Out of the Race

So our beloved President Obama has come out with a "new" deficit reduction program that oozes with class-warfare populism, calling for those millionaires and billionaires (although I don't think he used the phrase) to pay their "fair share" of taxes. Now, as a general principle, I don't think the hyper-wealthy, like the President's friend Warren Buffett, really should be paying a lower rate than the typical middle-class family with 2.3 kids, but I also think that raising income tax rates on anyone is not a good idea right now, in the worst economic slump since the Great Depression.

What bugs me about Mr. O's philosophy is this notion of "fair share." What is a "fair share"? Who gets to define it? Are the nearly 50% (I've seen many numbers, all between 45% and 50%) of Americans who pay no federal income tax paying their "fair share". According to the Tax Foundation website, Americans in the top 25% of income class pay 86.3% of all income taxes, while making 67.4% of all income. Are those people paying their "fair share"? Or are they being gouged? What about people who are gaming the system? Are they paying their "fair share"?

On the last point, this weekend I heard an anecdote about a family in New Jersey, The wife doesn't hold a paying job. The husband works, but only half his pay is "on the books" and the rest is paid in cash "under the table". As a result of this arrangement, the family qualifies as "poor" and therefore get all kinds of benefits, such as food stamps and other kinds of "entitlements" and two of their kids get to go to the local community college for free. Of course, they don't pay any federal income tax. To my way of thinking, these people aren't paying their "fair share"--they're not even in that ballpark. What they're doing is free-riding, adding to the burden of everyone else. If I were king the husband and his employer would be headed for jail. I'm sure some qualified out-of work person would be more than happy to take over the employer's business and run it legitimately so that the other employees could keep their jobs.

"Fair share" is a fine-sounding phrase. Everyone agrees that everyone should do their "fair share". It's like motherhood--who's against motherhood? (Well, except for those population bomb crazies.) But like almost everything else in politics, the devil is very much in the details, and what usually happens is that people of influence are able to get themselves loopholes and exemptions and whatnot, and "fair share" inevitably morphs into screwing the average taxpayer.

All that is why I have come around to believing that the country should repeal the Sixteenth Amendment and rely exclusively on consumption taxes for revenues. That tax structure would be much easier to administer and enforce, it would do away with the annual ritual of Form 1040, and would reduce the opportunities for our political class to do favors for their favorite constituents (sometimes called "graft"). If we are to have a consumption tax, repealing Amendment XVI is a must, or we'll wind up with what they have in Europe--income taxes plus a consumption tax (VAT), and we're now seeing how well that's working out in the daily financial headlines.

Labels: Economics, Obama, politicians, politics, Populism, Tax policy, Taxes

Last Friday the United States was downgraded by a rating agency for the first time in history. Markets world-wide reacted negatively. This morning, about 20 min. ago, Obama spoke in public for the first time on the event. His reaction: more of the same.

He gave his #@&*! campaign speech! Blame S&P, blame the Repubs and Tea Party, blame Europe, blame tsunamis. He said he'd lay out his plan for recovery "in the coming weeks" and would work with the supercommittee on crafting legislation to deal with the debt. The only ideas he set out with any specificity were to extend the payroll tax holiday, extend unemployment, "invest" in infrastructure. The man hasn't had a new idea since February 2009!

I hate to say it but our President is a useless piece of baggage and is doing more to exacerbate the problem than to solve it. November 2012 can't come soon enough.

Labels: Debt, Deficit, Downgrade, Economy, Europe, Federal budget, Obama, Recession, Recovery, Republicans, Tax policy, Tea Party, Unemployment

According to my research, the following has been attributed to David R. Kamerschen, Ph.D., Professor of Economics at the University of Georgia. However, in his online bio, Dr. Kamerschen disclaims authorship and says he does not know who wrote it, nor does he express an opinion on its merits.

It's been going around the Internet for a couple of years, at least, but I believe it's timely in light of the current debate about extending the “Bush tax cuts” and "tax cuts for the rich" to bring it to light again, in an effort to provoke thought and rational discussion. (To assist in interpretation of this parable and FWIW, I believe the ten men represent the ten deciles of income level in the US and their respective payment amounts represent the percentage share of total personal income taxes paid by each decile at the time it was written.)

Suppose that every day, ten men go out for coffee and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, they would divide the bill something like this:

The first four men (the poorest) would pay nothing. (0% of the total bill)
The fifth would pay $1. (1% of the total)
The sixth would pay $3. (3% of the total)
The seventh would pay $7. (7% of the total)
The eighth would pay $12. (12% of the total)
The ninth would pay $18. (18% of the total)
The tenth man (the richest) would pay $59. (59% of the total)

So, that’s what they decided to do. The ten men had coffee at the shop every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily coffee by $20. Coffee for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his coffee. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same percentage amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings). (0% of the total bill)
The sixth now paid $2 instead of $3 (33%savings; saves $1). (2.5% of the total)
The seventh now pay $5 instead of $7 (28%savings; saves $2). (6.25% of the total)
The eighth now paid $9 instead of $12 (25% savings; saves $3). (11.25% of the total)
The ninth now paid $14 instead of $18 (22% savings; saves $4). (17.5% of the total)
The tenth now paid $50 instead of $59 (15% savings; saves $9). (62.5% of the total)

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

‘I only got a dollar out of the $20,’ declared the sixth man. He pointed to the tenth man,’ but he got $9!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got nine times more than I!’

‘That’s true!!’ shouted the seventh man. ‘Why should he get $9 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth and beat him up.

The next day the tenth man didn’t show up for coffee, so the nine sat down and had coffee without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start having coffee overseas where the atmosphere is somewhat friendlier.

UPDATE 20101213:1856PST: Just for fun, I added the percentages of the total bill ($100 in the first case, $80 in the second) that each man paid. In the second case, not only did one more person get coffee for free, and each of the others pay a smaller absolute amount for their coffee, but every one of the men except the richest paid a smaller percentage of the total [smaller] bill in the second case! The richest man paid an increased share of the total--from 59% to 62.5%!

I suspect that this might have been written around the time the Bush tax cuts took effect, perhaps in 2003.

Labels: Tax policy, Taxes

The image to the left (click to enlarge), which appeared on the front page of the Wall Street Journal on Saturday, 31 August as part of this story (might be behind a subscription firewall), is definitely worth a thousand words.

I'm no economist, but what these graphs say to me is, the recovery is anemic and might be headed for a "double dip", the stimulus didn't work, and the Administration and its allies in Congress have both made the recession worse and are killing economic recovery as a result of excessive and irresponsible debt and tax measures.

We MUST get rid of those people in November. If we don't, look at the videos of recent events in Greece--that's what our cities will look like in another year.

Labels: Congress, Debt, Deficit, Democrats, Economics, Economy, government, Obama, Recession, Recovery, Stimulus, Tax policy

Keith Hennessey dismantles President Obama's whiny budget message, and provides rational and well-reasoned talking points for anyone who has to argue with liberals on the subject. It's a must-read.

Labels: Economics, Economy, Federal budget, Finance, government, Obama, Tax policy

A couple days ago I was watching Mr. Obama expound on the necessity for the Senate to pass the abomination known as health care reform. He went on and on about how the bill would lower costs and improve health care for all Americans. Just then it hit me--Barack Obama is Joe Isuzu!

I mean, just think about it. He said he didn't want to take over the banking industry and here he is setting salary caps and doing other things that have the banks scrambling to get out from under TARP.

He said he had no interest in running the auto companies, and here we have GM and Chrysler as subsidiaries of the US Treasury.

He said Iraq was the bad war and Afghanistan was the good war, and here we are, with Obama following essentially the Bush plan for Iraq (which I happen to think is a good thing, but that's not the point); and in Afghanistan he announced a strategy back in what, February? He appointed his hand-picked general, an expert in counterinsurgency, and told him to go slay the dragon. Five or six months later the general came back to him and said he needed 40,000 additional troops to carry out the mission. Obama then took 3 months to re-evaluate the mission, and then gave the hand-picked general three quarters of what he asked for, while throwing in a bonus for the enemy by setting a withdrawal "guideline." It's a testimony to Gen. McChrystal's patriotism and professionalism that he didn't resign.

It seems every time Obama says he has no interest in doing something, it turns out that is exactly what he does. So far he hasn't channeled Flip Wilson's "The devil made me do it!" but I'm waiting.

What a concept--Joe Isuzu combined with Flip Wilson. Except I don't think Obama is or will be all that funny.

As for the weasels, just look at the Dems in Congress. Both houses. Especially Ben Nelson and Mary Landrieu. "Whore" is too good a word. The behavior of Harry Reid and his minions is nothing short of shameful. Their arrogance and stupidity in ignoring both their Republican colleagues and the clear desire of the American people in passing their versions of Obamacare is breathtaking. If either version (or some cobbled-together "compromise") gets signed into law, they'll be taking more than breath. Hold on to your wallets. What will be the effect of all the tax increases, on top of the expiration of the Bush tax cuts, on the so-called economic recovery? I'm seeing a double-dip recession, with the second "dip" looking more like a bathtub.

I'm hoping I'm wrong and that the American people and economy will rise like a Phoenix from the ashes of the current recession. If they do, it will happen in spite of the efforts of Obama and his fellow travelers.

Labels: Congress, Democrats, Economics, Economy, government, Health Care, Obama, politics, Tax policy

As of this writing, Fox News online' s "Breaking News" banner reads, "House Takes Up Resolution Against Charles Rangel: Watch Live."

Mr. Rangel, who apparently lives pretty well but can't remember how he came into so much money, is the poster child for the "rules are for the little people" crowd, and should be removed from his chairmanship of the House Ways and Means Committee, which is responsible for writing federal tax legislation. He has become an embarrassment to Congress and it will be very telling if the Democrats don't vote him out of his leadership position. What it will tell is that the Democrats are OK with corruption, favoritism and elitism. (I happen to believe that they're OK with those things now, but what they do about Rangel will be hard evidence.)

To paraphrase a high school colleague of mine, "He's chairman of the Ways and Means Committee because he has the meanest ways in Congress." Amen.

The people of the United States deserve better, and should not stand for Mr. Rangel's nonsense a minute longer.

UPDATE 20091007:1122 PDT Resolution Defeated

As I expected, the Dems defeated the resolution.

IIRC, Rangel was elected to the seat of Adam Clayton Powell, who himself was accused of corruption. Here's what Wikipedia says about the end of Mr. Powell's Congressional career:

Following allegations that Powell had misappropriated Committee funds for his personal use and other charges, in January 1967 the House Democratic Caucus stripped Powell of his committee chairmanship. The full House refused to seat him until completion of an investigation by the Judiciary Committee. Powell urged his supporters to "keep the faith, baby" while the investigation went on. On March 1 the House voted 307 to 116 to exclude him. Powell said "On this day, the day of March in my opinion, the end of the United States of America as the land of the free and the home of the brave."^[5]

Powell won the special election in April to fill the vacancy caused by his exclusion, but did not take his seat. He sued in Powell v. McCormack to retain his seat. In June 1969 the Supreme Court ruled that the House had acted unconstitutionally when it excluded Powell, a duly elected member. He returned to the House, but without his seniority. Again his absenteeism was increasingly noted.^[6]

In June 1970 Powell was defeated in the Democratic primary by Charles B. Rangel. In fall 1970, He failed to get on the ballot for the November election as an Independent. He resigned as minister at the Abyssinian Baptist Church and moved to Bimini. Rangel has continued to represent the district, as of 2009.

Labels: Congress, Democrats, politics, Rangel, Tax policy

I've been saying that Mr. Obama wants to turn the United States into pre-Thatcher UK, but apparently I've been misinformed.

Actually, he wants to turn the United States into Haiti.

Labels: Economy, Environmentalism, Obama, Regulation, Tax policy

Just listened to Mr. Obama outline his plan, broadcast on FNC. One phrase he used a lot is "fair share." Now, in my lifetime, every time I've heard a politician say those words, it invariably meant a tax increase on everybody, not just on the "targeted" group.

Once again, I'm astounded at how closely the language coming out of the Obama administration resembles that used by the "looters" in Atlas Shrugged.

Also, (I hear the black helicopter now) am I the only one to notice how much our President seems to emulate Chancellor Palpatine? (/cynical humor)

Labels: Economics, Finance, government, Obama, politics, Tax policy, Taxes

The geniuses in Sacramento have mandated a special election for May 19, 2009 to vote on a package of propositions that supposedly will help the state government balance its budget in the near term and place restrictions on spending and create a "rainy day fund" in the out years, as well as juggle money between accounts for education, children's services and mental health services. The final proposition, 1F, prevents pay raises for legislators and statewide government officers in years when the state is running a deficit.

After careful consideration, I'm going to vote NO on everything except 1F.

This may create more havoc in Sacramento, or it may not, (IMHO things can't get much worse). I don't care. I don't trust the state government, especially the legislature, where something like 80 percent of the seats are "safe" due to gerrymandering. Every time in the past the voters have approved a trade off of higher taxes for supposed caps or restrictions on spending, the true genius of the politicians has surfaced and the taxes go up, but strangely enough the caps and restrictions turn out to be ineffectual for one reason or another. Moreover, when the increased taxes are sold as temporary, they turn out to be permanent. The one effort to rein in the tax-and-spenders that was successful was Prop. 13 back in 1978. I am not going to vote for any measure that raises taxes in any form unless and until the state government first bites the bullet and both cuts spending in a meaningful way and removes many mandates on local governments and school districts as to how money must be spent.

By "cut spending" I don't mean the typical politician's definition of a "cut" being not raising spending as much as originally proposed; I mean "cut" defined as "spending less in absolute dollars than you're spending now."

We will not see any progress in Sacramento unless and until the gerrymandering of legislative districts is done away with and most, if not all, of the districts become competitive between the parties.

If it takes a state constitutional convention to achieve this, so be it. But I'm not holding my breath.

It seems that our society is speeding like a freight train toward something that looks like the society described in Ayn Rand's "Atlas Shrugged", which was written in 1957 and seems to be enjoying a revival (#38 on Amazon's Best Seller list at this writing). If that's where we're headed, God help us, because I don't see any brave industrialists who are "going John Galt." What I do see is Tim Geithner as the real-life Wesley Mouch.

Labels: California, California legislature, Election, Finance, politics, Tax policy, Taxes

The following was posted as a comment to Ronnie Schreiber's piece at Pajamas Media.

I like Fighterdoc's analysis. As one who lives in California but who has old onnections with, if not roots in Michigan, I agree that both states (to follow Fighterdoc's analogy) should be in the ICU, but Michigan just might follow doctor's orders, while California is still in denial.

There are actually a lot of similarities between the two states, chiefly the dichotomy of the urban industrial and the rural agricultural, with the latter actually producing more value. I have long said that Los Angeles is Detroit with palm trees, and I believe that California is headed for a "payless payday" as happened in Michigan in 1959, and which led directly to the revised state Constitution in 1963 that Ronnie refers to.

The real problem in California is due to gerrymandered safe seats in the legislature, which has allowed the development of a political class that is anything but answerable to the voters, and instead is beholden to special interests such as the teachers' union and the prison guards' union. California has been an eager participant in the Nation's credit binge which led to the economic collapse of last fall, but unlike most of us, the state of California continues to live beyond its means. Even now, with the fiscal crisis in the state coming rapidly to a head, the legislature will not consider reducing spending or laying off a single state employee. Term limits didn't help, because each legislator leaving office due to term limits is replaced by a clone who is owned by the same special interests and holds the same political philosophy.

I believe that raising taxes in an already high-tax state is not the answer, because in response companies and people will relocate to more economically friendly states like next-door Nevada and Arizona, and even Texas and Idaho. Cutting spending and removing restrictions on how existing funds are spent is the only answer, and the people of California will have to get by with fewer State services. Unfortunately, the politicians' mindset is to extort higher taxes from the populace by first cutting things like police and fire protection rather than paring back unnecessary pet projects and easing stifling regulation.

Just watch folks -- in a couple years California will no longer be known as the Golden State, but rather as the New Jersey of the West. Or maybe the Mexico of the North. (Cross posted to my blog.)

Labels: California, California legislature, Economy, government, Mexico, Michigan, Regulation, Tax policy

The definition of "middle class" for purposes of Obama's tax plans has now been capped by Gov. Bill Richardson (D-NM) at $120,000. What a surprise!

Actually the fact that "the number" has been floating (diving?) downward this week may be part of Obama's last-minute campaign to reduce expectations, at least enough so he can say he didn't lie about what he would try to do. (You know, the old "for it before I was against it" gambit.) I'm not disappointed, since I never thought Obama's numbers added up. The fact that the Obama campaign is trying to manage expectations suggests that they think he's in, but they still want to reduce the "I told you so" factor that we'll probably start hearing from Repubs around, say, June if Obama's elected.

On another note, I think the banishment from the Obama campaign plane of three reporters who work for papers that endorsed McCain is an example of the kind of government we can expect from Obama. "Free speech and free press, as long as you support me in everything. Otherwise, I'll throw you under the bus like I did my grandmother, Rev. Wright, Tony Rezko, Bill Ayres and others who outlived their usefulness."

I think the Nation is about to experience a King Midas moment if Obama is elected. He got what he wished for, and became miserable. Unfortunately, I don't think there'll be any Dionysus to make things right when the voters discover what they've done.

Be afraid. Be very afraid. I am.

Labels: Democrats, Election, Obama, politics, Tax policy

Glenn Reynolds links to this short post at TaxProf Blog, which ponders the question of what will happen when a majority of Americans have a net tax burden of zero or less. Here's the bottom line:

The plunder that the Democrats plan to extract from the "very rich" -- the 5% that earn more than $250,000 and who already pay 60% of the federal income tax bill -- will never stretch to cover the expansive programs Mr. Obama promises.

What next? A core group of Obama enthusiasts -- those educated professionals who applaud the "fairness" of their candidate's tax plans -- will soon see their $100,000-$150,000 incomes targeted. As entitlements expand and a self-interested majority votes, the higher tax brackets will kick in at lower levels down the ladder, all the way to households with a $75,000 income.

If Mr. Obama is elected and he has a heavy majority in the House and a filibuster-proof majority in the Senate, free rein will be given the wildest instincts of the Democrat Party's left wing. I believe that will be a master disaster for the economy and the Nation generally.

People who vote for Obama will get the government they deserve. Unfortunately, those of us who don't vote for Obama will get the same government.

May God help us all.

Labels: Congress, Democrats, Economics, Election, Obama, politics, Tax policy, Taxes