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Common Myths about Tax Revenue

Updated on July 11, 2014

The Reality of Tax Revenue


Over the years one of the most interesting and politically charged debates has centered around that of income taxes. There are many positions on this that can be debated. However, let’s take a look at some facts around tax revenue from both a current and historical standpoint.


First let’s understand the difference between marginal tax rates and effective tax rates. The marginal rate in the US is a tiered system which currently tops out at about 40%. The effective rate is what you actually pay after taking into account all of your tax shelters, credits and itemized deductions such as mortgage interest and property taxes.


Below is a chart that looks at the highest historical tax rates since 1950 along with actual tax revenue collected as percentage of GDP (Economic Growth) Source http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205

Tax Rates vs Tax Revenue

Year
Highest Marginal Tax Rate
Total Taxes Collected as a % of GDP
1950
91%
14.40%
1951
91%
16.10%
1952
92%
19.00%
1953
92%
18.70%
1954
91%
18.50%
1955
91%
16.50%
1956
91%
17.50%
1957
91%
17.70%
1958
91%
17.30%
1959
91%
16.20%
1960
91%
17.80%
1961
91%
17.80%
1962
91%
17.60%
1963
91%
17.80%
1964
77%
17.60%
1965
70%
17.00%
1966
70%
17.30%
1967
70%
18.40%
1968
75.25%
17.60%
1969
70%
19.70%
1970
71.25%
19.00%
1971
70%
17.30%
1972
70%
17.60%
1973
70%
17.60%
1974
70%
18.30%
1975
70%
17.90%
1976
70%
17.70%
1977
70%
18.00%
1978
70%
18.00%
1979
70%
18.50%
1980
70%
19.00%
1981
69.13%
19.60%
1982
50%
19.20%
1983
50%
17.50%
1984
50%
17.30%
1985
50%
17.70%
1986
50%
17.50%
1987
38.5%
18.40%
1988
28%
18.20%
1989
28%
18.40%
1990
31%
18.00%
1991
31%
17.80%
1992
31%
17.50%
1993
39.6%
17.50%
1994
39.6%
18.00%
1995
39.6%
18.40%
1996
39.6%
18.80%
1997
39.6%
19.20%
1998
39.6%
19.90%
1999
39.6%
19.80%
2000
39.6%
20.60%
2001
38.6%
19.50%
2002
38.6%
17.60%
2003
35%
16.20%
2004
35%
16.10%
2005
35%
17.30%
2006
35%
18.20%
2007
35%
18.50%
2008
35%
17.60%
2009
35%
15.10%
2010
35%
15.10%
2011
35%
15.40%
2012
35%
15.80%
2013
39.6%
16.7%


What you can clearly see from the data is that regardless of where tax rates are set, there is little evidence to suggest that higher marginal rates produce more tax revenue. The reason for this is that as tax rates rise, more and more deductions or “loopholes” as some may refer to them as are utilized. The reality is that when rates rise individuals defer more income or alter their economic activity. Realistically, how many of us would work at the same capacity we currently do if our income was taxed at 92% as it could have been in the early 1950’s ??? So how was this possible at the time ??? Well, in reality nobody actually paid 92% of their income in taxes because of all of the deductions and shelters available, such as real estate depreciation for self employed individuals. An economy could simply not function with such high rates. Some might presume that…who cares if you’re paying 92% of your income if you’re making 10 million dollars per year. Yet what does it take to make 10 million dollars annually ??? It’s typically not a 9-5 job. It’s someone who is of a smart savvy business intellect. Such an individual is going to consider what their after tax return is on their investments. If you’re a business owner producing a substantial amount of capital, how likely are you to be encouraged by 92% of your income being confiscated regardless of the purpose or direction of where the tax revenue goes ??? Why would you wish to engage and invest in such a business entity ??? No astute individual would likely pursue such a business venture. So simply eliminating or closing “Loopholes” will not increase revenue either unless marginal rates are adjusted downward accordingly. Otherwise the result is a reduction in capital formation. This was essentially what most of the tax reform acts of the 1980s were rooted in. They were more about simplification by lowering rates and eliminating uneconomical deductions, of which there were many.

The point here is simply that regardless of what tax policy is pushed by a political candidate, the Federal Gov’t will collect approximately 15-20% of economic activity. So why then the debate over whom should pay what percentage ??? It is far more likely that politicians know this full well. Yet they have often played the class warfare card as means to gather votes. Both sides are guilty of this. A more complex tax code is likely more a resource to control different groups of people and their behavior. The evidence seems clear that a more simplified income tax code with a flat rate for all without the excessive itemized deductions & credits in the neighborhood of 17% would amount to a similar result.

What about fairness ??? Clearly that is very subjective. I would think that all of us playing by the same rules would be fair. Some favor a progressive system. In reality a flat tax is still progressive, just not punitive. A 17% rate on 1 million dollars is still substantially more tax collection than 17% on 50k in annual income.

Yet should an even larger portion of the tax burden be paid by those of greater resources ??? Perhaps…yet that is also a matter of opinion. What are the current percentages ???

As per the IRS tax receipts, In the year 2008…

The top 0.1% of earners paid 16.4% of all income tax revenue collected.

The top 1% of earners paid 38.02% of all income tax revenue collected.

The top 10% of earners paid 69.94% of all income tax revenue collected.

The top 25% of earners paid 86.34% of all income tax revenue collected.

The top 50% of earners paid 97.30% of all income tax revenue collected.

Essentially the bottom 50% of earners paid close to 0% of income tax revenue.

This means that the top 0.1% of earners already pay more than the bottom 80% of earners !!!

More incredibly while the top 1% pay around 38% of the taxes, yet they only generate 17% of the national income !!!

More importantly, if collected 100% of the income of the top 1% of earners, (which is impossible) we would only pay for about 1/4th of the entire Federal Budget.


What about those on the lower end of the income spectrum. In 1958 the bottom 2/3rd's of income earners paid 29% of all income taxes. Today their share of taxes paid is less then 7% of all income taxes. Some would point to the fact that the same bottom 2/3rd's have seen a substantial decline in their share of national income since the 1950s. But much of that is misleading and simply of function of how we opt to report national income as explained below. In reality, the percentage of revenue paid by the top earners is as disproportionately high as it has been over the last century.

http://landmarkwealth.hubpages.com/hub/National-Income-DisparityA-Look-Behind-the-Numbers

In reality many of those lower income earners actually receive tax refunds on taxes that were never paid through programs like the “Earned Income Program”. (It should be noted that the lower income earners still pay half of the payroll tax on their income, with the employer paying the other half)

Whether or not this is “fair” is open for debate as is any topic. Yet it seems to me that these numbers are fairly lopsided already. How much more than 70% can 10% of the population pay ??? Again that may be debateable.

So if the revenue never really changes as a percentage of economic activity, then where do such large debts come from. The answer is clearly in Federal spending. This is an issue that cannot be pinned on any one political party. Both have spent well beyond our nations resources while in control of congress during different periods. Some may point to the military and the prolonged wars overseas. Yet even when you account for all of the “off balance sheet items”, military spending has steadily declined as a percentage of our GDP as seen below to less than 20% of Federal spending, and now accounts for about 5% of GDP.

The truth is that the third rail of American politics must be addressed. The entitlement programs now dominate our Federal budget and are simply unsustainable. If not addressed soon, the US may face a crisis not unlike the sovereign debt concerns the Europeans are currently faced with. It is also important to note, that the elimination of debt is not and should not be the objective. Deficits are necessary in order to add to the monetary base. It is the size of the national debt and the annual deficit as a share of GDP that must be more closely monitored to prevent erosion of purchasing power.


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    • LandmarkWealth profile image
      Author

      LandmarkWealth 2 years ago from Melville NY

      If someone uses a “loophole” which is essentially a provision in the tax law, then they are paying what they should be paying as per the tax code. As long as their actions comply with the code. I was referring to the subjective nature of what people “should pay” in a moral sense.

      And yes, I am a big advocate of a flat tax system. I find progressive rates to be inefficient. The current system diverts too many resources to unproductive compliance. The issue is what rate is feasible. I don’t think you can have a flat tax anywhere near where the marginal rates are today without crushing capital investment. Since we consistently collect in the 15-20% of GDP…a flat rate of 15-20% seems logical.

    • bradmasterOCcal profile image

      bradmasterOCcal 2 years ago from Orange County California

      LMW

      I believe that what they should have paid is not subjective, it goes to the IRC and loopholes only the rich can use. The marginal tax rates do make the rich take more advantage of the IRC.

      Then you agree that the marginal tax rates should be changed into a flat tax, as targeting the rich is not fair. However, neither is favoring the rick with 90 percent of the IRC not being able to be used by middle class and below.

      The 2008 economic meltdown didn't appear to slow down the rate of new billionaires of today. It devastate the middleclass 401ks.

      The income tax system is bad for the middle class, and as it changes every year, it burdens the investor, or businesses. It forces them to make business decisions on tax consequences rather than on a solid business foundation. Changing the code every years prevents business and investors from have a long term plan.

      Thanks

    • LandmarkWealth profile image
      Author

      LandmarkWealth 2 years ago from Melville NY

      You can see the updated IRS receipts by looking at the link in the article. The tax policy center provides that data from various angles. That is sort of the point of the article. That changes to marginal rates do not and cannot affect revenue as a share of productivity to any significant degree. Changes in marginal rates affect incentives & behaviors such as capital investment and various other activity. So while how much someone “should have paid” is subjective…changes in marginal rates do little to extract more revenue from higher end earners. If a billionaire see’s too low of an after tax potential return on an investment in something like a new venture capital project, they may opt not to take the risk of the capital expenditure. If that is the case, then the dollars may be re-routed to a municipal investment. So they pay no taxes on the earnings for financing the municipality, and revenue goes down. But at the same time, the lack of capital investment see’s less expansion on the productivity side, so the numbers stay in the same range as a share of GDP.

    • bradmasterOCcal profile image

      bradmasterOCcal 2 years ago from Orange County California

      LMW

      It would be interesting to compare the

      As per the IRS tax receipts, In the year 2008

      with a more recent report.

      While the top one percent may have paid a huge chunk of the entire taxes, it doesn't tell us how much they actually earned. As there are so many new billionaires the statistics are not informative as to how much they should have paid in taxes, and how much they escaped from paying.

    • LandmarkWealth profile image
      Author

      LandmarkWealth 3 years ago from Melville NY

      Thanks

    • profile image

      bradmaster 3 years ago

      LW

      I like this hub.

      Thanks

      bradmaster

    • LandmarkWealth profile image
      Author

      LandmarkWealth 3 years ago from Melville NY

      Thanks

    • profile image

      Pharmc852 3 years ago

      I was looking through some of your blog posts on this internet site and I conceive this web site is rattling informative ! Keep on posting . eaggbfd

    • LandmarkWealth profile image
      Author

      LandmarkWealth 4 years ago from Melville NY

      All forms of corporate tax are essentially a myth. Every penny of the tax is passed on to the consumer in one form or another. The tax revenue that comes back to the US via foreign profits has nothing to do with job losses. In fact the US labor market was quite robust back in 2004 and rebounded quite well after such a sharp contraction in 2000-2002.

      The point of the article is simply that the there is a maximum amount of revenue that can be extracted from the economic growth of the nation without impairing growth. We have never been able to pull more than 20% as a share of GDP. So any attempts to do so are a complete waste and little more than political theatre. The only sensible solution is a flat tax system with no itemized deductions or tax credits at all for personal income. I would simply abolish the fictional corporate tax.

    • profile image

      Sanxuary 4 years ago

      The biggest injustice is the fact that at a 35 percent tax rate most American Companies actually pay noting and if anything nowhere near 10 percent even. They even have billions in off shore accounts and are begging to import the money because they can not spend it. Of course they want it to be tax free and in 2004 it was imported at 5 percent on an amnesty program and it destroyed jobs across America. Europe is dying from austerity mainly because of a territorial tax system that allows all its multinational companies pay no taxes. Most Americans do not even know that the Wall street protest, flash mobs and many .orgs have been fighting this for years. The Tea Party originally began on this protest and was hijacked later. A constant deliberate attempt is being made to create counter movements that actually have nothing to with the real movements. No surprise the number of charities that corporations claim to represent have nothing to do with those who founded them. Even breast cancer for instance is filled with frauds who are responsible for cancer and condemned by those who were inspired to raise money to find the cause for cancer, not a cure. A cure does not prevent it in the first place.

    • LandmarkWealth profile image
      Author

      LandmarkWealth 5 years ago from Melville NY

      Increase in demand was not a reference to shifting the location of labor, just additional labor. In order for the job to be relocated back to the US it would have to be the result of a skill that is offered here that they cannot get abroad, or labor costs that go down enough to compensate. The tax code as screwed up as it is, will not be able to offer enough incentive. That would be more of a reform in terms of a regulatory change. Although it may help.

      The regulatory environment is not one that prevents disasters like what you are referencing. Most of the regulations that get handed down are the result of an overzealous agency like OSHA that has to spend the 30% budget increase they got in 2009. Or a result of an out of control litigious environment we live in. As one example. I have a relative who is in charge of environmental and occupational safety at a large pharma company. He literally has to write up manuals on basic safety precautions like how to properly lift a cardboard box. Then he has to give classes and certify that the employees have been trained on this nonsense. Because if somebody doesn’t lift the box the right way, they will sue and say they weren’t trained how to lift a box. And the courts will entertain this nonsense. It is out of control and the pendulum has swung too far in the other direction. This is a major deterrent to providing jobs here in the US.

      Being married to a teacher I can tell you that she describes the public education system as legalized segregation. Money is not the problem. The lowest income districts typically get the most money per student with few results. It is the result of who controls the spending. Teachers in unionized public schools have no labor mobility. They can’t move on to another school because they lose too much in benefits. Then bad teachers get protected. The parents and students get no choice either unless they pack up and move their home. I personally am a big believer in the charter school system. Let parents and students decide where they want their tax dollars directed. Let teachers compete for spots in better schools. This is just another example of what happens when consumers aren’t given choices. It just breeds failure. The market will correct this through competition if permitted. Charter schools are a great way to get low income people a way to get ahead and still compete. Unfortunately the teachers union is completely opposed to any form of accountability.

      More Americans will become qualified for those positions if we reform the education system. Unfortunately we have created a society the breeds laziness from the lowest levels of education. My wife at one point was told by the school not to grade wrong answers in red anymore because it may upset the children psychologically. Yeah… That really prepares them for the real world doesn’t it ??? I am sure your boss will be just as understanding when you get something wrong. I moved into a new house in 2009. I have not had one teenager knock in the door to offer to shove snow in the winter to make an extra buck. That’s amazing to me. I couldn’t wait for a snowfall to make some money when I was young.

      The reality is that prior to many of the social programs that had been established in the US, we did a much better job of addressing poverty through charity. Since the creation of many of these gov’t interventions we now have 2-3 generations of the same families that never leave the poverty level. We have institutionalized poverty for the benefit of the politicians who needs the votes. If you leave this stuff to charity, you don’t add layers of gov’t. The gov’t has instead crowded out the role of charity. The charity may institute the drug test themselves if they suspect poor behavior. But the gov’t lawyer will say its discriminatory and close them down.

      My point about the wealthy is simply that they will not pay these higher tax rates anyway. The revenue the gov’t collects does not, has not and will not change by altering rates higher. In fact, the % of total revenue currently paid by the wealthiest is more progressive than it has ever been. The increases in rates are totally symbolic to appease the masses with a game of political three card monte. A really good article was written as an Op Ed in the WSJ on this last Friday. Have a quick read.

      http://online.wsj.com/article/SB100014241278873247...

      The reference to Sweden is interesting. Most people don’t realize their markets along with many of the Nordic nations after nearly going bankrupt in the early 90’s with nearly 25 years of Zero growth, made major free market reforms. Particularly in their labor market. In many ways it’s easier to do business there than it is in the US.

    • Tom Koecke profile image

      Tom Koecke 5 years ago from Tacoma, Washington

      There doesn't need to be an increase in demand if a company decides to make domestically what it already sells but produces in a foreign market. It wouldn't be charity if the company decided, because of the bottom line benefit, to move its manufacturing back to the states. I do not believe it would take a "doubling down" of write off to make it practical; just a better than dollar write off for a dollar paid in wages.

      If the additional regulations you are talking about are some that would have prevented more than 100 people dying making Adidas clothing recently, then they will just have to decide how important the press is when consumers find out they are essentially employing slaves. Adidas has already lost some big commercial clients as a result. Perhaps they'll lose some regular consumers, too.

      On the other hand, if Adidas were able to write off more in wages than they actually paid in wages, they might have made some of their clothing here, even if regulations require such frivolities as sprinkler systems and fire escapes.

      Then you mention education, and the lack of graduates qualified to fill legitimate business demands. I don't know anyone who would argue that money the government spends on education is well spent, especially in light of the lack of qualified graduates. However, I also do not see how not funding education will improve that. There is now emphasis being placed on science, math, and technology in education. This is fairly recent. Do we defund this emphasis?

      Another problem the market is facing with regard to education, is that many top graduates opt for big money trades, like financial management. Do you blame them? Aside from filling those positions with people willing to study those arts from abroad, do you have a solution? If not, then filling those positions with qualified non-American workers will have to suffice until more Americans become qualified for those positions.

      I don't know what you are disagreeing about on the free market. I also think there needs to be structure. You've also said that you would slide the scale slightly from a true free market sufficiently to protect intellectual property. I am not an anarchist, nor do I favor tyranny. If you conduct your business on arms' length transactions, then may you be successful in your endeavors.

      I disagree with you about leaving social ills fully to charity. I do, however, agree with you about the cost of dispensing such programs. We used to be able to give people a peanut butter sandwich for the cost of a hamburger. As things continued, the cost of the peanut butter sandwich rose to the cost of a steak. We are now giving out peanut butter sandwiches for the cost of surf and turf dinners.

      If we don't give them the peanut butter sandwich, however, they will steal the hamburger and steaks. If we put them in prison for stealing sustenance, we raise the cost to more than $40K per year.

      If we don't inoculate them, we risk epidemics that may not know the difference between the poor and the wealthy.

      These are not simple problems. To suggest a simple solution is simple minded. One such simple minded solution is the advocation for drug testing to receive a welfare check. Who do they think are going to pay for the tests? If the person tests positive for drugs, who do they think are going to pay to care for his or her children, and who do they think are going to pay for the rehab?

      They will add so many layers of government in health and human services that it is likely they would be willing to go back to the days when we dealt with problems as they arose!

      I probably should have qualified my comment about inferior products at Walmart. I'm sure they don't require Crisco to leave ingredients out, and most of the items at Walmart are identical to the same brands sold at other stores. I still believe they should let consumers know which products they do sell for less because they are inferior when they require a manufacturer to alter features but not product code.

      I still don't hate the Waltons, nor do I think their wealth should be confiscated. However, I don't cry for them having to pay a higher rate in taxes than their employees, especially the ones who qualify for food stamps and medical care despite working full time.

      The history of this country may not show a time when all people had everything, but it would show a time when hunger was pretty much eradicated in this country. Social studies will show that an economy can thrive with the people getting medical care, such as in Sweden. Of course, those days defied, and places defy, the free market more than just by protecting intellectual property rights.

    • LandmarkWealth profile image
      Author

      LandmarkWealth 5 years ago from Melville NY

      I think it’s a moot point since an employee’s salary is already a deductible business expense. Unless your talking about doubling the deduction. In which case I think it’s still irrelevant. People are hired based on the demand for their skills, not charity. The increase in demand must still be there.

      Best bottom line depends on what you are manufacturing. In recent years we seen some of the more highly skilled manufacturing jobs return to the US because the cost of the lower labor wasn’t providing sufficient skills. But yet menial labor jobs will go to menial labor workers regardless of where in the world they reside. The reality is that a big problem in the cost of the labor in the US is not just income but all the additional regulatory stuff we tack on. You can assume your producing a tax payer. If the cost of the purchase goes up, perhaps less purchasers will exist and that may mean slower growth. Which may translate into less sales tax and even corporate tax paid by the company. I am all for using US labor. But they have to compete better in both skilled and unskilled labor. We have a lot of structural unemployment in the US. Companies like Microsoft import people from outside the US to come here and fill jobs as software engineers because Americans are often simply unqualified for the changing economic demand. That represents how poor our education system is and how far behind it has fallen. We are terrible in producing new talent the field of mathematics and engineering.

      The problem with influencing outcomes is never the intent. It’s always the application. In every political action there is an unintended consequence. And the Gov’t rarely thinks these things through very well. And usually produces a net negative.

      I disagree. You cannot have a free market without rules that provide a framework of enforcement. Without that, a market cannot exist. Only tyranny can exist. What would stop me from forcing a consumer to purchase my product at gunpoint. That is not a marketplace. It is tyranny.

      In terms of the social issues you describe, I understand your point. I just believe that the best way to address the social ills of society is through charity. The gov’t is simply ineffective in improving the lives of those who are destitute. In reality the gov’t spends nearly 40k per year on people below the poverty level. Yet 40k is above the poverty level. These programs in general are designed to keep people dependent on gov’t and politicians empowered. In terms of the criminally insane or just criminals, that in my view is clearly a role for gov’t. The question of how much policing or military action is why we have elections both locally and nationally.

      I don’t’ presume that Walmart sells inferior products. It depends on what you’re are buying. I shop there often for household supplies because they offer a great value. I am not poor, but I am also not foolish enough to get fooled by a higher price tag. Not everything is about a privileged birthright. They still need to run the company and outperform their competition. That takes savvy. I worked for a firm that was run by a daughter who inherited the company and born with a silver spoon in her mouth. When she took over she destroyed the company and lost market share, because she didn’t have that business savvy. Much of the top talent left as a result of her poor leadership. If you don’t have it will show quick in how well you do versus competition. Walmart has remained quite successful because they have made smart business decisions. On the other hand, companies that competed with them like K-mart and Caldor are either gone or in terrible shape.

      Again don’t assume that there additional taxes will ever provide those things to the poor or their employees. In fact history shows it never will.

    • Tom Koecke profile image

      Tom Koecke 5 years ago from Tacoma, Washington

      The point isn't that companies will give a person a dollar to be able to write off a little more than a dollar.

      They are going to manufacture their products in the manner that gives them the best bottom line. The current trend is that producing them in foreign markets and importing them gives them the best bottom line.

      Lineal thinkers believe tariffs are the answer. However, tariffs on imports are often met with retaliatory tariffs on exports.

      Without imposing a tariff or directly subsidizing companies that manufacture products domestically, a better than dollar deduction for a dollar paid in wages levels the playing field a bit. The cost of producing something domestically is reduced. In addition to that, a tax payer is also produced when a company employs a person here to manufacture its goods.

      I understand that it is, again, government trying to influence outcomes, but we are where we are. If the government is going to try to influence outcomes regardless of what might be best, then influencing outcomes positively by rewarding companies that reduce unemployment, rather than by punishing them as if businesses are the enemies of employment, is, in my opinion, a better idea.

      I don't believe I am confusing anarchy with free market. I think many people believe economics are different schools of thought whereas I see it as more of a series of scales that form a sphere. Anarchy, free market, and cradle-to-grave protectionism are merely points along a line. Another line within the sphere would include points of no regulation, some regulation, and total regulation. Another would include points of no taxation, some taxation, and total taxation. This is not an exhaustive list. Almost everything falls within the scope of economics, or at least passes through the sphere at some point.

      Some people believe the opposite of hot is cold. They are merely points along a line, and apply to different things separately. At 33 degrees fahrenheit, one might not want to wear shorts and a tank top, but he better get his freezer fixed.

      If we take any single line within the sphere, the ideal point will be different among the people. If we take military spending as an example, some people would stop at the point we are able to defend our shores; others would stop at the point we can defend our interests abroad; still others will not stop until we can wipe out the rest of the world. There are risks at each point. On one end, we are unable to help allies against attack. On the other end, we are unable to pay for other things we need, like infrastructure.

      Something that is a bit more controversial would be policing. How much policing is ideal? How many prisons is ideal? Should we include mental institutions in the equation?

      When I was growing up, there were people confined to mental institutions because they were "criminally insane." It was often a pre-emptive commitment, and it was often a lifetime commitment. Today, we evaluate some accused of crimes for their "competency to stand trial." Those who are found not competent are, sometimes, released back into society. Would we not be better off to spend a few dollars to keep that ilk off the streets rather than spending more dollars on police to protect us from those who will predictably commit more, and often progressive, crimes?

      I see people patriotically thumping their chests about how we need to take care of our veterans better, who follow that with a comment about bums who need to find jobs. They never tie that some of those bums might be veterans suffering severe PTSD after having to shoot a child who might have been wrapped in an IED. Do we disregard bums totally? Do we help them all? These are merely points along another of those lines. Perhaps they've served their purpose by protecting your rights, and now are simply worthless to you. That's your right. Those bums didn't die to protect it for you, otherwise they would be identifiable by their headstones. They may have only killed to protect your rights, and now find themselves among others who simply have addictions or cannot follow rules. The next time you pass a panhandler, try to figure out if he or she is simply lazy, or if he or she suffers from a war related PTSD that manifested as a lack of trust in authority.

      As for the Waltons, the one who built the empire is dead. The ones who carry forward the principles of low costs through inferior products and service are privileged through birthright, not business savvy. I understand the contributions the rich make to capital markets, endowments, and philanthropy. However, I also understand that there were some families that probably wished Andrew Carnegie invested some of his wealth in making sure his employees were safe, rather than burying their kin so he could endow public libraries through his philanthropy.

      I don't hate the Waltons. I don't think they should lose their wealth. However, I hope you will forgive me for not crying for them over having to pay additional taxes so their full-time employees can feed their families and see doctors.

      I am sending you an e-mail on a different topic. Unless you have Hubpages e-mails approved, it will likely arrive in your Junk Mail. I want to let you know to expect one so you don't think it's a virus.

    • LandmarkWealth profile image
      Author

      LandmarkWealth 5 years ago from Melville NY

      A deduction of one dollar for each wage paid does not offset the cost of the wage. If you paid a dollar and have a 30% effective tax rate, you would only get back 30 Cents. The key point to Keynes’s ideas were counter cyclical deficits while using fiscal stimulus through spending in areas that would increase aggregate demand. The one problem as I mentioned earlier is that congress can’t be trusted to disperse funds effectively. Secondly, as Freidman pointed out, any increase in aggregate demand through fiscal stimulus would be recognized as transient income by the business community. Since it is not sustainable, they will not make long term commitments to cap ex increases. So it is long term ineffective. I think Keynes ideas can work in an ideological utopia. But that simply doesn’t exist. The tax rates are irrelevant. There is little correlation to changes in the rate versus the revenue received. As such a Flat tax makes the most sense economically to eliminate inefficiency. It is just not politically correct. Since the Gov’t has never collected more than 20% of tax revenue as a share of GDP, I think that’s the cap with ZERO personal deductions. There is no logic to our current code. We punish income creation with more progressive rates, yet incent debt creation through things like mortgage deductions on interest.

      I see you point about your sister. But to me the issue is there need not be a gas tax at all. The gov’t creates these numerous pipelines of revenue beyond income taxes because they simply waste money in such large quantities. In my local school district they paid the VP of the HS an extra 25k per year stippen to be the “Energy Czar”. His sole responsibility was to make sure the lights were turned off at the end of the day. Yet they couldn’t put in a motion sensor. The simple fact is this is rampant at the national and local levels. The answer is not to give the drug addict more money to buy drugs. The reality is the money never gets to where the tax payer wanted it to go.

      You are correct about the attitudes of people. They are hypocrites. They want their programs to stay and take others away. That does not address the problem. The size of Gov’t needs to get smaller across the board. I am all for phasing out my benefits in the future because I am young enough to sustain it. As long as it comes with tax reform, that doesn’t continue to stick me with the bill in perpetuity.

      That is not manipulation. The information is made publicly available to you if you look for it. Before you buy your TV, you are responsible as the consumer to do the same homework you do when you buy a new car, a house or any other item. Only a fool buys a home without having an engineer examine the house. Common sense dictates that when something is less expensive across the street, there is a reason. As such you have to determine what that reason is and decide if the value is worth it to you. Now if you specifically inquired with Walmart and they lied to you and failed to disclose that which you specifically asked about, then you may have a point. In which case I would say don’t shop there. If enough people feel the way you do, Walmart will go out of business and lose to their competition. That is precisely how a market should work. Dissatisfied customers go elsewhere.

      I am a free marketer. I just think you confuse Free Markets with a Quasi-State of Anarchy. Free Markets to not mean there is no role for Gov’t. It simply means gov’t does not determine outcomes or try to influence them. You assume that the Waltons live on this sum of money. When in fact that statement is misleading. What do they do with this money, keep it under a mattress perhaps. If it goes into the bank it capitalizes financial institutions that are vital to our credit markets. If it goes into investments that are public, it benefits endowments for universities, pension funds and other retirement plans of individuals. In private investments it contributes to venture capital that finances new innovations. If it goes to charity it benefits people more directly than any gov’t could through taxation. If they hire staff at their mansion with it to care for their horses, it benefits the farrier. Is the Farriers job and family not just as important ??? In one form or another the money is used for productive distribution. This is because they are spending their own money. Again, you confuse the concept of one person making X with another losing X. When in fact the income of a person is solely based on their economic value that they have created. If we simply through coercion take from A and force him to give to B, you will get less productivity and major inflationary problems. There is nothing unfair about what one person makes. I frankly could care less what my neighbor, you or anyone else makes unless I am paying them. If I don’t like what they offer, I don’t buy it. The one place I am not given a choice is through Gov’t. Which is why Gov’t must be restrained. A quick piece on the inefficiencies of spending was articulated very well by Dr Friedman some years ago. Have a listen. Only a few minutes.

      http://www.youtube.com/watch?annotation_id=annotat...

      Somewhere along the line it became greedy to want to keep what you have produced. Yet not greedy to want to confiscate someone elses's earnings that you have not earned.

    • Tom Koecke profile image

      Tom Koecke 5 years ago from Tacoma, Washington

      So, to implement Keynes, the better route may be to increase marginal tax rates, and allow employers to deduct more than $1 for each $1 paid in wages. It would make domestic products more competitive in price without imposing a tariff, and would still leave businesses free to either import products or create them here. It would also serve to offset the higher costs businesses that employ people pay compared to a similar business that imports its wares.

      It may not be ideal, but it may increase employment while leaving the decision on whether to utilize it or not to the businesses, which, of course, will seek out the course its executives deem will be most profitable.

      The concept of "if you need more, you get more" is more akin to socialism or communism than it is to free market. My point was not, nor ever has been, that the military is socialist. My point was that my sister thinks that concept is good, but only when she personally benefitted from it. She also doesn't like the gas taxes she pays used to help build the floating bridges in Seattle. However, she has no problem with the gas taxes paid by people in Eastern Washington being used to improve the clog of the local viaduct. Why? Because she uses the local viaduct. She takes issue with people using subsidized medical facilities, but she sees no problem with her grandkids getting their medical care at a military facility. After all, her child had the good foresight to divorce a military man.

      My point is that those who want to reduce entitlement programs want it done such that it does not affect any entitlement program they benefit from (i.e. retired military don't want it to affect military retirements, Medicare recipients don't want it to affect Medicare, et al).

      Finally, I have described accurately a form of market manipulation. Consumers should not have to research whether a Sony model X TV sold at Walmart is a Sony model X TV. For Walmart to demand from Sony that they sell it a model X minus 2 TV, but to leave off of it that it is "minus 2" from truly being a model X is manipulation. It is as corrupt as selling a product that claims to be 100% orange juice when, in fact, it is not 100% orange juice. Sony may be complicit, but Walmart is the mastermind.

      I am not saying Walmart should not be able to tell manufacturers that they want a lesser product so they can sell it for less. However, they should not be allowed to tell consumers it is the same TV when it is not the same TV. If the government steps in with a regulation on that because consumers demand it, it will have been Walmart's unseemly tactic that spurred the demand.

      If businesses don't like regulations, let them not need them; otherwise, it is a natural consequence.

      I have no problem with copyrights and patent laws. I drew the incorrect conclusion that you were a free marketer. Since you also believe in democracy over the free market, then I can accept that you are only trying to convince people to vote against their self interests because it is only fair that the Waltons not have to leave on a paltry $500,000,000 per year at the expense of someone making $10,000 getting to keep all of it to live on.

    • LandmarkWealth profile image
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      LandmarkWealth 5 years ago from Melville NY

      That was my point. Keynes ideas were never really implemented and never will be. Keynes did not want fiscal stimulus to be targeted towards swing states for votes. Whether FDR or his chief advisors outlined the details is irrelevant. The New Deal in general was an economic failure of grand proportions. Which certainly slowed the recovery by crowded out private capital and not permitting price discovery, and restricting assets from finding equilibrium for extended periods.

      Keynes quote was a demonstration of his flexibility. The problem is that bureaucrats can never be that flexible. Yet they are necessary to implement his ideas, which is what makes them inherently impractical.

      I am well aware of Hayek and Von Mises position in great detail. I don’t believe I ever suggested I was a pure Austrian school thinker. On the contrary, I am closer to a monetarist mindset, than anything else. Yet not exclusive to any single ideology in strictness. Yet I am more of an Austrian school thinker in terms of currency. I would say I fall somewhere in between.

      Copyrights don’t mean you own words. You own the economic benefits of ideas that you have organized and articulated through language or even sometimes mathematics, which you are free to sell.

      The path you are talking about is a guiding principal in a healthy economic system. That is simply that Gov’t policy should be ad hoc with limiting the role of Gov’t always at the forefront of policy. And never attempting to control outcomes.

      The answer to your question around democracy for me would be… It is largely the electoral system we have today, with a few minor changes like allocating electoral voted more locally rather than exclusively at the state level that I want to maintain. As well as term limits for all Federal offices. I am a firm believer that a democratically elected republic is the best system ever devised by man. People get the gov’t they ask for. If they choose to elect an entitlement state where gov’t controls and influences outcomes, they will suffer the consequences. Conversly, if they chose to move towards electing anarchists, they would again suffer the consequences.

      I don’t believe that things like earned income credits do or should motivate people to do anything. In fact I think those that work and yet get exempted from the tax code is unhealthy for society. For the same reason I didn’t care about the turning off the lights when I was 12 years old. I didn’t pay the electric bill. Too many people are ignorant to the true cost of the entitlements they receive. Even when they work it is of little concern to them if they don’t directly see it in their paycheck. So instead they are taxed through inflation and currency devaluation and inherently kept poor. People tend to notice the bill when they see it on paper and what they actually paid. Otherwise you get more and more people who vote for unsustainable gifts from politicians. As Benjamin Franklin once said “When the people find they can vote themselves money, that will herald the end of the republic”

      Your question about the benefits are a false premise. Nothing the military does is economically productive because it is inherently paid for by other private activity. Yet their role is still necessary. Although not all of their activity is necessary. It is merely a questions of which is less productive. Yet benefits for a spouse or a child is not socialism. It is inherent in our society that we view the family unit as one. If the services were provided without any military service whatsoever from either party, then it may be socialism. Even that doesn’t really describe a system of social ownership of the means of production, since there is no production. Your scenario does not meet the definition.

      You have not described any form of market manipulation with Walmart. The manufacturer is still free to sell the product at Target or any other retailer with more or less features. Just as the consumer is free to purchase the product at these other retailers often for a higher price which they may or may not see any economic value in doing. In fact many people often pay higher prices because they assume it means better service. I know people who would be embarrassed to shop at Walmart, just as they were at K-mart. However, I am not one of them. As long as there is a choice among the parties involved, the market is fair. It is not Walmart’s job to help the consumer research the better choice. They simply offer a service. You are free to take it or not.

    • Tom Koecke profile image

      Tom Koecke 5 years ago from Tacoma, Washington

      The New Deal was not Keynes's idea. It was FDR's. Keynes merely suggested that some artificial demand would create true supply, which, in turn, would create real demand. He did not contribute to the lengthening of the Great Depression here or in Great Britain. He resigned his position as Chief Economist in 1917. During the war, however, he made some stellar moves that helped finance the victory for England.

      If you relied less on what Keynesian economists say, and more on what Keynes said, you may have a greater appreciation for him. Again, his most significant quote was "When the facts change, I change my mind." Unlike most economic theorists, he had no one concrete plan. He recommended doing what was necessary and prudent under the circumstances.

      Apparently, you don't know Mises and Hayek as well as you may think you do. Both considered such manmade conventions as patents and copyrights contrary to the free market. It wasn't about who took the risk of publishing. It was about how can you possibly own words? How can you possibly own intellectual property? All the free market should allow is the opportunity of a head start. Think I'm joking? Here's a link: http://archive.mises.org/9503/mises-on-intellectua...

      So, once you've wandered off the path of the free market, it is only to the distance from the free market at which you want the line drawn. My contention is that you want the line drawn such that your selfish interests are protected, but not so far that you want to protect the selfish interests of others.

      So, how would you deal with democracy in a free market?

      These are the realities we are dealing with. Each person wants the government to protect interests he has, or should have, and to hell with everyone else. It eminates from all sides, from those who make tremendous amounts of money to those who want a free ride. Most of us end up somewhere in between, but, in this polar society, meeting in the middle is out of the question.

      So, you don't want to motivate young unskilled parents to work with Earned Income Credit. I suppose you'd rather they stay at home, or the state take their kids away due to neglect. I don't really suppose you believe that way, but that credit goes a long way to motivating them to try harder. It's good that you did that for yourself. So did I. That doesn't mean that everyone should do things the way we did it. It means we did it that way, and others do it differently.

      The point about the military is that the economics are that of socialism: you get more if you need more even if you have not earned it. Two people who join the same day and achieve the same rank on the same day will not receive the same pay if one is married and the other is single. Unless you can tell me how the ring on the finger equals greater productivity, then the greater pay is based on greater need.

      Then you contend that the Waltons do not manipulate markets. If you call about a repair on an electronic device, the first question often asked is "Did you buy it at Walmart." They don't ask that because Walmart has a special deal with them. They ask it because the same model of many products sold through Walmart are not really that model. If a major brand wants to sell through Walmart, they may be required to leave things off without changing the model number so they can advertise lower prices.

      If they were telling the truth, they would simply say we have lesser products with the same branding and we don't charge you for the features we required be left off. It is market manipulation to lead consumers to believe they are paying a lower price for the same product, when, in fact, they are paying a lower price for a lesser product that has the same model plate as the superior product.

      Anyway, these rants are getting long. I'll be reading the articles you linked me to. Thank you for those.

    • LandmarkWealth profile image
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      LandmarkWealth 5 years ago from Melville NY

      Keynes ideas were never implemented during the Depression as he envisioned them. The New Deal is regarded as a success by political scientist. Not by a large and growing contingent of economist. I would suggest reading “FDR’s Folly” as well as “The Forgotten Man”. I covered much of Powell’s research here.

      https://hubpages.com/politics/The-Tale-of-Two-Depr...

      The same is true of Britain. All they did was pro long the pain and stretch it out over a longer period. And in fact the actual economic data shows many of the policies worsened the Depression once you get past the political feel good cosmetic part of the legislative actions.

      Free markets do not oppress masses. Only market dislocations caused by external entities cause oppression when they don’t’ allow markets to work properly. There is no example of a true free market that oppresses anyone. It only creates opportunity. Either you utilize its resources or you don’t.

      One business does not always drive another out of business. The consumer does this with the choices that they make and their preferences. Or the business does this by poor decision making. There are numerous cases of small business putting big business out of business. In fact each big business must first start as a small business. In fact the vast majority of cases where a big organization puts out the small business owner, it’s usually a result of the Gov’t handing down regulatory burdens that the small owner can’t keep up with in an efficient way and remain profitable. This is happening all over the banking industry at the moment through Dodd Frank. That is hardly the market at work. But rather outside forces distorting the market.

      People do not enrich themselves on the back of poor. That is a political Myth. A writer contributes his creativity. But the publisher takes all the risk of capital. You act as though those who do risk all that they have worked for to finance someone else’s idea is not entitled to the lions share, but the one who risks little or no capital is entitled. If you as an aspiring architect came up with a beautiful new design for a home for me. Then I subsequently paid you for your time, and spent my money to build the house to sell to someone, does that make you part owner in my home. Is your creativity worth more than my capital ?? What if the home never sells ??? Will you help carry the cost to maintain it for me ??? If not, why are you entitled to the lion’s share of the profit when it sells.

      Things like patent laws and such are on the contrary what makes a free market work. In order for a market to work there must be a legal system that maintains an orderly market and enforces contracts. It should not however mandate or influence outcomes. That what things like the GSE’s and the CRA act did to the housing market. And not surprisingly they created massive price distortions.

      Your analogy of your sister is a false one. While it is true that all gov’t jobs are a liability in economic terms, some are a necessary liability. The Gov’t role is to provide that which cannot be provided by the marketplace. The military, courts of law, law enforcement fall into this category. They are not one in the same. The market place can’t exist if it is threatened from tyranny. That is not socialism. You are confusing free markets with anarchy.

      The Waltons do not manipulate markets. They simply provide to the consumer that which they wish to receive. You talk of adequate wages. What precisely is that ??? 50k per year perhaps ??? Except the moment we elevate everyone to this adequate wage, the irrefutable laws of inflations destroy the purchasing power of the adequate wage and therefore make the adequate wage the new poverty level. This is the problem and circular logic that the ideologues of the “Fair Wage” can’t seem to overcome. Because there is no answer beyond compensating one beyond their economic output and that which the market demands. In a free market someone will always be at the bottom and someone at the top. That does not mean that those on the bottom must be impoverished. It simply means they need to increase their output.

      In terms of violence mounting. This happens when economic opportunity is squandered. History shows over and over again that this happens in the places where the Gov’t intervenes too much and distorts the markets through both the fiscal and monetary side of central planning. They promise things to the masses that there is no economic way to deliver. In doing so, they destroy wealth and the opportunity for wealth to be generated. This is what happens in all of the centrally planned top down Stateist societies. You point to anything in our society that has become excessively unaffordable, and I can show you a price distortion that is caused by the gov’t distorting markets by attempting to influence outcomes rather than regulating them. Some good examples here.

      https://hubpages.com/politics/How-Government-Progr...

    • Tom Koecke profile image

      Tom Koecke 5 years ago from Tacoma, Washington

      I suppose you are correct about there not being adequate political altruism for Keynesian ideals to be practical today. The paradox, of course, is that we continue on the polar path the country seems to be on. One side has the rich and the radically stupid. The other has the benevolent and the radically needy.

      I disagree, however, that Keynes' ideas were never tested. Great Britain did well under his stewardship as its Chief Economist. It was also tested in this country as a way to get the swing moving during the Great Depression. In the former case, he resigned as a result of the Treaty of Versailles predicting, accurately, that it would lead to a greater nationalization effort. In the latter case, he could not convince those in charge that too much was not better; it was excessive. Both of those, however, serve to promote your contention that we lack political altruism.

      On the other hand, the free market simply shifts the lack of altruism from the political hand to the private hand, and employs an invisible hand that, theoretically, allows each person an opportunity, but in reality oppresses the masses for the benefit of a few.

      Regardless of what anybody might contend, there is significant advantage being born into a wealthy family than there is being born into a poor family. There is not equal opportunity for both.

      The invisible hand allows the rich person to drive the poor person out of business, and, once out of business, deprives consumers of choices. The invisible hand deprives inventors and writers of the fruit from their work so that those with greater capacity can enrich themselves further on the minds of the creative but poor.

      Unless you agree that is true, then you start down the path of disallowing the free market to fully operate without such manmade constraints as anti-trust laws, patent laws, and copyright laws. What I find is that it is merely how far away from a fully free market one wants to draw the lines, and usually it is for selfish reasons (lack of altruism).

      My sister claims to hate socialism, and denies ever benefiting from it. Her husband is retired military. She fails to see that he got additional housing allowance when they married, not because he earned it but because he needed it. He got extra food allowance, not because he earned it but because he needed it. He got a college degree on the taxpayer dime because he was promised it. He gets a military retirement check, not because he produces anything for the economy but because he served his time.

      I do not resent them receiving these things. I resent the insinuation that "I am a socialist" because I think things like schools and health care are good, even though I don't take advantage of them personally.

      If someone were to look objectively at our respective actions rather than our words, they would likely draw the conclusion that I am the free marketer and they are the socialists.

      You have made your point adequately in your conclusion that the Waltons have legitimately earned their wealth manipulating markets sufficiently that people think they are getting the same product there as the same model at another store. Duping consumers and paying insufficient wages to live on is good business, and Andrew Carnegie would likely agree.

      As violence mounts between the masses of those who will realize, as others have elsewhere, there is more than one way to redistribute wealth, and those who think the poor should just go away and starve to death like good little peons, there may be some regret that altruism is lacking. I'm not certain about that, though. There isn't video of Marie Antoinette's head rolling off the guillotine, and I'm not a lip reader if there were.

    • LandmarkWealth profile image
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      LandmarkWealth 5 years ago from Melville NY

      You are correct about Keynes. Although I disagree with his views because I think they neglect to account for the fact that the necessary political altruism to apply them does not exist. For that reason I would argue that his ideas have never and can never really be attempted. By he was not a radical Marxist. He was a brilliant man who was simply impractical in his solutions. But they sounded great on paper.

      The problem with things like earned income credits is that the gov’t should not be in the business of motivating people to work. That should be innate.

      With regard to entitlements, you assume in your statements that things like medicare prevent old people from getting sick. Yet since the creation of these programs and the price distortions created by them, medical care has become more expensive and less affordable to both the old and the young. They have created enormous market dislocations in the pricing of medical services. The same can be said about Social Security. As a retirement fund it has been run incredibly poorly, and built in such a way that it guarantees a net negative real return. Yet the cost to service this has devalued our currency further and actually caused more poverty among the elderly and the youth, not less. Nor was it ever meant to be a total retirement plan, yet through our culture of dependency, that is what most Americans now expect.

      The answer to your question is we are not subsidizing Waltons wealth. We are subsiding the person on gov’t assistance. Each employee at walmart or anywhere else is paid according to the economic value that they add. In order to be paid more they must add more in value. Ultimately it is the consumer that decides this by what they are willing to pay for goods and services. In reality Walmart services far more poor people with lower cost products then they have employees who qualify for food stamps. If we simply increased wages of each employee, then the cost of services will go up accordingly. You cannot avert the laws of inflation by simply redistributing assets from one location to another. That will simply increase the velocity of money. The only way for someone to increase their income in real terms in a fair market place is to increase their economic value. To do this they must become more productive than their peers. It is each person in the workforce’s responsibility to make themselves as valuable and irreplaceable as possible. Because in a free society, you are only worth what someone is willing to pay you. And again, that is ultimately determined by the consumer and what value they place on the skills you offer. It is not the responsibility of the employer to pay you more in income than you generate in revenue. In fact it must be the inverse for a business entity to survive.

      There is no “fair” portion of the pie. The pie is infinitely expanding. You don’t share the pie, you bake your own piece. The more capital you create, the larger your piece will be. Too many people proceed from the false assumption that there is a finite amount of wealth. Just because one person makes a million dollars does not mean someone else lost a million dollars.

      As simple example…If you were to look at my home and assume the value was hypothetically 500k. Then one day a tree in my yard falls from a windy storm. The tree was one of many and barely noticeable that it was missing. It made no difference in the value of my home. Yet I then proceed to carve a rocking chair from the wood of this tree. I then sell you the chair for $200.00. I have created additional capital and enhanced my economic value. Yet neither of us has lost anything. I made $200.00. Simultaneously you chose of your own free will to exchange the $200.00 for something you felt was of at least equivalent value. We are both happy with the choices we have each made, and the economic pie has been enlarged through creativity and increased productivity. Economics is not a zero sum game.

    • Tom Koecke profile image

      Tom Koecke 5 years ago from Tacoma, Washington

      Hi Landmark!

      To me, the greatest injustice to the economic philosopher Keynes is the disregard most people have for his most significant quote: "When the facts change, I change my mind."

      Most people do him the disservice of simply advocating government spending to spur the economy. He was not simple, nor are the solutions to the economic mess we find ourselves in today.

      You mentioned Earned Income Credit. In order to qualify for that credit, someone with dependants must WORK and earn less than a threshold income. It motivates young, unskilled parents to become productive. It can be argued that without the credit, many who qualify for it would not work to gain the skills to eventually eliminate themselves from qualification for it.

      You mentioned entitlement programs. The three largest expenditures under these programs are Social Security, Medicare, and military retirements. By the time the government pays for these, it has spent almost all revenues. If we were to lump military and military-related expenditures with Social Security and Medicare, we are in deep deficit with most spending federal spending accounted for.

      So, let's look for solutions within that group. Do we make old people work? Do we let sick people die? Do we not protect our national interests and people? Tell the world what you think. Your vague reference to entitlement programs is insufficient to address the real problem.

      We, as a society, like to rely upon statements that have the integrity of marketing slogans as if statements or marketing slogans can solve the problems.

      Let me ask you a philosophical question. If a person who works full-time at Walmart qualifies for food stamps and medical assistance, are the tax payers actually subsidizing the employee or are we subsidizing the Waltons' wealth?

      It seems fair to give everyone an equal slice of pecan pie for a job well done, but it really isn't fair to those who have nut allergies or are diabetic, and it isn't fair to those who have to share that slice with five dependants compared to the single person who has that slice all to themselves.

      If there is one thing I would urge you to do, it is to think of the world conceptually as comprised of spheres rather than lineally as if it were comprised of lines. Keeping the spheres in balance would have meant different outcomes for Marie Antoinette and the Tsars.