Free Markets, Free People

MichaelW

I'm a husband, father, and attorney living in Northern Virginia trying to make my way through this world like everyone else. Stay outta my way, and you can bet I'll stay out of yours ... and I'll even help keep others from bothering you as well.


The Economy In An Anecdote

I think this entire article entitled “Why I’m Not Hiring” could qualify as the QOTD. It neatly explains why businesses are so reluctant to hire anyone right now.

Meet Sally (not her real name; details changed to preserve privacy). Sally is a terrific employee, and she happens to be the median person in terms of base pay among the 83 people at my little company in New Jersey, where we provide audio systems for use in educational, commercial and industrial settings. She’s been with us for over 15 years. She’s a high school graduate with some specialized training. She makes $59,000 a year—on paper. In reality, she makes only $44,000 a year because $15,000 is taken from her thanks to various deductions and taxes, all of which form the steep, sad slope between gross and net pay.

[...]

Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay … When you add it all up, it costs $74,000 to put $44,000 in Sally’s pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally’s job each year.

There is no grand revelation in Mr. Fleischer’s explanatory essay. Just hard cold reality: make the costs of hiring more expensive, and less hiring will happen.

Some may argue that just because Mr. Fleischer’s company isn’t hiring for these reasons, that doesn’t mean that other companies are refraining on the same basis. True, but what are the other possible reasons then? Logan Penza summarizes some of the arguments:

It’s those Evil, Greedy Corporations.

That’s the simple explanation most of the talking heads have for the continuing high unemployment numbers. Those Evil, Greedy Corporations horde their money and refuse to hire anyone. When they do hire someone, they don’t pay them enough, don’t offer them enough benefits, don’t pay enough taxes, pollute the planet, steal candy from babies, kick puppies, and make obscene gestures at your auntie. Evil, Greedy Corporations are offered up as cartoon villains, detestable and vile and without any redeeming value.

The trouble with cartoon villains is that they are fictional.

Well, yeah, but it’s so much easier to blame fictional bogeymen then to address what the real businesses say.

Another argument I’ve seen advanced is that the marketplace is inherently uncertain, and that businesses who can’t cope with changes in the law are simply unfit to survive. There is a certain laissez-faire appeal to this argument, but ultimately it doesn’t make sense.

The fact of the matter is that the types of market risk that businesses can and do adjust to, aside from increased competition, are changes in demand and supply, natural disasters and war. The more savvy, efficient and customer-sensitive businesses do survive these sorts of uncertainties and ultimately enhance the economy when they do.

In contrast, when the government continually raises the costs of doing business in the first place (or threatens to do so), the only ones who really survive are either the politically connected or the very wealthy (yes, they are often the same thing). That doesn’t have anything to do with building a better mousetrap, as it were, or growing the economy. And it certainly doesn’t do anything to raise everyone’s standard of living. Instead, all it does is reward those closest to the rule-makers, thus creating more competition to be closest to the King rather than satisfying the marketplace. It is exactly the sort of crony-capitalism we claim to detest.

As Mr. Fleischer summarizes:

A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government’s message is unmistakable: Creating a new job carries a punishing price.

Perhaps instead of punishing business, the government could get out of the way. Maybe then we could get some of that job growth we’ve all been looking for. Unfortunately, it seems that few in Washington are listening, or worse, that they don’t really care.


Deficits: Are Spending Increases The Same As Tax Cuts?

This weekend on on Fox News Sunday, Jon Kyl (rather inartfully) set up a classic struggle between political views of how government economics work:

Ezra Klein (and others) pounced on Kyl’s poorly expressed assertion (my emphasis):

What’s remarkable about Kyl’s position here is that it appears to be philosophical. “You should never have to offset cost of a deliberate decision to reduce tax rates on Americans,” he said. Never! This is much crazier than anything you hear from Democrats. Imagine if some Democrat — and a member of the Senate Democratic leadership, no less — said that as a matter of principle, spending should never be offset. He’d be laughed out of the room.

Back in the real world, tax cuts and spending increases have the exact same affect on the budget deficit. This sort of comment is how you tell people who care about the deficit apart from people who are interested in exploiting fears of the deficit to shrink the size of government.

While Kyl’s phrasing lends to this sort of demagogic mockery, it’s hard to blame Klein, et al., after the spending binge that followed the Bush tax cuts of 2001. Kyl’s immediate point — that paying for some tax cuts by raising other taxes — is spot on. Shuffling around the types of taxes that one pays makes no sense if the idea is to let Americans hold onto more of their money. Indeed, he made exactly that point after his Fox News Sunday appearance (via Daniel Foster):

“Who does the money belong to?” Kyl asked rhetorically. “The money belongs to the taxpayer, to the people. The money does not belong to the government, and yet that’s what this kind of a rigid paygo rule would assume: that the money belongs to the government, and therefore if you’re going to deny the government some of that revenue through a tax cut, you have to make the government whole, because the government can never lose any money. That would mean that you could never reduce the size of government. Each year, when it gets bigger, it stays at that level or it gets bigger yet, but you can never reduce it.”

As Foster notes, “Kyl is openly advocating some ‘starve the beast’ unfunded tax cuts.” Klein counters this with a reasonable budgetary point: deficits are deficits, whether from reduced income or increased spending. Yet, this misses the real issue:

He who has the money expands; he who does not shrinks.

According to the “starve the beast” strategy, if government takes in less revenue than it spends, eventually it will have to cut spending in order to match revenues, and thus the government will shrink. At the same time, if the private sector has more money in its pocket, the economy will expand. While the efficacy of this strategy leaves much to be desired in practice, at least one part of the equation can’t be denied, i.e. the more money that the government takes in, the more it expands.

The same holds true for the private sector. The fewer taxes it is forced to pay (that is, the more money it is allowed to keep), the greater it expands.

So, the real question is, which do we want to expand: the private sector or the government?

Kyl is dead-on in his describing the pervasive attitude of statists of all stripes. They really think the money belongs to the government and should be dispersed as it sees fit (provided, of course, that government is run by officials suitably attuned to the “common good”). That is where the struggle lies. Statists believe that government is the best source of economic expansion while history individualists commend the opposite.

If the statists are correct, then we should want the government to expand, and deficits should be run up without commensurate spending cuts or, alternatively, with tax increases. If, instead, the private sector holds the key to economic expansion, then deficits (if any) should be met by spending cuts. Period.

To be sure, in order to live under a rule of law, some minimal level of government spending is required. Ideally, taxes, user fees, etc. pay for that minimal level, but there will always come a time when unfortunate events necessitate dipping into the red. It is in those times when raising taxes may be the best solution on a temporary basis (which hasn’t always worked out very well). Once those events subside, however, continuing to expand government spending can only be done to the detriment of the private sector, which will then shrink.

In the end, whether the electorate chooses an expansion of the state or the private sector will be the real deciding factor in whether the economy expands or not. All deficit spending may be equal in budgetary terms, but only one course will actually serve to expand the economy. On that score, Kyl has the better of the argument.

~MJW


Michael Gerson Is Better Than You

Oh, and you’re ugly too:

My political friendships and sympathies are increasingly determined not by ideology but by methodology. One of the most significant divisions in American public life is not between the Democrats and the Republicans; it is between the Ugly Party and the Grown-Up Party.

[...]

The rhetoric of the Ugly Party shares some common themes: urging the death or sexual humiliation of opponents or comparing a political enemy to vermin or diseases. It is not merely an adolescent form of political discourse; it encourages a certain political philosophy — a belief that rivals are somehow less than human, which undermines the idea of equality and the possibility of common purposes.

This distinction came to mind in the case of Washington Post blogger David Weigel, who resigned last week after the leak of messages he wrote disparaging figures he covered … Unlike Weigel, most members of the Ugly Party — liberal and conservative — have little interest in keeping their views private.

[...]

The alternative to the Ugly Party is the Grown-Up Party — less edgy and less hip. It is sometimes depicted on the left and on the right as an all-powerful media establishment, stifling creativity, freedom and dissent. The Grown-Up Party, in my experience, is more like a seminar at the Aspen Institute — presentation by David Broder, responses from E.J. Dionne Jr. and David Brooks — on the electoral implications of the energy debate. I am more comfortable in this party for a few reasons: because it is more responsible, more reliable and less likely to wish its opponents would die.

Well, not in public anyway.

If I had a nickel for every time some hand-wringing, garment-wrenching, media “elite” rides to the rescue of one of their liberal brethren being caught slurring the political opposition, I could buy the entire archives of JournoList.

I’d even have enough money left over for some popcorn and a comfy chair. Then I could release those archives and watch the stampede of “Grown-Up Party” snobs falling all over themselves to explain how sophisticated they all are for only “urging the death or sexual humiliation of opponents or comparing a political enemy to vermin or diseases” in the privacy of their own chatrooms. It will be uproariously entertaining to hear how talking behind people’s backs is the epitome of class, while publicly challenging opponents is so lowly and juvenile.

You know, Mr. Gerson, being a “Grown-Up” douchebag isn’t much of an accomplishment.


Second Amendment Decision Cheered By … Democrats?

The follow-up Supreme Court decision to Heller that was handed down yesterday marked a significant point in Second Amendment history. And that has not just gun-rights advocates jumping for joy, but also Democrats:

For them, the court’s groundbreaking decision couldn’t have been more beneficial to the cause in November. Now, Democratic candidates across the map figure they have one less issue to worry about on the campaign trail. And they won’t have to defend against Republican attacks over gun rights and an angry, energized base of gun owners.

“It removes guns as a political issue because everyone now agrees that the Second Amendment is an individual right and everybody agrees that it’s subject to regulation,” said Lanae Erickson, deputy director of the culture program at the centrist think tank Third Way.

A House Democratic aide agreed that the court’s decision removed a potentially combustible element from the mix.

“The Supreme Court ruled here that you have a fundamental right to own and bear arms, and that means at the national level it’s harder – whether it’s Republicans or whether it’s the [National Rifle Association] – to throw that claim out: if Democrats are in charge they’re going to come get your guns,” said the aide. “It pretty much took that off the table.”

Despite the fact that there are a fair number of pro-gun Democrats in Congress, members of the Donkey Party are typically slammed as “gun-grabbers” in close elections. With the decision in McDonald, that issue is basically moot for Democrats running red or purple districts.

The likely removal—or at least neutralization—of the gun issue this fall is of no small matter in the battle for the House and Senate. The Democratic majorities in both chambers were built, in part, on victories in pro-gun states and districts that had until recently been difficult terrain for Democratic candidates as a result of the national party’s position on gun control.

[...]

For congressional Democrats—especially those in seats outside major metropolitan areas where support for gun rights runs high—the ruling offered a chance to assert their pro-gun bona fides.

[...]

John Anzalone, a prominent Alabama-based pollster with a roster of Southern Democratic clients, called it a “win, win, win, win” situation for everyone—and above all, “for conservative Democrats who will be able to use it as a credential that they’re conservative. This is a tough political environment; you’re going to see Southern, Western Democrats use it and stand up for gun rights.”

Unfortunately for the Democrats, gun rights issues weren’t likely to be very high on the list of grievances redressed at the ballot box this Fall. Mired in the middle of the Great Recession, economic issues will be paramount in November, especially on jobs and tax policy.

In fact, although Democrats are cheering the absence of Second Amendment posturing thanks to McDonald, to the extent such issue would have been raised, it would have served as a distraction from the core concerns of voters. Now, with that issue off the table, the Democratic spending policies are cast in stark relief. While out on the hustings, they will be forced to answer for their support of ObamaCare, Stimulus, Cap and Trade, Finreg and the rest of the Democratic agenda that’s done nothing to help the economy, and sure looks like it may have done much to hinder it.

In political time, November 2nd is an eternity away. There is really no telling what might happen between now and then that might influence various elections, whether on a national or local level. Even so, I wouldn’t be surprised if Democrats were wishing they had the distraction of gun-rights issues this Fall instead of being forced to face the economic policy music. It will be a baleful tune.


Obama Orders Louisiana To Halt Berm-Building

I’m beginning to think that the comparisons of Obama’s management of the oil spill to how Hurricane Katrina was handled are completely inapt. In reality, it looks more like the Obama administration should be compared to the storm itself.

Louisiana has been busily building berms about a mile out from the coast to halt the infiltration of oil into its sensitive marshes, wetlands and prime fishing areas. This process was greatly delayed by federal red tape, and now that the state has permits in hand it’s being order to stop because, according to the U.S. Fish and Wildlife Department, it’s doing it wrong:

The federal government is shutting down the dredging that was being done to create protective sand berms in the Gulf of Mexico.

The berms are meant to protect the Louisiana coastline from oil. But the U.S. Fish and Wildlife Department has concerns about the dredging is being done.

Plaquemines Parish President Billy Nungesser, who was one of the most vocal advocates of the dredging plan, has sent a letter to President Barack Obama, pleading for the work to continue.

[...]

Nungesser has asked for the dredging to continue for the next seven days, the amount of time it would take to move the dredging operations two miles and out resume work.

Work is scheduled to halt at midnight Wednesday.

Pat Austin is trying to understand the federal obstruction, but finds that political reasoning is the only thing that makes sense of it all:

I’m trying to see both sides here; I’m trying to understand the “coastal scientists” who contend that the berms will “change tidal patterns” and lead to more long term erosion of the islands, but if the islands are killed off by the oil what difference does it make? To borrow from Greta Perry’s analogy, if my house is on fire, what does it matter what room I try to extinguish first? It’s all doing down.

[...]

It seems that the feds are doing everything they can to cripple Louisiana’s own response to this crisis. Bobby Jindal reached his exasperation point long ago when he said, and I’m paraphrasing, If you’re not going to fix it, get out of the way and let us do it ourselves! From the moratorium, and Salazar’s promise to appeal the strike down of that moratorium, to the crazy red tape on the berm projects, to shutting down the skimmer barges for 24 hours, and now this?

Well, we could get the idea that Team Obama was trying to neutralize Jindal’s response, as if he were threatened by Bobby Jindal, or something.

For Billy Nungesser part, he isn’t taking this lying down. He fired off a letter to Obama demanding to be allowed to move forward with the coast-saving project … or else:

Plaquemines parish president Billy Nungesser is furious, drawing a line in the sand with the White House!

[...]

Nungesser is targeting President Obama as the only hope for continuing the work. In harsh letter he spelled out an option.

“Don’t shut us down, let us lay the pipe three miles out and then let us move the dredge so we will be down less than a day and we’ll refill the hole,” Nungesser said.

He also issued a threat to the President in the letter if he didn’t do something to help.

“It says if it shuts down, I’ll be on Anderson Cooper at nine…and it won’t be pretty.”

Nungesser also pushed Jindal to, in effect, damn the torpedoes and move full speed ahead:

“I asked the governor to let me stay out there tonight on the dredge, let em come out there and take the permit away.

Tell them the radio not working. We’ll smash it with a hammer.”

I’m actually a little surprised that Jindal hasn’t already taken this approach, citing exigent circumstances and daring Obama to shut him down.

Stepping back for a moment, does anyone else see the connection between the Arizona (and others) illegal immigration law, Gen. McChrystal’s insubordination, and Louisiana’s current predicament? Lacking any coherent direction, policy or plan, these people and entities are forced to take the reins over their particular situations only to be hindered by the Obama administration when they do, or worse, vilified and ridiculed. The lack of leadership creates a vacuum, and people like Jan Brewer, Gen. McChrystal, Bobby Jindal and Billy Nungesser are trying desperately to fill it. If there were ever a clear indication that Obama is an incompetent leader, this it.


McChrystal Should Be Fired

Actually, Gen. McChrystal should have quit. The big news today will be about his and his staff’s insolent interview with Rolling Stone Magazine (pdf) wherein they lay waste to the current administration:

The top commander in Afghanistan, Gen. Stanley McChrystal, has been summoned to the White House to explain biting and unflattering remarks he made to a freelance writer about President Barack Obama and others in the Obama administration.

The face-to-face comes as pundits are already calling for McChrystal to resign for insubordination.

[...]

McChrystal and his top aides appeared to let their guard down during a series of interviews and visits with Michael Hastings, a freelance writer for the magazine Rolling Stone.

The article, titled “The Runaway General,” appears in the magazine later this week. It contains a number of jabs by McChrystal and his staff aimed not only at the President but at Vice President Biden, special envoy Richard Holbrooke, Karl Eikenberry, the ambassador to Afghanistan, and others.

McChrystal described his first meeting with Obama as disappointing and said that Obama was unprepared for the meeting.

National Security Advisor Jim Jones is described by a McChrystal aide as a “clown” stuck in 1985.

Others aides joked about Biden’s last name as sounding like “Bite me” since Biden opposed the surge.

McChrystal issued an immediate apology for the profile, advance copies of which were sent to news organizations last night.

Frankly, there is probably much in McChrystal’s criticisms to agree with, but this just isn’t the way you do it, especially during a war. What’s especially disturbing is that his staff also appears to feel free to take potshots at the Commander in Chief (a violation of the UCMJ as I understand it), and one can only wonder how far down into the ranks that sort of behavior exists. When the highest officer in theater is openly dismissing the chain of command, things can not be good.

In fact, just two months ago, Michael Yon was reporting on the lack of trust in McChrystal to handle the job and how his orders were being ignored:

McChrystal’s actions have underlined what I was starting to tell officers and NCOs, who mostly agreed with me that McChrystal can’t handle this war. Experienced people have contacted me and asked me to keep the fire on McChrystal. (Menard is already dead in the water.) I can say with certainty that some of McChrystal’s orders are being disregarded. McChrystal controls embeds. Embeds and access are separate matters. McChrystal has zero control over access. My access is extreme and wide. And with that, it can be said that units in various provinces are disregarding McChrystal’s ROE and believe he is not acting in the best interest of our troops. Officers are disregarding orders from McChrystal. (I am not a journalist and will not provide evidence. Am not asking anyone to take it on faith. It is simply a fact and has been stated.)

Speculation: Weeks before the disembed, I told a person close to McChrystal (intelligence type) that McChrystal isn’t the man for this job. Was it related to that? Simply don’t know, but I do know that officers are disregarding some of McChrystal’s orders and this is happening in various places. McChrystal is not in full control of U.S. forces in Afghanistan.

I really can’t comment on McChrystal’s ability to handle the war in Afghanistan, but his Rolling Stone comments would seem to underscore Yon’s reporting. If he’s so willing to disrespect his superiors, then it shouldn’t come as any surprise that the rank and file operate the same way.

Substantively, McChrystal has much to complain about. The Obama administration’s lack of interest in Afghanistan is rather apparent (despite making some laudable decisions), and we are definitely in danger of losing there altogether. Perhaps he thought that simply resigning and reporting his complaints to Congress (or the media) would not have the same effect in drawing attention to the problems he’s encountering. By sounding off loudly in Rolling Stone, McChrystal may be accomplishing what he thought he could not do if he had followed the correct course of action.

Even so, the general should still be fired. If his gambit works, and greater attention is given to actually winning in Afghanistan, then he will receive much deserved praise. Considering the fact that the big story right now is all about his insubordination, however, that’s not likely to happen.


Is The No-Fly List Unconstitutional?

I have an article up at The Washington Examiner that explores whether or not the rights of Yahya Wehelie are being violated. Mr. Wehelie has essentially been deported from the U.S. without any charges being brought against him, nor any due process whatsoever:

Yahya Wehelie, 26, said Wednesday that after landing at the airport in Cairo in early May, he was told he would not be able to board his connection to New York and would have to go to the U.S. Embassy for an explanation. Embassy officials later told Wehelie and a younger brother with whom he was traveling that they would have to wait for FBI agents to arrive from Washington.

[...]

Wehelie, who was born in the United States to Somali immigrants, said U.S. officials took his old passport and issued him a new one that was good only for a one-way trip to the United States. But, he said, he was also informed by an FBI agent that he cannot board any plane scheduled to enter U.S. or Canadian airspace, leaving him in a kind of limbo.

You can read my take at The Washington Examiner.

As an aside, is there any doubt that if this had happened during the Bush administration that the hue and cry from the MSM would have been deafening?


About That Climate Change Consensus …

What was always suspected, yet never proved, has now been exposed:

The UN’s Intergovernmental Panel on Climate Change misled the press and public into believing that thousands of scientists backed its claims on manmade global warming, according to Mike Hulme, a prominent climate scientist and IPCC insider. The actual number of scientists who backed that claim was “only a few dozen experts,” he states in a paper for Progress in Physical Geography, co-authored with student Martin Mahony.

“Claims such as ‘2,500 of the world’s leading scientists have reached a consensus that human activities are having a significant influence on the climate’ are disingenuous,” the paper states unambiguously, adding that they rendered “the IPCC vulnerable to outside criticism.”

You’re shocked I’m sure. But just who is Mike Hulme that he’d have any credibility to make such a bold claim? As it turns out, he’s not only a professor at the School of Environmental Sciences at the University of East Anglia (yes, that one), and the founding Director of the Tyndall Centre for Climate Change Research, he also was a co-ordinating lead author on a portion of the IPCC

Not exactly a climate-denialist. But you do have to wonder why he’s making this claim now? Why didn’t he expose the consensus fraud while in the middle of his work on the IPCC?

Actually, if you read the paper (pdf) in which his statement appears, it seems that Hulme wasn’t so much making an accusation as he was simply making an offhand comment:

Since its origins, the IPCC has been open and explicit about seeking to generate a ‘scientific consensus’ around climate change and especially about the role of humans in climate change. Yet this has been a source of both strength and vulnerability for the IPCC. Understanding consensus as a process of ‘truth creation’ (or the more nuanced ‘knowledge production’) which marginalises dissenting voices – as has frequently been portrayed by some of the IPCC’s critics (see Edwards & Schneider, 2001; Petersen, 2010) – does not do justice to the process.

Consensus-building in fact serves several different goals. As Horst and Irwin (2010) have explained, seeking consensus can be as much about building a community identity – what Haas (1992) refers to as an epistemic community – as it is about seeking the ‘truth’. Equally, as Yearley (2009) explains, IPCC consensus-making is an exercise in collective judgement about subjective (or Bayesian) likelihoods in areas of uncertain knowledge. Consensus-making in the IPCC has been largely driven by the desire to communicate climate science coherently to a wide spectrum of policy users – ‘to construct knowledge’ (Weingart, 1999) – but in so doing communicating uncertainties have been down-played (van der Sluijs, 1998). As Oppenheimer et al. (2007: 1506) remark: “The establishment of consensus by the IPCC is no longer as critical to governments as [is] a full exploration of uncertainty.”

Without a careful explanation about what it means, this drive for consensus can leave the IPCC vulnerable to outside criticism. Claims such as ‘2,500 of the world’s leading scientists have reached a consensus that human activities are having a significant influence on the climate’ are disingenuous. That particular consensus judgement, as are many others in the IPCC reports, is reached by only a few dozen experts in the specific field of detection and attribution studies; other IPCC authors are experts in other fields. But consensus-making can also lead to criticism for being too conservative, as Hansen (2007) has most visibly argued. Was the IPCC AR4 too conservative in reaching its consensus about future sea-level rise? Many glaciologists and oceanographers think they were (Kerr, 2007; Rahmstorf, 2010), leading to what Hansen attacks as ‘scientific reticence’. Solomon et al. (2008) offer a robust defence, stating that far from reaching a premature consensus, the AR4 report stated that in fact no consensus could be reached on the magnitude of the possible fast ice-sheet melt processes that some fear could lead to 1 or 2 metres of sea-level rise this century. Hence these processes were not included in the quantitative estimates.

Incredibly, Hulme’s point here is that making completely false claims, such as that a consensus on AGW has been reached by “2,500 of the world’s leading scientists” (or maybe it’s 4,000!), is merely the aggressive flip-side to being too conservative in failing to make unsupported claims on which no one agrees. At least, he compares these two “criticisms” of the IPCC efforts to build consensus as if they were two ends of a spectrum. Sadly, when it comes to climate “science” this is exactly where the problem lies.

Instead of dealing in actual science (where hypotheses are proposed, experiments and data-collection ensue, and actual results inform us as to what is happening), we instead are offered catastrophic theories unsupported by little if any actual data but that, by golly gee, sure do have a whole lot of “consensus” behind them. After all, who are we peons to doubt the “experts”? It’s not as if a group of people has ever been persuaded to … ahem, “adjust” their arguments in order to acquire sweeping political power. One wonders if the word “cabal” exists in any dictionaries in the University of East Anglia’s libraries.

If anyone working on the IPCC wants to know why their reputation is in the tank, perhaps they’d better take a look at what the public “consensus” is regarding fraudulent claims designed to increase the fraudsters’ power. And then maybe they should reacquaint themselves with actual science.


Looting Taxpayers: Mortgage Interest Deduction Editon

Government policy is always the unpredictable bugbear of free-marketeers. Yet, while it’s irresistibly tempting for some to lambaste libertarian types as the pie-in-the-sky Utopians, the latest tax policy scheme to come from the Obama administration is by far the most outlandish fantasy around:

The popular tax break for mortgage interest, once considered untouchable, is falling under the scrutiny of policymakers and economic experts seeking ways to close huge deficits.

Although Congress last year rejected the White House’s proposed cut to the amount wealthier taxpayers can deduct for home mortgage interest payments, the administration included it again in its 2010 budget — saying it could save $208 billion over the next decade.

Stop. Think. How is the federal government going to “save” money by charging taxpayers more? Answer: it isn’t. Raising taxes doesn’t “save” anything but the government’s ability to spend more of your money.

And now that sentiment has turned against all the federal red ink — and cost-cutting is in vogue — Democrats on President Barack Obama’s financial commission are considering the wisdom of permanent tax breaks such as the mortgage deduction and corporate deferral. Calling them “tax entitlements,” senior Democratic lawmakers have argued they should be on the table for reform just like traditional entitlement programs Medicare, Social Security and Medicaid.

Again, we need to reject that implicit assumption — i.e. that the money being “saved” is the government’s to begin with. In addition, we cannot accept the equivalence drawn between wealth transfers like Medicare, Social Security and Medicaid, and tax breaks like the mortgage interest deduction (MID). In one case, the government is taking money from someone else (despite how it has been characterized) and giving it to another, while in the other situation the government is simply deciding how much of one’s hide it will charge for its oh-so-wonderful services (a.k.a. taxes). It’s the difference between transferring money from one to another, and refraining from taking the money in the first place.

The new spotlight on the mortgage deduction and other tax expenditures comes as the Obama administration and Congress consider ways to reduce deficits the Congressional Budget Office (CBO) expects will average nearly $1 trillion over the next decade.

And there is the real problem: government spending. Because Congress has been so profligate for decades, we’re all in a real pickle now. In order to cover their own derrieres, the government needs to find new revenue. And that’s where we, the taxpayers, come in.

What’s really happening is a tax hike. Where a homeowner paid X dollars on Y adjusted gross income (AGI) before, that homeowner would be paying X+ dollars on Y + ($ spent on mortgage interest), which equals much greater tax burden.

It is true that this is a “tax break” in that the government is taking less of your money than it otherwise would, and that the tax is not spread evenly across the population. In that sense, there is no question that the “tax break” is not really fair. People who claim that this is nothing more than social engineering (by incentivizing home ownership over renting) are correct. Aside from current tax policy (where interest earned is taxed as capital gains, but interest spent is only capital loss on homes), there really is not any valid reason why owners should be treated differently than renters. The government decided that home ownership was a good idea for “society” and thus the MID was born. But now that we homeowners have been led down the primrose path, how fair is it to push us into a thicket of thorns?

Whatever the fairness, the consequences of ending MID will be drastic at best. Not only would it lower home prices in the midst of a recession, it would cast thousands (perhaps magnitudes more) of homeowners, who are currently paying their mortgages, into bankruptcy almost overnight. And don’t forget, the Bush tax cuts are going to expire on January 1, 2011. That’s a devastating double whammy. Taxpayers will be crushed, tax revenues will sink even further, and the economy may start living up to its unheralded name of “The Great Depression Part II.”

Obviously, I have a vested interest in the outcome of this policy debate. While I don’t really have any problem with ending the MID tax break (and, in fact, find much to commend about it), doing it now, without any sort of grandfather clause, would be a catastrophe. Those who relied on MID when deciding to purchase a home will be left out to dry, many of whom won’t be able to pay their mortgages in the face of severe tax hikes.

Heck, even with a grandfather clause, a struggling housing market won’t be revived by tanking home values and discouraging ownership. The only realistic result will be to, at best, trap people in their current homes and make prospective purchasers quite wary (if they could even get a loan).

Regardless of my personal interest, the impetus behind this idea is positively ludicrous. No matter what anyone says, it will not raise tax revenue. Instead, it is destined to lower them, along with the standard of living for Americans in general. Citizens who have invested in homes only to find that they are now ratcheted up into a much higher tax bracket are not likely to continue paying for those homes, nor to keep their incomes as such a level as to be penalized. People really do respond to incentives.

Whether or not this trial balloon floats, it is a good indicator of what’s to come. A government without revenue is like a starving beast on the prowl. It needs its sustenance, and it will find a way to feed, by force or guile. As I said a few weeks ago:

No matter how ingenious the plan, or divine the motives, the only way for governments to fund the welfare state is to tax the wealth-creators. As even the most Marxist of intellectuals knows, if you want less of something, then tax it. This is why cigarettes are levied against in ridiculous proportions, and why carbon taxes are considered (by some) to be the savior of our planet. Well, taxing wealth-creation works exactly the same way: tax it more, and you will get less of it. Which leads to the inexorable conclusion that, as the governments of the world sink deeper into fiscal crisis, the looters will be coming en masse.

This is the first wave of the looters. Expect more.


My New Toy

So I somehow lost my phone (i.e. it was stolen) which I wasn’t totally enamored with anyway, and bought a new one today. After speaking with Dale about his recent purchase, I went down to the Verizon store and got … the Droid.

I may actually upgrade to the HTC Incredible, but for right now I am liking the full, slide-out keyboard, and I’m not sure how much I care about a faster processor or 8MP camera (compared to the 5MP on this phone). I’ll give it a few days and see what I think.

In any case, regardless of which phone I end with, I definitely prefer the Droid platform to my Blackberry Storm. The Blackberry was always a little clunky and had frequent software malfunctions. Plus, I could never have written a post for QandO on it, which is a really nice feature.

Well, we’ll see how it goes …