Tax Debate

Federal taxes are suppose to be designed to fund the federal government. They are not suppose to be punishments (sin taxes, etc.), they are not suppose to be designed to redistribute wealth, and they are not suppose to be designed for politicians to play with in order to get some kick back from a lobbyist or a vote from the taxpayer.

Taxes should be designed to finance the Constitutional requirements of our federal government without hamstringing the economy. But the last two or three weeks have been filled with constant discussion and argument on extending the tax cuts for some and not for others. Many liberal politicians and voters as well as non-liberal but economic illiterate American citizens want these tax cuts to be kept for the working and middle class but not for the "rich". This "rich" could range from $250,000 plus to $1 million plus income/year.

The unfortunate thing is that most people do not understand how over taxed our corporations and rich already are today. U.S. Corporations pay the second highest tax rate among all other industrial nations behind Japan. The Rich in America (those making say $300,000/yr and higher) are just 1% of the population but they pay over 30% of all taxes. The top 5% of income earners in America pay over 50% of taxes in our nation. This includes rich individuals but also Small businesses that make enough to be in this tax bracket.

Most probably do not know that. These numbers come from the IRS not some conservative think tank that tries to play with the statistics in order to support a political ideology. These are facts. Lets shortly look at some economic facts:

At higher prices people buy less whether that is goods/services, or if that is a business that hires workers. The more you pay in taxes on investment the less investment you will do because the risk that is offset from the big payout is now less due to the taxation of Dividends and Capital Gains of individual investors. Understand that it is rich people who hire other people. If you work for a "poor" person please write me and let me know. Most employers are "rich" or at least well off. Their taxes being low is what will help employment and help raise the GDP in our nation. Lets remember that.

For you wondering what tax structure I favor. Well I favor either a Flat tax or the "Fair Tax". I favor no taxes on investment and no taxes on corporations or businesses. The reason is that those entities do not pay taxes anyways, they just transfer that onto their customers with higher prices. Either way it is still a cost to that business and those businesses wood invest more without taxes.

Have a great Christmas everyone and lets hope that politicians start thinking with their heads and stop thinking with their hearts. The latter causes them to make terrible decisions that are well intended but have terrible consequences.

Economics Part 3: Prices effectiveness

Prices are affected by two things: Supply and Demand. When the supply of a good is high prices tend to be lower. When supply is low, prices tend to be higher. When our demand for a good is high, prices tend to be high. When our demand for a good is low, the price is also low.

The benefit is that goods are allocated to their most valued uses. When our tastes in goods change from good A to good B, the price of B rises momentarily and thus resources are allocated or moved towards the production of B. This means the good that we want more, is supplied quicker. That is why innovation takes place in capitalist, price-coordinated economies quicker than socialist, government ran economies. Even more important is when supply is affected.

When a natural disaster hits a location, the supply is obviously affected by being destroyed and thus lowered. This then leads to a raising of prices. This rise in price leads producers to want to take advantage of this profit opportunity so they transfer or allocate resources to that area because this is where they are most valued at this time. The first companies to arrive there make generous profits. This is the incentive to arrive so quickly. That is why people arrived in New Orleans within hours of Hurricane Katrina taking place. When more and more companies arrive, the supply rises back up, and with all the competition, prices begin to fall again.

We can see that in a price coordinated economy, goods are effectively moved to their most valued areas. This is why our standard of living is so much better than most of the rest of the world.

Next post will discuss what happens when government puts price controls in place and thus not allow prices to freely function or change.

Economics Part 2: Prices

The most basic and simple principal in all of economics is as follows:


People buy more at lower prices. People buy less at higher prices. Producers produce more at higher prices. Producers produce less at lower prices.


In a market price coordinated economy, prices guide consumers and producers to where goods are most valued. This is the reason that these type of economies have a much higher standard of living than countries that are coordinated by a central planner or some kind of command economy like North Korea, Cuba, or the Soviet Union of the past.

Prices are not a good or bad thing. Prices simply convey information to both consumers and producers. The most important information that prices convey are how scarce resources are. When prices are high that usually means that that resource is very scarce and not a lot to go around. Thus beach front property is highly expensive because there is far more people wanting to live on beach front property than there is room available. Some might complain that this means that only those who are "rich" can afford the most scarce products. To an extent that might be true. But at the same time under non-price coordinated economies the leaders of the country make those decisions. I'd much rather trust markets than some super powerful leader who has the power to tell me what and where and how much of something I can have.

Furthermore, due to beach front property being highly price, most individuals cannot afford this property and thus hotels and rental property is often built there allowing society to have an opportunity to enjoy this property instead of an individual being able to afford it to him or herself.

Prices convey information that resources are very limited but they can also convey the message that this good is readily available. Computer prices have fallen in recent years due to the fact that the resources are readily available and much cheaper than they use to be because of this fact. Without the mechanism of prices, people would buy too much of an extremely scarce resource and prices might not convey the information that this item is now readily available to people that it use to not be available to at an affordable price.

More on prices role next time

Economics Part 1: What, Why, and How

Economics is defined best as: The study of the allocation of scarce resources which have alternative uses.

Simply put, economics studies how we get what we need and want when we get it. During the times of the garden of Eden there was no need of economics. Resources were unlimited. God supplied Adam and Even with anything and everything they needed. There was no reason to economize because there were not costs due to resources being unlimited. There was not work to be done in order to produce their food, water, clothing, etc.. God provided unlimited resources for them.

Today and ever since that time period in history, all resources no matter what that resource is, are scarce. Meaning that the sum of everything we want in life is more than what is available in society. We have unlimited wants but not unlimited resources. This is the idea of scarcity: that resources are limited.

Simply put, economics attempts to teach us the best way or "most efficient" way to spread out or "allocate" limited resources or "scarce resources" to the many different ways those resources can be used or in other words to their "alternative uses".

So that is what and why we have to economize. Allow me to finish part 1 with how we economize.

Most countries throughout history have relied on kings and lords to make decisions of how much to produce of a good and where and when to send it. All matter of production and distribution of resources were left up to the leader of a nation or small state or community. The lord was the leader of the manor in a Feudalistic economy. The dictator and the czar were the decision makers in a Communist nations. During Biblical times, kings were the decision makers. For thousands of years leaders made economic decisions.

Beginning around 1776 the idea that a market or the "invisible hand", as Adam Smith(author of the Wealth of Nations 1776) called it, could guide resources quicker and more efficiently. Meaning, instead of one leader sitting somewhere whether that be in Moscow, Russia or in Washington D.C., a market of prices would be in charge of allocating resources which have alternative uses. A market is made up of consumers and producers who are willing to come into agreements about what they want and what they are willing to give up to get it. And if those choices are left up to those consumers and producers and decisions were based on the costs or prices of making those agreements, then these decisions could be far more efficient since those individuals know far more about their own needs in their own situations than some arbitrary leader in some far away city.

Part 2 coming soon

Economics Series

Now that I am teaching economics full time at Stone Memorial High School, my constant focus on economic principles have motivated me to begin a series on my blog in which I attempt to lay out why I think the way I think. I will attempt to show you why an economic way of thinking is so much different than the way of thinking many of you have been taught. But in reality this blog series will teach you about economics the same way my students are being taught it minus the hour and a half five days a week. This blog will not be as detailed but will teach you the concepts that allow me to think in a way that is usually different from many others, but practical in hindsight.

In the coming days and weeks and even months I will be posting many parts to this series that will be brief and easy to read and will teach any of you who are curious, about economics principles, the reason for economics, and how an economist thinks.

I hope you enjoy

"Radical"

My brother recently preached a message about being "radical". Such a revealing message about truly believing what the Bible says as a true Christian. I would hate to try and compare the importance of that message to a political analogy and therefore I will not. But it got me to thinking about the fact that many people would call me a radical as well due to my political views.

Historically speaking George Washington, James Madison, Alexander Hamilton, John Jay, and the many other founders are discussed and talked about as American Heroes. Founders of our nation that aside from slavery are some of the greatest men the word has ever known. King George called George Washington the Greatest man ever when he did not elevate himself up to dictator after the American Revolution.

These men and myself and many that think like me, believe in the idea of Federalism. The idea that local governments and states should make most of the governing decisions in our lives. They were not pro-democracy as some have suggested. In fact Madison feared Democracy and power to people who could not possible have the knowledge at hand to vote on every issue. They also hated the idea of a strong central government though as well. But they all believed in the formation of a "federalist" type government in which the Central "national" government had very little power outlined in the Constitution. While all other powers would be left to the states and local governments.

Yet today I'm considered a "radical" along with many other men in the world who still view "federalism" as the ideal form of a government system. Glenn Beck and Rush Limbaugh to name two men who favor this. Is it really radical to believe the way that those great founding fathers of ours believed? Is it really radical to believe that the federal government is inefficient in nature and that it should not do things that are not in the constitution such as Social Security, Welfare, Medicare, Regulations on business, marriage issues, education, and the hundreds of other issues that it gets involved with.

If these men are great for starting this wonderful nation. We conservative libertarians can't be too "radical". Right?

My Income

I'm excited to finally be able to settle down in Crossville, TN once again and begin doing what I love doing more than anything- Teach and Coach. I teach economics now and that is the subject that usually disagrees with the establishment thought. Being that I have a degree in the subject I disagree with some of the notions that my fellow colleagues have despite my love of working with them.

It rarely takes too long for the subject of teacher pay to come up when there is a room full of teachers meeting. Sometimes only one teacher is needed. A couple weeks ago I went out with a friend of mine from Knoxville named Brittany. She had a friend that she introduced me to and the first thing he said after meeting me and finding out I was a teacher was something along the lines of "Man, I love you public servants. I am one of the biggest supporters of teachers getting more pay for what they do. Your job is way too important to make so little."

I then told him I make roughly $25/ hour and he looked surprised. But its true. I work roughly 190 days only each year. I understand there is preparation that teachers have to put into their jobs but the same is true of many other professions that work all year. I have so much vacation time during the summer, a week in the spring, a week in the fall, a few weeks during Christmas, and all weekends and other holidays in between. As a first year teacher with only a B.S. I make roughly $25 dollars per hour. This does not include coaching pay (which is far far less)

His last line was that teachers should get more pay because their job is so important. It might be true that developing the minds of the future citizens of our society is more important than some occupations. But pay is not and should not be based on what I or any one other person believes is of great importance. In a free society, pay is based on a market that involves both supply and demand. This is because a "price-coordinated" economy, like ours is when government isn't involved, prices allocate scarce resources which have alternative uses. Put differently prices is what transfers goods to where they are most desired and needed and in some cases in low supply.

As a teacher I have chosen a worthy occupation and career that hundreds of thousands or millions of others have also chosen. Millions cannot choose to become surgeons because most people in America do not have the capability much less the determination and commitment to become a surgeon when more than ten years of training and extensive and high level education is required for such an occupation. Teaching is a somewhat easy degree to earn as it is a Social Science with far easier course work and far fewer years of training required.

We do have a shortage of qualified math and science teachers because within the teaching profession it is a tougher subject to teach and earn a degree in. Thus as an economist I believe those teachers should be paid more than I or a PE teacher where we have a surplus of qualified teachers to work in these areas. If this was ever allowed to happen, we would never have a problem finding math and science teachers. More would choose to earn their degree in those areas where they can earn more pay. That is how the market works. I know most teachers get into the profession for reasons aside from pay. But some teachers choose subject material that is easier than math and science because they know they will be paid the same despite it being easier. So no one can tell me that pay has nothing to do with our motivations. And there is nothing immoral or wrong with this either. That is why American prosperity and other Capitalistic price-coordinated economies have prospered so much. Prices coordinate resources to where they are most needed not where we believe the occupation is morally more important or valuable.

I love my job and my pay is sufficient. Not because I don't value what we teachers do. But because I value our economic system and the prosperity of our nation as a whole. And this prosperity has come about because scarce resources which have alternative uses are allocated more efficiently when goods go where they are in least supply and highest demand, instead of where good intentions might lead those resources.