economy

The GOP’s “Abolish the IRS” Crackpots

/ L. M. Walker / 2 Comments

“In this world nothing can be said to be certain, except death and taxes.” ~ Benjamin Franklin ::

Separating the Wheat from the Chaff

:: By: Larry Walker, II ::

Each 2016 GOP presidential candidate has proposed to reform the tax code. While seven have offered legitimate proposals, five have advanced theories which are basically maniacal. Those proposing to abolish, or end, the Internal Revenue Service (IRS) may further be classified as crackpots, because, let’s face it, that’s never ever going to happen.

With taxes of such fundamental concern, it’s difficult to take anything else these kooks say seriously. Unless such candidates are willing to revise and clarify their ideas, they should drop out of the race immediately, so conservative voters may focus on genuine tax reform proposals.

Just who are these crackpots and why is their reasoning amiss? That should be evident by now, but let’s run through them, one by one.

Rafael Edward “Ted” Cruz

First there’s Senator Ted Cruz, who might have a better shot if he used his real name, and dropped his flawed and incomplete tax proposal. Senator Cruz proposes a 10% flat tax on individuals, a 16% flat tax on businesses, and to abolish the IRS.

His Simple Flat Tax Postcard lumps all income onto one line, rendering it virtually impossible to verify. Apparently wages, interest, dividends, capital gains, rents, pensions, social security benefits, etc. are all one in his mind. He proposes a $10,000 standard deduction per filer, and a $4,000 personal exemption for each dependent. He would maintain the Child Tax Credit, Earned Income Tax Credit and deductions for charitable contributions and mortgage interest, all without the necessity of an IRS.

Cruz would replace the corporate income tax with a Business Flat Tax of 16%. The tax would apply to “gross revenues minus expenses for equipment, computers, and other business investments”. That means no deductions for salaries, rent, utilities, supplies, and other ordinary and necessary business expenses. Although he would eliminate the payroll tax, this is made up for by effectively assessing businesses a 16% tax on the salaries and wages paid (i.e. since they will no longer be deductible).

Although his idea might seem fair and simple to the average working Joe, it’s not practical in the real world. That’s because, according to Senator Cruz, a small business would basically fork over 16% of its gross business income, without regard to its net cash flow. If its net income percentage is 16%, it would hand it all over to the government, and if it has a bad year and loses money, it would still owe a 16 percent tax on its gross revenues. Great! How many small businesses would survive under this scam?

But that’s not the end of it. According to Cruz’s proposal, small business owners would then owe an additional 10% tax on the salaries and dividends received from such businesses, after the standard deduction and allowance for exemptions, or charitable contributions and mortgage interest. In other words, through stealthy double-taxation, a small business owner could wind up owing as much as 26% on his or her compensation. Yeah, good luck getting this passed without mass resistance!

If the scheme were ever to see the light of day, which is highly implausible, then who would we mail the checks to? Since there will no longer be an IRS, not to mention three or four other agencies, would we simply forward more than 160 million checks to the White House? Who will verify whether everyone required actually files a “postcard-sized” tax return? Who would verify whether those that do file actually pay the full amount due? What happens when they can’t pay in full, or at all? Who will verify whether the amount of gross income reported is accurate?

Folks, this is not a well thought out plan, and it certainly won’t abolish the IRS, so as far as I’m concerned, you can strike Senator Cruz off the short list.

Randal Howard “Rand” Paul

Then there’s Senator Rand Paul, whom I admire, other than for his flawed tax proposal. He proposes to “blow up” the tax code and start over. He has advocated “abolishing the IRS, and replacing it with a simplified, revamped tax code”. He proposes a 14.5% flat tax on individuals and businesses.

For individuals he would allow a $15,000 standard deduction (per filer), and a $5,000 per person exemption, while maintaining the Earned Income Tax Credit and Child Tax Credit. How’s that for pandering? You can have your cake and eat it too. He would then eliminate all deductions other than mortgage interest and charitable contributions. Good luck handling all of this without the IRS.

For businesses, he would levy the tax on revenues minus “allowable expenses”, such as the purchase of parts, computers and office equipment. He would allow the immediate expensing of all capital expenditures, ending the notion of depreciation. Great, but that means no deductions for some of the largest expenses most small businesses incur, such as salaries and wages, rent and utilities, health insurance and retirement contributions.

Following Senator Paul’s approach, small businesses would basically fork over 14.5% of their gross business income, since after the first year most won’t have much in the way of “allowable expenses”. Once that’s done, whether or not there’s anything left over, its owners would then fork over another 14.5% of the salaries and dividends received from their businesses, after subtracting the standard deduction, or charitable contributions and mortgage interest (i.e. the only deductions he would allow), personal exemptions, and allowable tax credits.

Although the plan sounds reasonable on its surface, how would it be carried out without the IRS? Who would we send the checks to? Who would ensure basic compliance? Who will dole out the tens of millions of Earned Income Tax Credit refunds and guard against fraud? It doesn’t sound like Senator Paul will be abolishing the IRS anytime soon, so why the facade? This contradiction removes Senator Paul from serious contention.

Benjamin Solomon “Ben” Carson

As for Dr. Ben Carson, had it not been for money raised prior to his candidacy, by a PAC originally established for the purpose of repealing Obamacare, he wouldn’t even be in this race. Dr. Carson proposes that we all pay mandatory tithes to the federal government, as if it’s our new God, or something. Under his theory (which has yet to be set to pen and paper), individuals and businesses would simply hand the federal government a flat 10% of their gross income without the benefit of any deductions, which would put an end to the IRS.

Carson’s design would result in a 72% to 233% effective tax hike for those in the lowest, second, middle and fourth income quintiles, while at the same time granting an effective tax cut of 30% to 49% for those with the highest incomes. It’s a great plan if you make more than $200,000 a year, but for everyone else it will amount to a humongous tax increase.

Under Dr. Carson’s theory, a small business owner would simply fork over 10% of his (or her) gross business income, without the benefit of any deductions for salaries, rent, utilities, mortgage, state taxes, materials, supplies, depreciation, subcontractors, etc. Then contribute another tenth of the gross salary and dividends received from his or her business, again without the benefit of any deductions. This may seem fair to the average working Joe, until he receives the inevitable pay cut or pink slip, whichever comes first. Just do the math.

If Carson was somehow elected, and his plan were to survive public and Congressional scrutiny, once he abolishes the IRS, who would process our tax payments? Who would ensure basic compliance? Without the IRS, or an IRS-like agency, gross income would likely become whatever voluntary compliers chose to report, leading to a huge decline in tax revenues. In fact, without the IRS, his program would have no chance of success. Ben Carson should either go back to the drawing board, or simply get out of the race. His tax reform proposal eliminates him from serious consideration.

Carly Fiorina

Next we have Carly Fiorina. Although she hasn’t specifically advocated for the complete elimination of the IRS, she has proposed reducing the U.S. tax code from its current 73,000 pages (actually it’s only around 5,084 pages) down to just three pages. Just what would be on those three pages is anybody’s guess. What’s so bad about that? Well, here are a couple of examples.

Let’s say you’re halfway through reporting an installment sale on an owner financed property. Under Carly’s theory, I suppose you would just throw that notion out the window and just pay tax on the full amount received each year going forward, including the return of capital. That’s because, in Carly’s world, it would be far too complicated to determine the amount actually gained on the transaction.

If you have a net operating loss carryforward for the next 20 (or so) years, a charitable contributions carryforward for the next five, or a Section 179 carryover, I suppose you would forget about claiming these as well. Why? Because, there’s no way on earth one could cover such concepts within a three-page income tax code. Furthermore, there would no longer be any distinction between Corporations, S-Corporations, Partnerships, or Exempt Organizations, all too arduous to cover in just three pages.

Ms. Fiorina sure knows how to talk the talk, but at the end of the day that’s all it is. She doesn’t really have a tax reform plan, just a quirky notion that complex ideals can be compressed into thrifty one-liners. Her lack of judgment, in this matter, eliminates her from further consideration.

Michael Dale “Mike” Huckabee

Finally, there’s Mike Huckabee, who proposes to abolish the IRS by enacting the FairTax. Under the Fair Tax, businesses and individuals would pay a 23% national consumption tax on new purchases, above the poverty line. Federal taxes would be collected by retail businesses at the state level, so the IRS could be done away with, or at least its collection function.

According to the plan, “you have control over your own money and what your overall tax rate will be”. In other words, if you only buy used goods, or purchase everything under the table, you could wind up not paying any taxes at all. Just like in Greece, eh!

Then there’s that good old “Prebate”, the program’s key to fairness. The Prebate is akin to today’s standard deduction. Its function is to ensure that no American has to pay the FairTax on the basic necessities of life. Under this concept, every head of household in the United States would receive a monthly check from the government. That is, after having been raked for a 23% consumption tax at retail. How would this work?

Well, first every head of household in the United States would file a simple report with the government (each year) reporting the name and Social Security number of everyone living under their roof. Then, if you’re single you would receive a check from the government for around $183 per month. If you have a household of eight, you would receive around $742 per month. If there are 16 people in your household, you would receive around $1,242 every month. That seems simple, right?

Well, it won’t be so simple once the IRS has been abolished. Who’s going to verify that the individuals claimed on 160 million (or so) “annual reports” actually live in the households claimed? Who will ensure that the same dependents aren’t claimed by multiple FairTax patrons? Furthermore, what agency will process the 160 million annual “Prebate” reports, and issue some 1.9 billion monthly Prebate checks (160 million times 12 months) each and every year?

The IRS, as we know it, already has problems verifying dependents, and accurately issuing a much smaller number of annual tax refunds. It’s constantly battling against the issuance of fraudulent refunds on an annual basis. Accelerating the refund cycle from annually to monthly will only exacerbate such problems. So once the IRS has been abolished, which government agency will carry out these tasks?

Simply hoping and believing that people won’t cheat, when there’s no longer an agency to police the system, would be (well) stupid. So that eliminates Huckabee.

Scattering the Chaff

Along with death and taxes, I’m afraid the IRS will be with us, in some form or fashion, for the duration. No matter whose tax policies you favor, a governmental agency will be needed to administer them. Trumpeting the end of the IRS plays well in certain quarters, but generally among anarchists rather than rational minded conservatives.

Lower taxes, tax simplification and tax reform are ideals most of us agree upon. But as for irrational, radical, fundamental transformations haven’t we had enough? When it comes to income tax policy, we must separate the wheat from the chaff. We have thus eliminated Ted Cruz, Rand Paul, Ben Carson, Carly Fiorina, and Mike Huckabee from serious consideration. Please go away!

That leaves Donald Trump, Rick Santorum, Marco Rubio, John Kasich, Lindsey Graham, Chris Christie, and Jeb Bush. It also makes Trump the only viable outsider, not to mention the only one proffering to reduce income tax rates to the lowest levels since the Revenue Act of 1926. The seven offer varyring rates, exemptions and methods, some more appealing than others, but neither advocates the crackpot scheme of abolishing the IRS. It’s up to each of us to determine what’s in our own, and in our country’s best interests. To that end, abolishing the IRS serves no useful purpose.

References:

Matthew 3:12

Trump’s Dynamic Tax Policy

2016 Conservative Tax Plans: Trump vs. Carson

Top GDP Growth Rates in U.S. History

Photo Credit:

More Than A Sunday Faith

Trump’s Dynamic Tax Policy

/ L. M. Walker / 3 Comments

Lower Rates Across The Board

:: By: Larry Walker, II ::

Here’s an excerpt from Donald Trump’s Tax Plan which may be found on his official website www.donaldjtrump.com :

TAX REFORM THAT WILL MAKE AMERICA GREAT AGAIN

The Goals of Donald J. Trump’s Tax Plan

Too few Americans are working, too many jobs have been shipped overseas, and too many middle class families cannot make ends meet. This tax plan directly meets these challenges with four simple goals:

  1. Tax relief for middle class Americans: In order to achieve the American dream, let people keep more money in their pockets and increase after-tax wages.

  2. Simplify the tax code to reduce the headaches Americans face in preparing their taxes and let everyone keep more of their money.

  3. Grow the American economy by discouraging corporate inversions, adding a huge number of new jobs, and making America globally competitive again.

  4. Doesn’t add to our debt and deficit, which are already too large.

The Trump Tax Plan Achieves These Goals

  1. If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households – over 50% – from the income tax rolls. They get a new one page form to send the IRS saying, “I win,” those who would otherwise owe income taxes will save an average of nearly $1,000 each.

  2. All other Americans will get a simpler tax code with four brackets – 0%, 10%, 20% and 25% – instead of the current seven. This new tax code eliminates the marriage penalty and the Alternative Minimum Tax (AMT) while providing the lowest tax rate since before World War II.

  3. No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.

  4. No family will have to pay the death tax. You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.

Again, this is only an excerpt; you may read the rest of Trump’s detailed tax plan on his website: Trump – Make America Great Again!

Under the Trump Plan, those in the lowest quintile, and most in the second and third quintiles (depending on marital status) won’t pay any income taxes at all. This is brilliant, considering that as a whole it’s estimated that those making less than $50,000 currently receive back roughly $37 billion more from the government, each year, than they pay in (see table below). This is due to a series of redundant, and costly tax expenditures. Removing upwards of 75 million households from filing requirements actually amounts to savings of no less than $370 billion, in government speak.

When it comes to simplifying the tax code, eliminating the filing requirements of some 75 million households turns out to be a big money saver. It will directly reduce the processing and subsequent examination, by the Internal Revenue Service, of around half of all tax returns currently filed. Since most individuals under this threshold only file to receive refundable tax credits, or to determine that they don’t owe any taxes at all, and around 37% of all individual returns audited involve the Earned Income Credit, once Trump’s plan is implemented the size of the IRS may be reduced dramatically.

Under Trump’s plan, if you are single, the first $25,000 you earn won’t be taxable, and if you are married, the first $50,000 you earn will be exempt from taxes (see table below). This will amount to a huge tax cut for the many, at the expense of a few. Compared to Dr. Ben Carson’s idea, where the government would get up to $2,500 or $5,000 from the same, Trump’s plan is a huge windfall for the working poor and middle class. Are you for lower taxes? Will this help you?

Trump’s plan lowers the top marginal tax rate to 25%, or to the same level imposed from 1925 to 1931 under the 1924 Mellon Tax Bill. So this is not a shot in the dark, but rather a return to policies the U.S. had in place during the Roaring Twenties, back when the country truly was great. Compared to the present tax code, Trump’s plan will reduce income taxes for a married couple making $85,000 per year from around $8,800 to just $3,500 (assuming 2015 taxable income of $65,000). Does this appeal to you? Is there some part of this plan that you don’t comprehend?

According to Trump, the huge reduction in rates will make many of the current exemptions and deductions unnecessary or redundant. “Those within the 10% bracket will keep all or most of their current deductions. Those within the 20% bracket will keep more than half of their current deductions. Those within the 25% bracket will keep fewer deductions. Charitable giving and mortgage interest deductions will remain unchanged for all taxpayers.”

Trump’s tax plan also reduces corporate taxes from a top rate of 39% to just 15%, making the U.S. one of the most attractive places to do business worldwide. But then he goes a step further, by applying the same 15% cap to income earned by freelancers, sole proprietors, unincorporated small businesses and pass-through entities (i.e. partnerships and S-corporations), which are all taxed at the individual level. According to Trump, these lower rates will provide a tremendous stimulus for the economy, as in significant GDP growth, a huge number of new jobs and an increase in after-tax wages for workers.

Finally, Mr. Trump’s plan eliminates the death tax, reduces or eliminates deductions and loopholes available to the wealthy, phases out the tax exemption on life insurance interest for high-earners, ends the current treatment of carried interest for speculative partnerships, adds a one-time repatriation of corporate cash held overseas at a discounted 10% tax rate, ends the deferral of taxes on corporate income earned abroad, and reduces or eliminates corporate loopholes that cater to special interests.

Coupled with his well aired balanced trade initiative, which seeks to eliminate our ongoing trade deficits with China, Mexico, Japan and other nations, every true Conservative is forced to concede that Donald Trump has a viable, solidly conservative, plan for this economy, and is indeed a serious candidate. Like him or not, when you lay Donald Trump’s tax reduction plan next to any other candidate’s, it’s clear that his plan will have the greatest positive impact on 99% of all Americans. No other plan comes close. It’s time for the mainstream media to stop focusing on the small stuff, and begin taking Trump and his policies seriously.

Related:

2016 Conservative Tax Plans: Trump vs. Carson

Top GDP Growth Rates in U.S. History

30-Year Trade Deficit with Mexico

30-Year Trade Deficit with China

2016 Conservative Tax Plans: Trump vs. Carson

/ L. M. Walker / 3 Comments

Placing Principles before Personalities ::

Every time in this century we’ve lowered the tax rates across the board, on employment, on saving, investment and risk-taking in this economy, revenues went up, not down. ~ Jack Kemp

:: By: Larry Walker, II ::

Dr. Ben Carson doesn’t really have a tax plan at all, yet he’s number 2 in the polls among conservative Republicans. On the other hand, Donald Trump has a very detailed tax reduction plan. In a nutshell, Trump’s plan eliminates taxes on individuals making less than $25,000 and on couples making less than $50,000, lowers the top marginal rate to 25%, just as Calvin Coolidge did under the 1924 Mellon Tax Bill, and lowers the top corporate tax rate to just 15%. It’s time for conservatives to grow up and start focusing on principles rather than personalities. Do that and Trump wins easily.

Dr. Ben Carson’s Tax Theory

Here’s the entirety of Dr. Ben Carson’s Tax Plan which may be found on his official website www.bencarson.com :

The American People Deserve a Better Tax Code

The current tax code now exceeds 74,000 pages in length. That is an abomination.

It is too long, too complex, too burdensome, and too riddled with tax shelters and loopholes that benefit only a few at the direct expense of the many.

We need wholesale tax reform.

And, we won’t get that from career politicians in Washington. They’re too deeply vested in the current system to deliver the kind of bold, fresh, new reforms that the American people are demanding.

We need a fairer, simpler, and more equitable tax system. Our tax form should be able to be completed in less than 15 minutes. This will enable us to end the IRS as we know it.

Yep, that’s it. Thus far, Dr. Carson has been able to skirt by without offering more than a shallow critique of the current tax system. His overly simplistic solution fails to address landlords, freelancers, investors, owners of pass-through entities, owners of multiple entities, corporations, trusts and estates, and the death tax to name a few. A simple tax form that takes 15 minutes might work for someone who receives one or two W-2 Forms, a pension, or Social Security benefits, but it’s not going to cut it for the varied real-life complexities that many Americans face in this day and age.

“It is too long, too complex, too burdensome, and too riddled with tax shelters and loopholes that benefit only a few at the direct expense of the many.” Yeah, yeah, that’s what they all say, but what’s Carson’s alternative? In an interview with FOX Business Network’s Stuart Varney, Dr. Carson elaborated on his tax proposal, stating that it would be based on the Old Testament Biblical principle of tithing. Great, just like the Israelites were commanded to do around the year 1300 B.C.

Dr. Carson stated: “You make $10 billion, you pay a billion. You make $10, you pay one [dollar]. [Of] course I would get rid of all the deductions and all of the loopholes but here’s the key, people, they look at a guy who put in a billion dollars, he’s got $9 billion left, that’s not fair — we need to take more of his money. That’s called socialism. And what made America … a great nation was we had a very different attitude. We would say he just put in a billion dollars, let’s create an environment that’s even better for him so that next year he can make $20 billion and put in $2 billion. That’s how we went from nowhere to the pinnacle of the world in record time. And it’s growth, it’s not taking what’s there and dividing it up and making it smaller.”

According to Dr. Carson’s statement above, “What made America a great nation was we had a very different attitude… That’s how we went from nowhere to the pinnacle of the world in record time,” as if to say that America once had a flat-rate tax structure. But when was that? Perhaps he’s confusing America with pre-Christian Israel, because prior to 1861, and between the years 1873 and 1912, the U.S. government was funded strictly through customs duties and tariffs levied on imported goods.

And, although a 3% flat-rate tax was proposed under the Revenue Act of 1861, as a temporary means of funding the Civil War, no revenue was ever raised under the act, and it was quickly replaced by a progressive rate structure under the Revenue Act of 1862. At no time since the Revenue Act of 1913, and at no time prior, has the U.S. ever been funded by a flat-rate income tax. So where is Dr. Carson coming from?

Okay, so if you make $10, $10,000 or $25,000 under Dr. Carson’s arrangement, you’ll pay $1, $1,000 or $2,500 in taxes. Never mind that depending on the size of your family, after your living expenses have been met, you might not have a penny left wherewith to pay it. Yet this he fathoms as fair. And, according to Dr. Carson, his program is great if you make $10 billion a year, but that’s primarily because you’ll see a 49% reduction in your effective tax rate, from where it is today. But for those less fortunate, including the entire middle class, Carson’s theory will result in a massive tax hike.

Under Dr. Carson’s 10% Deal, individuals within the lowest, second, middle and fourth quintiles, that currently pay average effective individual tax rates of -7.5%, -1.3%, 2.4% and 5.8%, respectively, will see their tax rates rise by at least 72%, and by as much as 233%. Increasing the rate to 15% only compounds the problem. What’s wrong with this picture? Well, for one, the only growth it produces is among the uber-wealthy. In fact, it appears to be just another means of benefiting “only a few at the direct expense of the many” – a direct contradiction to his stated goal.

So let me get this straight. Under Dr. Carson’s tax program, those in the highest quintile, including billionaires, who currently pay an average effective tax rate of 14.2%, will receive a 30% to 49% tax cut, while those in the lower quintiles receive a 72% to 233% tax hike. And how is this supposed to help the economy? More importantly, how does it help you and me? Well, it doesn’t. What Dr. Carson’s strategy actually does is make the rich richer and the poor soul down to his last $10 a dollar poorer.

Carson mentions nothing about corporate tax reform, disincentivizing corporate inversions, balancing trade, growing the economy, or expanding the workforce. He claims his proposal will be revenue neutral, which is at best a farce, but even if it somehow were – why would anyone care? Dr. Carson’s approach ransacks the middle class, plunders the working poor, and only profits the wealthiest among us. It’s a strategy unworthy of consideration by serious-minded conservative voters, as in my opinion is the entire Carson candidacy. Phooey!

Donald Trump’s Tax Plan

Here’s an excerpt from Donald Trump’s Tax Plan which may be found on his official website www.donaldjtrump.com :

TAX REFORM THAT WILL MAKE AMERICA GREAT AGAIN

The Goals of Donald J. Trump’s Tax Plan

Too few Americans are working, too many jobs have been shipped overseas, and too many middle class families cannot make ends meet. This tax plan directly meets these challenges with four simple goals:

  1. Tax relief for middle class Americans: In order to achieve the American dream, let people keep more money in their pockets and increase after-tax wages.

  2. Simplify the tax code to reduce the headaches Americans face in preparing their taxes and let everyone keep more of their money.

  3. Grow the American economy by discouraging corporate inversions, adding a huge number of new jobs, and making America globally competitive again.

  4. Doesn’t add to our debt and deficit, which are already too large.

The Trump Tax Plan Achieves These Goals

  1. If you are single and earn less than $25,000, or married and jointly earn less than $50,000, you will not owe any income tax. That removes nearly 75 million households – over 50% – from the income tax rolls. They get a new one page form to send the IRS saying, “I win,” those who would otherwise owe income taxes will save an average of nearly $1,000 each.

  2. All other Americans will get a simpler tax code with four brackets – 0%, 10%, 20% and 25% – instead of the current seven. This new tax code eliminates the marriage penalty and the Alternative Minimum Tax (AMT) while providing the lowest tax rate since before World War II.

  3. No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.

  4. No family will have to pay the death tax. You earned and saved that money for your family, not the government. You paid taxes on it when you earned it.

Again, this is only an excerpt; you may read the rest of Trump’s detailed tax plan on his website: Trump – Make America Great Again!

Under the Trump Plan, those in the lowest quintile, and most in the second and third quintiles (depending on marital status) won’t pay any income taxes at all. This is brilliant, considering that as a whole it’s estimated that those making less than $50,000 currently receive back roughly $37 billion more from the government, each year, than they pay in (see table below). This is due to a series of redundant, and costly tax expenditures. Removing upwards of 75 million households from filing requirements actually amounts to savings of no less than $370 billion, in government speak.

When it comes to simplifying the tax code, eliminating the filing requirements of some 75 million households turns out to be a big money saver. It will directly reduce the processing and subsequent examination, by the Internal Revenue Service, of around half of all tax returns currently filed. Since most individuals under this threshold only file to receive refundable tax credits, or to determine that they don’t owe any taxes at all, and around 37% of all individual returns audited involve the Earned Income Credit, once Trump’s plan is implemented the size of the IRS may be reduced dramatically.

Under Trump’s plan, if you are single, the first $25,000 you earn won’t be taxable, and if you are married, the first $50,000 you earn will be exempt from taxes (see table below). This will amount to a huge tax cut for the many, at the expense of a few. Compared to Dr. Carson’s idea, where the government would get up to $2,500 or $5,000 from the same, Trump’s plan is a huge windfall for the working poor and middle class. Are you for lower taxes? Will this help you?

Trump’s plan lowers the top marginal tax rate to 25%, or to the same level imposed from 1925 to 1931 under the 1924 Mellon Tax Bill. So this is not a shot in the dark, but rather a return to policies the U.S. had in place during the Roaring Twenties, back when the country truly was great. Compared to the present tax code, Trump’s plan will reduce income taxes for a married couple making $85,000 per year from around $8,800 to just $1,500 (assuming taxable income of $65,000). Does this appeal to you? Is there some part of this plan that you don’t comprehend?

According to Trump, the huge reduction in rates will make many of the current exemptions and deductions unnecessary or redundant. “Those within the 10% bracket will keep all or most of their current deductions. Those within the 20% bracket will keep more than half of their current deductions. Those within the 25% bracket will keep fewer deductions. Charitable giving and mortgage interest deductions will remain unchanged for all taxpayers.”

Trump’s tax plan also reduces corporate taxes from a top rate of 39% to just 15%, making the U.S. one of the most attractive places to do business worldwide. But then he goes a step further, by applying the same 15% cap to income earned by freelancers, sole proprietors, unincorporated small businesses and pass-through entities (i.e. partnerships and s-corporations), which are all taxed at the individual level. According to Trump, these lower rates will provide a tremendous stimulus for the economy, as in significant GDP growth, a huge number of new jobs and an increase in after-tax wages for workers.

Finally, Mr. Trump’s plan eliminates the death tax, reduces or eliminates deductions and loopholes available to the uber-wealthy, phases out the tax exemption on life insurance interest for high-earners, ends the current treatment of carried interest for speculative partnerships, adds a one-time repatriation of corporate cash held overseas at a discounted 10% tax rate, ends the deferral of taxes on corporate income earned abroad, and reduces or eliminates corporate loopholes that cater to special interests.

Coupled with his well aired balanced trade initiative, which seeks to eliminate our ongoing trade deficits with China, Mexico, Japan and other nations, every true Conservative is forced to concede that Donald Trump has a viable solidly conservative plan for this economy, and is indeed a serious candidate. Like him or not, when you lay Donald Trump’s tax reduction plan next to Ben Carson’s tax the poor philosophy, it’s clear that only one has a workable plan. Dr. Ben Carson may be a nice man, but it’s time to admit that there isn’t any substance behind his shallow rhetoric. It’s time for Conservatives to stop focusing on personalities, and start taking Donald Trump and his policies seriously.

Trump’s Dynamic Growth Policies

/ L. M. Walker / 4 Comments

Top GDP Growth Rates in U.S. History

:: By: Larry Walker, II ::

In an October 4, 2015 interview on Meet the Press, Donald Trump was asked which government programs he will cut so his tax reduction plan won’t blow a hole in the deficit.

Trump’s first response described how we are going to save a lot in administrative costs by exempting millions of Americans from filing income tax returns. Under his plan, single individuals making under $25,000 and couples making less than $50,000 will not owe any income tax, and will thus not be required to file tax returns. This totally makes sense to me, as I outlined a similar plan in a post entitled, Tax Simplification, Part II – Saving $1,756 Billion, Overnight. Although it’s only part of the answer, it may actually be a bigger deal than some imagine.

Next, Mr. Trump remarked that his dynamic revenue plan focuses on growth. “We’re going to grow the economy. If China grows at 7%, they’re having a terrible year. We’re saying we can’t grow at 3% or 4%.” Overriding the host’s rude interruptions, Mr. Trump continued, “If we do 6% or 7% under my plan, everybody benefits.”

Snarky host, Chuck Todd, blurted out, “We’ve never done [sic]; we’ve never had a year at 6% or 7%.”

Of course, the public should be aware of Mr. Todd’s background. Although he may sound like an economic expert to some, he actually attended George Washington University from 1990 to 1994, majoring in political science with a minor in music, but never graduated. He certainly lacks proficiency in matters involving business, economics, or finance.

Mr. Todd would have no idea that the U.S. economy has in the past grown at rates as high as follows:

  • 10.8% (1934)
  • 12.9% (1936)
  • 17.7% (1941)
  • 18.9% (1942)
  • 17.0% (1943)

He would likewise have no clue that, back in the good old days, the U.S. economy grew in the 7% to 8% range (see chart below):

  • 7.3% (1984)
  • 7.1% (1955)
  • 8.1% (1951)
  • 8.7% (1950)
  • 8.0% (1944)
  • 8.8% (1940)
  • 8.0% (1939)
  • 8.9% (1935)

In fact, Ronald Reagan was the last American president to put together a cogent pro-growth economic plan which thrust GDP above the 7.0% mark. Of course Mr. Todd could have looked this up before making a fool out of himself and NBC, but like many of his colleagues, he suffers from the recency effect. He is unable to see beyond the pathetic growth rates of -3.0% to 2.5%, which the U.S. has realized since 2009 (i.e. their new normal).

Mr. Trump continued to discuss how his tax plan will disincentivize corporate inversions (where U.S. companies move overseas to capitalize on lower tax rates and cheap labor). He described how his plan will incentivize U.S. companies to bring an estimated $2.1 trillion (or more) in profits held overseas back to the U.S. for domestic investment. Both policies work to raise GDP, expand the workforce and boost tax revenues.

Trump also discussed his plan to balance our longstanding trade deficits with China, Mexico, Japan and other nations through imposing a scaled tariff. Since over the last decade, trade deficits with the three named countries alone amount to $2.7 trillion, $602.6 billion, and $716.5 billion, respectively, Trump’s balanced trade initiative could add another $4.1 trillion to the national economy.

Mr. Todd continued to interrupt, “We still have a hole in the deficit that this tax plan blows open; unless you tell us what you’re cutting.” Of course this is a classic gotcha question, since most liberals view cutting anything, even waste, fraud and abuse, as a negative.

Given the anemic growth rates he and other liberals are accustomed to, failing to account for the $1.8 trillion saved by exempting millions from income tax filing requirements, and gains realized through disincentivizing corporate inversions, recovering overseas profits, and balancing trade, Chuck Todd concluded that Donald Trump’s tax plan may add as much as $10 trillion to the debt over 10 years.

To this, Mr. Trump simply reiterated, “If we can get it (i.e. the growth rate) up to 5% or 6% it’s a huge difference.”

Mr. Todd again interrupted, “Okay, 6% is something we have not done.”

Trump refuted, “Well, we used to do it in the old days.”

It turns out that Mr. Todd is wrong, and that Mr. Trump, who has the kind of thinking America needs to solve its trade, growth, and debt problems, is correct. The chart here shows U.S. GDP growth rates from 1930 through 2014. Growth of 6% or more has been achieved numerous times in the past and is entirely possible in the future. The first step in getting there is to stop listening to know-nothing media pundits. The second step is to elect a president with notable acumen in financial matters.

“Solving a multi-trillion dollar problem just may require the mind of a billionaire.”

References:

Data Worksheet

Bureau of Economic Analysis – Interactive Data

30-Year Trade Deficit with Mexico

30-Year Trade Deficit with China

Tax Simplification, Part II – Saving $1,756 Billion, Overnight

Big U.S. firms hold $2.1 trillion overseas to avoid taxes: Study

An Economic Program for Stimulating U.S. Economic Growth

30-Year Trade Deficit with Mexico

/ L. M. Walker / 3 Comments

Trump Nails It

– By: Larry Walker II –

Last year our trade deficit with Mexico totaled $53.8 billion, and is projected to end about the same in 2015. When the last three decades are summed, we find that the United States 30-year trade deficit with Mexico amounts to $910.2 billion. Although this has been great for Mexico, it hasn’t been so great for the United States.

Looking back over the last 30 years, we find that the United States actually ran trade surpluses with Mexico in 1991 through 1994, and then came the North American Free Trade Agreement (NAFTA – 1994). Since NAFTA, the United States annual trade deficits with Mexico have totaled $897.8 billion (since 1995). By comparison, the deficit amounted to just $13.7 billion during the 9 years preceding NAFTA.

U.S. Trade Deficit with Mexico (1985 to 2015)

2015 $31.2 billion (through July)

2014 $53.8 billion

2013 $54.5 billion

2012 $61.7 billion

2011 $64.6 billion

2010 $66.3 billion

2009 $47.8 billion

2008 $64.7 billion

2007 $74.8 billion

2006 $64.5 billion

2005 $49.9 billion

2004 $45.2 billion

2003 $40.6 billion

2002 $37.1 billion

2001 $30.0 billion

2000 $24.6 billion

1999 $22.8 billion

1998 $15.9 billion

1997 $14.5 billion

1996 $17.5 billion

1995 $15.8 billion

1994 ($1.3) billion (surplus)

1993 ($1.6) billion (surplus)

1992 ($5.4) billion (surplus)

1991 ($2.1) billion (surplus)

1990 $1.9 billion

1989 $2.2 billion

1988 $2.6 billion

1987 $5.7 billion

1986 $4.9 billion

1985 $5.5 billion

Not only are we losing in trade with Mexico, but the Mexican government has allowed millions of its own citizens, and those from nations to its south, to pour over our southern border illegally. That’s right! The Mexican government has been mostly complicit, looking the other way while tens of thousands boarded trains from its southernmost to its northernmost border, allowing them to cross our border without any resistance. Although lately Mexico claims to be clamping down on illegal border crossings, the damage has already been done.

There are folks both left and right who say, “Free-trade is good for America, because it allows us to work less and buy cheaper goods.” Although plausible on paper, the theory fails once we tally the last thirty years results. Looking back over the last 30 years, we discover that not only has the U.S. lost nearly $5.0 trillion in national wealth ($4 trillion to China and $1 trillion to Mexico alone), but according to the Bureau of Labor Statistics, manufacturing jobs in the U.S. have declined from 18.0 million in 1985 to just 12.3 million as of August 2015.

According to Raymond Richman (Ph.D. in Economics from the University of Chicago and Professor Emeritus of Public and International Affairs at the University of Pittsburgh), “We should end our huge chronic trade deficits which have decimated our manufacturing sector and caused the loss of millions of good American manufacturing jobs. Our policy should be balanced trade which economic theory supports rather than free trade which is supported by economic theory only when countries have a common currency and free movement of capital and labor (as among the States of the United States). We should use the “Scaled Tariff” (our invention!), a single-country-variable-tariff that rises as trade deficits widen significantly, whatever the reason, and are reduced to zero as trade is brought into balance.”

Once aware that our flawed trade policy has resulted in the siphoning away of more than $5 trillion in national wealth ($1 trillion to Mexico alone) and 6 million manufacturing jobs, it should be easy to understand how Mexico will pay for the new border wall. Mr. Trump has his finger on two of the most glaring problems with our economy, illegal immigration and our Lose-Lose foreign trade policy. Balancing our trade deficit, by any means necessary, is a vital component in the quest to make America great again.

References:

An Economic Program for Stimulating U.S. Economic Growth

30-Year Trade Deficit with China – Maybe Trump Gets It

U.S. Census Bureau – Trade in Goods with Mexico

Bureau of Labor Statistics – CES Establishment Data – Manufacturing

U.S. Census Bureau – Income and Poverty in the United States: 2013

30-Year Trade Deficit with China

/ L. M. Walker / 3 Comments

Port of Savannah

Maybe Trump Gets It

-By: Larry Walker II-

This year-to-date, the United States has imported $267.7 billion in goods from China, while exporting just $65.4 billion in goods to China. That amounts to a current year trade deficit of $202.3 billion, in the first seven months alone. Looking back over the last 30 years, the last time our mutual trade comprised any semblance of balance was in 1985.

Our trade deficit with China was a mere $6.0 million in 1985 (the last time it would amount to less than a billion dollars). From a trade deficit of just $6.0 million in 1985, the imbalance suddenly jumped to $1.7 billion by 1986. It has grown progressively worse almost every year since. Last year our trade imbalance with China reached a record $343.1 billion, and it is projected to end higher this year.

When the last three decades are summed, we find that the United States 30-year trade deficit with China amounts to $3.9 trillion. To top it off, the imbalance is clearly growing worse year by year. Although this has been great for China, it hasn’t been so great for the U.S.

U.S. Trade Deficits with China (1985 to 2015)

2015 $202.3 billion (through July)

2014 $343.1 billion

2013 $318.7 billion

2012 $315.1 billion

2011 $295.2 billion

2010 $273.0 billion

2009 $226.9 billion

2008 $268.0 billion

2007 $258.5 billion

2006 $234.1 billion

2005 $202.3 billion

2004 $162.3 billion

2003 $124.1 billion

2002 $103.1 billion

2001 $83.1 billion

2000 $83.8 billion

1999 $68.7 billion

1998 $56.9 billion

1997 $49.7 billion

1996 $39.5 billion

1995 $33.8 billion

1994 $29.5 billion

1993 $22.8 billion

1992 $18.3 billion

1991 $12.7 billion

1990 $10.4 billion

1989 $6.2 billion

1988 $3.5 billion

1987 $2.8 billion

1986 $1.7 billion

1985 $6.0 million

There are folks on both the left and right who say, “Free-trade is good for America, because it allows us to work less and buy cheaper goods.” Although it may be true that free-trade allows us to purchase more goods at lower prices, a problem arises when the exchange is so grossly out of balance. Although plausible on paper, the theory fails once we tally the last thirty years results. Looking back, we discover that not only has the U.S. lost $3.9 trillion in wealth (with just one country), but according to the Bureau of Labor Statistics, manufacturing jobs in the U.S. have declined from 18.0 million in 1985 to just 12.3 million as of August 2015.

The idea of working less and being able to buy cheaper goods might sound great to someone who’s working their behind off and doing well, but not so much for those forced to sit on the sidelines. As I recently commented on an Anti-Trump Trade Policy Video, “How is the guy, in your example, supposed to go to Wal-Mart to buy an imported Chinese TV, if he has no job and is stuck on food stamps, unemployment or welfare? And, why is the poverty rate in the U.S. higher than it was 30 years ago?”

If you think a policy resulting in the siphoning away of $4 trillion in national wealth and 6 million manufacturing jobs is somehow winning, then perhaps that’s why you’re not. Maybe Mr. Trump is more knowledgeable than thou, at least when it comes to the economy.

References:

U.S. Census Bureau – Trade in Goods with China

Bureau of Labor Statistics – CES Establishment Data – Manufacturing

U.S. Census Bureau – Income and Poverty in the United States: 2013

A Pen, a Phone and GDP Contracts by 2.9%

/ L. M. Walker / 1 Comment

:: By: Larry Walker, Jr. ::

Back on January 14, 2014, POTUS 44 announced, “We’re not just going to be waiting for legislation in order to make sure that we’re providing Americans the kind of help they need. I’ve got a pen and I’ve got a phone.” Well, great!

Then on June 25, 2014, the Bureau of Economic Analysis (BEA), in its third and final release, announced that real gross domestic product (GDP) decreased at an annual rate of 2.9 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014). In the fourth quarter of 2013, real GDP increased 2.6 percent.

Well, so much for going it alone. Please stop with the help already, it’s not working. Did anyone seriously believe this guy was some kind of economic prodigy, capable of single-handedly leading the U.S. economy to the Promised Land? Oh, please! My first impression was “What a moron.” Isn’t this the same guy who hired a 35-year-old fiction writer as his Deputy National Security Advisor? And, isn’t this the same guy that (ad infinitum)… believe me, it’s not worth it.

After the first release estimate, Zerohedge.com reported, and I’m paraphrasing, “…if it wasn’t for the (government-mandated) spending surge resulting from Obamacare, which resulted in the biggest jump in Healthcare Services spending in U.S. history, GDP growth would be negative.” Well, it so happens that, according to the BEA’s third and final estimate, GDP growth actually was negative.

It seems that if all the cash sucked out of discretionary consumer spending during the first quarter, by way of artificially high (government-subsidized) health insurance premiums, and neatly tucked away into insurance company reserve funds (savings accounts), had instead been unleashed into the economy, GDP surely would have been positive.

Where I come from, a contraction in GDP of 2.9% should indicate that someone or something’s about to get the ax. Let’s just pray it’s this ridiculous pen and phone strategy. And, while we’re at it, how about losing that idiot fiction writer. Whose bright idea was that anyway?

Revised and updated on June 25, 2014.

Replacing Coal with Solar Energy — Let Me Count the Costs

/ L. M. Walker / 6 Comments

“Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?” ~ Luke 14:28 (NIV)

– By: Larry Walker, II –

During his 2011 State of the Union address, Potus announced a new U.S. energy target: Produce 80 percent of electricity from clean energy sources by 2035. Just this past week, two and a half years later, he announced that the centerpiece of his proposal involves deploying the EPA in a new war on the coal industry. But according to Rep. Tim Murphy (R-Allegheny), the House Chairman of the Energy and Commerce Oversight Committee, “This Administration has already closed one-fifth of US coal-fueled plants in the last four years and has made no secret about its anti-coal agenda.”

Although the topic has sparked an abundance of rhetoric from the lips of Potus, there’s been no mention of the cost to American households, to taxpayers at the federal and state levels, no hint of opportunity cost (the value of the best alternative forgone), nor of any economic benefits, but merely an odd discourse involving a man-made solution for regulating the Earth’s temperature, namely through taxing and regulating our largest source of electricity, coal fired power plants, out of existence. The unanswered questions surrounding Potus’ latest craze are as follows: How much is it going to cost? Who’s going to pay for it? And, how will it benefit America?

I recently came across an interesting article on Climate Central entitled, “Replacing Coal With Clean Energy — Let Me Count the Ways” (July 2011). The author, Alyson Kenward, ponders where all the new “clean energy” will come from after Potus destroys the coal industry. She explains that coal and natural gas produce about 70 percent of our electricity, nuclear power around 20 percent, renewable sources like wind and hydro-power roughly 10 percent, and how this ratio would need to change.

According to Potus, natural gas counts as clean energy, because even though it produces CO2, its emissions per kilowatt-hour (KWh) generated are only half as much as coal. Thus, if we were to leave all the current natural gas fired power plants in place, and not build any new ones, hitting the 80 percent target means that roughly 46% of the nation’s coal production would need to be replaced. As Ms. Kenward explained, and I concur, this won’t be a simple task, since coal alone currently provides 37% of America’s electricity.

Ignoring the costs, Ms. Kenward came up with six ways the U.S. could achieve Potus’ objective. Counting the costs, I have slightly revised and modified Ms. Kenward’s analysis, while maintaining its integrity, focusing on just one of her six possible ways, which I will call Method Number 4. After weighing the costs and benefits, we will be able to decide for ourselves whether or not Potus’ idea is feasible.

Method Number 4

We could build 7,529 solar energy farms — but each one would have to be the size of Nevada’s Copper Mountain solar array.

The U.S. produces just over 4 trillion KWh of electricity each year, of which coal is responsible for 1.5 trillion KWh, or 37%. In order to reduce the ratio of electricity produced from coal to 20% would require a substitute capable of generating roughly 689 billion KWh per year. Nevada’s Copper Mountain solar farm produces around 92 million KWh a year. So to reach Potus’ target would require building 7,529 similar solar farms over the next 22 years, or 342 per year.

The Sempra Copper Mountain facility is a 55-megawatt solar farm, in Nevada, which spans 380 acres and contains 775,000 solar panels. Built between January and December of 2010, it was at the time the largest PV solar plant in the United States. One of its claims to fame was that it allegedly created 350 temporary construction jobs, yet the Las Vegas Sun pointed out some of its more glaring flaws:

  • Solar power coming to Nevada: 0. Zip.

  • Parts manufactured in Nevada: 0. Zilch.

  • Permanent jobs created: 5. That’s not a typo.

  • State incentives developer Sempra Generation received: $12 million. That’s not a typo, either.

Costs

According to the Los Angeles Times, “Capturing a free and clean source of energy is not cheap. Solar is the Cadillac of energy, with capital costs and other market factors making it three times more expensive than natural gas or coal. Ratepayers’ bills will be as much as 50% higher for renewable energy, according to an analysis from the consumer advocate branch of the state Public Utilities Commission.”

So not only will solar power cost more than three-times as much as coal to implement and produce, but when it’s all said and done our power bills will likely be more than 50% higher, as ratepayers’ pass their costs on to consumers. This fact alone should disqualify solar energy as a viable alternative for our electric power needs.

The Nevada Economic Development Commission said the project cost $141 million. The federal government gave Sempra Generation about $42 million in tax credits, 30 percent of the price tag for Copper Mountain. When we include the $12 million in state incentives, mentioned above, we find that 38% of its total cost was provided by federal and state tax dollars. That’s all well and good, except for the fact that we would have to replicate the process 7,529 more times in order to reach Potus’ target.

Using simple math puts the total cost of Potus’ grand scheme at around $1,061,527,823,294 ($141,000,000 times 7,529). That’s $1.1 trillion, with potentially $316 billion subsidized by the federal government, and $90 billion by state governments. Although over a 22-year period this only amounts to around $48 billion per year, with $14 billion subsidized by the federal government and another $4 billion by the states, we must next weigh the economic benefits?

In the matter at hand, a politician defending costs, without considering benefits, is akin to the federal government regulating the level of mercury emissions in the atmosphere, while simultaneously forcing every household in America to install mercury laced light bulbs. Frankly, I would rather have mercury way up in the atmosphere, than in the light fixture next to my bed. In other words, if the costs outweigh the benefits, a project may ultimately do more harm than good.

Short-Term Economic Benefits

Construction of the Copper Mountain plant created 350 temporary jobs, which theoretically lasted about a year, although we don’t know how that was calculated. There could have been high turnover (i.e. 175 jobs filled by 350 persons). However, if 7,529 similar plants were to be built, in raw terms, it may result in the creation of as many as 2,635,150 temporary construction jobs, over a period of 22 years. Although that sounds great, it only amounts to 119,780 temporary jobs each year, or 9,981 jobs per month.

The catch is that because these jobs are temporary in nature, lasting perhaps a year at most, theoretically the same crew would be moving around from job to job. The net result is that only a total of 119,780 jobs are created over the entire 22-year period. How’s that you say? Well, as next year’s 119,780 jobs are created, last year’s 119,780 jobs come to an end. So in terms of temporary construction jobs, at best only 119,780 are created through the year 2035, at which point they disappear entirely. Although one might presume any amount of jobs growth a positive, because the U.S. needs to create roughly 127,000 jobs each and every month, just to keep pace with population growth, in the near-term, going solar adds virtually nothing to our ailing economy.

Long-Term Economic Benefits

According to Speaker of the House John Boehner, the coal industry is responsible for 760,000 good paying permanent jobs. If that’s correct, then Potus’ goal of reducing the coal industry by 46% would result in a loss of perhaps 349,600 good paying permanent jobs, assuming the entire industry doesn’t collapse in the process. And remember, Copper Mountain created just 5 permanent jobs (that’s not a typo). So once Potus’ scheme is fully realized, after 22 years and $1.1 trillion are squandered, the U.S. will have created just 37,645 permanent jobs (5 * 7,529).

In the long run, Potus will have replaced 349,600 (or more) permanent full-time jobs with just 37,645, for a net loss of 311,955 jobs, an 80% reduction. Brilliant! By the year 2035, assuming we haven’t plunged into the Dark Ages, we will have higher cost electricity, something we already had at a much lower cost, and the nation will have achieved a greater level of unemployment with evermore people dependent on government aid. Well, so much for the economic benefits of Method Number 4. But at least the planet will be healed, right?

Environmental Trade-Offs

Construction of an additional 7,529 Copper Mountain sized solar power plants would involve converting some 2,860,855 acres of land into solar farms (380 * 7,529). That equals an area of 4,470 square miles.

Although this may sound like a lot, according to the USDA Economic Research Service, the United States has a total land area of nearly 2.3 billion acres. In 2007, the major land uses were forestland at 671 million acres (30 percent); grassland pasture and range-land at 614 million (27 percent); cropland at 408 million (18 percent); special uses (primarily parks and wildlife areas) at 313 million acres (14 percent); miscellaneous uses (like tundra or swamps) at 197 million acres (9 percent); and urban land at 61 million acres (3 percent).

Since the Mojave Desert, which spans parts of California, Nevada, Utah, and Arizona, comprises an area of 22,000 square miles, a sufficient amount of land is not a problem. The only issues are ironically environmental. With all the CO2 hysteria these days, we won’t likely know of the negative effects of pointing thousands of square miles of polycrystalline, monocrystalline and amorphous silicon panels directly at the sun until something bad happens. After all, we’re just finding out that wind turbines aren’t all they were cracked up to be: “Rare bird last seen in Britain 22 years ago reappears – only to be killed by wind turbine in front of a horrified crowd of birdwatchers.” Not that environmentalist’s care about the needless slaughter of wildlife.

And, you may recall that it was only after implementing the corn, sugarcane and soybean ethanol fads that we discovered the concept of carbon debt – that large amounts of trapped carbon are released into the atmosphere when vegetation burns or decays as land is cleared, and that this up-front carbon debt could take centuries to break even with emissions gradually avoided by substituting bio-fuels in place of fossil fuels. Oops!

What would happen if every other nation across the planet were also to implement Potus’ program, turning several hundred thousand square miles of the Earth’s surface into a gigantic silicon light reflector? Would the atmosphere fry? Would people go blind? Would an ice age ensue? Would the number of violent storms, tornadoes and hurricanes escalate? Would the Sun explode? Are unknown negative effects of solar panels already having an impact on Planet Earth, and we’re just unaware? Is global warming propaganda really just a self-fulfilling prophecy?

Industrial-scale solar development is well underway in California, Nevada, Arizona, New Mexico, Colorado and Utah. The federal government has furnished more public property to this cause than it has for oil and gas exploration over the last decade — 21 million acres, more than the area of Los Angeles, Riverside and San Bernardino counties put together. And even if only a few of the proposed projects are built, thousands of square miles of wild land will be scraped clear, and several thousand miles of power transmission corridors will be created. But many of these power plants will fail, as new technologies render older models like Copper Mountain obsolete, and the desert will be scarred well beyond a human life span. In fact, according to scores of federal and state environmental reviews, no amount of mitigation will repair it. But isn’t solar power the most efficient use of Earth’s resources?

Capacity Factors

Capacity factor is a general term for all power generating systems and refers to the difference between what a system can achieve at continuous 100% output (its power rating) versus what it actually achieves under normal (less than 100%) operating conditions.

The capacity factor for solar panels varies between 15% and 40%. This means, if a solar panel has a capacity factor of 25% its average energy output will be 25% of what it was designed to achieve. For example, a 100 watt solar panel with a capacity factor of 25% has an average energy output of just 25 watts. Thus, if you need 100 watts of power, you’ll need to install four 100 watt solar panels. Well, so much for efficiency!

The capacity factor of a power station is the ratio of average output power to peak power that the station could deliver. Due to fluctuations in the availability of the primary energy source and outages due to maintenance of the equipment, the capacity factor is never 100%. In fact, for renewable energy sources, it is mostly below 50%. The capacity factors of solar power plants are particularly low, mainly because the sun is only above the horizon half of the time. This matters, because electric power plants are more cost efficient when they can be run at high capacity, with less fluctuation.

At full capacity, the 55 MW Copper Mountain plant would produce around 482 gigawatt-hours (GWh) of electricity (55 MW times 8,760 hours, where 8,760 equals 24 hours times 365 days). But since PV solar plants in that part of the country only have a capacity factor of around 19%, actual output is reduced to around 92 GWh. In other words, it’s not a 55 MW plant, it’s at best effectively a 10 MW power station (55 MW times 19%). With that in mind, according to the U.S. Energy Information Administration (a) and other references (b), in 2009, the capacity factors for the various sources of electrical power were as follows:

  • Photovoltaic solar in Massachusetts – 13% to 15% (b).

  • Photovoltaic solar in Arizona – 19% (b).

  • CSP solar in California – 33% (b).

  • Wind farms – 20% to 40% (b).

  • Natural Gas – 10% to 42% (a).

  • Oil – 7.8% (b).

  • Hydroelectric – 39.8% (a).

  • Coal – 63.8% (a).

  • Nuclear – 90.3% (a).

Since coal has a capacity factor of 63.8% versus solar energy’s 13% to 33%, when Potus speaks of replacing 46% of coal generated electrical plants with solar, what he really proffers is to replace our second most efficient source of electricity with the second worst. If efficiency were the goal, then it seems to me investing more towards nuclear power would be the best use of our resources. But what do I know?

Nuclear power plants produce electricity 90.3% of the time, which trumps all other sources of electrical power. But sadly, per the table near the top, the U.S. only produces 19% of its electricity from nuclear, compared to 37% from coal, 30% from natural gas, 7% from hydro-power and just 0.11% from solar. What gives? Are we at war with efficiency too?

Considering capacity factors, since there are 24 hours in a day, solar farms in the U.S. can at best deliver power for 8 hours out of 24 (33% of the time), and at worst for just 3 hours per day (13%). On the other hand, coal delivers power 15 continuous hours per day (63.8%), natural gas 7 hours a day (30%), and nuclear energy for 22 out of every 24 hours (90.3%). I don’t know about you, but I’ve grown accustomed to the convenience of electricity 24/7 (twenty four hours a day, seven days a week). Sorry, but going backwards isn’t a viable option.

Summary

Today, 37% of our electricity comes from coal and just 0.11% from solar. Replacing 46% of coal fired power plants with solar, as Potus presupposes, would necessitate building approximately 7,529 Copper Mountain sized power plants at a cost of around $1.1 trillion, with potentially $316 billion subsidized by the federal government, and another $90 billion by the states. It would also require scraping and clearing 2,860,855 acres of land (4,470 square miles) for conversion to solar plants, and several thousand miles more for power transmission corridors to deliver the product to market, irreparably damaging to the planet.

As far as benefits, on the one hand, we’ll have electricity, something we already had, so nothing is gained. On the other hand, since solar electricity costs three times as much to implement and produce as coal, unlucky consumers living in solar districts can expected to see at least a 50% hike in energy costs, and that’s on top of the additional taxes and fees all of us (including unborn generations) will be forced to pay in order to subsidize the scheme.

And although as many as 119,780 temporary solar construction jobs will be created and lost over the 22 year cycle, when it’s all said and done, only 37,645 permanent jobs will remain, while some 349,600 good paying coal industry jobs are destroyed. Finally, we will have reduced by 46% our second most efficient source of electricity, coal, which has a capacity factor of 63.8%, shifting reliance towards solar, which is at best only reliable 13% to 33% of the time. So the net economic benefits of going solar are less than zero (zilch minus).

But at least the Earth’s temperature will theoretically drop by a fraction of a degree in a thousand years or so, unless it turns out that mankind really doesn’t control nature (i.e. solar activity). For all we know the Earth’s temperature could vary wildly, between several degrees warmer or cooler, depending on the effects of converting thousands of square miles of the planet into a gigantic silicon light reflector.

Conclusion

But then there’s this: If coal is so horrible, then why not just eliminate its use entirely? Well, one reason might be that we need a reliable source of electricity in order to make the more than 5.8 billion solar panels required to pull off Potus’ scheme (775,000 times 7,529). And if the goal really is the elimination of coal as a natural resource, then just take my figures above, multiply them by 2.18, and you’ll have a good approximation of the costs and benefits. What you will discover is that in order to eliminate coal entirely, we would need to build approximately 16,386 solar farms, covering an area of more than 9,729 square miles, at a cost of more than $2.3 trillion. Anyone have an extra $2.3 trillion lying around?

Just like all other brilliant recommendations emanating from the mouths of crony politicians, solar energy turns out to be the most expensive, the least economically beneficial and the least efficient means to an end. An end which in their minds is just another way to game the system and cash in on the ignorance of the masses. Fortunately, just as the corn ethanol boondoggle of the last decade has now faded, this solar power fad too shall pass. If our goal is a return to the inefficiencies of the 19th Century, then perhaps we should follow the dictates of Potus, but if we are really serious about cleaning up the environment and producing reliable, efficient and abundant electrical power, it seems to me we should be moving towards Thorium (nuclear energy without the waste).

Other References:

Helpful Energy Comparisons, Anyone? A Guide to Measuring Energy – Climate Central

Total Electric Power Industry Summary Statistics, 2013 and 2012 – U.S. Energy Information Administration

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Homeowners Insurance Tops Inflation by 691%

/ L. M. Walker / 1 Comment

Caveat Emptor

– By: Larry Walker, II –

Have you checked your homeowner’s insurance policy lately?

I’ve been with the same insurer for over 10 years through two residences. Even with the previous company my homeowner’s rates stayed about the same from 1998 through 2007. During a recent review, I discovered that my basic coverage amounts (i.e. dwelling, private structures, personal property and loss of use) have been inflated by around 3.0% annually since 2007, or slightly higher than the general inflation rate, and although I sort of get that, albeit the cost to rebuild is now around 150 times current fair market value (ugh, don’t get me started), over the same time-frame, my insurance premiums (bundled with auto and other discounts) have grown by an annual average of 11.4%. What do you call that?

In fact, excluding additional discounts received in 2009 and 2010, which helped dampen the rate of growth, my premiums spiked by 17.5% in 2008, by another 16.8% in 2012, and finally by a backbreaking 20.4% this year. Had it not been for those additional discounts, my homeowner’s premiums would have averaged 18.2% over the period. Yet, even with a generous discount, my premiums have ballooned by 65.3% since 2007. Now compare that to inflation, which rose by just 13.7% during the same period (via Dollar Times).

So in other words, from 2007 to 2013, my homeowner’s premiums grew 377% faster than inflation. But don’t just take my word for it. A May 2013 article by the Associated Press (AP) confirms that homeowner’s insurance rates have spiked, however it fails to mention why? More specifically, why homeowner’s insurance premiums are currently advancing 691% faster than inflation.

Of course, the insurance industry blames increasing replacement costs (the cost of rebuilding a home from the ground up). Okay, great! But that only accounts for a 2% to 3% annual increase. So how does this translate into an average annual premium spike of 18.2%? According to the aforementioned AP article, which I might add is based on antiquated data, “Nationwide, an average homeowner paid $909 for homeowner’s insurance coverage in 2010, up 36 percent from 2003. Inflation rose 19 percent during the same period.” It goes on to provide a list of what homeowner’s in states bordering the Atlantic Ocean or Gulf of Mexico were paying in 2010.

Following are the average costs in five of those states, ranked by the percentage change from 2003 to 2010:

  1. Florida: $1,544, up 90.6 percent.

  2. Alabama: $1,050, up 54.2 percent.

  3. Mississippi: $1,217, up 53.5 percent.

  4. South Carolina: $997, up 48.4 percent.

  5. Georgia: $833, up 46.1 percent.

Now if the AP had continued its research through the current year, it would have discovered that the situation has gotten a lot worse since 2010, as I mentioned above. Here’s an idea for the media – next time, if you don’t know, why not try asking people who are actually affected? My premiums actually went up by 16.8% in 2012 and by another 20.4% this year, for a two-year average of 18.6%, while inflation averaged a mere 2.35%. So over the past two years, premiums have risen 691% faster than the rate of inflation ((18.6 – 2.35) / 2.35). What’s up with that?

It’s not the miniscule annual dollar increase that bothers me, but rather what the cost will be 10 or 20 years from now. At the current pace, by the time I reach what used to be considered retirement age, God willing, which is less than 20 years from now, homeowner’s premiums will be simply outrageous, perhaps more than 4 times the amounts shown above (i.e. doubling about every five years). In other words, if this doesn’t stop soon, I could be paying around $3,500 a year in retirement. I’m sorry, but this is just unacceptable.

So what did I do? I requested quotes from several local insurers. And what did I find? I received some quotes for less than half my current rate, some 30% to 40% lower, and others around the same. So I struck a deal which comes in at just 64% of the proposed renewal rate. That puts my new rate just 5.7% above what it was in 2006. Now that’s more like it. Perhaps I could have done better, but somewhere along the way I’ve learned that if it sounds too good to be true, it usually is.

The bottom line: Why have homeowner’s insurance rates spiked? As one of my Google+ friends put it, “Because they can get away with it.” Do yourself a favor; check your policy and take action while there’s still a free market (caveat emptor).

References:

Time to reassess your Homeowners Policy

How Homeowner Insurance Rates Have Spiked