Economic Growth: Tax Cuts or Taxing and Spending Increases?

President Obama made his position clear in his State of the Union address (as if it wasn’t clear from his performance these last three years, already).  He wants more spending, and he wants to “pay” for it by increasing taxes on the hated rich.  He couldn’t find the energy to spend more than a sentence or two on spending cuts in his SOTUS; although he did find plenty of “green” energy for spending and tax hikes.

Indeed, when it comes to actually reining in government’s use of our money, Obama has been the czar of chimeras and false flags.  As the House Budget Committee Chairman, Congressman Paul Ryan (R, WI) has put it:

We have learned already that the president who’s had three years to try and propose real solutions to fix our fiscal crisis is ducking it….  He formed commissions and super committees, so he sort of outsourced the leadership only to decry their results.

Indeed.  Obama’s committees and study groups (I don’t share Ryan’s disdain for Obama’s use of them, per se; when one is ignorant of a subject, asking experts for advice is entirely appropriate) actually did generate some ideas worth serious discussion and which could have served as points of departure for real reform.  But for Obama, they were merely cynical tools of distraction; he blew off their recommendations without so much as a fare-thee-well.  And he’s been clear about how seriously he takes his own ideas.  Obama yukked it up over his “shovel ready jobs” chant:

…shovel-ready was not as shovel-ready as we expected.

Obama does have his apologists.  Third Way think tank’s Jim Kessler insists:

[W]hen you’re in the middle of a recession it’s very dangerous to stop priming the pump.  You know, you need to get escape velocity, get out of the atmospheric pull of recession, break loose and then let the economy go loose.

But what Kessler, et al., don’t understand is that that “atmospheric pull” actually is government interference in our economy.  We can’t “get escape velocity,” to mix metaphors, with the government’s enormous sea anchor dragging us back.

How has Obama’s Progressive policies of higher taxes and more spending been working out?

His first installment, nearly a trillion dollars’ worth, failed to reduce unemployment or deliver the shovel-ready jobs he promised.  Of course he’s demonstrated how seriously he took his “shovel-ready” claim, even as he was making it.  His profligate spending, while succeeding in exploding the Federal deficit and the Federal debt—which now our grandchildren will have trouble paying down—beyond anyone’s worst nightmare at the start of the Panic of 2008, have done nothing else but hold back a normal cyclic recovery that has been struggling since the official end of that recession in the spring of 2009—nearly two years ago—just as similar Keynesian foolishness did for the Depression.

For his second try, he wanted to spend even more, and now he wants to raise taxes on a narrow group of Americans of whom he disapproves.  Ryan suggests checking the numbers.  Doing so exposes the depth of Obama’s cynicism in continuing to push for higher taxes.

All these tax increases that the president is talking about, they only cover 8 percent of his proposed spending increases. The other 92 percent of the president’s spending increases are borrowed money.

Ryan is being polite.  Those 92% are actually fantasy money—that’s the level of seriousness with which Progressives take other people’s money.

Here’s an alternative: reform our tax structure, including reducing rates, closing loopholes, and ending subsidies and credits.  To paraphrase Ryan’s argument, with Progressive tax increases hitting small businesses disproportionately (and hitting all of us—individuals and businesses of any size—too hard, simply by existing), comprehensive tax reform is far better than arbitrarily and capriciously raising taxes.

And then cut government spending to below the tax revenue generated.

One step currently under consideration, with both Republican and Demoncrat support, is the continuation of the temporary payroll tax holiday.  But this is a chimera; it will produce no effect on our economy.  It will, though, continue defunding an already dysfunctional Social Security system.  With the Progressives already having agreed that a 2 percentage point cut in taxes is good (and with Obama originally calling for a 3 percentage point cut in payroll taxes for both individuals and businesses), Republicans are blowing an excellent opportunity to begin serious reform.  The better place to put these cuts is as permanent income tax cuts for individuals and businesses, and as a first step toward larger income tax cuts and tax reform, generally.

Arthur Laffer suggests a more specific tax reform in a column in The Wall Street Journal.  As Laffer points out, and as thinking Americans have understood for a long time,

Jobs and wealth are created by those who are taxed, not by those who do the taxing. Government, by its very nature, doesn’t create resources but redistributes resources.

Laffer goes on to suggest that a flat tax is the optimum reform.  Although he uses Newt Gingrich’s version (an optional 15% flat tax for individuals, with the option being to continue paying under the present system, and a 12.5% flat tax for business) as his example for discussion, Laffer’s point is generally valid.

Laffer argues

Fairness in taxation means that people and businesses in like circumstances have similar tax burdens.  A flat tax, whether on business or individuals, achieves fairness in spades.*  A person who makes 10 times as much as another person should pay 10 times more in taxes.  It is also patently obvious that it is unfair to tax some people’s income twice, three times or more after it has been earned, as is the case with the death tax.

The current administration’s notion of fairness—taxing high-income earners at high rates and not taxing other income earners at all—is totally unfair.

Progressives—led by Obama—argue that it’s the rates that have to be progressive in a fair tax system, not just the amounts actually paid.  But concern with rates paid rather than amounts paid fails to achieve equal treatment at the start—at the point of equal opportunity; “progressive” tax rates only look to create equal outcomes, after the differing levels of ability, work ethic, and so on have been applied by the people involved, folks who behaved voluntarily according to their own imperatives.  Progressive rates punish hard work and success while subsidizing lesser effort.  There’s no fairness in this.

Finally, as Laffer points out,

[A] flat tax proposal is not revenue-neutral, nor should it be.  If there’s one truism in fiscal policy, it’s this: Wasteful spending will always rise to the level of revenues.  Whether you’re in Greece, Washington, D.C., or California, overspending is a prosperity killer of the first order. [A] flat tax…would put a quick stop to overspending and return America to fiscal soundness.

 

*I fully anticipate that Laffer will be called racist for using this term, and I’ll be similarly accused for repeating it.  Understand, though: only a racist will actively look to create racism where none exists, so he can cry, “Racist!”

America’s Future—Defense Policy Principles, Part III

I wrote about fundamental principles of Defense policy here.  In this post, I want to talk about some of the Defense policies themselves that are necessary to implement those principles; in a later post I’ll talk about force structures needed to begin to give concreteness and bite to our Defense.  I won’t go into identifying those policies that are suitable and already in place, or unsuitable ones that should be removed, nor will this post presume to be an exhaustive list of policies.  Instead, I’ll  identify what I consider the important with a view to offering a point of departure for continued discussion.

For the sake of review, these are the fundamental principles:

  • defense must be built around the concept winning across the full spectrum of conflict, and across the full spectrum of kinds of enemy combatants;
  • control of the high ground, which means space: LEO today, near-lunar space and at lunar altitudes in the very immediate future, Mars and along Mars’ orbit around the sun within 20 years, and Jupiter and beyond by the end of the century; and
  • flexibility, which includes mobility, agility, and adaptability of both weapons and their support systems and of the soldiers themselves.

There are a broad range of defense policies, from procurement through training, that I’ll ignore in this post.  The overriding policies about which I’ll write here are those involving the nature of combat, cyberspace, communications, and space.

Modern warfare is no longer limited to the classic set-piece battles of the last century.  Those will continue to be a major component of modern and future warfare, if for no other reason than that it always will be necessary to seize and hold the enemy’s real estate, since even his cyber equipment must have a physical location or a network of physical locations.  Those physical locations, though, will no longer be confined to earth (and already haven’t been confined to the surface for some time, now ranging from the bottom of the oceans to high atmospheric operations).

There are two other kinds of combat today, however, and these are no less a lethal threat to our country’s existence: terrorist warfare conducted by non-national entities, and supported to a greater or lesser degree by one or more nation-states, and cyber warfare.  We have seen the deadliness of terrorist war in the attacks on us at the start of this century, in the intimidation of Spain into leaving the coalition fighting terrorists in Afghanistan, and in Afghanistan itself with the terrorist war conducted for years against Afghan women and girls, and the terrorist attacks today against the body politic of that nation.  The current terrorist war that is tearing apart the nascent Iraqi democracy, before that nation can grow out of its infancy is another example.

Terrorist war, though, doesn’t only involve nation-states, and those nation-states that are involved usually participate in a supporting role.  The primary actors here are the terrorist non-national entities themselves.  Examples of these include al-Qaeda and its offshoots (al-Qaeda in Iraq, al-Qaeda in Yemen, and so on), the Taliban, and the terrorists in Iraq today who make war on Sunni and Shiite Iraqis and sometimes on themselves in efforts to frame the other.  These entities are much more diffuse and harder to identify, they use women and children as tools of their war as well as targets, and their targets are nearly completely indiscriminate: the only unifying concept of terrorist targets is how much damage and fear they can cause for the terrorists’ enemy.

Cyber warfare wasn’t even possible until the end of the last century.  Cyberwar is a contest to protect our own computer systems—in weapons systems, communications systems, national infrastructure, financial networks and systems, and so on—from penetration or disruption by our enemies together with our efforts to do exactly that to our enemy’s computer systems.  This is a shadow war that runs from malware disrupting the functionality of the systems to spyware that collects information from those systems without disrupting them to additional malware that lies dormant until activated to carry out their missions.  The malware can be implanted at any time, from being embedded in the chips comprising a system’s CPUs, xROMs, RAM, and so on at the time of chip manufacture to an email or an email’s imagery or attachment to a “memory stick” plugged into the UBS port of a laptop or PC.

Before we can do anything else, then, we must understand the nature of our enemy and the techniques he is using this time to make war on us, as well as successfully estimate how he or another enemy will make war the next time.  Thus, our most important policy in Defense must be one that both supports and facilitates intelligence gathering and fusion (the knitting together of information and estimates from a broad variety of sources into a coherent, single picture).  But this isn’t enough.  This policy also must generate a capacity for political and social research to better understand how war evolves its techniques, how technology evolves and how that impacts the evolution of war, and how all of this is influenced by the more general political, social, and economic evolution of the various societies and nations around the planet.

With this understanding in progress now, it is critical for our Defense establishment to have a policy in place that facilitates our capacity in cyberspace.  This capacity includes not just a defensive one of securing (both through encryption and through assured operations) our computational capability (for instance, but not nearly limited to, our communications, our information displays, our weapons systems, our control over our space-based systems), but also an offensive one.  We must be able to carry the war that our enemy has inflicted on us into his cyberspace (including initiating combat in that milieu, beating our enemy to that punch where possible), with a view toward the destruction of his computational capacity—in his communications, in his information displays, in his weapons systems, his control over his space-based systems.

Our cyberspace policy, to be effective, also will impact procurement.  All of our existing computing chips—those CPUs, xROMs, RAM, and so on—must be swept for malware that might have been embedded by a foreign manufacturer—especially those chips we might buy from the People’s Republic of China.  It goes beyond this, though.  Malware and malware defense are just like any other arms race:  the offensive side nearly always leads, and the defensive side nearly always is behind.  Thus, it’s entirely possible that malware will remain simply because we haven’t identified the new evolution, yet.  Accordingly, new computing chips should be obtained solely from domestic manufacturers.  Some will argue that this will elevate the cost of those chips.  These will be right, at least in the near term (I won’t go into the evolution of costs from an established domestic chip manufacturing industry in this context).  However, the elevated costs of domestic chips also must be weighed against the costs of communications failures, broken water and electricity delivery infrastructures, eviscerated financial systems, weapons that won’t fire, and so on to our survival as a free nation.

Finally, our cyber policy must facilitate our ability to target both non-national entities and their supporting nation-states.  This is especially critical when we’re fighting terrorist war.  We must deny the non-national entity all support from those nation-states that have declared their enmity toward us by supporting our enemy’s active war.  Those nation-states, by that support, will have made themselves active participants in that war, and so their capacity to fight and to support the others’ fight have become legitimate—and necessary—targets, as well.

Note that this dimension of war necessarily is asymmetric.  We have vast networks of computing systems that have become critical to our nation’s functioning, even to our existence.  Many of our enemies are not so dependent.  The reasons for this are broad.  At one end of the spectrum, the enemy simply is not that advanced, as was the case with Saddam Hussein’s Iraq and the Taliban-run Afghanistan.  At the other end of the spectrum is the diffuse nature of the enemy, who while technologically sophisticated, has no major computing systems of his own (beyond cell phones and laptop computers and the like), but who relies on the technological infrastructure of his supporting nation-states.

Next, our communications policy must facilitate support our three fundamental principles.  As with cyberspace policies, our communications policy must include both defensive and offensive (including information war) guidance.  After protecting our computing systems, and so the infrastructure and other systems which depend on these for functionality, communications is most important.  An intact cyberspace is foundational to our Defense capability, but we must be able to communicate with our soldiers, our systems, and our infrastructure, our finances, and we must be able to disrupt, to destroy, our enemy’s ability to communicate with his.

Thus, our communications policy must be aimed at ensuring the security of our communications—both in terms of hardening against espionage or real-time eavesdropping and in terms of reliability.  When a unit commander needs to communicate with a soldier, or a space asset, he must be able to do so promptly and with assured contact, and when Headquarters must communicate their commanders in theater and so on down the chain, and/or with a space asset, they must be able to do so promptly and with assured contact.  The information coming back to the commander (at this point I’m deliberately eliding civilian communications, for instance with financial entities; in this context, civilian communications are variations on  this principle theme) must be rapid, reliable, and as accurate as the sensors and soldiers who are initiating the information.

Our communications policy must have two offensive components.  One is an ability directly to attack our enemy’s ability to communicate with his soldiers, his systems, his infrastructure, his finances, and this capability must be able, at our choice, freely to eavesdrop on and to fatally disrupt, if not completely destroy, those communications.  The other component is information dissemination.  Our communications policy must facilitate the rapid, reliable spread both of truth and of propaganda to our enemy’s civilian population, and it must support the rapid and reliable spread of disinformation to our enemy’s military and civilian leadership.  And we must be able to strike, if not first, then in immediate response, as well as repeatedly without regard to our enemy’s subsequent actions.

Finally, space is almost as new a conflict terrain for us as is cyberspace, and we have lost our access to it, except through begging rides from our potential adversaries.  We do retain an ability to reach LEO, in a benign environment, with satellites, but our most likely nation-state adversaries are capable of reaching farther into space—reaching higher ground—and they have active programs for improving on that, including increasing their military capabilities in space.  Accordingly, our next most important policy, and one directly related to our first fundamental Defense principle, is an effective space policy.

It is critical that we rebuild our failed national space program and that we make our own progress along this dimension.  This effort must involve both a new Federal space agency, replacing the wholly dysfunctional National Aeronautical and Space Agency with a body that is capable of assisting DoD in developing the requisite space-oriented and -based assets, and a commercial industry capable of exploiting the resources in space and of supporting national control of that high ground.

Thus, our space policy must center on development of transportation into space and the development of weapons and communications systems that either will pass through space en route to their destinations or that will reside in space.  This policy also must facilitate commercial exploitation of space and of the bodies in space, beginning with the moon and the debris that collects at L4 and L5, and moving outward (and inward) in the solar system.  This facilitation, though, should be limited to a sharing of technologies and techniques with our domestic commercial enterprises.  An example of this sharing is early NASA’s technology transfers to private enterprise during NASA’s heyday of the Mercury and Apollo programs.

With these policies in place, which are primary in supporting our three fundamental principles, along with effective policies covering such other important Defense needs as acquisition, training, general technology development, and so on, we can begin to outline the force structures that will effect our fundamental principles.  That’s the subject for a later post.