Double Journey

I keep hearing ideas about a gas tax holiday. Every time I hear it, it makes me shake my head at the idiots we have to choose for our politicians. Simply put, this will never work.

First off, let’s talk about the size of the break. For those that don’t know. The federal gas tax is $0.18. With gas at $4.00 a gallon (and rising) this amount to about 4.5% break. Not shabby but not great. Most time lines call for a three month hiatus. Now I’m a pretty typical driver and I drive a typical car. I fill up on gas about once a week. Maybe 5 times a month. When I fill up, I put about 14 gallons of gas in my car. Doing the math

(14 Gallons*$0.18/gallon) * 5 * 3 months = $37.80

So this “big break” saves me a total of about $38. With gas at $4.00/gallon this saves me a little over a half a tank of gas over 3 months. Great!

But that isn’t why this is stupid. Simply put, there is no way that the end user will ever see the full benefit of this holiday. Econ 101 tells you that the incidence of the tax IS NOT the same as who pays the tax. Simply put, just because you pay the tax doesn’t mean you are the one who is really bearing the burden. Let’s say the repeal the tax. Should you expect an immediate $0.18 drop in gas prices? A “yes” answer assumes that the consumer bears all the burden of the tax, but that is rarely if ever true. Most likely, the gas station owners also bear a burden of the tax. In which case, the price of gas will fall even less. It may very well be the case that gas station owners bear ALL of the burden of the tax, in which case, gas prices won’t fall at all and only station owners will actually profit.

I literally learned this in my Econ 101 class so I’m not sure why our highest politicians don’t quite get this.

I’m kind of torn about the idea of tax rebate checks, and not just because I probably won’t be getting one.

Anything that gives less money to the government and more money to the people, I’m all for. I already think that the government is too big, and philosophically believe that people should keep more of their own money and give less to government.

That being said, I’m also no idiot. Without equal spending cuts somewhere, less tax dollars for the government simply means bigger deficits in the future. It is either pay now or pay later, and I would rather know what we are getting ourselves into sooner rather than later.

I think my biggest gripe with the tax rebate checks is that I honestly don’t think they will matter. They definitely will not accomplish what Bush wants them to accomplish which is to stimulate spending and jump start the economy. Here is the thing. A lot of Americans are just struggling with the basics. Food and gas prices are getting to the point of ridiculous, and $600 isn’t what it used to be. For most people, that is just a few weeks of food and gas, and I think most people are going to spend their money this way.

Besides, it will just exacerbate what is going on in the economy. To pay for the tax rebate, the money has to come from somewhere. There is no such thing as a free lunch, the money comes from somewhere, and it comes from abroad, namely China and the Middle East. So what happens? The government is just going to borrow money for the rebate from these countries, and see the American consumer give it right back. The typical American consumer is going to spend it on something either made in China or the gas that comes from the Middle East. It’s a great deal, if you are one of these other countries.

I finally finished my taxes this year. I’m usually not a procrastinator, but this year it was really hard for me to get to them. Between the new job and traveling back and forth to Seattle, I just haven’t had a lot of free weekends to sit down and do my taxes.

So I finally did it and I got some money back. Unlike most people, this doesn’t excite me. It actually upsets me to some degree since the government held my money for most of the year and has graciously decided to give me back money they should have never had. This time of year also reminds me just how much in taxes I pay. It’s a lot. Since I am without kids and a house, I’m of course a second class citizen in the eyes of the government, so my deductions are few and far between. It’s one of the many reasons I hate our tax code. It’s a reason I would have considered voting for Huckabee despite the fact he is way too far right when it comes to social issues. I would love to see the fair tax go into place because there are so many problems with the current tax code.

I compare my experiences with California and Washington. I lived in California for 14 days this past year so I had to file a tax return. I lived in Washington for 351 days and didn’t have to do squat because Washington doesn’t have an income tax. I didn’t have to worry about deductions, credits, or an Alternative Minimum Tax. I just blissfully ignored the fact that I lived in Washington when tax time came around.

Taxing income is just so inherently difficult. So many different definitions of what is and what is not income. It is ludicrous to me that my girlfriend, who received some land from her mother this year, actually has to hire someone to look into the tax implications of receiving said gift. All we need are property, customs, and a retail sales tax. Nice and simple and something that would greatly simplify the tax code. It would broaden the base, simplify everyone’s life, and in fact probably cost people less in taxes than any alternative. Throw in the fact that you would be able to almost eliminate the IRS, tax audits, and an entire industry that is created just for compliance to the income tax code, and you have icing to go on top of that cake.

Taxing income is also pretty damn sneaky. Don’t believe me? Why do you think people get excited about getting tax returns. The government has trained people to think that you are getting something good. People just don’t realize how much the government is taking from them throughout the year. That’s why, when they get their rebate check, they are so excited. How sick is it that the government took this money from you, interest free, and then returned a small portion of it back to you because they took to much, and people feel excited about this.

Congress met today to discuss a plan to try and save owners who might be foreclosed upon because they have a loan they can not afford.  I find this somewhat laughable but then again, I find most of what our government does laughable.  This one in particular sticks out because I find it to be a strange circumstance of Congress moving too slow and too fast at the same time.

If Congress was going to do something, it should have done it years ago when it was clear to any rational person that housing prices were going up too quickly.  Of course, they wouldn’t have done this, despite today’s predictable situation, because too many people were getting rich quickly and nobody wanted to stop that gravy train.

Now, they are moving much too quickly.  In reality, they should not be moving at all.   People need to lose their homes.  Banks need to lose money.  Those banks that took the worse bets need to go bankrupt.  The alternative is what happened in Japan during the 90’s, decade long stagnation which is probably worse than a quick correction.

Of course, our government isn’t smart enough to do something like that.  They will slap together a plan that doesn’t make any sense, helps the wrong people out, and in the end only makes the situation worse.  The worse part about it is that it will create incentives for the wrong people.   Think about this for a second.

There are a large number of families who would love to be first time home buyers. However, the decided, prudently, that they would only buy something they could afford.  Novel idea I know.  There is another group of people who don’t do that.  These are the people who, when they want something, they just buy it and don’t worry about if they can really afford it.  These are the people who have twenty credit cards and always pay the minimum balance.  Since they could do it with credit cards, these people took out two mortgages and decided that they would have it interest-only for the first few years and worry how they would pay the priciple later.  After something magical would happen to save them.

That something magical is the US government.  They will prove the idiots right.

I keep imagining the scene in Atlas Shrugged as Hank Rearden asks, “There’s no way to make the irrational work.  What can save you now?” To this James Taggart cries, “Oh, you will do something!”  And he is right.  The government will save those who should have known better at the expense of those that did.

From the obvious files, Treasury Secretary Paulson declared that  we have to do something to fix social security.  Not sure where he has been the last decade or so when it became pretty obvious that we had a mounting problem.

Clearly we can’t sustain the current path.  Either taxes need to be raised (they are already pretty high) or benefits need to be reduced.    Now, we all know how I feel about taxes, so I’m clearly not in favor of that.  I also see how it would be unfair to reduce benefits to those already retired or near retirement.  To me, the answer seems pretty simple.  Start promising less to people like myself and raise the retirement age.  If people near retirement need to work a little bit longer, so be it.  Social Security was never meant to fund people 1/3 of their life.

You know what the scary thing is?  I’m not sure if people fully realize the full extent of the problem.  Read the article.  It talks about how Social Security will start running a deficit in 2017 and go bankrupt in 2041.  What is not talked about is the fact that what happens in 2017 when the government has to start drawing from the “trust fund”.  The fund is nothing but government issued bonds.   This causes a double whammy.  When they come due, what do you think happens?  The government needs to somehow turn these bonds into actual money.  How do they do that?

The old trick of issuing bonds won’t work, can’t pay bonds with bonds.  So the government now has three horrible choices.

1. Cut spending somewhere else
2. Raise taxes yet again
3. Print money causing massive inflation

Considering how hard it is for the government to do either of the first two now when the pain would be relatively minor I have a bad feeling that the government will do #3.  So not only will I not get any benefit from Social Security, not only will I have to pay for everybody else’s benefit, but all the money that I have saved for myself will become worth a lot less.  Sounds like a great future.