fallacy

PRISM Schism

/ L. M. Walker / 1 Comment

Heads or Tails?

– By: Larry Walker II –

Carla Dean: “Well, who’s gonna monitor the monitors of the monitors?” – Quotes from Enemy of the State

PRISM is allegedly a covert collaboration between the NSA, FBI, and nearly every tech company you rely on daily. PRISM has allegedly allowed the government unprecedented access to your personal information for at least the last six years. I say allegedly because every tech company in question denies its existence.

According to the Washington Post:

The National Security Agency and the FBI are tapping directly into the central servers of nine leading U.S. Internet companies, extracting audio and video chats, photographs, e-mails, documents, and connection logs that enable analysts to track foreign targets… Equally unusual is the way the NSA extracts what it wants, according to the document: “Collection directly from the servers of these U.S. Service Providers: Microsoft, Yahoo, Google, Facebook, PalTalk, AOL, Skype, YouTube, Apple.”

However, Apple, Microsoft, Yahoo, and Google have all given full-throated denials of any involvement whatsoever. According to Google (emphasis mine):

You may be aware of press reports alleging that Internet companies have joined a secret U.S. government program called PRISM to give the National Security Agency direct access to our servers. As Google’s CEO and Chief Legal Officer, we wanted you to have the facts.

First, we have not joined any program that would give the U.S. government—or any other government—direct access to our servers. Indeed, the U.S. government does not have direct access or a “back door” to the information stored in our data centers. We had not heard of a program called PRISM until yesterday.

Second, we provide user data to governments only in accordance with the law. Our legal team reviews each and every request, and frequently pushes back when requests are overly broad or don’t follow the correct process. Press reports that suggest that Google is providing open-ended access to our users’ data are false, period. Until this week’s reports, we had never heard of the broad type of order that Verizon received—an order that appears to have required them to hand over millions of users’ call records. We were very surprised to learn that such broad orders exist. Any suggestion that Google is disclosing information about our users’ Internet activity on such a scale is completely false.

Schism

Now we hear that the federal government may be launching an investigation in order to find the person who leaked details regarding PRISM to The Guardian and Washington Post newspapers. In other words, the government wants to know who, within its ranks, blew the whistle. Sounds like another government-manufactured conundrum to me.

Great, so now the government is going to waste time and resources finding out who leaked the details of a program which never existed. Seems to me like the White House would be a great place to start, especially since its Deputy National Security Adviser, Ben Rhodes, has a master’s degree in fiction-writing from New York University. What’s up with that? I mean, in the mind of a fiction writer, wouldn’t it seem like one of the best ways to deal with a series of scandals would be to manufacture an even bigger one, and then quash it?

By that time won’t everyone have forgotten about Benghazi, the IRS Scandal, James Rosen, Eric Holder, Verizon, the Budget Crisis, Illegal Immigration, the Secret Kill List, Obamacare and everything else? Well, not in the real world. Nevertheless, for my two cents, if there is a leak investigation, in an effort to save both time and precious taxpayer resources, it should be performed by a Special Prosecutor, and should begin and end at 1600 Pennsylvania Avenue.

——————–

Addendum

I’ve actually known about Comverse Technology, Inc. since around 1994. The company merged with Verint Systems, Inc. early this year. This video discusses how the Verint Communications and Cyber Intelligence products and solutions help make the world a safer place (i.e. a less private place).

Verint CIS Solutions from Verint on Vimeo.

Has Obama Created More Jobs Than Bush Yet?

/ L. M. Walker / 1 Comment


:: Card Stacking ::

MythBuster III: Rational or Ridiculous?

– By: Larry Walker, Jr. –

Card stacking, or selective omission, is one of the seven propaganda techniques identified by the Institute for Propaganda Analysis. It involves only presenting information that is positive to an idea or proposal and omitting information contrary to it. Card stacking is used in almost all forms of propaganda, and is extremely effective in convincing the public. Although the majority of information presented by the card stacking approach is true, it is dangerous because it omits important information. The best way to deal with card stacking is to get more information.

Back in October of 2010, the left-wing media and White House tried to spin the myth that, “Obama created more jobs in 2010 than Bush did in eight years.” However, this delusion was busted in the first MythBuster series (here), simply by proving that at the time, not one single solitary job had been created during the Obama Administration. In fact at the time Mr. Obama was proudly presiding over a 2,991,000 loss in private sector jobs. So where are we today, 2 years later and 44 months into Mr. Obama’s agenda? Has Obama created more jobs than Bush?

Current Employment Statistics: No Shot

Let’s turn to the Bureau of Labor Statistics, focusing first on the Current Employment Statistics (CES). The CES is a monthly survey of about 141,000 businesses and government agencies, representing approximately 486,000 individual worksites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls, also known as Table B.

When we add up the total number of nonfarm jobs created during Mr. Obama‘s 44-month tenure (February 1, 2009 to September 30, 2012), we find that a total of 61,000 jobs have been lost (133,561,000 – 133,500,000). Thus, Mr. Obama’s job loss average is 1,386 jobs per month. Oops!

And when we add up the total number of nonfarm jobs created during Mr. Bush’s 96-month tenure (February 1, 2001 to January 31, 2009), we find that a total of 1,095,000 jobs were created (133,561,000 – 132,466,000). So Mr. Bush’s job creation average was 11,406 jobs per month.

Therefore, in terms of the CES, Mr. Bush’s job creation record was 922.9% greater than Mr. Obama’s [(11,406 + 1,386) / 1,386]. Oops!

Current Population Survey: Fair Shot

Just to be fair, we’ll return to the Bureau of Labor Statistics, this time focusing on the Current Population Survey (CPS). The CPS is a monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics, also known as Table A. The CPS is a broader survey, which includes those who are self-employed or who work for smaller companies. It’s also the data set used to calculate the official unemployment rate.

When we add up the total increase in the employment level during Mr. Obama‘s 44-month tenure (February 1, 2009 to September 30, 2012), we find that a total of 787,000 jobs have been created (142,974,000 – 142,187,000). That’s an average of 17,886 jobs per month, which is at least positive, although far short of the four or five million he esteems.

Yet, when we add up the total increase in the employment level during Mr. Bush’s 96-month tenure (February 1, 2001 to January 31, 2009), we find that a total of 4,409,000 jobs were created (142,187,000 – 137,778,000). That’s an average of 45,927 jobs per month.

Thus, in terms of the CPS, Mr. Bush’s job creation record was 256.7% greater than Mr. Obama’s (45,927 / 17,886). Oops!

Officially Busted!

The claim, “Obama created more jobs than Bush did in eight years,” is officially busted. Although I could cherry-pick and find a period where nonfarm jobs growth was up by 7 or 8 million during Mr. Bush’s term, for example from 2003 through 2007, and use that to pummel Mr. Obama’s record into the ground, I choose to remain among the rational. I don’t want to hear another word about Obama having created four of five million jobs over some arbitrary period.

Most of us would agree that Mr. Bush’s job creation record was pretty dismal, but compared to Mr. Obama’s record, we were far better off during the Bush years. The truth is that the number of nonfarm jobs (CES) grew 922.9% greater during Bush’s 96-month term, in spite of the massive losses incurred during two recessions, than during Mr. Obama’s 44-month term. And likewise, the employment level (CPS) grew 256.7% greater during Bush’s term, than during Mr. Obama’s.

We are currently around 4 or 5 million jobs short of where we were before the Great Recession. Frankly, Mr. Obama’s job creation record is ridiculous, pathetic, and unacceptable. He should be ashamed, as should anyone attempting to spin such trifle. It’s time to throw the bums out.

References:

Institute for Propaganda Analysis (IPA)

Bureau of Labor Statistics: CES Data

Bureau of Labor Statistics: CPS Data

Who Built What? – Obama’s Fallacy of Composition

/ L. M. Walker / Leave a comment

You Didn’t Build That!

– By: Larry Walker, Jr. –

The “framework” is not a person, natural or legal, to whom a debt can be owed, “institutions” do not act, “society” has no mind, no will, and makes no contributions. Only persons do these things. Imputing responsibility and credit for accumulated wealth, current production and well-being to entities that have no mind and no will is nonsense. It is a variant of the notorious fallacy of composition. ~ Anthony de Jasay *

The fallacy of composition arises when one infers that something is true of the whole from the fact that it is true of some part of the whole. For example, Obama’s use of the fallacy surmises that, “If you’ve got a business, you didn’t build that. Somebody else made that happen.” In other words, if an individual owns a successful business, then the individual didn’t build it, but rather society as a whole built it. Thus, he concludes that the assets of all successful business endeavors, and any profit generated therefrom, whether owned by an individual, a partnership, corporation, or joint venture, really belong to society, not its owners.

But this is nothing new. Anthony de Jasay wrote about it in 2002, in his article entitled, Your Dog Owns Your House. Following the same line of fallacious reasoning, if an individual is a drug addict and derelict, then he didn’t get that way on his own either, but rather society made him so. Therefore, society owes all drug addicted derelicts a free pass to the nearest community owned rehabilitation center, as well as an equal piece of the collective economic pie. As such, one clouded by the fallacy of composition might make the following statement.

‘It always amazes me when someone says, “I became a drug addict and derelict on my own, and I take full responsibility for my actions and want to make things right.” Nah, nah, nah, you didn’t get that way on your own, society made that happen. You walked and drove over public roads and bridges that someone else built in your quest for dereliction. You had a teacher somewhere who influenced you to experiment with drugs. You didn’t become a derelict by yourself. Therefore you have no right to take responsibility for your actions and try to make things right. Society will rehabilitate you and make you whole.’ Does that sound familiar?

Yet, in spite of our omniscient government, approximately 7,000 high school students drop out every school day, which translates to one in three students. So extending Obama’s fallacious reasoning a bit further, it may be stated that an individual who decided to drop out of high school, to perhaps become a full-time gangbanger, didn’t make that decision on his own either, society made it for him. Somewhere along the way, teachers, police officers, judges, social workers, and politicians made a contribution. Thus, the fallacious would conclude that society owes the dropout not only an an equal piece of the collective economic pie, but a second chance to return to school and start over again, no matter how long it takes, the cost, or whether or not the individual is a willing participant.

Under Obama’s long-known fallacy, it’s damn free will, damn ingenuity, and damn hard work and tenacity, no one has ever accomplished anything on their own, good or evil. You are a product of society. Your dog owns your house. You have no right to the income produced by the sweat of your brow. There are no winners or losers. If you succeed, your wealth belongs to the state, and if you fail or don’t even try, then society will always bail you out.

Goose-stepping to the nth degree, it would follow that there is no difference between good and evil. All actions are created equal. The murderer, mass murderer, rapist, child rapist, kidnapper, thief, the avowed racist, down to the lowest level of the depraved, all have a right to share in the fruit of law-abiding, productive, citizens. There is no failure, and there is no success. We are all one. So it would follow that all prisoners should be freed, including terror suspects world-wide. And further, that all borders should be open to the poor across the globe, since they too have a right to share in the successes of those who are more fortunate.

Never mind that you studied day and night to perfect your craft, that you worked hard to get where you are, that you paid your own way, filed all your tax returns and paid all taxes due, are current on all your bills, and both you and your record are clean. To the fallacious, you deserve no more than dropouts, do-nothings, freeloaders, tax cheats, deadbeats, drug addicts, derelicts or common criminals. These are the ends of Obama’s fallacy of composition. But we know better.

For every house is built by someone, but God is the builder of everything. ~ Hebrews 3:4

All hard work brings a profit, but mere talk leads only to poverty. ~ Proverbs 14:23

The borrower is servant to the lender. ~ Proverbs 22:7

For even when we were with you, we gave you this rule: “If a man will not work, he shall not eat.” ~ 2 Thessalonians 3:10

Woe to those who call evil good and good evil, who put darkness for light and light for darkness, who put bitter for sweet and sweet for bitter. ~ Isaiah 5:20

Photo Credit: Fallacy of Composition | The Fallacy-a-Day Podcast

Reference:

Your Dog Owns Your House, by Anthony de Jasay | Library of Economics and Liberty

Book of Isaiah, Chapter 5 | Holy Bible

The Great, Obama Unemployment Rate Scam | LibertyWorks

/ L. M. Walker / Leave a comment

The Great, Obama Unemployment Rate Scam *

February 9, 2012 | By BoomerJeff *

Political communication in America is largely an effort to influence the perceptions of those who pay little attention to politics by stripping complex concepts and issues down to easily understood statistics and simplistic soundbites. In each of his first 33 months in office President Obama suffered because the easily understood Unemployment Rate remained very high. But over the past four months it fell from 9% to 8.3% and Obama and his media supporters are making the most of it. They tell us the economy has improved so much it is no longer an election issue and the President is no longer at risk of losing.

But it turns out that the Unemployment Rate statistic is misleading. It turns out that another statistic, the “Labor Force Participation Rate” has also declined. [Continued below the chart]

  • The Labor Force is the sum of all persons who have jobs plus all who are officially classified as “unemployed.”

  • The unemployment rate is computed by dividing the number of unemployed by the the labor force.

  • The labor force participation rate is the percentage of all working age adults who are officially counted as “in the labor force.”

Today, there are millions of people who want jobs but don’t qualify as “unemployed” by meeting government criteria and are thus counted as “not in the labor force.” We know this to be true because, as the chart shows, the participation rate has steadily declined for three years. Excluding people from the labor force artificially lowers the unemployment rate.

The chart above shows that the decline in the unemployment rate coincides with a decline in the labor force participation rate. The next chart shows what would have happened to the unemployment rate if the labor force participation rate had not not changed since the beginning of 2009. [Continued below the chart]

The last chart below tracks labor force participation and unemployment during the Reagan Administration. The labor force grew by 9% or 15.5 million people during the Reagan years. Participation grew from 63.9% to 66.1%. This chart is the picture of successful economic policies that increased liberty and decreased taxes and government intervention in the economy. Millions of new people entered the labor force but after the severe Recession Reagan inherited the unemployment rate declined because employers were able to replace all the jobs lost in the recession and hire the millions of people who entered the labor force. Reagan’s unemployment rate was not artificially reduced by excluding millions from of the labor force calculation and he was rewarded with reelection to a second term by the largest Electoral College landslide in American history.

Via: LibertyWorks – The Great, Obama Unemployment Rate Scam

I concur!

Manipulation 201: Playing With Unemployment

/ L. M. Walker / 3 Comments

*“Mene, Mene, Tekel u-Pharsin” ~ Book of Daniel, Ch. 5 *

* By: Larry Walker, Jr. *

The writing’s on the wall! The massive decline of new entrants to the civilian labor force, which is shown graphically in the chart above, directly impacts the unemployment rate, making the employment situation appear far better than it actually is. If the 9.3 million workers who have effectively dropped out of the labor force, since the end of 2008, were instead of being excluded, counted as unemployed, the real unemployment rate would be 13.0% instead of yesterday’s published rate of 8.3%. Even if only 55.0% of those who have been incontestably and wrongfully removed from the labor force were counted, which would be consistent with the eight-year average prior to Obama, the real unemployment rate would be 10.9%, not 8.3%. Never before in history has there been a more blatant manipulation of official labor statistics.

Those focusing all their attention on the number of jobs created in recent months are focusing on the wrong data. Lest we forget, the Bureau of Labor Statistics includes in its definition of the word employed – “persons 16 years and over in the civilian non-institutional population who, during the reference week, did any work at all (at least 1 hour) as paid employees.” So for all we know, a huge portion of those 200K and some odd jobs, allegedly created last month, were people hired for one hour, paid with taxpayer subsidized grants or loans, and working to register democratic voters in an effort to guarantee another round of Obamanomics. You laugh!

While we do need to watch out for the above, we really need to focus on the number of persons who have been summarily deleted from the labor force over the past three years. According the Bureau of Labor Statistics, the civilian labor force declined by 802,000 over this period. And even worse, another 8,481,000 new entrants, the majority of whom would normally have entered the labor force, are unaccounted for. So where are they? The Great Recession officially ended in June of 2009, yet 9.3 million Americans have gone missing over the past three years and one month. Thus, the question is, are they really missing, or has someone manipulated the unemployment rate in an effort to improve Obama’s chances for re-election?

The dilemma posed by a declining labor force is that as the civilian non-institutional population continues to grow by approximately 1.0% each year, millions of potential workers are forced out of the market. In other words, if there are not enough jobs for the existing workforce, then there are no jobs at all for the approximately 2 million new entrants who come into the job market each year. The devastating result is that a smaller proportion of the populace is working today, to support a much larger cluster of retirees, the unemployed, and those who are otherwise unaccounted for.

As you can see in the table above, according to the Bureau of Labor Statistics (Table A-1, not seasonally adjusted), the labor force grew from 142,583,000 at the end of the year 2000, to 154,287,000 by the end of 2008, for an increase of 11,704,000 workers over the eight-year period immediately preceding Obama. As such, the labor force was expanding by an average of 1,463,000 new entrants per year, for the eight years prior to 2009.

But from the beginning of 2009 through the end of 2011, the labor force declined from 154,287,000 to 153,617,000. Thus, after three consecutive years of Obamanomics, the labor force declined by a total of 670,000, for an average loss of 223,333 workers per year. The table has been extended through January of 2012, and as you can see, the labor force continued to decline by another 132,000 in January of 2012, as the number of workers fell from 153,617,000 to 153,485,000. Thus, a total of 802,000 have left the labor force since the end of 2008.

So it may be said that Obamanomics has caused the labor force, which should be expanding each year by a multiple of the increase in civilian non-institutional population, to instead be slashed by a total of 802,000 workers in just 37 month’s. This would be bad enough in and of itself; however if we are to believe the Bureau of Labor Statistics, from a macro view, the real employment situation is far worse.

When Obama’s declining labor force is compared with the growth of the civilian non-institutional population, also shown in the table above, we can see that a total of 9.3 million Americans have effectively been removed from the labor force during the last three years and one month (add together the amounts highlighted in the lower right-hand corner). This is the difference between periodic changes in the civilian non-institutional population (the 3rd column from the left), minus periodic changes in the labor force (the 2nd column from the right). It represents the periodic increase in the civilian working age population, which has been unfortunately added to the ranks of those counted as not in the labor force. And as we pointed out previously, a total of 6.5 million workers were removed in the three year period ending with 2011.

To be specific:

  1. In 2009, the civilian non-institutional population grew by 2,013,000, yet the labor force declined by 145,000, resulting in an increase of 2,158,000 persons counted as not part of the labor force. In other words, 2.1 million workers went missing in action (MIA).

  2. In 2010, the civilian non-institutional population grew by 2,029,000, yet the labor force continued to decline by another 253,000, resulting in an additional 2,282,000 counted as not in the labor force. That’s another 2.3 million MIA’s.

  3. Then in 2011, the civilian non-institutional population again grew, this time by 1,788,000, yet the labor force declined by another 272,000, resulting in 2,060,000 more persons counted as not part of the labor force. This resulted in another 2.1 million MIA’s.

  4. To top things off, in the first month of 2012, the civilian non-institutional population grew by an additional 2,651,000, yet the labor force further declined by 132,000, resulting in an additional 2,783,000 persons counted as not part of the labor force. Although January data is, as always, affected by changes in population controls, nevertheless it is what it is. Thus another 2.8 million Americans went MIA.

In effect, there have been no new entrants to the labor force in the past three years and one month, as 802,000 existing workers have dropped out of the workforce, and all 8,481,000 potential new entrants have fallen by the wayside. In all, that’s a total of 9.3 million workers who have effectively been pushed out of the labor force. For those paying attention, that’s a total of 8,373,000 persons who are not included in yesterday’s official unemployment calculation (9,283,000 less a seasonal adjustment of 910,000).

According to the Bureau of Labor Statistics, the official unemployment rate through January 2012 is 8.3%, as calculated in the table below, where:

[ (A) Total Unemployed / (B) Labor Force = (C) Unemployment Rate ]

However, if we were to add back the 8,373,000 workers who have effectively dropped out of the labor force, during Obama’s reign of misery, the real unemployment rate would be 13.0%, as calculated in the following table.

Even if only 55.0% of those who have been incontestably and wrongfully removed from the labor force were counted, which would be consistent with the eight-year average prior to Obama, the real unemployment rate would be 10.9%, not 8.3%. Eventually the majority of these 9.3 million working age Americans will start looking for work, and if upon entering the labor force, they are unable to find gainful employment, the unemployment rate should begin to rise towards its true rate, which would be between 10.9% and 13.0%, as stated.

Conclusion: In going all the way back to the year 1929, besides the years 2009, 2010, 2011, and potentially 2012, the only other years that the United States has ever suffered annual declines in its civilian labor force were 1943, 1944, 1945, and 1951. And as far as the 6.5 million who dropped out of the labor force entirely, over the past three years (not including 2012), that represents the worst consecutive 36 month period in United States history, also dating back to 1929. Since we are not presently engaged in a World War, with millions being drafted out of the civilian workforce, and with millions being killed in action, isn’t this proof positive that the unemployment rate is being manipulated?

Based upon the facts, the Great Recession never really ended, and the unemployment rate has been manipulated. I am 99.9% certain that the Obama Administration is playing with unemployment.

Prerequisites: Manipulation 101: The Real Unemployment Rate

Related: Unemployment Actually Rose in January, Media Screams “Unemployment Rate Declines!” – Is INCREASING Unemployment Something To Brag About?

** Updated on 2/7/2012 & 2/10/2012!

Manipulation 101: The Real Unemployment Rate

/ L. M. Walker / 10 Comments

* Fake it until you make it. *

* By: Larry Walker, Jr. *

The following passage is from my last post, “Labor Force Contraction with Obama – And other hidden truths” :

“Most of the electorate understands that as the size of the labor force shrinks the unemployment rate declines. But is anyone really paying attention? Since this massive decline in the civilian labor force is a verifiable fact, it’s not surprising that the Obama Administration and much of the propagandist media have chosen to ignore it.”

Okay, I confess that I was begging the question. I am fully aware that most of the population doesn’t have a clue as to how the unemployment rate is calculated, and that a healthy subset could probably care less. So in this post I will explain in more detail how, as the size of the labor force contracts, the official unemployment rate declines.

First, here are a few key definitions, which are shown in more detail at the bottom of this post.

  1. The term “non-institutional civilian population” includes persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

  2. The term “labor force” includes all persons, in the non-institutional civilian population, classified as employed or unemployed.

  3. And the term “not in labor force” includes persons aged 16 years and older, in the civilian non-institutional population, who are neither employed nor unemployed.

The table above shows the number of Americans counted as part of the labor force, from 2001 through 2011. It does not include those considered, “not in labor force”. You can see that during Bush’s first three years in office, although the economy was in recession, the labor force grew by 2,929,000 (on a seasonally adjusted basis). In contrast, the labor force has contracted by 739,000 during Obama’s first three years.

The dilemma posed by a declining labor force is that the non-institutional civilian population has continued to grow by approximately 1.1% each year. So in reality, the labor force didn’t only decline by 739,000 workers over the last three years (on a seasonally adjusted basis), but rather a total of 6.5 million workers dropped out (on a non-adjusted basis). What this means is that a smaller proportion of the populace is working to support a much larger cluster of retirees, unemployed, and those who have dropped out of the labor force.

As you can see, the labor force grew from 143,800,000 at the end of January 2001, to 154,626,000 by December of 2008, for an increase of 10,826,000 workers over the eight-year period immediately preceding Obama. The labor force was expanding by an annual average of 1,353,250 new entrants prior to 2009. But since January of 2009, the labor force has declined by an average of -246,333 workers per year. However, in the macro sense, the real employment situation is dramatically worse.

When the declining labor force is compared with growth of the civilian non-institutional population, as shown in the table below, it is clear that a total of 6.5 million Americans have dropped out of the labor force during Obama’s three years in office. This is the sum of the amounts highlighted in yellow (below). It is the difference between annual changes in the civilian non-institutional population, minus annual changes in the labor force. It represents the annual increase in the working age population, who are not being counted as part of the labor force.

For example, in 2009, the civilian non-institutional population grew by 2,013,000, yet the labor force declined by 145,000, resulting in 2,158,000 persons who should have, but did not enter the labor force. In effect, they dropped out. In 2010, the civilian non-institutional population grew by 2,029,000, yet the labor force declined by 253,000, resulting in 2,282,000 more persons who should have, but did not enter the labor force. Then in 2011, the civilian non-institutional population grew by 1,788,000, yet the labor force declined by another 272,000, resulting in 2,060,000 more persons who should have, but did not enter the labor force.

In effect, there have been no new entrants to the labor force in the past three years, as 670,000 existing workers dropped out (on an unadjusted basis), and all 5,830,000 potential new entrants fell by the wayside. Overall, 6.5 million working age persons have dropped out of the labor force under Obama. Is this change you can believe in?

The massive decline of new entrants to the labor force, which is shown in the table above, and graphically in the chart at the top, directly impacts the unemployment rate, making the employment situation appear better than it actually is. How so?

First, we must understand how the unemployment rate is calculated. The unemployment rate is calculated by dividing the number of unemployed persons by the size of the labor force:

[ (A) Total Unemployed / (B) Labor Force = (C) Unemployment Rate ]

Thus, the official unemployment rate of 8.5%, as reported by the Bureau of Labor Statistics in the January 6, 2012, Employment Situation Report, is calculated as follows:

[ 13,097,000 / 153,887,000 = 8.5% ]

What this means is that, at the end of the year 2011, 13,097,000 persons were officially unemployed, out of a labor force totaling 153,887,000. And so 13,097,000 divided by 153,887,000 equals the unemployment rate of 8.5%. So how could this result have been manipulated? Why, that’s easy.

Manipulation 101

“There are three kinds of lies: lies, damned lies and statistics.” ~ Mark Twain

First of all, it is a fact that not everyone who is actually unemployed is officially counted as such. In fact, according to the Bureau of Labor Statistics, millions of Americans of working age, who are not working, are excluded from the official calculation.

Mathematically, what this means is that they have been removed from both the numerator and denominator of the equation (i.e. from both the number of unemployed and size of the labor force). Those eliminated from the official unemployment equation are classified as, “Not in the Labor Force.”

A subset of those not included in the labor force is referred to as “marginally attached”. The marginally attached are persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.

When it comes to manipulating the unemployment rate, the main question is: What happens when an equal number of persons are subtracted from both the number of unemployed and the labor force? To answer this, let’s look at an example in the table below.

Starting in the middle of the chart, let’s assume that there are 14,000,000 unemployed persons out of a labor force totaling 140,000,000. That would make the unemployment rate 10.0%. Are you with me so far?

Now, let’s remove 3,000,000, from the labor force, and see what happens. Moving one column to the left, you will note that the unemployment rate falls to 8.0%, or by 2.0 percentage points, as 3,000,000 people are removed. That’s a decline of 20%. Wow! That was easy.

If we were to remove 10,000,000 from the labor force, we would get an even more dramatic result. Moving two columns left of center; you will notice that the unemployment rate falls even farther, to 3.1%, or by 6.9 percentage points, as 10,000,000 people are removed. That’s a decline of 69.0%.

Just to add some perspective, it works both ways. Moving one column to the right, you can see that the addition of 3,000,000 to the labor force causes the unemployment rate to rise to 11.9%, or by 1.9 percentage points (an increase of 19.0%). And finally, the addition of 10,000,000 to the labor force causes the unemployment rate to rise by 6.0 percentage points, or to 16.0% (an increase of 60.0%).

So it may be stated that, the act of removing workers from the labor force causes the unemployment rate to decline. It is also evident that an expanding labor force, in which new workers are unable to find work, should cause the unemployment rate to rise. Another fact is that classifying more workers as “not in the labor force” causes a greater percentage decline in the unemployment rate, than the percentage increase realized by allowing a natural expansion of the labor force. Got it?

Therefore, when the unemployment rate is higher than desired, all one has to do is remove a few million workers from the labor force, and voilà, “We are moving in the right direction.”

Now I’m not necessarily saying that the Obama Administration purposefully manipulated the unemployment rate, but since the Bureau of Labor Statistics is a governmental agency, run by a presidential appointee, it’s highly probable. I’m just saying that I no longer have faith in the Bureau of Labor Statistics’ ability to remain impartial. Perhaps going forward the functions of this agency, as well as others, should be factored out to private non-partisan concerns.

What’s the real unemployment rate?

The Bureau of Labor Statistics (BLS) itself admits that among those it has subtracted from a labor force, several million actually want to work. So I ask you this, If an individual is not working, but desires to have a job, is he (or she) not essentially unemployed? I say, “Yes”, but the BLS says, “No”. So is this a material issue, or is it diminimus? In other words, how many people are we really talking about?

Well, let’s turn to Bureau of Labor Statistics – Table A-38, Persons not in the labor force by desire and availability for work, age, and sex (below). To be precise, as far as BLS methodology goes, as of December 31, 2011, a staggering 87,212,000 working age Americans were not counted as part of the labor force. Among these, it is reported that 81,077,000 do not want a job, and that another 6,135,000 actually want to work.

To reiterate, in my book, if someone wants a job and doesn’t have one, that person is unemployed and should be counted as such. What’s the point of calculating an unemployment rate, which doesn’t include all persons who are unemployed?

Regarding those included or excluded from the labor force, here are a couple of important items to note:

  1. First of all, the BLS only surveys around 60,000 households per month in order to come up with these figures. So as far as we know, the number of unemployed persons who want to work, but are not counted as part of the labor force, could be much greater than what’s being reported.

  2. Secondly, according to Footnote No. 1, in Table A-38 (above), not everyone reported as wanting or not wanting to work is asked. Wait, so not everyone is asked? You know the old saying, “Never assume.”

So, in light of the fine print, the entire sampling outcome is at best grossly inaccurate, and at worst subject to outright manipulation.

From Table A-38, we can see that 6,135,000 workers, not counted as part of the labor force, actually want to work. So what would happen if we added them back into the labor force? Well, let’s run it and see.

In the table below, when the 6,135,000 workers are added back to the labor force, and rightfully counted as unemployed, the unemployment rate jumps from 8.5% to 12.0% (an increase of 41.2%). Is a deviation of 41.2% of material importance? I would think so.

I would contend, that based on BLS data, the true unemployment rate is closer to 12.0%. But at the same time, since only a small sample is surveyed, who’s to say that a large portion of the other 81,077,000 working age individuals, not counted as part of the labor force, don’t want jobs? Did anyone bother to ask them? No. So the actual unemployment rate could easily be much greater than 12.0%. Are you still with me?

In the table below, I have calculated the maximum unemployment rate. That is to say, what it would be if all 87,212,000 working age individuals, not presently included as part of the labor force, were included. When we count them all, the maximum unemployment rate jumps to 41.6%.

You laugh? Well, I’m not laughing. So, based on information published by the federal government, the actual unemployment rate is somewhere between 12.0% and 41.6%. That leaves a lot of room for play, as the lowest the rate can possibly go is 0.0%, and the highest 41.6%. [By the way, the maximum rate doesn’t include those considered to be employed who, for all practical purposes, really aren’t (see the definition of “Employed”, below).]

Disregarding the Bureau of Labor Statistics sampling assumptions, the methodology of which you may find at http://www.bls.gov/, for all we know, a larger segment of the population is becoming homeless, generationally dependent, or permanently unemployable. I believe that there are several million more unemployed Americans, who want to work, than we are being told.

In my entire life-time, neither the Bureau of Labor Statistics nor the Census Bureau has ever called upon me to participate in one of these monthly, 60,000 household employment surveys. So who are they calling? How can they call someone who doesn’t have a phone? Where do these numbers really come from? From what I can tell, that’s classified information. Have they ever called you?

So while Obama tells us on the one hand, “We’re making progress,” in reality, all that’s happened is that a larger segment of society has given up any hope of ever having a job. Based upon the job killing policies of his Administration, I would say this is more likely to be the case today, than at any time in U.S. history. So this is progress? And now Obama wants another term to, “finish the job.” I think we’re already finished; the baby boom implosion will take care of the rest.

The Bottom Line: The official unemployment rate is misleading, and can be easily manipulated. By simply removing two or three million persons from the labor force (a little here, a little there), one can easily trim a couple of percentage points off of the official unemployment rate, and then declare that the economy is improving.

Since the beginning of 2009, the net result of Obama’s anti-success rhetoric, coupled with the most reckless deficit-spending record in U.S. history, has been an increase of 6.5 million workers who are no longer counted as part of the labor force. And on top of this, the economy has lost 1.7 million jobs, since February of 2009. The real unemployment rate isn’t 8.5%, it’s somewhere between 12.0% and 41.6%, perhaps even higher, depending upon one’s perspective.

In light of this reality, I find Obama’s statement, “We are moving in the right direction,” to be most absurd. Come on man! But on the brighter side, there is a tremendous opportunity for a new Administration to step in, in 2013, and show the Socialists, Progressives, and Communists who have taken over the Democratic Party, and the delusional fakers and wannabe’s in the White House, who are on their way out of power, what the “right” direction genuinely looks like. Godspeed!

Definitions:

  • Labor force (Current Population Survey) – The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.

  • Civilian non-institutional population (Current Population Survey) – Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

  • Employed persons (Current Population Survey) – Persons 16 years and over in the civilian non-institutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. Excluded are persons whose only activity consisted of work around their own house (painting, repairing, or own home housework) or volunteer work for religious, charitable, and other organizations.

  • Unemployed persons (Current Population Survey) – Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

  • Not in the labor force (Current Population Survey) – Includes persons aged 16 years and older in the civilian non-institutional population who are neither employed nor unemployed in accordance with the definitions contained in this glossary. Information is collected on their desire for and availability for work, job search activity in the prior year, and reasons for not currently searching. (See Marginally Attached Workers.)

  • Marginally Attached Workers (Current Population Survey) – Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached. (See Discouraged Workers.)

  • Discouraged Workers (Current Population Survey) – Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

Link to Chart Data: Google Docs

Obama’s 1950s Tax Fallacy

/ L. M. Walker / 6 Comments

– Is the FICA tax a tax?

– By: Larry Walker, Jr. –

During a press conference on June 29, 2011, Barack Obama said, “The revenue we’re talking about isn’t coming out of the pockets of middle-class families that are struggling — it’s coming out of folks who are doing extraordinarily well and who are enjoying the lowest tax rates since before I was born. If you’re a — if you are a wealthy CEO or a … hedge fund manager in America right now, your taxes are lower than they have ever been. They’re lower than they’ve been since the 1950s.”

Does Obama really want to go there? Why stop at the 1950s? Why not go all the way back to 1913, or 1926, when top marginal tax rates were only 7.0% and 25.0%, respectively? And if top marginal tax rates are lower today than they’ve been since the 1950s, are they not also lower than they’ve been since 1964? For what it’s worth, I know that within my lifetime, top marginal tax rates are higher today than they were in the late 1980s, and lower than they were for most of the 1990s, but as for the 1950s, why should I care? That was before my time as well.

If I understand Obama correctly, what he’s saying is that if you were a wealthy CEO or a hedge fund manager in the 1950s, your taxes are lower today, than they were back then. But, if you were a wealthy CEO or a hedge fund manager in the 1950s, and are still breathing, you’re probably well into your 80s and could care less, like me. Enjoy forking over the paltry 35% of your earnings for your remaining years, and don’t forget the Social Security, Medicare, and State taxes. I mean, if anyone deserves a break, it’s our elders.

Now, I wasn’t born until 1960, and didn’t start working consistently until the 1980s, and I think my Mom was only 12 in 1950, so is anyone around today who can relate? The truth is that for anyone to have entered the workforce, at say the age of 18, in 1950, would make them at least 79 years old today. And anyone who entered the workforce at the end of that decade, in 1959, would be at least 70. So in order to have been in the prime earning years back then, ages 30 to 50, would make one well beyond 80 years of age today. For example, Alfred Winslow Jones (9 September 1900 – 2 June 1989), who formed the first hedge fund in 1949, would have been 111 years old by now. And, since the average age of a CEO in the United States, today, is just 56, most wouldn’t even have been born until the mid-1950s. The fact that there aren’t any CEOs or hedge fund managers around today, who were in those positions in the 1950s, leads anyone paying attention to think that Obama is out of touch with reality. And that’s putting it kindly.

The table below compares what 1950s tax rates looked like back then, against what they would look like in 2010 dollars. [Note: Tax rates were the same throughout the 1950s, and the brackets for Single and Married Filing Separate taxpayers were exactly one-half of the amounts in the following 1955 Married Filing Joint schedule.]

From 1950s Tax Fallacy

Winning The ‘50s – At least in the 1950s, everyone had skin in the game. If you had taxable income of under $32,352, in 2010 dollars, your marginal tax rate would have been 20%. If you had taxable income of $250,000, in today’s dollars, your marginal tax rate would have been 47%. And if you had taxable income of over $1,000,000, in 2010 dollars, your marginal rate would have been between 78% and 91%. So is this what Obama wants? If so, he should change his slogan from “Winning the Future” to “Winning the ‘50s”, or something.

Nobody really knows what Obama is bloviating about, but just for the heck of it, let’s analyze whether the amount of personal tax revenues collected, as a percentage of GDP, was any higher in the 1950s than it is today. The chart below was derived from statistics published by the U.S. Bureau of Economic Analysis. According to the data, personal taxes, as a percentage of GDP, averaged 7.6% in the 1950s, and 7.5% between 2001 and 2010. So in that sense, Americans are paying a whopping 1.3% less in personal taxes than our grandparents, and great-grandparents paid back in the 1950s. I included federal government spending just out of curiosity. It turns out that government spending as a percentage of GDP, while only averaging 16.4% in the 1950s, has averaged 21.3% since 2001. So it appears that the percentage decline of 1.3% in personal taxes, which we are all enjoying today, is miniscule, compared to the unsustainable 29.8% spike in federal government spending. Perhaps Obama should have picked a different decade.

From 1950s Tax Fallacy

Although it may be true that in the single year of 2010, personal taxes declined to 6.2% of GDP, versus the 7.6% average of the 1950s, or by -18.4%; at the same time, government spending has skyrocketed to 25.5% of GDP, versus 16.4% in the 1950s, or by +55.5%. So in 2010, personal taxes declined by -18.4%, while federal spending increased by +55.5%, compared to 1950s averages. So what’s wrong with this picture? Should we just adopt the 1950s tax brackets and then jack the rates up by 73.9%?

Back to the point of Obama’s tirade: Although in terms of tax brackets, it would appear on the surface that we are paying lower taxes today, than our ancestors who worked in the 1950s, there is one additional item to consider. Without getting into all the other taxes we pay today, which either were not around or at least not as burdensome in the 1950s (i.e. federal fuel taxes, airline ticket taxes, state and local taxes, and such), FICA payroll taxes were much lower in the 1950s compared to today.

Is the FICA tax a tax?

We know that the Federal Insurance Contributions Act (FICA) is codified at Title 26, Subtitle C, Chapter 21 of the United States Code. And that the FICA tax is a United States payroll (or employment) tax imposed by the federal government on both employees and employers to fund Social Security and Medicare —federal programs that provide benefits for retirees, the disabled, and children of deceased workers, etc… And we know that the amount that one pays in payroll taxes throughout one’s working career is indirectly tied to the social security benefits annuity that one receives as a retiree. Yet while some folks claim that the payroll tax is not a tax because its collection is tied to a benefit, the United States Supreme Court decided in Flemming v. Nestor (1960) that no one has an accrued property right to benefits from Social Security. Add to that the fact that the Trust Funds have been looted, and it is clear that the FICA tax is really just a tax. My basic rule of thumb is that, if it comes out of my paycheck, and goes to the federal government, it’s a tax.

In 1950, the Old-Age, Survivors, and Disability Insurance (OASDI) tax rate levied on both employees and employers was just 1.5% of the first $3,000 in wages ($3,000 in 1950 was equivalent to $27,451 in 2010). And by 1959, the rate had increased to 2.5% of the first $4,800 in wages ($35,866.96 in 2010 dollars). There wasn’t any Medicare tax in the 1950s, as it was not implemented until 1966. Historical FICA tax rates are shown below.

From 1950s Tax Fallacy

As most of us working today are aware, beginning in 1990, the OASDI tax rate was increased to 6.2% of the first $51,300 in earnings, and the wage base has increased each year since by increases in the national average wage index. Also beginning in 1990, Medicare taxes were assessed at the rate of 1.45% of the first $51,300 in wages, and the wage base was stepped up to $125,000 in 1991, $130,200 in 1992, $135,000 in 1993, and has been levied without earnings limitations since 1994. Most of today’s workforce is also aware that since 2009, the OASDI rate of 6.2% has applied to the first $108,600 in wages, while the Medicare tax of 1.45% has been levied without limit (see chart below). By the way, Medicare taxes are scheduled to increase in 2013, for those who are not paying their “fair share” today.

From 1950s Tax Fallacy

So if we add social insurance taxes, since they are a tax, to personal income taxes, and compare the total amount of taxes paid in the 1950s to the present, are taxes still lower today? Well, per the chart below, the average amount of combined social insurance and personal taxes paid in the 1950s was 9.7% of GDP, versus an average of 14.3% for the decade ending in 2010. So it turns out that the total amount of taxes the federal government collects from us today are 47.4% more than in the 1950s. This might explain why many of us feel as though we are taxed enough already. But how would we know without first checking the facts? What is clear, without question, is that taxes are a heck of a lot lower today, than they were when they reached a record 17% of GDP in the year 2000. Also of note is the fact that government spending only represented 18.8% of GDP in the year 2000, or about the same as it was in 1969, versus a disgraceful 25.5% in 2010.

From 1950s Tax Fallacy

The Point: The fact that we are paying 6.2% in Social Security taxes on the first $108,600 of earnings today, whereas the rate was only 2.5% of the first $4,800 in 1959; and that we are paying an additional 1.45% in Medicare taxes on an unlimited amount of earnings today, whereas the tax did not exist in the 1950s; means that the amount of taxes paid by individuals, as a percentage of GDP, is much greater today than it was for those living and working in the 1950s. In fact, the total amount of taxes Americans pay today is at least 47.4% greater than it was in the 1950s. It’s also interesting to note that the amount of taxes paid in 2010 was exactly the same, as a percentage of GDP, as paid by those who lived and worked in 1970 (see the chart above, data here). So what’s the bottom line?

The bottom line: If Obama wants to go back to the 1950s, let’s go. But it’s not going to work unless government spending follows suit. So cut government spending from 25.5% of GDP, back down to 16.4%, and you’ve got a deal. But I’m afraid that short of passing the Monetary Reform Act, the next step forward is another shellacking. But that’s a given. America lacks leadership. Either you’re hot, lukewarm or cold, but attempting to divert attention away from the real problem, excessive government spending, towards some make-believe injustice since the 1950s, is so far from the mark that it’s almost incomprehensible. As I see it, there are two problems with Obama’s sound bite. First of all, 51% of the current American workforce doesn’t pay any income taxes at all (i.e. not paying their fair share). Secondly, the injustice du jour lies not in the amount of taxes being collected, but rather in the amount of money the federal government is squandering. It would appear that with Obama, all roads lead to Athens, or is it Rome?

“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.” ~John F. Kennedy, Nov. 20, 1962, president’s news conference

References:

Data Tables

http://www.bea.gov/national/nipaweb/SelectTable.asp#S2

http://www.ssa.gov/OACT/ProgData/taxRates.html

http://findarticles.com/p/articles/mi_m2893/is_4_26/ai_n25340358/

http://www.taxfoundation.org/publications/show/151.html

http://www.dollartimes.com/calculators/inflation.htm

Obama’s Tax Fallacy II: Updated

/ L. M. Walker / 3 Comments

By: Larry Walker, Jr.

[Updated]

Tax Fallacy II, 95% B.S.

According to the Tax Policy Center, there were 151 million tax units in 2009 (excluding dependents of other tax units). Out of those 151 million tax units, 65.6 million, or 43.4% had zero or negative tax liabilities here. This confirms that only 56.6% of those who file income tax returns actually pay income taxes. But that’s not the end of the story.

According to the IRS Statistics of Income Report here, at the end of 2008, there were 9.2 million tax units who filed tax returns with additional taxes due. At the end of 2008, although $28.4 billion had been collected, the balance still owed by these 9.2 million tax units was $94.4 billion.

Also according to the same IRS Statistics of Income Report here, at the end of 2008, there were 3.4 million tax units who had open delinquency investigation cases. The net amount of taxes owed by these taxpayers was $24.9 billion. Although $3.8 billion was collected when such returns were filed, the difference of $21.1 billion was still outstanding.

So far we have one report which reveals that there are a total of 151 million tax units within the United States. We also have proof that only 85.4 million (56.6%) of these pay income taxes, while 65.6 million (43.4%) pay none. Next we have statistics from the IRS which tell us that out of the 85.4 million who pay income taxes, 12.6 million (9.2 + 3.4) actually haven’t paid, and in fact, they still owe $115.5 billion ($94.4 + $21.1). Are you with me so far?

So out of the 85.4 million who pay income taxes, 12.6 million actually haven’t paid what they owe. This means that only 72.8 million out of a total of 151 million tax units actually file their tax returns on time, and pay their share of income taxes. Thus, in real terms, only 72.8 million out of 151 million tax units, or 48.2% pay income taxes, while 51.8% do not.

This makes moot the following quote: “I gave 95% of working families a tax cut.”

Although I admit the rhetoric sounds good, when one considers the national debt which is heading towards $19 trillion, one has to wonder whether this is even such a good idea. When one considers an unemployment rate of 10% to 19%, depending on who you believe, one has to wonder what that segment of society thinks about the “95% Fallacy”. Shall we subtract the unemployed from those who pay taxes and add them to those who don’t, or just leave well enough alone?

However you want to look at it, there is no way on earth that 95% of working families received a tax cut. In reality, roughly 51.8% don’t pay any taxes to cut. And between 10% to 19% received a cut alright, but it wasn’t a tax cut. What it works out to, in reality, is more akin to an additional tax burden on the ever shrinking 48.2% who actually do pay income taxes. I’m still waiting for the proof behind those grandiose words. Prove it!

Update:

And now we have news that 100,000 federal civilian employees owe just about $1 billion in unpaid federal income taxes. When you tack on retirees and military personnel, the number jumps to 276,000 who owe more than $3 billion. Oh for crying out loud, fire them all starting at the top. Where was it that the buck stops again?

See: Fire Fed Workers Who Don’t Pay Taxes

__________________

References:

IRS Statistics of Income

Tax Policy Center

TaxFoundation.org

Obama’s Tax Fallacy

/ L. M. Walker / 5 Comments

By: Larry Walker, Jr. [Updates in Red]

Barack Obama – “I gave 95% of all Working Families a tax cut…”

Really?

First of all 43.4% of Americans don’t pay any income taxes. That leaves the rest of us. So did 95% of the 56.6% who actually pay income taxes get a tax cut? I doubt it, but even if that were true, it’s not 95% of all Americans (or ‘working families’, whatever that means) [see Tax Fallacy II: 95% B.S. for more on this].

Is a refundable tax credit the same as a tax cut?

But the real fallacy lies in the fact that refundable tax credits are not tax cuts, but rather, they are subsidies. Subsidies are paid for by taking money from some Americans and giving it to others. This is also known as ‘spreading the wealth around’.

I’m not very cheery knowing that while I have been faithfully paying my mortgage, people are buying foreclosed houses down the street for $110K less than what I owe. And not only that, but the Government is giving them an $8,500 subsidy out of my tax dollars. It’s as if the $110K of potential equity wasn’t enough of a subsidy. Also, when the government refunds a person $8,500 to buy a house, it only applies to those who bought houses, not to 95% of all Americans.

The $400 ($800 for joint filers) Making Work Pay Credit is also a refundable tax subsidy. It is however only available in full to those (a) who made less than $75,000 ($150,000 for joint filers), (b) is reduced if income exceeds these amounts, (c) and it is not available at all for those making over $95,000 ($170,000 for joint filers) in 2009. Is it possible that 95% of Americans who actually pay income taxes made less than $95K ($170K for joint filers) and will get the full credit? Not when the top 50% of wage earners pay 96% of income taxes.

The earned income credit is a well known tax subsidy. If you made $10,000 and have a child, you will pay no taxes and will get back a $4,043 tax subsidy ($3,043 earned income credit, plus $1,000 child tax credit). This is not a tax cut, but rather a 40.43% bonus awarded for not trying very hard.

Non-refundable tax credits represent true tax cuts, as they can only be used to reduce the amount of tax actually owed, with the balance being lost. The child care credit is an example of a non-refundable tax credit, and has not changed in years. The retirement savings credit would be a good way to cut taxes, but unfortunately if you made over $27,750 ($55,500 for joint filers), you don’t qualify. The education credit used to be a way to cut taxes, yet it is already $2,500 per year, so nothing new was stated by Obama when he said he will give out a $10K credit over 4 years. Uh, we already have that, sir. [What is new, however, is that as of 2009, now 40% of the education credit has become a refundable tax subsidy.]

Another tidbit, right now, all three of my kids are in college. I’m divorced and they live with their mother out of state. I am paying part of the way for one while the other two have full scholarships. Because I don’t claim any of them as dependents, I am not allowed any credit for the tuition that I’m paying. I wonder how many others are in the same boat. It’s not that I want anything from the Government, but just want to let you know that there are cracks in the real world.

Capital Gains Tax Cut for Small Business?

Finally, Obama wants to give a Capital Gains Tax Cut for Small Business Investment. What does that mean? A capital gains tax cut only applies if someone has an appreciated asset to sell, which they have held for more than one year. So, first you have to have an appreciated asset. Then you have to either have a small business that buys and sells appreciated long-term assets, or would need to sell your business in order to benefit. The only problem with what Obama said is that the lower Capital Gains Tax rate that we already have, which is currently 0% for those in a 15% or lower tax bracket, already applies. Nothing new here.

As a small business owner I haven’t quite figured out how anyone can really use this one. And what kind of tax rate are we talking about anyway? He didn’t say anything specific. The only way I could use it is if I sold my business. But I don’t want to sell the business. And if I did sell my business I would already benefit from the Section 1244 exclusion or the low capital gains rate.

While you are applauding Obama’s words, you should stop and think about how a capital gains tax cut can benefit a small business. If anyone can explain it to me, I’ll be glad to listen, but to me, it’s just rhetoric.

In conclusion, all I heard from Obama tonight, regarding taxes, was the same class warfare, wealth redistribution rhetoric that I heard in 2008 when I cast my ballot for the other guy.

___________________________________________________

References:

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2276&DocTypeID=7