The article talks about how the oil companies take advantage of tax credits and breaks and then it also talks about how many oil based companies re-incorporate in countries like Panama, the Marshall Islands, the Cayman Islands, and Switzerland because it will lower their taxes.  When with the Statists get it?  If you raise taxes both corporations and people will change their behavior to lower their taxes.  Impose a millionaire’s tax in Maryland and Maryland discovers they have one-third fewer millionaires a year later and hundreds of thousands of dollars in less revenue.  Impose among the highest tax rates in the developed world on businesses and businesses will move to where the taxes are lower.  Create tax breaks and then somehow the Progressives are surprised that companies took advantage of them.

The initial thrust of the article was that the tax on oil companies was necessary to pay for the cleanup of the oil spill in the Gulf.  Pardon my confusion, but didn’t the government just get BP to pony up $20 billion into an escrow fund for this purpose?  Hasn’t BP said from day one that they will pay the cost for the clean up?  So why are the Progressives in Congress rushing to put a new tax in place other than to take advantage of a crisis to reach into your wallet?

Another unintended consequence of our onerous tax policy is that when companies incorporate in other countries, those countries often have lower engineering and environmental standards.

I am no fan of corporate welfare so why don’t we take the IRS code and run it through a shredder?  Get rid of the tax breaks across the board.  Lower the tax rate to a fixed number that is on par with other developed countries.  According to the Heritage Foundation, the freest economy in the world is Hong Kong, which oddly enough is located in Communist China.  The Chicoms were smart enough to leave well enough alone when Hong Kong reverted to their control from Britain in 1997.  Their individual tax rate is progressive ranging from 2% to 17% or an option for a 15% flat rate depending on which liability is lower.  The top corporate tax rate is 16.5%.  Their five-year compound annual GDP growth rate is 5.7%; unemployment is 3.5%; and their inflation is 4.3%.  By comparison, our top corporate tax rate is 35%, more than double that of Hong Kong; our five year compound annual GDP growth rate is 2.2%; unemployment is 9.4% (at the time of this study); and inflation is 3.8%.

If we could implement real tax reform it would not only simplify our lives, save several hundred billion dollars in compliance costs, reduce uncertainty for business, create jobs, and grow the economy.  With a larger pie, overall tax revenues will also increase. 

In that Heritage study the United States has the eighth freest economy in the world, down one place from the year before; not the direction we should be going.  Imagine if we set a goal to become the freest economy in the world.  Americans like a challenge so let’s set our sights on becoming number one.  The first three to concentrate on passing are those directly in front of us: Canada, Switzerland and Ireland.  On this Fourth of July, let’s plant our flag and get to work.

We have had several bubbles before, but if the Obama administration has their way, “you ain’t seen nothin’ yet.”  Currently the budget for the federal government is $4 trillion dollars.  That’s right, your federal government will spend approximately (which means probably more) $4 trillion in one year.  Of that amount $202 billion is interest on the national debt.  In an article in the New York Times today by 2019, a mere ten years from now, the portion of the budget directed to interest payments will be over $700 billion, or three and a half times what it is today.  Many people have trouble grasping how much a trillion dollars are, and within ten years we will be paying three-quarters of a trillion dollars just to cover the interest without paying off any of the principle.

Family Budget Analogy

We all understand the dramatic effects of too much debt, as the point has been driven home every day throughout this financial crisis.  Bankruptcy filings, home foreclosures, bailouts, all resulting from more debt than we can pay the interest on, let alone pay back the principle.  You see commercials on television every day for companies that will help you renegotiate your credit card debt, your mortgage, intervene on your behalf with the IRS.  None of those programs are available to the federal government as a debtor. 

Obama’s Out of Control Spending

The Obama administration seems oblivious to the problem.  As bad as it is they just keep on spending or want to spend more:

• Stimulus package — $787 billion.  Despite evidence that it is not working and widespread opposition from the American people, the Obama administration is simply declaring that it is working and we need to do it again with a second stimulus
• Cap and Trade — this is a program that will drive energy costs through the roof for no real benefit.  After all if, as is becoming more and more apparent, global warming is not man made then it cannot be stopped by man either.  Higher costs will lead to businesses closing down, laying off people, and generating less tax revenue from both the businesses and the individuals it laid off.  Result — an increase in the deficit.
• Health Care — another $1 trillion of IOUs piled on our children’s back and if Medicare’s history is any guide, these numbers are well below what will really happen.

The Truth About Government

The truth is that government doesn’t create anything.  They don’t generate income.  Everything that government has to spend comes from you and me.  The government takes it from us (or throws us in jail for tax evasion) and then spends it.  If they can’t get enough from us, they borrow the difference.  But somewhere down the line, that money has to get paid back.  A news report today said we have the opportunity to just write a check to the Treasury if we are concerned about the deficit and want to help pay it down!  Let’s see how many of Obama’s wealthy supporters sign up for that program.

Runaway Train

Our federal government is a runaway train and if we don’t stop it very soon and pare it back to the functions enumerated in the Constitution, we will get hit with a bubble so big, that there is no Hollywood screenwriter that could even begin to conceive of how to portray it.  $700 billion folks, that’s $2,059 in INTEREST for every man, woman and child in America.  Ask yourself this, if you are a family of four are you prepared to write a check for $8,235 to the federal government for interest alone?  You don’t get anything for your money, it just keeps your government from defaulting on what they already borrowed. This will be on top of your regular tax bill. And the next year you will have to pay it again and probably more.  It’s time to stop the madness.  It’s time to stop the spending.  It’s time to stop the expansion of government and start shutting down departments.  It’s what you would do at home in a financial crisis, it’s what a small business would do in a crisis.  This is a crisis that we can still get under control, but if the debt continues to grow to the point where we can no longer afford to pay even the interest, America will be a footnote in history.

Do I have your attention now?

The New York Times had some, what was to me, shocking news today.  The article said that there was now consensus that the Obama stimulus plan was working.  Is this the same kind of consensus that man-made global warming was settled science, despite the glaring evidence that carbon dioxide emissions continue to grow while the globe stopped warming ten years ago?  This is also close on the heels of breaking stories of extraordinary misinformation if not outright deceit on how the $787 billion is being spent.

Smoke and Mirrors

Early on in the article we have this gem:

“The legislation, a variety of economists say, is helping an economy in free fall a year ago to grow again and shed fewer jobs than it otherwise would. Mr. Obama’s promise to “save or create” about 3.5 million jobs by the end of 2010 is roughly on track, though far more jobs are being saved than created, especially among states and cities using their money to avoid cutting teachers, police officers and other workers.”

There is no mechanism that exists to measure a job saved. None.  So how do they do it?  It goes something like this:

“Here, Mr. Stimulus Funds applicant, I have this check for you for $642,000.  No can you tell me, if I give this to you, how many jobs would you create or save?”

“Create? Er, none.”

“Hmmm,” the bureaucrat mutters, staring down at the check in his hand, “what about jobs you would save?  You know, if I don’t give you this nice, rather large check, how many of your people would you be forced to lay off?”

“Oh, I get it,” the potential recipient says with a wink and a smile, “probably all of them!”

The bureaucrat scribbles down a number, and hands over the check, walking away shaking his head.

That’s about how it’s done.  The government surveys the people getting the money and asks them what would have happened if they didn’t get the stimulus.  And what would you expect them to say?  Keep the check?

Revenue Starved States

What a concept, “Revenue Starved States.”  The article complains that not enough money was provided to “Revenue Starved States.” Does he mean states like California and New York?  I believe the correct term is states where spending is out of control.  It means states where taxes are so high that people are moving out in droves, and among them the “wealthy” people they love to tax to the eyeballs, meaning a dramatically shrinking revenue base.  After all, if one of the wealthiest people in the state, who is part of the group that pays 70% of the taxes, moves out of the state or (out of the country when it gets bad enough), that means a lot of people are going to see their taxes raised to make up for it.  So the statists seem to think a stimulus package that keeps these bloated bureaucracies fat, dumb and happy is the way to go, until when exactly?

The Multiplier Fallacy

The other great fraud being foisted on us is the multiplier effect, where for each dollar of stimulus money spent more than a dollar of economic activity results:

That sort of impact is what makes federal aid to state governments rank high in economists’ reckoning of the stimulus value of various proposals. Every dollar of additional infrastructure spending means $1.57 in economic activity, according to Moody’s, and general aid to states carries a $1.41 “bang” for each federal buck.

Even more effective are increases for food stamps ($1.74) and unemployment checks ($1.61), because recipients quickly spend their benefits on goods and services.

Okay, then how is this for a solution.  Let’s spend $10 trillion on infrastructure, food stamps and unemployment checks, since they will result in $15 trillion or so in economic activity, because of the multiplier, right?  For that matter, let’s have the government spend $100 trillion and we’ll really be rocking.

Where’s the So Called Consensus

From what I read in the article, there was only one economist that could be called a conservative, Martin Feldstein, that they were willing or able to quote, and this was his take on the stimulus.

While some conservatives remain as skeptical as ever that big increases in government spending give the economy a jolt that is worth the cost, Martin Feldstein, a conservative Harvard economist who served in the Reagan administration, said the problem with the package was that some of its tax cuts and spending programs were of a variety that did little to spur the economy.

“There should have been more direct federal spending that would have added to aggregate demand,” he said. “Temporary tax cuts and one-time transfers to seniors were largely saved and didn’t stimulate spending.”

That’s it?  That’s the consensus?  It seems to me that he is pointing out what was wrong with the package rather than what was right.  He was in the Reagan administration and he knows what works: permanent cuts in marginal tax rates. Those dreaded tax cuts for the “rich.”  The thing is that when the people above the subsistence level get to keep more of what they earn, yes it does belong to them and not to the government, they tend to invest it, which means the provide capital to businesses that grow and create jobs.  Yes, capitalism.  What the stimulus does is take money away from these people, or borrows it and steals it from future generations, and gives that money, as in the example above, to highway projects, food stamps and unemployment checks.  The first of these may create jobs until the road project is completed, but the latter two only increase the dependency of those recipients on the government.  So how exactly does the stimulus plan that puts money into a highway project and unemployment benefits, help a banker who got laid off?  How does it help the unemployed executive from United Technologies?  It doesn’t.  It’s like a drug fix.  You may feel good for a while, but then it wears off and you need another fix.

The Genius of Government

You would think that with all the examples of government planning lying on the waste heap of history, the statists will finally catch on that they can’t successfully pick the winners and losers in an economy.  Government has to get out of the way and let the market work.

Government must be drastically cut down to size.  Think of the popular TV show “The Biggest Loser.” Picture the governments of the United States, California, New York, New Jersey, Rhode Island, Michigan, Nevada, for starters, as contestants.  Let’s see who can lose the most weight.  Ready? Go.

“A surplus became an excuse to transfer wealth to the wealthy” — President Barack Obama, Feb. 24, 2009

There you have the liberal philosophy in a nutshell.  Transfer wealth to the wealthy?  Transfer from whom to the wealthy?  The government?  The context of this question came regarding taking more in taxes from the wealthy to pay for all the new goodies, Obama and Pelosi are handing out, by letting the Bush tax cuts expire.  But what really happens with a tax cut?  It basically means that an individual gets to keep more of their own money that they have earned. After all it is the income tax. So where is the wealth transfer Obama speaks of?  Is President Obama really trying to say that everything we earn belongs to the federal government and that by letting us keep any of it, it is a transfer of wealth from the rightful owner, the government, to the unworthy and greedy individual?  If that’s not straight out of Karl Marx, I don’t know what is.

“Tax cuts alone can’t solve all of our economic problems — especially tax cuts that are targeted to the wealthiest few.”  — Obama, Feb. 24, 2009

This is his other gem.  What tax cuts were targeted to the rich?  The fundamental difference between liberals and conservatives regarding tax policy is the same difference throughout their respective philosophies.  Liberals believe in groups, conservatives believe in individuals.  Perhaps that is why President Obama is so confused.

Conservative tax policy is that a tax cut should apply to all individuals who pay taxes.  By reducing the tax burden there is an incentive to invest and grow the economy.  If you make more you get to keep more.  At the same time, under Bush, many low income people were removed from the tax rolls altogether.

Liberal tax policy, like all of their policies, depends on to which group you belong.  If you are in a group that has a low income, you have to get something, so you get tax money whether or not you pay taxes (aka welfare).  If you are in a group, that has a high income, regardless of how much of the tax burden you are already carrying, not only do you get nothing, you have to pay more.  That’s targeting.  The Bush tax cuts were not targeted they applied across the board.  We’re all Americans, we all get a break.  Even after the Bush tax cuts, the wealthiest Americans carried a larger share of the total tax burden than before the cuts, but that is not enough for the liberals.  They want it all, but they’ll settle for as much as they can get away with.

We Need a Dose of Honesty

The more President Obama speaks, the less honest he is with the American people.  He makes statements like the above that are misleading at best, outright lies at worst.  He does not include the role of government in creating the economic mess we are in, when he speaks of how we got here.  Without addressing the role of government, what they did wrong cannot be fixed, and just like if you ignore a leak in your roof, it’s not going to get better over time.

President Obama promised a new beginning in Washington, but so far he is selling the same old tired ideas, brightly dressed up in his impressive oratory.  It is only he has left the stage and the lights have dimmed that people start scratching their head and wondering, “Did he really say that?”

Our country was founded with these words from the Declaration of Independence:

“WE hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness — That to secure these Rights, Governments are instituted among Men, deriving their just powers from the Consent of the Governed…”

Let’s parse these words in the context of Senator Obama’s tax policies.

All men are created equal .  A tax cut of a constant percentage applied to all taxpayers would treat them equally, providing a benefit proportional to the size of their tax bill.  If their tax bill is $1,000, a 10% tax cut would give them $100.  If their tax bill is $7 million, a 10% tax cut would yield $700,000, which is an enormous difference.  But, the amount of taxes the former would end up paying is $900 and the latter is $6.3 million.  Do you think they would want to swap tax bills under the guise of fairness?  Senator Obama’s unequal plan is to raise taxes at the top and cut them at the bottom.

“Life, Liberty and the Pursuit of Happiness” – it’s the Pursuit of Happiness, not Happiness.  It is not government’s role to make you happy.  Government’s role is to allow you to live your life, free from arbitrary or despotic control (Liberty), and free to pursue your happiness, whatever that means to you.  In your pursuit we’ll all be pulling for you, but it is not the collective responsibility of your fellow citizens to deliver it to you on a tasseled pillow.

“Deriving their just powers from the Consent of the Governed” — this points to accountability and it should be the guiding principle behind any program or proposal.  Since the President of the United States is the only office put to a vote of all Americans, the president should ask him/herself, does this program or proposal benefit all of my constituents (i.e., all Americans; the Consent of the Governed)?  If asked, would they consent?  From time to time tough, unpopular decisions will have to be made, but they should be made in the spirit that it benefits the country as a whole.  I believe such consent would be granted on the question, do we need the Armed Forces?  Providing for the national defense is a fundamental Federal responsibility.  Could the same be said of a bridge to nowhere?  How about most tax loopholes?

In Senator Obama’s, now famous, encounter with Joe the Plumber he told Joe, “My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody. I think when you spread the wealth around, it’s good for everybody.”

So, it’s mean, stupid, evil, and unfair to free up a lot of capital, the lifeblood of the economy, at the top.  But it is a jolly good idea to give relatively small amounts to individuals where it will probably be consumed rather than invested and that the benefits will trickle up to everyone else?

It is contrary to the Declaration of Independence to spread the wealth around, by taking from one individual to give to another.  It was Karl Marx who said, “From each according to his ability, to each according to his needs!”  From Joe the Plumber according to his ability, to someone else according to his needs!

Private giving to help one’s fellow man is perhaps the most noble and honorable thing a person can do.  What is wrong is using government force to steal from one group to give to another.

Before going into the restaurant there was some concern regarding splitting the bill.  So in the spirit of the evening they agreed to share information about their incomes and split the bill according to what percentage of the income tax burden their income bracket carried.  As luck would have it, they each fell into a quintile of the income scale.

• Adam earns $15,000 putting him in the bottom 20%
• Betty earns $27,000 putting her in the 2nd quintile
• Charlie earns $42,000 putting him in the 3rd quintile
• Dave earns $61,000 putting him in the 4th quintile
• Eddie earns $82,000 putting him in the top 20%

Dinner was delicious.  Luigi can do magic with food and his prices are very reasonable.  At the end of the meal the check came to $100.  So taking out a chart they had that showed how much of total income taxes were paid by each 20% of income earners, the bill was broken down as follows:

• Adam paid $0.95
• Betty paid $4.12
• Charlie paid $8.98
• Dave paid $11.99
• Eddie paid $73.96

Enjoying each others company they continued to meet each week for dinner, under the same ground rules for splitting the bill.  One night at the end of the meal Luigi stopped by their table and said that since they were such good customers he was taking 20% off the bill.  They began discussing how they should share this windfall, without making progress.  Luigi, who had been watching these proceedings with great interest over the weeks, said, “Look, if you split the money evenly, you each get $4.  But, that means one person would actually be getting paid to eat.  That’s not fair.”  They seemed to nod in agreement, except for Adam who thought that getting paid to eat was a splendid idea.  Luigi continued, “Why don’t you just take 20% off of each one’s share?  Don’t worry, I’ll figure it out for you.  By now I have your shares memorized.”   They agreed.

The bill was calculated and came out as follows:  Adam went from $0.95 to $0.76, a savings of $0.19; Betty went from $4.12 to $3.30 a savings of $0.82; Charlie went from $8.98 to $7.18 a savings of $1.80; Dave went from $11.99 to $9.59 a savings of $2.40; and Eddie went from $73.96 to $59.17 a savings of $14.79.

As they were walking out of the restaurant Adam whispered to Betty, “I only saved $0.19 from the discount.  What did you save?”

Betty replied, “$0.82 was all I saved.  Geez, what’s the point?  Hey, Charlie, how much did you save?”

Charlie looked back at her and said, “A buck-eighty.  Chump change.”

By the time they reached the door they were pretty agitated.  Adam grabbed Eddie by the collar and shouted, “Who do you think you are taking all that money?”  Charlie shoved Eddie and seethed, “You rich guys are all alike!”  Betty crowded in and shouted encouragement.  Pretty soon it broke into fisticuffs with Eddie on the ground getting punched and kicked.

Luigi ran out of the restaurant wielding a meat cleaver and drove them off Eddie.  He shouted at them, “You get the hell out of here before I call the cops.” He then helped Eddie up and took him to the emergency room.

The next week the group returned to the restaurant, but without Eddie who was still laid up.  They enjoyed the meal as usual and when the bill came it was $80, not because of a discount but because Eddie wasn’t there.  They each put up their usual amount and were preparing to leave when Luigi came back looking rather angry, “What’s the deal here?  You’re $59.17 short.  The bill is for $80 and you only have $20.83 here.”

They looked at Luigi like he had three heads and then realized that Eddie was not with them.  Luigi tossed the bill back on the table, “You better come up with the dough or start washing dishes.”

The four fished in their pockets and looked at each other.  They realized they couldn’t come up with the cash and shuffled off toward the kitchen.

Class Warfare

The class warfare argument is that an equal percentage tax cut is unfair because those with higher incomes, who pay the lion’s share of the taxes, would realize greater savings in dollar terms, not percentage terms, than those who pay very little in taxes.  Consider this.

What if the top 20% of all wage earners said that they had had enough with high taxes and decided to go on strike for a year?  They could dip into their savings and live off of that for one year and, because they received no income, they would owe no taxes.  The tax take from individual income taxes was over $1.366 trillion in 2006.  If the top 20% pay 74% of the taxes, that would be an immediate shortfall of $1.01 trillion dollars.  Want to talk about a budget deficit?

Remember that this country was founded by a revolution that started with taxes.  If we keep telling the people who pay the overwhelming burden of taxes that they are not entitled to share in a tax cut, that they should instead shoulder an even greater portion of the load we may see another revolt.  It need not be violent.  It could simply take the form of those who produce the most deciding to just sit one out and let the rest take up the slack.< ><–>