Category Archives: Commentary

Warren Buffet and his Secretary’s Taxes

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Warren Buffet’s secretary was in the spotlight at President Obama’s State of the Union Address after Mr. Buffet repeated his comments that she is the one paying the higher taxes. I know that Mr. Obama believes this is unfair, because I received a four page letter (perhaps robo-signed) that asks the question, “Do you think it is fair that Warren Buffet’s secretary pays a higher tax rate than Warren Buffet?” He then gives the answer, “I don’t and neither does Mr. Buffet.”

Mr. Buffet believes he and other millionaires should paying higher taxes on their individual returns, but he apparently doesn’t feel the same about Berkshire Hathaway. He owns a big share of that company, and it pays considerable amounts in corporate taxes. However, the company’s annual report discusses the running dispute it has with the IRS about how much it owes. This isn’t new; the IRS has been actively contesting whether Berkshire Hathaway is paying enough for almost a decade.

There are several interesting factors at play in this story. First, do his secretary and everyone else in Mr. Buffet’s office really pay more than Buffet? The answer is obviously no. The secretary does pay a higher rate on her estimated $200,000 salary, although I can’t find how she is paying the reported 35.8 percent of her income. There is a link to a tax calculator that shows a single person with taxable income of $200,000 would pay $50,897 in federal taxes, or 25.45%. A married person filing a joint return with the same taxable income would pay $44,070 or 22.03%. Perhaps Nebraska has really high state taxes or Omaha adds several percentage points for some sort of municipal tax.

Buffet reportedly pays federal income taxes at 17.4 percent of his taxable income, because much of his income is from capital gains that are taxed at a maximum of 15%. The disparity between his tax rates and those for his secretary is what has created outrage and earned her the adoration of those who champion higher taxes for millionaires. I haven’t seen it mentioned in many places that Mr. Buffet pays an estimated seven million dollars on his personal return, which my rudimentary math tells me that he reported about 40 million dollars of income. He wouldn’t have to wait for tax laws to be changed to address his outrage that he pays a lower tax rate than his secretary. He could simply donate another 7 million dollars to the government and there wouldn’t be an issue that needs national attention. I don’t know whether he could claim that donation to reduce his taxable income for the next year. Perhaps he doesn’t really want to send the IRS more of his personal income because his 23% share of the Berkshire Hathaway disputed corporate taxes is over five billion dollars.

It isn’t a surprise that Mr. Buffet is a big fan of Mr. Obama. The President’s decision to cancel the Keystone XL pipeline provides a big boost to earnings of Berkshire Hathaway. The pipeline was to transport oil from the Bakken oil fields in the Dakotas along with Canadian oil, but now much of that oil will have to be moved in railway tank cars operated by Burlington Northern and Santa Fe Railway Company. Berkshire Hathaway already owns 22% of that company and has an offer to buy the rest.

Let’s think about Keystone XL for a bit. The pipeline had been cleared as having minimal environmental impact in a three year study. It would have provided jobs to people making the pipe and installing it. It would have brought large quantities of oil to U.S. refineries that didn’t originate in countries that don’t like us very much. It also would have increased the amount of Bakken oil that would also move to those refineries. Apparently none of those positives would have justified irritating the people who call themselves environmentalists.

Choices for Producing Energy

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I just posted a review of “Wormwood Forest” by Mary Mycio about the Chernobyl disaster, and that brought me back to the question of what is the most responsible method of producing our electricity. We all want electricity to power the fans on our furnaces, the air conditioning, our lights, our computers and printers, to charge our phones other devices, and for some to charge the batteries in their cars. Abundant and affordable electricity is crucial to our economy and the comfort many or most of us have come to expect in our lives.

Most of our electricity is produced in plants fuled by coal (about 50%) or natural gas (about 21%) and by nuclear energy (about 19%). However, new regulations are putting pressure on the coal plants. First Energy Corp recently announced they are retiring six coal-fired plants because of the stricter federal anti-pollution rules. About a third of the workers at the six plants are eligible for retirement, and another 100 or so will be able to transfer to other jobs in the company. However, that leaves about 250 people who can’t retire without a job. This is probably just the beginning of such announcements, since it won’t be economically feasible to retrofit older plants.

I’ve reviewed several books that are pertinent to the discussion. The best, in my opinion, is “The Health Hazards of NOT Going Nuclear” written by Dr. Petr Beckman and published in 1976. On the subject of Chernobyl he would have observed the that minimal environmental effects from Three Mile Island proved that properly designed safety systems can prevent a disaster while shoddy design gives us what happened at Chernobyl. Dr. Beckman wrote that there is no completely safe way to make energy. “Energy is the capacity for doing work, and as long as man is fallible, there is always the possibility to do the wrong type of work; to ask for safe energy, therefore, is much the same as asking for incombustible fuel. He also observed that nuclear energy is “…far safer than any other form of energy.”

Back to the review of “Wormwood Forest,” the author was astonished during her tours of the Zone of Alienation created by the explosion of a Chernobyl reactor by the proliferation of wildlife. She said little is known about the radioactive animals of Chernobyl, but “What is known is that there a many, many more of them than before the disaster.” She also wrote that what she saw during her extensive tours converted her from being an “…adamant opponent of nuclear energy to ambivalent support…”at least until we reduce our dependence on fossil fuels.” I’m hoping that thinking such as that spreads before we reach the economic disaster created by bad economic policy and energy shortages predicted by some of the books I’ve recently reviewed.

Recent events involving the government trying to fund development of alternative energy endorses  the wisdom of Ms. Mycio in advocating nuclear energy until we sort out what is really possible with alternative fuels. As mentioned in the review of the book “Game Over” by Stephen Leeb, there isn’t enough iron to build the windmills and towers to replace energy from carbon based production. Solar power hasn’t been proven to provide a net gain in energy, and the results of providing Solyndra over half a billion dollars in government loans only led to a delay in bankruptcy and the layoff of about 1100 employees. There isn’t enough land area to grow biofuels to replace hydrocarbon energy production, and converting food such as corn into ethanol is both inefficient and idiotic.

Solyndra isn’t the only failure involving alternative energy technology. Beacon Power, a company involved in energy storage also went into bankruptcy after receiving $578 million dollars in taxpayer-guaranteed loans. The most recent bankruptcy was Ener1, an electric battery company that was recently awarded an $118 million dollar stimulus grant. That bankruptcy occurred about one year after Vice President Biden visited the plant to highlight the progress being made by the company with federal funds.

My hope is that technology for alternative energy becomes more successful or that new nuclear power plants will be built using the lessons learned from Three Mile Island, Chernobyl, and Japan before we reach a precipice of economic failure driven by misguided political policies about how we make our energy.

George W. Bush and Social Security

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George W. Bush was vilified for “wanting to privatize Social Security” after he proposed allowing younger workers to voluntarily elect to invest a third of their Social Security taxes in a private IRA type retirement account. However, there has been little political outcry as Barrack Obama champions the continuation of reducing personal Social Security taxes from 6.2% to 4.2%. My rudimentary math indicates that workers are being allowed to keep just under a third of the taxes they were originally paying. A friend points out that Obama’s approach has the advantage that the government isn’t involved in what happens with the money left in the paychecks.  Workers can use the money in any manner they elect, and they might even decide to put it into an IRA. However, it doesn’t do anything to repair or improve Social Security.

A brief history of Social Security was given in a posting titled “Weasels and Social Security,” and preparing that posting has me thinking more about the subject. I’m going to focus this posting on what Mr. Bush really proposed, which was a far cry from “privatizing Social Security.” The information I’ll be using is from a link that provides fact checks on several of his speeches beginning in 2000 on the subject.

Mr. Bush said in his State of the Union address on January 20, 2004,” Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account. We should make the Social Security system a source of ownership for the American people.” He continued his advocacy for changes in his acceptance speech at the Republican national convention on September 2, 2004.  “We will always keep the promise of Social Security for our older workers. With the huge Baby Boom generation approaching retirement, many of our children and grandchildren understandably worry whether Social Security will be there when they need it. We must strengthen Social Security by allowing younger workers to save some of their taxes in a personal account a nest egg you can call your own, and government can never take away.”

Mr. Bush clearly stated that his ideas were for workers under 50, and that benefits promised to older workers and people who were already retired would not be changed. However, I learned that elderly relatives were sending money to organizations promising to prevent George W. Bush from gutting Social Security with his plans “to privatize it.”

The outcry against what Mr. Bush had proposed was reinstated when the stock market tanked in 2008. There were frequent news reports that the market collapse would have been even more devastating to people if Bush’s proposal to “privatize Social Security” had been accepted. I’ve done some calculations based on a worker who has a static salary of $50,000/yr to estimate the results. That worker has Social Security “contributions” of $6200/yr. Half would be taken from the paycheck and the employer is required to match it. The Bush proposal would have allowed the worker to voluntarily invest one third of the total, or $2066.67/ year in a private account. The worker could also choose to leave all the money in Social Security.

Everyone who has investments in the stock market knows that 2008 was a scary year. The hypothetical young worker who elected to open the private retirement account would have been just as spooked. There would have been about $8300 added to the account if the account had been opened at the beginning of 2005. The value would have dropped to about $5700 at the end of 2008 if it had been invested in a Standard and Poors 500 index fund. The good news is that more shares are purchased per dollar invested when the market drops if you have the guts to keep buying when the market is plummeting. Continuing to invest the $172/month in the same S&P 500 fund would have resulted in your account being worth about $16,400 (including a net dividend of about 2 % after expenses) versus the $14,469 put into the account by the end of 2011.

What would the account have in it at the end of a career? Who knows? The stock market has historically been a good place to invest. However, as all those financial documents say, “past performance is not an indication of future performance.” Mr. Bush’s proposal was that people could invest the money according to their willingness to take risk. People could have put the money into insured CDs, and those could have very high yields if surging inflation happens a few years as many predict.

I’ve provided a fun link to a calculator to allow a reader to play with various investment scenarios. I entered data for a person opening a private account beginning in 2005 that is worth the $16,400 estimated above. I kept salary static at $50,000/yr for the worker who retires at age 62. The account would be worth $58,000 for a person who began the investments at age 40 and $94,000 for someone beginning at age 30 using an annual rate of return of 2%. The account would be worth about $81,000 for a forty year old and $154,000 for a thirty year old worker with a rate of return of 5%.

I see at least two important lessons. It is important for people to begin preparing for retirement as early as possible. That is especially true for young people who can’t depend on Social Security unless our politicians suddenly develop the courage to improve it.   The other lesson is to be successful in politics you must dress up your policies and criticize others with selective language. For example, you can explain your idea to let people keep about a third of their Social Security contributions is a tax break for the middle class while Bush’s idea about allowing people to voluntarily put a third of the money in a private account is “privatizing Social Security.”

Game Over, The Impending Economic Collapse

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I posted a review of a book “Game Over” by Stephen Leeb in which it is predicted that the U.S. economy is doomed to collapse because the world has reached what is called “Peak Oil.” All commodities are limited, and the developing world is demanding more of its share. Another review on the same subject titled “Reinventing Collapse” by Dimtry Orlov which gives virtually the same prediction, although that book is about comparing what the U.S. collapse will look like compared to what happened with the Soviet Union.

President Obama might have hastened the eventual collapse of the U.S. economy by his recent rejection of the Keystone XL pipeline. The pipeline is proposed to bring Canadian tar sand oil to the U.S. to be refined. Federal law requires that government projects be subjected to detailed environmental impact studies under the National Environmental Policy Act (NEPA). NEPA approval was given to Keystone XL after three years of study found the project would not have an adverse environmental impact. However, the powerful Environmental lobby hates the idea of the project and threatened to not support the Obama reelection campaign if he approved the project.

The President said he rejected the project because the “arbitrary date” set by Congress did not give enough time for full review (despite the lengthy NEPA review). I speculate that most Presidents would have at least complained about Congress passing a law with a deadline for action by the President. However, I also speculate that the President made a calculated political decision. He needs the environmental movement to support his campaign with volunteers to man the phone banks and do the door to door work to get his vote out next November. The Unions wanted the jobs that would be created by pipeline, but I’m guessing Mr. Obama knows they will vote for him over any Republican candidate. Nate Beeler’s political cartoon in The Washington Examiner on January 18 expresses a different perspective. It shows a caricature of President Obama dusting off his hands after tying a pipe labeled “Keystone XL Jobs” into a hangman’s noose. Another figure holding a sign “Need Job” is asking, “IS THAT SUPPOSED TO BE FOR ME or YOU?”

“Game Over” documents that alternative energies such as solar, wind, and biofuels can’t replace the energy provided by carbon-based fuels in the near future or ever. An article in the Wall Street Journal by Robert Bryce has interesting information about popular alternative energy sources and nuclear power. It would take 770 square miles of land covered with wind turbines to replace the two Indian Point nuclear reactors that sit on 250 acres of land and provide 30 percent of the energy used by New York City. There isn’t enough iron oxide to build enough towers and wind mills to come close to replacing electricity produced from carbon-based production. It isn’t yet certain that solar panels produce more energy than is required to construct, operate, and maintain the panels.  An area the size of Illinois would have to be planted in switch grass for biofuel to replace one-tenth of the energy produced by oil. Biofuel production as advocated by Secretary of Energy Steven Chu, “…is a fool’s errand.”

The Canadians are saying they know they will sell the oil, probably to the Chinese, if the U.S. continues to block the Keystone XL pipeline. The argument that the oil is “too dirty for use” won’t impress a world that is demanding more oil. It will be burned somewhere, and Mr. Obama may have assured it won’t produce jobs and energy here.

“Game Over” predicts that runaway inflation and devaluation of the U.S. dollar along with declining commodity resources will be a centerpiece of an economic collapse. The worst case scenario is that the developed nations, which have created complexity along with wealth, will collapse in the midst of violence and starvation. Perhaps that possible outcome will somehow overcome the resistance to nuclear energy. Three Mile Island, Chernobyl, and the Japanese tsunami disasters certainly have given nuclear energy a bad reputation. The waste generated is another subject popular with critics. However, the “…American commercial nuclear power industry, over its entire history, has produced about 62,000 tons of high-level waste. Stacked to a depth of about 20 feet, that would cover a single football field. Coal-fired power plants in the United States, by contrast, generate 130 million tons of coal ash a single year.” (That is an interesting observation, but remembering what causes a nuclear criticality would tell you that stacking high level waste isn’t a good idea.)

There has been a stream of comments and counter comments about the Bakken field in the Dakotas and how much that huge deposit could help with U.S. demands for oil. The field is producting just under half a million barrels of oil a day, which is stretching the infrastructure ability for collection and shipment. There are also arguments about the “fracking” to improve extraction. The Bakken field is generating oil and arguments. There is an interesting discussion about how much the field might be able to produce on Snopes. That source says production from the field has already peaked at about half a million barrels a day.

I speculate that many people will eventually think developing the Bakken fields, want Canada to sell us oil transported though some pipeline, and/or building more nuclear plants are all acceptable alternatives to starving in the cold and dark.  I also speculate that President Obama’s choice to block the Keystone XL pipeline will prove to be unpopular with a majority of Americans when they eventually can’t afford to fill the gas tanks of their cars or when the charging stations for their battery powered cars aren’t receiving electricity from the power plants. Maybe people won’t really care until they aren’t able to use their electricity-powered computers, cell phones, and other electronics or when they have to walk or bike to get anywhere.

Weasels and Social Security

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I’ve tried to maintain interest in politics, but it is challenging. Republican candidates demean each other while the Democrats demean the Republicans ranking highest in the polls at the moment.   The spectacle brings to mind an article titled “On Weasels and Removal Thereof Though Unified Action” by Susan Westfall. The author wrote that she “…decided to settle on a word to use when referring to politicians…and special interest groups who work so hard to sell the sovereign countries of the world down the road for personal gain, all the while espousing their good intentions for the ‘general welfare’ of the people.”  “Ultimately, I settled upon the term ‘weasel’.” That term is used to describe people who are acting in “…a cunning/and or deceitful fashion to achieve desired ends.”

We need fewer politicians willing act like weasels to buy enough votes to be reelected. Government entitlements such as Social Security and Medicare are popular with voters and any politician mentioning changes to improve the long term economics of the programs will face the wrath of voters. Too many politicians buy votes by defending both of the programs even though they know the programs need to be fixed.

President Clinton spent a year at town hall meetings talking about Social Security and that we should “…fix the roof while the sun is shining.” He was and is a clever politician, and he didn’t lay out details of how to fix the program. That resulted in people nodding knowingly that something should be done.

George W. Bush wasn’t as clever. He actually suggested that we begin to fix the Social Security by letting younger people voluntarily put a third of their Social Security “contributions” into private retirement accounts similar to IRAs. The account owner could then select how the money was invested, and they could select treasury bills or insured certificates of deposit if they wanted to be conservative to assure the money was there for them when they retired. They could also select the beneficiary, while Social Security is limited to dependent children and legal spouses (and is therefore homophobic).  Democrats were mortified. Robert Reich, who had been Clinton’s Labor Secretary, responded, “If it ain’t broke, don’t fix it!” Alliances were formed with older people who were told Bush wanted to destroy Social Security by “privatizing it.” I was discouraged that members of Congress and evidently their voting constituents believed the government could more intelligently manage money than the people who originally earned the money.  Bush lost, and future politicians received a clear message. Act like a weasel if you want to be reelected.

I have one hope, and that is some future politician will have the courage to offer what Franklin Delano Roosevelt proposed in an address given November 14, 1934. “It takes so very much money to provide even a moderate pension for everybody, that when the funds are raised from taxation only a “means test” must necessarily be made a condition of the grant of pensions.” He not only recommended a means test to determine whether people should receive a benefit, he also said he believed the taxpayers should only support the program for thirty years (until about 1965) at which time it would be replaced by private accounts.  When Bush’s opponents commented that Bush wanted to “destroy FDR’s legacy program,” they apparently believed what he had proposed didn’t go nearly far enough to implement FDR’s vision.

(Some readers might hesitate to believe the previous paragraph. A link is provided for those who want to read FDR’s comments in context. I predict you will find what I’ve written is accurate. Links are also provided to speeches by President Clinton and George W. Bush on the Social Security web site.)

Realistically, FDR probably would have been pleased with the backlash at Bush for suggesting changes. He even predicted that once the program was put in place “…no damn politician…” would ever be able to change it.  An advisor told FDR that Social Security wasn’t good economics. FDR famously responded, “I guess you’re right on the economics, but those taxes were never a problem of economics. They were politics all the way through.”

A few years back there was a bumper sticker popular in areas of the country where you would find large concentrations of retirees on vacation that read, “We’re spending our children’s inheritance.”   I hadn’t seen the sticker lately, and it occurred to me that message is no longer valid.  We retirees are no longer satisfied with spending only the children’s inheritance.  The Social Security program is diligently collecting substantial portions of incomes from the salaries of young workers and transferring it to those of us who are retired after skimming the cost of operating the bureaucracy.  Not fixing the program means we are willing to take that money with the promise workers under the age of about forty won’t receive equivalent benefits unless more money is taken from paychecks of the shrinking numbers of employed younger people.

I have advocated ending the cost of living adjustments to Social Security beneficiaries, and I’m guessing that one suggestion means there’s no risk of me being elected to any political position. However, I promise I’ll vote for people who show the courage to do something to improve future prospects for the country. My appeal is for others to join me in a quest to show the weasels the door. The other alternative is to wait for the eventual bankruptcy of the U.S. economy and the end of those monthly Social Security checks. I don’t think I’m the only grandparent who is willing to see changes to the Social Security program that would  give our families a better future.

Jefferson County Parkway and the Rocky Flats Plant II

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This is an update based on a news article published in the Arvada YourHub the day after the original post. The article by Karen Groves says that Golden has withdrawn their support for the project and filed suit “…challenging the U.S. Fish and Wildlife Service’s decision to transfer land from the Rocky Flats National Wildlife Refuge to the proposed Jefferson Parkway toll highway.”  Golden had originally agreed to the road after being offered $57 million for traffic and noise mitigation after “…months of negotiations between Golden and parkway proponents (Jefferson Country, Arvada, The Jefferson Parkway Public Highway Authority, and the Colorado Department of Transportation to reach an agreement.” Golden official decided to file the litigation after an outcry from citizens despite the fact “…the outcome would be expensive and uncertain.”

Golden citizens mentioned the “…danger of plutonium disturbance…” during construction of a highway next to the site where the Rocky Flats Plant built nuclear weapons components for the military. I will reiterate my comments that I disagree with the contentions about the risk from the plutonium. The entire world and all inhabitants are contaminated with plutonium from atmospheric nuclear weapons testing. Details about that and the Rocky Flats Plant’s record of plutonium releases are discussed in Chapter 25 of “An Insider’s View of Rocky Flats, Urban Myths Debunked.”

The battle over a parkway has been going on for decades. I recently received a message from a former Rocky Flats Plant official mentioning that proponents of various parkway options had wanted public support from the plant in the late 1980s while Greenpeace had requested they officially oppose the project.