Showing posts with label tax. Show all posts
Showing posts with label tax. Show all posts

Wednesday, April 15, 2009

Leadership vs Management

As a business owner it is important to study and understand what works and what does not. One trend I noticed in profitable and sustainable businesses is a low overhead. Many of the corporations that are over 1000 years old have an overhead of between 10 and 20 percent. Also they tend to apply a rule of thumb regarding compensation – that is all rise and fall together. If one part of company fails it affects other parts of the company this included bonuses. All share in the success of the company and everyone who works is considered a stake holder in its success. 

Knowing this is shocks me that our own government if we use that model has 25% overhead – what can we derive from this fact? Why do we pay taxes? What is the purpose of the Federal Government? 

History of the Income Tax in the United States

Source: Tax Foundation.

The nation had few taxes in its early history. From 1791 to 1802, the United States government was supported by internal taxes on distilled spirits, carriages, refined sugar, tobacco and snuff, property sold at auction, corporate bonds, and slaves. The high cost of the War of 1812 brought about the nation's first sales taxes on gold, silverware, jewelry, and watches. In 1817, however, Congress did away with all internal taxes, relying on tariffs on imported goods to provide sufficient funds for running the government.

 

In 1862, in order to support the Civil War effort, Congress enacted the nation's first income tax law. It was a forerunner of our modern income tax in that it was based on the principles of graduated, or progressive, taxation and of withholding income at the source. During the Civil War, a person earning from $600 to $10,000 per year paid tax at the rate of 3%. Those with incomes of more than $10,000 paid taxes at a higher rate. Additional sales and excise taxes were added, and an “inheritance” tax also made its debut. In 1866, internal revenue collections reached their highest point in the nation's 90-year history—more than $310 million, an amount not reached again until 1911.

 

The Act of 1862 established the office of Commissioner of Internal Revenue. The Commissioner was given the power to assess, levy, and collect taxes, and the right to enforce the tax laws through seizure of property and income and through prosecution. The powers and authority remain very much the same today.

In 1868, Congress again focused its taxation efforts on tobacco and distilled spirits and eliminated the income tax in 1872. It had a short-lived revival in 1894 and 1895. In the latter year, the U.S. Supreme Court decided that the income tax was unconstitutional because it was not apportioned among the states in conformity with the Constitution.

 

In 1913, the 16th Amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. With the advent of World War II, employment increased, as did tax collections—to $7.3 billion. The withholding tax on wages was introduced in 1943 and was instrumental in increasing the number of taxpayers to 60 million and tax collections to $43 billion by 1945.

 

In 1981, Congress enacted the largest tax cut in U.S. history, approximately $750 billion over six years. The tax reduction, however, was partially offset by two tax acts, in 1982 and 1984, that attempted to raise approximately $265 billion.

On Oct. 22, 1986, President Reagan signed into law the Tax Reform Act of 1986, one of the most far-reaching reforms of the United States tax system since the adoption of the income tax. The top tax rate on individual income was lowered from 50% to 28%, the lowest it had been since 1916. Tax preferences were eliminated to make up most of the revenue. In an attempt to remain revenue neutral, the act called for a $120 billion increase in business taxation and a corresponding decrease in individual taxation over a five-year period.

 

Following what seemed to be a yearly tradition of new tax acts that began in 1986, the Revenue Reconciliation Act of 1990 was signed into law on Nov. 5, 1990. As with the '87, '88, and '89 acts, the 1990 act, while providing a number of substantive provisions, was small in comparison with the 1986 act. The emphasis of the 1990 act was increased taxes on the wealthy.

 

On Aug. 10, 1993, President Clinton signed the Revenue Reconciliation Act of 1993 into law. The act's purpose was to reduce by approximately $496 billion the federal deficit that would otherwise accumulate in fiscal years 1994 through 1998. In 1997, Clinton signed another tax act. The act, which cut taxes by $152 billion, included a cut in capital-gains tax for individuals, a $500 per child tax credit, and tax incentives for education.

 

President George W. Bush signed a series of tax cuts into law. The largest was the Economic Growth and Tax Relief Reconciliation Act of 2001. It was estimated to save taxpayers $1.3 trillion over ten years, making it the third largest tax cut since World War II. The Bush tax cut created a new lowest rate, 10% for the first several thousand dollars earned. It also established a slow schedule of incremental tax cuts that would eventually double the child tax credit from $500 to $1,000, adjust brackets so that middle-income couples owed the same tax as comparable singles, cut the top four tax rates (28% to 25%; 31% to 28%; 36% to 33%; and 39.6% to 35%).

 

The Jobs and Growth Tax Relief and Reconciliation Act of 2003 accelerated the tax rate cuts that had been enacted in 2001, and temporarily reduced the tax rate on capital gains and dividends to 15%. In 2004, the U.S. was forced to eliminate a corporate tax provision that had been ruled illegal by the World Trade Organization. Along with that tax hike, Congress passed a cornucopia of tax breaks, which for individuals included an option to deduct the payment of whichever state taxes were higher, sales or income taxes.

 

Two tax bills signed in 2005 and 2006 extended through 2010 the favorable rates on capital gains and dividends that had been enacted in 2003, raised the exemption levels for the Alternative Minimum Tax, and enacted new tax incentives designed to persuade individuals to save more for retirement. 

The federal government of the United States is the central current reigning United States governmental body, established by the United States Constitution. The federal government has three branches: the legislative, executive, and judicial. Through a system of separation of powers and the system of "checks and balances," each of these branches has some authority to act on its own, some authority to regulate the other two branches, and has some of its own authority, in turn, regulated by the other branches.[1] The policies of the federal government have a broad impact on both the domestic and foreign affairs of the United States. In addition, the powers of the federal government as a whole are limited by the Constitution, which, per the Tenth Amendment, gives all power not directed to the National government, to the State level, or to the people. 

President

Courts

Law

Agencies

Some agencies are legislative, some are executive, some are judicial.

States and territories

Comparison

Web site and works

So if we apply a corporate model the Government is the overhead of the company being the US intended to provide vision and leadership. The various branches are the divisions and the states would be the revenue operating groups and cost centers while the people would be stockholders and investors. 

Leadership vs. Management 

What is the difference between management and leadership? It is a question that has been asked more than once and also answered in different ways. The biggest difference between managers and leaders is the way they motivate the people who work or follow them, and this sets the tone for most other aspects of what they do.

Many people, by the way, are both. They have management jobs, but they realize that you cannot buy hearts, especially to follow them down a difficult path, and so act as leaders too.

Managers have subordinates

By definition, managers have subordinates - unless their title is honorary and given as a mark of seniority, in which case the title is a misnomer and their power over others is other than formal authority.

Authoritarian, transactional style

Managers have a position of authority vested in them by the company, and their subordinates work for them and largely do as they are told. Management style is transactional, in that the manager tells the subordinate what to do, and the subordinate does this not because they are a blind robot, but because they have been promised a reward (at minimum their salary) for doing so.

Work focus

Managers are paid to get things done (they are subordinates too), often within tight constraints of time and money. They thus naturally pass on this work focus to their subordinates.

Seek comfort

An interesting research finding about managers is that they tend to come from stable home backgrounds and led relatively normal and comfortable lives. This leads them to be relatively risk-averse and they will seek to avoid conflict where possible. In terms of people, they generally like to run a 'happy ship'.

Leaders have followers

Leaders do not have subordinates - at least not when they are leading. Many organizational leaders do have subordinates, but only because they are also managers. But when they want to lead, they have to give up formal authoritarian control, because to lead is to have followers, and following is always a voluntary activity.

Charismatic, transformational style

Telling people what to do does not inspire them to follow you. You have to appeal to them, showing how following them will lead to their hearts' desire. They must want to follow you enough to stop what they are doing and perhaps walk into danger and situations that they would not normally consider risking.

Leaders with a stronger charisma find it easier to attract people to their cause. As a part of their persuasion they typically promise transformational benefits, such that their followers will not just receive extrinsic rewards but will somehow become better people.

People focus

Although many leaders have a charismatic style to some extent, this does not require a loud personality. They are always good with people, and quiet styles that give credit to others (and takes blame on themselves) are very effective at creating the loyalty that great leaders engender.

Although leaders are good with people, this does not mean they are friendly with them. In order to keep the mystique of leadership, they often retain a degree of separation and aloofness.

This does not mean that leaders do not pay attention to tasks - in fact they are often very achievement-focused. What they do realize, however, is the importance of enthusing others to work towards their vision.

Seek risk

In the same study that showed managers as risk-averse, leaders appeared as risk-seeking, although they are not blind thrill-seekers. When pursuing their vision, they consider it natural to encounter problems and hurdles that must be overcome along the way. They are thus comfortable with risk and will see routes that others avoid as potential opportunities for advantage and will happily break rules in order to get things done.

A surprising number of these leaders had some form of handicap in their lives which they had to overcome. Some had traumatic childhoods, some had problems such as dyslexia, others were shorter than average. This perhaps taught them the independence of mind that is needed to go out on a limb and not worry about what others are thinking about you.

In summary

This table summarizes the above (and more) and gives a sense of the differences between being a leader and being a manager. This is, of course, an illustrative characterization, and there is a whole spectrum between either ends of these scales along which each role can range. And many people lead and manage at the same time, and so may display a combination of behaviors.

 

Subject

Leader

Manager

Essence

Change

Stability

Focus

Leading people

Managing work

Have

Followers

Subordinates

Horizon

Long-term

Short-term

Seeks

Vision

Objectives

Approach

Sets direction

 Plans detail

Decision

Facilitates

Makes

Power

Personal charisma

Formal authority

Appeal to

Heart

Head

Energy

Passion

Control

Dynamic

Proactive

Reactive

Persuasion

Sell

Tell

Style

Transformational

Transactional

Exchange

Excitement for work

Money for work

Likes

Striving

Action

Wants

Achievement

Results

Risk

Takes

Minimizes

Rules

Breaks

Makes

Conflict

Uses

Avoids

Direction

New roads

Existing roads

Truth

Seeks

Establishes

Concern

What is right

Being right

Credit

Gives

Takes

Blame

Takes

Blames

 

Without going any further I will ask this simple questions:

  • Having read this and can you begin to conceive how the meltdown in our country occurred?
  • Did we have leaders or managers in positions which they managed instead of lead?
  • Could it not be argues that the difference between a leader and a manager is much the same as that between a business owner (entrepreneur) and an employee (executive)?
  • Do you have anything to add?

 









Monday, April 13, 2009

Taxes (some interesting information)


By Paul Kedrosky · Sunday, April 12, 2009

As I grouchily finish up on taxes, some fascinating semi-historical tax tidbits from the NYT's estimable David Leonhardt:

What’s much less known is that those old confiscatory [tax] rates were not as sweeping as they sound. They applied to only the richest of the rich, because yesterday’s tax code, unlike today’s, had separate marginal tax rates for the truly wealthy and the merely affluent. For a married couple in 1960, for example, the 38 percent tax bracket started at $20,000, which is about $145,000 in today’s terms. The top bracket of 91 percent began at $400,000, which is the equivalent of nearly $3 million now. Some of the old brackets are truly stunning: in 1935, Franklin D. Roosevelt raised the top rate to 79 percent, from 63 percent, and raised the income level that qualified for that rate to $5 million (about $75 million today) from $1 million. As the economist Bruce Bartlett has noted, that 79 percent rate apparently applied to only one person in the entire country, John D. Rockefeller.

Today, by contrast, the very well off and the superwealthy are lumped together. The top bracket last year started at $357,700. Any income above that — whether it was the 400,000th dollar earned by a surgeon or the 40 millionth earned by a Wall Street titan — was taxed the same, at 35 percent. This change is especially striking, because there is so much more income at the top of the distribution now than there was in the past.Today a tax rate for the very top earners would apply to a far larger portion of the nation’s income than it would have years ago.




4.12.09: THE WAY WE LIVE NOW

Richly Undeserved

Published: April 10, 2009

This is not the easiest time to be rich. Not so long ago, the image of American wealth was a heroic one, embodied by figures like Bill Gates and Jack Welch. Today it tends toward the corrupt or at least the hapless: Bernie Madoff, the traders at A.I.G., the former Lehman Brothers chief executive mocked on Capitol Hill, the General Motorschief executive fired by the White House.

The economic problems of the wealthy have tracked pretty closely with their image problems.Stocks are way down, and the waning days of the 2009 tax season offer reason for one more headache: taxes on the rich won’t stay this low for very much longer. In 2011 the Bush tax cuts will expire, and President Obama plans to also close various loopholes. As Peter Orszag, Obama’s budget director, delicately says of the rich, “We are asking them to pitch in a bit more.” The current moment has the feel of an inflection point for the American wealthy, like the stock-market crash of 1929 or the election of Ronald Reagan in 1980.

But inflection points can be misleading. Even on the rare occasions when they occur, they often bring about less change than at first it seems. The mere fact of change is so startling that the magnitude of that change can become exaggerated. So it is with Obama’s approach to the wealthy, especially on taxes. His agenda is a bold one in many ways. Yet his tax code would still look more kindly on wealth than Nixon’s, Kennedy’s, Eisenhower’s or that of any other president from F.D.R. to Carter. And only part of the reason for this is widely understood.

It’s well known that tax rates on top incomes used to be far higher than they are today. The top marginal rate hovered around 90 percent in the 1940s, ’50s and early ’60s. Reagan ultimately reduced it to 28 percent, and it is now 35 percent. Obama would raise it to 39.6 percent, where it was under Bill Clinton.

What’s much less known is that those old confiscatory rates were not as sweeping as they sound. They applied to only the richest of the rich, because yesterday’s tax code, unlike today’s, had separate marginal tax rates for the truly wealthy and the merely affluent. For a married couple in 1960, for example, the 38 percent tax bracket started at $20,000, which is about $145,000 in today’s terms. The top bracket of 91 percent began at $400,000, which is the equivalent of nearly $3 million now. Some of the old brackets are truly stunning: in 1935, Franklin D. Roosevelt raised the top rate to 79 percent, from 63 percent, and raised the income level that qualified for that rate to $5 million (about $75 million today) from $1 million. As the economist Bruce Bartlett has noted, that 79 percent rate apparently applied to only one person in the entire country, John D. Rockefeller.

Today, by contrast, the very well off and the superwealthy are lumped together. The top bracket last year started at $357,700. Any income above that — whether it was the 400,000th dollar earned by a surgeon or the 40 millionth earned by a Wall Street titan — was taxed the same, at 35 percent. This change is especially striking, because there is so much more income at the top of the distribution now than there was in the past. Today a tax rate for the very top earners would apply to a far larger portion of the nation’s income than it would have years ago.

No one in the Obama administration or Congress has suggested taking rates back to their sky-high pre-Reagan levels. But a tax code that drew a sharper distinction between the upper middle class and the extremely wealthy, while keeping its top rate below, say, 50 percent, seems more conceivable. Last year, the House of Representatives passed a surtax on incomes above $1 million to pay for G.I. benefits. (It went nowhere in the Senate, where — relevantly or not — many members would be affected by such a tax.) Gene Sperling, now a top Treasury Department official, once raised a similar idea, to shore upSocial Security.

The argument against such increases is not insignificant. Conservative economists say that higher tax rates could damage the economy and ultimately be self-defeating, because they would give the rich an incentive to shift their pay into stock or other investments that are taxed less. And to some degree, such shifting would surely happen.

But one economic lesson of the last couple of decades is that these responses are fairly modest. An academic study of the Clinton tax increases found that they caused corporate executives to exercise some stock options earlier than they otherwise would have. But the increases had no noticeable long-term effect. The executives didn’t ask to be paid entirely in stock, and the economy boomed. Increasing taxes on the rich, in other words, has some unintended consequences, but it mainly has the intended ones: it raises revenue and reduces inequality. That study was written by Austan Goolsbee, a University of Chicagoprofessor who later became the first economic adviser to a Senate candidate named Barack Obama.

Given the opposition that some of Obama’s existing tax proposals have encountered, no grand new proposals are likely anytime soon. But there is a basic economic reality that will force taxes onto the agenda well beyond this year’s budget fight. The federal government simply isn’t raising enough money to pay for its obligations, Medicare being the biggest. Neither political party has yet come up with a plan to close the gap. Although a tax code that made finer distinctions would not close the gap all by itself, every dollar helps.

For 30 years, the debate over taxes has been shaped by a faith that a flatter code is always better. There is little reason to believe that and every reason to believe that tax brackets, as well as tax rates, should be part of the coming debate.

David Leonhardt is an economics columnist for The Times and a staff writer for the magazine.






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