Free Markets, Free People

Daily Archives: March 27, 2010


The key question

Premise: The federal state, via the Constitution, claims the ability to require via mandate (and penalties if the mandate isn’t obeyed) that individuals buy a specific product from private companies.  That’s the premise at work in this new health care refom law.

Question: If that premise is upheld, what can’t the federal state require an individual to obtain/purchase if it so commands by law?

Discussion:  I’m leaving it up to you to carry on this discussion.  I’m of the opinion that the ability of the federal government to mandate such behavior is unconstitutional and will eventually be found to be so.  But if it isn’t, then I’ll have to back off my previous statement that this law isn’t a “fundamental change in the relationship between the federal state and the individual” and instead simply an expansion of what has gone on previously.  If upheld, it would be a fundamental change – and not one for the better.

Your thoughts?

~McQ


Is a national consumption tax coming?

Charles Krauthammer seems to think so.  Looking down the road, with trillions and trillions of dollars in deficit spending by government building the debt to unprecedented heights, common sense says we, as a country, have got to either cut spending drastically, increase taxes drastically or a combination of both.  But the word “drastically” remains common to any solution.  Krauthammer describes a national sales tax as a VAT (a VAT isn’t the same as a national sales tax, but for the purposes of this discussion, understand that’s what he’s actually talking about – a consumption tax).  He calls it the “ultimate cash cow” and Democrats are hungrily eyeing it – in fact they’re hungrily eyeing every potential revenue source.  When Nancy Pelosi was asked about a consumption tax, she replied “everything is on the table.”  They understand how fiscally unsustainable their present course is, but are committed to it for a reason – and it has to do with a matter of philosophy as Krauthammer lays out:

Obama set out to be a consequential president, one on the order of Ronald Reagan. With the VAT, Obama’s triumph will be complete. He will have succeeded in reversing Reaganism. Liberals have long complained that Reagan’s strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes; then, ultimately, you have to reduce government spending.

Obama’s strategy is exactly the opposite: Expand the beast, and then feed it. Spend first — which then forces taxation. Now that, with the institution of universal health care, we are becoming the full entitlement state, the beast will have to be fed.

And the VAT is the only trough in creation large enough.

As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax.

Step 1 – expand government.  Step 2 – say “you’ve got them (the government programs), you like them (an assumption played large), now you have to pay for them” and expand taxation.   One of the utilities of passing this huge new entitlement first is to justify step 2.  The reverse Reagan, as Krauthammer points out.

You remember the advocates of the Fair Tax don’t you?  They too wanted a national sales tax – but as a replacement for the individual income tax and as a way to abolish the IRS.  Unlike that, the new tax would be imposed on top of the individual income tax and, most likely, the IRS would be further expanded (more than just the 16,000 agents to monitor and enforce your health insurance compliance) to oversee the collection of these taxes.

So look for the “crisis” to hit within a few years.  Government will continue to build the unsustainability case even while they continue on their purposefully unsustainable course.  And, once the “crisis” (blamed, of course, on the previous administration(s)) is at the proper level of manufactured fear and panic, they’ll attempt to push through a nominally small national consumption tax (2 or 3%). If they succeed, game over.   Just like the income tax (which history tells us the proponents never thought would rise above 2%), they’ll incrementally raise that tax over the intervening years as they continue the fan the “crisis” flames – a crisis of their own making.  The desire would be to raise that tax to the 15 or 20% range (like Europe) to pay for the welfare state they’ll continue to try to expand.  And, of course, as is their history, they’d even overspend on that.  The fiscal crisis would remain, the GDP would tank, productivity would fall off terribly as more and more money is taken out of the private economy and we’d eventually find ourselves in much the same financial shape we are in now with no way to recover.

Yes, that’s conjecture – but it is based in history and precedent.  Name a government entitlement that isn’t in the red or headed into the red.  Entitlement spending dwarfs discretionary spending and continues to grow and consume more and more of the government’s budget as a percentage.  This health care debacle will be no different.  And as that proves out to be a money pit, the government is going to have to find new streams of revenue.  Some sort of new taxation is absolutely inevitable, and I’m in agreement that the easiest to implement and immediately collect on is some sort of national consumption tax.  And if and when they ever pass that, the road to our fiscal ruin will finally be fully paved.

~McQ