As the fiscal cliff looms, there is intense debate in Washington about striking a deal to avert the automatic spending cuts and automatic tax increases that will go into effect otherwise. The debate has boiled down to an increase of a few percentage points of tax on the top two percentage points of income owners. The Republicans claim to want to maintain the current tax rates on all income earners, and the Democrats claim to want to maintain the current tax rates on the bottom ninety eight percent of income earners. The offer from the Democrats is that if this tax increase is granted, then there will be unspecified spending cuts at some future date.
Both sides are lying so badly that it is surprising anyone is able to take their claims seriously. It is even surprising that the major media outlets, paid to believe the claims of politicians, are able to do their job and keep the American public sufficiently worried.
According to Wikipedia for the 2012 Federal budget, the combined federal outlays were $3.795 Trillion and the combined federal revenues were $2.469 Trillion, leaving a deficit total federal deficit of $1.327 Trillion. There appears to include off budget spending. That means that tax revenue accounted for 65% of the total spending.
If the goal is to balance he budget, which is what is being claimed, then there are three options. Using the figures from 2012, analysis of these three options reveals the lies coming from both sides of the debate.
The first option is to raise taxes sufficiently to balance the budget. This means raising taxes by a significant amount on everyone, not just a few percentage points on the rich. Anyone who proposes merely raising taxes on the rich as a solution is lying. Anyone who proposes raising those taxes just a few percentage points as a solution is lying. President Obama is telling the truth about his desire to raise taxes on the top two percent, but lying when he claims that this will have any impact on the budget deficit. The total tax burden would have to be increased by 54% to cover spending. There is no way to increase tax revenue by that amount by increasing taxes only on the rich, even if there is a top rate of 100% on income over $250,000. All taxes would have to go up, which means personal and corporate income taxes and tariffs and excise taxes, and the personal taxes would have to be raised on all brackets. There is some room to try to juggle the burden away from lower incomes and towards higher incomes, but not much, meaning that even lower income earners will feel the effect.
The second option is to cut spending sufficiently to balance the budget. Spending will have to be cut by 35%. This means real cuts, not "Washington cuts." This is where the Republicans are shown to be lying to the American public. Every cut proposed is a reduction in the rate of increase, a “Washington cut”. Moreover, these cuts are delayed in implementation, a second lie by the Republicans. It has often happened in the past that a budget deal would be made with front loaded tax increases and several years later there would be accompanying spending cuts. Every time that deal was allegedly made the spending cuts did not happen. Only one person in the Senate proposed a budget with real cuts, and his cuts only came to $500 billion, and he admitted that his cuts did not go far enough. The rest of the political class thought he was crazy and instead looked at the Ryan budget, with no actual cuts, and talked about what a fiscal hawk Representative Paul Ryan was.
The third option is a combination of tax increases and spending cuts. Meeting half-way this means increasing tax revenue to 82% of 2012 expenditures and reducing spending to 82% of 2012 expenditures. This would require a total revenue increase of 26%. It will be easier for those who favor taxing the rich for the crime of being rich to be able to adjust the burden away from the lower incomes, but it will still be necessary to increase taxes on the middle class as well as excise taxes and tariffs. Spending cuts also have some interesting implications as this will require a total spending cut of 18%.
Social Security, unemployment, and labor are 34% of the budget. Medicare and health are 24% of the budget. The military is 18% of the budget. Debt financing are 7% of the budget. Food and Agriculture, Veterans Benefits, Transportation, Education, Housing and Community, International Affairs, Energy and Environment, Science, and Government (everything else) are 18%. If a policy of peace were to be adopted, the military budget can be cut in half easily, saving 9% and leaving another 9% to cut. Perhaps a percentage point can be cut from "everything else." That leaves 8% remaining to cut, which means that either Social Security or Medicare will have to be cut, perhaps both. Any plan which doesn’t include cutting Social Security or Medicare is not an honest plan.
Nobody in Washington is discussing anything close to any of those three proposals, except for Senator Rand Paul. Therefore nobody in Washington except for him is doing anything about the crisis that the Fiscal Cliff discussion was supposed to try to avert.
Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts
Saturday, December 08, 2012
Sunday, October 21, 2012
California Propositions 30 and 38
From a libertarian point of view, California Proposition 30 and California Proposition 38 are both bad ideas. They both are tax increases in what is already one of the most heavily taxed states in the country, a state that suffers more than others from Great Depression II. They both claim to do the same thing and for the same goal. But even though they are both bad ideas, one of them is clearly more of a bad idea than the other.
The supporters of Proposition 30 advertise it as a tax increase on the rich. It is true that it does increase income taxes on higher income earners, but it also increases the sales tax. The sales tax is a regressive tax that impacts everyone. The supporters of Proposition 38 advertise it as an income tax increase, which it is. Only the income tax is raised, but it is raised on everyone.
Both of these measures are supposed to be for education, to fund the schools. The monies that might be raised by Proposition 30 go into the general fund and are not dedicated to the schools. The reason school funding is impacted by Proposition 30 is because the legislature and the governor put a trigger in the budget to cut school funding if Proposition 30 is not passed. Proposition 38 dedicates all of the revenue that might be raised to the schools bypassing the general fund.
Given these differences, if someone is inclined to agree with the arguments used to sell these propositions, it makes sense that Proposition 38 would be the preferred ballot measure. While the California PTA prefers Proposition 38, the California teachers unions have come out strongly for Proposition 30.
The unions join the rest of the political classes in favor of supporting Proposition 30. Across the state, the more strongly tied to the unions or the Democratic Party a group is, the more likely it is to support Proposition 30 over 38. The arguments in favor of Proposition 30 are very disingenuous.
Both of these propositions are bad ideas, but it is quite clear that Proposition 30 is a far worse idea than Proposition 38.
The supporters of Proposition 30 advertise it as a tax increase on the rich. It is true that it does increase income taxes on higher income earners, but it also increases the sales tax. The sales tax is a regressive tax that impacts everyone. The supporters of Proposition 38 advertise it as an income tax increase, which it is. Only the income tax is raised, but it is raised on everyone.
Both of these measures are supposed to be for education, to fund the schools. The monies that might be raised by Proposition 30 go into the general fund and are not dedicated to the schools. The reason school funding is impacted by Proposition 30 is because the legislature and the governor put a trigger in the budget to cut school funding if Proposition 30 is not passed. Proposition 38 dedicates all of the revenue that might be raised to the schools bypassing the general fund.
Given these differences, if someone is inclined to agree with the arguments used to sell these propositions, it makes sense that Proposition 38 would be the preferred ballot measure. While the California PTA prefers Proposition 38, the California teachers unions have come out strongly for Proposition 30.
The unions join the rest of the political classes in favor of supporting Proposition 30. Across the state, the more strongly tied to the unions or the Democratic Party a group is, the more likely it is to support Proposition 30 over 38. The arguments in favor of Proposition 30 are very disingenuous.
Both of these propositions are bad ideas, but it is quite clear that Proposition 30 is a far worse idea than Proposition 38.
Friday, October 12, 2012
Going Back, in Theory
It may seem hard to believe, but there are Democrats trying to argue that raising taxes would be a good idea, even though the United States is still in the middle of an economic depression. Democrats have not been so bold about raising taxes since Walter Mondale's 1984 presidential campaign. To support this argument, the economic conditions under Bill Clinton and John Kennedy are brought up. Taxes were somewhat higher under Bill Clinton, and they were a lot higher under John Kennedy. If that were all that were different, there would be an argument in favor of that point of view.
As all libertarians know, total taxation is always equal to total spending. Based on that bit of economic knowledge, taxes were definitely higher under George Bush Jr. than they were under Bill Clinton. The only difference is that Bill Clinton favored direct taxes while George W. Bush favored indirect taxes.
While income taxes were higher under John Kennedy, those same taxes were reduced under John Kennedy. When he assumed office he lowered the top marginal rate from 90% to 70%, making that an argument in favor of cutting taxes. That would seem to be an argument in favor of significantly cutting taxes.
The most important flaw is that the argument is nothing more than a post hoc ergo propter hoc argument. To demonstrate this is actually very easy. If everything was so much better under John Kennedy and Bill Clinton, then the United States should go back to that in full. The regulatory state has advanced greatly since then, as has the security state and the welfare state.
Those who insist that those eras were better with those higher tax rates should also insist those eras were better with less regulation. The return to the taxes of that era should be accompanied by the repeal of all laws passed since that era. If, for some reason, the Democrat making that pro-tax argument doesn't agree, their own position of how conditions were better in that era can be used against him.
As all libertarians know, total taxation is always equal to total spending. Based on that bit of economic knowledge, taxes were definitely higher under George Bush Jr. than they were under Bill Clinton. The only difference is that Bill Clinton favored direct taxes while George W. Bush favored indirect taxes.
While income taxes were higher under John Kennedy, those same taxes were reduced under John Kennedy. When he assumed office he lowered the top marginal rate from 90% to 70%, making that an argument in favor of cutting taxes. That would seem to be an argument in favor of significantly cutting taxes.
The most important flaw is that the argument is nothing more than a post hoc ergo propter hoc argument. To demonstrate this is actually very easy. If everything was so much better under John Kennedy and Bill Clinton, then the United States should go back to that in full. The regulatory state has advanced greatly since then, as has the security state and the welfare state.
Those who insist that those eras were better with those higher tax rates should also insist those eras were better with less regulation. The return to the taxes of that era should be accompanied by the repeal of all laws passed since that era. If, for some reason, the Democrat making that pro-tax argument doesn't agree, their own position of how conditions were better in that era can be used against him.
Sunday, September 09, 2012
Government by Blackmail
There is a tax initiative on the California ballot for November; Proposition 30, Sales and Tax Increase (2012), otherwise known as Jerry Brown's Tax Increase. All of the public unions support it, of course, because it backfills the pension programs for state employees. But it has other groups supporting it as well.
There is a lot of support coming from the film companies in Hollywood. At first glance that would make sense, given how strongly most people in that industry support the Democratic Party. But even so, the studios are trying to fight against films being shot in more business friendly environments. More and more films are being shot out of state and out of country. So why is there such support for a measure that would only accelerate the trend?
There are special tax exemptions for filming in California, to support the local film industry. And unlike many parts of the tax code, these exemptions are renewed annually instead of being a normal (until a new bill is passed) part of the tax code. The threat is implicit, that if the studios do not support measures supported by the permanent Democratic Party majority in the legislature, those exemptions could easily and quickly disappear simply by failing to renew them. That would not even need the 2/3 vote required by Proposition 13, passed many years ago in order to combat ever increasing taxes.
The American Beverage Association is also backing this measure, in spite of how easily it can harm their operations in California. Shortly before gaining the support of the American Beverage Association, there was much discussion among prominent Democrat politicians about how the state needs to combat obesity by putting punitive taxes on sugary drinks as is happening in other areas of the country. This discussion died down quickly after the American Beverage Association gave its backing to Proposition 30. They even donated $250,000 towards the passage of Proposition 30.
Although there is no explicit threat, at least not one where there is a written demand that could be used as proof, this is pretty clearly a case where various organizations are being threatened to support a measure that they otherwise would not, in exchange for not being harmed more directly. It is the highway man saying "your money or your life" to these groups.
There is a lot of support coming from the film companies in Hollywood. At first glance that would make sense, given how strongly most people in that industry support the Democratic Party. But even so, the studios are trying to fight against films being shot in more business friendly environments. More and more films are being shot out of state and out of country. So why is there such support for a measure that would only accelerate the trend?
There are special tax exemptions for filming in California, to support the local film industry. And unlike many parts of the tax code, these exemptions are renewed annually instead of being a normal (until a new bill is passed) part of the tax code. The threat is implicit, that if the studios do not support measures supported by the permanent Democratic Party majority in the legislature, those exemptions could easily and quickly disappear simply by failing to renew them. That would not even need the 2/3 vote required by Proposition 13, passed many years ago in order to combat ever increasing taxes.
The American Beverage Association is also backing this measure, in spite of how easily it can harm their operations in California. Shortly before gaining the support of the American Beverage Association, there was much discussion among prominent Democrat politicians about how the state needs to combat obesity by putting punitive taxes on sugary drinks as is happening in other areas of the country. This discussion died down quickly after the American Beverage Association gave its backing to Proposition 30. They even donated $250,000 towards the passage of Proposition 30.
Although there is no explicit threat, at least not one where there is a written demand that could be used as proof, this is pretty clearly a case where various organizations are being threatened to support a measure that they otherwise would not, in exchange for not being harmed more directly. It is the highway man saying "your money or your life" to these groups.
Sunday, April 22, 2012
Tax Increase Theater
In order to score rhetorical points, the Democrats are proposing raising taxes on the rich back up to Clinton-era levels. That means that the top tax rate will rise from 35% to 39.6%. That is an increase on one tax bracket of about 11%, and it shows not only that the Democrats are not interested in balancing the budget it shows that they believe the voters are idiots for thinking that 8% increase is what is needed to balance the budget.
Currently, approximately 66% of the government spending is paid for by taxation and 33% is paid for by borrowing. If the Democratic Party wants to balance the budget through tax increases, it would require approximately a 50% tax hike across the board, on all taxes and tax brackets. The top tax bracket would have to go from 35% to 52.5% which would not be displeasing to Democrats if they feel the voters wouldn’t react negatively. But that involves only taxing the rich, and a serious attempt to balance the budget through taxation will involve more than just taxing the rich.
That doesn’t include the other taxes, which must also be raised by a similar amount. The 7% employee contribution and 7% employer contribution to Social Security must go to 10.5%, and similar increases are needed to all other federal taxes. This includes, by the way, the very unrealistic assumption that this massive across-the-board tax increase will not result in a severe and nearly immediate economic downturn.
Some Democrats will protest that tax increases on the wealthy would be enough if they were high enough, but that argument is absurd. There aren’t enough people in the top two brackets and their combined incomes are not enough to cover the 33% of the budget that is in deficit. Only by taxing the rest of the population as well, including the 42% of the public that doesn’t pay taxes at all, can the budget be balanced. The taxes have to be on everyone, which is a proposal the Democrats are not courageous enough to make.
There are two ways to balance the budget, and they are through either tax increases or spending cuts. The Democrats clearly prefer the idea of using tax increases, but if their proposal is only a mild tax increase on the top brackets, their proposal is as much about balancing the budget as the Ryan Plan is about spending cuts – theater designed to give the illusion and appearance of doing something without any of the hard work of doing something.
If the Democrats in office are serious about using tax increases to balance the budget, and do without any spending cuts, then there is only one proposal that shows they are serious. It would be the Democratic Party equivalent of the Randall Paul budget proposal which cut the budget by $500 billion and even Senator Paul admitted didn’t go far enough. The real point of the current tax increase proposal isn’t to raise revenue or balance the budget, it is to encourage class jealousy in order to increase votes this coming November.
Currently, approximately 66% of the government spending is paid for by taxation and 33% is paid for by borrowing. If the Democratic Party wants to balance the budget through tax increases, it would require approximately a 50% tax hike across the board, on all taxes and tax brackets. The top tax bracket would have to go from 35% to 52.5% which would not be displeasing to Democrats if they feel the voters wouldn’t react negatively. But that involves only taxing the rich, and a serious attempt to balance the budget through taxation will involve more than just taxing the rich.
| Old rate | New rate |
| 10% | 15% |
| 15% | 22.5% |
| 25% | 37.5% |
| 28% | 42% |
| 33% | 49.5% |
| 35% | 52.5% |
That doesn’t include the other taxes, which must also be raised by a similar amount. The 7% employee contribution and 7% employer contribution to Social Security must go to 10.5%, and similar increases are needed to all other federal taxes. This includes, by the way, the very unrealistic assumption that this massive across-the-board tax increase will not result in a severe and nearly immediate economic downturn.
Some Democrats will protest that tax increases on the wealthy would be enough if they were high enough, but that argument is absurd. There aren’t enough people in the top two brackets and their combined incomes are not enough to cover the 33% of the budget that is in deficit. Only by taxing the rest of the population as well, including the 42% of the public that doesn’t pay taxes at all, can the budget be balanced. The taxes have to be on everyone, which is a proposal the Democrats are not courageous enough to make.
There are two ways to balance the budget, and they are through either tax increases or spending cuts. The Democrats clearly prefer the idea of using tax increases, but if their proposal is only a mild tax increase on the top brackets, their proposal is as much about balancing the budget as the Ryan Plan is about spending cuts – theater designed to give the illusion and appearance of doing something without any of the hard work of doing something.
If the Democrats in office are serious about using tax increases to balance the budget, and do without any spending cuts, then there is only one proposal that shows they are serious. It would be the Democratic Party equivalent of the Randall Paul budget proposal which cut the budget by $500 billion and even Senator Paul admitted didn’t go far enough. The real point of the current tax increase proposal isn’t to raise revenue or balance the budget, it is to encourage class jealousy in order to increase votes this coming November.
Friday, July 08, 2011
California Shoots Self in Foot
Because California legislators are unable to control their urge to spend, especially their urge to spend on public employee pensions and salaries, they are always looking for new sources of revenue. There was one major stream of business not taxed, so the inevitable occurred. The government of the state of California decided to force businesses that do business over the internet to collect sales tax.
It is already law that residents of the state are supposed to pay the sales tax for all internet purchases. There is a line on the state income tax forms for that purpose - a line ignored by Californians. Frustrated by their inability to force Californians to pay yet another tax in one of the highest taxed states in the country, the idea was to “close a loophole” and force internet businesses to do the same tax collection that stores physically located in the state collect - a service they provide “free” to the state.
Already Amazon.com and Overstock.com are reacting to this new law. They are not collecting the sale taxes, though. They are pulling out of the state.
Both businesses have affiliate programs whereby people can sell their products through these major corporations. Both partners in the affiliate programs profit. The major corporations profit by getting a portion of the proceeds, and the small affiliates profit by having their products listed through major outlets where they can reach larger audiences.
These affiliate programs are all ended. The business connections have been severed. Amazon alone had 10,000 affiliates in California, and has ceased to do business with them unless they leave the state.
This law, instead of raising revenue, has created a revenue loss. Instead of increased sales tax, it has resulted in decreased income tax. It may have even resulted in increased unemployment compensation.
One would hope that the legislators and the governor would see the results and admit that a mistake has been made. One would hope that they would see the decreased revenue and the increased unemployment. Of course one would also hope that politicians are honest, capable, and intelligent, but the evidence indicates otherwise.
It is already law that residents of the state are supposed to pay the sales tax for all internet purchases. There is a line on the state income tax forms for that purpose - a line ignored by Californians. Frustrated by their inability to force Californians to pay yet another tax in one of the highest taxed states in the country, the idea was to “close a loophole” and force internet businesses to do the same tax collection that stores physically located in the state collect - a service they provide “free” to the state.
Already Amazon.com and Overstock.com are reacting to this new law. They are not collecting the sale taxes, though. They are pulling out of the state.
Both businesses have affiliate programs whereby people can sell their products through these major corporations. Both partners in the affiliate programs profit. The major corporations profit by getting a portion of the proceeds, and the small affiliates profit by having their products listed through major outlets where they can reach larger audiences.
These affiliate programs are all ended. The business connections have been severed. Amazon alone had 10,000 affiliates in California, and has ceased to do business with them unless they leave the state.
This law, instead of raising revenue, has created a revenue loss. Instead of increased sales tax, it has resulted in decreased income tax. It may have even resulted in increased unemployment compensation.
One would hope that the legislators and the governor would see the results and admit that a mistake has been made. One would hope that they would see the decreased revenue and the increased unemployment. Of course one would also hope that politicians are honest, capable, and intelligent, but the evidence indicates otherwise.
Wednesday, February 09, 2011
Justice Oliver Wendell Holmes
The Supreme Court Jurist Oliver Wendell Holmes once stated "Taxes are the price we pay for a civilized society." It is a quote often repeated by statists towards libertarians in order to “prove” that libertarians are against having a civilized society. Plus there is the hope that any libertarian who would disagree with that statement would be cowed by the impressive credentials of the originator of the quote. The problem with the quote is that Justice Holmes was technically correct, but was lying by omission.
The full expression should be "Taxes are the price we pay for government, and government is the price we pay for a civilized society." It is very important to include the middle term. Including the middle term shows both what taxes actually pay for and where taxes actually go to. Including the middle term also portrays the government as a burden, a price that must be paid, instead of a blessing.
Breaking the syllogism down into its component parts makes it much easier to argue. "Taxes are the price we pay for government" defuses any argument that a statist might make about how libertarians, by opposing taxes, therefore oppose civilization. It expresses clearly that taxes are nothing more than the paycheck of the government, and that there is no direct link between taxes and civilized society
"Government is the price we pay for civilized society" is very arguable. Minarchists may agree; anarchists certainly don’t. It also makes a stronger case that the government can be the agent of disorder. If taxes are paid so that the government will provide stability and security, and the government not only fails to do so but causes the opposite, the expanded expression including the middle term shows that taxes should be withheld from the misbehaving government.
The shortened version popularized by Justice Holmes, while partially true, is dishonest in the extreme by what it leaves out. When shortened it is a pro-government argument, but when expanded it can be used by libertarians.
The full expression should be "Taxes are the price we pay for government, and government is the price we pay for a civilized society." It is very important to include the middle term. Including the middle term shows both what taxes actually pay for and where taxes actually go to. Including the middle term also portrays the government as a burden, a price that must be paid, instead of a blessing.
Breaking the syllogism down into its component parts makes it much easier to argue. "Taxes are the price we pay for government" defuses any argument that a statist might make about how libertarians, by opposing taxes, therefore oppose civilization. It expresses clearly that taxes are nothing more than the paycheck of the government, and that there is no direct link between taxes and civilized society
"Government is the price we pay for civilized society" is very arguable. Minarchists may agree; anarchists certainly don’t. It also makes a stronger case that the government can be the agent of disorder. If taxes are paid so that the government will provide stability and security, and the government not only fails to do so but causes the opposite, the expanded expression including the middle term shows that taxes should be withheld from the misbehaving government.
The shortened version popularized by Justice Holmes, while partially true, is dishonest in the extreme by what it leaves out. When shortened it is a pro-government argument, but when expanded it can be used by libertarians.
Wednesday, January 26, 2011
Balancing the Budget
It is still possible to avoid the budgetary collapse of the federal, state, and local governments. All it would take is politicians of courage and integrity, which is why it is unavoidable that this country will experience said budgetary collapse.
Saving government budgets will require a mix of both tax increases and spending cuts, but it will have to be different from all former mixes of tax increases and spending cuts. In the past the governments would offer the people a deal, wherein taxes are raised now and three years down the road the spending cuts would kick in. Democrats would make this offer, promising to reverse course and cut spending. Republicans would make a big show about how they are reluctantly accepting the deal, because they want to vote for tax increases but want to tell their constituents that they do not want to vote for tax increases. Three years later, everything is changed and the spending cuts do not happen. Some people have forgotten the deal. Republicans act shocked that the Democrats betrayed them. Sometimes there are some minor reductions in the rate of increase.
A real effort to balance the budget would by necessity include real spending cuts. The whole dollar amount of the budget would have to be smaller than the whole dollar amount the previous year. It would not be inflation adjusted dollars, it must be nominal dollars.
A second point would be to refuse the phony deal of "taxes now and cuts later." Any effort to balance the budget based on a combination of tax increases and spending cuts must have spending cuts come first. Politicians are loathe to cut spending, and always look for an excuse not to. By putting it first, and not implementing any tax increases until spending is cut forces them to act in a responsible manner in spite of their own wishes.
A third point of difference between a real effort to balance the budget and phony past attempts at reform would be the ratio of tax increases to spending cuts. In past deals, the alleged rate would be dollar for dollar, one dollar of tax increases for one dollar of spending cuts, although the cuts never actually materialized. In order to balance the budgets now, it would require probably about twelve dollars of cuts for every dollar of increased taxes, perhaps more. A ratio of twelve-to-one is a good place to start though, considering the need to pay off the enormous accumulated debt. Government spending is currently about 30% of GDP, and taxes are currently about 18% of GDP; impelementing a twelve-to-one ratio will result in 18% for spending and 19% for taxes, a small but real surplus.
Admittedly, for those who have grown dependent on government, cuts of that magnitude would be painful. And for those who actually pay the taxes, even that much more of a tax increase would also be painful. For the former there is little cause for sympathy, but the latter will eventually see a benefit. As the debt is actually reduced the value of the dollar will increase, giving the country the relief of a much needed deflation. Unlike the phony investments by government, this would be an investment that would eventually pay off.
This would require great personal courage on the part of elected officials; they would have to make the tough choices and take responsibility for their decisions. That is why the budgets will collapse instead. It is important to offer this advice, although it will never be followed, because an accusation often hurled at libertarians is that they do nothing but criticize and never offer any suggestions. Libertarians do offer plenty of suggestions, but most libertarian suggestions are anathema to statists and thus "don't count."
Saving government budgets will require a mix of both tax increases and spending cuts, but it will have to be different from all former mixes of tax increases and spending cuts. In the past the governments would offer the people a deal, wherein taxes are raised now and three years down the road the spending cuts would kick in. Democrats would make this offer, promising to reverse course and cut spending. Republicans would make a big show about how they are reluctantly accepting the deal, because they want to vote for tax increases but want to tell their constituents that they do not want to vote for tax increases. Three years later, everything is changed and the spending cuts do not happen. Some people have forgotten the deal. Republicans act shocked that the Democrats betrayed them. Sometimes there are some minor reductions in the rate of increase.
A real effort to balance the budget would by necessity include real spending cuts. The whole dollar amount of the budget would have to be smaller than the whole dollar amount the previous year. It would not be inflation adjusted dollars, it must be nominal dollars.
A second point would be to refuse the phony deal of "taxes now and cuts later." Any effort to balance the budget based on a combination of tax increases and spending cuts must have spending cuts come first. Politicians are loathe to cut spending, and always look for an excuse not to. By putting it first, and not implementing any tax increases until spending is cut forces them to act in a responsible manner in spite of their own wishes.
A third point of difference between a real effort to balance the budget and phony past attempts at reform would be the ratio of tax increases to spending cuts. In past deals, the alleged rate would be dollar for dollar, one dollar of tax increases for one dollar of spending cuts, although the cuts never actually materialized. In order to balance the budgets now, it would require probably about twelve dollars of cuts for every dollar of increased taxes, perhaps more. A ratio of twelve-to-one is a good place to start though, considering the need to pay off the enormous accumulated debt. Government spending is currently about 30% of GDP, and taxes are currently about 18% of GDP; impelementing a twelve-to-one ratio will result in 18% for spending and 19% for taxes, a small but real surplus.
Admittedly, for those who have grown dependent on government, cuts of that magnitude would be painful. And for those who actually pay the taxes, even that much more of a tax increase would also be painful. For the former there is little cause for sympathy, but the latter will eventually see a benefit. As the debt is actually reduced the value of the dollar will increase, giving the country the relief of a much needed deflation. Unlike the phony investments by government, this would be an investment that would eventually pay off.
This would require great personal courage on the part of elected officials; they would have to make the tough choices and take responsibility for their decisions. That is why the budgets will collapse instead. It is important to offer this advice, although it will never be followed, because an accusation often hurled at libertarians is that they do nothing but criticize and never offer any suggestions. Libertarians do offer plenty of suggestions, but most libertarian suggestions are anathema to statists and thus "don't count."
Wednesday, January 19, 2011
Bush Never Cut Taxes
Recently there was much discussion on the extension of the Bush tax cuts. Republicans and Democrats were both giving President Bush credit for cutting taxes when president, and Republicans were accusing the Democrats and President Obama of trying to raise taxes.
Leaving aside the fact that the tax cuts were actually the result of hundreds of congressmen in addition to President Bush and giving him credit, and leaving aside the debate over whether the expiration of the tax cuts constitute a tax increase there is still one big problem with the whole debate. Under President Bush taxes never went down. President Bush never cut taxes.
That is because as any Austrian economist can tell you, Total Taxes are always equal to Total Spending. It is true that some taxes were cut under President Bush, but that only means that other taxes went up even more.
What confuses the average person is that Total Taxes is the sum of Direct Taxes and Indirect Taxes. Deficit spending is therefore considered a tax. It can be paid by higher interest rates as the government crowds out other borrowers, or it can be paid by inflation as the government taxes away the wealth of those who hold cash. In both cases value is being transferred from the private sector to the public sector, and that is a tax.
Taxes shot up under President Bush, which is why the Tea Party Movement started in late 2007. The Tea Party movement has always had government spending as a major focus.
Now the debate is coming up as to whether or not the debt ceiling will be raised. A portion of the Republican takeover of the House of Representatives was based on Tea Party support. If the Republicans raise the debt ceiling, that will be an increase in taxes, which will be a repudiation of the support that got them elected.
Leaving aside the fact that the tax cuts were actually the result of hundreds of congressmen in addition to President Bush and giving him credit, and leaving aside the debate over whether the expiration of the tax cuts constitute a tax increase there is still one big problem with the whole debate. Under President Bush taxes never went down. President Bush never cut taxes.
That is because as any Austrian economist can tell you, Total Taxes are always equal to Total Spending. It is true that some taxes were cut under President Bush, but that only means that other taxes went up even more.
What confuses the average person is that Total Taxes is the sum of Direct Taxes and Indirect Taxes. Deficit spending is therefore considered a tax. It can be paid by higher interest rates as the government crowds out other borrowers, or it can be paid by inflation as the government taxes away the wealth of those who hold cash. In both cases value is being transferred from the private sector to the public sector, and that is a tax.
Taxes shot up under President Bush, which is why the Tea Party Movement started in late 2007. The Tea Party movement has always had government spending as a major focus.
Now the debate is coming up as to whether or not the debt ceiling will be raised. A portion of the Republican takeover of the House of Representatives was based on Tea Party support. If the Republicans raise the debt ceiling, that will be an increase in taxes, which will be a repudiation of the support that got them elected.
Friday, August 28, 2009
Why did Switzerland surrender?
In early August, Swiss bank UBS gave in to demands by the United States to divluge the names of over 4000 accounts. Normally this would be in violation of Swiss banking secrecy laws, but somehow Secretary of State Hillary Clinton convinced the Swiss government to allow this. The Swiss reported that UBS had no real choice in turning over the names.
The mystery is why the Swiss give in. Yes, diplomatic relations between the United States and Switzerland, but the Swiss have a well-deserved reputation for neutrality and any damaging of relations is more likely to hurt the reputation of the United States than it is to hurt Switzerland. Any overt action against Switzerland by the United States would be greeted with condemnation, even if those measures were on a lower level such as economic sanctions or condemnatory UN resolutions.
In a possibly apocryphal story, a Nazi commander asked a Swiss soldier what their 500,000 man militia would do if faced with 1,000,000 storm troopers. The solder replied "shoot twice and go home." While this conversation might not have actually happened it certainly captures the essence of the Swiss resistance to threats.
Then why would the Swiss give in to demands by the IRS? What could Hillary Clinton have said to cause the Swiss to give in?
The Swiss were also in the news in June as two Japanese individuals were caught attempting to sneak bonds into that country but were captured by Italian police. The bonds were of sufficient denomination to represent a full quarter of the Japanese holdings of United States debt. These bonds were later proven to be forgeries - high quality obvious forgeries. A true forger would want to make bonds as realistic as possible, and as a result not make such a blunder.
Forgeries of this nature are unlikely to be the work of any independent criminal. They are much more likely to be the work of a government engaging in economic warfare, and having the operative get captured is the warfare equivalent of a "shot across the bow".
Could it be that the United States government was behind the forged bonds? Could Secretary of State Clinton have told the Swiss that next time the bonds would be indistinguishable from the real thing - because they'd be made by the same printing press?
What would be the advantage of the United States government distributing forged United States treasury bonds in Switzerland? Once the forged bonds are snuck in and sold, the new owners would try to redeem these bonds. The United States would decline because "some bonds from Switzerland are forgereries". Following the discovery would be an announcement by the U.S. government that any bonds in Switzerland must be verified by the U.S. government in order to be redeemed. Given how much of the rest of the world holds their wealth in dollars, and how much of it may reside in Switzerland, that would freeze the hidden wealth of most of the world and damage the Swiss banking system. Millionares world-wide would be forced to reveal hidden assets, often to their own detriment, or lose those hidden assets.
It would be a nuclear option. Did Hillary Clinton threaten Switzerland with a nuclear option?
The mystery is why the Swiss give in. Yes, diplomatic relations between the United States and Switzerland, but the Swiss have a well-deserved reputation for neutrality and any damaging of relations is more likely to hurt the reputation of the United States than it is to hurt Switzerland. Any overt action against Switzerland by the United States would be greeted with condemnation, even if those measures were on a lower level such as economic sanctions or condemnatory UN resolutions.
In a possibly apocryphal story, a Nazi commander asked a Swiss soldier what their 500,000 man militia would do if faced with 1,000,000 storm troopers. The solder replied "shoot twice and go home." While this conversation might not have actually happened it certainly captures the essence of the Swiss resistance to threats.
Then why would the Swiss give in to demands by the IRS? What could Hillary Clinton have said to cause the Swiss to give in?
The Swiss were also in the news in June as two Japanese individuals were caught attempting to sneak bonds into that country but were captured by Italian police. The bonds were of sufficient denomination to represent a full quarter of the Japanese holdings of United States debt. These bonds were later proven to be forgeries - high quality obvious forgeries. A true forger would want to make bonds as realistic as possible, and as a result not make such a blunder.
Forgeries of this nature are unlikely to be the work of any independent criminal. They are much more likely to be the work of a government engaging in economic warfare, and having the operative get captured is the warfare equivalent of a "shot across the bow".
Could it be that the United States government was behind the forged bonds? Could Secretary of State Clinton have told the Swiss that next time the bonds would be indistinguishable from the real thing - because they'd be made by the same printing press?
What would be the advantage of the United States government distributing forged United States treasury bonds in Switzerland? Once the forged bonds are snuck in and sold, the new owners would try to redeem these bonds. The United States would decline because "some bonds from Switzerland are forgereries". Following the discovery would be an announcement by the U.S. government that any bonds in Switzerland must be verified by the U.S. government in order to be redeemed. Given how much of the rest of the world holds their wealth in dollars, and how much of it may reside in Switzerland, that would freeze the hidden wealth of most of the world and damage the Swiss banking system. Millionares world-wide would be forced to reveal hidden assets, often to their own detriment, or lose those hidden assets.
It would be a nuclear option. Did Hillary Clinton threaten Switzerland with a nuclear option?
Friday, March 06, 2009
The California Crisis
The California government, faced with a budget deficit of unprecedented proportions, chose the only option that a politician thinks is available. The legislators voted to raise taxes instead of learning to live within their means.
Because all tax increases in California need a 2/3 majority to pass, this required that three Assembly Republicans and three Senate Repubilcans join with the Democrat majority and vote to raise taxes.
While it may be tempting to consider those six Republican legislators to be rogues who betrayed their party, that is not the case.
Radio Personalities John and Ken of KFI 640 AM have through their investigative journalism discovered that these six were not acting in opposition to their fellow legislators. Instead they were picked at caucus meetings to be the ones to take the fall because they were (most of them) on their final term and could not be re-elected anyway. Their fellow Republican legislators knew that they were going to vote to raise taxes long before they actually did, and supported them in it.
This arrangement was made so that those who did not vote to raise taxes could say to their constituents that they did not break their promise to not raise taxes. While it is true that they did not cast the votes themselves, they are guilty of "aiding and abetting" the raising of taxes.
If the person who drives a get-away car after a bank robbery is considered to be guilty in part of the robbery, these Republican legislators are guilty in part of raising taxes. They could have at any time stood up to their caucus and opposed the tax increases. They did not. They went along with the deal, and in some cases asked favors from those who were the selected fall guys to get pet projects into the budget.
Now the budget deal has been put on the ballot for the voters. There is no option to vote against this deal as a whole. Proposition 1A has two options - a "no" vote raises taxes, while a "yes" vote raises taxes for two more years but gives a phony budget cap.
Those who are aware that the budget cap is fake and that by voting for 1A tax increases are extended are against 1A. The problem is that not everyone knows that because the ballot arguments - for and against - both fail to mention that. They were selected in a corrupt deal so as to prevent the voter from knowing the facts of this deal.
Fortunately the Howard Jarvis Taxpayer's Association is filing suit. While a referendum on the budget is not possible, it is reported they are working on a ballot proposition to overturn teh budget deal. The State of California is in a death-spiral. The best option is for the state to go bankrupt and have a judge cancel contracts so the state can balance its budget.
Because all tax increases in California need a 2/3 majority to pass, this required that three Assembly Republicans and three Senate Repubilcans join with the Democrat majority and vote to raise taxes.
While it may be tempting to consider those six Republican legislators to be rogues who betrayed their party, that is not the case.
Radio Personalities John and Ken of KFI 640 AM have through their investigative journalism discovered that these six were not acting in opposition to their fellow legislators. Instead they were picked at caucus meetings to be the ones to take the fall because they were (most of them) on their final term and could not be re-elected anyway. Their fellow Republican legislators knew that they were going to vote to raise taxes long before they actually did, and supported them in it.
This arrangement was made so that those who did not vote to raise taxes could say to their constituents that they did not break their promise to not raise taxes. While it is true that they did not cast the votes themselves, they are guilty of "aiding and abetting" the raising of taxes.
If the person who drives a get-away car after a bank robbery is considered to be guilty in part of the robbery, these Republican legislators are guilty in part of raising taxes. They could have at any time stood up to their caucus and opposed the tax increases. They did not. They went along with the deal, and in some cases asked favors from those who were the selected fall guys to get pet projects into the budget.
Now the budget deal has been put on the ballot for the voters. There is no option to vote against this deal as a whole. Proposition 1A has two options - a "no" vote raises taxes, while a "yes" vote raises taxes for two more years but gives a phony budget cap.
Those who are aware that the budget cap is fake and that by voting for 1A tax increases are extended are against 1A. The problem is that not everyone knows that because the ballot arguments - for and against - both fail to mention that. They were selected in a corrupt deal so as to prevent the voter from knowing the facts of this deal.
Fortunately the Howard Jarvis Taxpayer's Association is filing suit. While a referendum on the budget is not possible, it is reported they are working on a ballot proposition to overturn teh budget deal. The State of California is in a death-spiral. The best option is for the state to go bankrupt and have a judge cancel contracts so the state can balance its budget.
Wednesday, December 03, 2008
States and the Recession
In spite of federal efforts to stop it, the recession is continuing unabated. Unemployment is rising while prices and property values are falling. While the federal government has mismanagement options that enable it to spend in spite of decreased revenues, other levels of government do not have the same capabilities.
The states generally get funding from income taxes and sales taxes. Cities and counties generally get funding from property taxes and sales taxes. As unemployment rises, income tax revenues decline. As sales decrease, sales tax revenues decline. As property values plummet, property tax revenues decline.
Government officials find the prospect of cutting the budget abhorrent. That leaves the states in a quandary.
Some states are already turning to the federal government for bailout money. Not all agree, but the trend is there. Other states are looking for which taxes can be raised. Some are increasing their ticketing to increase revenue.
On the issue of raising taxes during a recession, Keynesians and Austrians agree it is a bad idea. States that do so are implementing bad economic programs, often in opposition to tax decreases implemented by the federal government.
A better solution would simply be for the states to do what everyone else has to do, and to adjust expenditures downward to match revenues.
The states generally get funding from income taxes and sales taxes. Cities and counties generally get funding from property taxes and sales taxes. As unemployment rises, income tax revenues decline. As sales decrease, sales tax revenues decline. As property values plummet, property tax revenues decline.
Government officials find the prospect of cutting the budget abhorrent. That leaves the states in a quandary.
Some states are already turning to the federal government for bailout money. Not all agree, but the trend is there. Other states are looking for which taxes can be raised. Some are increasing their ticketing to increase revenue.
On the issue of raising taxes during a recession, Keynesians and Austrians agree it is a bad idea. States that do so are implementing bad economic programs, often in opposition to tax decreases implemented by the federal government.
A better solution would simply be for the states to do what everyone else has to do, and to adjust expenditures downward to match revenues.
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