Curse of the Lottery Winners

According to the March 11, 2007 ABC News story "Curse of the Lottery Winners," winning the lottery might not turn out as expected:

The record setting $390 million lottery jackpot shared by two American winners this week has put stars and dollar signs in the eyes of millions of would-be millionaires. But a sudden cash windfall hasn't always resulted in a happy ending for past lottery winners.

Psychologist Steve Danish, a professor of psychology at Virginia Commonwealth University, has studied the impact instant wealth has on lottery winners.

"The dream you have about winning may be better than the actuality of winning," he said. "There have been families that have just -- just been torn apart by this process."

Kenneth and Connie Parker were winners of a $25 million jackpot. Their 16-year marriage disintegrated just months after they became rich beyond their wildest dreams.

Jeffrey Dampier, a $20 million winner, was kidnapped and murdered by his own sister-in-law.

In 2002, Jack Whittaker won the largest individual payout in U.S. lottery history.

"I can take the money," Whittaker said at the time. "I can take this much money and do a lot of good with this much money right now."

But it didn't work out like that. Whittaker's life was consumed by hardship, including the death of his beloved granddaughter Brandi, who was a victim of a drug overdose, and the breakup of his marriage.

"If I knew what was going to transpire, honestly, I would have torn the ticket up," said Jewell Whittaker, Jack Whittaker's ex-wife.

For Eddie Nabors, the 52-year-old truck driver from Georgia turned recent mega millionaire, Danish offers this advice.

"I think you can probably fish for a couple days … but I'm not sure you can fish for 10 or 20 or 30 years," Danish said. "Without that goal or plan about what you expect to happen for yourself … it could be your worst nightmare."

Schoolhouse Rock - Where the Money Goes

Schoolhouse Rock - Where the Money Goes

Ten Myths About the Bush Tax Cuts

In the January 29, 2007 Heritage Foundation article "Ten Myths About the Bush Tax Cuts," Brian M. Riedl attempts to justify and defend the Bush tax cuts:

Backgrounder #2001

The Democratic majority in the U.S. House of Rep resentatives must decide whether to write a budget extending, expiring, or repealing the Bush tax cuts. These tax cuts have provided a convenient scapegoat for the nation's budget and economic challenges. Despite a 42 percent spending increase in 2001, critics charge that the tax cuts have starved popular pro grams. Despite surging economic growth and 5 million new jobs since 2003, critics also charge that the tax cuts have not helped the economy. Finally, despite making the income tax code more progressive, critics charge that the tax cuts have widened inequality.

Nearly all of the conventional wisdom about the Bush tax cuts is wrong. In reality:

* The tax cuts have not substantially reduced cur rent tax revenues, which were in fact not far from the 2000 pre–tax cut baseline and over the 2003 pre–tax cut baseline in 2006;

* The increased child tax credit, 10 percent tax bracket, and fix of the alternative minimum tax (AMT) reduced tax revenues much more than most of the "tax cuts for the rich";

* Economic growth rates have more than doubled since the 2003 tax cuts; and

* The tax cuts shifted even more of the income tax burden toward the rich.

Setting optimal tax policy requires governing with facts rather than popular mythology, which is why it is important to set the record straight by debunking 10 myths about the Bush tax cuts.

Ten Myths About the Bush Tax Cuts—and the Facts

Myth #1: Tax revenues remain low.
Fact: Tax revenues are above the historical average, even after the tax cuts.

Myth #2: The Bush tax cuts substantially reduced 2006 revenues and expanded the budget deficit.
Fact: Nearly all of the 2006 budget deficit resulted from additional spending above the baseline.

Myth #3: Supply-side economics assumes that all tax cuts immediately pay for themselves.
Fact: It assumes replenishment of some but not necessarily all lost revenues.

Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.

Myth #5: The Bush tax cuts are to blame for the projected long-term budget deficits.
Fact: Projections show that entitlement costs will dwarf the projected large revenue increases.

Myth #6: Raising tax rates is the best way to raise revenue.
Fact: Tax revenues correlate with economic growth, not tax rates.

Myth #7: Reversing the upper-income tax cuts would raise substantial revenues.
Fact: The low-income tax cuts reduced revenues the most.

Myth #8: Tax cuts help the economy by "putting money in people's pockets."
Fact: Pro-growth tax cuts support incentives for productive behavior.

Myth #9: The Bush tax cuts have not helped the economy.
Fact: The economy responded strongly to the 2003 tax cuts.

Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.

..................................................

Myth #1: Tax revenues remain low.
Fact: Tax revenues are above the historical average, even after the tax cuts.

Tax revenues in 2006 were 18.4 percent of gross domestic product (GDP), which is actually above the 20-year, 40-year, and 60-year historical aver ages.[1] The inflation-adjusted 20 percent tax revenue increase between 2004 and 2006 represents the largest two-year revenue surge since 1965–1967.[2] Claims that Americans are undertaxed by historical standards are patently false.

Some critics of President George W. Bush's tax policies concede that tax revenues exceed the his torical average yet assert that revenues are historically low for economies in the fourth year of an expansion. Setting aside that some of these tax pol icies are partly responsible for that economic expan sion, the numbers simply do not support this claim. Comparing tax revenues in the fourth fiscal year after the end of each of the past three recessions shows nearly equal tax revenues of:

* 18.4 percent of GDP in 1987,

* 18.5 percent of GDP in 1995, and

* 18.4 percent of GDP in 2006.[3]

While revenues as a percentage of GDP have not fully returned to pre-recession levels (20.9 percent in 2000), it is now clear that the pre-recession level was a major historical anomaly caused by a tempo rary stock market bubble.

Myth #2: The Bush tax cuts substantially reduced 2006 revenues and expanded the budget deficit.
Fact: Nearly all of the 2006 budget deficit resulted from additional spending above the baseline.

Critics tirelessly contend that America's swing from budget surpluses in 1998–2001 to a $247 bil lion budget deficit in 2006 resulted chiefly from the "irresponsible" Bush tax cuts. This argument ignores the historic spending increases that pushed federal spending up from 18.5 percent of GDP in 2001 to 20.2 percent in 2006.[4]

The best way to measure the swing from surplus to deficit is by comparing the pre–tax cut budget baseline of the Congressional Budget Office (CBO) with what actually happened. While the January 2000 baseline projected a 2006 budget surplus of $325 billion, the final 2006 numbers showed a $247 billion deficit—a net drop of $572 billion. This drop occurred because spending was $514 bil lion above projected levels, and revenues were $58 billion below (even after $188 billion in tax cuts). In other words, 90 percent of the swing from surplus to deficit resulted from higher-than-projected spending, and only 10 percent resulted from lower-than-projected revenues.[5] (See Chart 1.)

Click on the diagram to enlarge it.

Furthermore, tax revenues in 2006 were actually above the levels projected before the 2003 tax cuts. Immediately before the 2003 tax cuts, the CBO pro jected a 2006 budget deficit of $57 billion, yet the final 2006 budget deficit was $247 billion. The $190 billion deficit increase resulted from federal spend ing that was $237 billion more than projected. Rev enues were actually $47 billion above the projection, even after $75 billion in tax cuts enacted after the baseline was calculated.[6] By that standard, new spending was responsible for 125 percent of the higher 2006 budget deficit, and expanding revenues actually offset 25 percent of the new spending.

The 2006 tax revenues were not substantially far from levels projected before the Bush tax cuts. Despite estimates that the tax cuts would reduce 2006 revenues by $188 billion, they came in just $58 billion below the pre–tax cut revenue level pro jected in January 2000.[7]

The difference is even more dramatic with the pro-growth 2003 tax cuts. The CBO calculated that the post-March 2003 tax cuts would lower 2006 revenues by $75 billion, yet 2006 revenues came in $47 billion above the pre–tax cut baseline released in March 2003. This is not a coincidence. Tax cuts clearly played a significant role in the economy's performing better than expected and recovering much of the lost revenue.

Myth #3: Supply-side economics assumes that all tax cuts immediately pay for themselves.
Fact: It assumes replenishment of some but not necessarily all lost revenues.

Attempts to debunk solid theories often involve first mischaracterizing them as straw men. Critics often erroneously define supply-side economics as the belief that all tax cuts pay for themselves. They then cite tax cuts that have not fully paid for them selves as conclusive proof that supply-side econom ics has failed.

However, supply-side economics never con tended that all tax cuts pay for themselves. Rather the Laffer Curve[8] (upon which much of the supply-side theory is based) merely formalizes the com mon-sense observations that:

1. Tax revenues depend on the tax base as well as the tax rate;
2. Raising tax rates discourages the taxed behavior and therefore shrinks the tax base, offsetting some of the revenue gains; and
3. Lowering tax rates encourages the taxed behav ior and expands the tax base, offsetting some of the revenue loss.

If policymakers intend cigarette taxes to discour age smoking, they should also expect high invest ment taxes to discourage investment and income taxes to discourage work. Lowering taxes encour ages people to engage in the given behavior, which expands the base and replenishes some of the lost revenue. This is the "feedback effect" of a tax cut.

Whether or not a tax cut recovers 100 percent of the lost revenue depends on the tax rate's location on the Laffer Curve. Each tax has a revenue-maxi mizing rate at which future tax increases will reduce revenue. (This is the peak of the Laffer Curve.) Only when tax rates are above that level will reducing the tax rate actually increase revenue. Otherwise, it will replenish only a portion of the lost revenue.

How much feedback revenue a given tax cut will generate depends on the degree to which tax payers adjust their behavior. Cutting sales and property tax rates generally induces smaller feed back effects because taxpayers do not respond by substantially expanding their purchases or home-buying. Income taxes have a higher feedback effect. Nobel Prize-winning economist Ed Prescott has shown a strong cross-national link between lower income tax rates and higher work hours.[9] Investment taxes have the highest feedback effects because investors quickly move to avoid higher-taxed investments. Not surprisingly, history shows that higher investment taxes deeply curtail investment and consequently raise little (if any) new revenue.

Yet, using the standard set by some, even a hypothetical tax cut that provides real tax relief to millions of families and entrepreneurs and creates enough new income to recover 95 percent of the estimated revenue loss would be considered a "failure" of supply-side economics and thus merit a full repeal.

Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.

As previously stated, whether a tax cut pays for itself depends on how much people alter their behavior in response to the policy. Investors have been shown to be the most sensitive to tax policy, because capital gains tax cuts encourage enough new investment to more than offset the lower tax rate.

In 2003, capital gains tax rates were reduced from 20 percent and 10 percent (depending on income) to 15 percent and 5 percent. Rather than expand by 36 percent from the current $50 billion level to $68 billion in 2006 as the CBO projected before the tax cut, capital gains revenues more than doubled to $103 billion.[10] (See Chart 2.) Past cap ital gains tax cuts have shown similar results.

Click on the diagram to enlarge it.

By encouraging investment, lower capital gains taxes increase funding for the technologies, busi nesses, ideas, and projects that make workers and the economy more productive. Such investment is vital for long-term economic growth.

Because investors are tax-sensitive, high capital gains tax rates are not only bad economic policy, but also bad budget policy.

Myth #5: The Bush tax cuts are to blame for the projected long-term budget deficits.
Fact: Projections show that entitlement costs will dwarf the projected large revenue increases.

The unsustainability of America's long-term bud get path is well known. However, a common mis perception blames the massive future budget deficits on the 2001 and 2003 tax cuts. In reality, revenues will continue to increase above the histor ical average yet be dwarfed by historic entitlement spending increases. (See Chart 3.)

Click on the diagram to enlarge it.

For the past half-century, tax revenues have generally stayed within 1 percentage point of 18 per cent of GDP. The CBO projects that, even if all 2001 and 2003 tax cuts are made permanent, revenues will stillincrease from 18.4 percent of GDP today to 22.8 percent by 2050, not counting any feedback revenues from their positive economic impact. It is projected that repealing the Bush tax cuts would nudge 2050 revenues up to 23.7 percent of GDP, not counting any revenue losses from the negative economic impact of the tax hikes.[11] In effect, the Bush tax cut debate is whether revenues should increase by 4.4 percent or 5.3 percent of GDP.

Spending has remained around 20 percent of GDP for the past half-century. However, the coming retirement of the baby boomers will increase Social Security, Medicare, and Medicaid spending by a combined 10.5 percent of GDP. Assuming that this causes large budget deficits and increased net spending on interest, federal spending could surge to 38 percent of GDP and possibly much higher.[12]

Overall, revenues are projected to increase from 18 percent of GDP to almost 23 percent. Spending is projected to increase from 20 percent of GDP to at least 38 percent. Even repealing all of the 2001 and 2003 cuts would merely shave the projected budget deficit of 15 percent of GDP by less than 1 percentage point, and that assumes no negative feedback from raising taxes. Clearly, the French-style spending increases, not tax policy, are the problem. Lawmakers should focus on getting entitlements under control.


Myth #6: Raising tax rates is the best way to raise revenue.
Fact: Tax revenues correlate with economic growth, not tax rates.

Many of those who desire additional tax revenues regularly call on Congress to raise tax rates, but tax revenues are a function of two variables: tax rates and the tax base. The tax base typically moves in the opposite direction of the tax rate, partially negating the revenue impact of tax rate changes. Accordingly, Chart 4 shows little correlation between tax rates and tax revenues. Since 1952, the highest marginal income tax rate has dropped from 92 percent to 35 percent, and tax revenues have grown in inflation-adjusted terms while remaining constant as a per cent of GDP.

Chart 5 shows the nearly perfect correlation between GDP and tax revenues. Despite major fluc tuations in income tax rates, long-term tax revenues have grown at almost exactly the same rate as GDP, remaining between 17 percent and 20 percent of GDP for 46 of the past 50 years. Table 1 shows that the top marginal income tax rate topped 90 percent during the 1950s and that revenues averaged 17.2 percent of GDP. By the 1990s, the top marginal income tax rate averaged just 36 per cent, and tax revenues averaged 18.3 percent of GDP. Regardless of the tax rate, tax revenues have almost always come in at approximately 18 percent of GDP.[13]

.Click on the diagram to enlarge it.

Click on the diagram to enlarge it.

Click on the diagram to enlarge it.

Since revenues move with GDP, the common-sense way to increase tax revenues is to expand the GDP. This means that pro-growth policies such as low marginal tax rates (especially on work, savings, and investment), restrained federal spending, minimal regulation, and free trade would raise more tax revenues than would be raised by self-defeating tax increases. America cannot substantially increase tax revenue with policies that reduce national income.

Myth #7: Reversing the upper-income tax cuts would raise substantial revenues.
Fact: The low-income tax cuts reduced revenues the most.

Many critics of tax cuts nonetheless support extending the increased child tax credit, marriage penalty relief, and the 10 percent income tax bracket because these policies strongly benefit low-income tax families. They also support annually adjusting the alternative minimum tax exemption for inflation to prevent a massive broad-based tax increase. These critics assert that repealing the tax cuts for upper-income individuals and investors and bringing back the pre-2001 estate tax levels can raise substantial revenue. Once again, the numbers fail to support this claim.

In 2007, according to CBO and Joint Committee on Taxation data, the increased child tax credit, mar riage penalty relief, 10 percent bracket, and AMT fix will have a combined budgetary effect of $114 bil lion.[14] (See Table 2.) These policies do not have strong supply-side effects to minimize that effect.

By comparison, the more maligned capital gains, dividends, and estate tax cuts are projected to reduce 2007 revenues by just $36 billion even before the large and positive supply-side effects are incorporated. Thus, repealing these tax cuts would raise very little revenue and could possibly even reduce federal tax revenue. Such tax increases would certainly reduce the savings and investment vital to economic growth.

The individual income tax rate reductions come to $59 billion in 2007 and are not really a tax cut for the rich. All families with taxable incomes over $62,000 (and single filers over $31,000) benefit. Repealing this tax cut would reduce work incentives and raise taxes on millions of families and small businesses, thereby harming the economy and min imizing any new revenues.

Myth #8: Tax cuts help the economy by "putting money in people's pockets."
Fact: Pro-growth tax cuts support incentives for productive behavior.

Government spending does not "pump new money into the economy" because government must first tax or borrow that money out of the economy. Claims that tax cuts benefit the econ omy by "putting money in people's pockets" rep resent the flip side of the pump-priming fallacy. Instead, the right tax cuts help the economy by reducing government's influence on economic decisions and allowing people to respond more to market mechanisms, thereby encouraging more productive behavior.

Click on the diagram to enlarge it.

The Keynesian fallacy is that government spend ing injects new money into the economy, but the money that government spends must come from somewhere. Government must first tax or borrow that money out of the economy, so all the new spending just redistributes existing income. Similarly, the money for tax rebates—which are also touted as a way to inject money into the economy— must also come from somewhere, with government either spending less or borrowing more. In both cases, no new spending is added to the economy. Rather, the government has just transferred it from one group (e.g., investors) in the economy to another (e.g., consumers).

Some argue that certain tax cuts, such as tax rebates, can transfer money from savers to spenders and therefore increase demand. This argument assumes that the savers have been storing their sav ings in their mattresses, thereby removing it from the economy. In reality, nearly all Americans either invest their savings, thereby financing businesses investment, or deposit the money in banks, which quickly lend it to others to spend or invest. There fore, the money is spent by someone whether it is initially consumed or saved. Thus, tax rebates create no additional economic activity and cannot "prime the pump."

This does not mean tax policy cannot affect eco nomic growth. The right tax cuts can add substan tially to the economy's supply side of productive resources: capital and labor. Economic growth requires that businesses efficiently produce increas ing amounts of goods and services, and increased production requires consistent business investment and a motivated, productive workforce. Yet high marginal tax rates—defined as the tax on the next dollar earned—serve as a disincentive to engage in such activities. Reducing marginal tax rates on busi nesses and workers increases the return on work ing, saving, and investing, thereby creating more business investment and a more productive work force, both of which add to the economy's long-term capacity for growth.

Yet some propose demand-side tax cuts to "put money in people's pockets" and "get people to spend money." The 2001 tax rebates serve as an example: Washington borrowed billions from investors and then mailed that money to families in the form of $600 checks. Predictably, this simple transfer of existing wealth caused a temporary increase in consumer spending and a corresponding decrease in investment but led to no new economic growth. No new wealth was created because the tax rebate was unrelated to productive behavior. No one had to work, save, or invest more to receive a rebate. Simply redistributing existing wealth does not create new wealth.

In contrast, marginal tax rates were reduced throughout the 1920s, 1960s, and 1980s. In all three decades, investment increased, and higher economic growth followed. Real GDP increased by 59 percent from 1921 to 1929, by 42 percent from 1961 to 1968, and by 31 percent from 1982 to 1989.[15] More recently, the 2003 tax cuts helped to bring about strong economic growth for the past three years.

Policies which best support work, saving, and investment are much more effective at expanding the economy's long-term capacity for growth than those that aim to put money in consumers' pockets.

Myth #9: The Bush tax cuts have not helped the economy.
Fact: The economy responded strongly to the 2003 tax cuts.

The 2003 tax cuts lowered income, capital gains, and dividend tax rates. These policies were designed to increase market incentives to work, save, and invest, thus creating jobs and increas ing economic growth. An analysis of the six quarters before and after the 2003 tax cuts (a short enough time frame to exclude the 2001 re cession) shows that this is exactly what hap pened (see Table 3):

* GDP grew at an annual rate of just 1.7 percent in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1 percent.

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* Non-residential fixed investment declined for 13 consecutive quarters before the 2003 tax cuts. Since then, it has expanded for 13 consec utive quarters.

* The S&P 500 dropped 18 percent in the six quarters before the 2003 tax cuts but increased by 32 percent over the next six quarters. Dividend payouts increased as well.

* The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.

* The economy lost 267,000 jobs in the six quar ters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.[16]

Critics contend that the economy was already recovering and that this strong expansion would have occurred even without the tax cuts. While some growth was naturally occurring, critics do not explain why such a sudden and dramatic turn around began at the exact moment that these pro-growth policies were enacted. They do not explain why business investment, the stock market, and job numbers suddenly turned around in spring 2003. It is no coincidence that the expansion was powered by strong investment growth, exactly as the tax cuts intended.

The 2003 tax cuts succeeded because of the sup ply-side policies that critics most oppose: cuts in mar ginal income tax rates and tax cuts on capital gains and dividends. The 2001 tax cuts that were based more on demand-side tax rebates and redistribution did not significantly increase economic growth.


Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.

Popular mythology also suggests that the 2001 and 2003 tax cuts shifted more of the tax burden toward the poor. While high-income households did save more in actual dollars than low-income households, they did so because low-income house holds pay so little in income taxes in the first place. The same 1 percent tax cut will save more dollars for a millionaire than it will for a middle-class worker simply because the millionaire paid more taxes before the tax cut.

Click on the diagram to enlarge it.

In 2000, the top 60 percent of taxpayers paid 100 percent of all income taxes. The bottom 40 percent collectively paid no income taxes. Lawmakers writing the 2001 tax cuts faced quite a challenge in giving the bulk of the income tax savings to a population that was already paying no income taxes.

Rather than exclude these Americans, lawmak ers used the tax code to subsidize them. (Some economists would say this made that group's col lective tax burden negative.)First, lawmakers low ered the initial tax brackets from 15 percent to 10 percent and then expanded the refundable child tax credit, which, along with the refundable earned income tax credit (EITC), reduced the typical low-income tax burden to well below zero. As a result, the U.S. Treasury now mails tax "refunds" to a large proportion of these Americans that exceed the amounts of tax that they actually paid. All in all, the number of tax filers with zero or negative income tax liability rose from 30 million to 40 million, or about 30 percent of all tax filers.[17] The remaining 70 percent of tax filers received lower income tax rates, lower investment taxes, and lower estate taxes from the 2001 legislation.

Consequently, from 2000 to 2004, the share of all individual income taxes paid by the bottom 40 per cent dropped from zero percent to –4 percent, mean ing that the average family in those quintiles received a subsidy from the IRS. (See Chart 6.) By contrast, the share paid by the top quintile of households (by income) increased from 81 percent to 85 percent.

Expanding the data to include all federal taxes, the share paid by the top quintile edged up from 66.6 percent in 2000 to 67.1 percent in 2004, while the bottom 40 percent's share dipped from 5.9 per cent to 5.4 percent. Clearly, the tax cuts have led to the rich shouldering more of the income tax burden and the poor shouldering less.[18]

Conclusion

The 110th Congress will be serving when the first of 77 million baby boomers receive their first Social Security checks in 2008. The subsequent avalanche of Social Security, Medicare, and Medicaid costs for these baby boomers will be the greatest economic challenge of this era.

This should be the budgetary focus of the 110th Congress rather than repealing Bush tax cuts or allowing them to expire. Repealing the tax cuts would not significantly increase revenues. It would, however, decrease investment, reduce work incen tives, stifle entrepreneurialism, and reduce eco nomic growth. Lawmakers should remember that America cannot tax itself to prosperity.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.


[1] The historical averages range between 17.9 percent and 18.3 percent of GDP, depending on the time horizon.

[2] Office of Management and Budget, Historical Tables, Budget of the United States Government, Fiscal Year 2007 (Washington, D.C.: U.S. Government Printing Office, 2006), pp. 25–26, Table 1.3, at www.whitehouse.gov/omb/budget/fy2007/pdf/hist.pdf (January 16, 2007), with final 2006 revenue figures added in.

[3] According to the National Bureau of Economic Research, the 1980s recession ended in fiscal year (FY) 1983 (November 1982), the 1990s recession ended in FY 1991 (March 1991), and the early 2000s recession ended in FY 2002 (November 2001). National Bureau of Economic Research, "US Business Cycle Expansions and Contractions," at www.nber.org/cycles.html (January 16, 2007).

[4] See Brian M. Riedl, "Federal Spending: By the Numbers," Heritage Foundation WebMemo No. 989, February 6, 2006, at www.heritage.org/Research/Budget/wm989.cfm.

[5] See Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2001–2010," January 2000, p. xvi, Summary Table 2, at www.cbo.gov/ftpdocs/18xx/doc1820/e&b0100.pdf (January 16, 2007). The January 2000 baseline pro jected that 2006 tax revenues would reach $2,465 billion, and they instead reached $2,407 billion. The same baseline projected that 2006 spending would reach $2,140 billion, and it actually totaled $2,654 billion.

[6] See Congressional Budget Office, "An Analysis of the President's Budgetary Proposals for Fiscal Year 2004," March 2003, p. 36, Table 4, at www.cbo.gov/ftpdocs/41xx/doc4129/03-31-AnalysisPresidentBudget-Final.pdf (January 16, 2007). The March 2003 baseline projected that 2006 tax revenues would reach $2,360 billion, and they instead reached $2,407 billion. That same baseline projected that 2006 spending would reach $2,417 billion, and it actually totaled $2,654 billion.

[7] While the March 2001 baseline was the last created before the tax cuts, it does not provide a realistic baseline for measuring subsequent policies. This baseline assumed that the stock market bubble would continue, and the CBO consequently pro jected that revenues would stay above 20.2 percent of GDP indefinitely, even though that level had been reached only once since World War II. The January 2000 baseline more accurately reflected future economic performance.

[8] See Arthur B. Laffer, "The Laffer Curve: Past, Present, and Future," Heritage Foundation Backgrounder No. 1765, June 1, 2004, at www.heritage.org/Research/Taxes/bg1765.cfm.

[9] Edward C. Prescott, "Why Do Americans Work So Much More Than Europeans?" Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 28, No. 1 (July 2004), at www.minneapolisfed.org/research/qr/qr2811.pdf (January 16, 2007).

[10] For early projections, see Congressional Budget Office, "An Analysis of the President's Budgetary Proposals for Fiscal Year 2004." For actual figures, see Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2008–2017," January 2007, p. 86, Table 4-3, at www.cbo.gov/showdoc.cfm?index=7731&sequence=0 (January 25, 2007).

[11] Daniel J. Mitchell, Ph.D., and Stuart M. Butler, Ph.D., "What Is Really Happening to Government Revenues: Long-Run Forecasts Show Sharp Rise in Tax Burden," Heritage Foundation Backgrounder No. 1957,July 28, 2006, at www.heritage.org/Research/Taxes/upload/bg_1957.pdf. This is based on data from Congressional Budget Office, "The Long-Term Budget Outlook," December 2005, at www.cbo.gov/ftpdocs/69xx/doc6982/12-15-LongTermOutlook.pdf (January 16, 2007). These baselines do not assume that lawmakers will adjust the AMT threshold. If the Bush tax cuts are made permanent and the AMT is adjusted annually, the CBO's 2050 revenue projections are 19.8 percent of GDP, which is still well above the historical average.

[12] Congressional Budget Office, "The Long-Term Budget Outlook." The CBO's "low tax and intermediate spending" scenario projects that federal spending will reach 37.7 percent of GDP by 2050. Even that may be a large underestimate. See Brian M. Riedl, "Entitlement-Driven Long-Term Budget Substantially Worse Than Previously Projected," Heritage Foundation Backgrounder No. 1897, November 30, 2005, at www.heritage.org/Research/Budget/upload/86356_1.pdf.

[13] Office of Management and Budget, Historical Tables, pp. 25–26, Table 1.3, and Internal Revenue Service, "U.S. Individual Income Tax: Personal Exemptions and Lowest and Highest Bracket Tax Rates, and Tax Base for Regular Tax, Tax Years 1913– 2005," at www.irs.gov/pub/irs-soi/histaba.pdf (January 16, 2007).

[14] Figures include child credit outlays. Heritage Foundation calculations using Joint Committee on Taxation scores of the Eco nomic Growth and Tax Relief Reconciliation Act of 2001, Jobs and Growth Tax Relief Reconciliation Act of 2003, Working Families Tax Relief Act of 2004, and Tax Increase Prevention and Tax Reconciliation Act of 2005.

[15]See Daniel J. Mitchell, Ph.D., "Lowering Marginal Tax Rates: The Key to Pro-Growth Tax Relief," Heritage Foundation Backgrounder No. 1443, May 22, 2001, at www.heritage.org/Research/Taxes/BG1443.cfm.

[16] U.S. Commerce Department, Bureau of Economic Analysis, NIPA Tables, Table 1.1.1, revised December 21, 2006, at www.bea.gov/bea/dn/nipaweb/SelectTable.asp (January 16, 2007); Yahoo Finance, "S&P 500 Index," at www.finance.yahoo.com/ q/hp?s=%5EGSPC (January 16, 2007); and U.S. Department of Labor, Bureau of Labor Statistics, "Employment, Hours, and Earnings from the Current Employment Statistics survey (National)," at www.data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_
numbers&series_id=CES0000000001&output_view=net_1mth (January 16, 2007).

[17] Scott A. Hodge, "40 Million Filers Pay No Income Taxes, Many Get Generous Refunds," Tax Foundation Fiscal Facts No. 6, June 5, 2003, at www.taxfoundation.org/research/show/207.html (January 16, 2007).

[18] Congressional Budget Office, "Historical Effective Federal Tax Rates: 1979 to 2004," December 2006, at www.cbo.gov/ftpdoc.cfm?index=7718&type=1 (January 17, 2007).

Are U.S. farm subsidies illegal?

According to the January 22, 2007 New York Times article "EU joins WTO complaint against U.S. corn subsidies":

DAVOS, Switzerland — The European Union, Australia, Argentina and Brazil have joined Canada in a complaint against the United States over what they claim are illegal government handouts to American corn growers, trade officials said Monday.

The request for consultations, filed by the four trading powers and others at the World Trade Organization in Geneva, threatens a major commercial dispute at a time when global free trade talks remain stalled over agricultural tariffs and subsidies and when the United States is beginning debate on a new multibillion-dollar farm bill.

Under WTO rules, a three-month consultation period is required before a country can ask the trade body to initiate a formal investigation.

A case can result in punitive sanctions being authorized, but panels take many months, and sometimes years, to reach a decision.

Canada lodged its complaint Jan. 8, claiming that some $9 billion paid out by the United States annually in export credit guarantees and other subsidies unfairly and illegally deflated international corn prices.

"This is not just about corn," said Clodoaldo Hugueney, Brazilian ambassador to the WTO. "Brazil is the world's largest ethanol exporter, so this is an important issue for us."

Hugueney said any country's large subsidy program concerns Brazil as a major agriculture exporter.

Sean Spicer, a spokesman for the U.S. trade representative, Susan Schwab, declined to comment on the countries joining the complaint. The office, however, was critical of Canada's action earlier this month.

"Corn prices have increased significantly in both the United States and in Canada," Gretchen Hamel, a spokeswoman for the U.S. trade representative, said at the time. "In addition, U.S. corn exports to Canada have declined in the last year. Given the dramatic improvement in the market over the past year, we're surprised that Canada believes that our corn programs are now causing harm in breach of WTO rules."

The WTO, in a case brought by Brazil, already has ruled that some cotton subsidies are illegal, and the administration of President George W. Bush has been coming under pressure to reform a number of its farm support programs.

"Many of the issues in Canada's complaint we have also complained about concerning U.S. cotton programs," said Hugueney by telephone from Geneva.

Canada's complaint over U.S. corn support also challenged whether the billions of dollars in overall farm subsidies paid out by the U.S. government comply with international commerce rules.

It argued that U.S. subsidy levels for a number of years on farm products including wheat, sugar and soybeans were illegal, and urged Washington to address its concerns when drafting the farm bill that would set out American agricultural support programs for the next five years.

The United States said it has offered cuts as part of the WTO's global free trade talks, but others have called the pledges largely artificial, addressing only permitted levels of government subsidies and failing to cut what Washington actually gives to its farmers.

The United States is the world's largest producer and exporter of corn, accounting for more than 40 percent of global production and nearly 60 percent of all exports in 2004 and 2005, according to the U.S. Grains Council.

Argentina, Brazil and Canada are the next largest exporters in the Western Hemisphere, and all rank in the top 10 globally.

Tax Cuts Offer Most for Very Rich, Study Says

The January 7, 2007 New York Times article "Tax Cuts Offer Most for Very Rich, Study Says" by Edmund L. Andrews reports on a Congressional study that concludes the Bush tax cuts "offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners." The article says:

Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts, according to a new Congressional study.

The study, by the nonpartisan Congressional Budget Office, also shows that tax rates for middle-income earners edged up in 2004, the most recent year for which data was available, while rates for people at the very top continued to decline.

Based on an exhaustive analysis of tax records and census data, the study reinforced the sense that while Mr. Bush’s tax cuts reduced rates for people at every income level, they offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners.

Though tax cuts for the rich were bigger than those for other groups, the wealthiest families paid a bigger share of total taxes. That is because their incomes have climbed far more rapidly, and the gap between rich and poor has widened in the last several years.

The study offers ammunition to supporters and opponents of Mr. Bush’s tax cuts, which are all but certain to touch off a battle between the president and the Democrats who just took control of Congress.

Democratic leaders have taken pains to avoid an immediate fight over the tax cuts, most of which are scheduled to expire at the end of 2010. But Democrats are looking for ways to increase revenue well before then, in part because they want to spend more on education and energy without increasing the deficit.

Economists and tax analysts have long known that the biggest dollar value of Mr. Bush’s tax cuts goes to people at the very top income levels. One reason is that two of his signature measures, tax cuts on investment income and a steady reduction of estate taxes, overwhelmingly benefit the wealthiest households.

But the Congressional study offers additional insight because it incorporates information about what people paid in 2004, the first year in which taxpayers could take full advantage of the cuts on stock dividends and capital gains.

The study estimates that the effective federal income tax rate, which excludes payroll taxes for Social Security and Medicare, declined modestly for people in the middle- and lower-income categories.

Families in the middle fifth of annual earnings, who had average incomes of $56,200 in 2004, saw their average effective tax rate edge down to 2.9 percent in 2004 from 5 percent in 2000. That translated to an average tax cut of $1,180 per household, but the tax rate actually increased slightly from 2003.

Tax cuts were much deeper, and affected far more money, for families in the highest income categories. Households in the top 1 percent of earnings, which had an average income of $1.25 million, saw their effective individual tax rates drop to 19.6 percent in 2004 from 24.2 percent in 2000. The rate cut was twice as deep as for middle-income families, and it translated to an average tax cut of almost $58,000.

In its report, the Congressional Budget Office estimated that the overall effective federal tax rate edged up to 20 percent in 2004, from 19.8 percent the year before.

But even with that increase, Americans faced lower tax rates than any time since 1979. If President Bush has his way, those rates could decline even more as the estate tax on inherited wealth is gradually phased out by the start of 2010.

Mr. Bush and his Republican allies in Congress want to permanently extend that tax cut and almost all of the others that Congress passed in his first term. The cost of doing that would be more than $1 trillion over the next decade, a cost that would hit the Treasury at the same time that the spending on old-age benefits for retiring baby boomers begins to soar.

The budget office offered little commentary on its new estimates, but many of its numbers spoke for themselves.

The report shows that a comparatively small number of very wealthy households account for a very big share of total tax payments, and their share increased in the first four years after Mr. Bush’s tax cuts.

The top 1 percent of income earners paid about 36.7 percent of federal income taxes and 25.3 percent of all federal taxes in 2004. The top 20 percent of income earners paid 67.1 percent of all federal taxes, up from 66.1 percent in 2000, according to the budget office.

By contrast, families in the bottom 40 percent of income earners, those with incomes below $36,300, typically paid no federal income tax and received money back from the government. That so-called negative income tax stemmed mainly from the earned-income tax credit, a program that benefits low-income parents who are employed.

Put another way: rich families were the undisputed winners from President Bush’s tax cuts, but people in the bottom half of the earnings scale were not paying much in taxes anyway.

GAO Chief Warns Economic Disaster Looms

In the October 30, 2006 article "GAO Chief Warns Economic Disaster Looms," Associated Press national writer Matt Crenson reports that the chief accountant for the U.S. government believes current fiscal policy is unsustainable.

AUSTIN, Texas (AP) -- David M. Walker sure talks like he's running for office. "This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."

But Walker doesn't want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.

Basically, that makes Walker the nation's accountant-in-chief. And the accountant-in-chief's professional opinion is that the American public needs to tell Washington it's time to steer the nation off the path to financial ruin.

From the hustings and the airwaves this campaign season, America's political class can be heard debating Capitol Hill sex scandals, the wisdom of the war in Iraq and which party is tougher on terror. Democrats and Republicans talk of cutting taxes to make life easier for the American people.

What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.

There's a good reason politicians don't like to talk about the nation's long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits, nasty nostrums that might doom any candidate who prescribed them.

"There's no sexiness to it," laments Leita Hart-Fanta, an accountant who has just heard Walker's pitch. She suggests recruiting a trusted celebrity - maybe Oprah - to sell fiscal responsibility to the American people.

Walker doesn't want to make balancing the federal government's books sexy - he just wants to make it politically palatable. He has committed to touring the nation through the 2008 elections, talking to anybody who will listen about the fiscal black hole Washington has dug itself, the "demographic tsunami" that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.


"He can speak forthrightly and independently because his job is not in jeopardy if he tells the truth," said Isabel V. Sawhill, a senior fellow in economic studies at the Brookings Institution.

Walker can talk in public about the nation's impending fiscal crisis because he has one of the most secure jobs in Washington. As comptroller general of the United States - basically, the government's chief accountant - he is serving a 15-year term that runs through 2013.

This year Walker has spoken to the Union League Club of Chicago and the Rotary Club of Atlanta, the Sons of the American Revolution and the World Future Society. But the backbone of his campaign has been the Fiscal Wake-up Tour, a traveling roadshow of economists and budget analysts who share Walker's concern for the nation's budgetary future.

"You can't solve a problem until the majority of the people believe you have a problem that needs to be solved," Walker says.

Polls suggest that Americans have only a vague sense of their government's long-term fiscal prospects. When pollsters ask Americans to name the most important problem facing America today - as a CBS News/New York Times poll of 1,131 Americans did in September - issues such as the war in Iraq, terrorism, jobs and the economy are most frequently mentioned. The deficit doesn't even crack the top 10.

Yet on the rare occasions that pollsters ask directly about the deficit, at least some people appear to recognize it as a problem. In a survey of 807 Americans last year by the Pew Center for the People and the Press, 42 percent of respondents said reducing the deficit should be a top priority; another 38 percent said it was important but a lower priority.

So the majority of the public appears to agree with Walker that the deficit is a serious problem, but only when they're made to think about it. Walker's challenge is to get people not just to think about it, but to pressure politicians to make the hard choices that are needed to keep the situation from spiraling out of control.

To show that the looming fiscal crisis is not a partisan issue, he brings along economists and budget analysts from across the political spectrum. In Austin, he's accompanied by Diane Lim Rogers, a liberal economist from the Brookings Institution, and Alison Acosta Fraser, director of the Roe Institute for Economic Policy Studies at the Heritage Foundation, a conservative think tank.

"We all agree on what the choices are and what the numbers are," Fraser says.

Their basic message is this: If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation. That's almost as much as the total net worth of every person in America - Bill Gates, Warren Buffett and those Google guys included.

A hole that big could paralyze the U.S. economy; according to some projections, just the interest payments on a debt that big would be as much as all the taxes the government collects today.

And every year that nothing is done about it, Walker says, the problem grows by $2 trillion to $3 trillion.

People who remember Ross Perot's rants in the 1992 presidential election may think of the federal debt as a problem of the past. But it never really went away after Perot made it an issue, it only took a breather. The federal government actually produced a surplus for a few years during the 1990s, thanks to a booming economy and fiscal restraint imposed by laws that were passed early in the decade. And though the federal debt has grown in dollar terms since 2001, it hasn't grown dramatically relative to the size of the economy.

But that's about to change, thanks to the country's three big entitlement programs - Social Security, Medicaid and especially Medicare. Medicaid and Medicare have grown progressively more expensive as the cost of health care has dramatically outpaced inflation over the past 30 years, a trend that is expected to continue for at least another decade or two.

And with the first baby boomers becoming eligible for Social Security in 2008 and for Medicare in 2011, the expenses of those two programs are about to increase dramatically due to demographic pressures. People are also living longer, which makes any program that provides benefits to retirees more expensive.

Medicare already costs four times as much as it did in 1970, measured as a percentage of the nation's gross domestic product. It currently comprises 13 percent of federal spending; by 2030, the Congressional Budget Office projects it will consume nearly a quarter of the budget.

Economists Jagadeesh Gokhale of the American Enterprise Institute and Kent Smetters of the University of Pennsylvania have an even scarier way of looking at Medicare. Their method calculates the program's long-term fiscal shortfall - the annual difference between its dedicated revenues and costs - over time.

By 2030 they calculate Medicare will be about $5 trillion in the hole, measured in 2004 dollars. By 2080, the fiscal imbalance will have risen to $25 trillion. And when you project the gap out to an infinite time horizon, it reaches $60 trillion.

Medicare so dominates the nation's fiscal future that some economists believe health care reform, rather than budget measures, is the best way to attack the problem.

"Obviously health care is a mess," says Dean Baker, a liberal economist at the Center for Economic and Policy Research, a Washington think tank. "No one's been willing to touch it, but that's what I see as front and center."

Social Security is a much less serious problem. The program currently pays for itself with a 12.4 percent payroll tax, and even produces a surplus that the government raids every year to pay other bills. But Social Security will begin to run deficits during the next century, and ultimately would need an infusion of $8 trillion if the government planned to keep its promises to every beneficiary.

Calculations by Boston University economist Lawrence Kotlikoff indicate that closing those gaps - $8 trillion for Social Security, many times that for Medicare - and paying off the existing deficit would require either an immediate doubling of personal and corporate income taxes, a two-thirds cut in Social Security and Medicare benefits, or some combination of the two.

Why is America so fiscally unprepared for the next century? Like many of its citizens, the United States has spent the last few years racking up debt instead of saving for the future. Foreign lenders - primarily the central banks of China, Japan and other big U.S. trading partners - have been eager to lend the government money at low interest rates, making the current $8.5-trillion deficit about as painful as a big balance on a zero-percent credit card.

In her part of the fiscal wake-up tour presentation, Rogers tries to explain why that's a bad thing. For one thing, even when rates are low a bigger deficit means a greater portion of each tax dollar goes to interest payments rather than useful programs. And because foreigners now hold so much of the federal government's debt, those interest payments increasingly go overseas rather than to U.S. investors.
More serious is the possibility that foreign lenders might lose their enthusiasm for lending money to the United States. Because treasury bills are sold at auction, that would mean paying higher interest rates in the future. And it wouldn't just be the government's problem. All interest rates would rise, making mortgages, car payments and student loans costlier, too.

A modest rise in interest rates wouldn't necessarily be a bad thing, Rogers said. America's consumers have as much of a borrowing problem as their government does, so higher rates could moderate overconsumption and encourage consumer saving. But a big jump in interest rates could cause economic catastrophe. Some economists even predict the government would resort to printing money to pay off its debt, a risky strategy that could lead to runaway inflation.

Macroeconomic meltdown is probably preventable, says Anjan Thakor, a professor of finance at Washington University in St. Louis. But to keep it at bay, he said, the government is essentially going to have to renegotiate some of the promises it has made to its citizens, probably by some combination of tax increases and benefit cuts.

But there's no way to avoid what Rogers considers the worst result of racking up a big deficit - the outrage of making our children and grandchildren repay the debts of their elders.

"It's an unfair burden for future generations," she says.

You'd think young people would be riled up over this issue, since they're the ones who will foot the bill when they're out in the working world. But students take more interest in issues like the Iraq war and gay marriage than the federal government's finances, says Emma Vernon, a member of the University of Texas Young Democrats.

"It's not something that can fire people up," she says.

The current political climate doesn't help. Washington tends to keep its fiscal house in better order when one party controls Congress and the other is in the White House, says Sawhill.

"It's kind of a paradoxical result. Your commonsense logic would tell you if one party is in control of everything they should be able to take action," Sawhill says.

But the last six years of Republican rule have produced tax cuts, record spending increases and a Medicare prescription drug plan that has been widely criticized as fiscally unsound. When President Clinton faced a Republican Congress during the 1990s, spending limits and other legislative tools helped produce a surplus.

So maybe a solution is at hand.

"We're likely to have at least partially divided government again," Sawhill said, referring to predictions that the Democrats will capture the House, and possibly the Senate, in next month's elections.

But Walker isn't optimistic that the government will be able to tackle its fiscal challenges so soon.

"Realistically what we hope to accomplish through the fiscal wake-up tour is ensure that any serious candidate for the presidency in 2008 will be forced to deal with the issue," he says. "The best we're going to get in the next couple of years is to slow the bleeding."

David M. Walker is a certified public accountant. He has a B.S. degree in accounting from Jacksonville University. His complete biography can be found on Wikipedia.

Happiness remains elusive, despite material excesses

In a July 2006 Fort Worth Star-Telegram article "Trivial Pursuit: Happiness remains elusive, despite material excesses," Tim Madigan reports on research that suggests money does not provide happiness:

In 1776, when Thomas Jefferson wrote the Declaration of Independence, he listed the pursuit of happiness as an inalienable right, immediately after life and liberty. It is a little-known historical fact that Jefferson, John Adams and company also expected that the pursuit of happiness would someday include buying a Lexus and Hummer to share a three-car garage, a McMansion, a plasma television or three, and cosmetic surgery, from head to toe. With all that stuff, the Founding Fathers secretly theorized, Americans would be "really" happy.

It seems the Founding Fathers were wrong.

Not that the average American would want to trade places with folks in Darfur or Haiti or even Mexico, for it is truly hard to be happy when your children are starving. For the past half century, however, we in the United States have enjoyed a spasm of income growth, purchasing power and luxury unprecedented in human history, yet without the corresponding increase in feelings of content. Instead, for the past 50 years, we have lived on a happiness flatline, what prominent British economist Richard Layard calls a "plateau of happiness," a real and troubling disconnect between what we have and how we feel. (If it's any consolation, the Japanese are even less grateful, he says.)

It is that disconnect, that relative discontent, that has helped to inspire the recent groundswell of interest among social scientists, journalists and psychologists. Layard's criticalled acclaimed book, Happiness: Lessons From a New Science, was recently published in paperback, among the slew of titles on the topic to hit the bookstores in the past few years. (Another, Stumbling on Happiness, by Harvard psychologist Daniel Gilbert, has recently been inching its way up the bestseller lists.) "Positive Psychology" (the study of what makes people happy vs. what makes them depressed) is the hottest new trend in that field, while leading national journals have regularly weighed in on happiness and its associated conundrums.

Boiled down, the issues seem to be thus: Why haven’t we gotten happier as we’ve gotten richer? And if money can’t buy happiness, as our mothers always said, exactly where and how do we find it?

They are crucial questions, certainly, worthy of our finest minds, and they lead inevitably to, you’ll never guess – the Buddhist kingdom of Bhutan. We meet the Bhutanese midway through Layard’s book, an isolated Himalayan people whose king, in 1998, decided the country’s objective would be Gross National Happiness. A laudable thing all around. The problem is, the king allowed television into his country for the first time the very next year.

“And so the Bhutanese could see the usual mixture of football, violence, sexual betrayal, consumer advertising, wrestling and the like,” Layard writes. “They lapped it up, but the impact on their society provides a remarkable natural experiment in how technological change can affect attitudes and behavior … Quite soon everyone noticed a sharp increase in family breakup, crime and drug-taking.”

In recent years, the Bhutanese government has been trying to get television, or at least the most odious programs, banned from the country. Good luck with that. But the misfortune of the king and his people is truly a story for our time. In most any intelligent discussion of what’s wrong with our society; of what stands between us and our bliss, television takes a terrible beating.

For starters, there is the steady diet of violence and soulless sex, dishonesty, betrayal and intrigue – that electronic smorgasbord from which we and our children continuously feast. Not that violence and soulless sex don’t happen in real life, but not nearly as frequently as television would make it seem. And now the data are clear: The more television we watch, the more desensitized, violent and debased we become.

“I don’t think television does much good,” Layard said in a recent telephone interview from his office in London. “It sort of elevates the glamour and attachment to success, and a lot of the people who are successful on television are not that nice. And advertising makes you feel that you need things you don’t really need. We all know one of the secrets of happiness is to be satisfied with what you have. I have done some research in the United States that shows the longer you watch television, the less happy you are.”

One simple solution: less tube, of course. Layard also suggests a greater investment in the things that really do make us happy – family and friends, meaningful work that we enjoy, community involvement, less getting and more giving.

“I think there will probably be some sort of spiritual revival or a revival of a greater sense of solidarity with other people,” says Layard. “These things go in swings and roundabouts. This has been one of the most ferociously individualistic periods, and I think we’ll start to see some backlash against that. The fact that people are reading these books shows that they’re disenchanted with the idea that the pursuit of private gain is going to make everybody have an enjoyable and meaningful life.”

Bowling is a team sport

Or maybe bowling’s the problem. Or maybe not bowling, per se, but renting a pair of shoes and a ball, and then tossing gutter balls all by yourself. Or maybe … OK. Let’t back up.

Six years ago, Harvard government professor Robert Putnam published a book called Bowling Alone, which Putnam summarized in a recent Time magazine essay.

"I argued that the fabric of American communities has frayed badly since the mid-1960s," Putnam wrote. "I traced plummeting memberships in PTAs, unions and clubs of all sorts, long-term declines in blood donations, card games and charity; and drops of 40 to 60 percent in dinner parties, civic meetings, family suppers, picnics, and yes, league bowling."

Putman's alarming conclusions in Bowling Alone were met pretty much like Al Gore's warnings about global warming, with silence or skepticism. But then, just last month, the American Sociological Review published a study in which 1,467 Americans were asked to describe all the people with whom they had recently discussed important matters. In a similar 1984 survey, we listed just three such close friends. Twenty years later, according to the study, that number had dropped to two.

Putnam tries not to gloat but now says the debate about the depths of our social isolation is over. We're lonely as heck, and as a result, "our children fail to thrive. Crime rises. Politics coarsens. Generosity shrivels. Death comes sooner," he wrote.

Like Layard, Putnam says television is largely to blame for this state of affairs.

"Television is not all bad in terms of social connectedness," Putnam said in a recent interview. "Watching the news is good for civic health. But most Americans don't watch the news. They watch Friends instead of having friends. Entertainment television is lethal for social connection because we watch alone. It's not that we enjoy television so much. It's just that it's so easy. You don't need to coordinate. You don't need to call. Click, and it's there."

More culprits

But what about urban sprawl? Putnam says every 10 minutes of commuting time cuts social connection by 10 percent. What about our failure to account for the most drastic changes in the American Work force since the Industrial Revolution?

"Between 1960 and now, we've had a third of the American workers move from the kitchen to the office, but there's been no change at all in the structure of the workplace, in the way we design workdays and careers," Putnam said. "We're still operating with this Industrial Age image of how work and family are supposed to fit together. "We assume everybody works 9 to 5 and everybody has a wife at home, when almost no one has a wife at home. We need to make it possible for both men and women to reconcile their professional obligations with family and community obligations."

It would also help, Putnam says, if Americans finally take heed of our mothers.

"It's amazing what little effect material possessions have on happiness," Putnam says. "The data, the evidence, is hands-down. Money can buy you happiness, but not very much, and only if you're an Indian peasant. Nobody is going to be happier a year from now if they become a lot wealthier, but connections are very powerful. Family connections. Spouses. Friends."

Talk about a little-known historical fact.

This article also appeared in the July 30, 2006 edition of the Wisconsin State Journal.

Tax Burdens - Country Comparisons

In the May 22, 2006 Forbes article "Overall Tax Burden and Government Spending," Jack Anderson reports the U.S. tax burden is relatively low compared to other Organisation for Economic Co-operation and Development (OECD) countries:

After examining the Forbes Global Misery and Reforn Index, you now can look at all taxes at all levels of national and local government and total government spending, The Overall Tax Burden and Government Spending Table , which measures total tax burden in OECD countries as a percentage of gross domestic product, (“GDP”). This table uses the most recent official numbers available which are for 2004 and thus there is a time lag, but this gives us a good picture of what is happening. This Table is done to make sure that a reduction in the top marginal rate shown in the Misery & Reform Index is not lost through a change in the tax base, deductions or the progressiveness of rates or in the creation of new or hidden taxes at national, regional or local levels. This Table generally follows the Misery & Reform Index ranking with six of the top ten OECD countries in the Misery and Reform Index are also at the top of the Overall Tax Burden and Government Spending Table.

More specifically, this Table shows as does the Index that globally the tax bite dropped slightly from the prior year, with sixteen countries reducing total burden, six remaining constant and eight increasing tax burden. Despite this reduced overall taxation burden , it continues to remain in all of the countries above the levels of taxation of 1965 and only nine countries have decreased total taxation since1980 as a percentage of GDP. Of course, in absolute amounts, the government coffers have grown with their economies to historically unprecedented colossal amounts. The only surprise is there are not more dramatic tax revolutions as there have been historically. The confusing statements about the falling power and shrinking size of governments and the rising power of global corporations, at least in terms of what governments consume in taxes from the GDP of the country’s entrepreneurs and in absolute terms, is misplaced. Specifically, the nine exceptional countries, almost half now released from the burden of communism, that have decreased the amount of taxes in terms of the percentage of the GDP consumed by their government since 1980 are as follows: Belgium, Czech Republic, Hungary, Ireland, Japan, Netherlands, Poland, Slovakia and USA.

We also again include the Overall Government Spending results by each of the governments. Many governments are continuing the trend to reduce taxes, but the harder task of reducing spending is still to be accomplished. Only one-half of the countries reduced spending from the prior year. The solution to deficits is not to reverse the trend in tax reform, at least for those on the top of the Table and Index, but to control spending growth while the economic growth increase the absolute amount of tax revenue.

Comparing the Overall Tax Burden to the Overall Government Spending shows that all countries are spending more than they are taxing. This overall trend is not just a Keynesian cyclical exception. This difference in burden and spending is only partially covered by the increasing “budget deficit”. This difference is also partially covered by additional “revenues” that governments do not consider to be “taxes” including user fees and service charges, “profits” from government owned companies and monopolies and the sale of state assets, such as privatizations of state owned companies or sale of its real estate or its gold reserves. Thus the Overall Tax Burden is understated and hidden from taxpayers, but not from Forbes readers. Also note that the budget deficit that is covered by government borrowings require future taxes to repay the debt and currently service the interest payments (now among the top two or three expenditures of too many governments and these increased government borrowings also indirectly increase the interest rate paid the entrepreneur as an additional “tax”). The reality is the appearance of progress in tax burden in the analysis is partly masked and false due to government misreporting.

While the Misery & Reform Index charts the marginal tax cost on a growing business and its top executive, it is also important to look at the total taxes imposed by a country at all levels, national and local, as compared to its GDP to measure the overall burden.

Importantly, we also look in this table at Overall Government Spending at all levels of government, which in all cases is greater than the Overall Tax Burden. The resulting deficits are covered by debt, hidden taxes, profits from state owned monopolies and the privatization and sale of government assets. This allows the reader to be aware of the broader base of current and future total taxation issues. This is the latest official data from the OECD and is for 2004. It takes governments a year to count their colossal tax revenues and expenditures.

Tax Misery & Reform Index: Which countries are the best and worst for entrepreneurs and businesses?

Source: http://members.forbes.com/global/2006/0522/032.html

Click the image above to enlarge it.

In the May 22, 2006 Forbes article "Tax Misery & Reform Index," Jack Anderson explains that the tax burden in the United States is low compared to most other countries in the world.

Asia continues to look attractive in our annual ranking of tax burden. And even China's bum score may be deceiving.

Our 2006 Tax Misery & Reform Index offers a global view of the top marginal rates of taxation--the ones that typically most affect a successful entrepreneur. The news is good as the rates generally continue to decrease around the world.

The Misery scores--a sum of six tax rates--are lower in 16 of the locations this year, with France decreasing the most (although still in the top position). There was no change in 28 locations, and only 8 increased Tax Misery (7 of them just slightly). Overall, the original European Union-15 and China have the highest levels of Tax Misery--China because of its extraordinary social security and pension rates. The lowest levels generally continue to be in the rest of Asia, the Middle East, Russia and the U.S. (Keep in mind that countries at the bottom of our chart are the most tax-friendly to entrepreneurs and wage earners, while those at the top are the harshest.)

China's "miserable" score comes with a big qualifier. Social taxes tend to have income caps that spare the highest earners, and special tax holidays for foreign investors and expatriates keep the "effective" rate of taxation (as opposed to the top "marginal" rate) closer to the other Asian countries. But a specific measurement of net take-home pay (after income and social taxes) for a top executive reveals that only one other Asian country, Japan, leaves the executive with less than China does. And the Chinese taxman's work is never done: A new levy on the 45 billion pairs of disposable wooden chopsticks used annually will push conservation as well as increase revenues.

Almost half of the countries on the bright side of global taxation are Asian, including Hong Kong and Taiwan. Singapore continues to lower levies, and Korea codified its new low 17% flat tax (but only for expatriates), which is less than half the top 39% local rate in the Misery Index. India remains at the low end, despite this year's five-point upturn. Japan, although reducing its Misery score, has been hardening its tax treatment of expatriates and remains, with China, the tax worry of the Asian region. Indeed, Japan is not likely to be improving its score in the short run, if expectations of higher consumption taxes to close a massive budget deficit prove out. The nation oughtn't take current glimmers of economic growth for granted.

Not surprisingly, eight of the top ten countries on our list are European. France, though still at the top of the Misery Index, also showed the most reform this year (with a reduction of eight points) by reducing taxes under besieged Prime Minister Dominique de Villepin. A top individual progressive tax rate of 40% is down from 48%. A high earner is now charged this on his incremental salary and investment income, as well as an 11% flat tax on all pay.

Germany, despite a record of reform since 2000, went substantially in the other direction this year. The reforms that were anticipated under former chancellor Gerhard Schröder were not realized. Instead, taxes were increased in 2006 by the new coalition government of Chancellor Angela Merkel. (Our index records planned tax moves, ahead of their full enactment--so we must adjust when implementation falls short.)

We show Germany from the perspective of Berlin--where state and local taxes are a significant factor. (Same in the U.S.--note the difference between New York and Texas.) A top-earning Berlin entrepreneur is now looking at 14 additional points of Misery.

As with China, you have to consider special provisions for multinationals and expatriates. Here France has also been making concessions, but elsewhere in Europe this flexibility is being limited. This only makes seemingly high-tax China, which gives the foreign direct investor a ten-year tax holiday, more of a magnet for international capital.

Jack Anderson is an international tax attorney in the U.S. and EU, and a member of the French bar, the U.S. Tax Court and the California and New York bars. He is also a CPA, M.B.A. and partner in an international law firm in Paris. E-mail: jack.anderson@wanadoo.fr

Immigration's Effect on Economy is Murky

Immigration's Effect on Economy is Murky
Thursday , March 30, 2006
By Greg Simmons
Fox News

WASHINGTON — As the Senate works on a bill to impose the broadest reforms on immigration in 20 years, the debate continues to percolate over the impact on the U.S. economy by the presence and contributions of illegal immigrants.

Messages are mixed on the strength of the American economy, and the role of immigration is one of the main arguments being made on both sides of the debate over whether to tighten the flow of illegal immigrants or to make it easier for them to enter the country to prop up low-paying industries.

Wednesday, the Senate began debate on immigration reform after the Judiciary Committee forwarded a bill Monday that would increase spending on border security as well as create a guest-worker program favored by pro-immigration groups and President Bush. The committee measure differs from a House bill sponsored by Rep. James Sensenbrenner, R-Wis., that does not give leniency to those already in the country illegally and would create further restrictions, including stiffer penalties on employers and the illegal aliens themselves.

Determining the impact of illegal workers on employment rates, GDP and health care costs, among other numbers, is tricky because of the nature of their being undocumented. Government and private industries can't track numbers ­­— productivity, purchasing patterns or wages, for instance — like they would for legal sectors of the economy, because the underground market is just that.

The limitation automatically puts those interested in the finding out the economic impact of illegals at a disadvantage.

"There's no simple answer. It's very complex," said Michele Waslin, director of immigration policy research for the immigrant friendly National Council of La Raza.

Waslin's group and others seeking to expand the rights of immigrants to the United States say based on their findings, the economic balance falls in favor of an immigrant-friendly society.

Waslin cites as supporting evidence employment rates among immigrants — 94 percent among undocumented male workers, according to the Pew Hispanic Center; Social Security Administration statistics — more than $500 billion in unclaimed revenues attributed to payments from illegal workers; and government spending on immigration enforcement activities — $4.9 billion in 2002, according to the Migration Policy Institute, up from $1 billion in 1985.

"We're spending more and more money with fewer results," Waslin said of border security spending.

Waslin added that the United States has for some time been shifting to a higher-tech, better-educated society that isn't producing janitors, farm workers and other low-wage, low-education employees, even though the demand for those positions is strong. Regardless of whether Americans want to do the jobs, they aren't, and the jobs still need to be filled, she said.

"Americans aren't going to take the jobs at the current wage and work conditions being offered," Waslin said.

But Jack Martin, special projects director for the Federation for American Immigration Reform, and others say the economic balance tilts negatively as a result of immigration.

According to a Pew Hispanic Center study released in March, illegal immigrants entered the country last year at an estimated rate of about 1,300 per day, and an estimated 11.5 million to 12 million illegals live inside the United States. Pew estimates that illegal immigrants account for nearly 5 percent of the U.S. labor force, or about 7.2 million workers.

Martin said with a calculated 500,000 illegals entering the borders each year, the U.S. economy, and the country as a whole, can't sustain itself. He cited growth rates published by the Census Bureau that put the country doubling in size in the next 70 years.

Citing a "fiscal drain" of billions of dollars in education and urgent health care, among other services, the country will be choked in traffic and sprawl. To give an example of the negative impact, Martin said he's looked at the costs of illegal immigration to education, health care and prison systems in the Southwest and California. Californians, for instance, are paying about $1,000 per household to cover the costs generated by supporting an illegal immigrant population, he said.

Immigration in its current form "distorts our economy and it's having significant effects on the way that our society will be in the in the future if we don't get control over it," Martin said.

That's not the picture offered by Brent Wilkes, executive director of the League of United Latin American Citizens, who said immigrants, legal and illegal, pay property and sales taxes, spend their money here and are helping to revitalize communities that were depressed 20 years ago.

Wilkes cites a study by University of California-Los Angeles professor Raul Hinojosa, which says the total economic contribution of illegal immigrants from what they produce and what they spend is about $800 billion. Losing that by cutting off the flow of immigrants entirely and sending back the ones who are here illegally would be a tremendous blow to the gross domestic product, he said.

"If you get rid of $800 billion in economic activity, that's a big hit on the U.S. economy," Wilkes said.

Martin countered that immigrants, legal and illegal, aren't spending as much money in the United States as their native-born counterparts would be. He cited widely distributed statistics that $15 billion or more is sent home to Mexico every year in the form of remittances, or cash and wire transfers to family members.

Martin said he's also fearful that the current wave of immigration is actually chipping away at the underpinnings of society, an expense that is incalculable in dollar terms.

Waving off any idea that he's against cultural intrusion — he said he's lived in Latin America and speaks multiple languages — Martin said he has seen signs of a growing class divide in the United States, signs that are more often associated with developing countries. For instance, gated communities, increased wage discrepancies and more barriers to class mobility.

"That's the sort of big picture-type trend that we have to be concerned about," Martin said

The small picture, too, is a concern, said Mark Krikorian, executive director of the Center for Immigration Studies. Although he concedes that definite benefits for some specific sectors of the economy come from the illegal workforce, the overall costs to American citizens outweighs the benefits of illegal immigration.

"There's no question that illegal immigration, that unskilled immigration of all kinds, is a losing proposition," Krikorian said.

Krikorian's group just released a study this week that says illegal immigration is most harming the unskilled sector of the labor force. Krikorian said it shows current U.S. immigration policy isn't looking out for its own citizens.

A study of Census Bureau data revealed that while U.S. unemployment is under 5 percent, unemployment among high school dropouts is 14 percent and among those with only a high school education is about 7 percent, he said.

Krikorian said that shows that despite the claims otherwise, for non-immigrants "there isn't full employment in the low-skilled labor market."

Krikorian said that until immigration policy changes, the problem boils down to a simple point — low-wage citizen workers are being crowded out of low-pay jobs by illegal immigrants.

"These are crummy jobs and ... they're getting crummier," Krikorian said.

The Ludwig von Mises Institute

The Ludwig von Mises Institute "was founded in 1982 as the research and educational center of classical liberalism, libertarian political theory, and the Austrian School of economics. It serves as the world's leading provider of educational materials, conferences, media, and literature in support of the tradition of thought represented by Ludwig von Mises and the school of thought he enlivened and carried forward during the 20th century, which has now blossomed into a massive international movement of students, professors, professionals, and people in all walks of life. It seeks a radical shift in the intellectual climate as the foundation for a renewal of the free and prosperous commonwealth."

Liberty and Economics - a 38-minute YouTube video from the Ludwig von MIses Institute that espouses the virtues of free markets and capitalism.

Research Dispels Bush Claims That Tax Cuts Create Jobs

In the November 18, 2005 OneWorld.net article "Research Dispels Bush Claims That Tax Cuts Create Jobs," Haider Rizvi explains:

Changes in tax policy suggest no evidence of their impact on job creation or destruction, according to the 22-page study released Tuesday by United for a Fair Economy (UFE), an independent group that tracks the growing economic divide between the nation's haves and have-nots.

Since 1950, significant tax increases and decreases have both been followed by job losses and job gains, say the researchers.

Based on statistical analysis of changes in tax polices and rates of job growth in the past 60 years, the report points out that tax reduction does, however, disproportionately lead to economic disparity between the rich and poor.

Cost of Katrina relief splits Republican ranks

In the September 20, 2005 Christian Science Monitor article "Cost of Katrina relief splits Republican ranks," Gail Russell Chaddock reports on the conflicts between Republican philosphy and reality.

President Bush's call to spend "whatever it takes" to rebuild the Gulf Coast set off alarm bells among some in his conservative base - and stepped up a growing debate among Republicans at both ends of Pennsylvania Avenue on how to fix the battered region in ways that promote conservative values.

From vouchers for education and Medicaid to the creation of a giant "opportunity zone" where Katrina struck, the Bush reconstruction effort - which he called "one of the largest reconstruction efforts the world has ever seen" - is reviving prospects for policy initiatives that GOP leaders say could make or break their party's future.

At the same time, fiscal conservatives, often outside of leadership, are calling for deep cuts in existing spending to pay the costs of reconstruction. They, too, see this as a fight for the soul of the Republican Party.

"It's too early to tell. It could wind up being the New Deal on steroids," says Mike Franc, vice president for governmental affairs at the Heritage Foundation, a conservative think tank.

For a president who campaigned on Ronald Reagan's legacy of limited government, the vast scope of needs in the region pose a special
challenge. While President Roosevelt's New Deal and President Johnson's War on
Poverty offer templates for a federal response, Republicans have campaigned for
decades to roll them back.

"If people can agree that the last 40 years didn't help win the War on Poverty in New Orleans and the Gulf - and even hurt it - then the debate shifts into not replicating the last 40 years," says Mr. Franc.

But if the congressional committees bog down and can't agree on a package of reforms that can be financed without breaking the bank, "the default could be going with what we already have," he adds.

In recent weeks, Republican leaders have tasked every committee in Congress to come up quickly with new ideas that meet needs in the region.

These range from a vast package of tax breaks to revive business and housing in the Gulf, to Education Smart cards, which give families the option of paying for education wherever it is available and suits their needs, including private and parochial schools.

But to move such a plan, Republicans will need coherence in their own ranks, especially agreement across their caucus on how to pay for it. For fiscal conservatives, the biggest issue in the Gulf cleanup is its price tag, expected to exceed $200 billion. Congress has already appropriated $62 billion in emergency spending..

"Congress must ensure that a catastrophe of nature does not become a catastrophe of debt for our children and grandchildren," says Rep. Mike Pence(R) of Indiana, who chairs the Republican Study Group, a top conservative caucus.

The Heritage Foundation estimates that such levels of spending could bump budget deficits past $500 billion in 2008 to $873 billion in 2015.

In response, some conservative lawmakers are calling on their leaders to find offsets for new spending, including delaying implementing the new Medicare drug benefit, rolling back pork projects in recently passed Highway and Energy bills, and even
deferring a vote on the permanent extension of Bush tax cuts. Last week, 11 House Republicans voted against a $52 billion hurricane relief bill in protest
against the failure to identify offsets.

In a comment to reporters last week, House majority leader Tom DeLay said that after 11 years of a Republican majority, there wasn't much fat to cut in the federal budget.

The comment alarmed many conservative activists outside
government who see the big spending ways of the Bush administration as a betrayal of small- government ideals.

"I have to pretty strongly disagree with the majority leader," says former GOP Rep. Pat Toomey, now head of the Club for Growth, an antitax group that backs Republican
candidates.

"Whatever money gets spent on this reconstruction effort really needs to be offset by reductions somewhere else," he adds. "It's not the role of the federal government to be rebuilding houses and strip malls...."

At a closed leadership meeting on Thursday, House GOP leaders tried to bridge divisions in their caucus by promising strong accountability on where new federal dollars are going "Whatever is expended by Congress, we want to make sure it is funded appropriately and that states and local communities, as well as the private sector, share the burden," said a House leadership aide.

While Republicans have stood by the president as he expanded the role of government in local schools and the war on terrorism, the new wave of post-Katrina spending could break that consensus at a time when the Bush's job rating is at record lows.

The bid to work conservative programs, such as education vouchers, into Gulf aid could help bridge those gaps.

"It's window dressing for the benefit of social conservatives," says Ross Baker, a
political scientist at Rutgers University in New Brunswick, N.J.. "The president may feel that whatever support he will lose among fiscal conservatives, he will win from conservatives proud of him for bootlegging vouchers in the relief plan."

Source: http://news.yahoo.com/s/csm/20050920/ts_csm/afiscal_1