Many Unhappy Returns

On this day in 1913, 96 years ago, the secretary of state notified Congress that the Sixteenth Amendment had been ratified and it was free to start taxing incomes directly. Some would say it’s all been downhill since then. Frank Chodorov called it “the root of all evil”:

The Sixteenth Amendment corroded the American concept of natural rights; ultimately reduced the American citizen to a status of subject, so much so that he is not aware of it; enhanced Executive power to the point of reducing Congress to innocuity; and enabled the central government to bribe the states, once independent units, into subservience.

Certainly the income tax makes possible the massive federal government that we have today. Without the ability to collect taxes directly from individuals – and through the veil of paycheck withholding – government could never hope to pay for troops in 135 countries, the retirement income of tens of millions of Americans, a vast army of federal employees, and all the other hallmarks of the modern state.

The very first issue of the Cato Journal looked at the income tax, including essays by Arthur Ekirch and John Buenker on its origins and by Ronald Hamowy on civil liberties and the IRS. In later issues Charlotte Twight looked at withholding, and Bruce Bartlett examined how the income tax helped to bring down the Roman republic.

Obama’s Shocking Speech

President Obama made good on his reputation for giving excellent speeches. He seemed calm and confident. It’s no wonder that instant polls show that most viewers liked it.

That reaction is all part of the guiding strategy of this administration: using a crisis atmosphere to amass more money and power in Washington. There’s a long history of government growth in times of crisis such as wars, natural disasters, or economic shocks. Think of FDR’s revolutionary “first 100 days” or LBJ’s driving through his Great Society programs in the wake of John F. Kennedy’s assassination.

George W. Bush did it, too, with both the Patriot Act and the invasion of Iraq after the shock of 9/11. And in so doing, he left his successor both a presidency and a federal government with unprecedented powers, ready to be employed for a different agenda.

The difference between the Bush and Obama administration is that the latter openly proclaims its use of the “shock doctrine.” As Rahm Emanuel says, “You never want a serious crisis to go to waste. And this crisis provides the opportunity for us to do things that you could not do before.”

And that’s the strategy behind the sweeping agenda that President Obama laid out. The president called his budget “a blueprint for our future,” and as my colleague John Samples notes, “A blueprint is a plan for the society as a whole just as a real blueprint is a plan for a building…. [This is] a plan for the remaking of America. The metaphor reveals a habit of mind at odds with a free society.” Obama promised that the federal government would impose comprehensive redesigns on energy, health care, and education. But the success of America has always been rooted in individual enterprise and free markets. Obama blames free markets for our problems, when it was cheap money from the Fed and misguided federal incentives that caused the mortgage debacle.

Voters respond enthusiastically to determined leadership at the moment of crisis. But laws made in a crisis atmosphere, from the Gulf of Tonkin resolution to Nixon’s wage and price controls to the TARP legislation, usually turn out badly. Democrats want to use this crisis to ram through government takeovers that they couldn’t achieve in any other period. We should slow down, take a deep breath, and carefully consider whether we want a clumsy, always-behind-the-times bureaucracy to take charge of our health, our access to energy, and our educational future.

[ Cross-posted from The Hill’s Congress Blog ]

Obama on Education: Ho-Hum and Hold On

Despite effusive praise from the education establishment – who, let’s be honest, will applaud anything that gets them more money – there was nothing remarkable about the education portion of President Obama’s Not-a-State-of-the-Union address last night.

Surrounded by broad generalities and standard promises to spend more money, the speech’s education centerpiece was arguably the president’s goal that “by 2020, America will once again have the highest proportion of college graduates in the world.”

This of course begs the question, why is having more college graduates in and of itself so important? The answer is, it isn’t. While economically we want people obtaining whatever knowledge and skills best fit their aptitudes, desires, and the needs of employers, the evidence clearly shows that we already encourage way too many people to pursue higher education. As I lay out in Cato’s new Handbook for Policymakers, the six-year graduation rate for bachelor’s students is hovering at just around 56 percent, literacy levels of degree holders are falling, and remediation rates for students are very high. Indeed, more than a third of college students have to take remedial classes.

So the reality is not that we aren’t pushing people to college. It’s that a large number of them just can’t handle it.

It’s also important to note that we’re not wanting economically for college graduates. As reported by the Bureau of Labor Statistics, 25 percent of all jobs in 2006 required a bachelor’s degree or higher. As of March 2007, nearly 29 percent of Americans ages 25 and older had at least that level of education.

Of course, these numbers don’t tell us whether all those degrees match employer needs – we may have a heck of a lot more English majors than employers require – but that doesn’t matter when the goal is just to get more college graduates. And it also doesn’t matter politically.

For politicians, there is simply little to lose and lots to gain from promising everyone a college education, no matter how wasteful that ends up being.

Obama Corporate Tax Nonsense

Last night, President Obama threw in his usual rhetoric about ”ending tax breaks for corporations that ship our jobs overseas.”

I suspect that the president has no idea what he is talking about. The United States already has probably the most burdensome tax rules on multinational corporations of any major country.

Peter Merrill, one of the nation’s top tax economists explained in Tax Notes on Monday:

The United States taxes corporate income on a worldwide basis, including dividends repatriated by foreign subsidiaries, and allows a limited credit for foreign taxes paid regarding those dividends. By contrast, most OECD countries (21 out of 30) have dividend exemption systems under which dividends from foreign subsidiaries are exempt.

In other words, only nine of 30 major industrial countries tax the foreign business profits of their corporations, and the United States does so probably the most aggressively of any.

U.S. corporations are moving investment and profits abroad, but it is because we have the world’s second highest corporate tax rate, not because of special loopholes as the president keeps implying.

It is pathetic that American policymakers sit on their hands avoiding the global tax revolution, while constantly taking cheap shots at corporations, especially when other countries are moving ahead with business tax reforms.

For example, today’s International Tax Review describes possible corporate tax cuts by the left-of-center Australian government:

Australia may have to cut its corporate tax rate in an effort to increase economic growth and attract greater foreign investment, said Ken Henry, secretary to the Treasury.

Henry also noted that a corporate tax cut would increase real wages. What is it about these benefits of corporate tax cuts that American policymakers don’t understand?

Keeping Michelle’s Promise

“Barack Obama will require you to work. He is going to demand that… . you push yourselves to be better. Barack will never allow you to go back to your lives as usual, uninvolved, uninformed.”
     -Michelle Obama, February 3rd, 2008.

“[D]ropping out of high school is no longer an option. It’s not just quitting on yourself, it’s quitting on your country - and this country needs and values the talents of every American.”
     -President Barack Obama, February 24th, 2009.

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Live at Cato: ‘Obama and Presidential Power: Change or Continuity?’

Cato Vice President Gene Healy is moderating a discussion, “Obama and Presidential Power: Change or Continuity?” which you can watch live online at 12:00 PM EST.

Featuring Louis Fisher from the Law Library of Congress and Jeffrey Rosen of The George Washington University School of Law, the panel will discuss the rise of presidential power, and whether Obama will oversee a more modest presidency that recognizes constitutional limitations or end up expanding the powers of the presidential office.

In case you miss it, a video of the discussion will be available online.

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Is Libertarianism a Sign of Mental Illness?

I don’t know whether this belongs in the comic-relief category or the future-threats category, but the Harvard Law School is having a conference to analyze the “free market mindset.” The basic premise of the conference seems to be that people who believe in limited government are psychologically troubled.

The conference schedule features presentations such as “How Thinking Like an Economist Undermines Community” and “Addicted to Incentives: How the Ideology of Self Interest Can Be Self-Fulfilling.” The most absurd presentation, though, may be the one entitled, “Colossal Failure: The Output Bias of Market Economies.” According to the description, the author argues that the market “delivers excessive levels of consumption.” Damn those entrepreneurs for creating so much wealth!

In the good old days of Soviet dictatorship, the regime classified dissidents as being mentally ill (after all, only a nutcase would fail to see the glories of communism).

Now that leftists at Harvard want to portray laissez-faire philosophy as being somewhat akin to a mental disorder, maybe the next step will be re-education camps for Cato staff? Maybe the next “stimulus” bill could include a few earmarks for such facilities? I’m keeping my fingers crossed that I get sent some place warm.