Tax Revenues to the Federal Government increase at record pace... Smoke em' if you got em'

    Taxes increase on tobacco products and tax revenues to the government increase.  Makes sense and should always happen, right?

Reuters: U.S. pockets $20.6 bln in sin taxes in FY'09

""Americans armed themselves to the teeth and paid through the nose to have a smoke, according to a U.S. government report released on Wednesday. The U.S. federal government collected $20.6 billion in taxes on alcohol, tobacco, firearms and ammunition in fiscal year 2009, up 41 percent from the previous fiscal year, according to the annual report of the Alcohol and Tobacco Tax and Trade Bureau. Part of the U.S. Treasury Department, the TTB credited most of the $6 billion rise in revenues collected to the increased taxes on the tobacco industry as a result of the Children's Health Insurance Reauthorization Act passed in February 2009...""

    Well, that depends on elasticities. To fund part of the recently passed heathcare reform, the federal tax on cigarettes was increased by 62 cents to a total of $1.01. The tax on chewing tobacco was increased  from $0.195/lb. to $0.50/lb.  Because the price of cigarettes varies greatly for state to state, mainly because of individual state taxes levied on cigarettes, it is difficult to ascertain the percentage change in the price of cigarettes at the retail level.  However, we do know that the price elasticity of demand for cigarettes is relatively inelastic.  This means that the percentage decrease in quantity demanded for tobacco products is LESS than the percentage increase in the price of tobacco products (%chg in quantity demanded divided by %chg in price yeilds a number less than 1).  In other words, consumers of tobacco products are less sensitive, in regard to their quantity demanded,  to price increases for this particular good. 
     An easy way to see how the Federal governments tax revenue increased so dramatically, I am going to use the a modified Total Revenue Test for elasticity.  Lets call it the Total Tax Revenue Test.
     The tax before the increase was $.39 ($1.01 minus $.62) and let's assume, for simplicity sake, the quantity demanded for cigarettes in the marketplace was 100 packs.  The tax revenue would be 100 X $.39 = $39 to the Federal governement. Now the tax increase of $.62 is added to $.39 which makes the total tax move to $1.01 OR a percentage INCREASE of +159% ($1.01 minus $.39 then divide by $.39 then multiply the result by 100).  Now assume that 25 fewer packs of cigarettes will sold because some people, despite the addiction, will not buy because of the extra expense.  The percentage change in quantity demanded is -25% (100 minus 25 divided by 100 then mulitply by 100). 
   We have all the information we need to calculate total tax revenue.  AFTER the tax is imposed  the total tax collected, even though the quantity of cigarettes demanded decreases, is 75 packs X $1.01 = $76 (I rounded up).  Before the tax increase the govt received $39 and after the tax increase they received $76, or a percentage change in tax revenue of 95 % ($76 minus $39 divided by $39 then mulitply result by 100). 
   This appears to be a good deal for the Federal government and its attempt at providing a source of revenue to pay for the healtcare. However, can you think of any pitfalls that will throw a monkey wrench into this particular funding mechanism? 
    This example re-inforces the importance of taking elasticity into account when it comes to government (fed, state, local) policies on taxation.  Lesson: Tax the right thing, you increase revenues and get less of the good.  Tax the wrong thing,  you decrease revenues and get less of it...
     Now you know... :)

Looking for a Job? Here are some things to be aware of in your search and at your interview.

This is a serious issue.  Whether you mean to or not, you may be sending the wrong signal to an interviewer. If you are looking for a job these are some important things you should be aware of---in yourself and your surroundings.
WSJ: Big Blunders Job Hunters Make

Another sign lost in translation--I think I will pass on this flavor ice cream...

HT: KPC

Usane Bolt believes in Supply-Side Economics...

Higher tax rates discourage work---is this evidence of that?? (HT: Carpe Diem)

"Organizers of next month's Aviva London Grand Prix at Crystal Palace had hoped to stage the first 100 meters head-to-head of the season between Bolt, Tyson Gay and Asafa Powell but the triple Olympic champion is set to shun the meeting because it would expose him to a huge tax bill. Unless the tax rules are relaxed, athletics administrators fear British fans will be denied the chance to see the sport's biggest star in action again until he returns to the capital in two years' time to defend his Olympic titles. Since April, foreign sports stars competing in Britain are liable for a top rate of income tax of 50 percent but, controversially, the tax is charged not just on the money they earn in Britain but on a proportion of their worldwide sponsorship income."

Source: UK Telegraph

What do Pizza Boxes and your Security Screener at the airport have in common? More than you think..

The Department of Homeland Security is advertising for its open positions as AIRPORT SECURITY personnel on pizza boxes...Do they really have a hard time drawing a pool of qualified applicants for these security sensitive jobs that they need to spend tax money in this manner? Seems odd to me...Just askin'...(More Photos HERE)

LeBron is going to pay ALOT to rent a U-Haul to Florida---so is everyone else...See how much...

Sometimes it is more instructive to look for indicators of economic health in unusual places but they may yield the best, or at least interesting results...U-Haul Rental prices for do-it-yourself movers, for instance.  Below you see the prices to rent a truck to leave Ohio to select destinations in Florida, and vice-versa.  People leaving Ohio pay significantly more to move to Florida than people leaving Florida to go to Ohio. This is a nice example of Supply and Demand and how prices serve to "to clear" the market of surpluses and shortages. (HT: Carpe Diem)

One-way rental rates for a 26-foot U-Haul truck
Miami, FL to Cleveland, OH: $1,000
Cleveland, OH to Miami, FL: $1,457
Premium to leave Ohio: 45.7%

Orlando, FL to Cleveland, OH: $834
Cleveland, OH to Orlando, FL: $1,301
Premium to leave Ohio: 56%

Tampa, FL to Cleveland, OH: $917
Cleveland, OH to Tampa, FL: $,1379
Premium to leave Ohio: 50.4%

 
Linked from Carpe Diem

Two nice graphs--Rankings of States based on business climate and comparing Texas and California in detail...

The first graphic below shows results of a 2010 CEO poll of the best and worst states to do business. Interesting to see the top and bottom of the list.  The second graphic compares Texas and California in a number of business climate measures.  

Want to be a CEO? That road is paved with a degree in Economics...Just sayin'...

Below is the abstract from a research paper---access to the  paper is restricted, but this is an excellent summary stating that, statistically, being an economics major is a pathway to becoming a CEO...And it suggests women would benefit MORE with an economics degree...just sayin'...

""It is often suggested that Economics is a good major for individuals interested in becoming business leaders. Despite this widespread assertion, little research has been conducted on this topic. Using the Standard and Poor (S&P) 500 companies, this paper examines the validity of such a claim. We find evidence that Economics is a good choice of major for those aspiring to become a CEO. Economics ranked third with 9% of the CEOs of the S&P 500 companies in 2004 being undergraduate Economics majors, behind Business Administration and Engineering majors, each of which accounted for 20% of the CEOs. When adjusting for size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S&P 500 CEO than any other major. That is, the share of graduates who were Economics majors who were CEOs in 2004 was greater than that for any other major, including Business Administration and Engineering. The findings also show that a higher percentage of CEOs who were Economics majors subsequently completed a graduate degree - often an MBA - than did their counterparts with Business Administration and Engineering degrees. The paper demonstrates that while women now comprise over half of all bachelors and masters degrees awarded, they remain a minority in terms of undergraduate degrees awarded in Economics and in MBA degrees conferred. Economics programs may try to appeal to more women students as a stepping stone to becoming a CEO, especially as women continue to account for less than 2 percent of the S&P 500 CEOs.""

A Lack of Private Property Rights and Haiti---An impediment to real progress post-earthquake...

This article from WSJ: Six Months On, Haiti Aid Push Falters:  Post-Earthquake Refugee Camps and Rubble Remain, as Promised Funds Are Slow to Arrive; Hold-Ups Over Land Rights is very important for many reasons, but it mentions one that I harp on alot in class--the significance of private property rights.  The article also mentions economist Hernando de Soto, who I think should win a Nobel Prize in multiple categories.  His research on the lack of private property rights (and, more importantly, the mechanisms necessary for securing those rights) in the developing world and how it impedes economic progress in those countries is truly under-appreciated.
    This except sums up a significant and overlooked part of the development. Subsitute any under-developed countries name where Haiti appears below a you get the same result.

""One reason the government has had a difficult time dealing with basic issues such as resettlement: It is often impossible to determine who owns homes and land. A decade ago, 97% of rural residents in Haiti and 68% of city residents lacked clear title to their housing, according to a study by Peruvian economist Hernando de Soto.  Eighty-two percent of real estate and 68% of businesses in Haiti are in the extralegal economy," says Mr. de Soto, who has offered the information to a U.N. commission on legal empowerment of the poor. He estimates the value of the assets to which no one can claim title at about $5.2 billion, roughly the same amount that has been pledged for the first two years of Haiti's reconstruction. The loss of documents in the earthquake makes that situation worse. Most Haitians seeking to start over can't access bank credit because they have no collateral to offer up. The failure to demonstrate clear title acts as a brake to development, affecting small investors and multinational lenders alike.

I recommend "The Mystery of Capital" by  Hernando de Soto for anyone interested in one of the root causes of poverty in the world (not the ONLY cause, but one that must be addressed if significant progress is to be made).

The Senate believes we need MORE beer and LESS soft drinks...Discuss...

     In Microeconomics we look at the effect of taxation on the demand and supply of goods and/or services.  In general, if you want MORE of something you reduce the taxes on that product/service because it decreases the cost of producing or it decreases the purchase price for the consumer. You would do this if you thought there was underproduction of this good and more of it would be desirable for society.  The good in this case creates a positive externality. If you want LESS of something you would increase the tax, thereby increasing the cost of producing or increasing the purchasing price for the consumer. You would do this if you thought there was overproduction of this good and less of it would be desirable for society. The good in this case creates a negative externality.  With this in mind, the following two articles present an interesting case study in taxation of a specific good. 

     The first one "Can Beer Stimulus Hop Up the Economy?" discusses a bill, submitted in the Senate, to decrease the tax per barrel of beer, from $7.00 per barrel to $3.50 per barrel. This decrease in tax applies specifically to small mico-brewers of beer.  The article describes (as the sponsoring Senators desire), textbook perfect, how this decrease in tax will reduce the cost of producing, increase the production of micro-beer, and stimulate the hiring of workers for the micro-brewing businesses.  By our definition above, it would appear that the Senate believes there is under-production of beer and more of it would be beneficial to society.  

     The second article "Senate Considers Federal Tax On Soda" discusses a bill, ALSO submitted in the Senate that proposes a 3 cent tax per 12 ounces on soft drinks (soda, Gatorade, energy drinks, etc). The implication is that these are not a desirable good and consumption of less of it is good for society.  This tax would serve to increase the cost/price of these categories of drinks, decreasing the demand hence the quantity supplied of the good. If producers/suppliers are supplying less, then they are going to need to hire fewer workers and most likely have to lay-off workers.  By our definition above, it would appear that the Senate believes there is over-production of soft drinks and less of it would be beneficial to society. (The graph looks like this)

    Three things come to mind here for me. First, in terms of positive and negative effects on society (mostly health related), is there a significant difference between beer and soft drinks when you add up all the costs and benefits and compare across the two goods? Second, the effect on employment in these two industries. Employment  in micro-brewing increases but employment in the soft drink market decreases. What is the overall net effect in terms of jobs? Third, the Senate is taking up BOTH of these propositions.  Are there contradictions?  Are there synergies? Are individual Senators trying to pick winners and losers in the economy using tax policy?  What do you think???

Did Lebron James make his decision based on Supply-Side Economics? Taxes matter...

Business and Media Institute - "While sports reporters have sought agents and teammates for the inside scoop on where NBA superstar free agent LeBron James will sign, there’s another person who may know The King’s next move: his accountant."

Based on a $96 million, five-year contract, here's an estimate of what LeBron James would pay in state income taxes:

New York: $12.34 million

New Jersey: $10.32 million

Ohio: $5.69 million

Florida: $0.00

From Carpe Diem

Who gets "burned" by the 10% Tan Tax that just kicked in? The Owner? The Tanner? The workers who lose their jobs?

     A 10%  "Tan Tax" took effect on July 1st. The tax was part of the health-care reform package that was recently passed into law and was meant to pay for some part of the new health-care mandates.  I wrote about this at the time (click HERE for that blog entry) because Congress WAS deciding whether to tax tans OR elective cosmetic surgery.  Because of interest group pressure from doctors the tax was levied on tanning salons instead. 
     I wrote about the Tan Tax in terms of elasticity, or what would be the change in quantity demanded of tans be in response to the increase in price of tans due to the tax.  Elasticity of Demand is determined by taking the percentage change in Quantity Demanded and DIVIDING by the percentage change in Price (including the tax).  If the result is greater than 1 then the good is considered Price Elastic.  This means consumers/purchasers ARE sensitive to changes in price of the good. 
     The comment below is only an empirical observation by an interested party, but if we take it at face value then we can assume demand for tans is quite elastic (2) to very elastic (3). 

Tanning salons feel burned by 10 percent 'tan tax'

"In 26 years of business this is the worst I've seen it," said Scott Shortnacy, owner of the Arlington Solar Planet as well as six other branches in the Washington area. "Normally for people who tan, it's a part of their lifestyle. They keep doing it even in a recession. But everybody has been looking for ways to cut back on those areas. ... Our sales are down 20 to 30 percent."

If, in fact, tans are Price Elastic, the burden of paying the tax will fall on the business mostly and on the consumer to a lesser extent. This will increase the cost of doing business and "at the margins" some/many operators will reduce/layoff staff (the largest cost of doing business) or close altogether.  Jobs for lower skilled/lower educated workers will become more scarce...Something to think about...

What do a Vegemite Sandwich and "Kookaburra Sits in the Old Gum Tree" have in common? Apparently a flute solo...

Men at Work must pay royalties for copied riff in 'Down Under'

"A judge ordered Australian band Men at Work on Tuesday to hand over a portion of the royalties from their 1980s hit "Down Under," after previously ruling its distinctive flute riff was copied from a children's campfire song....But the penalty — 5 percent of the song's royalties — was far less than the 60 percent sought by publishing company Larrikin Music, which holds the copyright for the song "Kookaburra Sits in the Old Gum Tree."  "Kookaburra" was written more than 70 years ago by Australian teacher Marion Sinclair for a Girl Guides competition, and the song about the native Australian bird has been a favorite around campfires from New Zealand to Canada.Sinclair died in 1988, but Larrikin filed a copyright lawsuit last year. In February, Federal Court Justice Peter Jacobson ruled Men at Work had copied their song's signature flute melody from "Kookaburra."

More support for "The more you learn, the more you earn"---BUT is it a good thing??

The graph below shows the differences in pay, in terms of educational attainment, someone in 1979 earned with someone in 2009.  There are lots of inferences you can draw from this data (if you read the accompanying link you will see some).  Can everyone go to college? If not, what should they do?  What can the nation do to make sure the income gap created by an education gap not increase more than it has? Should we even do THAT?   What do you think!!

Do You Earn More Than Your Parents Did?

4th of July Poll "What country did America gain its Independence from?" umm...Social Studies epic fail...

"The fourth of July is Independence Day in the US. 1,004 US residents were asked who independence was declared from. The results? A little concerning, shall we say."--Data Driven

Click HERE to go to website and change the demographics---Interesting results..

Source: Chartporn