From the feedback I got, it seems that I was convincing on why not the controllers, but did not explain much in favor of the free market.
As I have stated before, we are the Free Market. It is the sum of all the individual decisions made by each person in society. We also need to be aware that not everyone who says they are in favor of the Free Market understands what they are saying. To merely reject Soviet Communism does not make one a believer in the free market. There are many on the political left who embrace some concepts of the Free Market, but they reject other parts of it and believe in broad limitations to it. Rejecting the truly free market does not make someone a Communist or a Socialist, but it does mean that you believe in control on some level. As I said last week, the Free Market is a rejection of control.
We usually think of the economy in terms of money, but this is the wrong perspective. If we were stuck on a deserted island, a briefcase full of money is worth no more than toilet paper. The real measure of the economy is the amount of goods and services we are able to produce. This is why economists talk about the Gross Domestic Product (or GDP). It is a measure of all the goods and services produced within the United States.
Our economy can grow in three ways.
1) Invention of a new product or service
2) Perfecting an existing product or process of making existing products
3) Discovering a new resource such as new oil deposits, new foods, new water supplies…
The free market is the best at achieving these three things.
Invention – Many dream of that one brilliant idea with which they can make their fortune. If that fortune did not exist, we would spend less time dreaming about new inventions. If we spend less time thinking about invention, fewer things will be invented. Kids dream of flying through the air like a bird, but the laws of physics eventually put this dream to rest. However, many adults still dream about inventions because nothing prevents the hope of making our fortune. We see a little craft we could make, a book we could write, a store we could open, or any of a million other possibilities. It would not just be fun to try; it is that we could make money too.
It is not that no one in other economic systems invents; it is that the reward is less so they think about it less. I showed evidence recently how countries with socialized medicine invent fewer medical breakthroughs. It is because they limit the rewards. No system rewards invention more than the free market.
Perfecting - We all do this every day. When we are at work or home, we figure out time and effort saving techniques. It can range from learning a short cut key in Microsoft’s Excel to a hip bump to shut a drawer. The primary way that we increase the economy, is to figure out how to produce more with the same amount of resources, or to produce the same using fewer resources. Our resources are our time, our labor, and the physical like wood and steel.
In a free market system, employers bidding for your services offer you wages and you take the best offer. If you are consistently discovering better ways to get more with less, employers will value that skill and reward you with higher wages. Sometimes people find new ways of doing things that offer a reward so large they leave their old job to start their own business. The phrase, “I could do it for half that price” has launched thousands and thousands of businesses.
However, the controllers often think that wages do not match their ideas of “fair”, so they try to set wages arbitrarily by a committee or law using some arcane formula. Teachers and government workers suffer under this practice and have less reward for perfecting resource saving techniques. No system gives as large an incentive to work on perfecting production of goods and services than the free market.
Discovery – Heroic figures fill the pages of American history taking enormous risks to make their fortune by setting out into the wilderness. Settlers went west in search of new land to farm. Miners rushed out to the Rockies in search of gold and silver. Wildcatters in Texas would bet their life savings to find oil. All of these people took huge risks to find new resources because the potential for reward was huge. Today we have people on the left who complain about “excess” profits and they want to take that reward away. If there is less reward, there is less incentive for discovery. No system gives as large an incentive to expand discovery as the free market.
The free market creates the largest incentives for invention, perfection, and discovery. Bigger incentives beget bigger ideas. No other system can match the growth of ideas and the growth of production than the free market. The more we embrace it the smarter and wealthier we will all become.
Wednesday, February 13, 2008
Friday, February 8, 2008
Why the Free Market
There are two choices on how to run a society. Either you try to control other people’s lives or you don’t. Choosing a free market is choosing not to control the economic affairs of others. The free market relies on few rules to control only those behaviors that cause real harm to your body or your property.
The rejoinder to this argument is that sometimes society needs to be planned. The free choices of individuals do not end up creating the society that we want. Therefore, we vote to correct the poor decisions that individuals make.
The glaring problem is who decides the society that we want. In a Democracy, the majority decides for the minority. In Venezuela, they have voted to allow Chavez to take property from the voting minority and shut down news organizations that disagree with him. In Russia, they vote for leaders who routinely take away rights and freedoms.
There have always been people like Hugo Chavez. They have convinced themselves that destiny has chosen them out of the ether to bring heaven down to Earth. They dream of utopia and work to build a Tower of Babel, vainly believing that control is the pathway to paradise.
For every tyrant who darkens the earth, there are a million others casting the shadow of their will over the choices of others around them. It can be a city councilman, a neighborhood association member, even a parent using their position to needlessly control others. It is one of the frailties of humanity to see things we don’t like and to blame everyone but ourselves. It is through hubris, a lack of humility, that we conceive that we are smarter and wiser than others we know. We think we have all the answers when we mostly don’t have a clue.
There are many times I see a vacant lot and think, “They should build a restaurant there, or a bank, or a hotel.” Should they really? I really have no idea whether it would be worthwhile for any of those things to be built. Usually, it is what I want, not what is best. I see a bad movie and think, “I could make a better movie than that!” Could I? I’ve never been to film school. I’ve never published even a short story. Isn’t it arrogant to think that I would be better than someone who has spent a lifetime in the film industry?
The world is a very complicated place, and in our heads, we hold a tiny fraction of the information needed to run it. It is ridiculous for me to think that I could do your job or your life better than you. How much more ridiculous is it then for me to look at a company or even a whole industry and think that I personally have enough information to set them straight. Unfortunately, this truth hasn’t stopped many from trying.
Throughout the centuries, they have worn different labels and excuses to exert control. Kings of Europe claimed divine right, and more ancient rulers claimed that Oracles and astrological events called them.
Amongst today’s most arrogant are the Socialists. They believe that a handful of people can fix every aspect of our economy by taking control. They believe that we as a people are collectively incompetent to run our affairs. Their utopia requires us to yield our feeble minds to their soaring intellects. Most people equate socialism with atheism, but this is not true. The Socialist must believe in a god, because when he wakes in the morning he sees the Almighty staring back in the mirror.
These controllers come in every stripe and color, but inside they are all the same. They have a dream and they want to force the rest of us to be a part of it. They mob around a new idea of utopia, dismissing defenders of individual freedom like me as out of touch. They lob their invective at the mention of consequences to their plans. I am the grinch, the thieving rich, the tree-killer, and the hard-hearted. It is vivid vitriol to silence dissent.
All of the plans of controllers are the same. They start with “Wouldn’t it be great if…” and end with terror or taxes to prod us to toe the line. Not all are so nightmarish as Nazi Germany or the Khmer Rouge of Cambodia. Many are like the annoyance of a hyper PTA president asking for ridiculously elaborate costumes for the annual play. They are all forms of control, and require your submission.
In our economy today, we see them hard at work to firm their grip. They try to run our health care, run our schools, run our retirement, and run the mail. They want to plan every building in our cities, plan every pill we take, and plan the weather 100 years from now. As Robert Burns would say, “The best-laid plans of mice and men often go awry.” We observe that they have failed our health, failed or schools, failed our cities, and fail our economy.
Belief in the free market is a rejection of control. The free market does not judge that one man’s dream is more valid than another, as long as you behave peacefully towards each other. It is a belief that no individual or group rises even to the level of tolerable incompetence at planning our society. Regardless of whether your name is followed by PhD or GED there is no difference, no one is smart enough to be in control.
The role of government is to allow your choices to find your dreams, not my control to fund my whims.
As always, tell me what you think.
The rejoinder to this argument is that sometimes society needs to be planned. The free choices of individuals do not end up creating the society that we want. Therefore, we vote to correct the poor decisions that individuals make.
The glaring problem is who decides the society that we want. In a Democracy, the majority decides for the minority. In Venezuela, they have voted to allow Chavez to take property from the voting minority and shut down news organizations that disagree with him. In Russia, they vote for leaders who routinely take away rights and freedoms.
There have always been people like Hugo Chavez. They have convinced themselves that destiny has chosen them out of the ether to bring heaven down to Earth. They dream of utopia and work to build a Tower of Babel, vainly believing that control is the pathway to paradise.
For every tyrant who darkens the earth, there are a million others casting the shadow of their will over the choices of others around them. It can be a city councilman, a neighborhood association member, even a parent using their position to needlessly control others. It is one of the frailties of humanity to see things we don’t like and to blame everyone but ourselves. It is through hubris, a lack of humility, that we conceive that we are smarter and wiser than others we know. We think we have all the answers when we mostly don’t have a clue.
There are many times I see a vacant lot and think, “They should build a restaurant there, or a bank, or a hotel.” Should they really? I really have no idea whether it would be worthwhile for any of those things to be built. Usually, it is what I want, not what is best. I see a bad movie and think, “I could make a better movie than that!” Could I? I’ve never been to film school. I’ve never published even a short story. Isn’t it arrogant to think that I would be better than someone who has spent a lifetime in the film industry?
The world is a very complicated place, and in our heads, we hold a tiny fraction of the information needed to run it. It is ridiculous for me to think that I could do your job or your life better than you. How much more ridiculous is it then for me to look at a company or even a whole industry and think that I personally have enough information to set them straight. Unfortunately, this truth hasn’t stopped many from trying.
Throughout the centuries, they have worn different labels and excuses to exert control. Kings of Europe claimed divine right, and more ancient rulers claimed that Oracles and astrological events called them.
Amongst today’s most arrogant are the Socialists. They believe that a handful of people can fix every aspect of our economy by taking control. They believe that we as a people are collectively incompetent to run our affairs. Their utopia requires us to yield our feeble minds to their soaring intellects. Most people equate socialism with atheism, but this is not true. The Socialist must believe in a god, because when he wakes in the morning he sees the Almighty staring back in the mirror.
These controllers come in every stripe and color, but inside they are all the same. They have a dream and they want to force the rest of us to be a part of it. They mob around a new idea of utopia, dismissing defenders of individual freedom like me as out of touch. They lob their invective at the mention of consequences to their plans. I am the grinch, the thieving rich, the tree-killer, and the hard-hearted. It is vivid vitriol to silence dissent.
All of the plans of controllers are the same. They start with “Wouldn’t it be great if…” and end with terror or taxes to prod us to toe the line. Not all are so nightmarish as Nazi Germany or the Khmer Rouge of Cambodia. Many are like the annoyance of a hyper PTA president asking for ridiculously elaborate costumes for the annual play. They are all forms of control, and require your submission.
In our economy today, we see them hard at work to firm their grip. They try to run our health care, run our schools, run our retirement, and run the mail. They want to plan every building in our cities, plan every pill we take, and plan the weather 100 years from now. As Robert Burns would say, “The best-laid plans of mice and men often go awry.” We observe that they have failed our health, failed or schools, failed our cities, and fail our economy.
Belief in the free market is a rejection of control. The free market does not judge that one man’s dream is more valid than another, as long as you behave peacefully towards each other. It is a belief that no individual or group rises even to the level of tolerable incompetence at planning our society. Regardless of whether your name is followed by PhD or GED there is no difference, no one is smart enough to be in control.
The role of government is to allow your choices to find your dreams, not my control to fund my whims.
As always, tell me what you think.
Thursday, January 31, 2008
Update and a Book Review
State of the Union
I was pleased to hear the President continue his support for Health Savings Accounts. He’s a lame duck and the Democratic controlled Congress is likely to do nothing about them, but at least he’s keeping the concept in the public eye. I was also pleased that he made a stand on earmarks. I wrote recently about the corrupting influence of earmarks a few weeks ago. If, like me, you happened to send an e-mail through the link I gave voicing your support to the executive order to ignore the earmarks, take note that you may have made a small difference.
Book Review
I was planning to suggest a few books that I have read since Christmas, but 3 of 4 were not easy reads. For one of them, I have had to wear out dictionary.com and wikipedia to explain all the terms. However, I read Freedomnomics by Economist Dr. John Lott. This book was a pretty easy read and I found some of the information jaw dropping. His specialty is crime and punishment and Chapter 4, which focuses on that, just blew me away. It really showed how conventional wisdom is flat out wrong when you look at the data on crime.
On a personal note, I sent him an e-mail to ask a question about an op-ed he wrote for Foxnews.com. From time to time I write more famous people to ask them a question or send a rebuttal, but I never hear back. Well, Dr. Lott not only e-mailed me back, but took the time to further explain his position. Even more, I sent the e-mail late in the evening and he replied by 6:30 the next morning. Wow! I think it says a lot about Dr. Lott, given that he wrote a top selling book and op-eds to the biggest names in media, but still takes the time to answer questions from average people.
His book is available at Amazon.com, but I checked it out from my local library.
Read the book, and as always, let me know what you think.
I was pleased to hear the President continue his support for Health Savings Accounts. He’s a lame duck and the Democratic controlled Congress is likely to do nothing about them, but at least he’s keeping the concept in the public eye. I was also pleased that he made a stand on earmarks. I wrote recently about the corrupting influence of earmarks a few weeks ago. If, like me, you happened to send an e-mail through the link I gave voicing your support to the executive order to ignore the earmarks, take note that you may have made a small difference.
Book Review
I was planning to suggest a few books that I have read since Christmas, but 3 of 4 were not easy reads. For one of them, I have had to wear out dictionary.com and wikipedia to explain all the terms. However, I read Freedomnomics by Economist Dr. John Lott. This book was a pretty easy read and I found some of the information jaw dropping. His specialty is crime and punishment and Chapter 4, which focuses on that, just blew me away. It really showed how conventional wisdom is flat out wrong when you look at the data on crime.
On a personal note, I sent him an e-mail to ask a question about an op-ed he wrote for Foxnews.com. From time to time I write more famous people to ask them a question or send a rebuttal, but I never hear back. Well, Dr. Lott not only e-mailed me back, but took the time to further explain his position. Even more, I sent the e-mail late in the evening and he replied by 6:30 the next morning. Wow! I think it says a lot about Dr. Lott, given that he wrote a top selling book and op-eds to the biggest names in media, but still takes the time to answer questions from average people.
His book is available at Amazon.com, but I checked it out from my local library.
Read the book, and as always, let me know what you think.
Monday, January 21, 2008
Mail Chauvinist
Last week I asked you to send me suggestions on how we could shrink the size of the government. My father responded and sent me a lengthy list. One of the areas he believes we could rid ourselves caught my eye because I had not thought about it in a while. Privatizing the Post Office.
I occasionally go to the Post Office, but it always seems like a hassle. The line is always long, and it takes forever, so I typically avoid going unless I have an unusually sized letter or box. At work, nobody uses the post office. We send everything via FedEx.
Increasingly, the Post Office is becoming more and more unnecessary. Do we write letters or do we send e-mails? We can pay our bills on-line. Fed-Ex and UPS deliver millions of packages. In my mailbox, it’s 90% junk that I don’t really want anyway.
It strikes me as odd that a government run organization would run directly in competition with private companies. FedEx, UPS, and DHL all have airmail and fast delivery as well as the Post Office. Why do we need a government organization competing with private companies?
It is true that the Post Office is required not to lose money on an on-going basis, but this hides some important facts. According to the National Review Online:
“Few Americans realize that the USPS already has accumulated over $70 billion in unfunded liabilities — mostly money promised to employees in retirement and health benefits. The USPS doesn't have that money. Nobody knows how on earth it's going to meet these liabilities.”
If FedEx owed $70 billion to its employees, do you think the government would bail them out? Not likely. Private companies are required by law to deposit money into an account to maintain a high probability of paying off their pension plan obligations. The government is not required to do the same thing as private companies. I wonder who is going to have to pay this huge debt.
Some might wonder what we would do without a postal service. There are already dozens of shipping companies, local and global, that carry letters and packages. If there are profits to be made, you had better believe that they would be there to ship your letters. If you fear a rise in stamp prices (or mailing prices) because the government can perform this task cheaper than a private company can, please move the magic markers away from your nose.
Some might also wonder what other countries are doing. Well, by 2009 we will be one of the last countries in the industrialized world to have government run mail service. According to the same article, “The European Union aims to privatize all its national postal services by 2009.” According to Forbes, Italy will do it by 2008. Japan has already privatized their postal service in 2005.
Aren’t we always supposed to be like Europe?
As always, tell me what you think.
I occasionally go to the Post Office, but it always seems like a hassle. The line is always long, and it takes forever, so I typically avoid going unless I have an unusually sized letter or box. At work, nobody uses the post office. We send everything via FedEx.
Increasingly, the Post Office is becoming more and more unnecessary. Do we write letters or do we send e-mails? We can pay our bills on-line. Fed-Ex and UPS deliver millions of packages. In my mailbox, it’s 90% junk that I don’t really want anyway.
It strikes me as odd that a government run organization would run directly in competition with private companies. FedEx, UPS, and DHL all have airmail and fast delivery as well as the Post Office. Why do we need a government organization competing with private companies?
It is true that the Post Office is required not to lose money on an on-going basis, but this hides some important facts. According to the National Review Online:
“Few Americans realize that the USPS already has accumulated over $70 billion in unfunded liabilities — mostly money promised to employees in retirement and health benefits. The USPS doesn't have that money. Nobody knows how on earth it's going to meet these liabilities.”
If FedEx owed $70 billion to its employees, do you think the government would bail them out? Not likely. Private companies are required by law to deposit money into an account to maintain a high probability of paying off their pension plan obligations. The government is not required to do the same thing as private companies. I wonder who is going to have to pay this huge debt.
Some might wonder what we would do without a postal service. There are already dozens of shipping companies, local and global, that carry letters and packages. If there are profits to be made, you had better believe that they would be there to ship your letters. If you fear a rise in stamp prices (or mailing prices) because the government can perform this task cheaper than a private company can, please move the magic markers away from your nose.
Some might also wonder what other countries are doing. Well, by 2009 we will be one of the last countries in the industrialized world to have government run mail service. According to the same article, “The European Union aims to privatize all its national postal services by 2009.” According to Forbes, Italy will do it by 2008. Japan has already privatized their postal service in 2005.
Aren’t we always supposed to be like Europe?
As always, tell me what you think.
Wednesday, January 16, 2008
Thoughts and Ideas
Two topics this week.
More thoughts on Health Care
Over the last few months I have written a number of posts concerning the universal health care proposals. My three main criticisms of these plans are:
1. The Universal insurance plans proposed continue the HMO style of health insurance. HMO style insurance encourages over use of medical services by separating us from the actual expense of health care.
2. These Universal HMO plans by Obama, Edwards and Clinton also discourage people from finding the least expensive doctor or treatment. We don’t pay the costs so we don’t bother finding this information
3. HMO style insurance over insures us and leads us to take less care of our health because they don’t face the financial repercussions.
Well, I came up with yet another criticism of these proposed moves towards government run health care systems like those that exist in Canada and Western Europe. To be fair, none of the Universal Insurance plans Democrats have proposed would cause side effects of the size I’m talking about. However, all three have mentioned the “excessive profits” that drug companies are making and their party has been pushing to confiscate these profits or mandate lower prices by law. These moves could easily cause the effects that I fear.
According to the Kenneth Shadlen of Development Studies Institute, between 1996 and 2000 the United States accounted for 63% of all medical patents worldwide even though we make up only 5% of the population. Even when you compare the U.S. to Western Europe we blow them away. On a per capita basis, the U.S. puts out 2 to 2 ½ times the medical advances of the UK, France, Canada, and Germany. Clearly, our medical system, based on profits, outperforms the European countries with socialized medicine. The rest of the world is relying on our free market system because we choose not to exclude them from new medicines and technologies.
All else being equal, if the United States were to switch to a similar system for medicine as the four mentioned, worldwide medical advances would fall by almost 40%. Instead of finding cures and treatments for say 500,000 people next year, it would only be 300,000. That treatment you were hoping for that was only 10 years off could be 18 years off. How much needless suffering and pain would we inflict upon the world if we were to do as others have chosen to do?
Before we barrel down the road towards socialized medicine, we need to appreciate what could be the catastrophic consequences.
It’s a Nice Idea, But It Can’t be Done
Recently, in this newsletter, on my blog, and other blogs I have been defending the idea of Texas dropping the property tax for a sales tax in the spirit of the Fair Tax. I’ve come across general support, but also some doubt that it could ever be accomplished. I'm told that like the flat tax, fair tax, and many of the ideas that I have proposed, these changes are too ambitious to ever occur. I have run across some evidence that these doubt are unfounded.
The state of Utah recently switched from a complicated income tax with lots of loopholes and deductions to a Flat Tax. Read about it here:
http://www.sltrib.com/ci_7766094
The governor of the state of South Carolina recently proposed a budget that includes a flat tax option where citizens can choose whether to pay their state income tax under the existing system of deductions and loopholes or pay a flat tax.
“Under the plan, residents could choose to pay a flat 3.4 percent income tax rate. In exchange, they could claim no tax deductions or credits.”
http://www.thestate.com/local/story/262697.html
When the winds are blowing against the ideas of the free market and small government, it seems like an impossible task to significantly reduce the size of our government. Over the last 20 years, Ireland has shown that it can be done.
In 1985, government spending accounted for 54% of the Irish economy. The Irish made a choice to reduce the size of government and they did. Over the last twenty years, the Irish have cut government spending by 35% as a percentage of GDP. Their country now has a lower overall tax rate than the United States. They have moved from one of the poorest countries in Western Europe to one of the wealthiest. The Heritage Foundation lists them as having a more free economy than the United States. In 1985, the average Irish family made 40% less than their French and German counterparts. Today, because of the massive spending cuts and massive growth from that, the Irish make 40% more than the French and the Germans according to the IMF.
Do you think that we can move to less government in the United States? Tell me yes or no. Tell me what you think is the easiest government spending to get rid of. Send me an e-mail or go out to my blog.
As always, tell me what you think and pass this newsletter along to anyone who might be interested.
More thoughts on Health Care
Over the last few months I have written a number of posts concerning the universal health care proposals. My three main criticisms of these plans are:
1. The Universal insurance plans proposed continue the HMO style of health insurance. HMO style insurance encourages over use of medical services by separating us from the actual expense of health care.
2. These Universal HMO plans by Obama, Edwards and Clinton also discourage people from finding the least expensive doctor or treatment. We don’t pay the costs so we don’t bother finding this information
3. HMO style insurance over insures us and leads us to take less care of our health because they don’t face the financial repercussions.
Well, I came up with yet another criticism of these proposed moves towards government run health care systems like those that exist in Canada and Western Europe. To be fair, none of the Universal Insurance plans Democrats have proposed would cause side effects of the size I’m talking about. However, all three have mentioned the “excessive profits” that drug companies are making and their party has been pushing to confiscate these profits or mandate lower prices by law. These moves could easily cause the effects that I fear.
According to the Kenneth Shadlen of Development Studies Institute, between 1996 and 2000 the United States accounted for 63% of all medical patents worldwide even though we make up only 5% of the population. Even when you compare the U.S. to Western Europe we blow them away. On a per capita basis, the U.S. puts out 2 to 2 ½ times the medical advances of the UK, France, Canada, and Germany. Clearly, our medical system, based on profits, outperforms the European countries with socialized medicine. The rest of the world is relying on our free market system because we choose not to exclude them from new medicines and technologies.
All else being equal, if the United States were to switch to a similar system for medicine as the four mentioned, worldwide medical advances would fall by almost 40%. Instead of finding cures and treatments for say 500,000 people next year, it would only be 300,000. That treatment you were hoping for that was only 10 years off could be 18 years off. How much needless suffering and pain would we inflict upon the world if we were to do as others have chosen to do?
Before we barrel down the road towards socialized medicine, we need to appreciate what could be the catastrophic consequences.
It’s a Nice Idea, But It Can’t be Done
Recently, in this newsletter, on my blog, and other blogs I have been defending the idea of Texas dropping the property tax for a sales tax in the spirit of the Fair Tax. I’ve come across general support, but also some doubt that it could ever be accomplished. I'm told that like the flat tax, fair tax, and many of the ideas that I have proposed, these changes are too ambitious to ever occur. I have run across some evidence that these doubt are unfounded.
The state of Utah recently switched from a complicated income tax with lots of loopholes and deductions to a Flat Tax. Read about it here:
http://www.sltrib.com/ci_7766094
The governor of the state of South Carolina recently proposed a budget that includes a flat tax option where citizens can choose whether to pay their state income tax under the existing system of deductions and loopholes or pay a flat tax.
“Under the plan, residents could choose to pay a flat 3.4 percent income tax rate. In exchange, they could claim no tax deductions or credits.”
http://www.thestate.com/local/story/262697.html
When the winds are blowing against the ideas of the free market and small government, it seems like an impossible task to significantly reduce the size of our government. Over the last 20 years, Ireland has shown that it can be done.
In 1985, government spending accounted for 54% of the Irish economy. The Irish made a choice to reduce the size of government and they did. Over the last twenty years, the Irish have cut government spending by 35% as a percentage of GDP. Their country now has a lower overall tax rate than the United States. They have moved from one of the poorest countries in Western Europe to one of the wealthiest. The Heritage Foundation lists them as having a more free economy than the United States. In 1985, the average Irish family made 40% less than their French and German counterparts. Today, because of the massive spending cuts and massive growth from that, the Irish make 40% more than the French and the Germans according to the IMF.
Do you think that we can move to less government in the United States? Tell me yes or no. Tell me what you think is the easiest government spending to get rid of. Send me an e-mail or go out to my blog.
As always, tell me what you think and pass this newsletter along to anyone who might be interested.
Tuesday, January 8, 2008
Supply Side Corruption
I suspect everyone has heard of Alaska’s “Bridge to Nowhere”. This wonderful piece of pork barrel spending planned $300 million to build a bridge as long as the Golden Gate Bridge and higher than the Brooklyn Bridge to connect a town of 7,400 people in southern Alaska to it’s airport across the bay. More specifically, it was an earmark.
What is an Earmark?
A wordy definition given by the Congressional Research Service is on p.5 of this pdf. An earmark is a small part of a bill inserted by a legislator to direct funds to a specific project or organization, typically within his or her own district. In this case, Congress approved a sum of money for transportation in Alaska, but Sen. Ted Stevens inserted an earmark to dedicate a big chunk towards his bridge. Wisely, Sen. Coburn of Oklahoma successfully fought to remove the earmark.
Sen. Stevens’ defense, made by many, is that he knows his state better than bureaucrats in Washington. Even though the bureaucrats do not live in Alaska, it is hard to believe that any one person could be smart enough to know the best use of funds in a state that covers 500,000 sq. miles. The places and people he knows would certainly get more attention.
If this were the only problem with earmarks, it would not be worth talking about. The real problems are much bigger. Instead of coming up with solutions for big issues, they are sitting in presentations by hat-in-hand organizations listening to pleas for government handouts.
Earmarks also increase total spending. It may be true that a Rep is simply sending a portion of his or her district’s funds to a certain project or organization, but having that earmark gives them a stake in seeing the bill pass. If a Congressman is worried about getting re-elected and can save his neck by building a nice museum in his district by use of an earmark, the temptation is to vote for the entire spending bill regardless of how bloated it gets.
In 1994, Republicans swept to power promising fiscal discipline because the spending habits of Democrats were out of hand. The Republicans held strong for a few years, but soon succumbed to the money game and the number of earmarks and pork barrel projects skyrocketed. In 2006, the Democrats swept to power promising fiscal discipline and earmark reform. They then proceeded to vote down the earmark reforms and started busting the budget with pork-filled bills.
In a letter to House Majority Leader Nancy Pelosi concerning earmarks, Rep. Carolyn Cheeks Kilpatrick is quoted in an article by politico.com.
“There are a few examples of where your help could significantly assist a few members in highly contested races,” she wrote.
Apparently, this Congresswoman is requesting that the party leadership should use public money to help secure the re-election of party members by use of earmarks. This is unbelievable! Let me make it clear: She wants to take YOUR money and give it to lobbyists to help keep her party in power!
In response to this letter Rep. Campbell of California said, “This letter appears to request taxpayer dollars to aid in political campaigns, which is improper and possibly illegal.”
Note: I don’t like to make a big issue out of offhanded quotes, but her quote was in a prepared letter with her signature. This was not a misstatement and was not taken out of context.
Most importantly, there is the very real problem of lobbyists making a campaign donation and the Congressman magically seeing the light and deciding that yes, the road leading to said lobbyist’ proposed development should be expanded. In other words, corruption.
A few years ago, Congress passed the McCain-Feingold bill to limit donations and lobbyist influence. It does not seem to have worked, as there has been no mass exodus by lobbyists out of DC. This year, Congress slipped thousands of earmarks into bills to help special interest groups. The problem with the McCain-Feingold bill is that it was an attempt to reduce demand for government handouts. If you can cure the demand for free money, I’ll nominate you for a Nobel Prize. It is not the demand for free money that can be controlled, it is the supply.
We need to ban earmarks, plain and simple. If a Congressman cannot give funds to a particular project or organization, the lobbyists will stop asking for money. If there is no supply of free money, there is no demand for free money.
This is also one of the reasons I support the flat tax. If there is no supply of tax breaks and loopholes, there will be no demand for tax breaks and loopholes.
To end corruption and the appearance of corruption, we have to cut off the supply of free money handouts. We must ban earmarks.
Right now, an organization called FreedomWorks has a website set up to send an e-mail to the President letting him know you want him to override the earmarks. It was quick and easy. I sent one and I hope you do too. Check it out here.
As always, let me know what you think.
What is an Earmark?
A wordy definition given by the Congressional Research Service is on p.5 of this pdf. An earmark is a small part of a bill inserted by a legislator to direct funds to a specific project or organization, typically within his or her own district. In this case, Congress approved a sum of money for transportation in Alaska, but Sen. Ted Stevens inserted an earmark to dedicate a big chunk towards his bridge. Wisely, Sen. Coburn of Oklahoma successfully fought to remove the earmark.
Sen. Stevens’ defense, made by many, is that he knows his state better than bureaucrats in Washington. Even though the bureaucrats do not live in Alaska, it is hard to believe that any one person could be smart enough to know the best use of funds in a state that covers 500,000 sq. miles. The places and people he knows would certainly get more attention.
If this were the only problem with earmarks, it would not be worth talking about. The real problems are much bigger. Instead of coming up with solutions for big issues, they are sitting in presentations by hat-in-hand organizations listening to pleas for government handouts.
Earmarks also increase total spending. It may be true that a Rep is simply sending a portion of his or her district’s funds to a certain project or organization, but having that earmark gives them a stake in seeing the bill pass. If a Congressman is worried about getting re-elected and can save his neck by building a nice museum in his district by use of an earmark, the temptation is to vote for the entire spending bill regardless of how bloated it gets.
In 1994, Republicans swept to power promising fiscal discipline because the spending habits of Democrats were out of hand. The Republicans held strong for a few years, but soon succumbed to the money game and the number of earmarks and pork barrel projects skyrocketed. In 2006, the Democrats swept to power promising fiscal discipline and earmark reform. They then proceeded to vote down the earmark reforms and started busting the budget with pork-filled bills.
In a letter to House Majority Leader Nancy Pelosi concerning earmarks, Rep. Carolyn Cheeks Kilpatrick is quoted in an article by politico.com.
“There are a few examples of where your help could significantly assist a few members in highly contested races,” she wrote.
Apparently, this Congresswoman is requesting that the party leadership should use public money to help secure the re-election of party members by use of earmarks. This is unbelievable! Let me make it clear: She wants to take YOUR money and give it to lobbyists to help keep her party in power!
In response to this letter Rep. Campbell of California said, “This letter appears to request taxpayer dollars to aid in political campaigns, which is improper and possibly illegal.”
Note: I don’t like to make a big issue out of offhanded quotes, but her quote was in a prepared letter with her signature. This was not a misstatement and was not taken out of context.
Most importantly, there is the very real problem of lobbyists making a campaign donation and the Congressman magically seeing the light and deciding that yes, the road leading to said lobbyist’ proposed development should be expanded. In other words, corruption.
A few years ago, Congress passed the McCain-Feingold bill to limit donations and lobbyist influence. It does not seem to have worked, as there has been no mass exodus by lobbyists out of DC. This year, Congress slipped thousands of earmarks into bills to help special interest groups. The problem with the McCain-Feingold bill is that it was an attempt to reduce demand for government handouts. If you can cure the demand for free money, I’ll nominate you for a Nobel Prize. It is not the demand for free money that can be controlled, it is the supply.
We need to ban earmarks, plain and simple. If a Congressman cannot give funds to a particular project or organization, the lobbyists will stop asking for money. If there is no supply of free money, there is no demand for free money.
This is also one of the reasons I support the flat tax. If there is no supply of tax breaks and loopholes, there will be no demand for tax breaks and loopholes.
To end corruption and the appearance of corruption, we have to cut off the supply of free money handouts. We must ban earmarks.
Right now, an organization called FreedomWorks has a website set up to send an e-mail to the President letting him know you want him to override the earmarks. It was quick and easy. I sent one and I hope you do too. Check it out here.
As always, let me know what you think.
Tuesday, January 1, 2008
The Moral Man
Over the last few months, I have read and listened to a number of people on the left describe the moral duty of Americans to help the poor. Because of this, they believe that we need to raise taxes, specifically on the wealthiest Americans, to accomplish this.
Many of us are repulsed by this kind of thinking straight away, but let’s really examine what these people are saying.
Who has a moral duty to help the poor? Don’t we all? So, if I vote to tax the wealthy, when I am not wealthy, and use the money to pay government workers to help the poor when I am not a government worker, have I done a moral thing? How can it be moral for someone to volunteer none of their own money and none of their own time towards those in need? Did Jesus tell the rich young ruler to confiscate his neighbor’s possessions and give them to the poor? Of course not, that would be nonsense. It would also be nonsense to believe that someone is doing a moral thing by forcing the rich to help the poor. They should remove the plank from their own eye before removing the speck in another’s.
Now are the rich doing something moral by paying taxes to help the poor? How can we consider an act moral if it is by compulsion? It may be moral not to cheat on your taxes, but it is not a moral act merely to obey the law. Recently, the press reported the “heroic” acts of Billionaire Warren Buffett when he requested that Congress raise his taxes. Was this a moral request? Hardly. What is stopping Warren Buffett from cutting out the middleman and simply writing a check? The government accepts donations. No, Warren Buffett wants to volunteer other people’s money and he wants to be on TV so that he can make a spectacle of his generosity. It is not a moral act to volunteer other people’s money.
Wouldn’t it be moral to take money from rich people since they got that money by taking advantage of the little guy? If Warren Buffett made his $30 Billion by taking advantage of other people, surely he should go to jail, not just pay some taxes. By using this excuse to tax everyone above a certain level, we are claiming that every single one of them did something immoral to gain that money. This is absurd. Should they all go to jail? Is it moral to take away money from every person because they have or make significant sums of money? This claim lacks proof, so it is not moral to take money away from someone simply because of a high income.
Is it moral for the poor to help themselves by volunteering the money of the rich? Of course not, you can’t use the government to enrich yourself and call it moral.
It is not moral for the poor to tax the rich for their own gain. Nor is it moral for the middle class to tax the rich to help the poor. Nor is it moral for the rich to avoid prison by paying their taxes. So is taxing the rich to help the poor a moral thing? How can it be moral when neither the poor, the middle class, nor the rich are individually doing anything moral? It is not, and therefore it is not a moral thing to tax the rich to help the poor.
It is moral to choose privately to help those in need. It is moral to give and not seek acclaim. It is moral to spend one’s own time becoming involved in the lives of those who need a brief reprieve from life’s storms, or who cannot do for themselves. It is moral to become aware of how to best serve those in need and not just assume that money will fix all the problems. It is moral to choose to help, it is not moral to be compelled to help.
In this New Year, I hope that all of us can find a way to help those in need as best we can, and not just point the finger and whine about what’s fair.
I also hope that all of you had a Merry Christmas and will have a wonderful New Year. It’s amazing that I sent out my first post almost six months ago. I appreciate all the feedback and criticism I have received so far. I have grown by leaps and bounds doing the research for posts and the discussions I have had with many of you via e-mail and the blog.
As always, tell me what you think.
Many of us are repulsed by this kind of thinking straight away, but let’s really examine what these people are saying.
Who has a moral duty to help the poor? Don’t we all? So, if I vote to tax the wealthy, when I am not wealthy, and use the money to pay government workers to help the poor when I am not a government worker, have I done a moral thing? How can it be moral for someone to volunteer none of their own money and none of their own time towards those in need? Did Jesus tell the rich young ruler to confiscate his neighbor’s possessions and give them to the poor? Of course not, that would be nonsense. It would also be nonsense to believe that someone is doing a moral thing by forcing the rich to help the poor. They should remove the plank from their own eye before removing the speck in another’s.
Now are the rich doing something moral by paying taxes to help the poor? How can we consider an act moral if it is by compulsion? It may be moral not to cheat on your taxes, but it is not a moral act merely to obey the law. Recently, the press reported the “heroic” acts of Billionaire Warren Buffett when he requested that Congress raise his taxes. Was this a moral request? Hardly. What is stopping Warren Buffett from cutting out the middleman and simply writing a check? The government accepts donations. No, Warren Buffett wants to volunteer other people’s money and he wants to be on TV so that he can make a spectacle of his generosity. It is not a moral act to volunteer other people’s money.
Wouldn’t it be moral to take money from rich people since they got that money by taking advantage of the little guy? If Warren Buffett made his $30 Billion by taking advantage of other people, surely he should go to jail, not just pay some taxes. By using this excuse to tax everyone above a certain level, we are claiming that every single one of them did something immoral to gain that money. This is absurd. Should they all go to jail? Is it moral to take away money from every person because they have or make significant sums of money? This claim lacks proof, so it is not moral to take money away from someone simply because of a high income.
Is it moral for the poor to help themselves by volunteering the money of the rich? Of course not, you can’t use the government to enrich yourself and call it moral.
It is not moral for the poor to tax the rich for their own gain. Nor is it moral for the middle class to tax the rich to help the poor. Nor is it moral for the rich to avoid prison by paying their taxes. So is taxing the rich to help the poor a moral thing? How can it be moral when neither the poor, the middle class, nor the rich are individually doing anything moral? It is not, and therefore it is not a moral thing to tax the rich to help the poor.
It is moral to choose privately to help those in need. It is moral to give and not seek acclaim. It is moral to spend one’s own time becoming involved in the lives of those who need a brief reprieve from life’s storms, or who cannot do for themselves. It is moral to become aware of how to best serve those in need and not just assume that money will fix all the problems. It is moral to choose to help, it is not moral to be compelled to help.
In this New Year, I hope that all of us can find a way to help those in need as best we can, and not just point the finger and whine about what’s fair.
I also hope that all of you had a Merry Christmas and will have a wonderful New Year. It’s amazing that I sent out my first post almost six months ago. I appreciate all the feedback and criticism I have received so far. I have grown by leaps and bounds doing the research for posts and the discussions I have had with many of you via e-mail and the blog.
As always, tell me what you think.
Wednesday, December 19, 2007
Fair Tax in Texas - Update 2
I sent two e-mails to State Rep. Larry Taylor's office regarding Rep. Phil King's sales tax proposal and received replies to both of them from Cari Chistman-Ott, his Chief of Staff. The first e-mail was voicing my support for the sales tax, and the second included my criticism of Dick Levine's position paper from CPPP.
Her e-mails are below:
Thank you for contacting Rep. Taylor regarding Rep. Phil King's consumption tax proposal. Rep. Taylor works closely with Rep. King on the Texas Conservative Coalition's Property Tax Task Force, in which they are both members. He believes Rep. King's proposal is a good starting point and looks forward to continue working with him on this proposal and others to relieve taxpayers from skyrocketing property taxes.
I have attached a copy of the TCC's statement on property tax reform for your review. Rep. Taylor will continue working with the task force throughout the interim to find a solution that will pass during the next legislative session in 2009.
Text of the attachment is here:
The property tax is the single worst tax ever devised.
Despite billions of dollars appropriated by the Legislature to cut Maintenance & Operations (M&O) tax rates, homeowners and businesses are facing rising tax bills due to local increases in appraisals, rates, and debt. It is apparent that the only way to provide relief from the M&O property tax is to eliminate it altogether.
Members of the Texas Conservative Coalition have shared a stark realization with Texans around the state at TCC town hall meetings: No one ever truly owns their home. Even after a mortgage is paid in full, the government continues to collect ‘rent’ in the form of the property tax. Should a homeowner fail to pay their property tax bill, the government can ‘evict’ the homeowner and seize the property.
This system of taxation is unjust and unacceptable.
Home ownership is the ultimate expression of property rights, but as long as property is taxed in perpetuity, home ownership is a dream that can never be fully realized. We have posed the question to our constituents and they agree with the fundamental idea of eliminating the M&O property tax as a means to restore their property rights.
If we succeed in putting together a plan to eliminate the M&O property tax, more low-income Texans will be able to attain the American dream of homeownership, middle-income Texans will be free of a constantly growing financial drain, and senior citizens on fixed incomes will be free to live in their homes. Furthermore, we aim to bolster Texas’ entrepreneurial spirit by eliminating a major and never-ending cost that all businesses face.
The state can meet its obligation to fund public schools without burdening home and business owners with unjust and constantly increasing property taxes.
P.O. Box 2659, Austin TX, 78768 512-474-1798 http://www.txcc.org/
Her e-mails are below:
Thank you for contacting Rep. Taylor regarding Rep. Phil King's consumption tax proposal. Rep. Taylor works closely with Rep. King on the Texas Conservative Coalition's Property Tax Task Force, in which they are both members. He believes Rep. King's proposal is a good starting point and looks forward to continue working with him on this proposal and others to relieve taxpayers from skyrocketing property taxes.
I have attached a copy of the TCC's statement on property tax reform for your review. Rep. Taylor will continue working with the task force throughout the interim to find a solution that will pass during the next legislative session in 2009.
Text of the attachment is here:
Texas Conservative Coalition: End the School Property Tax
State Representatives Wayne Christian (President),
Linda Harper-Brown (Vice-President),
and Ken Paxton (Secretary/Treasurer)
FOR IMMEDIATE RELEASE December 12, 2007
Contact: Brent Connett Phone: 512-474-1798
State Representatives Wayne Christian (President),
Linda Harper-Brown (Vice-President),
and Ken Paxton (Secretary/Treasurer)
FOR IMMEDIATE RELEASE December 12, 2007
Contact: Brent Connett Phone: 512-474-1798
The property tax is the single worst tax ever devised.
Despite billions of dollars appropriated by the Legislature to cut Maintenance & Operations (M&O) tax rates, homeowners and businesses are facing rising tax bills due to local increases in appraisals, rates, and debt. It is apparent that the only way to provide relief from the M&O property tax is to eliminate it altogether.
Members of the Texas Conservative Coalition have shared a stark realization with Texans around the state at TCC town hall meetings: No one ever truly owns their home. Even after a mortgage is paid in full, the government continues to collect ‘rent’ in the form of the property tax. Should a homeowner fail to pay their property tax bill, the government can ‘evict’ the homeowner and seize the property.
This system of taxation is unjust and unacceptable.
Home ownership is the ultimate expression of property rights, but as long as property is taxed in perpetuity, home ownership is a dream that can never be fully realized. We have posed the question to our constituents and they agree with the fundamental idea of eliminating the M&O property tax as a means to restore their property rights.
If we succeed in putting together a plan to eliminate the M&O property tax, more low-income Texans will be able to attain the American dream of homeownership, middle-income Texans will be free of a constantly growing financial drain, and senior citizens on fixed incomes will be free to live in their homes. Furthermore, we aim to bolster Texas’ entrepreneurial spirit by eliminating a major and never-ending cost that all businesses face.
The state can meet its obligation to fund public schools without burdening home and business owners with unjust and constantly increasing property taxes.
P.O. Box 2659, Austin TX, 78768 512-474-1798 http://www.txcc.org/
***************
The second e-mail indicates that she forwarded my criticism below to Rep. Taylor.
Maybe he will read it, maybe not, but at least I got a response.
Mr. Shelley, Thank you. I will pass this along to Rep. Taylor…clc
Fair Tax in Texas - Update
Recently I have been defending Texas Rep. Phil King's sales tax idea on Paul Burka's Blog on Texas Monthly Magazine's website. Follow the link to see my comments. Mr. Burka linked to a position paper put out by Dick Lavine the Center for Public Policy Priorities.
Below is a critique I wrote to Dick Lavine and cc:'d to Rep. Phil King and my district's Rep. Larry Taylor. I thought the line in bold was the most damning.
Mr. Levine,
I have read your “REPLACING PROPERTY TAXES WITH SALES TAXES WOULD BE BAD FOR TEXAS BUSINESSES, FAMILIES, AND PUBLIC EDUCATION“ and I have a few problems with your analysis and wanted to point out some contradictions and oversights.
While you state the obvious that if prices go up, demand will fall for retail purchase, you ignore a number of other effects of the sales taxes replacing the property tax. You state:
“Thus, if the state raised the sales tax to eliminate property taxes, Texas businesses would have trouble selling their goods and services because we would have the highest sales tax in the country.”
You are completely ignoring the costs savings through property tax elimination for retail properties. While the sales tax would increase, the underlying cost of business would decrease because, as you said, the price of rent (in a competitive market) will fall when property taxes fall. You also ignore the wealth effect on the budgets of residential property tax payers who would have more money to spend once their property taxes fell. Even though internet purchases are growing, the vast majority of retail purchases are made by locals at local retail establishments, it would be terribly inconvenient for Texans to avoid Texas retail establishments for most purchases.
You also mention on page 4 that:
“Businesses also pass on their property taxes to families and individuals in the form of higher prices, lower wages, or lower profits.”
This statement, in defense of property taxes, is not included in your analysis of who would benefit form the tax cuts. You argue that the sales tax would hurt businesses and increase prices, so the sales tax is bad. Then when defending property taxes you admit that they lead to “higher prices, lower wages, or lower profits” and this is ok? This is a blatant contradiction.
“The sales tax, which is based on consumption, is extremely regressive, meaning it takes a much larger percentage of the income of a low- or moderate-income family than of a higher-income family.“
Therefore, the sales tax is regressive because it hurts the poor, yet you also say in the defense of property taxes:
"Homeowners write checks directly, but renters also pay property taxes, which are passed on to them by their landlords in the form of higher rents. "
The poor generally rent at much higher rates than those with higher incomes. Because they are renters the property taxes calculated into their rent does not have homestead exemptions available. Secondly, renters cannot deduct mortgage interest or property taxes from their federal income tax and these extra costs pass into their rent. Their rent would fall with a conversion to the sales tax.
Your analysis also ignores the rebate mechanism Rep. King mentions, in an allusion to the FairTax, which is available to everyone. This oversight means that the sales tax, under Phil King’s plan, may actually be progressive depending on the size of the rebate.
Finally, you state:
"Property taxes do not imperil home ownership. Generally, Texas families buy homes based upon their annual income, giving the tax a rough correlation to the ability to pay."
This is a terrible contradiction. First, you claim that lower prices will not lead to higher demand for home ownership, which is patently absurd and contradicts the most fundamental principles of economics, and claim that “families buy homes based upon their annual income”. Under a switch from property tax to sales tax, the incentives would change to encourage more consumption of housing, which would be taxed less, and away from retail purchases, which would be taxed more. This would increase the level of home ownership.
While you do fine with your number crunching your economics is superficial. While you may not like the sales tax bill by Rep. King prima facie, you do a disservice to the parties you want to help by piling up evidence against a bill without fleshing out all of the effects. In the end, your points may be valid, but the gaping holes I noticed negate your entire argument for me.
Sincerely,
Brian Shelley
P.S. I am sending copies of my rebuttals to Rep. Phil King and my representative Rep. Larry Taylor
Below is a critique I wrote to Dick Lavine and cc:'d to Rep. Phil King and my district's Rep. Larry Taylor. I thought the line in bold was the most damning.
Mr. Levine,
I have read your “REPLACING PROPERTY TAXES WITH SALES TAXES WOULD BE BAD FOR TEXAS BUSINESSES, FAMILIES, AND PUBLIC EDUCATION“ and I have a few problems with your analysis and wanted to point out some contradictions and oversights.
While you state the obvious that if prices go up, demand will fall for retail purchase, you ignore a number of other effects of the sales taxes replacing the property tax. You state:
“Thus, if the state raised the sales tax to eliminate property taxes, Texas businesses would have trouble selling their goods and services because we would have the highest sales tax in the country.”
You are completely ignoring the costs savings through property tax elimination for retail properties. While the sales tax would increase, the underlying cost of business would decrease because, as you said, the price of rent (in a competitive market) will fall when property taxes fall. You also ignore the wealth effect on the budgets of residential property tax payers who would have more money to spend once their property taxes fell. Even though internet purchases are growing, the vast majority of retail purchases are made by locals at local retail establishments, it would be terribly inconvenient for Texans to avoid Texas retail establishments for most purchases.
You also mention on page 4 that:
“Businesses also pass on their property taxes to families and individuals in the form of higher prices, lower wages, or lower profits.”
This statement, in defense of property taxes, is not included in your analysis of who would benefit form the tax cuts. You argue that the sales tax would hurt businesses and increase prices, so the sales tax is bad. Then when defending property taxes you admit that they lead to “higher prices, lower wages, or lower profits” and this is ok? This is a blatant contradiction.
“The sales tax, which is based on consumption, is extremely regressive, meaning it takes a much larger percentage of the income of a low- or moderate-income family than of a higher-income family.“
Therefore, the sales tax is regressive because it hurts the poor, yet you also say in the defense of property taxes:
"Homeowners write checks directly, but renters also pay property taxes, which are passed on to them by their landlords in the form of higher rents. "
The poor generally rent at much higher rates than those with higher incomes. Because they are renters the property taxes calculated into their rent does not have homestead exemptions available. Secondly, renters cannot deduct mortgage interest or property taxes from their federal income tax and these extra costs pass into their rent. Their rent would fall with a conversion to the sales tax.
Your analysis also ignores the rebate mechanism Rep. King mentions, in an allusion to the FairTax, which is available to everyone. This oversight means that the sales tax, under Phil King’s plan, may actually be progressive depending on the size of the rebate.
Finally, you state:
"Property taxes do not imperil home ownership. Generally, Texas families buy homes based upon their annual income, giving the tax a rough correlation to the ability to pay."
This is a terrible contradiction. First, you claim that lower prices will not lead to higher demand for home ownership, which is patently absurd and contradicts the most fundamental principles of economics, and claim that “families buy homes based upon their annual income”. Under a switch from property tax to sales tax, the incentives would change to encourage more consumption of housing, which would be taxed less, and away from retail purchases, which would be taxed more. This would increase the level of home ownership.
While you do fine with your number crunching your economics is superficial. While you may not like the sales tax bill by Rep. King prima facie, you do a disservice to the parties you want to help by piling up evidence against a bill without fleshing out all of the effects. In the end, your points may be valid, but the gaping holes I noticed negate your entire argument for me.
Sincerely,
Brian Shelley
P.S. I am sending copies of my rebuttals to Rep. Phil King and my representative Rep. Larry Taylor
Tuesday, December 18, 2007
Titanic vs. Iceberg, Live!
Social Security is a titanic government obligation and a touchy subject that many politicians shy away from, which is unfortunate. The reality is that the Social Security Board of Trustees believes that by 2017 we will be withdrawing more money from Social Security than we are collecting in taxes. The board also believes that Social Security will go bankrupt by 2041 because the so-called trust fund will run out of money. Of course, the trust fund is mostly imaginary because Congress long since spent it on other things, so this later date is somewhat meaningless. In 2017, we will have to cut benefits, cut other government programs or raise taxes. This massive iceberg is ten years out and it is not moving out of the way.
Who pays what and who gets what under Social Security?
The payroll tax is 12.4% of your first $97,500 of wages. You pay 6.2% and your employer pays 6.2%. Income above $97,500/yr is not subject to payroll taxes because people who make $97,500/yr and those who make $2 Billion/yr receive the same Social Security Benefit. Or put another way, your Social Security benefits top out when you make $97,500/yr in payroll income.
Your benefits are a proportion of the income you made during the years you paid into Social Security. Those with low incomes have their benefits subsidized and are generally a higher proportion of their working salary than benefits received by those with high incomes. These benefits are indexed to wage inflation, which means about a 4% increase in benefits each year.
How do we fix it?
In general, there are three major proposals to fix it:
1) Extend payroll taxes (which you see on your check as FICA) on wage income above $200,000 to keep benefits as high as they are now. Those making above $200,000/yr will not receive any more benefits with the new extra taxes. This amounts to a 12.4% tax hike on all payroll income above $200,000. This means that those who work for a living like doctors, lawyers, and athletes would get a tax hike. Those who have inherited money or are independently wealthy who receive their income from investments would not pay any extra tax.
My salary does not begin to approach this level, but I despise how this proposal treats high wage people like a piggy bank we can raid. Many people toss around the term Socialism far too much, but this is by definition Socialism. This is merely taking money from one person and handing it to another. We have many policies, like national defense, where the wealthy pay more taxes, but they still participate in the benefits. We have other policies that transfer funds from the wealthy to those in need. This is not one of those policies. It is not based on need, and is not based on community benefit. It is simply a plan put forward to get money for some by taking it from someone else. It is pure greed.
2) Increase the retirement age. At first glance, this seems like an equal way to reduce the benefits, but when digging a little deeper it is not quite as fair. Poor people tend not to live as long as wealthy people. The poor are more often employed in physically demanding jobs, have more health problems, or simply made bad decisions in their life that led to a shorter lifespan. Under this plan, those who live the shortest lives face the largest percentage cut to their benefits. To cut the largest percentage from the benefits of those who are poor and/or have medical problems, but have paid into the system their entire lives seems unfair.
3) Reduce the growth rate of benefits. First proposed under George W. Bush, and now supported by Fred Thompson, this plan cuts the growth in benefits for anyone under the age of 58. On a percentage basis, everyone who receives social security retirement benefits would have the exact same amount reduced from their benefits as everyone else. On a dollar basis, those who receive more social security benefits would have their benefits reduced the most.
Technically speaking, it would reduce the growth rate from the wage growth rate (normally 4%) to the inflation rate (normally 3%), effectively reducing the growth rate of social security benefits by 1% a year. Some believe that this will not cure the entire problem, but the sooner we act the less dramatic the changes will have to be in the future. We need to tap the rudder on this titanic program now so we don’t risk hitting the iceberg later.
Virtually every American is eligible to receive social security retirement benefits. America needs to cut benefits so that the system does not go broke. Every American eligible for benefits should have their benefits cut and the same proportion should apply to everyone. If the ship is sinking, we should not be throwing some people over board so we can save our luggage.
As always, tell me what you think.
Here are a couple quotes in response to Alex’s guest post last week:
Steve S. – “Accountability. What a novel idea! Why that's practically un-American…”
Craig W. – “I agree with [Alex] up to a point in his letter-to-the-editor…I believe the banks put these folks in this precarious position; knowing full well that they barely could make the introductory payment on their current income…I think it is mostly [the banks’] responsibility to work with the individuals to come out with a workable solution.”
Who pays what and who gets what under Social Security?
The payroll tax is 12.4% of your first $97,500 of wages. You pay 6.2% and your employer pays 6.2%. Income above $97,500/yr is not subject to payroll taxes because people who make $97,500/yr and those who make $2 Billion/yr receive the same Social Security Benefit. Or put another way, your Social Security benefits top out when you make $97,500/yr in payroll income.
Your benefits are a proportion of the income you made during the years you paid into Social Security. Those with low incomes have their benefits subsidized and are generally a higher proportion of their working salary than benefits received by those with high incomes. These benefits are indexed to wage inflation, which means about a 4% increase in benefits each year.
How do we fix it?
In general, there are three major proposals to fix it:
1) Extend payroll taxes (which you see on your check as FICA) on wage income above $200,000 to keep benefits as high as they are now. Those making above $200,000/yr will not receive any more benefits with the new extra taxes. This amounts to a 12.4% tax hike on all payroll income above $200,000. This means that those who work for a living like doctors, lawyers, and athletes would get a tax hike. Those who have inherited money or are independently wealthy who receive their income from investments would not pay any extra tax.
My salary does not begin to approach this level, but I despise how this proposal treats high wage people like a piggy bank we can raid. Many people toss around the term Socialism far too much, but this is by definition Socialism. This is merely taking money from one person and handing it to another. We have many policies, like national defense, where the wealthy pay more taxes, but they still participate in the benefits. We have other policies that transfer funds from the wealthy to those in need. This is not one of those policies. It is not based on need, and is not based on community benefit. It is simply a plan put forward to get money for some by taking it from someone else. It is pure greed.
2) Increase the retirement age. At first glance, this seems like an equal way to reduce the benefits, but when digging a little deeper it is not quite as fair. Poor people tend not to live as long as wealthy people. The poor are more often employed in physically demanding jobs, have more health problems, or simply made bad decisions in their life that led to a shorter lifespan. Under this plan, those who live the shortest lives face the largest percentage cut to their benefits. To cut the largest percentage from the benefits of those who are poor and/or have medical problems, but have paid into the system their entire lives seems unfair.
3) Reduce the growth rate of benefits. First proposed under George W. Bush, and now supported by Fred Thompson, this plan cuts the growth in benefits for anyone under the age of 58. On a percentage basis, everyone who receives social security retirement benefits would have the exact same amount reduced from their benefits as everyone else. On a dollar basis, those who receive more social security benefits would have their benefits reduced the most.
Technically speaking, it would reduce the growth rate from the wage growth rate (normally 4%) to the inflation rate (normally 3%), effectively reducing the growth rate of social security benefits by 1% a year. Some believe that this will not cure the entire problem, but the sooner we act the less dramatic the changes will have to be in the future. We need to tap the rudder on this titanic program now so we don’t risk hitting the iceberg later.
Virtually every American is eligible to receive social security retirement benefits. America needs to cut benefits so that the system does not go broke. Every American eligible for benefits should have their benefits cut and the same proportion should apply to everyone. If the ship is sinking, we should not be throwing some people over board so we can save our luggage.
As always, tell me what you think.
Here are a couple quotes in response to Alex’s guest post last week:
Steve S. – “Accountability. What a novel idea! Why that's practically un-American…”
Craig W. – “I agree with [Alex] up to a point in his letter-to-the-editor…I believe the banks put these folks in this precarious position; knowing full well that they barely could make the introductory payment on their current income…I think it is mostly [the banks’] responsibility to work with the individuals to come out with a workable solution.”
Tuesday, December 11, 2007
Guest Blog - Mortgage Bail Out
A few weeks ago, I challenged you to write a letter-to-the-editor of sorts that I would print in this newsletter. Well, Alex G. took me up on it and I have included it below. These are his words, unedited.
Mortgage Bail Out
A lot has been said recently about the Federal Government's proposed "mortgage bail out". I have heard some pretty tough language at the people who can't pay their mortgages and are facing foreclosure in response to the proposed plan. It matters not if the people who will capitalize on this plan were "greedy" or "stupid". What they were (or were not) thinking when they signed those papers for their homes does not matter now.
What matters is if we are still a Nation that holds up the idea of accountability. When you make a mistake, whether you were greedy, stupid, or just plain old unlucky, there are consequences. We are moving further and further away from the idea that an individual is responsible for his or her own actions. Whenever something goes wrong the average American wants to blame someone/anyone but themselves. Your son is failing in school...it's the teachers fault. Your daughter fell off her bike..it's the manufacturer's fault. You hit the golf ball into the water. . .it's the club's fault.
You can't pay your mortgage . . .it's the bank's fault.
This is pervasive throughout our Republic. The most contentious issues of the day all deal with a lack of personal accountability (can anyone say Abortion?).
What's next? Maybe someday I can walk into a casino, lose all my money, and blame the casino for my losses and go cry to the government that "predatory" gambling practices were engaged, and I was duped into betting and losing.
Please. Stop crying for the homeowners about to be kicked out on the street. Let the big banks collapse under their own mistakes. This Republic is strong enough to withstand this bump in the economy, but what we can't withstand is a change in culture that allows people to run away from the consequences of their own decisions.
--Alex G.
Well said, but I think the real problem with American culture is ignorance of proper sentence structure Alex. Just kidding. Thanks for writing, and I invite everyone who is passionate about our society to put that passion on paper and work for change.
As always, tell me (us) what you think.
----
P.S. A person named Marsha left a note on the blog advertising a grassroots organization working for the FairTax. They have a humble website, but don't solicit donations. I think that their hearts are in the right place.
http://www.operationoffthefence.org/
Mortgage Bail Out
A lot has been said recently about the Federal Government's proposed "mortgage bail out". I have heard some pretty tough language at the people who can't pay their mortgages and are facing foreclosure in response to the proposed plan. It matters not if the people who will capitalize on this plan were "greedy" or "stupid". What they were (or were not) thinking when they signed those papers for their homes does not matter now.
What matters is if we are still a Nation that holds up the idea of accountability. When you make a mistake, whether you were greedy, stupid, or just plain old unlucky, there are consequences. We are moving further and further away from the idea that an individual is responsible for his or her own actions. Whenever something goes wrong the average American wants to blame someone/anyone but themselves. Your son is failing in school...it's the teachers fault. Your daughter fell off her bike..it's the manufacturer's fault. You hit the golf ball into the water. . .it's the club's fault.
You can't pay your mortgage . . .it's the bank's fault.
This is pervasive throughout our Republic. The most contentious issues of the day all deal with a lack of personal accountability (can anyone say Abortion?).
What's next? Maybe someday I can walk into a casino, lose all my money, and blame the casino for my losses and go cry to the government that "predatory" gambling practices were engaged, and I was duped into betting and losing.
Please. Stop crying for the homeowners about to be kicked out on the street. Let the big banks collapse under their own mistakes. This Republic is strong enough to withstand this bump in the economy, but what we can't withstand is a change in culture that allows people to run away from the consequences of their own decisions.
--Alex G.
Well said, but I think the real problem with American culture is ignorance of proper sentence structure Alex. Just kidding. Thanks for writing, and I invite everyone who is passionate about our society to put that passion on paper and work for change.
As always, tell me (us) what you think.
----
P.S. A person named Marsha left a note on the blog advertising a grassroots organization working for the FairTax. They have a humble website, but don't solicit donations. I think that their hearts are in the right place.
http://www.operationoffthefence.org/
Friday, December 7, 2007
The FairTax Comes to Texas
A few weeks ago, I wrote about the FairTax and had some criticisms, but overall I think it’s a pretty good, if not ideal, reform to the federal tax code. To review, the FairTax is a national sales taxes with a “prebate” (a rebate that happens at the beginning of the year) for all citizens so that the poor won’t face the same burden as those with more income.
Recently, a Texas State Representative named Phil King out of Weatherford has proposed a similar measure for the state of Texas. The Fair Tax is better suited for Texas because our tax code is already simple (compared to the Federal tax code) and the state already collects a large portion of its income from sales tax.
Texas has two major sources of income: Sales Tax and Property Tax. Rep. King is proposing that Texas eliminate much of the property taxes in favor of a higher sales tax. This is a good idea.
Why are sales taxes better than property taxes?
Through no fault of their own, someone can be taxed out of their home. In some areas property values have skyrocketed over the last few years, and people can no longer afford to live there because of the skyrocketing property taxes. How crushing would it be to retire to your dream house only to have to sell it because you could not afford the property taxes?
It also makes sense that a single and simple source of tax revenue reduces the size of government bureaucracy. Changing the sales tax rate should not require any additional staff to collect the income. Property taxes require appraisers to annually reevaluate every piece of property in the state.
Who does it help?
The first are those that are property rich and income poor. Generally, these are the elderly. Currently, the elderly can lock in the appraisal value of their homes, but still have to pay property taxes at whatever rate is being charged. This bill would eliminate a good chunk of their taxes. Poor elderly who survive on social security income would face higher sales taxes, but the prebate would reimburse them for a large portion of them. This would reduce the chance that they would be taxed out of their homes.
Another group to benefit is the poor who rent. While a homeowner in Texas can limit their property tax appraisal value by getting a homestead exemption, the owner of a rent house or apartment complex cannot. Assuming a competitive rental market, the price of rent includes the cost of property taxes. If property taxes drop, then rents drop, and poor people save money. The poor would also receive the prebate (like every citizen) that would offset the increase in sales taxes.
There are other winners, but I will limit the conversation to these two.
Who does it hurt?
The people who would be hurt the most are those that live in an inexpensive home but spend a large portion of their high income on retail services and merchandise. It would also hurt teenagers and other people who do not pay rent, but have an income.
I’m willing to accept the trade off.
I have written to my state representative (Larry Taylor) and told him that I support this bill and I hope that he will too. If you like this idea and live in Texas follow this link – and write your state Representative or Senator to express your support. For those that live outside of Texas you may want to pass it on to your representatives to suggest to them.
As always, let me know what you think.
Recently, a Texas State Representative named Phil King out of Weatherford has proposed a similar measure for the state of Texas. The Fair Tax is better suited for Texas because our tax code is already simple (compared to the Federal tax code) and the state already collects a large portion of its income from sales tax.
Texas has two major sources of income: Sales Tax and Property Tax. Rep. King is proposing that Texas eliminate much of the property taxes in favor of a higher sales tax. This is a good idea.
Why are sales taxes better than property taxes?
Through no fault of their own, someone can be taxed out of their home. In some areas property values have skyrocketed over the last few years, and people can no longer afford to live there because of the skyrocketing property taxes. How crushing would it be to retire to your dream house only to have to sell it because you could not afford the property taxes?
It also makes sense that a single and simple source of tax revenue reduces the size of government bureaucracy. Changing the sales tax rate should not require any additional staff to collect the income. Property taxes require appraisers to annually reevaluate every piece of property in the state.
Who does it help?
The first are those that are property rich and income poor. Generally, these are the elderly. Currently, the elderly can lock in the appraisal value of their homes, but still have to pay property taxes at whatever rate is being charged. This bill would eliminate a good chunk of their taxes. Poor elderly who survive on social security income would face higher sales taxes, but the prebate would reimburse them for a large portion of them. This would reduce the chance that they would be taxed out of their homes.
Another group to benefit is the poor who rent. While a homeowner in Texas can limit their property tax appraisal value by getting a homestead exemption, the owner of a rent house or apartment complex cannot. Assuming a competitive rental market, the price of rent includes the cost of property taxes. If property taxes drop, then rents drop, and poor people save money. The poor would also receive the prebate (like every citizen) that would offset the increase in sales taxes.
There are other winners, but I will limit the conversation to these two.
Who does it hurt?
The people who would be hurt the most are those that live in an inexpensive home but spend a large portion of their high income on retail services and merchandise. It would also hurt teenagers and other people who do not pay rent, but have an income.
I’m willing to accept the trade off.
I have written to my state representative (Larry Taylor) and told him that I support this bill and I hope that he will too. If you like this idea and live in Texas follow this link – and write your state Representative or Senator to express your support. For those that live outside of Texas you may want to pass it on to your representatives to suggest to them.
As always, let me know what you think.
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