I set out this morning to investigate Fred Thompson’s new “flat” tax proposal. I could only find Thompson-friendly sources – virtually all are carbon reprints of his talking points. There may be more to learn as it filters down.

The Thompson “flat” tax is fairly simple and not very well thought out – he doesn’t know how much it will cost the treasury. But here’s how it would work:

We would have a choice of paying taxes using the current code, or his flat tax. With the flat tax we would be offered a $25,000 standard deduction, plus a $3,500 personal exemption, so that a family of four would not pay the tax until it earned $39,000. Then the tax would kick in – 10% on incomes up to $100,000, and 25% thereafter.

There’s more to it, of course, but that is the nitty gritty. How they call a two-tiered tax a “flat” tax escapes me. But that’s not the only problem.

Thompson, like every other candidate in either party save perhaps Dennis Kucinich, is blind to the payroll tax. That’s the tax that in a sneaky way takes 14.2% of everyone’s earnings up to $102,000 (2008), and 2.9% thereafter. It’s a regressive tax, and it applies only to wages. Dividends and interest and capital gains – the kind of income wealthy people are more likely to have – are exempt from it.

The payroll tax is a cash cow. The most recent year for which I have numbers, 2004, shows that the government raised more money from the payroll tax than the income tax, even though payroll taxes applied only to the first $87,900 of wages at that time. Thompson kisses the ring on the hand that feeds him, and slyly ignores this tax.

Here’s the Thompson proposal in full disclosure mode:

Family of four depending on wages: Income up to $39,000 taxed at 14.2%, income up to $102,000 taxed at 24.2%, income up to $139,000 taxed at 12.9%, all income thereafter taxed at 27.9%. He creates a donut hole between 102 and 139.

Family of four depending on passive income (interest, dividends, royalties, capital gains): Income up to $39,000, no tax. Income up to $139,000, taxed at 10%. All income thereafter taxed at 25%.

Thompson maintains the basic unfairness of the current tax code – he double-taxes wages while giving passive income a pass. It’s a push in the ‘right’ direction – in the idealized conservative world, all taxes would be paid by wage earners, none by owners of capital. They are pushing us in that direction – in 2008, the initial tax on dividends and capital gains is 0%. Zero.

The idea behind this is, of course, trickle down, aka feeding the sparrows through the cow. I’m not sure they really believe in that, but it’s a nice bouquet of flowers that hides an ugly bride. It’s a way of making the little guy pay the freight. Since it is so inherently unfair and indefensible, there’s no real justification for its implementation. So the best thing to do is what Fred Thompson has done. Ignore it.

When given a free hand to implement their will, conservatives have pushed for “reforms” at the point of a gun. They reimposed private health care on Iraq, and installed a flat tax of 15%. In that country they could have their way. Paul Bremer was a dictator. In this country it’s not so easy. But the essence of the Thompson plan – that wages should be taxed twice while all other income is tax only once, if at all, is an unacknowledged part of our system. No ‘credible’ candidate wants to change that basic structure.

And Thompson is no exception. His candidacy is going nowhere, but his flat tax has legs, I’m sure, in Catoland. Watch out for it. It’s a new version of the current regressive system dolled up to look like something else.

From Carlos Mencia on proposals to build a fence on the Mexican border to keep out immigrants: Who the hell do you think is going to build it?

We suffer great indignities due to that annoying pest that drives our consumer economy – advertising. It pops up in our faces, sneaks up behind us. It’s subversive and in-your-face all at once. Broadcast TV is useless because of it – I watch very little on regular channels due to the high volume of ads. Commercial radio is a cruel joke – current ratio, so far as I can tell, is twenty minutes of ad content per hour. All of it annoying.

Ah, the marketplace. What a beautiful place, full of carnival barkers yapping in our ears. There’s no peace, no respite, unless you go to those places where you pay extra for content without ads. One such place is the movie house.

But wait! We went to a movie yesterday, and endured a full five minutes of ads before the trailers began. Advertisers love it – we’re a captive audience, and they have no shame. We can only get up and leave the theater, and few do that. Most of us just grit our teeth and endure. And advertisers know something we don’t – they know that mere exposure to ads is effective, even if we don’t like the experience. I’m a little more ad-resistant than most – I refuse to buy products whose ads are annoying. I don’t drink Coke, would never buy a Chevy, and … wait …. what’s this?

Yesterday, after the pre-trailer ads, they unleashed yet another indignity on us – a four minute music video. It was for the National Guard. Kind of funny, really, as we were at a movie that was mildly anti-war (Lions for Lambs). The ad is aimed at young men and women. They’re looking for fodder to send off to Iraq, but the video made it appear as though the Guard spends its time rescuing kids from hurricanes.

That’s the essence of advertising, by the way – lies. It lies about everything. It has to. The truth doesn’t sell. Try selling the Guard by showing a disillusioned kid in a 130 degree desert. Trying selling a Chevy when Toyota makes a superior product. Try selling a high fructose corn product based on dietary advantages, or smelly male perfume based on real female response. Try selling a sloppy hamburger with greasy fries for what they really are … crap. Doesn’t work. Advertising has to lie to be effective.

I turned to my wife about half way through the National Guard video yesterday and said “This is really pissing me off.” Doesn’t matter – advertising loses its impact as people age. I’m no longer in their demographic. They need fresh faces, kids, who grow up exposed to thousands of hours of ads, who can’t escape it at school, who, ultimately, have to fight our wars for us.

The schools have done their part. The kids are dumb and indoctrinated. The movies are merely adding the finishing touches.

Making the rounds:

“A little patience, and we shall see the reign of witches pass over, their spells dissolve, and the people, recovering their true sight, restore their government to its true principles. It is true that in the meantime we are suffering deeply in spirit, and incurring the horrors of a war and long oppressions of enormous public debt……If the game runs sometimes against us at home we must have patience till luck turns, and then we shall have an opportunity of winning back the principles we have lost, for this is a game where principles are at stake.”

— Thomas Jefferson, 1798 letter after the passage of the Sedition Act

From The Wall Street Journal Best of the Law Blog, 11/21/07:

In the mood for a little contracts? How about some employment law? Or maybe a dose of Homer Simpson? For all three, let’s take a trip to the Potter Stewart U.S. Courthouse in Cincinnati where the Sixth Circuit court of appeals issued this decision today. At issue: Whether an employee’s mere act of continuing to report for work after the effective date of her employer’s arbitration program constituted acceptance of a valid and enforceable contract to arbitrate all employment-related disputes.

The court said that indeed, an employee’s knowing continuation of employment after the effective date of the arbitration program constituted acceptance of a valid and enforceable contract to arbitrate. Judge Boyce Martin disagreed. “A unilateral contract is one where an offeror ‘reasonably expects to induce action of a definite and substantial character’ from the offeree,’” wrote Judge Boyce. “Implicit in this understanding is that the offeree is aware of the significance of the act performed. Without a signal that she understands that a contract is being made, how is one to know if she has truly accepted?” Judge Boyce footnoted this with the following:

Homer Simpson talking to God: “Here’s the deal: you freeze everything as it is, and I won’t ask for anything more. If that is OK, please give me absolutely no sign. [no response] OK, deal. In gratitude, I present you this offering of cookies and milk. If you want me to eat them for you, please give me no sign. [no response] Thy will be done.” The Simpsons: And Maggie Makes Three (Fox television broadcast, Jan. 22, 1995).

According to his bio, Judge Martin is 72 years old. We would be mighty impressed if the footnote came from him, but we suspect the handiwork of a clerk. Either way, thanks for brightening the Law Blog’s, and hopefully our readers’, day.

I would easily trust my fate to a judge who knows Homer well enough to cite him.

I’ll never understand this. At the coffee shop I frequent, they sell bumper stickers. The name of the place is “The Daily”, and the bumper sticker says “Drink Coffee Daily; Drink Daily Coffee”. Price: $2.00.

Question: Why would I advertise for you, even for free? And my god – why would I pay you to advertise for you? Do you think I’m that stupid?

I have taken off the dealership decals off our cars when we bought them. They come off easily when they are fresh – you just use a Tuffy pad. I asked the dealership not to put a decal on the last car we bought – they did anyway. I made them take it off. Then they gave us bright yellow temporary cardboard license plates to drive around advertising the name of the dealership. They came off that very day. I don’t wear T-shirts advertising any business – I once wore running shorts that said “Montana”, and I own a cap that says “Cooke City” – that’s as far as I go.

I see cars with product names plastered in the windows – the names of rock bands, for instance. I see clothing with manufacturers’ emblems pasted all over them – North Face and Nike and Kelty. I see shoes with a big “N” on the side. Are we so commercialized, are we so inured to this that we voluntarily become shills for profit-making entities?

I offer The Daily Coffee Shop a deal: You pay me $2.00 per day to put your bumper sticker on my car, I might consider it, but only if you supply the muscle to take it off when I am tired of it. That’s the only way I’ll advertise for you.

On second thought, never mind. Do your own advertising.

Well, it’s all over the news today – former Bush press secretary Scott McLellan says in his new book that he passed on lies from on high to a waiting and eager press. I take this as a sign of how completely out of touch I am with reality here. I assume that everything I hear is a lie, and look upon my job as a news consumer to ferret out those nuggets of truth that occasionally fall upon us, usually by accident.

And lest this be taken as “Bush Bashing” (def: criticizing George W. Bush in any fashion), it is not meant to focus on him. Yes, he lies, constantly, though usually unknowingly. He rarely says anything that is true, and then only by accident (def: gaffe). But his administration, and the one before it and before it … has a White House wing full of people whose job it is to sift through data and reinterpret it in a favorable light to the people in power (def: lie).

The job of the press secretary, then, is to pass along the most favorable information sifted up above – that is, to lie, but to do it professionally. To be good at the job, the person in that position has to create a climate of trust, and that is the key to being effective. The people on the receiving end of the lies have to believe in the person telling them.

And it is at that point that all of the lying pivots and turns on us – the press pool surrounding the administration has to be unusually trusting of people in power (def: toadies). Some aren’t, like Helen Thomas (def: gadfly), and if they are well known, they are tolerated. Most aren’t, however, and anyone in the White House press pool without a name who makes trouble (def: prig) can soon look at reassignment.

So here’s how it would work in a perfect world: 1) President says we have to invade a country that has not harmed us in anyway because they might attack us using weapons they might have. 2) Press corps is all over this, man – “Whoa!” they say – let’s have some evidence, some justification in law. One of them writes a long and thoughtful piece on how there seems to be a great deal of incentive here to lie, that there might be other reasons they want to attack this country (def: oil), and the piece is so insightful that it’s reprinted everywhere and quoted on network news. It sets off a firestorm – a talking circus of doubt (def: democracy). Skepticism mounts, and 3) the administration, defensive, backs down, and says they’ll try diplomacy. The issue vanishes.

Ha. I’m not a cynic (def: a disillusioned idealist). I just know how people in power operate. This administration, the one before it and before it … they lie because the truth doesn’t serve them well. They cultivate a culture for sycophancy because good journalism is harmful to them. So it is that the most “successful” journalists also turn out to be the biggest ass kissers (def: Tom Brokaw.) Those that get uppity, even a little bit, find themselves ostracized (def: Dan Rather, and I do mean just a little bit over a long toadying career.)

That’s just how it works, friends. Our job is not to be skeptical so much as to simply use our heads. If their lips are moving, they are probably lying. How to find truth? Sift, 24/7. Think, and sift. Never trust, always verify (def: citizenship).

Speaking of the Social Security Amendments of 1983 (see below), Reagan left another sour taste in the mouth – because of that act, many seniors now have to pay tax on their Social Security benefits, and (indirectly) pay tax on supposedly “tax exempt” income.

Here’s now it works – skip this paragraph if you don’t like numbers: A single Social Security recipient must take half of his benefits and add them to all his other income. If the result is more than $25,000, he must pay income tax on half the benefits. (The floors are higher for married taxpayers, but that’s the drift.) Worse yet, if half his benefits plus other income is more than $34,000, he has to pay tax on 85% of his benefits. For this purpose, “other income” includes interest on tax exempt bonds, in effect, taxing tax exempt bonds.

It gets worse. This provision was inserted in the 1983 act, and was not indexed for inflation. It has remained the same all these many years, each year hitting more retirees with no relief. Had the provision been indexed, the $25,000 and $34,000 floors would now be $47,500 and $64,600, respectively.

Simple tax justice demands indexing. I take it one step further – eliminate the tax on benefits. The original reasoning was that retirees were never taxed on the employer’s share of the tax paid in. I dispute that, and regard the employer’s share of the tax as merely a hidden tax. But let’s give them that point … at the very least, index the tax. Give our seniors a break.

Max Baucus chairs the powerful Senate Finance Committee. He’s the one to contact regarding this particular injustice. I’ll contact him if you will.

When Ronald Reagan took office in 1981, he immediately carried on with Jimmy Carter’s legacy. It was Carter who had deregulated trucking and the airline industry and also eliminated the 70% tax bracket. Reagan initiated huge tax cuts on the wealthiest Americans, and the predictable result was massive deficits. Something had to be done – the Laffer Curve was not working. A measure of fiscal sanity had to be restored. A massive tax hike was in order.

A Democratic congress passed and Reagan signed into law the largest tax increase in history – the Social Security Amendments of 1983. But unlike the initial tax cuts, which went to the wealthiest Americans, the tax hike was aimed squarely at the middle and working classes. By 1988, when Reagan left office, an additional $40 billion in new revenue had been generated for the government. Today, excess revenue generated by the Reagan tax hike is around $2 trillion.

Was this planned? Probably. Ronnie wasn’t a tax cutter – he was a tax shifter – rich to middle and working class.

The payroll tax – the financial engine behind Social Security and Medicare, became a major source of revenue for the Federal Government, collecting far more than was paid out in benefits. In 2004 the federal government raised $802 billion from payroll (Social Security and Medicare) taxes. These taxes were levied exclusively on people making wages of $87,900 and below.

On the other hand, the Federal government raised $801 billion from regular income taxes that year – less than from payroll tax. Most Americans now pay more payroll tax than income tax. Surely that was the intent.

So when you hear stories about how the wealthy are carrying water for the rest of us, how they are paying most federal taxes, be careful. Here’s a typical example – a graph taken from Sugi Sorenson, Defender of Liberty (I could have chosen a hundred sites, but Sugi’s had the best name):

Sugi is careful to say “income” tax, but the presumption in the mind of the reader is that he is talking about all taxes when he is only talking about one tax, and ignoring the largest tax of all, the payroll tax.

You see this story told all over the right wing … it gets repeated again and again. It’s not false, it’s just not true. It’s only part of the story. The other part is the payroll tax. I am yet to find a tax distribution chart that includes the payroll tax. Another day, another story.

I think this is called “linking” – David Crisp has a post up regarding willingness of liberals and conservatives to listen to the other side. Rather than having me repeat it, go there – it’s really interesting.