Free Markets, Free People

Monthly Archives: April 2010

Tax system is all about redistribution of income

Far be it from me to defend taxation, and I certainly am not one to tout government as the chosen tool to ensure fairness except in treatment by the law, but this is a bit ridiculous wouldn’t you say?

About 47 percent [of US housholds] will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization.

Liberals like to go on and on about a “progressive tax system” (so do Marxists, but that’s another story).  But my understanding of a progressive system is that everyone pays, just that those on the bottom end of the income scale pay less than those on the top.  But in reality, in this “progressive system” most of the bottom end of the income scale are paying nothing.

So that explains all the calls to insurance agents, doctors and human resources offices asking “where can I get me some of that free Obamacare?”  We’ve established a defacto welfare class through the “progressive tax system”:

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

“We have 50 percent of people who are getting something for nothing,” said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

Ironically, when it comes to health care, the “fairness” argument from the Democrats and “progressives” requires an individual mandate since they claim that without everyone paying into the system costs can’t come down (even though that won’t cut costs either, that’s their argument).

But this goes to a bigger problem – a mindset of entitlement.  And that is a mindset that favors the status quo (or its expansion) since it is to the advantage of those who benefit and, one would assume, they find no reason to challenge any program which may expand it.  ObamaCare is simply the latest.

Since they have no skin in the game, it costs them nothing to be complacent and they’re not likely to stir themselves to save that portion of Americans paying taxes from having to pay more to fund the redistribution of income from which they benefit via the “progressive” tax code.  Loot the rich is good where they’re sitting.

Taxes, at best, are a necessary evil with which we fund the necessities of government.  What taxation isn’t, or certainly what our founders never intended it to be, was a vast system of redistribution of income.  The tax system we have is an abomination -  it isn’t “fair”, it’s isn’t “progressive” and it violates the function of taxation as described by our founders.

But it is certainly a handy tool for big government progressives with which to grow their constituency and pad their vote counts.  It must surprise them somewhat that some of those on this plantation they’ve been building for years are, for some unknown reason, attending Tea Parties and protesting the direction of the country.  Even some of those who benefit from the redistributionist status quo understand that it’s just not right and certainly not a principle upon which this nation was founded.


So who are the racists?

I assume this AP story won’t quite get the coverage or have the legs that the unsubstantiated stories about racist slurs being hurled at members of the black caucus received:

They’ve been called Oreos, traitors and Uncle Toms, and are used to having to defend their values. Now black conservatives are really taking heat for their involvement in the mostly white tea party movement—and for having the audacity to oppose the policies of the nation’s first black president.

“I’ve been told I hate myself. I’ve been called an Uncle Tom. I’ve been told I’m a spook at the door,” said Timothy F. Johnson, chairman of the Frederick Douglass Foundation, a group of black conservatives who support free market principles and limited government.


Johnson and other black conservatives say they were drawn to the tea party movement because of what they consider its commonsense fiscal values of controlled spending, less taxes and smaller government. The fact that they’re black—or that most tea partyers are white—should have nothing to do with it, they say.

“You have to be honest and true to yourself. What am I supposed to do, vote Democratic just to be popular? Just to fit in?” asked Clifton Bazar, a 45-year-old New Jersey freelance photographer and conservative blogger.

I throw this out there for the Frank Rich’s of the world who’re convinced that a) all Tea Partiers are racists and b) only Tea Partiers can be racist.  If Rich is really that concerned about racism, isn’t about time he addressed this blatant example?

CNN adds a little more for contemplation as it covered 5 stops on the western Tea Party tour:

But here’s what you don’t often see in the coverage of Tea Party rallies: Patriotic signs professing a love for country; mothers and fathers with their children; African-Americans proudly participating; and senior citizens bopping to a hip-hop rapper.


It is important to show the colorful anger Americans might have against elected leaders and Washington. But people should also see the orange-vested Tea Party hospitality handlers who welcome you with colorful smiles.

There were a few signs that could be seen as offensive to African-Americans. But by and large, no one I spoke with or I heard from on stage said anything that was approaching racist.

Almost everyone I met was welcoming to this African-American television news producer.

That can’t be right can it – after all, Frank Rich has assured us that the Tea Parties are the new home of the racists.  And Steve Cohen has made it clear that they’re just klansman without robes.

Conclusion?  I guess you just can’t trust CNN, huh?


The sin tax gambit

We’ve talked, at various times, about sin taxes. Recently, however, the focus has been on taxing sodas. Coke. Pepsi. Mountain Dew. Gatorade. Red Bull. Of course, as with all “sin taxes” the supposed reason for them is to save you. That’s what the cigarette sin tax was about (while the government continued to pay tobacco subsidies).

So let’s review the official reason for saving you from yourself:

Of course, policymakers never sell “sin taxes” as a revenue generator. It’s all about public health. This time around, they preach to us about America’s “obesity epidemic,” a largely self-induced affliction that at least one billion of the world’s population probably wouldn’t mind having.

The causes of obesity are the same as they’ve always been—excessive caloric intake, lack of exercise, and genetics—but politicians say they have a solution to this age old problem that is as easy as, and healthier than, pie. Save the sinner: tax the sin. To summarize the logic of a recent report in the New England Journal of Medicine—making soda more expensive will force people to consume less soda and lose more weight, all while raising much needed tax revenue.

Have you ever heard such a tax presented as “hey, we’re in debt and need the revenue?” Of course not – “obesity” is the new crusade and taxing behavior we don’t want is the way to “prevent it”. But as Rob Raffety points out, soda – sugary drinks – are simply one of a veritable universe bad caloric decisions one can make. And, even if those are taxed to the heavens, unless the government can require exercise and reverse genetics, it’s approach and focus on one tiny part of the problem really doesn’t solve anything – does it?


More to the point, the very thing that makes sin taxes, or the soda tax, so successful at generating revenue is that they rarely achieve the desired health effects for which they are ostensibly adopted. This is because the degree to which people change their behavior in response to a tax varies widely depending on how high the tax is and how sensitive consumers are to the change in price. Consider Arkansas and West Virginia – both states levy taxes on soda; both rank very poorly in obesity, 10th and 3rd respectively. Are the residents of these states measurably better off—any less obese—because they pay higher prices for pop?

It’s practically impossible to project any positive health effects of the soda tax due to the plethora of high-calorie substitute beverages available to consumers. As noted in a recent report by my colleague at the Mercatus Center, Dr. Richard Williams, someone who swaps a Pepsi for an apple juice, milk or lemonade is actually consuming more calories than before. Exactly how beneficial to one’s waistline is a policy that potentially shifts consumption to from a can of soda to a beverage that has more calories?

Said another way, the only possible way for there to be any health benefits derived from this sort of a tax is to make the tax a broad based one that covers all “unhealthy” high caloric food or drink and their alternatives to the point they’re too expensive to buy. And again, that doesn’t address the questions of exercise or genetics.

So what is a tax on soda? Simply another in a long line of revenue generators presented to the gullible among us as an attempt to make us more healthy. Taxing Ding Dongs and potato chips wouldn’t be far behind.  But there’s a basic inescapable truth to this sort of a tax that our government overseers would prefer we just ignore:

After all, if the tax worked, people would stop drinking soda and it wouldn’t raise any money at all. In other words, the notion that the true purpose of the soda tax is to make people healthier is all wet.

For those in doubt, revisit the tax on cigarettes. And besides – it’s really none of the government’s business (or it wasn’t until HCR passed, huh?).

[HT: Eliza]


So are we in “death panel” territory here?

David Leonhardt spends about a 1,000 words in the New York Times banging around the edges of what has to be done by government to cut health care costs. Or, as he calls it “In Medicine, the Power of No”. He wonders if we can every really learn to say “no”. And, of course, he’s talking about saying no to sick people, to patients – denying them care.

From an economic perspective, health reform will fail if we can’t sometimes push back against the try-anything instinct. The new agencies will be hounded by accusations of rationing, and Medicare’s long-term budget deficit will grow.

So figuring out how we can say no may be the single toughest and most important task facing the people who will be in charge of carrying out reform. “Being able to say no,” Dr. Alan Garber of Stanford says, “is the heart of the issue.”

Maybe I’m reading to much into this, but what is being said here is “the new agencies” which will be “in charge of carrying out reform” need to learn to “say no”.

Huh? I thought all this reform was about leaving such decisions about treatment between your doctor and yourself and not those evil, mean insurance companies. Who are these agencies – these “new” agencies – and why are they in they charged with “saying no?” If they’re “new” they’re a creation of the HCR monstrosity and if they have the ability to say “no” aren’t they strangely like the supposed mythical “death panels” Sarah Palin commented on?

Of course any sane person reviewing the claims of those pushing this piece of garbage known as health care reform knew that to drive down costs, rationing and the denial of care was not only possible but absolutely necessary. And, like so many other aspects of this bill, what was promised to gain support is almost the opposite of what was passed in the legislation.

Leonhardt knows where he’s going with his piece, but he is loath to actually say it. So he dances all around it, but if you read carefully you understand that despite all the rigmarole about bringing patients in on the decision and his belief that if they’re informed they’ll choose the least costly methods, he understands that as he says in his title that someone in authority is going to ultimately have to say “no” to make this work. And that pretty much means, much to the chagrin of the left, that Sarah Palin was right.


Laying the groundwork for new taxes

There is no one out there that won’t agree that government has gotten us into a debt-ridden fiscal mess.  Note I said government, meaning both Republicans and Democrats.  And now, on a spending binge from hell, we’re starting to see how this particular administration plans to address the growing concern over the debt.  Given some choices  -cut spending, cut the size and cost of government or increase taxes – it appears it will choose the taxation route.  And Paul Volker is just one of many who will be making the case.  Reuters reports:

The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.

Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax “was not as toxic an idea” as it has been in the past and also said a carbon or other energy-related tax may become necessary.

Though he acknowledged that both were still unpopular ideas, he said getting entitlement costs and the U.S. budget deficit under control may require such moves. “If at the end of the day we need to raise taxes, we should raise taxes,” he said.

Should we?  Or should we approach it from a different direction – such as the first two choices.  But the expansion of government is an ideological choice of the party in power.  Don’t believe it, check out this article about hiring.  The government is seeking to add 193,000 new jobs in the next two years.  So, uh, it’s up to you to pay off the deficit and get those entitlement costs under control.  And, of course, notice that Volker points to both a VAT and a tax like cap-and-trade as “necessary”.  Note too that neither tax is a direct income tax although both would directly and expensively impact income of all consumers by making virtually everything cost more.  However, the charade of “95% of you won’t see your taxes go up by a dime” will be maintained.

What voters need to do this November is make the Congressional races about the difference between the choices I’ve laid out.  And, unlike Volker’s conjecture, we need to make the VAT and cap-and-trade as electorally toxic as possible to those that support them while rewarding those who take the alternative approach.  There is no reason that increasing taxes should or must be the only solution to the unchecked profligacy of government.  Perhaps, instead, it is time to limit government’s ability to spend us into oblivion and put the people in office who can start that process rolling.


Dear Bad Guys – we welcome chemical and biological attacks

I’ve always been a fan, when talking national defense and deterrence, of telling potential enemies what our strategies are. It helps them formulate their plans on how to best attack us without receiving the most devastating response. For instance, our new unilateral nuclear use strategy:

It eliminates much of the ambiguity that has deliberately existed in American nuclear policy since the opening days of the cold war. For the first time, the United States is explicitly committing not to use nuclear weapons against nonnuclear states that are in compliance with the Nuclear Nonproliferation Treaty, even if they attacked the United States with biological or chemical weapons or launched a crippling cyberattack.

Those threats, Mr. Obama argued, could be deterred with “a series of graded options,” a combination of old and new conventional weapons. “I’m going to preserve all the tools that are necessary in order to make sure that the American people are safe and secure,” he said in the interview in the Oval Office.

Well if that’s true, Mr. Obama, why change our nuclear strategy? You see, in terms of a nuclear arms strategy, “ambiguity” is a feature, not a bug. But when you announce to anyone who can put anthrax in an envelope – or better yet weaponize it and introduce it into the US population via terrorist proxies – that if we find out who you are, you don’t have to worry about nukes, well that may make such an attempt at least appear to be somewhat survivable. And for zealots and other nutballs, that’s all it takes.

Certainly nuclear weapons are fearsome, but their history – their two uses – show them to be just another method of killing in war. For instance between Hiroshima and Nagasaki – the two cities bombed with nuclear weapons – about 105,000 died. That’s a horrific total granted, until you consider the 149,000 to 165,000 estimated to have died in the  conventional bombings of Tokyo and Dresden. Obviously Tokyo was done over an extended period but Dresden wasn’t.

I also know that nuclear weapons are significantly more powerful now than then – significantly. But they come in various sizes, yields and means of delivery. No one wants to use them but that “ambiguity” about their use has certainly served us well to this point. So why the change? What is served – in terms of our national security – by changing it? How are we made safer when you tell potential enemies “hey, if you’re in compliance with the Nuclear Non-proliferation treaty and decide to use chem or bio on us, we will not nuke you?”

“Oh,” they answer, “well then let’s see how we can comply with that new strategy shall we?”

Obama claims he would retain the right to reconsider the use of nukes. Really? So what is the new strategy again? Is that unambiguous ambiguity I hear?

He also claims that his strategy will “edge” the world closer to making nuclear weapons obsolete. Will it? What it will most likely do is make chem and bio weapons the next bad guy growth industries.  Oh, and if you don’t have nukes, there’s no reason to fear them.  If you use chem and bio weapons on us – just as long as you’re in compliance with the non-proliferation treaty, mind you – we’ll only use conventional weapons in return (since we have no chem or bio weapons with which to answer in kind).

This isn’t a strategy, it’s a unilateral weakening of our national security. If the law of unintended consequences runs true to course, we’ll see that played out in a chem or bio attack on America or Americans somewhere.

Our enemies and potential enemies need to understand that if they strike us they will reap the whirlwind – potentially.  When the whirlwind is unilaterally downgraded to a dust devil, it makes them think an attack (a chem or bio attack for heaven sake) may be survivable, and that’s not a thought we should be putting in their heads.

Tell me where I’m wrong.


Speaking of pensions and unions

If you loved TARP, were enamored with the government bailout of banks and financial institutions and orgasmic at the government takeover of GM and Chrysler, you’ll love this as well:

Here, let me lay it out for you – if Bob Casey can push this through Congress and rescue private union administered pensions via taxpayer money, what has been set? Why precedent, of course.
Now refer to the story about California just below this one and tell me what the number you see there amounts too.  If Congress grants relief to union administered pensions, it’s only fair that it do the same with those owed by state governments who are also upside-down on pension benefits to the tune of multiples of billions of dollars (in CA’s case 500 billion), right?  I mean can you expect California’s pension debt to be characterized as anything other than a “crippling expense” that “threatens” the financial viability of the state and “the jobs of its employees?”  Yeah, I can’t either.  But I can imagine California and other states petitioning the federal government under the same provisions this plan uses to rescue private union-administered pension plans.  Can’t you?
$8 -10 billion cost.  What a load of crap to begin with.  And then add the more than probable addition of state pension funds.  But, of course, you can count of PAYGO being duly invoked and used on this one, can’t you?  Yeah, in the pig’s other eye.

Government unions and politicians – an unaffordable mix

Yesterday I noted that Massachusetts is faced with figuring out how to handle the Cadillac tax among its government workers.   Many of the very expensive plans are found among municipal workers, most negotiated by government unions representing the workers.

There’s another ticking time bomb out there that isn’t getting the press it deserves which too can be laid at the feet of unions which represent government workers and gutless politicians who can’t say no with your money.  California provides a good example:

The state of California’s real unfunded pension debt clocks in at more than $500 billion, nearly eight times greater than officially reported.

That’s the finding from a study released Monday by Stanford University’s public policy program, confirming a recent report with similar, stunning findings from Northwestern University and the University of Chicago.

To put that number in perspective, it’s almost seven times greater than all the outstanding voter-approved state general obligation bonds in California.

Those are the facts, stated simply.  It provides an example of absurd extravagance within the public sector and now a huge level of debt on those unfunded promises – and that’s what we’re talking about here – of $500 billion.  Where will California get the money, since these promises are contractual obligations and it can’t print money?

From, increased debt, cuts in other state services or increased taxes or all three, that’s where.  David Crane explains how the state ended up in this condition, using GM as an example:

How did we get here? The answer is simple: For decades — and without voter consent — state leaders have been issuing billions of dollars of debt in the form of unfunded pension and healthcare promises, then gaming accounting rules in order to understate the size of those promises.

As we saw during the recent financial crisis, hiding debt is not a new phenomenon. Indeed, General Motors did something similar to obscure the true cost of its retirement promises. Through aggressive accounting, for a while it, too, got away with making pension contributions that were a fraction of what it really needed to make, thereby reporting better earnings than was truly the case.

But eventually the pension promises come due, and for GM, that meant having to add extra costs to its cars, making its prices less attractive to consumers and contributing to its eventual bankruptcy.

Issue debt, spend the money, game the accounting system, look surprised when the obligations come due and blame your predecessors.  The new way in American politics.  As we saw with the charade of health care reform, it is alive and well and pumping out more unfunded entitlements as we speak.

But sticking with the case of California, Crane (who, btw, is a special adviser to the Governor on jobs and economic growth) gets to the heart of the matter, something I see more and more of:

Last summer Gov. Arnold Schwarzenegger proposed exactly that. Since then? Silence. State legislators are afraid even to utter the words “pension reform” for fear of alienating what has become — since passage of the Dills Act in 1978, which endowed state public employees with collective bargaining rights on top of their civil service protections — the single most politically influential constituency in our state: government employees.

Because legislators are unwilling to raise issues that might offend that constituency, they have effectively turned the peroration of Abraham Lincoln’s Gettysburg Address on its head: Instead of a government of the people, by the people and for the people, we have become a government of its employees, by its employees and for its employees.

This isn’t at all uncommon among state, local or the federal government.  And it is an ever increasing base – the one sector still hiring throughout the recession is government.  What Crane points out is a problem everywhere.  Pension funds, in many cases are underfunded.  Government employees have union negotiated benefits that are unaffordable given the current fiscal climate and are most likely unaffordable even in good economic times.  Gutless politicians, especially those who count on those public sector unions for support on election day, refuse to address and act on the problem.

And taxpayers?  Again, these are contractual obligations – if the money’s not there, it has to come from somewhere.  Any guesses who ends up holding the bag?

If public service is about serving the public, my guess is the public is going to want to know why their servants make more than they do and have better benefits as well?  The answer is found under the roof of your state legislature where politicians use your money, as well as obligating you to future debt, to buy the support of the government unions.

Heck of a scam if you can pull it off, huh?  And to this point, they have.



Chart of the day – debt controlled by foreign governments

There’s been a lot of discussion about how much of our debt is controlled by foreign governments.  The answer is found in this chart.  In short a lot (more than half) and growing.

The significance?  A sort of unacknowledged elephant in the room:

While the ownership of our debt may be theoretically neutral, there is a case to be made that this debt reliance gives significant bargaining power to individual foreign governments.

In the world of international politics, nothing is “theoretically neutral” that can be used as an advantage against another country. In the case of our debt we are handing out that ability each and every time we spend more than we have and ask foreign governments to finance it. Another in a seemingly endless number of reasons to cut spending, stop borrowing, pay off our debt and get our financial house in order.


Individual mandate unenforceable? Ask the IRS

If there is any doubt about the individual mandate being enforceable, the chief of the IRS certainly sees no problem:

Individuals who don’t purchase health insurance may lose their tax refunds according to IRS Commissioner Doug Shulman. After acknowledging the recently passed health-care bill limits the agency’s options for enforcing the individual mandate, Shulman told reporters that the most likely way to penalize individuals that don’t comply is by reducing or confiscating their tax refunds.

“These are not the kinds of things we send agents out about,” Shulman said. “These are things where you get a letter from us. Congress was very careful to make sure there was nothing too punitive in this bill.”

Well, I guess that depends on how you define “punitive”.  But be advised – others may claim the individual mandate is unenforceable.  The IRS doesn’t share that belief.


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