Obama Mischief With Accountants

An NRO editorial reports on the administration’s attempt to extend overtime rules to salaried employees:

The Obama administration wants to raise that threshold to as high as $50,400, meaning that office managers salaried at around $1,000 a week would be treated like minimum-wage fast-food workers in the event — the very likely event — that they clock 41 hours in a week.

Read more at: http://www.nationalreview.com/article/420528/obama-overtime-rule-effects-jobs-employment

This could have a big impact on accounting firms.  The “busy season” in public accounting is aptly named.  Accounts typically work 60 plus hours during the busy season from January to April 15 (with some variation by speciality) and less during the rest of the year but they typically average over 40 hours for the year.  The 3000 hour club is less common than it was.  The most recent average entry-level salary for accountants was $43,544 at our school.  That means that the majority of the new hires would fall under the new rules.

What will firms do to adjust?  Increase cash wages and reduce benefits or increase expected hours?  Reduce hiring?  We are investigating.  Update: this will punish small accounting firms but the current entry-level salary for the larger firms will allow them to escape this.

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A Tariff and Tax Proposal

Kevin Williamson has proposed unilaterally eliminating all US tariffs.  It is a great idea.  Rand Paul proposed a flat tax.  As we said earlier the flat tax hits some retirees hard.  The some depends upon where they get their income form.  The Democrats and some others would like to raise the gas tax.

We have a modest tax proposal combining Williamson’s idea, the Democrats, and the need to be revenue neutral.  Here is an opportunity to be bipartisan.  Here is a way to improve incentives twice without spending a dollar.  We eliminate all tariffs, the death tax, and we double the gas tax from 18.4 cents to 37 (yes that is slightly more than double but we need a little extra and we like round numbers).  According to Progressive Economy,  federal revenue was  (in billions of dollars in 2012) $30 from tariffs, $11 from the death tax, and $39 from gas.  By slightly more than doubling the gas tax and figuring in a little savings from not enforcing tariffs and death tax we should net to revenue neutral.  Although individual outcomes will vary it is reasonably close to revenue neutral for individuals because is substitutes one regressive tax for another.

Sidebar: how liberals have changed – a quote taking about liberals in 1912 from Progressive Economy:

Liberals [in 1912] disliked the tariff system as non-transparent and – because high tariffs on clothes meant taxation of lower-income people – as regressive.

Now progressives like non-transparent taxes and are supportive of regressive taxes like tariffs, VAT, carbon taxes, and FICA.  The first three are both non-transparent and regressive.  End Sidebar

This proposal improves incentives twice by making trade free and gas (and diesel fuel for cars) more expensive.  You don’t have to be a warmist to see that making gas slightly more expensive (about 7%) is a reasonable act consistent with long-term success.  It will create incentives for market-based alternatives for transportation.

It is not monumental but eliminating tariffs and the death tax would be a real step forward.  Increasing the gas tax is not the worst idea and it could create bipartisan support for a simple way to improve the US economy.

The Political Problem with A Flat Tax

Rand Paul has proposed a flat tax.  Commenters have argued that the problem with a flat tax is that it is a hard sell to the middle class because it provides limited benefits to them.  We think there is another specific group that will be unhappy about the proposal: retirees.

If the flax tax eliminates social security taxes then the retirees lose a benefit.  Our taxes essentially were cut in half by retirement while our gross income went down a bit and our disposable income went up.  How come?  A big part of it was social security taxes on income disappeared.  Social security is not taxable in our state and only partially taxable by the federal government.  Benefits are still not taxable and they went up while saving for retirement went down.  We also hit 65 and got an extra exemption each.  Our average rate on Gross Income including federal income tax and FICA (state taxes are discussed previously but not included in the computations below):

Both retired 12.89%
One Retired 20.75%
Both Retired 22.29% (for this computation retirement income was assumed subject to FICA)

Part of the impact is higher income prior to retirement but it is also true that some of the retirement income is excluded from Gross Income.  A proposal for 17% with some exemption does not look to be in our financial interest.  It was when at least one of us was working.  Retirees tend to vote and have relatively high interest in political discussions.  I can write the opposition ad: Rand Paul wants to tax seniors.  You’ve spent your life paying taxes now Rand Paul wants to raise them on you and cut them on (pick your least favorite group).  We think that will play well to people who vote.

European Humor

We are in Ireland flipping through stations when a character says something like, “We can’t stand for this.  What would the giants (a couple of names) who founded the EU do?”  Unfortunately, they don’t use laugh tracks so we don’t know if the writers intended it to be funny.  It was.

Tenure in Wisconsin

Cristian Schneider’s WSJ piece on tenure in Wisconsin raises some good points but has this terrible paragraph:

What tenure does well, however, is allow high-paid faculty to keep collecting paychecks while untenured academic staff and teaching assistants conduct the classes. The average “nine-month” professor at the UW-Madison earns $123,500 in salary, before benefits. Yet only 47% of the campus’s classes are taught by faculty. According to the UW-Madison chancellor, taxpayer-funded faculty taught an average of 3.41 classes a week in 2013 and spent an average of 21.3 hours a week on research. The end result is that students wind up paying rapidly rising tuition for professors they’ll rarely see.

Tenure does not lead to faculty teaching 47% of the classes.  A research institution leads to that.  Notice that the article adopts the statutory definition of faculty that is only true in Wisconsin: faculty are defined as only tenured or tenure-track.  For example when we were a visiting professor at Madison we were not faculty but when we returned to our home campus we were.

The scare quotes around nine months is interesting.  Is that tacit agreement that faculty work all year long?  In any case, for a variety of reasons including keeping cost (and prices) down, departments have a portfolio of faculty and instructional academic staff (IAS).  Anyone that teaches and is not faculty is IAS by Wisconsin statute.  IAS generally teach more and are paid less because research is not an expectation.  Many IAS are full-time continuing instructors that, for students, are indistinguishable from the faculty.

It is true if you go to a research institution like Madison you will see faculty less.  Part of that is the definition of faculty.  As a student you won’t see the difference between IAS and faculty but part of it is real.

Faculty teach 3.41 classes and research 21.3 hours is a misleading comparison suggesting a ratio of about six for research over teaching.  Teaching involves preparation for class, writing exams, grading exams and homework, and meeting with students outside of class.  The number of hours spent on teaching are much higher than the hours spent in class.  If we accept the data then the ratio should be much lower than six.

The paragraph suggests some reasons why tuition is high.  It does not make any argument as to why tuition is increasing although it concludes by blaming tenure for increasing tuition.  Tenure has been constant while tuition has increased.  More likely reasons for the increase in tuition are reduction in support from the state and administrative bloat.

Stereotyping

In a book review by Max Boot in the WSJ accountants get maleigned:

The common theme running through all these anecdotes is that Nixon simply did not know how to interact with people. Yet instead of choosing to spend his life in a monastery or at an accounting office, Nixon chose the most public occupation imaginable.

It is much more than a micro aggression.  How should we react to such slurs on accountants?  It is just hard wok to spread the word.  That is the only solution.

Lomborg’s Populism

Bjorn Lomborg’s piece in the USA Today reminds us why he is one environmentalist worth reading:

The biggest problem with today’s climate change policies is that they will cost a fortune for very little good.

Still argument is worrisome because it has a populist flair:

A reasonable starting point is to listen to the world’s citizens. A United Nations surveyof 7.5 million people found that many other issues are deemed more urgent. The top priorities were education, health, jobs, corruption and nutrition. Of 16 problems, the climate was rated the lowest priority.

We’re glad that the world’s citizens have come to this conclusion.  It makes it easier to do the sensible thing but we should do that in any case.  We should not pay a fortune for very little benefit even if it is popular.

Activist climate change policies fail a cost-benefit test.  If we are to spend money expressly to help the poor then let us spend it in a way that actually benefits them.  Helping poor countries adopt capitalism ought to be high on the list.  The Great Enrichment helps them more than anyone else.