Free Markets, Free People

Daily Archives: May 18, 2009


Quote of the Day

Although Herbert Hoover is rarely cited when one thinks of “immortal words”, these few paragraphs from Hoover (from James T. Flynn’s “The Roosevelt Myth”, HT: the Heritage Foundation) should certainly give you pause:

In every single case before the rise of totalitarian governments there had been a period dominated by economic planners. Each of these nations had an era under starry-eyed men who believed that they could plan and force the economic life of the people. They believed that was the way to correct abuse or to meet emergencies in systems of free enterprise. They exalted the state as the solver of all economic problems.

These men thought they were liberals. But they also thought they could have economic dictatorship by bureaucracy and at the same time preserve free speech, orderly justice, and free government.

These men are not Communists or Fascists. But they mixed these ideas into free systems. It is true that Communists and Fascists were round about. They formed popular fronts and gave the applause. These men shifted the relation of government to free enterprise from that of umpire to controller.

Consider the “car czar”. Look at the Chrysler board. Imagine government run health care. Cap-and-trade. Etc.

After that bit of reality from today, read Hoover’s further observations:

Directly or indirectly they politically controlled credit, prices, production or industry, farmer and laborer. They devalued, pump-primed and deflated. They controlled private business by government competition, by regulation and by taxes. They met every failure with demands for more and more power and control … When it was too late they discovered that every time they stretched the arm of government into private enterprise, except to correct abuse, then somehow, somewhere, men’s minds became confused. At once men became fearful and hesitant. Initiative slackened, industry slowed down production.

Look around you and tell me what you see. The future? It’s to be found in Hoover’s words from 1940.

~McQ


Health Care – Speaking Of Taxes …

According to AP, there’s not much of an appetite among Democrats to raise taxes to support “health care reform”.

And, of course, given the estimates of the cost of “health care reform”, aimed at making health care “more affordable” (how do they get away with that, especially in light of our experience with Medicare and Medicaid), there’s no question that taxes must increase.

Right now the administration and Democrats are attempting to convince a skeptical public that most of that cost can be recovered in “efficiencies” government will introduce into the system. It is the oldest con game going. Anyone who has observed government operations of any scope or size knows quite well that government and its bureaucracies are not at all efficient in their operation. Medicare fraud, for instance, costs us about $60 billion a year. Somehow the same bureaucracy which has allowed this year after year will suddenly become “efficient” and stop it?

Even if that could happen, the huge expansion of the governmental piece of health care is going to require massive funding. That means raising taxes. But many Democrats are very wary of such a move, especially with the 2010 midterms looming:

Many of those newly elected Democrats are wary of voting to raise taxes, especially when they are unlikely to get any Republican support.

“If you are a first- or second-term Democrat, why on earth would you want to vote in July or August 2009 for a tax increase that the president doesn’t want to have take effect until 2011?” asked Clint Stretch, managing principal of tax policy at Deloitte Tax. “You’ve just handed your opponent an extra year to campaign that you’re a big-tax Democrat.”

There, indeed, is the nut of the opposition to such a move. That doesn’t mean that Democrats wouldn’t eventually vote to raise taxes, but they’d want to do it in 2011, not 2009. That, of course, puts them in direct opposition to Speaker Pelosi, from a safe California district, who has pledged to pass “health care reform” this year. As I’ve stated repeatedly, while Pelosi might not be the sharpest knife in the drawer (and her CIA/waterboarding debacle make the case) her political instincts are good. She realizes that there’s a very narrow window available to Democrats to pass their liberal agenda and it may close by 2010.

That shapes up into an interesting internal fight within the Democratic caucus. As I see it, “victory”, at least in the short-term, would be seeing health care put off until after the mid-terms. And, as history has told us, the longer it takes for the Congress to act on legislation like this, the less likely its passage becomes.

~McQ


Tax The Rich? Watch The Inevitable Happen

Many states have decided the financial relief they need to make up for their profligate spending sprees of the recent past and their present budget short-falls is to be found in raising the taxes of their “rich” citizens.

With states facing nearly $100 billion in combined budget deficits this year, we’re seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich. Lawmakers in California, Connecticut, Delaware, Illinois, Minnesota, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. New Illinois Gov. Patrick Quinn wants a 50% increase in the income tax rate on the wealthy because this is the “fair” way to close his state’s gaping deficit.

But there’s a problem with the plan. As the WSJ points out, these citizens and their money are mobile and while they may prefer to live in the states listed above, they simply don’t have too. And with the plan to significantly increase taxation for them, now there’s a good reason not too:

The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

Notice that the exodus from the high-tax states to low-tax states with more opportunity has been significant since 1998. But now with the plan to increase taxes again on the “richer”, high-tax states are providing even more of a financial incentive for those in higher income brackets to leave them and move to low or no-income tax states. While such a relocation might have had marginally positive financial results for those leaving in the past, high-tax states are about to make relocation for financial reasons a no-brainer. And states like California and New York can hardly afford to run off the class of tax payer that presently pays the largest percentage of state taxes.  But, with alternatives available, that’s precisely what they’re getting ready to do.

And when that happens, who ends up making up for the state’s shortfall?

More recently, Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found “a significant negative impact of higher marginal tax rates on state economic growth.” In other words, soaking the rich doesn’t work. To the contrary, middle-class workers end up taking the hit.

Heh … what a surprise.

~McQ

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