tax breaks and subsidies are intended to drive people towards financial decisions that work in the best interest of the economy.

Isn’t capitalism supposed to be able to do that on it’s own? Apparently not.

America’s tax code is so complex that few tax payers are willing to submit their returns unaided.

Not only is it costly for the tax payer, it’s also costly for the government. The breaks and subsidies cost $1.1 trillion according to a recent estimate.

There is no question that some of the tax breaks work. However, the majority are the result of successful lobbying to the benefit of specific interest groups.

So which ones to get rid of?

Let’s start with all of them. Specify a time-frame, say nine months, for the interested citizens to motivate why the breaks and/or subsidies should be reinstated. On D-day, those subsidies and breaks without a reprieve stop.

Who gets priority in the decision making? Affordability should determine that. Businesses that would go broke; businesses that have invested huge amounts of money, and would lose that money; the poor.

That should get rid of quite a few like the ethanol subsidy. It only took 33 years to get rid of that one.

Parts of this idea have already been raised in the run-up to the presidential election. They have not got much attention. That’s a pity.

More at:
The high price of tax breaks Not so easy
Taking from the 19%, giving to the 1% Mitt’s maths
Charity and taxation Sweetened charity
Barack Obama and the economy The choice
Visas for entrepreneurs Where creators are welcome

Politics and money

As a student of the science of marketing, seeing how politicians get elected is both interesting and sad. The marketing professionals, who behind-the-scenes conduct the campaigns, are leaders in the field. They leave nothing to chance.

Understanding the target market – and ensuring that the product/service meets the needs and aspirations of the voters forms the core of these prime examples of marketing. In the case of politics the product is a person, and while psychologists will tell you that personality is formulated in the early years of childhood, it appears that with politicians this doesn’t apply. Because elections often focus on the person, and what they stand for, rather than policies, personality traits appear to be fungible. During the primaries in the United States, Republican candidate’s views move to the right, while Democrat candidate’s move to the left. Once the primaries are over both Republican and Democrat candidate’s ideas move towards the centre. Fungible! The politicians two-step.

Marketing is an expensive exercise, and political campaigns are no exception. The 2008 presidential campaign is estimated to have cost in excess of $1 billion, and now with the introduction of the super Political Action Committees (Superb PACs) the cost of the 2012 election campaigns are likely to cost even more. Where does all that money come from?

A recent episode of “This American Life” (#461) provided an interesting peek behind-the-scenes. The episode starts with a voicemail left on the telephone answering machine of a lobbyist by Eleonora Holmes Norton, a US Congresswoman sounding a lot like a telemarketer, asking for money.

It’s not an isolated incident. Here is a quote from the second in command of the US Senate, Dick Durbin, Democrat from Illinois.”I think most Americans would be shocked– not surprised, but shocked– if they knew how much time a United States senator spends raising money. And how much time we spend talking about raising money, and thinking about raising money, and planning to raise money. And, you know, going off on little retreats and conjuring up new ideas on how to raise money.”

Congress men and women complain that they don’t have enough time to read, study, and understand the issues that they are voting on. This in part explains why. There are numerous complaints that laws are not properly thought through, badly drafted, and biased towards specific interest groups. If the people who are supposed to be doing the work are too busy raising money, then perhaps one understands why.

The lobbying industry is said to be worth $3.5 billion per year, and the revenue comes from interest groups trying to influence lawmakers to change legislation in the direction the interest group would prefer. Often the interest group is able to measure the dollars spent on lobbying against the potential return if the proposed legislation follows their interests. Consider the American Jobs Creation Act of 2004. This was a piece of legislation that lots of multinational corporations spent a lot of time lobbying for because it got them a huge, one-time tax break. Some of the profits – the profits they made overseas – would be taxed at just 5% instead of the normal 35%. A massive windfall. This law caught the attention of a tax professor at the University of Kansas, Raquel Alexander who was able to calculate the return on investment: $220 in tax benefits for every lobbying dollar spent, a return of 22,000%. That’s not to say that interest groups get that kind of return every time. That the lobbying industry has not suffered a decline in the financial crisis suggests that the return on investment still justifies the amount of money being ploughed into the industry.

When the interest group gets its way, if the government is going to balance the budget, it needs to get the money from somewhere else, and if you’re not represented by a lobbyist, or a switched on politician, that’s going to be you. Of course, if the budget doesn’t balance, then your kids will pay for it.

Within the international community we try to influence the people of the developing countries that suffer the effects of kleptocracy, nepotism and corruption and suggest that they to adopt democracy, using the Western example. It’s not an easy job.