Sunday, January 1, 2017

A modest proposal to strengthen the typical U.S. Household

It's no secret that income inequality has widened in the United States over the last several years and has caused political strife.  Occupy Wall Street, the Bernie Sanders campaign and even Donald Trump's surprise electoral college win are all highlights of people becoming more and more disenchanted with the "American Dream."

NPR recently ran an article noting that US Children are now less likely to earn more than their parents.  It's fair to say that neither major US political party has identified ways to strengthen the middle class that have proved to be successful and reverse this trend.  I took a stab at this problem thinking about this core question:

"What would make it easier for the typical U.S. Citizen to get ahead"














The proposal

  • The current U.S. Tax code would be scrapped with 3 exceptions which are outlined at the end of this section.
  • Each U.S. citizen between the ages of 21-64 would receive a $10,000 refundable credit, every citizen below the age of 21 would receive a $5,000 refundable credit and all citizens over the age of 65 would receive a $25,000 credit.  A refundable credit means it's possible for someone to have negative tax liability.
  • A 29% tax would be levied on all income up to $250,000 for single filers and $500,000 for joint filers.
  • The tax would jump to 40% for all income above the specified thresholds above.
  • All subsidies, Social Security, Medicare, Federal Student Loans, and all welfare payments would be eliminated.  This totals approximately $350 Billion.
  • This would result in the elimination of HUD, Department of Agriculture, Department of Education, the Social Security Administration & a significant downsizing of other Federal Agencies.
  • The high earning threshold and the credit would be indexed to median household incomes annually 
  • Exception #1:  All IRAs, 403bs & 401ks would be converted to a single "S" IRA.  In these IRAs, the contributions would be tax deferred until the funds were withdrawn.  Individuals would be able to contribute up to $20,000 annually.  To off-set the fact that Roth IRAs would be moved into this bucket, all Roth IRA balances would be given a one time 130% match that could be deposited immediately into the "S" IRA.
  • Exception #2:  The capital gains rates on home sales would be kept in place to encourage mobility.  In short, most home sales are not taxed if the individual lived in the home for 2 of the last 5 years, OR it was sold because of a work related move.
  • Exception #3:  Estate & Excise Taxes would remain in place.

Impact to the Federal Budget

One of the secondary goals of this project was to create a balanced budget.  This would achieve this and the new (simplified) budget would look like:

Revenues
$4.48 T from base 29% tax rate
$0.06 T from 40% tax rate on high earners
$.11 T from Excise Tax + Estate Tax


$4.65 Trillion Total

Expenses
$3.54 T from refundable credits
$0.75 T from remaining discretionary spending (most of which is on the military)
$0.03 T from exempting Capital Gains on Home Sales 
$0.25 T from remaining mandatory Federal Expenses (most of which is interest on the National Debt)

$4.57 Trillion Total

There is still about an $80 Billion Surplus - however, that would be consumed for the next 12 years by the Roth IRA off-set.





The Tax Impact

The below chart depicts the tax impact to each of the typical households in the various income ranges (on the horizontal axis).  The savings to the typical household is on the vertical axis - a value of $10,000 means that the typical household in that income range would see their after tax income increase by $10,000.  For simplification purposes, this is the under 65 chart.






The savings curves tend to have a downward slope - not turning negative until the income levels are fairly high.  This is by design.  The goal of this proposal is to truly "lift" up the middle class and enhance the after tax incomes of the vast majority of families by a substantial amount.  

While this doesn't include transfer payments like WIC, Section 8, & the SNAP Program, those programs tend to phase out in the $15,000-$40,000 range depending on family size.  The typical family would see a bump in their after tax incomes with the biggest bumps accruing to those making 
between $25,000-$50,000.

This would be a tremendous injection of capital into the economy from the lower/middle class - spurring a large jump in consumption and (hopefully) savings.  

Additionally, employers would get big wins as they would no longer be on the hook for payroll taxes, small business taxes or corporate taxes.  Next to middle class families, employers would be the largest winner of this proposal.  After tax incomes of most U.S. Companies would increase materially.

Accounting for the negatives

It's clear who the winners are because the winners are broad based - the vast majority of U.S. Households would see a clear benefit - as well as anyone who employs people.  This would provide the upper middle through lower class households with a nice bump in after tax income - especially those with children.  

However, it would  be disingenuous to not recognize that there are those who would  be impacted adversely. 

These include:

  • Seniors with very high medical expenses.  Reasonably healthy seniors would benefit from this proposal as their social security payments would no longer be taxed, and they would receive the rough equivalent of per capita spending on medicare in cash.  Seniors with severe health expenses would probably be hurt by this proposal.
  • Federal employees would be impacted as the proposal eliminates several Federal Departments and reduces the size/scope of others.
  • High income single tax filers would be amongst the most common loser.  Most single tax filers making over $175,000 would see a drop in their after-tax incomes.
  • Most households earning $500,000+.  The chart makes clear that those earning in excess of $500,000 would be forced to pay more.
  • Individuals who derive most of their income from long term capital gains and dividends.  Those groups whose income is "preferred" in the way of capital gains & dividends would see a sharp increase in their tax burden.
  • Colleges.  This proposal implicitly eliminated federal loans.  It is more likely than not that college students would not feel the burden as it is now understood by most economists that the impact of Student Loans drives up the cost of tuition.  Without the supply of loans, universities and colleges would have to find other means of revenue.
It is also unclear what the impact upon the Stock Market would be.  On the one hand, long term capital gains and dividends would no longer be treated as "preferred".  On the other, after tax incomes for most households would rise, which would likely drive increased investments.  Additionally, the fundamentals of U.S. Companies would strengthen as their labor costs would fall and their tax burdens would rise.  

Wrapping Up

Net-Net, the positives are more likely to outweigh the negatives.  The proposal generates a more friendly business environment as businesses would face less restrictions, the U.S. Fiscal situation is strengthened which would promote investment in the U.S. Economy and the upper middle to lower class income groups would receive a boon to their finances.  

I strongly believe that this proposal would achieve the goal of making it easier for the typical U.S. Citizen to get ahead.

The sources for this included:

Wall Street Journal
Wolters Cluver
Turbo Tax
Statista
US Census Bureau
IRS
Center for Federal Budget Priorites











Sunday, March 15, 2015

Final Regular Season College Basketball Rankings


Rank Team Rating
1 Kentucky 7.37
2 Duke 6.68
3 Virginia 6.37
4 Villanova 6.11
5 Arizona 6.11
6 Wisconsin 6.10
7 Kansas 6.00
8 Iowa State 5.51
9 Notre Dame 4.77
10 Baylor 4.62
11 Gonzaga 4.61
12 North Carolina 4.53
13 Oklahoma 4.50
14 Virginia Commonwealth 3.68
15 Wichita State 3.38
16 Xavier 3.33
17 Butler 3.33
18 Utah 3.25
19 West Virginia 3.24
20 Northern Iowa 3.21
21 Southern Methodist 3.12
22 Georgetown 3.12
23 Louisville 3.08
24 Maryland 2.92
25 Arkansas 2.91
26 Michigan State 2.89
27 Providence 2.80
28 Texas 2.53
29 NC State 2.45
30 Iowa 2.42
31 San Diego State 2.40
32 Oklahoma State 2.38
33 Oregon 2.20
34 Davidson 2.15
35 Ohio State 2.12
36 St. John's 2.05
37 Colorado State 2.05
38 Stephen F. Austin 2.04
39 Brigham Young 1.99
40 Indiana 1.96
41 Ole Miss 1.89
42 LSU 1.70
43 Georgia 1.64
44 Cincinnati 1.52
45 Temple 1.52
46 Boise State 1.44
47 Dayton 1.43
48 Syracuse 1.41
49 Texas A&M 1.35
50 Connecticut 1.28
51 Kansas State 1.17
52 Old Dominion 1.17
53 Miami (FL) 1.16
54 Wyoming 1.15
55 Buffalo 1.11
56 Purdue 1.08
57 UCLA 1.06
58 Wofford 1.05
59 Rhode Island 1.05
60 Richmond 1.04
61 George Washington 1.02
62 TCU 1.01
63 Illinois 0.97
64 Stanford 0.92
65 Sam Houston State 0.89
66 Vanderbilt 0.89
67 Murray State 0.84
68 Green Bay 0.83
69 Valparaiso 0.80
70 Louisiana Tech 0.68
71 North Carolina Central 0.66
72 Central Michigan 0.55
73 Florida 0.54
74 Alabama 0.53
75 Saint Mary's 0.52
76 Washington 0.50
77 South Carolina 0.49
78 Harvard 0.49
79 Tulsa 0.47
80 Illinois State 0.47
81 Seton Hall 0.42
82 Pittsburgh 0.37
83 Michigan 0.27
84 Arizona State 0.25
85 Eastern Washington 0.21
86 Georgia State 0.18
87 Tennessee 0.17
88 Yale 0.12
89 New Mexico State 0.10
90 UC Davis 0.09
91 Iona 0.03
92 Clemson -0.05
93 High Point -0.06
94 Toledo -0.13
95 Texas-El Paso -0.13
96 Creighton -0.16
97 UNLV -0.19
98 Minnesota -0.20
99 Colorado -0.25
100 UC Irvine -0.30
101 Kent State -0.30
102 Oregon State -0.30
103 Western Michigan -0.31
104 Massachusetts -0.31
105 California -0.37
106 Utah State -0.38
107 Texas Southern -0.41
108 Coastal Carolina -0.43
109 Memphis -0.47
110 Long Beach State -0.48
111 St. Bonaventure -0.50
112 Hawaii -0.58
113 Penn State -0.63
114 Akron -0.64
115 South Dakota State -0.66
116 North Dakota State -0.68
117 Pepperdine -0.68
118 Boston College -0.69
119 Northwestern -0.78
120 Evansville -0.80
121 Belmont -0.83
122 Florida State -0.84
123 Stony Brook -0.84
124 Albany -0.85
125 UC-Santa Barbara -0.86
126 Eastern Michigan -0.88
127 Western Kentucky -0.89
128 Northeastern -0.90
129 Georgia Southern -0.92
130 Nebraska -0.94
131 North Florida -0.97
132 Bowling Green -0.97
133 Cleveland State -0.98
134 Hofstra -1.10
135 Texas Tech -1.13
136 Northwestern State -1.23
137 San Diego -1.23
138 Eastern Kentucky -1.26
139 William & Mary -1.26
140 Marquette -1.30
141 La Salle -1.32
142 Florida Gulf Coast -1.34
143 Chattanooga -1.34
144 Portland -1.38
145 Loyola (Chicago) -1.39
146 Santa Clara -1.41
147 Charleston Southern -1.43
148 Georgia Tech -1.44
149 Wake Forest -1.52
150 Manhattan -1.64
151 Louisiana -1.65
152 New Jersey Tech -1.67
153 Montana -1.72
154 Incarnate Word -1.73
155 Auburn -1.76
156 Radford -1.77
157 James Madison -1.85
158 Winthrop -1.85
159 Middle Tennessee State -1.86
160 Sacramento State -1.88
161 St. Francis (NY) -1.89
162 Bucknell -1.90
163 Washington State -1.91
164 Vermont -1.91
165 Morehead State -1.97
166 Gardner-Webb -2.00
167 Northern Illinois -2.04
168 Louisiana-Monroe -2.06
169 North Carolina-Wilmington -2.08
170 Mercer -2.09
171 Lafayette -2.11
172 Norfolk State -2.11
173 UAB -2.11
174 DePaul -2.12
175 Virginia Tech -2.18
176 Oakland -2.18
177 Fresno State -2.18
178 Air Force -2.19
179 San Francisco -2.23
180 USC Upstate -2.23
181 Tennessee-Martin -2.26
182 Rider -2.26
183 Northern Arizona -2.29
184 Rutgers -2.31
185 New Mexico -2.38
186 Cal Poly -2.41
187 Princeton -2.46
188 New Hampshire -2.50
189 USC -2.53
190 Alabama State -2.65
191 Robert Morris -2.66
192 UC Riverside -2.68
193 Charlotte -2.71
194 Duquesne -2.71
195 St. Francis (PA) -2.75
196 St. Joseph's (PA) -2.80
197 Southern University -2.81
198 Lamar -2.97
199 Eastern Illinois -3.01
200 Canisius -3.02
201 Colgate -3.04
202 Detroit -3.06
203 Northern Colorado -3.08
204 Texas A&M-Corpus Christi -3.09
205 Lehigh -3.10
206 Mississippi State -3.13
207 East Carolina -3.13
208 Ohio -3.14
209 American University -3.20
210 Tulane -3.20
211 Milwaukee -3.23
212 Mount St. Mary's -3.25
213 Missouri -3.28
214 Pacific -3.31
215 IPFW -3.31
216 Columbia -3.40
217 Portland State -3.40
218 Monmouth -3.42
219 Brown -3.44
220 Indiana State -3.45
221 Maryland-Eastern Shore -3.45
222 Fordham -3.47
223 East Tennessee State -3.51
224 Bryant -3.71
225 Grand Canyon -3.80
226 Holy Cross -3.81
227 Oral Roberts -3.82
228 Missouri State -3.83
229 Delaware State -3.96
230 Texas-Arlington -3.96
231 McNeese State -4.01
232 Dartmouth -4.02
233 Lipscomb -4.02
234 Houston -4.02
235 Northern Kentucky -4.06
236 Miami (OH) -4.08
237 Boston University -4.13
238 Idaho -4.14
239 Texas State -4.14
240 St. Peter's -4.16
241 Hampton -4.19
242 Navy -4.21
243 Howard -4.22
244 Cornell -4.26
245 Florida International -4.26
246 George Mason -4.29
247 Weber State -4.30
248 Western Carolina -4.32
249 Prairie View A&M -4.40
250 North Carolina-Asheville -4.49
251 Elon -4.50
252 Ball State -4.50
253 Loyola Marymount -4.51
254 North Texas -4.54
255 Seattle -4.58
256 Southeast Missouri State -4.61
257 Drake -4.63
258 Arkansas-Little Rock -4.64
259 Sacred Heart -4.65
260 Denver -4.65
261 Quinnipiac -4.68
262 SIU Edwardsville -4.82
263 South Florida -4.83
264 UCF -4.84
265 Tennessee Tech -4.93
266 Houston Baptist -4.99
267 Army -5.00
268 Southern Illinois -5.00
269 Towson -5.18
270 Nevada -5.19
271 Hartford -5.24
272 Texas-San Antonio -5.28
273 Wagner -5.29
274 Saint Louis -5.37
275 South Dakota -5.42
276 Long Island -5.59
277 Drexel -5.61
278 Loyola (MD) -5.65
279 Samford -5.65
280 Cal State Northridge -5.67
281 New Orleans -5.69
282 Cal State Bakersfield -5.72
283 Marshall -5.76
284 College of Charleston -5.85
285 Youngstown State -5.86
286 Nebraska-Omaha -5.91
287 Jacksonville State -5.91
288 UMass-Lowell -5.92
289 Bradley -5.92
290 IUPUI -5.94
291 Missouri-Kansas City -6.01
292 Appalachian State -6.01
293 Wright State -6.03
294 Cal State Fullerton -6.05
295 Virginia Military Institute -6.06
296 Pennsylvania -6.08
297 Southern Miss -6.12
298 Rice -6.15
299 Campbell -6.16
300 UIC -6.21
301 South Alabama -6.25
302 Furman -6.31
303 Delaware -6.34
304 Nicholls State -6.43
305 Siena -6.48
306 Utah Valley University -6.51
307 Coppin State -6.86
308 Longwood -6.87
309 Jackson State -6.93
310 Florida Atlantic -6.96
311 Arkansas-Pine Bluff -6.99
312 Southern Utah -7.05
313 South Carolina State -7.07
314 North Carolina-Greensboro -7.08
315 Arkansas State -7.30
316 Western Illinois -7.37
317 North Dakota -7.43
318 Chicago State -7.48
319 Savannah State -7.49
320 Presbyterian -7.57
321 Southeastern Louisiana -7.67
322 Fairfield -7.75
323 Citadel -7.81
324 Abilene Christian -7.83
325 Kennesaw State -7.84
326 Austin Peay -7.93
327 Fairleigh Dickinson -7.98
328 Alabama A&M -8.21
329 Texas-Pan American -8.22
330 North Carolina A&T -8.22
331 Montana State -8.25
332 Stetson -8.28
333 San Jose State -8.39
334 Niagara -8.39
335 Troy -8.48
336 Jacksonville -8.54
337 Bethune-Cookman -8.70
338 Idaho State -8.70
339 Marist -8.71
340 Morgan State -8.85
341 Binghamton -8.97
342 Tennessee State -9.54
343 Liberty -9.56
344 Alcorn State -9.96
345 Maine -9.96
346 Maryland-Baltimore County -10.05
347 Mississippi Valley State -10.50
348 Central Connecticut State -10.68
349 Central Arkansas -12.96
350 Grambling State -13.02
351 Florida A&M -13.04