Category Archives: Economics

Miscellaneous economy stuff

Defense Cuts on the Stump

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President Obama, speaking before the VFW the other day, had some interesting words to say about defense, and cuts to our defense capability that are looming.  Naturally, I have a few words to say about what he said.

People in Congress ought to be able to come together and agree on a plan, a balanced approach that reduces the deficit and keeps our military strong[.]

Indeed.  When are the President and his fellow Progressives in the Senate going to get out of the way of a bipartisan solution and allow one, instead of throwing our nation’s security away on his demand to raise taxes on his disfavored group of Americans?  After all, it’s Obama’s demand that taxes be raised, rather than spending be cut elsewhere—like in our bloated entitlement programs—that’s standing in the way of salvaging our defense establishment.

And there are a number of Republicans in Congress who don’t want you to know that most of them voted for these cuts. Now they’re trying to wriggle out of what they agreed to.

Nah—they’ve made no bones about this.  Obama held a gun to their heads and forced the idiocy of sequestration during the debt ceiling “negotiations” when he threatened to destroy our economy if he couldn’t get his tax increases, even to the point of cynically blowing up an agreement that had been reached—including revenue increases, if not tax rate bumps—with his last-minute (literally) demand for an additional $1 trillion increase in taxes.

Instead of making tough choices to reduce the deficit, they’d rather protect tax cuts for some of the wealthiest Americans, even if it risks big cuts in our military.

Again, indeed.  Instead of making tough choices to reduce the deficit, Obama is ready to impose destructive cuts on our military in order to get his taxes on his disfavored Americans, and I’ve got to tell you, Mr Obama, I disagree.

As we look ahead to the challenges that we face as a nation and the leadership that’s required, you don’t just have my words, you have my deeds.

President Obama’s deeds are especially frightening.  His “deeds” include the idle chit-chat that’s allowing Iran to get nuclear weapons.  His “deeds” include the idle chit-chat that’s allowing the Syrian boss Assad to butcher his own citizens—19,000 of his fellow Syrians—and to move his chemical weapons arsenal and prepare it for use against surviving Syrians dissidents.  His deeds include surrendering to Russian demands and throwing Poland and the Czech Republic into the teeth of the Bear and cancelling a plan to build missile defense installations in those two countries.  His deeds include surrendering American foreign policy to the veto authority of Russia and The People’s Republic of China, especially vis-à-vis Iran and northern Korea.

His deeds include his claimed end to a war in Iraq that was already won and done, with only a SOFA to facilitate American troop presence for training to be negotiated.  Without any American presence—Obama’s crowning achievement here—Iraq is falling apart under terrorist attacks and secular and religious strife, and al Qaeda is resurgent.

His deeds include winding down the war in Afghanistan with an announced withdrawal schedule and nothing left behind.  He’s snatching defeat from the jaws of victory, as the Taliban are still in the field and effective, while the Afghan army is neither.

House Armed Services Committee Chairman, Buck McKeon (R, CA) has the right of it:

President Obama played no small part in setting the time bomb that is sequestration.  Indeed, automatic defense cuts were included in the Budget Control Act at his insistence.  Now he owes our troops his best efforts to defuse the cuts.  Ultimatums from the campaign trail are not enough.

The challenges we face as a nation are legion, the future is near, and the leadership Obama has demonstrated and the deeds he’s done, make change imperative.

Social Engineering Taxes

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The efficacy of these taxes are amply demonstrated by their extremely regressive nature.  For instance, the payroll taxes for Social Security and Medicare/Medicaid hit the lowest income folks the hardest.  They’re taxed at the same nominal rate as everyone else (except the well-off in the case of Social Security: there’s an upper limit on the income taxable for this purpose).

However.

Someone making the Federal Poverty Guideline income ($22,350 for a man in a four-person family in 2011) was taxed at 4.2% of that income (6.2% when the cut expires next January, but we’ll stick to the lower rate here)—$938.70.  A man making $100,000 paid a tax of $4,200, including that same $938.70 on his first $22,350 of income.  Who do you suppose was hit harder by that $939 tax?

The poor man already is living at the edge of his income; the dollar taxed to him—the very same dollar that is taxed to our better off man—is far more important to the poor man.

So it is with income taxes, whether those taxes are for Article 8 purposes, or some of them are for other government-determined—social engineering—purposes.

Legitimate taxes must be evaluated for their impact on what Wretchard of Belmont Club has described as the design margin: how much safety is left for handling the unforeseen when a tax dollar is taken away from a man?

The correction, of course, is not to raise taxes on everyone else—the well-off already are paying far more than their share, while the half [sic] at the “bottom” of the distribution are paying next to nothing.  Moreover, this would do nothing to reduce the importance of those tax dollars that are in the poor man’s margin of safety between what he has and what he needs for an emergency.  No, the answer is to lower tax rates—to increase the width of the design margin—and to move to a flat tax with no deductions.  Taxation for government-mandated social engineering purposes just hammers at that design margin, shrinking it, no matter the good intentions behind the assessment.

A tax dollar always will be more important to the poor man than to the better off man; no amount of attempted progressivity in a tax code will reduce this.  A flat tax will reduce the difference in relative importance, though.

On Property

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President Obama just doesn’t understand this.

Property
James Madison
March 29, 1792

This term in its particular application means “that dominion which one man claims and exercises over the external things of the world, in exclusion of every other individual.”

In its larger and juster meaning, it embraces every thing to which a man may attach a value and have a right; and which leaves to every one else the like advantage.

In the former sense, a man’s land, or merchandize, or money is called his property.

In the latter sense, a man has a property in his opinions and the free communication of them.

He has a property of peculiar value in his religious opinions, and in the profession and practice dictated by them.

He has a property very dear to him in the safety and liberty of his person.

He has an equal property in the free use of his faculties and free choice of the objects on which to employ them.

In a word, as a man is said to have a right to his property, he may be equally said to have a property in his rights.

Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties, or his possessions.

Where there is an excess of liberty, the effect is the same, tho’ from an opposite cause.

Vanhorne’s Lessee v. Dorrance
1795

From these passages it is evident; that the right of acquiring…property, and having it protected, is one of the natural, inherent, and unalienable rights of man. Men have a sense of property: Property is necessary to their subsistence, and correspondent to their natural wants and desires; its security was one of the objects, that induced them to unite in society. No man would become a member of a community, in which he could not enjoy the fruits of his honest labor and industry. The preservation of property then is a primary object of the social compact, and, by the late constitution of Pennsylvania, was made a fundamental law.

Thomas Jefferson Letter to Joseph Milligan
April 6, 1816

To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.” If the overgrown wealth of an individual be deemed dangerous to the State, the best corrective is the law of equal inheritance to all in equal degree; and the better, as this enforces a law of nature, while extra taxation violates it.

Campaign Speech in New Haven, Connecticut
Abraham Lincoln
March 6, 1860

When one starts poor, as most do in the race of life, free society is such that he knows he can better his condition; he knows that there is no fixed condition of labor, for his whole life.  I am not ashamed to confess that twenty five years ago I was a hired laborer, mauling rails, at work on a flat-boat—just what might happen to any poor man’s son!  I want every man to have the chance…in which he can better his condition—when he may look forward and hope to be a hired laborer this year and the next, work for himself afterward, and finally to hire men to work for him!  That is the true system….

 

h/t Vindicating the Founders

This Plant is your Plant, This Plant is my Plant

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With apologies to Woody Guthrie….

Here is Folksinger Obama with his latest…hit:

This plant is your plant, this plant is my plant
From California, to the New York Island
From the redwood forest, to the gulf stream waters
This plant was made for you by me

As I was walking a ribbon of highway
I saw above me an endless skyway
I saw below me a golden valley
This road was made for you by me

I’ve roamed and rambled and I’ve followed my footsteps
To the sparkling sands of her diamond deserts
And all around me my voice was sounding
This firm was made for you by me

The sun comes shining as I was strolling
The wheat fields waving and the dust clouds rolling
The fog was lifting a voice come chanting
This farm was made for you by me

As I was walkin’—I saw a sign there
And that sign said—no tresspassin’
But on the other side…it didn’t say nothin!
Now that side was made for me by me!

In the squares of the city—in the shadow of the steeple
Near the relief office—I see my people
And some are grumblin’ and some are wonderin’
Why this land’s made for you by me.

Dependency of America

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Greg Mankiw, a Harvard University economics professor (OK, he’s the Chairman of the Department of Economics), has on his blog some hard numbers that show the increasing dependency of Americans on government.  Here’s what he says [bold emphasis added; italic emphasis in the original]:

Because transfer payments are, in effect, the opposite of taxes, it makes sense to look not just at taxes paid, but at taxes paid minus transfers received.  For 2009, the most recent year available, here are taxes less transfers as a percentage of market income (income that households earned from their work and savings):

  • Bottom quintile: -301 percent
  • Second quintile: -42 percent
  • Middle quintile: -5 percent
  • Fourth quintile: 10 percent
  • Highest quintile: 22 percent
  • Top one percent: 28 percent

The negative 301 percent means that a typical family in the bottom quintile receives about $3 in transfer payments for every dollar earned.

The most surprising fact to me was that the effective tax rate is negative for the middle quintile.  According to the CBO data, this number was +14 percent in 1979 (when the data begins) and remained positive through 2007.  It was negative 0.5 percent in 2008, and negative 5 percent in 2009.  That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess.

The CBO report can be read here or here.  The supplemental tables, which contain the Table 7 from which Mankiw made the calculations above, are here.

I recognize that part of this change is attributable to temporary measures to deal with the deep recession.  But it is noteworthy nonetheless, as other deep recessions, such as that in 1982, did not produce a similar policy response.

Again, I ask: what are we to make of the motives of the politicians that are doing this, knowing as these highly intelligent and rational human beings do, what the outcome is?