Free Markets, Free People


What’s Just Like Death?

Taxes, as the saying goes, in that both are certain to come to us all. The corollary is that once government spending outpaces tax receipts by a significant enough amount, then taxes will inevitably rise. Or, at least, that should be the corollary.

We’ve already heard about calls for raising the top income rate to 90%. Now Marc Pascal, writing at The Moderate Voice, lays out a more comprehensive plan:

The first of several stimulus packages has just passed but it is just the beginning of our efforts to address our immediate and long-term economic problems.

After 2010, the federal operating budget will face trillion-dollar deficits as far as the eye can see. They have to be addressed for the long-term prosperity of our country and our future credit-worthiness in the world.

Eventually every American has to dig in and pay more taxes to help our country and our fellow citizens. We must put in place the laws and mechanisms to steadily increase taxes after 2010. We have to owe up to our massive public and private financial messes. Cutting federal earmarks and waste will not eliminate even half the annual deficits. The federal budget gap will require increasing taxes by over $500 billion by 2011. Fiscally irresponsible and spoiled children hate to hear this news but it’s our only choice for our collective long-term prosperity.

It is true that people don’t want to hear this, and I don’t think that is limited to “fiscally irresponsible and spoiled children.” Indeed, the inevitable raising of taxes was one of the arguments against the stimulus package, so I’m not sure to whom Pascal is referring.

A number of prominent publicly-minded millionaires and billionaires including Warren Buffet have recommended higher income taxes on themselves and their friends for several years. Certainly Mr. Buffet has been right more than most politicians and it’s time to effectuate his recommendations. Their altruistic economic view may simply be a rational response for their long-term preservation and that of the nation as a whole.

Actually, their view is not altruistic at all. The very rich, with the financial means to hire the very best in tax advice, are quite skilled at arranging their affairs so as to minimize their tax burden. When Warren Buffet clamors for raising taxes on the rich, you can be sure that he does not intend to pay as much as he possibly can to the federal government. However, those in the middle income brackets surely will. Buffet and brethren simply hope that those taxpayers will somehow be mollified by the fantasy that “the rich are paying their share too.”

On to the plan:

The Bush tax cuts should expire by their own terms by 2010 and marginal income taxes will return to the rate of 39% for incomes over $250,000. Additionally, and instead of capping executive pay, we should create a new marginal tax rate of 49% for earning over $1 million.

That is actually a somewhat more reasonable plan than some that have be floated, but still a pipe dream in terms of raising tax revenues to cover the trillions in spending contemplated (and as yet revealed) over the next four years. Even if the rich were to pay every possible penny of their income above $1 Million in taxes at that rate, how long to do you suppose they would do it for? If you had a choice of living quite comfortably and making around a million dollars, knowing that you’d keep something close to 70% – 75% of the money, would you really continue working hard enough to earn more than that if you knew you would only receive 50 cents on the dollar?

If there are any short-term tax cuts, they should be combined with long-term tax increases. The 2009 FICA payroll tax for social security is a 6.2% tax rate on every dollar earned up to a gross annual income of $106,800. For more than a decade, everyone has agreed that to save social security (without increasing the retirement age, the tax rate, or lowering the average monthly benefits of just under $1,000 per person) the best solution is to raise the taxable income limit so the wealthy contribute more to the entire system. We could provide both a short-term economic stimulus to the majority of Americans and save social security for the long term.

Let’s lower the FICA social security tax rate for rest of 2009 and all of 2010 to 5.5% but raise the income limit to $250,000. In 2011, let’s raise it to 5.75% and set the income limit to $500,000. By 2012, the rate would be 6% and the taxable income unlimited. This would simply parallel the 1.45% FICA tax for Medicare and Medicaid imposed on all earned income. Its rate will probably have to be raised to 2% after 2010 to pay for existing programs and any expansions of benefits.

Again, not an entirely unreasonable plan considering the alternatives. But what’s never mentioned when someone suggests raising the income level for FICA is that, while more tax revenue would be raised, federal liabilities would also be increased. That’s because the government is simply taking more money now and promising to pay more benefits upon retirement. That does nothing to reduce the burden of current spending, which was supposed to be the point of the tax increases.

As near as I can tell, this part of the plan would have the effect of hastening the looming entitlements crisis in exchange for perhaps pushing the current one off down the road a bit. The end result looks more like a perfect budgetary storm as the bills we’re racking up today and the entitlements we’ve promised in the future, begin to overlap.

Across the political spectrum, most people agree that our various transportation, water/sewer, and electrical grid infrastructures have been long neglected. Infrastructure spending is the best use of government stimulus money because more jobs are created both quickly and over the long term. Just to modernize our existing infrastructures systems will cost at least 2 trillion dollars over the next 10 years. Furthermore, we must also invest in new energy technologies, mass transit and high speed rail lines – all of which will cost billions more. We can’t put off such spending and we have to be honest about paying for them over the foreseeable future without resorting to further borrowing.

This is a part of the supposedly Keynesian argument that government spending provides a greater multiplier than private spending. Of course, as Bruce has pointed out before, if that were the case then why have private spending at all?

Furthermore, I really don’t understand how government spending on infrastructure and energy technologies creates jobs.

In the infrastructure realm, once a government project is done, then the job disappears. If the job is done quickly, efficiently and completed on time then it’s not government work the job just disappears that much more quickly. And after that? How does a brand new bridge create a job after it’s built? Even worse, what happens if the project turns out like the Big Dig in Boston (which seems to be much more likely)? Sure people will have jobs for longer, but the supposed benefit of the structure will shoved further into the future and the taxpayers will be on the hook for a lot more than they signed on for. How does that sort of project stimulate the economy?

With respect to new energy technologies, I’m all for it. But with the government choosing which technologies to fund, how do we know we’re getting the best there is to offer? That’s not typically the case where government picks winners and losers. And just because something is “green” does not mean that it is efficient, beneficial to the economy, and/or capable of saving anyone money in the short (or long) term. In fact, it probably means the opposite of one or all of those things. Instead, why doesn’t government get out of the way and allow nuclear power plants to be built, thus saving taxpayers billions of research dollars. That’s technology that we already have, and it’s green. Otherwise, these sorts of proposals are little more than a massive wealth transfer from one group of people to the politically favored few. There is nothing stimulative about that.

Across Europe, the average tax per gallon of gasoline ranges from $4 to $6. The U.S. federal gasoline tax is a paltry 18.3 cents per gallon with each penny raising $850 million to $1 billion per year depending upon how much Americans drive. Only when gasoline hit $4 a gallon during last summer did we start taking mass transit, buying hybrids, shunning gas guzzlers, demanding more energy-efficient cars and buildings, and seriously considering alternative solar, wind and nuclear power, and our own oil and gas reserves. The best and only way to ensure long-term energy independence is to have a serious financial incentive that hits everyone.

OK, if we accept the premise that less fuel consumption is better for Americans, then Pascal has a good point here. Of course, I’m not sure why gas station owners or truck salesman are any less deserving of being stimulated than other Americans, but that seems to be a staple of these plans. Moreover, Pascal’s plan doesn’t look all that much different than how transportation projects are already funded at the federal level.

While we should not enact excessive gasoline taxes, we can at least impose an additional and modest oil import fee on foreign barrels of oil.

More importantly, we should increase the federal gasoline tax from 18.3 to 75 cents per gallon, by monthly increments of about 5 cents per gallon over 12 months. The overall U.S. gasoline price per gallon by the end of 2010 should still be around $3.00 but the U.S. would have $70 billion a year to pay for our many needed transportation and energy infrastructure projects. This would be the responsible, mature, and intelligent solution for raising the necessary funds for these projects.

Presumably, Pascal means that we would charge this import fee to the American refiners who distribute gasoline in the country. And Pascal does suggest that he thinks this would be a tax on everyone, which in addition to the increased gas tax it would be. Strangely, this is the sort of protectionist measure one sees where domestic industries are beset by low-cost foreign competitors, yet domestic production is practically forbidden. Instead, Pascal wants to drive demand for gasoline down, so he advocates raising the costs of gasoline indirectly. Would that have the effect of increasing demand for more domestic oil? Perhaps. But it would certainly raise costs for all Americans, whether we all buy hybrids (which are much more expensive) or not, and again I don’t see how raising prices is stimulative.

Overall Mr. Pascal’s tax proposal is not altogether outlandish, and certain elements of it are almost certain to come to pass. What’s so horrible is that these sorts of plans are only necessary (and inevitable) because the government has been spending far more than it takes in for quite some time now. Even if you think that the Bush tax cuts “cost” the federal government money, you have to admit that the one thing that every administration has had in common, whether Republican or Democrat, is that federal spending never decreases. Regardless of whether tax-and-spend is better/worse than cut-taxes-and-spend, the situation we find ourselves in today is precisely because spending never seems to drop, not because tax rates go up and down.

To be sure, there is nothing evil per se about deficit spending. Whether it’s bad or not depends on where the money is going, and how the costs are intended to be recouped. But at some point the piper must be paid, and when that time comes one would hope that all the spending had created some wealth with which to pay him.

Stumulative bridge for sale

Stimulative bridge for sale

Obviously taking money from Peter and giving it to Paul (minus a transfer fee, of course) won’t accomplish that goal. And neither does building a new bridge from Paul’s house to Peter’s. Indeed, unlike people, the government can’t work harder in an effort to “do something” and create wealth, because that’s not what governments do. The only things that government is any good at is making rules and enforcing (some of) them. Although those two actions can protect wealth and the opportunities to create wealth, neither action actually creates wealth.

Thus, we’re left with the unshakable propositions that (1) government spending necessitates taxes, (2) deficit spending necessitates tax increases, (3) tax increases necessitate higher prices, (4) higher prices produce less consumer spending, (5) less consumer spending results in less business revenues, (6) less business revenues means fewer jobs and less wages, (7) fewer jobs, less wages and less business revenues means less tax dollars, and (8) fewer jobs, less wages, less business revenues and less tax dollars means … more government spending is necessary?

If you believe that last one, then I have a bridge I’d like to build you. It will be ready for use immediately upon the check clearing.

Repealing the Seventeenth Amendment

George Will argues we should repeal the Seventeenth Amendment.  I doubt it will happen–too many people are convinced of the Populist notion that the more direct the democracy, the better.  But I’ve been arguing for years that this measure would restore a great measure of federalism to the US, and that we would generally benefit from such a change.

Doug Mataconis of Below the Beltway isn’t so sure.  He writes,

As I’ve noted before, it’s a provocative argument, but I think there’s something missing:

My take on the subject is this — from a procedural point of view the 17th Amendment is certainly one of the factors that has made the expansion of Federal power, and the erosion of Federalism, more easy to accomplish. Returning to direct election of Senators *might* have a positive impact, but that will only happen if the Senators elected have a proper understanding of their role under the Constitution.

And if the state legislators appointing them have that same understanding.

Given the political climate in America today, having Senators who are beholden to the whims and wishes of state legislators is unlikely to produce a better breed in the Upper House than having Senators who are beholden to the whims and wishes of voters.

In some sense, repealing the 17th Amendment involves turning back the clock in more ways than one. We can return to the procedural methods that the Framers first put in place, but that doesn’t mean that the philosophy that will guide the Senate will change in any significant respect.

I can’t comment on whether we’d get a “better breed”, but the procedural change would change the practice, if not the philosophy, of senators.  As I argue in the comments, the purpose of many of the checks and balances in the Constitution of the early republic was to have people in power answer to those who were jealous of their own power. Repealing the Seventeenth wouldn’t cure all ills, but it would help.

For example, the federal government has extended its power over state and local matters by using its superior funding power to provide goodies, and attaching strings to that money.

If we posit that state legislators want to arrogate more power to themselves, then–given the power–they will resist those strings. US Senators, realizing that their appointment to the Senate (and all the attendant benefits) requires pleasing the state legislators, will avoid attaching those strings. They don’t need to understand anything except who’s buttering their bread.

Let’s say that state legislators still like the idea of getting federal money without having to levy their own taxes. Well, if the Senate tries to appropriate no-strings-attached money for the states, naturally the House and President will resist. They don’t want to levy taxes and receive no controlling benefit in return.

A smaller number might be ideologically committed to using the superior federal power of taxation to fund these goodies, but not having strings attached to federal money would dull the incentive.

Signing On To The “Name And Shame” Policy

Gotta love this chutzpah:

Invoking his own name-and-shame policy, President Barack Obama warned the nation’s mayors on Friday that he will “call them out” if they waste the money from his massive economic stimulus plan.

“The American people are watching,” Obama told a gathering of mayors at the White House. “They need this plan to work. They expect to see the money that they’ve earned — they’ve worked so hard to earn — spent in its intended purposes without waste, without inefficiency, without fraud.”

This from a guy who just signed into law the biggest waste, fraud and abuse bill ever concocted by our so-called representatives in Washington DC.


“This is our house now”

Remember the organization that refused to pay its own workers a “living wage” even while it agitated for higher minimums for other businesses? The same organization that has been the subject of several voting fraud investigations? And the same one to receive $2 Billion from the stimulus bill? Well, its now in the process of “peacefully” occupying homes that are in the process of foreclosure. That organization, of course, is ACORN:

A community organization breaks into a foreclosed home in what they are calling an act of civil disobedience.

The group wants to train homeowners facing eviction on peaceful ways they can remain in their homes.


“The mortgage went up $300 in one month,” said Hanks, former homeowner.

ACORN fights foreclosures by breaking the law

ACORN fights foreclosures by breaking the law

She says the bank refused to modify her loan and foreclosed, kicking her out of the house in September.

The community group ACORN calls Hanks a victim of predatory lending.

“This is our house now,” said Louis Beverly, ACORN.

And on Thursday afternoon, they literally broke the foreclosure padlock right off the front door and then broke into the house, letting Hanks back in for the first time in months.

“We are actually trespassing, and so this is a way of civil disobedience to try to stay into our house,” said Beverly. “Legally it’s wrong, but homesteading is the only means that she has left to stay into her house. And we feel as though this is the right thing to do at this particular time to save this family.”

So even though they know it’s “legally wrong” ACORN is going to go ahead and do it anyway? Maybe they could take some of the $2 Billion they received and help Ms. Hanks pay her mortgage or even renegotiate it. Presumably ACORN received the stimulus money to do something other than commit criminal acts. Didn’t it?

[HT: Rick Moore]

Automakers – Gathering At The Trough Again

To be blunt about it, this just pisses me off:

GM said it might need as much as $100 billion in financing from the government if it were to go through the traditional bankruptcy process. Rick Wagoner, GM’s chairman and chief executive, said the bankruptcy scenarios are “risky” and “costly” and would only be pursued as a last resort.

Really? Well guess what – it’s even more “risky” and “costly” for the taxpayer to give GM another 100 billion bucks (and further on in the article it is acknowledged that a pre-packaged bankruptcy would cost about 30 billion).

GM claims its going to pare down its working force and model line. But what isn’t clear is how it plans on eliminating the legacy costs which still make it uncompetitive. Anyone know what would require them to confront that issue? That’s right – bankruptcy.

As for Chrysler:

Chrysler’s plan said the company would likely have to file for Chapter 11 protection if it doesn’t get additional loans from the government and concessions from unions, creditors and dealers. It said it would need $24 billion in financing if the company were to file for bankruptcy. But company officials said in a conference call that they believe a Chapter 11 filing is “not necessary” for Chrysler’s survival.

Uh no. Want more money? See Cereberus, the company you belong too and which is sitting on about 150 billion in assests. Let them pick up the tab. If not, see you in bankruptcy court.

This is ridiculous.

In particular, new opposition to further aid for Chrysler seemed to be building on Capitol Hill. In an interview Tuesday, Sen. Judd Gregg (R., N.H.) said no more taxpayer money should be given to Chrysler until its majority owner, private-equity firm Cerberus Capital Management LP, agrees to inject more funds into it.

Good. It’s about time this demand was made. What in the world is government doing throwing money at Chrysler when it has an owner with plenty of money? And Cerberus’ answer?

Cerberus said in a statement that it can’t put additional investments into Chrysler because agreements with its investors limit how much it can commit to any single investment. It added Cerberus has agreed to forgo any Chrysler profits before the government loans are repaid.

Tough beans. In that case, Cerberus had better find a way to sell off some of its investments to raise the necessary cash or be prepared to watch Chrysler hit bankruptcy court. Whichever choice it makes, it is not the job of the taxpayer to keep a marginal company afloat. And that’s even more true when that company has private assets upon which it can draw.

But when politicians are in the pain avoidance business, the Constitution is just a piece of paper and whatever they think they need to do to protect their positions of power will be done, regardless of law, principle or morality.

Just watch.


This Could Be Interesting

If they can get this passed, it might shake things up in the states rights arena:

This week the Oklahoma House of Representatives Rules Committee voted unanimously to support House Joint Resolution 1003 authored by state Rep. Charles Key. Key’s proposal should now be headed to the floor of the House where I look forward to supporting it.

HJR 1003 seeks to reassert Oklahoma’s sovereignty under the 10th Amendment to the U.S. Constitution, and according to the resolution’s language, serves as “Notice and Demand to the federal government, to cease and desist, effective immediately, mandates that are beyond the scope of these constitutionally delegated powers.

The 10th Amendment states: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”

Of course it will end up in court if passed, but I would love to see it upheld and it lead to more 10th amendment exceptions leading toward a reestablishment of more states rights.

Read the rest of the article – Rep. Jason Murphey makes a good case concerning levels of influence and representation. His point about those with money driving national politics is well taken.


Irony – Advice From Putin … But Will We Heed It?

Amazing that it is Russia giving the advice and the US deciding it isn’t valid:

Russian Prime Minister Vladamir Putin has said the US should take a lesson from the pages of Russian history and not exercise “excessive intervention in economic activity and blind faith in the state’s omnipotence”.

“In the 20th century, the Soviet Union made the state’s role absolute,” Putin said during a speech at the opening ceremony of the World Economic Forum in Davos, Switzerland. “In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.”

Unfortunately I think this lesson is mostly lost on us and it will, just as it did Russia, cost us dearly.


Why Government Intervention In Recession Won’t Work

Well, the “stimulus” monstrosity has been signed and all the words of praise it doesn’t deserve have been said.  Now, here’s why it won’t work all in a succinct four paragraphs:

Most economists agree that America has enjoyed unprecedented prosperity, based primarily on excessive debt. Thus, any healthy correction would necessarily involve serious deleveraging and a severe recession. After a lot of pain, the economy would rebuild with healthier fundamentals. Infrastructure improvement would aid, but not cause, the eventual recovery.

Recession is the natural cure for the politically inspired profligacy that America has enjoyed for almost 40 years. Unfortunately, the side effects of this medicine, namely the rapid reallocation of labor resources and deflationary damage to debtors, are still unpalatable to pandering politicians.

The Washington regime, particularly members of the Democrat persuasion, leans towards a socialist solution of avoiding recession at any cost. After all, the bills are paid by others, such as taxpayers and holders of US dollars. This results in an increasing amount of other people’s money being spent on “public” works that would in other times carry the label “pork barrel”.

Washington is choosing to pursue the policy of continued and ever-increasing false prosperity, financed eventually by hyper-taxation, hyper-debt and hyper-inflation accompanied by a gradually eroded standard of living. The jobs created by the bill are by and large non-productive and will divert resources from the private sector and rob consumers of their power to make free choices in the marketplace.

Pain avoidance drove the call for stimulus.  Politicians are naturally for that because it ensures their future.  But in reality it isn’t pain avoidance at all, but simply a form of pain management.  And since that management will be spread over many years, those who will lose under it will be less likely to notice that loss over the years than they would if that loss happened all at once.  But there’s a price for that, and it will become apparent eventually.  That gradual loss won’t allow the recovery to the previous standard of living because government will have supplanted much of the private sector and many of those options (and resources) for regaining that level are no longer available.

Of course, the good news for the present crop of politicians is that realization of loss won’t happen on their watch.  And as far as the political class is concerned, that’s all that matters.

Let the good times roll!


This Has To Give You A “Warm Fuzzy”

Not content with busting the bank with the Pork bill and TARP II, now, finally, the 50+ trillion in unfunded mandates are apparently next:

The following week, the president will host what the White House is billing as a “fiscal responsibility” summit on February 23. The goal of the summit is to begin weighing the impact of massive federal programs like Social Security and Medicare just days before the president plans to unveil his first annual budget to Congressional leaders.

Budget? There’s nothing left to spend. Frankly I think Michael Ramirez has the best take on it.


My guess is this can will get kicked down the road, left for 45 or 46 to deal with.


Stimulus II? Ponder This ….

You’ve just witness the unimaginable – Congress passes a 789 billion dollar pork-laden spending bill disguised as a “stimulus” bill and they may be contemplating “Unimaginable II”:

Despite the enormous size of the $787 billion stimulus plan, some economists worry that it won’t make a big enough dent in unemployment and that lawmakers will have to work on another stimulus in short order — something members of Congress are loathe to discuss.

“That’s possible,” said Alice Rivlin, a former Clinton administration budget director. “I think the economy is getting worse quite rapidly and this may not prove to be enough.”

And why is that, Ms. Rivlin? Why might it not be “enough”?

The stimulus got “less stimulative,” Rivlin said, as it passed through the Senate and some of the things that offered “the biggest bang for the buck” were scaled back, such as more money for food stamps.


You mean it was exactly what those mean old Republicans said it was – more relief than stimulus. More social spending than jobs? That, in fact, any stimulative part of the bill was watered down or eliminated in favor of special interest spending on programs which are either years in the future or will provide no immediate jobs with which to help get the economy moving?

You mean, despite all the rhetoric and nonsense to the contrary by Obama and the Dems, we are on the road to repeating the mistakes Japan made that brought them their “lost decade”?

No kidding?

And I doubt many would call Ms. Rivlin a right-wing reactionary economist spouting Republican talking points, would they?

So now that the Dems have fulfilled their 40 year social program spending spree, it appears they may now try to actually stimulate the economy with a few more hundred billions of your great, great, great grandchildren’s money.

More future theft.

“Son of Stimulus”, coming to a wallet near you soon?