Tax Day is over but conservative outrage over “socialist” tax policy in the United States is not even close to over.  For one thing, it should be noted that the United States has one of the least redistributive taxation systems amongst developed nations and has a relatively regressive income tax with the top tax bracket only being a marginal rate of 35 percent.  But since conservatives tend to attack any sort of non-flat tax as something that stifles growth and reduces revenue, we felt it necessary to counter some of these points at a critical time for taxes, tax day.  Yesterday, we put up a post showing that revenues do not in fact increase with less redistributive policy and there is a strong correlation between income inequality in America and America’s deficit.  Extending the defense of significantly more redistributive tax policies, we looked at the true impact of tax policy that redistributes wealth more fairly amongst the Western nations of the OECD.  The first graph compares the change in the Gini Index after taxes (the x-axis) to the change in Real GDP per Capita while the second compares the change in the Gini Index to Nominal GDP per capita.  In both instances there was at least a slightly negative correlation indicating that less redistributionist tax policies in fact hinder GDP per capita and more importantly hinder its growth.

Tax Day 2010 has arrived! With Tax Day 2010 having arrived, we plan on giving you an in depth analysis of US tax policy, its re-distributive nature, and how it can be improved to optimize the efficiency of the economy through more redistribution.  As a short midnight preview to what you will be seeing more of tomorrow, here is a graph, showing the correlation between income inequality (dark blue) and the US public debt (pink).  While the two may not seem to have anything to do with each other at first glance, the deficit is very dependent on economic health which relies heavily on more equitable income distribution.  Furthermore, higher Gini Indexes, measure of income inequality, reflect failures to more fairly distribute wealth, something that comes ONLY from increased government spending.  Later in the day you can expect more on specific tax policies and their impact on the Gini Index and GDP growth (something many die hard free-marketers believe will be hindered by more equitable distributions of wealth).

While many are mourning the tragic death of 29 miners in a West Virginia mine several days ago, it is important to use the tragedy as a reaffirmation of the necessity of government regulation.  The incident became the worst incident in a generation when four more miners were found dead just yesterday at the West Virginia mine.  It would be comforting to attribute the incident to accident or simply bad luck, but in reality it is directly a result of a lack of executive power in mining regulatory agencies.

The MSHA (Mining Safety and Health Administration) is an agency meant to impose mining safety standards and regulate mining companies.  However, large companies like the Massey Energy Company that owned the West Virginia mine have found ways to evade these safety standards.  Over the past 30 years, since the creation of the MSHA, it has become increasingly clear that the administration’s executive capacity is limited to imposing minimal fines for great safety threats.  Furthermore, companies like Massey are easily able to challenge the fines and stall the process to the point where the fines are foregone.  Threats of shutting down entire mines or even closing down company branches are completely nonexistent.  Ultimately the cost of fixing any of a mine’s safety violations is drastically more than the small fines imposed by the MSHA and therefore, the profit motive drives companies to keep safety issues from being addressed.  The West Virginia mine at which the tragic explosion had over 55 “severe and substantial” safety violations in addition to dozens of smaller safety violations.  Most of the fines for these violations were either paid or evaded through complex challenges instead of being used as incentive to actually address the issue.  In the end, it is tragedies like this that remind us that no matter how many years go by between different tragedies, we cannot forget that safety must come before the profit motive.  Mining companies don’t seem to understand and the only way to make them is more stringent government regulation.

With the Dow nearing 11,000 and likely to pass it within the next few days, it is important to recognize when the next small correction will come.  By looking at past patterns of the Dow we can tell about what price the Dow will reach before there is another sell off. The markets have consistently had small corrections or sell offs before continuing their rally.  The pattern has been continuing since March of 2009 when the rally first began and there is no reason to believe that the pattern will end.  Based on the time period it generally takes for the markets to reach a correction point, we can estimate that every period of sustained, but slow growth as depicted in the image below takes approximately 2.5 months to reach a major correction point.  Since the current period began near the 20th of February, we can assume that there is approximately one month of life left in the rally.  Going by change in price may, however, be an even more accurate way of estimating when the sustained rally will come to a close.  Each of the previous rallies have seen changes between 800 and 1000 points, so to assume something similar for this one would be reasonable.  So far, the Dow has seen gains amounting to about 500 points, from 10,400 to 10,900.  This again reaffirms the initial prediction that we are about 60 percent through with this rally, but you can expect it to end at around 11,200-11,400 in about one month.