A Mathematical Defense of Slightly Increasing Taxes

An issue always under fire from both sides of the isle is Tax Code. Should it be higher, should it be lower, should it stay the same? While the issue itself is very complex in nature and no true "ideal" tax rate could ever be found without centuries of real-world data, I feel a mathematical analysis taking into account both the extreme conservative and extreme liberal viewpoints and running a mathematical regression between the two can show how an ideal tax rate can at least be estimated.

While the current post will only deal with an overall tax rate, and a simplified one at that, it should give a good insight to how both political ideologies should be considered when creating it.

I. The Extreme Liberal Viewpoint

I don't know how many times I've heard something to the effect of "oh - we need more money, let's raise taxes!" The assumption is that people will always be willing to pay a higher marginal tax rate and thus the government will always make more money. Of course there are ramifications which are ignored, however we'll get to those in just a bit.

For the time being, let's look at the amount of money the government would theoretically take in from a single average household that just barely made the top marginal income bracket in 2009 ($372,950) as a function of possible taxation amounts from 0% - 95%:



I've also included how far the household income is above a theoretical "just-scrape-by" amount of $40,000 which will be used and described later. As you can see though - through a strictly liberal viewpoint, The amount of money the government takes in is in direct, unchanging proportion to the tax rate.

This obviously overlooks some major factors.

II. The Extreme Conservative Viewpoint

Of course there are two sides to every coin - and the conservative side taken alone is just as harmful. I'm sure if you've made it this far reading this post, you've heard the Reganomic viewpoint that high tax rates stifle innovation and lowering them will always bring additional revenue for the government. The theory is that when tax rates are lowered - more people with capital to burn (i.e. our top income bracket) will have the desire to invest in business (which increases the working capital of the business and thus the output potential - of which the profit is then taxable) or create their own business with the same effect.

While there has been no study or poll to my knowledge on the highest tax rate an average person would consider creating a business under, I think the question itself would have significant problems in practice for the following reasons in order from what I perceive to be the highest prevalence to the lowest:

1. The average conservative with no intention of ever running a business would probably tend to be resistant to a much lower tax rate than what a true conservative running a business would tolerate. This would probably be the most prevalent problem as, in some cases, it could also serve as a psychological means to justify why they themselves haven't started a business.
   
2. The average liberal with no intention of ever running a business would probably tend to agree to a much higher tax rate than what is sustainable or practical in reality. This would probably be the second-most prevalent problem in polling as it would serve to theoretically atone for significant societal earnings gaps, although I think the rate would be very close to the #1 reason.
   
3. The average conservative running a business would probably be more resistant to changes in tax rate in theory than reality, most likely going as far as saying something to the effect of "if there's another increase, I don't think (I / my business) could handle it" when in reality they could / would be willing to handle at least slightly more significant jumps. While I rank this third in prevalence, I feel it's an order of magnitude lower in significance than the above two.
4. The average liberal running a business would probably be less resistant in theory to changes in tax rate than reality claiming willingness to give more than what their business can truly handle. This is probably the least prevalent of all being another order of magnitude less than the #3 reason simply because liberals running businesses in the top tax bracket tend to be more moderate economically.

With the above in mind, I can only estimate the perceived desire to create or invest in business as a function of top marginal tax rate. I would personally label myself as leaning slightly left from an economical standpoint so in order to atone for my political ideology in a post intended to remain as neutral as possible to both ideologies, I've created a "desire to create business" graph which I personally feel leans to the conservative side of the spectrum. While I know there will be people who disagree with the following assessment, I welcome any comments and judgment to the fairness of the graph below:



I imagine the "dropout" rate of business creation is that of a bell curve, giving the above graph of the number of overall people willing to create or invest in a business as a % of total people capable of creating or investing in a business.

As you can see, I have placed the 50/50 mark for willingness at the 45% marginal tax bracket - meaning that if you were to increase personal income on the average business owner by 15% more than current, around 1/3rd of current businesses would disappear. I've also placed the 90% tax brackets and higher at 0% desire because the amount of tax taken places the owner below our theoretical "just scrape by" line, and the 90% desire rate is maintained above 15% tax rate as income becomes more and more expendable as more is earned.

Of course it's true that the lower the tax rate, the more people want to invest, but does that always mean more money for the government?

III. Combining The Two Ideologies

So how do we combine the two ideologies? It's actually quite simple. We'll multiply the amount of money the government would earn if everyone capable was still interested in investing under any tax amount by our modified amount based on desire. If you do so, we get the following government income graph which compensates for both ideologies:



As you can see - both ideologies are right to a certain extent. If the marginal tax rate is low enough, increasing it will bring more revenue - partially affirming the extreme liberal viewpoint, but returns are diminishing and eventually negative. The same is true about the extreme conservative viewpoint. If tax rates are too high - a reduction will influence enough people to succumb to their capitalist urges to make up for tax revenue otherwise "lost," but again with diminishing returns.

IV. Is Government Revenue The Best Measure For Ideal Tax Rate

While I wouldn't say it's the absolute best measure, it is the single best tradeoff between allowing capitalistic development and growth while allowing government to help the maximum number of people. While the government does not have the best track record on efficient spending, it does provide many essential services such as defense, police, fire, hospitals, schools, post, and it has many services to keep the minimum quality of life high for citizens.

As I said above, this example is far simplified. There are factors which influence the "ideal" tax rate in both liberal and conservative directions.

a. Factors Influencing "Ideal" Tax Rate in a Liberal Direction

All of the above assumptions exclude any government help to individuals and businesses. In reality there are a number of programs which help business such as startup credits, green credits, and similar programs. The above would make some business more likely to continue at a higher tax rate.

Another factor ignored is the trickle-up economics factor. A lot of money goes towards low-income families and individuals. The government money used goes back into the economy to purchase goods and services, potentially netting more money for companies as the velocity of money and GDP is theoretically increased. If trickle up economics play a slightly bigger role than trickle down, the ideal tax rate is actually slightly above the government maximum earning potential.

Inflationary concerns are another potential problem. Tax rates could theoretically get low enough that inflation is a bigger concern. This would again be reason to keep tax rates above the government's maximum earning potential.

a. Factors Influencing "Ideal" Tax Rate in a Conservative Direction

Tax credits generally do not favor larger businesses. Usually the larger the business, the less of a chance at tax credits, potentially stifling further investment.

Trickle-Down factors would provide that the GDP be increased (again in theory) as business pay people who then purchase products in the economy. If this is the stronger of the two forces, a lower than government maximum earning tax rate should be set.

Market stagnation concerns from this side are a problem. Theoretically, tax rates could get high enough that production drops, less people buy / get paid, making people buy less, etc.

All of these are mirror but opposite ideological concerns to those on the opposite side of the spectrum.

V. Additional notes

I want to mention, for someone earning $372,950, only one dollar of what they pay is currently taxed at 35%, Because all of the tax brackets are marginal, the total tax as a percentage of income is currently only around 29%. The graph above is a simplified "overall" tax rate which would mean it's likely we are currently below the "ideal" mark as specified above.

There is also a limited body of real-world evidence to back some of these assertions up. Under President Carter, the top marginal tax bracket was 70% ($372,950 adjusted for inflation at that time had a total rate around 60%) and that was changed to a marginal tax rate of 25% under Regan ($372,950 adjusted for inflation at that time had a total rate around 20%.) You can see from the graph of our assumptions, that represents a fairly large net increase in government revenue - which did happen.

Likewise, the Clinton era top marginal rate of 39.6% ($372,950 adjusted for inflation had about a total tax rate of around 35%) adjusted to the Bush top marginal tax rate of 35% (around 29% total tax rate) represents a small decrease in government revenue which was also reflected in reality.

While there are other extenuating factors, I suspect the curve I created is at least fairly close to reality.

VI. Do You Have A Point?

Indeed I do. The above example is to show that in reality, both ideologies co-exist. In both extremes, the government goes broke and ceases to exist while the economy spins out of control. For the conservative extreme - see Mexico.
For the liberal extreme - see Russia.

I also wanted to distinctly point out that we are currently FAR from an extreme. I have heard many shouts of "socialism" from the extreme right in the current climate when, instead we are much closer to ideal capitalism by balancing quality of life for low income and earning potential for investors and high income people.

Global Warming

A "heated" debate exists over the topic of global warming on our tiny little planet. Very recently ABC hosted a poll on Facebook concerning global warming and if it is a "proven phenomenon."

The ultimate question that needs to be answered in this debate is:
"Is it a proven phenomenon that humankind is contributing enough chemicals to the atmosphere to individually (as a species) cause a climate shift which will greatly and negatively affect life on earth in the future?"

In order to answer these questions there are many smaller questions that arise where evidence is shown but proof is lacking.

Is the earth getting warmer?
I feel this is a pretty simple question. Over the past few (approximately 7) years, the Earth as recorded by thermometers worldwide has shown an average temperature around .1-.2 degrees warmer than previous years. We don't know that the Earth is continually getting warmer, but I will say that evidence would indicate at least a short term trend. To know how long this trend will last though, we need to examine other factors.

What is the cause of global warming?
Is it carbon dioxide? A sun more active than in the past 8000 years? A decrease in the number of pirates? or is global warming simply due to the earth's natural climate changes? There have been tons of theories proposed and evidence can point to each individual one, but pinning down which is the true cause (or combination of causes) is the mystery we should try to solve.

Are humans to blame for global warming?
Of the above causes of global warming, only an increase in carbon dioxide could potentially put humans to blame. (Ok, so a decrease in pirates could too but that was meant strictly as a joke). It is true that carbon dioxide absorbs heat and will aid in keeping some additional energy in the atmosphere, but at the same time, water vapor is a known greenhouse gas and does the same thing to a much greater degree! The major known components and their effect can be summarized here. Additionally, it is not known the proportion of heat this contributes overall. What part does our sun and it's solar cycles play? What part do naturally occurring phenomena play? What part do the Earth's natural cycles play? I won't disagree with humans contributing to global warming, but I will disagree with quantifications and statements saying we are and aren't "to blame."

Will global warming have catastrophic repercussions in the future?
This is what I hear most and this is the one thing I agree with least. I have heard everything from killer hurricanes, to flooding, to droughts, to economic disaster, to security concerns. I hear the word 'Katrina' a lot when discussing global warming but I would like to point out that circumstantial evidence can only go so far, after all major hurricanes on average have to happen sometime. Katrina was a tragedy, but there were a number of things that went wrong (pumps shutting down, government response, compound damage from hurricane Rita) which raised the damage toll to a staggering amount. Someone may also argue that 2005 was hands down the most active season on record. I would give this argument much more credit, but I would also point out that hurricane seasons from 1997-2007 with the exception of 2005 have been frighteningly average. In addition, what effect does global warming play versus earth's natural 'el nino,' 'la nina' cycles?
I have also heard people talk about the sea level rising and displacing people due to melting ice caps. Additionally, I have been presented with an image of what the world would look like under these circumstances. This image is probably the scariest I've seen. Florida is gone, decent chunks of the Medeterainian and Europe are gone, and large dents are taken out of South America and Africa. If this rise were to happen tomorrow, or next week, or over 100 years it would be a complete tragedy, so we must look into the time frame this worst-case scenario will happen in.
Over the past 100 years, the sea level has risen around 20cm. If we average this out we can see the sea will rise on the order of .2mm/year. Just for argument's sake we'll get absolutely crazy and quintuple that amount! Our seas are rising at an unprecedented 1mm/year now! Let's say the useful life of a building is 500 years (which is also giving about 3-10 times more credit than what is due.) Let us then say this building is on the coast about 5 meters above sea level (most large scale buildings are built at least 10m above for hurricane and coastal flooding safety but we'll ignore that.) During the useful life of the building as stated, the sea level will rise about half of a meter (500 years * 1mm/year) and this is even with a gross exaggeration of sea level change and the building's life span. While there is a very slightly improved chance that the building will be lost during an ocean-related disaster, more than likely, this building will be torn down at the end of its life span and the land will be deemed unfit to rebuild on. Yes, people will be displaced, but it will not occur in a catastrophic manner.
Lastly, I have heard that ecosystems will be damaged such as the polar bear's habitat! I agree that species like the polar bear will have nowhere to live if the arctic does get above certain temperatures and there will be some species that cannot adapt which is tragic. In contrast though I would like to point out that for every polar-dweller that is loosing habitat, there will be hundreds if not thousands of species that gain potential habitat ground. Most of the world's species (including humans) exist on or near the equator. Increasing the temperature would potentially increase the land area which is habitable for such species. Additionally, I feel that adaptation is vastly understated. I agree that there will be some parts of ecosystems that will probably be lost, but one should keep in mind a climate change of 10 degrees will probably take around 2000 years to occur in the worst case scenario (i.e. if the earth constantly continues to get warmer faster than the rate it is already with no cooling trends within that time period.) Mobile species will have no problem (birds will migrate to different areas, animals will travel to where they are more comfortable, etc.) and even in the case of trees, many have seeds that can travel great distances (by wind, animal, water, etc). Additionally trees at the cool end of their "prime" area for growing will become more prominent and fertile and spread further into the formerly cooler regions. One could even go as far as saying a small amount of evolution could occur in that time frame (plants and animals more capable to survive additional heat will do so and spread that ability) although this will probably be a small degree.

I don't want to be misinterpreted so I should point out that I feel it is good to do things which will cut down on CO2 while we figure out more definite answers to the above questions. I will say though, that when it comes to global warming there are simple answers:

Is the earth getting warmer? - Most likely.
Is CO2 to blame for global warming? - At least in part.
Is it a substantial enough part to justify worrying about? - We don't know.
Are humans to blame? - We simply don't know, we should take some precautions against potential causes of global warming, but more than anything more research should be done
Is global warming 'proven' - Plain and simply: no

Additional reading:
Carbon Dioxide and Global Change: Separating Scientific Fact from Personal Opinion

Understanding and Attributing Climate Change

A guide to facts and fictions about climate change

Influence of Cosmic Rays on Earth's Climate

Climate change and solar variability: What's new under the sun?

Earth’s Annual Global Mean Energy Budget

Stephen Colbert for President?

It seems more and more people are jumping on the Stephen Colbert for President bandwagon especially right here on Facebook. While I personally like the prospect of a charismatic and witty individual in the presidential seat, I think far too many people have put far too much faith in Colbert in the very infancy of his campaign (that's assuming he will attempt a legitimate run for president.)

Without a platform or a political career he has already captured the support of millions through his television show and the effect can already be seen on facebook and the Colbert Nation. I'm not yet going to go on record saying that Colbert would be a bad choice by any means, but I would like to say there is no reason to suspect he would be a good choice as of this moment and further, this could upset a government which is already in trouble in many respects.

Our own nation as of right now is in growing trouble. Our dollar is getting weaker and weaker by the day because faith is diminishing worldwide that we ever intend to pay back the trillions of dollars owed internationally. Additionally, our nation is being seen as the "bad guy" as a war with very little remaining meaning (to the general public) continues.

While the USA could have taken the high road and backed off (at least to some degree) when CIA information was found to be faulty, we chose not to. When the US could have implemented a war-spending policy to soften the economic blow, no action was taken. While our nation is not in immediate peril, we are hurting badly.

So where does Colbert come into this mess, I'll tell you:

In the 2000 and 2004 elections, enough votes were taken by third parties to swing the vote in the opposite direction it otherwise (probably) would have gone. but as a side note, the independent candidates being voted for did lay down legitimate platforms and each vote they gained was well-deserved.

Additionally the country was correctly split as war seemed reasonable because the CIA information concerning weapons of mass destruction hadn't yet been deemed faulty. Additionally, we were on the verge of "liberating" Iraq by holding a national vote there.

After discovering the CIA information we had was faulty and the Iraqis desired no change in their political system, it should have been an indication to leave, but the hint was never taken. Now we have a group of Republicans coming in who wish to continue the Iraqi war and (with the exception of McCain) additionally wish to continue "torture" of prisoners of war. While their economic policy may be better, we are still bound to suffer financially if the war continues.

Stephen Colbert's appeal lies mainly with college through 30-somethings. While this is a demographic which doesn't vote to a large degree, the percentage of votes they represent could go to Colbert and rob a candidate who has a sound economic and war policy already set fourth, of votes. In the primaries it's no big deal, but if Colbert decides to take his little joke / escapades farther and run as an independent candidate, he could further cripple a nation already injured by war spending.

Keep in mind, if Colbert fully throws himself into the ring, lays down a political platform, and draws enough support to win a primary, I have no problem with his antics and he may gain my vote as well. If however election day comes and you find yourself choosing between Colbert as an independent strictly for entertainment value, or a candidate with a legitimate platform and political credentials, please choose wisely. Your country may depend on it.

It's ok, because if Ann Coulter had a brain she wouldn't be able to sell books

For those of you unfamiliar with Ann Coulter, she was recently in the news for stating in an interview with representatives from the New York Observer concerning her most recent book If Democrats Had Any Brains They'd Be Republicans, that Bill Clinton deserves "a lot" of the accountability for 9/11, that Democrats are practicing a "primitive religion" when dealing with global warming and (my favorite) that a woman's right to vote should be revoked. those highlights are outlined here.

I was first introduced to Ann Coulter when I ran into some of her books in the Minneapolis airport such as How to Talk to a Liberal (If You Must): The World According to Ann Coulter and Godless: The Church of Liberalism. Now they say you can't read a book by it's cover, but I must comment that when a book title is that shallow, it's quite easy to imagine the exact contents. While I myself am a Democrat, there are many whom I know personally that consider themselves Moderates or Republicans who would wholeheartedly disagree with many of Coulter's insane viewpoints. Even some of the more extreme Republicans I have run into and talked to about Coulter can see how blatantly offensive she is.

The point I'm slowly coming to is I feel Ann Coulter was never introduced to the concept of altruism, the concept society is formed upon. If it wasn't for this very concept, society would not have gotten to the point it is at now. In more primitive societies this is easily seen without the many layers of complication that we see when looking at our society and economy. In more primitive cultures those experiencing great bounties of food tend to share with others experiencing a shortage. I'm not going to go in to horrendous detail here so if you would like further information, feel free to turn to Wikipedia on Altruism.

I agree that in our own society and many others, there are many with the ability to mooch off the system without contributing which is never a good scenario, and I agree that this is something that should be fought against. There are those that are unable to contribute with their current abilities though, specifically children. Ann Coulter's greatest gripe concerning women voting is summed up in her quote made for the sake of mockery which is as follows: "We’ll pay for health care and tuition and day care -- and here, what else can we give you, soccer moms?" This (not surprisingly) is the complete misunderstanding and disregard for altruism I was referring to.

I don't want to be misinterpreted here, so I will point out that I don't feel that these "soccer moms" as she puts it have a RIGHT to monetary support, but they do deserve a voice because their concerns for their own family and children are very much valid. I would also like to point out that stating "women are voting so stupidly, at least single women" is a very offensive stereotype, and while there may be information that points to the trend of women voting blue and it may warrant a loose generalization (i.e. Single women tend to vote for a Democratic candidate), It will never warrant a blatant and offensive generalization (i.e. "stupidly.")

While I don't like to judge people too harshly, I will judge someone based upon their credibility and past statements, and for this Ann Coulter has no room to move out of the way. Her ideas are nothing but bigoted slander simply made for shock value. (I would like to point out that Ann Clouter's version of bigotry is against the stereotypical mother-of-the-household and not necessarily against all women.) Her viewpoints are so extreme they cross into territory considered ridiculous and stupid by the vast majority.

This quite unfortunately fills a niche for those with similar bigoted and extremist viewpoints. Because Ann Coulter is one of the only people actually going on record as a bigot, she has the entire audience at her attention. While this audience is a minority, it is much larger than it should be and she commands reading material for (nearly) 100% of that group. Now if Coulter had a decent head on her shoulders and stopped spouting off shock-value drivel, she would instead be one of a much larger pool of individuals trying to fill an already saturated niche (a pool in which I think she would drown).

We can only hope as a society that such bigotry and other forms of stereotyping are brought to an end, and the target audience for her authorship decreases to nothing. In the meantime and As a tribute to the stupidity of Ann Coulter and her most recent book...

If Ann Coulter had a brain, she wouldn't be able to sell books.