Taxes Rates, Tax Brackets, and Thompson
Although this would, in essence, "flatten" the progressive tiering of the U.S. federal income tax, it is not in any way a proposal to create a "flat" tax; it is, instead, a proposal to move the federal income tax to a straight proportional tax, similar to the sales taxes most states and municipalities impose on purchases of goods and some services.
Technically speaking, a "flat" tax is an absolute amount of money imposed on a transaction: fees for driver's licenses, automobile license plates, hunting and fishing licenses are all examples of flat taxes; so, too, in a broad sense, are traffic fines and other punitive fees.
The term "flat" tax is widely and incorrectly used interchangeably with what is properly termed a "proportional" tax, which is an additional fee or charge calculated as a percentage of monetary consideration transferred in an exchange. Sales taxes are "proportional" because they are calculated as a percentage of a sale. Many municipalities have proportional city income taxes since these taxes are very often assessed as a percentage of taxable income.
The federal income tax is neither proportional nor flat; it is, instead, "progressive" because, as taxable income increases, the percentage of tax assessed on the last dollar of that income increases. Each range of income that is subject to a particular tax rate in the structure is called a "tax bracket." The graphic below, drawn from data available at the Tax Foundation, illustrates how the number of brackets has varied over the years, reaching remarkable highs of no fewer than 56 in the years 1918 through 1921, 55 in 1932 and 1933, and 50 in 1922 and 1923.
The illustration above clearly indicates that, while the number of tax brackets has varied considerably over the years, there has been a clear, downward trend over the past half-century or so, essentially meaning that the federal income tax, while still progressive overall, has become a proportional tax over much broader ranges of taxable income.
The highest rate at which any given taxpayer's taxable income is taxed in a progressive tax regime is called the "marginal tax rate" for that taxpayer. In the United States, the top marginal tax rate (the highest tax rate at which anyone's income could be taxed) has varied over time. Although the tax system can be fiendishly difficult to describe in numerical summaryespecially with an alternative minimum tax and allowance for different categories of taxpayers, like "heads of household," "married filing jointly," etc.overall, the highest top marginal tax rate the United States ever had was 94 percent during the last two years of World War II. Almost as high was the top marginal tax rate of 92 percent in 1952 and 1953 (again, notably, war years); and the entire period from 1946 to 1963, except for '52 and '53, was marked by a 91 percent top marginal tax rate. The graph below, again drawn from data available at the Tax Foundation, shows the ups and downs of the top marginal tax rate from 1913, when the uniform federal income tax in its modern form came into existence, through the current year, 2007.
From the graph above, it is clear that the mid-1960s marked the beginning of what would prove to be a long-term, downward trend in the top marginal tax rate, which reached its modern nadir at the very end of the Reagan Administration, when the rate bottomed out at 28 percent. By 1991, during the Administration of George H.W. Bush, it recovered back to 31 percent, and two years later, in 1993, it rose to 39.6 percent, where it stayed until 2001, when tax policy of the George W. Bush Administration and the Republican majority in Congress would resume the long-term downward trend of the top marginal tax rate. As of now, for 2007, the top marginal tax rate stands at 35 percent and will probably remain there for 2008 unless Congress crafts a tax cut for fiscal stimulus because of current economic conditions; but, while the Bush Administration is pressuring Congress to make permanent the tax cuts of 2001 that set in motion the current tax rates, projections of actual tax rates beyond the current year are speculative, at best. Even though the tax cut proposal by Republican candidate Fred Thompson is consistent with the historical trends of both fewer tax brackets and falling top marginal tax rates, the prospect of removing so much potential tax revenue from the U.S. Treasury would face considerable resistance by a Congress likely to remain in Democratic control for the next several years: budget deficits have unambiguously attended lower top marginal tax rates. This can be seen by comparing the chart below, which shows annual federal budget deficits and surpluses from 1962 to 2006, calculated from data made available by the Financial Management Service of the United States Department of the Treasury, with top marginal tax rates for the same time period, as depicted in the graph above.
In fact, the congressional Joint Committee on Taxation earlier this year estimated that a plan with major components of a tax regime similar to Mr. Thompson's would create a net loss to the United States Treasury over ten years of about $2.5 trillion. Thompson dismisses such a dire prediction on the usual supply-side economics grounds that his tax cuts would stimulate economic growth and that projections of federal tax revenue losses from tax cuts are often proven in retrospect to have been over-estimated. The graphics presented herein challenge his representation that tax cuts do not exacerbate federal revenue shortfalls.
Mr. Thompson may actually believe the next President of the United States should further erode the ability of the government to pay for its expenditures, thereby compelling the nation to continue borrowing hundreds of billions of dollars every year from foreign interests; otherwise, he may merely be pandering, as so many Republican politicians have for the past three decades, to an apparently insatiable, desperate need for more and more "tax relief" within the ranks of the nation's voters, or at least within the ranks of those who contribute generously to Republican politicians. In either case, Mr. Thompson is rendering evidence that he is not only a strong contender to carry the banner of the Republican Party into the general election of 2008, but also a complete imbecile. That, of course, is a redundancy of qualifications and qualities.
The Dark Wraith will, however, allow voters to make up their own minds as to whether or not they can afford yet another imbecile to occupy the White House so soon.
Economic Systems in the Abstract, Capitalism Applied
Land This is the physical platform upon which production is carried out. Some goods and services require a considerable amount of land; others, hardly any. Agriculture, for example, is land-intensive; so, too, are certain manufacturing processes, particularly those that use technologies involving horizontal assembly lines. Virtually no good or service can be produced without benefit of at least a small amount of land, but many of those goods and services can be produced in ways that substitute other factors of production for quite a bit of the land that could otherwise be used.
Physical capital This broad category encompasses a virtually uncountable inventory of tangible things: buildings, cranes, trucks and cars, computers, machinery, pens and pencils, conveyor belts and escalators, water and sewerage pipes, telephone poles, electrical equipment, and just about any other inanimate thing or complex of things used to create products or render services. As mentioned above, physical capital can be substituted for land. Fine examples of this can be seen when approaching large cities: as land values rise toward a central business district, the characteristic composition of business changes from those that are land intensive, like agriculture and traditional manufacturing, toward business types that can use vertical buildings to carry out production. That's why the centers of cities are dominated by skyscrapers that house banking, insurance, and high-end hotels: these enterprises can carry out production without benefit of soil-laden land, so they can substitute capitalvertical buildingsfor land that has been bid up in price so high that agriculture and traditional manufacturing can no longer use it profitably.
Labor Brute, animal muscle power has always been the essential stock and trade of living creatures pressed into productive service. In this basic mode, a person is nothing more than a two-legged beast that converts food eaten into kinetic energy directed to the displacement of objects from one position to another. Although the term "labor" is used much more broadly, in terms of productive factors, it is nothing but animated force waiting to be applied to objects.
Human capital Although labor is at the very essence of the nature of a person in production, virtually no person remains mere, insensible force. Peopleand, no doubt, quite a few animalsare persistently in transition to more efficient states of force application. Indeed, this process can become so refined, either through individual initiative or through social institutions of a culture, that some workers hardly need to use muscle at all to cause motive action to take place. Formal education, informal learning, experience, deductive and inductive reasoning may all inform the brute labor of better ways to carry out necessary tasks and even more desirable, less risky ways to live and work. Human capital is the on-going result of the internal production process within people that makes them more than mere beasts of burden. Many people go to college or otherwise get training to cultivate and develop their potential to rent themselves to employers as a human capital package rather than as pure labor; but even without any conscious effort on the part of an individual, by the very essence of his or her higher cognitive abilities, learning will instill valuable insights into how work can be done more efficiently.
The particular combination of land, physical capital, labor, and human capital used on a matrix of raw materials to produce a particular good or service is called a technology, which, in terms of factor composition and raw materials, can be altogether simple or almost impenetrably complex. Technology can also be long-enduring, as was the case for the way arrow heads were made for many thousands of years, or considerably shorter in duration, as was the case with computing systems that used water instead of electrons to symbolically transfer, combine, and render informational meaning to data input and streams.
The four-factor model of production is incomplete; it offers no explanation for how the factors come to bind to a given technology. They will not do so of their own accord because none of them have individual or collective incentive to be anything other than states of being at any given point in time. This is true even of human capital: although it is the uniquely "knowing" factor of production, its knowledge is a potential awaiting application within a technological framework, oneat least, it is hopedfor which the knowledge is useful.
A fifth factor of production must exist, one that has the sole purpose of bringing a technology into expression by actually combining the other four factors in such a way that a desirable outcome, be it a good or service, is attained, where the term 'desirable' is shaped by cultural values, social needs, and individual wants.
Three principal systems, each with a uniquely identifiable fifth factor, can be set forth, although in practice the distinctions become somewhat blurred because of a tendency of the systems to interplay and oscillate.
The first of the three systems is called the traditional economy, where the fundamental economic problem of how to allocate the scarce resources among competing possible end uses is resolved by rigid application of customs and traditions. The four factors of production are brought to bear on particular matters by way of inviolable edicts prescribing means, methods, and even acceptable goods and services. Enforcement of this marriage of the factors with a chosen set of technologies is generally through a combination of law and culturally ingrained acceptance.
The second of the three systems is called the command economy, where that fundamental economic problem of how to allocate the scarce resources among competing possible end uses is resolved by injunctive imposition of means, methods, and outcomes by a centralized authority, be it an individual or a collective governing body with the power to compel the factors both to organize as ordered and to do so in production as a specified, unquestioned technology.
The third of the three systems is called the market economy, where the fundamental economic problem of how to allocate the scarce resources among competing possible end uses is resolved by a refined state of human capital that volitionally bears risk in organizing the four factors, and does so purely with the expectation of acquiring gain commensurate with or exceeding the risk taken. In this kind of economy, the values of goods and services, factors of production, and raw materials are proxied by something called "prices," which reflect relative degrees of their respective scarcities. Consequential to market economies, for better or worse, is that those prices, if not persistently distorted, provide a brutally efficient mechanism by which the entrepreneurial skill, the fifth factor of production in market economies, determines the most efficient technology to bring to bear on a particular production problem.
Once again, traditional, command, and market economies are paradigms that do not exist in the real world. Perhaps most notably, the individual incentive to gain personal advantage and reward ensures that, even in the most repressive of authoritarian regimes, people will bear risk for expected gain. In this same way, when expressed prices are prohibited from reflecting actual levels of relative scarcity, as is the case in a regime of effective price controls, non-explicit pricing mechanisms like queues (waiting lines), side agreements, and full-blown black markets become part of the full prices consumers pay.
At the same time, market economies are shaped not merely by personal greed, but more fundamentally by cultural, religious, and legal lines of force that encourage certain technologies, discourage others, and inform the matrix of end-result goods and services that will be available to households, businesses, and government agency buyers. Moreover, inherent within market economies are powerful forces encouraging entrepreneurial skill to direct itself to distorting the competitive landscape to such an extent that prices no longer reflect relative scarcities and sometimes don't even push technological innovation that would otherwise substitute away from factors whose price relatives have made them no longer desirable to use extensively. Such market concentration, driven as it is by the natural desire to ensure, sustain, and make permanent a stream of cash flowwhat is sometimes generically referred to as "rent-seeking"ends up diminishing the much-heralded and otherwise quite typical efficiency that market economies have when compared to command and traditional economies.
However, entrepreneurial skill is what makes a market economy what it is: a landscape of business solutions to production problems wherein individuals, companies, and other expressions of enterprise take it upon themselves to organize the other four factors of production in such a way that goods and/or service are brought forth for consumers, be they households, other businesses, or perhaps government purchasing entities. It is then that the right and power of these end users comes to the fore because it is they who decide whether or not to buy and whether or not to buy in sufficient quantities to make it worth the money, time, and risk the entrepreneurial skill is expending in the enterprise. This is what is meant by "consumer sovereignty."
With all of that in mind, your host here at The Dark Wraith Forums herewith announces to readers the following goods and services, all of which are offered under the banner of Dark Wraith Publishing.
Dark Wraith Publishing Online Store: This is a stand-alone shopping site offering visitors an eclectic selection of graphical art prints; pre-owned jewelry and other merchandise of better quality; magnetic hematite bracelets sold under the Dark Wraith Jewelry label; and other items as become available from time to time. The digital art prints are all remastered from graphics presented in articles here at The Dark Wraith Forums. Some are large, 24"×18" poster-sized prints; others are smaller, on the order of approximately 10"×8". The pre-owned jewelry and other items, like stuffed mink bears and natural-wood wall clocks, are being sold on commission. Other items of jewelry, aside from the Dark Wraith Jewelry label merchandise, include occasional offerings of handmade necklaces and earrings designed and created by a native of Ecuador living here in the United States. The inventory of that hand-made jewelry is thin, but I anticipate another small shipment of necklaces and earrings within a couple of weeks. Ah, yes: I'm also selling custom-designed bumper stickers. Only a small number of each will be offered, and these sales will be serial; so, if you like the one that's available now, buy it before it's sold out because it won't be offered again for a while. Soon, I'll be offering a line of high-end, hand-made coats for plus-size women under a commission agreement with the manufacturer (yes, the apparel is made right here in the U.S., believe it or not). Also, I expect eventually to offer DVDs of my economics lectures, as well as a 2008 Dark Wraith Publishing calendar.
I should also be able to offer some other exclusives or semi-exclusives as time goes along, but we'll see about that. For now, much of the merchandise being offered is pre-owned, on commission. By all means, if you have higher end merchandise you're interested in selling in a secure, online store, please let me know. My commission rate is brutally unreasonable, but the store in which goods are being sold does look pretty nice.
Dark Wraith Publishing Bookstore: Powered by Amazon.com, Dark Wraith Publishing Bookstore is a nice little frame of books I personally recommend, all available from Amazon.com. The Website, itself, is actually my own; I made the Amazon.com Website provided for me into an embedded IFRAME so I could put my own advertising content in it, as well. I can open more rooms in the Amazon bookstore, so if anyone has some serious recommendations, send me an e-mail message. At the very least, I can name any new room in the bookstore for the individual whose recommended books are featured there. Some regulars here, by the way, might have noticed that the Dark Wraith Publishing Bookstore was slipped in as a giant frame at the bottom of this Website a few days ago. Then again, no one mentioned seeing it, which could mean no one noticed it. Of course, putting anything important at the very bottom of a long-winded Website like this one is not a particularly good way to get the content noticed, I suppose. That should have occurred to me before I thought coding the bookstore in down there was a good idea on which to spend an hour and a half.
Prowling around the sites above may reveal to the probing visitor several other properties of Dark Wraith Publishing, specifically, a few Dark Wraith Publishing storefronts from reputable companies in the Plow & Hearth family of stores. (Without drooling about that particular company, I am most impressed by the founders' efforts to offer lines of children's toys at Magic Cabin and HearthSong that key on simple, old-fashioned designs free of high-technology: simple, fun toys that develop core cognitive abilities are miraculously effective as "educational" devices because self-motivated imagination builds powerful abstraction and reasoning skills far better than any computer hardware or software ever could or ever will. Period.)
Now, speaking of advertisers, visitors to the main store and the other commercial properties will find a veritable menagerie of reputable companies. Although not exhaustive, the list (in no particular order) includes the following: Amazon.com, RedEnvelope, Regent International Hotels, A&E Television Networks and The History Channel, Sears, Madison Avenue Mall, Wyndham Hotels & Resorts, Britannica, Barnes & Noble, Skype, Matchmaker, Abebooks, Hot Topic, Adobe, Starbucks Store, Apple iTunes, Delta Airlines, Diamonds International, Health Benefits Direct, HearthSong, Magic Cabin, Plow & Hearth, ICE.com, Liz Claiborne, Macy's, Microsoft Windows Marketplace, textbookx.com, Radisson Hotels and Resorts, Sierra Club, and Student Universe. You'll see others at the various sites; I just can't remember all of them right now. I should note that every one of these advertisers is getting free exposure; I earn money only on the very rare occasion that a visitor clicks on an ad and then purchases something from the vendor. That's how it works for Webmasters at my end of the game. It's not particularly desirable, but I like the fact that, unlike mainstream online media and the A-list bloggers, I'm not beholden to the corporate interests: I don't take the money in advance of performing the service for which I have been granted affiliate status; therefore, I don't have to worry about not getting my regular paycheck because there is no regular paycheck.
Wandering across these commercial properties of Dark Wraith Publishing, you are seeing a hard-core, bottom-level application of capitalism. I am all at risk. The odds are overwhelmingly against ever recovering the opportunity cost of hundreds of hours of coding, graphical design, photographing products, setting up affiliate relationships, and fine-tuning everything for search engine optimization. The odds are overwhelmingly against ever recovering the actual moneymy own, none of it borrowedinvested in this enterprise. I am all at risk of having a hundred thousand competitors offer better merchandise, better prices, better looking Websites, and better promotional copy. I am all at risk of having some hoehandle sue me for something stupid. I am all at risk of having some malcontent figure out a way to beat my security systems. In summary, I am all at risk of getting my backside kicked really hard. Again.
On the other hand, as much as I have the right to take an absolute economic beating, I also take to myself the right to create something I never would have created if I had been told to do it by some authority. I can also rest assured that no government, no central authority, would ever have created something exactly like what I have done. I need not share the gain earned from my labor with the "collective" except to the extent that my profit be reasonably taxed to provide for the common good; and within that common good, I have no problem with the government appropriating a sufficient amount of my earnings to pay the many to stay at home and out of my way in the competitive environment.
Also, I should note that this is the kind of capitalism that does not rely on corporate chicanery, sloth, and machinations to earn money. Unlike a veritable host of corporations that hide behind their corporate veil from accountability and liability, I need not seek my gain in the unconscionable blood money of needless war, pork-barrel politics, and contributions to the politicians in control of this grant or that government contract. To that extent, should my enterprise survive and endure, it will not be at the teat of the very government against which the fatcats of industry whine so mightily and pay their shills to condemn so roundly. As much as I find wearisome the clarion call to massive government interfering in my right to be economically free, I find entirely exasperating the cry of the phony conservatives who sound the clarion call to free markets when they would be the first to get slaughtered were they to face competition without their phalanx of lawyers, anticompetitive tricks, and loyal boards of directors to vote them compensation packages obscenely in excess of the gain they merit from their business acumen.
Please visit my sites; and let me know what you think. If you tell me my prices are too high, I'll take the criticism in stride. If you tell me my coding and Web design skills are wanting, I'll be downright offended.
The Dark Wraith draws the line at some kinds of constructive criticism.