Topic: Government and Politics

Obama Tax Plan and IRS Data

Senator Obama wants to “restore fairness to our tax code” by raising taxes on those earning more than $250,000. Let’s look at the most recent IRS income tax data for 2006 to see what we can learn about tax fairness.

See line 42 in this IRS table, which shows data for those earning less than $200,000 (the closest income breakpoint). This group paid 9.7 percent of their adjusted gross income in federal income taxes.

Now scroll down to line 58 in the table. Those earning more than $200,000 paid 21.8 percent of their income in income tax, thus paying more than twice the tax rate of the other group.

Is that fair?

McCain Unleashes His Inner Goldwater

Dropping in the polls and running out of time, John McCain has finally gone on the offensive against Barack Obama on core Republican values that appeal to libertarians, conservatives, and Reagan Democrats. In his Saturday radio address he seized on Joe the Plumber’s question to candidate Obama:

My opponent’s answer showed that economic recovery isn’t even his top priority. His goal, as Senator Obama put it, is to “spread the wealth around.”

You see, he believes in redistributing wealth, not in policies that help us all make more of it. Joe, in his plainspoken way, said this sounded a lot like socialism. And a lot of Americans are thinking along those same lines. In the best case, “spreading the wealth around” is a familiar idea from the American left. And that kind of class warfare sure doesn’t sound like a “new kind of politics.”

This would also explain some big problems with my opponent’s claim that he will cut income taxes for 95 percent of Americans. You might ask: How do you cut income taxes for 95 percent of Americans, when more than 40 percent pay no income taxes right now? How do you reduce the number zero?

Well, that’s the key to Barack Obama’s whole plan: Since you can’t reduce taxes on those who pay zero, the government will write them all checks called a tax credit. And the Treasury will cover those checks by taxing other people, including a lot of folks just like Joe.

In other words, Barack Obama’s tax plan would convert the IRS into a giant welfare agency, redistributing massive amounts of wealth at the direction of politicians in Washington. I suppose when you’ve voted against lowering taxes 94 times, as Senator Obama has done, a new definition of the term “tax credit” comes in handy.

At least in Europe, the Socialist leaders who so admire my opponent are upfront about their objectives. They use real numbers and honest language. And we should demand equal candor from Senator Obama. Raising taxes on some in order to give checks to others is not a tax cut it’s just another government giveaway.

That just might remind lots of voters why they don’t like to elect Democrats. Of course, it might work better if the Republicans hadn’t raised spending more than a trillion dollars. And if the current Republican administration hadn’t just nationalized the banks. And if McCain himself didn’t have a health care “tax credit” that also means that “the government will write them all checks.”

The Madness of King Rod

While Hawaii’s experiment with universal coverage is disrupting health coverage for thousands of children, a similar drama unfolds in Illinois:

Last year, the legislature twice turned down [Gov. Rod Blagojevich’s] plan to expand health care – first for universal coverage, then to expand income-eligibility requirements for state-subsidized care. But Blagojevich began enrolling families anyway, claiming he had sufficient authority…

[Cook County Circuit Judge James] Epstein issued a preliminary injunction in April banning state officials from spending money on the program. That decision was upheld last month by the Illinois Appellate Court.

[Epstein] said he sympathized with low-income families, some of whom have paid insurance premiums under Blagojevich’s expansion and would lose coverage. But he said they “do not have a right to continue to receive coverage under this improperly promulgated program.”

Patients are getting jerked around by their government?  You don’t say.  The Blagojevich administration’s response to this judicial smackdown was something short of penitent.

The Illinois Department of Healthcare and Family Services issued a statement following the judge’s action saying it was “currently reviewing the decision, but the governor is committed to making sure that these families continue to get the insurance they need.” 

Did King Rod miss that day in Civics class when they explained that the legislature writes the laws?

I’ve criticized supporters of universal coverage for practicing what amounts to an unacknowledged religion.  But this has to be the first time I’ve seen religious fervor tempt one of the faithful to assume the powers of a monarch.

“Press Release Economics” in New Jersey

My misadventures in state government led me to coin a phrase for what has become the economic growth model of choice for a lot of governors:  “Press Release Economics.”  It comes in many shapes and sizes, but it basically boils down to the orchestrated PEZ-dispensing of taxpayer money on short-term “economic growth” schemes for crass political gain.

The most common form is probably the targeted tax break and/or corporate welfare grant/loan to incite a company to relocate within a state’s borders.  Politicians love these taxpayer-financed giveaways because they come complete with lots of visible media coverage: press releases, newspaper articles, radio and television reports, and best of all…the photo op.  Ah yes, that priceless picture of the governor all dressed up with a hard hat, ceremonial spade in hand, and a big toothy grin.

One would be hard pressed to find justification for these political endeavors in the economic literature, but then again the little Potemkins who run state “economic development” bureaucracies don’t have time to be bothered with trivialities when there are “jobs to create.”

Today I read that Gov. John Corzine has come up with a $150 million package to help the New Jersey economy.  The concoction includes two peculiar items: money for banks to get them to lend and a $3,000 check to small businesses for each employee they hire and employ for a year.  “Create a job and we will send you a $3,000 check,” Gov. Corzine says.

With regard to the first one, the New York Times reports:

James Silkensen, president of the New Jersey League of Community Bankers, said he had not heard complaints from his members about needing more cash. “Our members are telling us that they’ve got money to lend,” Mr. Silkensen said. “They aren’t going to change their underwriting standards. I can’t say every bank has sufficient funds to lend. But most I have talked to are lending, though they’re being careful.”

With regard to the second one, it’s pure press release economics.  Why not $4,000 an employee?  Or $5,000?  Why just “small” businesses?  Do “large” businesses contribute nothing to the New Jersey economy?  How will this initiative be enforced?  How much will it cost taxpayers for New Jersey bureaucrats to make sure each and every new hire was employed not less than 365 days?  How many of the $3,000 check employees would have been hired anyhow?  How many jobs will be lost because of the tax burden needed to pay for this scheme and others?

Here’s a better idea, Governor: propose serious tax and spending cuts.  New Jersey’s general fund is up 40% from just five years ago, which amounts to a $1,000 per New Jersery citizen spending increase.  At the same time, New Jersey’s business tax climate was recently found to be the worst of the fifty states.

Is Barack Obama like Al Smith?

At the Al Smith Dinner, Barack Obama said, “I feel right at home here because it’s often been said that I share the politics of Alfred E. Smith and the ears of Alfred E. Newman.” That’s the best news I’ve heard all year. Because Al Smith was not only America’s most visible opponent of our first version of Prohibition, he was a leading critic of Franklin Roosevelt’s New Deal. Indeed, he was a founder of the American Liberty League, the leading organization in opposition to the New Deal.

As David Pietrusza wrote in Reason, the Liberty League grew out of the earlier organization Americans Against the Prohibition Amendment. And, he said,

In summing up the League’s philosophy, liberal author George Wolfskill (The Revolt of the Conservatives) outlined a remarkably coherent libertarian position. They believed, he said, that the New Deal was a threat to the Constitution and represented a danger of tyranny via centralization; that it was based on coercion, deceit, and false economic principles: that recovery was in fact retarded by government intervention; that government agricultural controls were “a cure worse than the disease”; that the New Deal combined aspects of socialist and fascist economic systems; that private enterprise was being damaged; that deficit financing and high spending threatened the nation with inflation; and that the banking community was now under the political control of the federal government.

So if Barack Obama indeed shares the ideas of Al Smith, maybe as president he’ll take on our current version of Prohibition, and get the government out of the banking community, and start to undo the unconstitutional excesses of the federal government that have merely accelerated from FDR to Bush and Cheney. We can only hope.

McCain’s Misguided Mortgage Bailout

As promised in an earlier post, here is the latest iteration of my Los Angeles Times debate on financial markets, housing policy, and the role of government. Wednesday’s debate featured a discussion of Senator McCain’s $300 billion scheme to buy bad mortgages. Not surprisingly, I explain why taxpayers should not be responsible for rewarding borrowers and lenders who were imprudent. Next installment will be up tomorrow.

Nice Little Bank You Got There; Shame If Anything Happened to It

Some years ago I wrote an article titled “The Gun behind the Law.” (Not online, but it appears in The Politics of Freedom.) It began with a photograph of 50 or so helmeted policemen storming the doors of a large and institutional building. As it turned out, the photograph depicted a bank nationalization in Peru during the first and disastrously leftist presidency of Alan Garcia. I noted that the Peruvians were helping us understand the real import of the term “bank nationalization”: “What really occurred there is that some people forced other people to give up their property at the point of a gun….As the bankers of Peru have learned, every law is en­forced at the point of a gun.”

And I noted that things are very different here: “When we Americans hear the words ‘bank nationalization,’ we are apt to imagine a piece of paper being signed by a bank president and a deputy assistant treasury secretary.”

Well, I was a little off. It was actually nine bank presidents and the secretary himself. But the general scene was right:

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left.

They weren’t allowed to negotiate. Mr. Paulson requested that each of them sign. It was for their own good and the good of the country, he said, according to a person in the room.”

At least one banker objected. “But by 6:30, all nine chief executives had signed — setting in motion the largest government intervention in the American banking system since the Depression.”

And all without any need for armed police takeovers of the banks. Nice and peaceful like. And no doubt some of the bankers were just delighted to get billions of dollars from the taxpayers. For those who didn’t want to be working for the government, the points I made in that long-ago article are still valid:

The gun is evident in the picture [from Peru], but it is no less real when an American is forced to give up his property by a law or regulation. Such commonly used terms as “national economic policy,” “social regulation,” “revenue enhancement,” “profamily legislation,” and “minimum-wage law” all obscure the simple fact that some people are forcing others to do as they’re told.

But Peru is not the United States, it will be said; our government would never send riot troops to take over a bank. That is largely because it wouldn’t have to—Americans don’t resist the demands of government. What would happen if they did?…

If more Americans decided to ignore absurd, special-interest, and counterproductive laws, it would soon be apparent that physical force lies behind the Federal Register. Does anyone believe that Americans would pay a large percentage of their income to the federal government if not for the ultimate threat of imprisonment and violence?

As the bankers of Peru have learned, every law is enforced at the point of a gun—a fact we should carefully consider when we are tempted to conclude that some perceived problem should be solved by enacting a law.