Serious Blog Alert! Our Government's Purse is Full Enough!

Our government does not tax too little, it spends too much.

In response to a “call congress” campaign to voice objection to a debt limit increase without a balanced budget amendment, real significant cuts in spending, and no tax increases, I received several standard “tax the evil rich” responses. In one response, a friend of mine stated that per capita GDP has increased throughout the economic meltdown. While it is true that GDP increased in 2007 and 2008, all be it at a very slow pace, GDP actually dropped in 2009 according to the Bureau of Economic Analysis. That being said, this “tax the rich” philosophy beg the questions how much is enough, and who is it that you consider rich? Leaving aside the fact that if you confiscated the ENTIRE wealth of the fifty richest people in the US (many of whom are democrats by the way i.e. Gates, Buffett, Ellison, Bloomberg, Page, Brin, Soros, Perelman, etc.), you get about 650 billion dollars (figures from Forbes Magazine). That is not even enough to make up half the deficit in this year's budget.

The current top rate for wage earners is 35% which cuts in at $379,150.00 of taxable income. My dear friend states that this is the lowest rates have been since shortly after the great depression. The fact is, however, that in 1992, the top rate was 31%. Be that as it may, let's explore this idea of taxing the rich some more. In 1992, the top 20% of wage earners paid 65% of the income tax. In 2001, when the top rate was 39.5% the top 10% of wage earners paid 64% of the income tax, and in 2008 when the top rate was 35%, the top 10% of wage earners paid 70% of the tax. The threshold for this 10% is an adjusted gross income of $113,799.00 per year. That is not what I would call excessively rich. The interesting thing about this is that the bottom 50% pays 3% of the tax, meaning that the other 40% of taxpayers with adjusted gross income between $33,048.00 and $113,798.00 pay 27% of the total income tax collected by the IRS. The percentage of tax paid by the bottom 50% has been steadily DECREASING since 2001. Federal Revenues have fluctuated from 2.0 trillion to 2.56 trillion from 2005 through 2010, peaking at 2.56 trillion in 2007, and dropping to 2.16 trillion in 2010. Spending, however, has steadily increased from 2.4 trillion/year in 2005 to 3.8 trillion/year estimated in 2011. The question we REALLY need to be asking, is where has that extra TRILLION dollars per year since 2008 gone? In 2009, 2010, and projected for 2011, we have spent an EXTRA trillion dollars more per year that we did in all the years gone before. Even under George Bush, who spent money like a drunken sailor, mostly on war toys, we weren't spending at anywhere close to the rate we are now. Were children starving in 2008? Were old people going without food, clothing and housing in 2008? I don't remember that. I don't remember autistic children starving in the street in 2008, do you?

So where did the money go? 28 billion dollars of it went to GE for high speed rail no one will ride. 0.5 billion for cash for clunkers, 10.6 billion for first time home buyers, 9.2 billion for child tax credits (one reason the bottom 50% pay a smaller share of the tax), 186 billion for grants to states to fund pensions, Medicaid and unemployment, 82 billion to the Department of Education and National Science Foundation (shrimp on treadmills program), 25 Billion to the Department of Energy and the Environmental Protection Agency, the list goes on and on. Of the 2.4 million jobs the administration has claimed to have “saved or created” each job cost $278,000.00 in stimulus money to create or save. That is a fairly expensive way to create and save jobs, which brings me to corporate taxation.

The current corporate tax rate is 35%. When a corporation is creating a budget for coming years, one thing it must take into account is its tax liability. Along with the costs of labor, raw materials, fixed operating costs and the like, they also estimate their tax liability. When a corporation decides how much to charge for its product or service, it must take its tax liability into account. If taxes go up, the price of the good or service goes up accordingly. That means the only thing increasing corporate tax rates, or capital gains rates for that matter, does is pass that tax on to the consumer. When tax rates are unreasonably high in comparison to rates in another state or another country, it provides an incentive for a corporation to move to another state or country. Please take note of the mass exodus of companies from New York, Michigan and California and the gain in Texas. We currently have the second highest corporate tax rate in the world, which explains why GE, our President's favorite corporation, moved much of its operations offshore, and paid NO corporate tax in 2010.

With all that said, it becomes clear that we do not tax too little, we spend too much. The only result we will get from raising top tax rates, is that we will shift an even higher burden on to those carrying 70% of the weight now, and diminish economic activity, pushing corporations overseas, and putting increasing strain on an overwhelmingly thin job market. With 9.1% unemployment, and REAL unemployment (including those who have given up looking) over 15%, the last thing that makes sense from an economic point of view is increase the burden on those who are carrying the bulk of the weight now. Anyone who has a sound background in market economics will say the same thing.

Finally, President Obama attacked private jet owners, saying they should lose the tax break that his administration gave them early in his term. This “break” allows a company to depreciate the cost of an airplane, or improvements to an airplane, over a period of five years instead of seven. For those of you without a background in accounting, depreciation is expensing a purchase over a period of time. If a company leases a car, for example, the monthly lease payment is an expense, and is subtracted from the company's income before tax is calculated on that income. If the company purchased the car instead of leasing it, the price of the car, minus it's expected value after seven years, has to be divided by the number of years (seven in this case) and 1/7th of that value is expensed from each year's income before tax is calculated. The only thing changing the length of depreciation for an airplane does is make the company either less likely to buy or refurbish an airplane, or extend the period of time in between such purchases. The reason the depreciation period was shortened in the first place, was to save airplane manufacturing jobs by encouraging companies to trade their planes in faster. Now we want to slow down the turnover of airplanes and put those jobs in jeopardy?

There is no clearer example of this kind of thinking as when George Herbert Walker Bush went along with the luxury tax in 1990. The reasoning was the same. It went like this; “When people are hurting, and need jobs, why shouldn't the rich pay a little more. They are buying yachts and other luxury items, like diamond rings, and we ought to put an extra tax on those items.” Against his better judgment Bush 41 went along with congress on that one. The actual effect though, as one might guess, is that “rich” people quit buying yachts, or bought them offshore. The net effect was that revenues went down, and 200,000 people who worked in the boat building industry lost their jobs. Ultimately it cost Bush the 1992 election.

If you still think “tax the rich” is a good idea, I would encourage you to read anything by Allan Meltzer, Professor of Economics at CMU, Milton Friedman, Nobel Prize winner in Economic Science and Professor of Economics at the University of Chicago, or Ayn Rand for that matter. Rather than take money from the folks in this country who work hard, create business, and create employment for the rest of us just so we can give it to other folks to see what happens when a shrimp gets some exercise, we ought to stop the excessive spending. We should fix our long term problem of unfunded liabilities for Medicaid, Medicare, and Social Security in a way that protects our seniors, and insures our safety net exists long into the future. That way we can let business get back to work doing what they do best, which is grow our economy!

History Lesson on the Fourth of July - Or So There Joe Biden!

I was appalled last evening to discover the results of a Marist poll taken on July first that found that only 58% of those polled could correctly say that the year of our independence was 1776, and only 76% could say that we became independent from England. The results were far worse for those under 30 years old! This is the kind of edumacation that Joe Biden and the NEA want for our children!

So on this Independence day, I find myself thinking about how this country came to be. I offer a short history of the founding of our nation, which will apparently be better than the one offered by public education these days.

Once upon a time, the earth was flat. This made it extremely dangerous to sail out of sight of land, as one might drop over the edge at any moment, and that could ruin an entire day! A fellow named Columbus, conned the queen of Spain out of some ships and supplies and proved the flat earthers all wrong. In the process he bumped into a new continent that no one, especially the flat earth people, had any idea was out there. The Spaniards believed there was a lot of shinny yellow metal there, and so sent more folks to explore. Word got around, as it often does. In jolly old England, they had a King who didn't like to stay married very long, mostly because none of his wives seemed able to produce a son, so he kept disposing of one wife after another. The Catholic church took a dim view of that, so, not to be restrained, King Henry formed his own church and required all his subjects to belong to the Church of England.

Some miscreants didn't like that very much, and had a desire to worship in a manner that suited them better. The King took exception and sent them packing off to the new land to worship as they pleased, and to find goodies to ship back to England, for the further enrichment the King.

After 150 years or so, these new colonies were thriving, containing some two and a half million people. The King at the time, George his name was, had helped out with some trouble the colonies were having with the Indians and the French. With the war over, he turned his attention to collecting some additional revenue to balance his budget. A lot of revenue. He reasoned that as some in the colonies were getting rich, they ought to spread the wealth around a little, contribute their fair share as it was. He put a tax on tea, which many folks in the colonies didn't like so much. They decided to brew the tea in the Boston Harbor. Next he required the colonists to purchase paper for all legal documents from England. At the same time, he was sending soldiers to the colonies to keep the peace, and requiring citizens to keep the troops in their homes. When colony legislatures objected, he disbanded them, in violation of their founding documents. He bypassed the duly appointed lawmakers and issued edicts about how the colonists were to live (is any of this sounding familiar?)

In 1776, late in the evening of the third of July, following a little skirmish a year previously in Lexington and Concord, the colony legislature's representatives finally came to agreement on the wording of a document declaring their Independence from Great Brittan. This document precipitated a prolonged conflict called The Revolutionary War, the result of which was that the Colonies were free from the tyrannical edicts of the King of England, and were free to govern themselves.

After experimenting with various ways of governing themselves for twenty years or so, including a little disagreement about whiskey and another about water rights, the colonies decided they needed a founding document which would for forever limit their federal government and allow each state to govern itself, except in areas such as arguments between the states, the common defense of the New Nation, and in arranging for trade with other nations. They called this document the Constitution of the United States of America, and it is THE foundation for the federal government's existence. The federal government is supposed to be bound by and constrained by the words in that inspired work. It is what gives our government its right to exist. It laid out a system of checks and balances to ensure that power would never be concentrated in the hands of a few, and it provided for redress of grievances against the government through the judicial branch of that government. If that fails, and the federal government becomes tyrannical, it provides the means, through the second amendment, to dissolve that government.

As the federal government reaches further and further beyond the bounds of Constitution, it heads ever closer to its own Lexington and Concord!

I hope this missive has helped clear up the confusion a bit. In any event, please enjoy your celebration of the Founding of our Great Nation! Happy Fourth everyone.