Tax Season Start

[zpeed]

Long read if you want to understand Tax if not just ignore it.

Taxes in America finally explained. Since it is tax season, let's put tax cuts in terms everyone can understand.

Ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes,
A,B,C,D (the poorest) would pay nothing.
E $1.
F $3.
G $7.
H $12.
I $18.
J (the richest) would pay $59.

The owner threw them a curve: I'm going to reduce your daily beer by $20. Drinks for the ten now cost just $80. The bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount.
A,B,C,D,E (the poorest) would pay nothing.
F $2. 33%savings = $1
G $5. 28%savings = $2
H $9. 25% savings = $3
I $14. 22% savings = $4
J (the richest) would pay $49. 16% savings = $10

But once outside the restaurant, the men began to compare their savings.

F "I only got $1 out of the $20, but J got $10!"
E "Yeah, that's right, I only saved $1,too. It's unfair!"
H "Why should J get $10 back when I got only $2? The wealthy get all the breaks!
A,B,C,D "Wait a minute, We didn't get anything at all. The system exploits the poor!
So all 9 men beat up J.

The next night J didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between or among all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Zpeed

[Nick Koan]

This isn't really an accurate comparison. Its an oversimplified example for those that think a weighted tax system is unfair.

The first major flaw is that it assumes there is only one really rich person and one really poor person. Unfortunately, the scale is tipped so there are thousands (if not more) poor people for every rich person. So, you have thousands of people paying $1 and 1 person paying $49. Also, as a whole, the country needs to shift some of the personal burden onto the rich because they can afford it. The opposite, a flat tax system, just reduces the ammount of money a government takes in (not necessarily a bad thing) while widening the gap between the rich and the poor. The rich would get richer, the poor wouldn't be able to live and the middle class would disappear into the poor.

And on that note, this whole thing is unpatriotic. If you hate our country so much that you need to squabble over a few bucks, than you may as well just leave. It'll be better for everyone.

[MPREZIV]

Originally Posted by Nick Koan

This isn't really an accurate comparison. Its an oversimplified example for those that think a weighted tax system is unfair.

The first major flaw is that it assumes there is only one really rich person and one really poor person. Unfortunately, the scale is tipped so there are thousands (if not more) poor people for every rich person. So, you have thousands of people paying $1 and 1 person paying $49. Also, as a whole, the country needs to shift some of the personal burden onto the rich because they can afford it. The opposite, a flat tax system, just reduces the ammount of money a government takes in (not necessarily a bad thing) while widening the gap between the rich and the poor. The rich would get richer, the poor wouldn't be able to live and the middle class would disappear into the poor.

And on that note, this whole thing is unpatriotic. If you hate our country so much that you need to squabble over a few bucks, than you may as well just leave. It'll be better for everyone.

ouch. But very well said Nick.

[Nick Koan]

Oh, and the patriotism thing was a joke

But I do find it funny that the people that most often claim to patriotic also threaten to leave over tax reasons.

[sperry]

Here's another thing missing from that analogy: H I and J all have expensive tax lawyers and lobbyists they each pay $2 to find all the loopholes that allow them to save $10 to $20 on their tax bills.

Did anyone watch the NV Democratic debates? Obama pointed out that Warren Buffet pays a lower tax percentage than his secretary because his income is primarily due to stocks and dividends, and not salary that's directly taxable.

IMO, the only truly fair tax system is pure sales tax. Separate all goods and services into three categories:

1) Staples (food/services that people need to survive) tax free

2) General (the majority of goods/services) 10% sales tax

3) Luxury (expensive items that you could get by w/ the general version but you'd rather spend the money on the "better" item... like a $50k+ car) 20% sales tax

Force the states to integrate their income taxes into the sales tax system, so CA residents would generally pay 10% Fed + 4% State + 7% county/city = 21% sales tax. Of course that sounds pretty high, but remember that you'll generally be getting 35% more money per month.

Items destined for resale (raw goods used in manufacturing, items for sale in a store, etc) are not taxed. Property tax probably remains a separate system. Items imported or exported are subject to separate tariff laws.

Use a computer/network/database based accounting system that allows resellers to easily pay their taxes on a monthly basis via their POS systems. So taxes are collected far more painlessly than having to file a report once a year to settle up w/ the gov't. This would also reduce the cost of maintaining the IRS tremendously.

And since we're now collecting taxes on all sold items, we're collecting money from income tax evaders, illegals, drug dealers, and the big one: internet sales.

The goal is, every month put *all* the money I've earned into my pocket and let *me* decide how much my gov't is going to get from me by how much I spend. Work the percentages such that the gov't gets all it needs and I'm paying them less yearly.

Also, I'd like to see Social Security as we know it dismantled... and if it comes back, none of this "those that pay now pay for those collecting now" crap... If I'm forced to pay into it, I want my money invested for me and guaranteed to be there when I need it, not spent on the folks that are collecting now in the hopes that there will be people to pay me back later.

And finally, we'd need to vastly upgrade our concept of fiscal responsibility. IMO, every large gov't organization should be able to operate fine on half the money they're getting. If the gov't were a business, it'd be out of business. For examply, you don't see successful businesses paying out guaranteed raises to tenured employees regardless of performance ('cept for places like Ford and GM who are going to be out of business due to the unions they employ). Make our gov't programs responsible for their own livelihoods, much like the USPS. If a program isn't making money, find out why and change it. Frankly, I don't see any reason why (with the exception of the military) all of our programs can't be run like private businesses who's goal is to make a profit.

/overgeneralized rant

[Double Phister]

Scott,

The biggest issue I have with your idea is the classification of things for the different tax brackets. Is soda a luxury item because I don't really need it? Is an STi a luxury item because it's not an efficient commuter vehicle? Why not just a flat sales tax period? More expensive things will pull in more total tax.

Think there would also need to be a way for the merchant to divy up the collected sales tax to the different localities in the most efficient way possible. Wouldn't be a big deal for brick-n-motor stores but online retailers would need to cut a check to every individual city (worst case)


Totaly agree on the Social Security part.

[100_Percent_Juice]

What I still don't understand is who pays to fix the beer fridge? A,B,C, or D??

[knucklesplitter]

I got news for ya - with that income difference "J" wouldn't be caught dead hanging in public around with those peons "A" thru "I". Although "B"'s wife is on meth and a parttime hooker that "J" sees about once a week at lunchtime.

And if any of you guys think you'll ever make it even to the "H" or "I" income level... keep dreaming buddy.

[Kevin M]

The downside to moving all taxation to the sales side is that it curbs spending and slows/reverses economic growth. Income tax on the other hand reduces buying power, but does not affect spending of what's left.

/overgeneralization response

[sperry]

Originally Posted by R4ND0M_AX3

Scott,

The biggest issue I have with your idea is the classification of things for the different tax brackets. Is soda a luxury item because I don't really need it? Is an STi a luxury item because it's not an efficient commuter vehicle? Why not just a flat sales tax period? More expensive things will pull in more total tax.

Think there would also need to be a way for the merchant to divy up the collected sales tax to the different localities in the most efficient way possible. Wouldn't be a big deal for brick-n-motor stores but online retailers would need to cut a check to every individual city (worst case)


Totaly agree on the Social Security part.

Staples & Luxury items are already labeled and taxed as such under the current tax codes. For example, there is no sales tax on milk, but there is on soda. Luxury tax is currently defined more along the lines of a max price on a particular class of items, which makes it specific to certain industries and hurts the luxury manufacturers especially hard in slow economic times. I think I'd change my definition of luxury items to not include a threshold price, but to do it the same as staple items. So all "sports cars" are taxed at the luxury rate, while all sedans are not. Or all non-commercial boats are considered "luxury" items, while fishing boats are not. Basically anything that you buy specifically for fun only are luxury items... so Xbox's would be luxury, but computers would not.

The real goal of the luxury tax would be to allow the tax code to apply to all people regardless of income, such that low income families can get buy easily because most of the money they spend is on 60% staple items, 30% general, and only 10% luxury. But rich mo-fos that spend a ton of money on sports cars, boats, vacation homes, will be paying 10% staple, 40% general and 50% luxury rates.

A popular alternative method is to really go with a flat sales tax across the board, but give tax credits in the form of cash refunds to low income folks. But this sort of thing would fit into a re-worked welfare program IMO. But IMO welfare needs to be overhauled to be a performance based system like the rest of the gov't. Something along the lines of requiring recipients to meet milestones that push them to get off welfare in order to continuing to receive it... like educational steps.

For example, a single mother with 3 kids wants to receive welfare, instead of giving her money based on the current requirements, how about the government pays her to go to college. Require her to spend a minimum of 25 hours / week in classes in exchange for a welfare wage that pays enough to feed, cloth, and house her and her family. Also include funds for day care if her kids are young. Might as well throw in free healthcare as well.

Sure it will be expensive as hell on a per-case basis, but hopefully it will end long term dependency on welfare.

With regards to Kevin's comments... a switch from income tax to sales tax would generate economic issues during the transition, so it would likely need to be done during a period of prosperity, but in the long term I doubt there would be a fundamental difference in the controls over the economy. Fed loan rates would still apply for manipulation of inflation. Plus, I imagine that being able to trade stocks on the market w/o taxation would do wonders for boosting the economy opposite the slowdown found at the sales counters across the country.

[cody]

Scott for President!

[Kevin M]

Originally Posted by sperry

With regards to Kevin's comments... a switch from income tax to sales tax would generate economic issues during the transition, so it would likely need to be done during a period of prosperity, but in the long term I doubt there would be a fundamental difference in the controls over the economy. Fed loan rates would still apply for manipulation of inflation. Plus, I imagine that being able to trade stocks on the market w/o taxation would do wonders for boosting the economy opposite the slowdown found at the sales counters across the country.

People that "trade stocks on the internet" aren't really as affected by a sudden spike in the cost of things they have to or want to buy. Really, it's just a mental issue that people would have to get over before they can feel normal paying an extra $8 for a video game or an extra $4,000 for a car. There would be all sorts of weird effects in the market bumping specific things up or down- car sales, for example, woudl suffer across the board because people suddenly have to pay a lot more up front out of pocket and/or have better credit to get the taxes financed... but in the end, eventually, you'd probably be right that things would more or less reach equilibriium with where you started.

[sperry]

Originally Posted by BAN SUVS

People that "trade stocks on the internet" aren't really as affected by a sudden spike in the cost of things they have to or want to buy. Really, it's just a mental issue that people would have to get over before they can feel normal paying an extra $8 for a video game or an extra $4,000 for a car. There would be all sorts of weird effects in the market bumping specific things up or down- car sales, for example, woudl suffer across the board because people suddenly have to pay a lot more up front out of pocket and/or have better credit to get the taxes financed... but in the end, eventually, you'd probably be right that things would more or less reach equilibriium with where you started.

Loans wouldn't be affected... everyone suddenly makes 20-30% more income thus bumping the amount they can afford to borrow by (hopefully) more than the increased cost of the product. If done correctly, people will actually be able to borrow more (not that they should... as that sort of thinking is what got us into this whole credit crunch in america to begin with).

[Kevin M]

Regarding loans, I was referring to cars suddenly being far more upside-down upon signing than they currently are. I think car sales would suffer across the board until either lenders considered taxes paid as part of the purchase price and inherent value of the car, or taxes were collected based on the dealer's cost and applied prior to the sale. Adding $4-6000 to the typical loan amount on a vehicle without adding it to the value of the car makes it a lot harder for most people to get a loan with normal down payment amounts as they are today. It's not really an issue about people not being willing to pay it.

[sperry]

Originally Posted by BAN SUVS

Regarding loans, I was referring to cars suddenly being far more upside-down upon signing than they currently are. I think car sales would suffer across the board until either lenders considered taxes paid as part of the purchase price and inherent value of the car, or taxes were collected based on the dealer's cost and applied prior to the sale. Adding $4-6000 to the typical loan amount on a vehicle without adding it to the value of the car makes it a lot harder for most people to get a loan with normal down payment amounts as they are today. It's not really an issue about people not being willing to pay it.

Buy used? No taxes on used cars. In fact, no taxes on used anything! Once the gov't gets their cut, they're not allowed to double dip. (The only exception would be on property taxes that get assessed annually.)

Plus, since many cars are "staple" items, they wouldn't be taxed anyway. Anything that qualifies as basic transportation (which is what people that are pinching pennies would likely buy anyway) would be categorized as a "staple" and therefore would be un-taxed. But if you want a sports car or luxury car or something "baller", well you're paying 20% tax... you gotta pay to play after all!

[Dean]

Originally Posted by sperry

Buy used? No taxes on used cars. In fact, no taxes on used anything! Once the gov't gets their cut, they're not allowed to double dip. (The only exception would be on property taxes that get assessed annually.)

Plus, since many cars are "staple" items, they wouldn't be taxed anyway. Anything that qualifies as basic transportation (which is what people that are pinching pennies would likely buy anyway) would be categorized as a "staple" and therefore would be un-taxed. But if you want a sports car or luxury car or something "baller", well you're paying 20% tax... you gotta pay to play after all!

The used idea is one I had a while back as well.

This really only leaves you with 2 "new" categories.

The existing tax free food items and everything else. there is no real reason to define general and luxury categories IMHO.

You want a "new" something other than food staples, you pay 25% tax.

That should greatly reduce waste and promote second hand stores and the repair of used items rather than disposal.

And you do pay tax on new homes/construction/remodeling as the materials and labor that made them have never been taxed. Essentially everything except reasonable sustenance gets taxed exactly once when it reaches the first end consumer whether the consumer is a person or corporation.

[sperry]

Here's an interesting article (though I skimmed over much of it since the economic math involved is dry, boring, and over my head).

Basically, this guy is arguing that the US is bankrupt, and here's his solution for avoiding hyper-inflation:

Originally Posted by Kotlikoff

FIXING OUR FISCAL INSTITUTIONS
Determining whether a country is already bankrupt or going bankrupt is a judgment call. In my view, our country has only a small window to address our problems before the financial markets will do it for us. Yes, there are ways out of our fiscal morass, including Chinese investment and somehow getting a lid on Medicare and Medicaid spending, but I think immediate and fundamental reform is needed to confidently secure our children’s future.

The three proposals I recommend cover taxes, Social Security, and healthcare and are interconnected and interdependent. In particular, tax reform provides the funding needed to finance Social Security and healthcare reform. It also ensures that the rich and middle class elderly pay their fair share in resolving our fiscal gap.

Tax Reform
The plan here is to replace the personal income tax, the corporate income tax, the payroll (FICA) tax, and the estate and gift tax with a federal retail sales tax plus a rebate. The rebate would be paid monthly to households, based on the household’s demographic composition, and would be equal to the sales taxes paid, on average, by households at the federal poverty line with the same demographics.

The proposed sales tax has three highly progressive elements. First, thanks to the rebate, poor households would pay no sales taxes in net terms. Second, the reform would eliminate the highly regressive FICA tax, which is levied only on the first $90,000 of earnings. Third, the sales tax would effectively tax wealth as well as wages, because when the rich spent their wealth and when workers spent their wages, they would both pay sales taxes.

The single, flat-rate sales tax would pay for all federal expenditures. The tax would be highly transparent and efficient. It would save hundreds of billions of dollars in tax compliance costs. And it would either reduce or significantly reduce effective marginal taxes facing most Americans when they work and save.

The sales tax would also enhance generational equity by asking rich and middle class older Americans to pay taxes when they spend their wealth. The poor elderly, living on Social Security, would end up better off. They would receive the sales tax rebate even though the purchasing power of their Social Security benefits would remain unchanged (thanks to the automatic adjustment to the consumer price index that would raise their Social Security benefits to account for the increase in the retail-price level).

The sales tax would be levied on all final consumption goods and services and would be set at 33 percent—high enough to cover the costs of this “New New Deal’s” Social Security and healthcare reforms as well as meet the government’s other spending needs. On a tax-inclusive basis, this is a 25 percent tax rate, which is a lower or much lower marginal rate than most workers pay on their labor supply. The marginal tax on saving under the sales tax would be zero, which is dramatically lower than the effective rate now facing most savers.

Social Security Reform
My second proposed reform deals with Social Security. I propose shutting down the retirement portion of the current Social Security system at the margin by paying in the future only those retirement benefits that were accrued as of the time of the reform. This means that current retirees would receive their full benefits, but current workers would receive benefits based only on their covered wages prior to the date of the reform. The retail sales tax would pay off all accrued retirement benefits, which eventually would equal zero. The current Social Security survivor and disability programs would remain unchanged except that their benefits would be paid by the sales tax.

In place of the existing Social Security retirement system, I would establish the Personal Security System (PSS)—a system of individual accounts, but one with very different properties from the scheme proposed by the president. All workers would be required to contribute 7.15 percent of their wages up to what is now the earnings ceiling covered by Social Security (i.e., they’d contribute what is now the employee FICA payment) into an individual PSS account. Married or legally partnered couples would share contributions so that each spouse/partner would receive the same contribution to his or her account. The government would contribute to the accounts of the unemployed and disabled. In addition, the government would make matching contributions on a progressive basis to workers’ accounts, thereby helping the poor to save.

All PSS accounts would be private property. But they would be administered and invested by the Social Security Administration in a marketweighted global index fund of stocks, bonds, and real-estate securities. Consequently, everyone would have the same portfolio and receive the same rate of return. The government would guarantee that, at retirement, the account balance would equal at least what the worker had contributed, adjusted for inflation; that is, the government would guarantee that workers could not lose what they contributed. This would protect workers from the inevitable downside risks of investing in capital markets.

Between ages 57 and 67, account balances would be gradually sold off each day by the Social Security Administration and exchanged for inflation-protected annuities that would begin paying out at age 62. By age 67, workers’ account balances would be fully annuitized. Workers who died prior to age 67 would bequeath their account balances to their spouses/partners or children. Consequently, low-income households, whose members die at younger ages than those of highincome households, would be better protected. Finally, under this reform, neither Wall Street nor the insurance industry would get their hands on workers’ money. There would be no loads, no commissions, and no fees.

Healthcare Reform
My final proposed reform deals not just with our public healthcare programs, Medicare and Medicaid, but with our private health-insurance system as well. That system, as is well known, leaves some 45 million Americans uninsured. My reform would abolish the existing fee-for-service Medicare and Medicaid programs and enroll all Americans in a universal health-insurance system called the Medical Security System (MSS). In October of each year, the MSS would provide each American with an individual-specific voucher to be used to purchase health insurance for the following calendar year. The size of the voucher would depend on the recipients’ expected health expenditures over the calendar year. Thus, a 75 year old with colon cancer would receive a very large voucher, say $150,000, whereas a healthy 30 year old might receive a $3,500 voucher. The MSS would have access to all medical records concerning each American and set the voucher level each year based on that information. Those concerned about privacy should rest easy. The government already knows about millions of Medicare and Medicaid participants’ health conditions because it’s paying their medical bills. This information has never, to my knowledge, been inappropriately disclosed.

The vouchers would pay for basic in- and outpatient medical care, prescription medications, and long-term care over the course of the year. If you ended up costing the insurance company more than the amount of your voucher, the insurance company would make up the difference. If you ended up costing the company less than the voucher, the company would pocket the difference. Insurers would be free to market additional services at additional costs. The MSS would, at long last, promote healthy competition in the insurance market, which would go a long way to restraining healthcare costs.

The beauty of this plan is that all Americans would receive healthcare coverage and that the government could limit its total voucher expenditure to what the nation could afford. Unlike the current fee-for-service system, under which the government has no control of the bills it receives, the MSS would explicitly limit the government’s liability.

The plan is also progressive. The poor, who are more prone to illness than the rich, would receive higher vouchers, on average, than the rich. And, because we would be eliminating the current income-tax system, all the tax breaks going to the rich in the form of non-taxed health-insurance premium payments would vanish. Added together, the elimination of this roughly $150 billion of tax expenditures, the reduction in the costs of hospital emergency rooms (which are currently subsidized out of the federal budget), and the abolition of the huge subsidies to insurers in the recent Medicare drug bill would provide a large part of the additional funding needed for the MSS to cover the entire population.

Eliminating the Fiscal Gap
A 33 percent federal retail-sales tax rate would generate federal revenue equal to 21 percent of GDP—the same figure that prevailed in 2000. Currently, federal revenues equal 16 percent of GDP. So we are talking here about a major tax hike. But we’re also talking about some major spending cuts. First, Social Security would be paying only its accrued benefits over time, which is trillions of dollars less than its projected benefits, when measured in present value. Second, we would be putting a lid on the growth of healthcare expenditures. Limiting excessive growth in these expenditures will, over time, make up for the initial increase in federal healthcare spending arising from the move to universal coverage. Third, we’d reduce federal discretionary spending by one-fifth and, thereby, return to the 2000 ratio of this spending to GDP. Taken together, these very significant tax hikes and spending cuts would, I believe, eliminate most if not all of our nation’s fiscal gap.

http://research.stlouisfed.org/publi.../Kotlikoff.pdf

The bottom line is: it's going to cost a metric shit-load of money and a new dawning of national fiscal responsibility and/or selling the whole country to China to prevent another depression. A 33% national sales tax could help... but damn that's going to hurt my race budget. Then again, I won't be doing much racing if we have a new depression.

[tysonK]

So they assume consumer spending will be about the same? Everyone would freak out and hardly buy anything after a "30%" raise in price, even though they are getting more on their paycheck. The drive of spending by the consumer would be strangled and the economy would crumble.

[sperry]

Originally Posted by tysonK

So they assume consumer spending will be about the same? Everyone would freak out and hardly buy anything after a "30%" raise in price, even though they are getting more on their paycheck. The drive of spending by the consumer would be strangled and the economy would crumble.

Read the article... the 33% tax is what it takes to save the economy. People will either have to deal with it or expect to pay $1500 for a cheeseburger in 2020.

[tysonK]

Since we are posting articles, here is a rebate one.

http://www-personal.umich.edu/%7Eshapiro/TaxRebates.pdf

[AtomicLabMonkey]

Originally Posted by zpeed

Long read if you want to understand Tax if not just ignore it.

Taxes in America finally explained. Since it is tax season, let's put tax cuts in terms everyone can understand.

That "lesson" isn't exactly new, I've seen this piece of propaganda go around the e-mail loop at least a dozen times in the last decade. Always from hardcore conservatives who think the answer to any problem is to cut taxes for the wealthiest people in the country.

Oh, and an increase in inflation isn't just something that might happen, it's already happened. The price of food staples like milk, eggs, meat, etc. have all gone up 20-30% in the last year. Anyone else been looking at their grocery bill and wondering why it seemed so damned high these days? You're not just imagining it, things really are more expensive now.

Dollars to donuts it just gets worse, because our currency is sinking like a lead balloon and the Fed doesn't seem to be interested in anything but continually cutting interest rates.

[Dean]

Originally Posted by AtomicLabMonkey

That "lesson" isn't exactly new, I've seen this piece of propaganda go around the e-mail loop at least a dozen times in the last decade. Always from hardcore conservatives who think the answer to any problem is to cut taxes for the wealthiest people in the country.

Oh, and an increase in inflation isn't just something that might happen, it's already happened. The price of food staples like milk, eggs, meat, etc. have all gone up 20-30% in the last year. Anyone else been looking at their grocery bill and wondering why it seemed so damned high these days? You're not just imagining it, things really are more expensive now.

Dollars to donuts it just gets worse, because our currency is sinking like a lead balloon and the Fed doesn't seem to be interested in anything but continually cutting interest rates.

Up 20-30%??? According to who? Certianly not the CPI.

The weak dollar is not bad for the economy. This is a common fallacy. It is likely that the weak dollar is going to save us from the current slowing economy by increasing exports, as well as foreign investors saving our struggling financial institutions and investing in our real estate market.

And the largest TAX issue right now in the US is not taxing the rich, but small and large businesses taxes. The US has one of the highest corporate tax rate vs. European nations and small business are taxed at the same rate as individuals. This is ridiculous. This is part of the reason employers can't afford health care plans for their employees and why small business are getting crushed. Why would anyone want to own a business or invest in the US when it is more expensive to do business here unless the dollar was ridiculously cheap and/or the companies were on sale.

Welcome to the world economy. Be glad it is here to help, or we would be headed for a depression, not just a slow down or mild recession!

[MikeK]

Originally Posted by AtomicLabMonkey

Oh, and an increase in inflation isn't just something that might happen, it's already happened. The price of food staples like milk, eggs, meat, etc. have all gone up 20-30% in the last year. Anyone else been looking at their grocery bill and wondering why it seemed so damned high these days? You're not just imagining it, things really are more expensive now.

I read an article on this exact topic months ago. It put 90% of the blame on the current ethanol boom. Bush gave a speech a while back promising subsidies to increase ethanol production and a lot of farmers have started selling corn and other crops to refineries (or whoever makes ethanol from plants).

Since the crops used to be used for everything in the grocery store, including feeding livestock, the prices have gone up. There are hundreds of ethanol refineries under construction, and when they all start demanding corn and other crops in the next few months/years, the situation will get even worse.

The ironic part is that if every singe crop grown in the US was converted to ethanol, it would only cover 4% of the current energy use (and in the process the population would starve and the revenue from food exports would dry up). Awesome!

Article

[cody]

My uncle owns like 10 tractors that he uses for construction. He was telling me that in 2009 (IIRC) he'll have to have most of his heavy equipment updated for new smog laws, if that's even feasible...he may have to just sell his old equipment for pennies on the dollar and buy new or maybe retire.

Anyway, FWIW, he was telling me that it takes more than a gallon of diesel to make a gallon of biodiesel. Any idea if that's true?

[sperry]

Originally Posted by MikeK

I read an article on this exact topic months ago. It put 90% of the blame on the current ethanol boom. Bush gave a speech a while back promising subsidies to increase ethanol production and a lot of farmers have started selling corn and other crops to refineries (or whoever makes ethanol from plants).

Since the crops used to be used for everything in the grocery store, including feeding livestock, the prices have gone up. There are hundreds of ethanol refineries under construction, and when they all start demanding corn and other crops in the next few months/years, the situation will get even worse.

The ironic part is that if every singe crop grown in the US was converted to ethanol, it would only cover 4% of the current energy use (and in the process the population would starve and the revenue from food exports would dry up). Awesome!

Article

Ethanol/Biodiesel is modern-day snake-oil.

It's an awesome idea... using "America's Heartland" to detach ourselves from Middle Eastern oil. But it's not like we've got excess corn flying out of the nation's ass... Plus the cost of converting corn to fuel is not cheap, nor is it efficient when you factor in the cost of farming plus the cost of refining. Maybe going the route of using farm waste or biofuel as fuel for electric power plants... that's not a bad idea. But trying to fuel cars with corn isn't even a good stop-gap measure on the way to hydrogen power.

I will say though, E85 is a great fuel... great in turbo cars.

IMO, we need nuclear, wind, solar and clean-coal power, and plug-in hybrid or straight electric cars. Use ethanol just as an octane booster for normal fuel... don't expect it to save us from external energy dependency.