Squaring the Culture




"...and I will make justice the plumb line, and righteousness the level;
then hail will sweep away the refuge of lies,
and the waters will overflow the secret place."
Isaiah 28:17

12/07/2009 (9:47 am)

It Never Shrinks

Deborah Solomon at the Wall Street Journal reports that TARP program loans from the government — you know, the $787 billion bailout from a year ago — are being repaid faster than expected. She also reports that President Obama is floating the idea of using the TARP funds for a new jobs program, now that the repayments look like they’re going to bring the federal deficit down from its record-setting $1.4 trillion.

Recall from the 1980s a maxim touted by then-President Ronald Reagan and a number of conservative Senators and Congressmen: if you increase the amount of money flowing to the government, the spending becomes permanent. “Government does not tax to get the money it needs, government always needs the money it gets,” quoth Ronaldus Maximus. So now we’ve hiked the federal deficit to $1.4 trillion, from the old record high under George W. Bush at around $450 billion… and now, President Obama wants to make that level of spending the norm.

We, the people, cannot allow government to set its spending levels according to the programs they want to implement. We have to limit the government to a particular size, and force Congress to remain within that size. They will never spend sensibly until we force them to do it. Again from Ronaldus Maximus:

Now, your son can be extravagant with his allowance, and you can lecture him day after day about saving money and not being extravagant, or you can solve the problem by cutting his allowance.

Reagan quotes are from a televised debate against George HW Bush in 1980, occurring around the 7:55 minute mark.

03/20/2009 (12:39 pm)

First They Came for AIG…

The text of the US House of Representatives’ reaction to the AIG Wage Rage, HR 1586, is available to the public, and it’s frightening on several levels.

Launched because of envy masquerading as a quest for justice, the law was supposed to confiscate most of the bonuses paid to AIG employees out of funds supplied by Congress to rescue the failing insurer. However, the actual wording of the law gives it far wider applicability. The law targets employees of any company that has received more than $5 billion from the TARP fund, mostly financial giants (GMAC, Wells Fargo, JP Morgan, Chase, etc. See here.) It establishes a 90% tax rate for “TARP bonuses.”

Is a bonus just a bonus? No; a TARP bonus, according to this law, includes any adjusted gross income for the family exceeding $250,000 for a married employee, or $125,000 for a single employee.

So basically, if a person works for one of the big US banks or brokerage firms, the gross income for their family has just been capped at $250,000.

Now, I’m not saying that’s it’s difficult to live on $250,000 a year. However, since the confiscation occurs only among very large brokerage houses, and since the skills used by the employees of such firms are useful elsewhere, what we’re going to see in very short order is an exodus of talent from large banks and brokerage firms. The best people will leave and go to work elsewhere, where they can make what the market is willing to pay for their talent. The shortage of labor in the big firms that will be created will be filled with the lesser talent that cannot command higher salaries, or workers that have been hoping for promotion into more responsible positions but have been unable to get there. Thus smaller firms will acquire better talent, and larger firms will be staffed by lesser talent.

In short, the Congress has just consigned large, American financial firms to a slow and painful death by incompetence. In doing so, the Congress has guaranteed the decline of the American financial industry and the rise of large foreign financial entities. Thus, the industry that made New York City the hub of the world is being driven offshore… by Congress.

Knowing the impact, many firms from here on will choose not to participate in TARP funds. This will, in effect, cripple any impact that the federal stimulus might have had, either positive or negative. Firms that refuse to participate in TARP will simply muddle through the economic downturn without capital. This is an instance where the unintended consequences of an overreaching Congressional acts might be positive; by frightening companies away from TARP funds, the negative effect of the bailouts might be reduced.

Congress has been warned of the impact. However, true to the character of American liberals, they are more concerned with displaying the appearance of doing something moral to quell inequality than they are with preserving prosperity, genuine virtue, or anything that works. They will persist in their policy even if it demolishes American business, because, after all, there’s nothing more important for the American people than that liberals can say they are brave and moral.

Historically, demagogues and tyrants begin their tyranny by encouraging outrage against a hated group, and creating precedent in their treatment of that group that later gets applied more widely. Do not be surprised if the US government moves to cap income generally; this is just one aspect of the income redistribution that candidate Obama accidentally let slip in Ohio, and which he later denied. He was lying; anybody familiar with the candidate (and not addled by idol worship) knew it. And the more the government attempts to enforce “justice” (which is actually not justice, but a faux virtue that has more to do with hubris than it has to do with anything decent,) the more talent will leave our shores and enrich foreign nations.

We elected them, and now they’re destroying us. Hope you enjoy the rule of Democrats, America.

Oddly enough, the blogger that’s gotten this right is Josh Marshall at TPM. I don’t recall agreeing with him before, even a little. Have a look.

02/20/2009 (6:57 pm)

Obama Transparency (Warning: NewSpeak Alert)

I just read one of the most incredible spin jobs I’ve ever encountered.

It begins with this New York Times headline: “Obama Bans Gimmicks, and Deficit Will Rise.” The article starts like this:

For his first annual budget next week, President Obama has banned four accounting gimmicks that President George W. Bush used to make deficit projections look smaller. The price of more honest bookkeeping: A budget that is $2.7 trillion deeper in the red over the next decade than it would otherwise appear, according to administration officials.

So, we know from the beginning that what we’re about to read is how the evil, dishonest Bush lied to us to make his budgets appear less out of balance, and how the honest and trustworthy Obama will now Be Strong™ and Do The Right Thing™. This Bold, Courageous Honesty™ actually explains the enormous deficits that the Obama administration will appear to create in the coming years. With me so far?

The biggest piece of this occurs in the new, more honest handling of the Alternative Minimum Tax. The Vile Bush used to project the income from the AMT based on current levels of taxation. However, the AMT was not indexed for inflation, so bracket creep would make the AMT apply to taxpayers lower and lower on the economic scale. To save the middle-class his wealthy buddies, Vile Bush would then, sometime during the following year, propose to raise the base income to which the AMT applied, and Congress, hoping to avoid taxpayer revolt, would cravenly comply. This would reduce the take from the AMT below what had been projected. Ooooo. Devious.

So, how will Honest Obama solve this evil plot? Why, he will forthrightly and boldly refuse to adjust the AMT every year. But he is So Very Honest, according to the Times, that he will not even count in his budget projections the additional $1.2 trillion dollars in revenue that this will generate over the next 10 years. We are Saved!

“The president prefers to tell the truth,” said [OMB Director Peter R. Orszag], “rather than make the numbers look better by pretending.”

Recent presidents and Congresses were complicit in the ploy involving the alternative minimum tax. While that tax was intended to hit the wealthiest taxpayers, it was not indexed for inflation. That fact and the tax breaks of the Bush years have meant that it could affect millions of middle-class taxpayers.

In case you weren’t following carefully, let me do this for you in English.

Bush (and, I’m guessing, Clinton, Bush Sr., and Reagan before him) would write a budget projecting revenue as the law existed at that moment. Later, Congress would adjust the Alternative Minimum Tax to eliminate bracket creep; this would result in less revenue at the end of the year than projected by the IRS at the beginning. The AMT was designed to prevent extremely wealthy taxpayers from avoiding all taxes by way of tax shelters, so Congress saw no reason to apply it to the middle class. Does this sound dishonest to you? No, not to me, either. You don’t write budgets anticipating the passage of legislation that has not passed yet.

So, what’s changing? Why, Obama is not going to adjust the AMT anymore. He’s going to let the AMT apply to taxpayers lower and lower on the economic scale. And oh, by the way, the government has just expanded the money supply incredibly, which is likely to send inflation through the roof. In other words, Obama is going to use the now-accelerated bracket creep to slam the middle class with a $1.2 trillion tax increase over the next 10 years, by expanding the population to which the AMT applies. And he’s bragging that he’s not going to use this in his budget projections — which he could not do anyway, since it would require an accurate prediction of future inflation effects on tax revenue. Sound honest to you? No, not to me, either.

Short version, Obama is going to use inflation to raise taxes hugely on the middle class, and he’s hiding it inside a claim to be correcting the previous President’s “dishonest” tactics.

I suppose we can blame the Times for this simply unbelievable bit of legerdemain, but the article claims to report the content of an interview with new OMB Director Peter R. Orszag, so the government is complicit in the spin.

Me, I’m wondering when Honest Obama is going to stop including moneys collected for Social Security in the government’s general revenue, the bit of dishonest accounting that produced somewhat more than half of the famed (and illusory) surpluses of the Clinton years. He genuinely intends transparent government, you know. Even though he rushed through the utterly urgent stimulus bill so quickly that no one could read it, then delayed signing it for four days. That was just an oversight (sans oversight.) And he’s not even asking for a do-over. What a Man.

We are SO screwed…

By the way, this solves a little dilemma that a commenter raised a few days ago regarding whether or not the administration actually planned to screw the Chinese by paying back the money they loaned us in inflated dollars. The Obama administration understands perfectly damn well how inflation is going to go, and the effects it will have on tax revenue and loan value.

02/18/2009 (12:16 pm)

Microcosmic Cali

Friends of mine used to observe that what you see in California at any point in time is what you should expect to see in the rest of the nation 10 years later. I think they must have been correct; California is broke.

The proximate cause of California’s current budget crisis that is forcing the layoff of more than 100,000 workers (20,000 state, 90,000 construction) is a partisan battle in the state legislature over next year’s budget. There’s a projected deficit close to $40 billion, and the legislature is deadlocked over how to address it. California has a budgetary rule that requires a 2/3 majority in the legislature for any budget that calls for tax increases. This gives the Republican minority the power — barely — to insist on spending cuts rather than tax increases. The Democratic majority refuses to cut spending; they love their liberal Utopia projects. Without a budget, California cannot pay its bills.

That’s the immediate cause. The real cause, however, is the rising, structural deficit in California’s budget. How it came about reads like a tribute to Ronald Reagan’s economic policies.

Read this simple analysis from the Summary to the governor’s proposed 2009-2010 budget (emphasis is mine):

In 1998‐99, the state’s budget was balanced and projected to remain in balance. Figure INT‐01 displays General Fund revenue and spending growth since 1998‐99. As the figure shows, one year later, revenues increased by 23 percent, due to a stock market and dot‐com boom that drove unprecedented increases in stock option and capital gains income. These were magnified from a state revenue perspective, because the state’s income tax system relies disproportionately on the very high‐end earners most likely to receive such gains.

The surge in revenues resulted in massive – and unsustainable – new spending commitments. When revenues declined, the state relied mostly on one‐time measures, such as borrowing, to temporarily reduce spending without cutting back underlying program commitments. Thus, the structural deficit was born.

Mind you, the new spending commitments at the turn of the millennium, proposed by Democrats, had the solid support of Republicans as well. This was not a partisan event, but rather an illustration of a rule that our nation’s founders understood very well and President Reagan used to talk about frequently: when you give government money, it expands. Reagan opposed nearly every tax increase proposed by Congress to cover rising deficits on the premise that Congress would not use the money to reduce the deficits, but would instead use the influx of new revenue to support new, permanent spending measures. This is what California did in 1998-99, and it’s what Washington did with its paper surpluses at the same time. When the surpluses vanished — because they were, in fact, mostly just smoke and mirrors — the new programs remained, and they remain to this day. Government never shrinks except through revolution.

The US Congress has just passed a measure containing hundreds of billions of dollars in new, structural spending that will never go away. It didn’t even wait for a surplus; it just responded to an imagined need for spending increases, Keynesians giving them an excuse to do what they’d wanted to do all along. This, too, will never go away, except by revolution.

California’s plight gives us a few more clues regarding what we can expect for the nation.

For one thing, people are leaving California in droves. Decades of nonstop, liberal fantasy-land social engineering has created an environment that is hostile to families and successful entrepreneurs. Despite the sun, sand, and beauty of the west coast. productive citizens are packing their bags and taking their business elsewhere. Listen to this summary of a 2007 study from Laffer and Moore written by the National Center for Policy Analysis:

It takes a lot of public policy folly to persuade people to pack their bags and abandon California’s sunshine, 70-degree weather, scenic mountains, and beaches, but, lately the politicians in Sacramento have proved themselves up to the task, say Arthur Laffer and Stephen Moore in their study, “Rich State; Poor States.”

Major findings:

* The latest Census Bureau data indicate that in 2005, 239,416 more Californians left the state than moved in; this was also the case in 2003 and 2004.
* The native-born outmigration flows have become so systematic that the cost to rent a U-Haul to move from Los Angeles to Boise, Idaho is $2090 — or some six times more that the cost of moving in the opposite direction.

What’s gone wrong with the Golden State? A big part of the story is a tax and regulatory culture in Sacramento that treats rich people as if they were cash dispensing ATM machines, say Laffer and More. The cost for businesses of complying with California’s rules, regulations, and paperwork is more than twice as high as other states. But the real growth killer is California’s steeply “progressive” income tax with 10.3 percent rate applied to high-income residents — the highest in the nation outside New York City.

* The richest 10 percent of earners pay almost 75 percent of the income tax burned in the state.
* Most of these “evil rich” are small business owners, i.e. the people who create jobs.

The study itself confirms that the most productive citizens leave high-tax, high-spending states (like California. New York, and Massachusetts) and move to states with lower taxes and greater liberty; the attempt to redistribute wealth results in an eroding tax base that leaves a greater burden on the poor than before. A recent survey of corporate executives by Development Counselors International confirms Laffer’s and More’s findings.

The following chart from Schwarzenegger’s budget proposal (clipped from Adam Haverstock’s article at The Policy Report) illustrates a huge part of the problem, and the reason for the 2/3 rule in the legislature:

2006-cal-taxes

This looks remarkably like what will result nationwide from President Obama’s proposed tax code changes, after which more than 50% of American voters will pay no taxes at all. The difference is, the US Congress does not have the 2/3 rule to prevent the poor majority from using their voting power to soak the wealthier minority. The result in California was unwieldy taxes and the flight of productive citizens; what will be the result in the nation?

Ironically, California liberals demonstrate that they understand the problem perfectly well. They’ve created a set of incentives to attract “green” energy and auto producers — by reducing taxes.

California’s green-friendly atmosphere is encouraging clean businesses from around the world to invest in California, stimulating our economy and contributing to the fight against global warming. According to the California Green Innovation Index by Next10, a non-partisan research organization, in 2006 venture capital investment in energy technology companies in California was just shy of $1 billion, more than double the total from 2005…

Last Wednesday, CAEATFA approved a new program that exempts new ZEV manufacturers [author notes: ZEV = "Zero emission Vehicle"] from paying sales and use tax on the purchase of manufacturing equipment to encourage ZEV manufacturing in California. For Tesla, these incentives will mean millions of dollars in savings when the company invests in building their new plant in California. And if they choose a city that is in an Enterprise Zone, they will save millions more. Tesla will also be eligible for at least $1 million in Employment Training Panel Workforce Development Funds to train employees.

The tactic sounds familiar, no? Californians also pay almost $.50 more per gallon of gasoline than other Americans, thanks to taxes on carbon, another familiar-sounding tactic. California boasts more than 95% of the nation’s solar energy projects, thanks to $2 billion in government incentives, still another familiar-sounding tactic. President Obama is moving in this direction, aiming to tax carbon and create incentives for green energy technology. He claims it will produce hundreds of thousands of jobs. I suppose he has not noticed that this move has not rescued California’s budget, and that tax-paying citizens are leaving by the hundreds of thousands. When your policy destroys a few hundred thousand jobs, the creation of a new hundred thousand jobs does not really compensate all that well; that’s what incentives accomplish when paid for by destructive taxation.

The lesson of California is that the expansive, Utopian dreams of modern American “liberalism” (it’s really a lot closer to Stalinism these days) cannot work. The attempt to create Utopia by taxing the wealthy and forcing social policy down the citizens’ throats creates a massive, coercive, top-heavy, easily corrupted Monarch State that structurally fails of its own weight and drives its most productive and mobile citizens elsewhere. Even if we grant — which I will not, ever — that their Utopian vision rests on morally valid hopes and sound ethics, theirs is a vision that cannot be achieved. In fact, it’s because the vision rests on an improper model of humanity that it cannot be achieved; the power and coercion required to force people into behaviors that run contrary to their legitimate self-interest inherently produces misery, and drives away anyone with the ability and good sense to flee.

Welcome to the Age of Obama. We are SO screwed…

02/03/2009 (2:26 pm)

Death By Tax Flub, Take Three

Today Nancy Killefer, Barack Obama’s choice for “performance czar,” withdrew her name from consideration because in 2005, the District of Columbia placed a tax lien on her home due to her failure to pay withholding taxes on wages paid to her domestic help.

This marks the third candidate for Obama’s cabinet who’s been marred by personal tax problems. Her choice to withdraw herself from consideration makes Tom Daschle’s continued bid for HHS Secretary look problematic, especially given the difference between their problems; she missed paying roughly $300 in withholding taxes, plus interest and penalties, whereas Daschle had to make up more than $140,000 in back taxes. These occur after the embarrassment of proposing for Treasury Secretary a man who had to make up $25,000 in back taxes in order to conform to the law.

While all of this appropriately damages Obama’s claim to represent a return to ethical government, I think it provides evidence for a much more relevant trial. The fact is, the US tax code has become so onerous that even the most affluent and best-educated among us struggle to keep up with it. It’s long past time to change it.

Timothy Geithner arguably cheated on his taxes, and tried to game the system. Tom Daschle apparently made some aggressive mistakes as well, resulting in an overdue tax bill many times the size of most peoples’ incomes. Rich Lowry appropriately takes both to task for their sins today. Morally speaking, we should be a lot less exercised about Ms. Killefer’s under-the-table cash payments (which are, frankly, a lot more common in the US economy than we’d like to think.) But it’s likely that none of these would be a significant problem if we instituted a simple flat tax system.

Complexity is just one of the problems with the US tax code. Because it’s so complex, it creates a dizzying array of counterproductive incentives and double taxes, discouraging savings and investment and creating a multi-billion-dollar-a-year tax accounting industry just to help companies and wealthy individuals minimize their tax burden — billions that are therefore not available to boost productivity. All our economic activity, from employment choices to major purchases to business risks, is conducted under ponderous concerns regarding how it will affect our taxes. The tax code is a constant brake on economic growth. Also, ultimately, it potentially makes minor criminals of us all simply because we’re bound at some point to screw up.

A flat tax would not only solve the complexity, it would solve all the negative incentives as well. Tax day would become a simple exercise for everybody. Government tax processing costs would shrink. Business tax management costs would disappear. It would be as though the economy had an elephant removed from its back, and could stand upright. Flat tax proposals have revitalized economies all over eastern Europe, and would certainly help revitalize our own economy at a time when it’s needed.

A number of conservatives seem to favor what they call a “fair tax,” or a national sales tax, over a flat tax. The difference is minor in principle. Any tax that does not penalize savings is considered a consumption-based tax: a national sales tax is a single consumption-based tax that occurs when the money is spent, whereas a flat tax is a single consumption-based tax that occurs when the money is earned. They have the same economic effect. The flat income tax, however, turns out to be much, much simpler to implement, and much simpler to enforce.

Here’s a link to a good, general article from the Heritage Foundation discussing flat tax proposals in general. The surprise appearance of a number of tax cheats in the new President’s cabinet gives us an opportunity to make the case for a simpler tax system at a time when the economy could really use the boost.