Wednesday, January 23, 2019

Mr. Beutner and the Los Angeles Public Schools

Mr. Beutner and the Los Angeles Public Schools

The Los Angeles Public School teachers left their classrooms in the first teacher strike in thirty years. I read the teachers and their union want class size reduced and support staff restored to previous or even reasonable levels.

The school system’s latest Superintendent, Austin Beutner, has no experience in education. Reports describe him as a former investment banker and non-profit executive brought into the school system by the school board to get the system’s finances in order.

I always get disgusted with everyone who thinks anyone with a history of financial success automatically qualifies for all other jobs including education. So many show their contempt for education by expressing such views. I do not hear the reverse that teachers are professionals qualified to take over an investment banking firm, but they would have to do exactly what Mr. Beutner has to do: start fresh and learn something new.

Newspaper accounts quoted Mr. Beutner: “If we agreed to [union] demands, the district would be come immediately bankrupt and would be taken over by the state that same day.” Even if its true, it takes no financial skill to determine that, which is irrelevant to what’s important anyway.

I read one quote from a striking teacher that makes clear what’s relevant to the strike “We have a charter school on campus that is eating away at our spaces, our resources.” Now we know the real financial problem: charter school students get a bigger share of the budget than their share of students; get amounts out of proportion to their numbers.

If that assertion is false it takes no financial genius to prove it false. Now – January 23, 2019 - the union and Mr. Beutner have reached a tentative settlement that will give teachers a raise, reduce class size and hire more support staff; certainly a good thing. However, it does not answer the question Mr. Beutner was hired to evade. It does not justify the percentage of the total financial budget going to the public schools compared to that going to the charter schools. Those who believe in education should demand an answer.

Wednesday, January 2, 2019

The George Herbert Walker Bush Tax Cuts

The George Herbert Walker Bush Tax Cuts

Many of us remember George Herbert Walker Bush for his famous declaration: “Read my lips; no new taxes.” Being a man of financial prudence he decided his own federal budget deficits forced him to renege. He raised taxes and then lost his bid for reelection in the 1992 elections.

The ideological part of the Republican party would never forgive him, although the Ross Perot third party bid probably cost him more votes than angry Republicans. It did after all give them an alternative to Democrats. What I would like to examine though is how much of a tax cut really occurred and also the timing of the cuts. Remember Mr. Bush did not take office until January 1989 and left office in January 1993. Before Mr. Bush took office President Reagan succeeded in getting substantial tax cuts.

Suppose we invent a hypothetical rich couple earning $900,000 in wages and salaries and $100,000 of capital gains and look at their federal personal income taxes for a joint return and a standard deduction each year in 1986, 1987, 1988 and 1991.

Taxes in 1986 had 15 different tax rates that started at 11 percent for the first $3,670 of taxable income for married couples filing a joint return and went up by 1 to 4 percent increments until it reached 50 percent for taxable income of $175,250 or more. The 1986 taxes for our hypothetical couple came to $514,876.00. Only 40 percent of reported capital gains was taxed in that year.

Their 1987 federal taxes were before George HW Bush became president where tax cuts by Congress and President Reagan left 4 different tax rates that started at 11 percent for the first $3,000 of taxable income for married couples filing a joint return. Rates went up by 4 to 13 percent income increments until it reached 38.5 percent for taxable income of $90,000 or more. Now with the Reagan tax cuts the 1987 their tax drops to $361,529.41, a savings of $153,448.59. That is a 29.7 percent reduction in taxes.

In 1988, again during the Reagan presidential years, the top tax rate dropped again. This time from 38.5 percent to 33 percent on the first $149,250 of taxable income. Therefore not only is the rate lower but also the lower rate applies to more income. Now with the Reagan tax cuts in 1988 our hypothetical couple would pay $278,600 in federal income taxes, a savings of $82,929.41. That is 22.9 percent reduction over 1987 taxes and a 45.9 percent reduction over taxes in 1986.

Compare federal income taxes for a couple filing a joint return on the median household income in 1986, which was $24,897. Assuming the $24,897 was wage income this lower income couple paid $2,202.76 in federal taxes. After the tax cut for the rich the working class couple with the same $24,897 income in 1987 paid $2,480.55, a tax increase of $277.79. That is a 12.6 percent increase in taxes. It was called a rich persons tax cut with good reason.

In 1991 the top tax rate dropped from 33 percent to 31 percent for taxable income over $82,150, but the 1990 exemption amount of $4,100 for a married couple filing a joint return was suddenly subjected to a means test. For couples earning over $157,900 started losing the exemption deduction until it became negative and had to be added to taxable income. Beginning in 1991 during George Bush’s presidency our hypothetical couple had to pay $306,079.91 in taxes, an increase from $278,474.00 in 1990, or $27,605.91 more tax in 1991. The 1991 increase was 9.9 percent over 1990, but still 40.6 percent below the taxes from 1986.

If the taxes of 1986 had remained the same from 1987 through 1992 our hypothetical couple would have paid $1,279,952.43 more in taxes that they did. I did not adjust for interest earnings or it would have been more. The Reagan-Bush tax cuts from 1987 to 1992 cut taxes for our hypothetical rich couple by 41.4 percent.

It’s always good to quantify the arrogance of the idle rich, but gee poor ol’Herbert Walker lost his job. The new President Bill Clinton and the Democrats had the Trifecta for two years: control of the White House and both houses of Congress. The Democrats raised 1993 taxes although they remained well below 1986. Our hypothetical rich couple saved $145,793.88 in 1993 taxes over taxes for 1986.