Truth about Taxes and Rich People

I don't have anything against rich people. Really. I just think that since we are talking about tax cuts in this election season, and commentators are throwing around terms like "class warfare" and "socialism" we should all have a better sense of what we are talking about.

So check out this little graph from the Washington Post. It describes reasonably well the impact of the tax proposals that McCain and Obama have.



The most obvious interesting fact that I come away from this with is that McCain wants to give the top 1% (from approx $700,000 per year income to $3M) a tax decrease that is roughly equal to the average family income. And he's selling this as a middle class tax cut!

The next thing that I notice is that I can't tell how much money rich people make. I'm going to guess that the income bracket that is between 37,596 and 66, 354 is pretty evenly distributed. There are lots of people throughout that income bracket, so that assumption makes some sense. But the top 1% (really the top 1% without the top .1%) make between roughly 700k and 3M. That's a lot of range and not a lot of people, so I can't guess what the distribution is. So that means that I can't guess what the tax impact is. I mean a $115k tax increase might be a big deal for someone making 700k. But it should be barely noticeable for someone making $3M.

And then there's the bit about the people who make more than $3m. We know how many there are, about 0.1% of the people in the country. But how much do they make? We know that the bottom of that group makes $3M per year, but what about the middle, the average or even the high end? The short answer is that the government will not tell us that information. But a better answer is that their income is enormous. (Check out this site for more info on the income distribution. It's a little old school and difficult to read, but read it.)

Then think about this: who benefits from the the roads that get people to work? The people who are going to work, or the people who make money from other people's work? Both benefit. So if I benefit from you (and your 1,000 co workers) going to work in my factory, should I pay the same as you? Or should I pay 1,000 times as much?

The point is that people with more money, by definition benefit more from our government (and that's before considering the $700B injection of government money into the financial system) than do people with less money. Recently, that's gotten way out of whack, with the middle class being asked to shoulder more and more of the burden. Obama's plan is a small step in making things start to make a little more sense.

Gas Prices v.2

In my last post about gas prices, I may have been a little harsh. I basically said that people who are complaining about the price of gas are whining. That was maybe a tad hardcore.

Prices at the pump are very high. They are going to go higher. This is a good thing, and our government should act now to make sure that people understand this. Here's why:

People don't actually want to consume gasoline (or diesel), they want to be able to go from place to place. This is different than consumption of some other commodities, like bread or milk, where the amount of the commodity is actually what you want. In other words, if you could travel the same way that you travel now but use half the gas, all other things being equal, you'd use half the gas. But you want to use exactly as much milk as you actually use.

Many people do not have much choice - in the short term - over how much gas they consume. They may not be able to sell their gas guzzler and buy a more fuel efficient car, they may not be able to take the bus, they may not be able to properly inflate their tires (OK - everyone can do that). But other people do have the ability to immediately make some of those changes. If we remove their incentive (e.g. the high prices) they won't make those changes, and we'll continue to consume more gas the is necessary, which drives prices higher. In other words, high gas prices encourage lower gas consumption, and that is a good thing.

If we know that gas prices are going to stay at least as high as they are now, then our economy will adjust to that new reality. Car companies will bring their fuel efficient cars here and domestic car companies will design more of them. People will plan elements of their lives to take into account of these prices. On the other hand, if prices fluctuate and come down for a while, many will assume that the $4.00 gas was an aberration, and will not make the long term changes necessary.

As an aside, everything that I've said for consumers goes double for businesses. Lots of businesses are very energy inefficient. But since savings go straight to the bottom line, investments in energy savings are especially effective, BUT ONLY IF PRICES STAY HIGH!

So what do we do for the people who are hurting RIGHT NOW. That's a real problem, but the solution is NOT to reduce the price, but rather to provide immediate, but temporary, assistance to those folks. We could do this in several ways. One idea would be to send all Americans some money to help. Wait, we're already doing that. OK, we could send more. Or we could tweak the social security taxes to TEMPORARILY exempt the first 10 or 15 thousand of income (this would put about $100 per month into the pocket of every working person).

Of course, at some point we would need to pay for this subsidy. The best way to do that would be with an INCREASE in the gas tax to take place in the near future. The point would be to use this $4.00 gas as a turning point. We should look a this as an opportunity to never let gas drop below $4.00 per gallon again. If our government (in other words us) makes this clear, then the economy will adjust, more fuel efficient vehicles and mechanisms of personal transportation will appear almost as if by magic.

And by the way, gas is actually not really that expensive. It's just that is has been getting less expensive (in inflation adjusted dollars) over the past several years. Check out these sites (1 , 2) for a better explanation.

(and I thought I was a nerd - the guy who did the first chart has kept records of every tank of gas he has bought for the last 30 years - wow)

More Stupidity from Sacramento and DC

This posting has nothing to do with Obama or any campaign. It's about something that annoys me on a nearly constant basis.

Our representatives are either stupid or dishonest when it comes to energy policy. Here's the latest example.

The state legislature (Sacramento) is talking about raising the annual registration fees of cars that get poor gas mileage. The alleged purpose of this is to reduce the amount of greenhouse gases being released into the atmosphere. It's a ridiculous idea.

To explain why it's so stupid, I'll first ask a very simple question: which vehicle uses more gas, my 1991 Suburban (with 35 inch tires no less) or my neighbor's Prius?

Sounds like a trick question doesn't it? No, it's not an electric Suburban or a Prius Monster Truck. So, either you know me, or you're going to guess (wrong probably), because I haven't given you enough information to answer the question.

That specific Prius uses many times more gas that specific Suburban. Because I drive the Suburban maybe 200 miles per month. The Prius gets driven every day, probably 18k to 20k miles per year. Raising the taxes on the Suburban would not cause a reduction of greenhouse gases. Raising the taxes on the Prius would also NOT cause a reduction in greenhouse gases.

Nothing that penalizes ownership of the car will reduce gas usage. People will just suck it up, pay the extra tax, and keep on using their cars because they have to have a car.

There is ONE simple way to reduce gasoline usage in this or any country. We all know what it is. Raise the price of gasoline! Tax the hell out of it. Make it cost $5.00 per gallon. At least!

We know this works because every time gas prices go way up, gas sales go down (slightly at first).

The biggest problem is that simply raising the price of gas will immediately hurt the working poor the most. The easiest and simplest way to fix that would be to reduce general sales taxes. An offsetting reduction in sales tax is as progressive as an increase in gas tax is regressive. And since sales tax in California is already pretty high, there should be enough room to reduce it and offset the increased as tax. But if there isn't enough room in the sales tax, simply mail rebate checks (equal amounts to every resident).

Of course, there will be whining, I mean objections:

"But Brian", you say, "what's the point of raising one tax just to lower a different tax, netting the no increase in state tax revenue?" The point of this proposal is not to increase the amount of money to the state, but to reduce gas usage. We all know how upset people get about putting $50 in their gas tank. What happens when that turns into $100? $150? I'll tell you - I put $100 into my Suburban a few months ago, it almost made me cry - why do you think I drive the damn thing so infrequently?

"But, I only have one car, and it gets 13 miles per gallon and I live 70 miles from my job. What will I do?" I don't know. Maybe you'll move. Maybe you'll sell your gas guzzler and buy a 91 Geo Metro (45 miles per gallon - 50+ on the highway). Maybe you'll get a job closer to home. Whatever you do, I bet you'll use less gas (and therefore put less CO2 into the atmosphere).

"But Brian, that Berkeley weirdo who rides his bike to work and doesn't even have a car will get the sales tax cut without having to pay any extra gas tax." Yup. And maybe more people will take his example and simultaneously get in shape while NOT using gas. Or maybe they'll just drive less, or car pool, or telecommute, or do what they need to do to make due.

"But Brian, rich people will still drive gas guzzlers while the rest of us have to ride our bikes and walk." Yup. Rich people will always have it better than the rest of us. I wish I were rich. And if I were, I'd probably drive a Porsche 911 Turbo, which gets really shitty gas mileage. And I'd drive it for the hell of it because if I were rich, I wouldn't have a job. But so what, there are only but so many rich people, and what they do has a much smaller impact than what the other 99% of us do.


I almost want to scream at the TV when some talking head spews on and on about how much CO2 this or that car generates. It's crap. Say it with me people: cars do NOT generate CO2, burning gasoline does.

Our politicians know this, but they are too damn spineless to tell us what we need to hear. To sooner we make it clear to everyone in this country that energy that releases CO2 is expensive and is going quickly get much more expensive, the sooner we will stop using so damn much of it. It's not rocket science. It's actually very simple. Make it expensive and two very cool things happen.

1 - we use less of it.
2 - we develop substitutes for it.

Since it's so damn simple, why aren't are leaders saying it? Barack, are you listening?