Taxation Of Pension Incomes And Withdrawals

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Issue

Federal government and many states tax pension withdrawals and interest income on savings as income without consideration for life events or macroeconomic conditions such as recessions.

Relevance to the people

1. The savings rate in the United States, personal and retirement, is very low.

2. Savings = Investment (S=I) is an economic identity.

3. National debt and personal borrowing is not income though borrowing in excess of wage increases was encouraged by the Clinton Administration to raise domestic consumption to grow the U.S economy as domestic real investment declined in preference for investing in foreign markets (inflation was low due to cheap imports and foreign economies
which were performing poorly because of economic crises).

4. Contrary to assertive claims foisted as fact by former Federal Reserve Chairman Alan Greenspan and Federal Reserve Economists Steven Oliner and my former supervisor Daniel Sichel, productivity did indeed rise in the United States in the late ’90s (after 1996) but it cannot be attributed to technical change. It could be attributed to wage increases due to the wealth effect (consumer borrowing based on the paper value of assets). I contested the Greenspan claim that the ’90s produced increases in productivity due to information technology in the following paragraph on knowledge management in an internal memo in 2003, in “Fedspeak,” which the Federal Reserve leaked:

“Knowledge Management

The idea that institutional memory can be captured electronically has significant implications for both learning from experience as well as from the experienced. It applies as much to thinking about the complexities of monetary policy as to routine tasks. If the ’90s saw productivity gains through both IT innovation and application for business use primarily fueled by a maturing desktop and later by an inchoate internet, I believe what we have seen, albeit the bubbles of “irrational exuberance”, is only the tip of a large iceberg that is congealing below the surface. Undertaking a knowledge management agenda forces a comprehensive approach to both process (how we do things) and product (how we execute the process) and inherently has the potential to both increase productivity as well as increase cost efficiency. Some project examples at the Board which most of us use every day are R&S Information Portal, SDS, BOND and CDTR, FIRMA, WDF, Peoplesoft HR System, Job Postings and Recruiting databases and ITB. One can easily envision a melding of all these with standardization and phased integration and improvements both into a standard set of processes as well as seamless products. Further, such a convergence can make knowledge mobile reducing the cost of labor mobility except when most necessary.

I realize that there are many small steps that need to be taken to achieve this goal but the proces of thinking comprehensively about it (i.e., minus the bureaucratic walls) will progressively make interaction and work life at the Board as seamless and flexible as the envisioned product.”

This prediction of mine in 2003 about technical change is now being realized through service-oriented architectures (SOA) in Silicon Valley. Since then considerable work in the area of productivity and business organization has been done at the Massachusetts Institute of Technology (MIT) by Professor Erik Brynjolfsson.

Productivity of the US economy as a whole due to IT may be on the rise now, but it is still not helping ameliorate inflationary pressures because of countervailing structural forces which are depressing the potential growth rate of the US economy. It is clear, however, that a reprise of the ’90s wealth effect in Silicon Valley is maintaining high levels of productivity in the IT sector.

5. Debt/Income ratios are high.

6. The government taxes interest on savings, a disincentive.

7. The government taxes capital gains of investors, many of whom are consumers or individual investors, upon the sale of financial and other assets such as real estate which produce the gains or returns (although the double-taxation of dividend payouts by corporations and the corporate profits which produce those dividends for shareholders has been eliminated). This is a disincentive.

8. Pension incomes, including social security, are usually taxed, but are being taxed along with pension withdrawals, and without regard to life events such as death, marriage, and divorce which are expensive.

9. Tax-collecting agencies can become abusive during economic downturns. They understand procedures but not the policies behind taxation.

What the States, the Congress and the White House Should Do?

1. Reform pension income and withdrawal taxation to suit life circumstances.

2. Comprehensively reform the tax code (on Amazon). The following proposal has been circulating in the United States Department of the Treasury since 2007:

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Vehicle Emissions Compliance

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Issue

Many states have their own vehicle emissions inspection requirements enforced by law through their motor vehicle administration (MVA) agencies and departments of transportation. The burden of vehicle emissions compliance is placed on the consumers more than on the producers of automobiles by the MVAs which suspend vehicle registrations and issue pricey traffic violation tickets to vehicle owners.

Relevance to the people

1. Non-compliance with registration suspension because of non-compliance with vehicle emissions requirements is a criminal offense in many states requiring legal intervention in traffic courts for waivers of citations through court-appearances or trials in court, accompanied by admission of guilt of driving with suspended registrations.

2. State MVAs are laggard in their communications with consumers to educate and ensure consumer compliance while being prompt in the suspension of vehicle registrations without notice just before suspension despite the availability of many communications tools such as text messaging to cell phones and social media.

3. This is unwarranted litigiousness on the part of the government to clean the air and to enforce the Clean Air Act through a hodge-podge of enforcement mechanisms across the country.

4. Many automotive manufacturers are still non-compliant with emissions requirements, based on vehicle class. Their expected compliance timeline is uncertain and subject to the whims of pricey K-Street lobbyists hired by American auto manufacturers to influence EPA and State-level regulations.

5. Vehicle manufacturers who more than adequately comply, usually foreign car manufacturers such as Toyota, Nissan and Tesla Motors (part German), are also required to arbitrarily participate in government emissions compliance programs without regard to vehicle specifications and emissions performance over time (automotives are durable goods and there is no requirement for consumers to purchase new vehicles frequently, provided they maintain them well for energy efficiency, safety and cleanliness in performance).

6. American auto manufacturers and their consumers are being deliberately treated leniently including by the Congress and the White House and on an ad hoc basis by state MVAs and local law enforcement who do not appreciate consumers owning better foreign-made vehicles.

7. Many states separate vehicle emissions testing from regular vehicle maintenance requirements when it is easier to combine the two.

8. Many states give tax incentives for people to purchase fuel efficient, low- or zero-emissions vehicles but do not synchronize emissions testing requirements with those vehicle classes.

What the States, Localities, White House and the Congress Should Do?

Place the burden of emissions compliance on the manufacturers and auto dealerships (through vehicle maintenance) as default, non-opt-out product manufacturing and maintenance process requirements. Consumers must not be liable for non-compliance.

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Second Amendment And The Ratification Of The UN Small Arms Treaty

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Issue

The United Nations is developing global standards for trade in Small Arms and Light Weapons (SALW). The purpose of the standards is to prevent and substantially reduce illicit trade in SALW to enhance the security of the 192 member countries of the United Nations. The Obama Administration supports the United Nations Small Arms Treaty.

Relevance to the People

1. Second Amendment to the Constitution of the United States: “A well regulated militia, being necessary to the security of the free state, the right of the people to keep and bear arms, shall not be infringed.”

2. Shooting rampages in recent memory in Washington, D.C (Brady Act after the shooting of Ronald Reagan outside Washington Hilton); Tucson, Arizona; Columbine, Colorado; and Roanoke, Virginia among other parts of the country at various times.

3. Domestic terrorism since the Oklahoma City bombing, Unabomber, Atlanta Olympics, post-9/11 Anthrax, and Shoe Bomber; other attacks on members of Congress; across the US-Canadian border from Vancouver, Canada; in New York City’s Times Square; and other realized and thwarted attacks.

4. The potential for Improvised Explosive Devices (IEDs) and Dirty Bombs in major urban centers in the United States.

5. The rise of drug-related and non-drug related gang violence and the associated underground economy for illicit weapons.

6. Illicit trade in weapons-making materials across US borders from Canada and Mexico.

What the Congress and the White House Should Do?

1. The Second Amendment, as is, is no longer relevant for the United States of America. The “well regulated militia” of the Second Amendment is the United States Department of Defense (DoD).

2. The Second Amendment language must be amended by the United States Congress to suit the times by limiting gun purchases for sport and self-defense based on residency location, such as remote regions similar to frontier territories in 1776, in the United States. For example the revised Second Amendment could read as follows: “The right of the people in good standing with the law to keep and bear arms in limited numbers shall not be infringed for the purposes of valid sporting activities and in self-defense.”

3. Government regulation of SALW, as defined by the United Nations, is consistent with some measures already at work in the United States since former President Bill Clinton signed the Brady Handgun Violence Prevention Act on November 30, 1993.

4. The government is having to once again respond to the circumstances within the country which produced subsequent shooting rampages and other SALW and SALW-related incidents as noted above, despite the Brady Act.

5. UN SALW Treaty is pertinent in the context of the counter-terrorism efforts of the Directorate of National Intelligence (DNI) and other associated government agencies and departments such as the Department of Homeland Security (DHS) and the Federal Bureau of Investigation (FBI).

6. UN SALW, given its primary focus on preventing illicit trade in SALW across national borders, is relevant to US SALW efforts beginning with the Brady Act of 1993 and any revisions it may require for consensus to develop at the United Nations.

7. The lowest common denominator of all UN member states should also be the US position on SALW. Individual member countries, without UN interference, should be able to make their own laws, in addition to the common treaty items, should they so desire without accountability to the United Nations.

8. Enforcement provisions of any UN SALW must be subject to required annual reporting by the Department of State of the United States to the pertinent committee(s) in the United States Congress and to the UN of legal SALW trade and confiscation of illicit SALW within US borders and elsewhere in the world where US interests are at stake.

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Balancing The Federal Budget

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Issue

The total government debt which has been accumulated over time is about $14 trillion. The annual economic output of the United States is about the same, subject to variations in economic activity. There is widespread agreement on all sides that the Federal Government, with power over its own spending in annual budget negotiations between the Executive and the Legislative branches, the Congress vested by the Constitution with the power to control the purse strings, is spending beyond its means. The means are tax revenues. The government’s annual budget is about $4 trillion. Government revenues fall short of government spending by at least $1 trillion every year leading to the overall imbalance of about $14 trillion over the years.

Relevance to the people

As the overall government indebtedness to those within its borders and to foreigners, through the sale of government bonds, approaches and exceeds the capacity of any country to produce goods and services, because the lenders gradually lose confidence in the ability of the country to repay and, therefore, will ask more in interest to keep lending, whether those lending be Americans or foreigners. Servicing the interest adds to the budget burdens of the government.

If the government continues to live beyond its means, the rising cost of borrowing will also increase the cost of investing in machinery and people because the interest rates of long-term government bonds are tied to the long-term borrowing costs of businesses and households. This will, therefore, raise prices and wages. Which, in turn, will decrease the purchasing power of the US dollar.

To maintain the purchasing power, the Federal Reserve will have to raise interest rates in the immediate future to slow down the economy, setting into motion a downward spiral of gradually diminishing economic activity.

Therefore, the government has little choice but to constrain its spending to annual tax revenues, whatever they may be, which is also known as the budget constraint, because despite its ability at the Federal level to print money, the government’s books are no different over time from that of a normal household.

What the Congress and the White House Should Do?

The Federal government is different from the state and local governments in that it can print money and issue debt. In the event of wars or other needs which could arise the government needs flexibility to spend more than its means provided those expenditures are justifiable by the scheme of Constitutional checks and balances, as the framers had intended. This is why, the Federal government is not required by the Constitution to balance its annual budget, but does so out of a sense of fiscal responsibility. The government, therefore, must not amend the United States Constitution to pass a balanced budget amendment.

The government must, instead, pass legislation to:

Require that the annual Federal budget be frozen until Fiscal Year 2021 at the level of Fiscal Year 2012, in 2012 dollars, whatever the annual rate of inflation used by the Treasury Inflation Protected Securities (TIPS).

Require that the debt ceiling must not be raised for Fiscal Year 2012 and thereafter until by 2021 the cumulative government debt at least diminishes to 60 per cent of the projected 2021 annual income in 2021 dollars from the current level of about 100 per cent in 2011 dollars.

Require that all Treasury debt issuances, domestic and foreign, be frozen with immediate effect until Fiscal Year 2021.

Require that the Federal Reserve finance the government budget deficits through 2021 through the purchases of outstanding Federal debt.

Require that Federal Reserve policy be reformed to include an inflation targeting range of 0-5 per cent consumer price index (CPI), the Federal Reserve Act as amended, with comprehensive data releases, including the Federal Reserve’s Greenbook and Bluebook, within 3 weeks of every interest-rate setting meeting at a press conference held by the Federal Reserve’s Chairperson. For how Federal Reserve policy can be adjusted to suit the current circumstances in concert with the rest of the government and to be consistent with this legislative proposal also see: The Impending Government Shut Down.

Require that the annual Federal budget be passed into law no later than the last day of the preceding fiscal year or September 30th of every year.

Require the Federal government to balance the budget every 10 years, beginning Fiscal Year 2012, to allow for economic ups and downs and to give sufficient flexibility to finance unforeseen expenditures, upon the advice and consent of the United States Congress, through borrowings by issuing debt.

Require that the ratio of the overall government debt to the annual income of the United States shall not exceed 60 per cent at any given time.

Require that by 2021 the Congress must decrease the cumulative government debt to 60 per cent of the projected annual income in 2021.

Require that comprehensive tax and international trade reforms be studied, formulated and passed into law to increase tax receipts and to direct real investment, domestic and foreign, into the United States.

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