Of Government and Men:Taxes

Last year I started a series entitled "Of Government and Men". It was my attempt to explain my philosophy on government. I want to periodically update that series, and this is the first "sequel" to that.When writing the series, I didn't spend as much time on taxes as I wanted to. I despise taxes, but I cannot deny that a certain amount of taxes are required. However, as Henry Hazlitt wrote in Economics in One Lesson, "...every dollar of government spending must be raised through a dollar of taxation." The government has no means of raising it's own funds. When it borrows money, that money must be repaid at some point, and can only be repaid by taking the money from the taxpayers. The government does not make a profit. Every dollar the government spends is a dollar taken from someone.

To summarize Hazlitt's argument, the government should carefully examine any tax as the money taken from taxpayers is money the taxpayers can't spend. That's money that isn't used in the private sector to create jobs. Hazlitt used a bridge project to illustrate this:

If {the bridge} is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if ,in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money if it had not been taken away, there can be no objection. But a bridge built primarily "to provide employment" is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. "Projects" have to be invented. {bold is mine, emphasis in the original}

Any spending of tax money should be done because the need for the items bought by taxes are needed, not because the government wants to "create jobs" or bailout a company. If the need for the bridge, road, building, or dam isn't a real need, the project shouldn't be created.

The other danger in taxes is on what they tax, or what they may cause to happen. Taxes discourage the behavior they tax. A tax on cigarettes will discourage some people from smoking. A tax on investing discourages individuals from investing. In the first case, it makes the object more expensive, in the second case, it decreases the reward of the behavior. When an investor risks $1, he risks losing $1. If his investment is successful, for every $1 he makes, the government will step in and take some percentage of that $1. Let's assume there is a 40% capital gains tax. Then if an investment is a bad investment, the investor loses $1. If it is a good investment he gains $0.60. This level of tax will discourage some people from investing.

As our deficit gets worse and worse, Congress will purpose new taxes to solve the problem. Remember these two rules: Is the spending government purposes worth the money to the taxpayers? And, will the taxes discourage something we want to encourage (like business growth)?

Of Government and Men: Spending and Taxes

There are a few things about government that are painful, unpleasant, noxious, and just can't be avoided. Two of those are taxes, and government spending. Both cause the tax payers to have less money and both should be done with a lot more caution than seems to happen. There are ways to really harm people with both of these as well. As terrible as taxes and government spending are, they are also a necessary evil.

As a matter of full disclosure, I am almost always for less taxes. I believe the more the government taxes us, the more it cuts into our freedoms. Our current Federal tax code would print out to more than 7500 pages long! For comparison my study Bible weighs in at a little over 2100 pages complete with notes, research, annotations, and scripture. That 7500 pages doesn't include any state or local taxes you may have to pay which will be covered by their own lengthy rules. I also believe that many things the government spends money on could be better done by the States, the private sector, or even charities. My rule of thumb is that the government only does two things really well: Make war and waste money.

Stepping down from my soap box, there are a few things the government needs funds for, and it is authorized to collect them under our constitution. For example, a strong federal government is the only entity that can protect all 50 states in a time of war. A strong federal government is also the only entity that can manage our federal court system. These aren't the only examples, but they are two examples of why our government needs to collect taxes. However, the income tax system we use is probably one of the worse tax systems available. It punishes those who work and produce while rewarding those who don't. The harder you work, the more successful you are, the more the tax system requires you to pay the government. If this was the system of punishments and rewards at your child's school, you would expect your kid to avoid working and studying because they would get rewarded for doing just that.

I posted a story about Congressman David Crockett a few days ago. This is the David Crockett of fame, who eventually became a Congressman. I think that story illustrates one of the problems with the governments priorities when it spends money. As I mentioned earlier, there are legitimate reasons for the government to tax, and then spend that money it takes through taxes. However, there are a number of things the government spends on that it shouldn't spend on. If the government is spending money on things that "feel good", it probably shouldn't spend that money. Recently, the auto bailouts seemed like a good idea to some. However, in hindsight, what did we get for the money we spent, and is it worth sticking future generations with the bill for bailing out two companies?

This is a topic that could easily fill a book (though not as long as one as the tax code). However I want to leave you with this parting thought: Everything our government does requires money. That money is only obtained by taxing or borrowing. If the government taxes to pay for it, then it is taking money from you, your neighbors, your parents and your grandparents to pay for it. If it borrows, then it is taking money from your children and grandchildren. Shouldn't the government be a little more careful with how it spends money than what we see in Congress right now?

A Lesson on Taxes and Spending

In preparation for this week's issue of "Of Government and Men", I wanted to recount this story about David Crockett. I have seen this story in a number of places, the version I am going to quote below is from Ted, White, and Blue by Ted Nugent. "The Nuge" in turn is quoting from The Life of Colonel David Crockett by Edward Sylvester Ellis. This story is about a lesson then Congressman David Crockett learned from a constituent. The story as quoted was in Crocket's words.

One evening, Congressman Crocket and a number of other elected officials were around the Capital when they noticed a large fire had broken out in Georgetown. They rushed to the scene and tried to lend their hand, but the damage was done. Crocket was distraught to see a number of families were now homeless, and had only the clothes on their back as a result of the fire. The next day, a bill was introduced appropriating $20,000 for the relief of the victims of this fire. Congress put aside all other business to rush this through, and they were quite proud of themselves at appropriating this money for those families.

The next summer, Crocket was back in his home district campaigning for re-election. He didn't expect any trouble, but thought it might be a good idea to feel out his constituents. He came across a farmer who was polite to him but very cold at the same time. The farmer told Crocket he had voted for him before, but wouldn't be voting for him again. Crocket was shocked and begged the man to tell him why. Eventually the farmer came back to the vote the previous year to appropriate $20,000 for the victims of the Georgetown fire. He asked Crocket if he had in fact voted for said $20,000 relief bill. Crocket said he had, and he was proud he had. Any nation as rich as ours could afford to give, "…the insignificant sum of $20,000 to relieve the suffering women and children, particularly with a full and over flowing treasury…" This was the problem. The farmer pointed out that Crocket either hadn't read the Constitution, or didn't understand it, and that his vote for this bill proved it. He pointed out that first, the government should only have enough money to cover it's legitimate purposes. The money in the treasury is taken from working families, so while Congress may feel good giving this money to families in need, what about the need of the families they took these funds from?

Secondly, the Constitution doesn't define charity. If Congress believes it has the right to donate to charity (as in this case) then there is no stopping the amount they may take from one family to give to another. Finally, the farmer pointed out, "Individual members may give as much of their own money as they please, but they have no right to touch a dollar of the public money for that purpose." The farmer stressed that the money Congress had appropriated for the relief of the fire victims wasn't Congress's money to give away. They should take up a collection of their personal money if they felt that passionately about it, but they shouldn't take from the treasury, and by extension, the other families of the nation to give to these families.

Crocket then says the following:

"I tell you I felt streaked. I saw if I should have opposition, and this man should go to talking and in that district I was a gone fawn-skin. I could not answer him, and the fact is, I was so fully convinced that he was right, I did not want to."

He finally asked the man to give him one more chance. Crocket promised to study and be guided by the Constitution. He hoped that if he ever voted for another bill such as the Georgetown fire bill, he would be shot dead. This is an important story from our nation's history, and one with lessons for today's Congress as it debates health care and other issues. Congressman David Crocket had his eyes opened to the meaning of the Constitution by talking to a constituent. I hope more of our members of Congress learn from their constituents during this recess, and that they realize that tax money isn't their money. It's the people's money and it should be treated with the respect it deserves.

Why I go to the Tea Parties

There have been a lot of comments on here and in an assortment of media outlets regarding the people who attend Tea Parties. Some of the worst comments are those like Jeanine Garofolo saying that Tea Party attendees are only protesting a black man being President. The racist comments are uncommon, but not as uncommon as they should be. What seems more prevalent is the belief that the Tea Parties are organized by Rush Limbaugh, Sean Hannity, Glenn Beck, and Fox News and that the goal is to overthrow the government. Anyone who says this hasn't spent any real time talking to those who attend the parties.

While kooks are often attracted to protests (both on the left and the right), the majority of people I have seen at the Tea Parties are there because they are upset by the spending going on in government right now. Many were mad at President Bush and the previous Congress for TARP and the bailouts of GM and Chrysler. They are also mad at President Obama and the current Congress for continuing these bailouts, and for the ever increasing budgets and spending programs. Many of the attendees realize there is no way to continue this level of spending without dramatically raising taxes on everyone. The chart below was published originally in the Washington Post, and has been researched and defended by the Heritage Foundation. It shows the deficit under President Bush and the projected deficit under President Obama.

Whether you believe the White House or the Congressional Budget Office, neither of the above estimates are good. The spending in Washington is way out of control. Every idea in Washington revolves around funding a program, spending money on research, or buying something. There are very few elected officials arguing to cut the budget, and not enough officials arguing to stop the bailouts (auto, credit, or bank). My biggest fear is that the bailouts are going to make things worse, not better. By propping up these industries, we are delaying the day they go through the reforms they need. As painful as those reforms are now, they are going to be much more painful down the road.

I go to the Tea Parties to protest the current levels of spending by our government. This includes President Obama's spending and Congresses spending. I am not there to protest just President Obama. If the protests were about Global Warming or some of the other silly idea's this administration has, I probably wouldn't attend. While these ideas are worthy of debate, and I do debate them here, they aren't as dangerous as the continued spending by Washington. If we continue on the pace the chart above shows, our economy is going to get so bad, cap and trade and national health care won't matter. I can't speak for everyone at the Tea Parties, only myself. I can say that many of the people that I have spoken with at these parties have the same concerns I do, and are worried about the same things. The Tax burden on the American Worker is already too high. Spending like we are seeing in Washington is going to make that tax burden much worse.

I also go to the Tea Parties because I don't believe it is the role of our government to do these things. I don't believe our government should bailout financial companies and car industries. I don't believe we should step in and fire private CEO's. I don't believe the government has a right to interfere in how business pays their employees. Every time the government interferes in these areas, all of our freedoms are diminished. Anytime the government is allowed to save a bank, or a car company, or to fire private employees, it represents a time when the government gets to take control of our lives. I think Americans would be much better off without the government telling them what to do. Do we need some boundaries for companies to operate within? Sure. Do we need the constant intervention created at the end of Bush's term and perpetuated under President Obama? Absolutely not.

As I said, I can't speak for every person at these Tea Parties. I can say most of them are every day Americans who work and send their kids to school. These Americans deserve our respect and they deserve to have their voice heard in Washington. I , and many of the Tea Party attendees, believe Republicans and Democrats have stopped listening to voters. That's not good for anyone.

This post was published at Tea Party Patriots and Political Friends.

Maui Tea Party

Having attended a Tea Party in Atlanta a while back, I was very excited when the national tea parties started showing up for Tax Day. I was going to be on vacation, but was able to coordinate with the organizers in Maui to be at their tea party today.



Unlike the last one I went to, the weather was great. I asked around, and I estimate there was probably 200 to 300 people at the event by the time I left. This is pretty amazing because most of the people were residents of Maui. Many of them were complaining about their local representatives.

I have heard today's events reported as "tea parties that were started by conservative bloggers, talk show personalities, and republicans." This isn't true. These tea parties are grass roots movements. The one I attended today was organized by a self proclaimed Democrat. In an email to me, he stated that he has supported a number of liberal groups over the years, but he felt the spending in Washington has really gotten out of hand.

As I am on vacation, I thought most of this post would be some of my favorite pictures from today's event in Maui. This first one made me laugh the most:



Considering this weeks revelation of what the Deparment of Homeland Security thinks of out spoken conservatives, I thought this one was pretty good too:


This sign also appeared at another Tea Party in Lahaina earlier in the day:



One participant was kind enough to let me borrow his sign so I could get a photo of me at the demonstration for my readers:

I Support AIG Employees

“The vote by Congress to tax Wall Street bonuses out of existence was economic populism run amok. This was legislating by rage, fear, and panic.”

-New York Daily News Editorial

Yesterday was a dark day in the history of the U. S. Congress. Our Congress voted to write a law that would retro-actively attack a small group of private citizens. These are the very tactics our country fought against in the Revolutionary War. Our Founding Fathers specifically outlawed this behavior in the U. S. Constitution. The thugs in Congress have decided they don’t have to play by the rules of the Constitution (assuming any of them still know where to find it to read). Our Congress has ignored the example of Washington, Jefferson, and Adams, and instead have chosen the example of King George during the 1700’s. One Republican even joked that these employees should kill themselves. Every single Republican and Democrat that voted to tax AIG employees at 90% yesterday should be forced to leave in disgrace.

According to varying news accounts, AIG paid out some $165 million in bonuses to between 73 and 463 employees. Most stories report the 73 number; I have seen one that reported the 463 employees. Pelosi, Barney Frank, and Chris Dodd want these people burned at the stake in the public square. Why? Because they had a contract with AIG, and they were arrogant enough to believe their employer would honor it. The employees fulfilled their end of the bargain, and expected AIG to pay them for it. I don’t know how many of you go to work and give your employer the option of paying you. I expect to be paid when I go to work and I know Congress expects the taxpayer to pay them.

Pelosi and other Democrats have stoked popular anger to the point that AIG employees are receiving death threats. According to the International Herald Tribune, “The Connecticut Working Families party, which has support from organized labor, was planning a bus tour Saturday of A.I.G. executives’ homes, with a stop at the company’s Wilton office.” The Democratically controlled Congress and Senate, in conjunction with some Republicans, and with the approval of President Obama are trying to steal money from private citizens simply because they have stoked public opinion against these people. Our elected representatives should be ashamed of what they have done, and we as citizens should be embarrassed by their behavior. Should anything ill happen to these employees, the blood will be squarely on the hands of Pelosi, Frank, President Obama, and their partners in this, “…populism run amok.”

Atlanta Tea Party Update II

This if for those of you interested in what the Atlanta Tea Party looked like on Friday. Michelle Malkin has a number of videos from other cities on her site. I found this clip there.

A New Gas Tax

I am usually against any increase in the Federal Gas Tax. My default position on any tax increase is to oppose it until I know more about it. However, I have been stopped cold by a new purposed gas tax increase. Charles Krauthammer writing in the January 12^th issue of the Weekly Standard argues for a "Net-Zero Gas Tax". I have read this article a few times now, and I believe Mr. Krauthammer may be onto something. I wanted to discuss it here because I would like my readers opinions on the plan.

There are a number of reasons to support a gas tax. Typically, any substantial increase in a gas tax is usually government's way of trying to get the people to use less gas. Depending on your political stripe, you may support this in the name of a cleaner environment, or as a way of lessening our dependence on foreign oil. Europeans already have a much higher gas tax than ours. According to Mr. Krauthammer, our federal gas tax is about 18.4 cents on the gallon. In Europe, the fuel tax is closer to $4 per gallon.

The Net Zero gas tax is different from most tax porposals. Mr. Krauthammer argues for an increase in the federal gas tax of one dollar. This is a pretty big percentage increase and would make gas prices jump up to around $2.83 or so for a national average. This is typically not the type of behavior one expects in an economy where new stimulus packages are dreamt up and voted on every other week. However, Mr. Krauthammer couples his tax with a corresponding reduction of $14 per week in the FICA tax. This reduction is to hit the books the week before the extra one dollar gas tax rolls out. Why a $14 reduction? The average American buys 14 gallons of gas per week. By letting that average American keep the extra $14 in his pay check, he has the money for the additional federal gas tax. The net zero tax is designed to be revenue neutral. The federal government gets the same money it has been getting. However, Americans can now chose to continue to buy the same amount of gas each week, or cut back some and have a little extra money.

Are there challenges to this? Sure, and Mr. Krauthammer has a solution for many of them. What about people on welfare or social security? They would get an extra $14 on their weekly checks. What about truckers who buy much more than the average 14 gallons of gas each week? Institute some sort of exception or credit for them to keep the new tax from hitting them so hard.

What I see as the brilliance of this proposal is that it doesn't hurt most Americans and it could potentially cause many Americans to change their driving habits. Many of us are still driving like gas is $4 a gallon. If this tax were enacted soon, we could keep those driving habits and potential get a little money for it. Both parties can claim this as a victory. Democrats love new taxes, and can say this one is to fight global warming. Republicans can say this is a way to cut our oil use, thereby hurting heavy oil countries like Saudi Arabia, Venezuela, and Russia. Both parties get a feather in their cap, we might do some good, and the tax becomes one we can decide not to pay by driving less.

The only way out of our economic problems are with creative new approaches. The Net Zero Gas tax is a creative approach worth looking at.

The New World Order?

Something happened tonight that was a first for me in the two years I have been writing this blog. I sat down at my computer to do a final proofread on a blog that was going to appear here. It was written and ready to post. Before I uploaded it, I checked out Drudge. The first article I read made me scrap the old blog post, and start over. Here is the first part of the article, as reported by Reuters, and linked to on Drudge:

LONDON (Reuters) – The international financial crisis has given world leaders a unique opportunity to create a truly global society, Britain's Prime Minister Gordon Brown will say in a keynote foreign policy speech on Monday.

In his annual speech at the Lord Mayor's Banquet, Brown – who has spearheaded calls for the reform of international financial institutions – will say Britain, the United States[,]and Europe are key to forging a new world order.

I have seen no article on President Elect Obama that frightens me half as much as the intent of this article, and a comparable one from Bloomberg with the headline, "Brown Seeks 'Global Consensus' on Tax, Spending at G-20 Summit". Anytime I see the phrase "global consensus" in politics, I get very worried. This is no exception.

Prime Minister Gordon Brown is trying to unite the world's economies to get a coordinated, global plan to trim taxes and boost spending. Since March, Britain has enacted spending increases and tax cuts targeting the low income earners to the tune of $7.6 Billion (U.S.). While I am almost always in favor of tax cuts, low income earners don't hire people to work for them. Brown is ready to increase borrowing and may be looking for a global consensus to protect his own hide. Has the Prime Minister considered cutting spending instead of increasing borrowing? To make matters worse, the Bloomberg article hints that other countries (such as China) may be interested in this new world order. Governments only make matters worse when they try to legislate the direction of the economy. I can't even imagine how much worse a global legislative agenda could make things.

Of course there is an even larger issue here. The United States should not cede our economic policies to any foreign body, global society, or new world order. I envision this new world order would be a United Nations like body focused on its own definition of economic policies. What does our current United Nations do well? Waste Money (with a capital M), and attack U.S. policy. What would supporters of Mr. Brown's position expect out of this UN-like body? Why should the citizens of the United States ever believe a global body would have our best interests at heart?

Our Constitution gives people we elect (Congress and the President) power over our own economic policies. These people are expected to represent us, and we have seen what a mess they have made of the economic crisis. What happens when representatives from France, Russia, Iran, or China get to dictate our tax and spend policies?

President Bush and President Elect Obama should both dismiss this idea from Mr. Brown as quickly as possible. The U.S. Senate should pass a resolution forbidding the President from signing any treaty that would require the U.S. to seek foreign council on economic policies. If we cede our tax policies and our economic policies, what happens next? When do we start suppressing other areas of the Constitution in favor of a New World Order? If you believe Mr. Brown's economic policies are a good idea, read this article on talks in Britain regarding,"…banning the media from reporting on matters of national security…" It won't stop with taxing…

Why “Windfall Profit Taxes” Are Just Plain Wrong

There has been a lot of talk in the public sphere about energy. How do we solve the problem of expensive gas and energy? Some believe that a good solution is to hit "big oil" with a windfall profit tax. I want to spend some time today discussing why a "windfall profit tax" is a bad idea. Before I start, some definitions are probably in order. By a windfall profit tax (WPT), I am referring to a measure that would tax a company if it received unusually high profits during one particular quarter. The company would then be forced to pay a tax. When applied to oil companies, most proponents of a WPT want the money taken from the oil companies to then be used to subsidize alternative energies such as solar and wind power.

At face value, many people find this attractive. "Why do the oil companies need so much money? Aren't they just getting rich at our expense?" Remember, oil companies do everything big. The taxes they already pay are pretty high. The cost to get into the industry, to drill for oil, to ship it, and to refine it are pretty large. If you don't believe me, go buy your own oil rig and see how much it costs. Also remember that any tax the oil companies have to pay is going to show up at the pump. If the oil companies pay a tax because they make record profits, that tax becomes a cost of doing business. In order to make a profit, they are going to pass that cost along to all the distributers and gas stations, who will in turn be kind enough to pass it along to you. In reality, this WPT becomes a tax on anyone who buys gas or oil. This simply causes all of the costs associated with producing oil to go up.

It's also interesting that whenever Congress starts talking about the WPT, they don't talk about the gas taxes that are already in place. The Government already gets "X" amount of taxes per gallon of gas. As of July 1^st of this year, the average gas tax in the United States was just over 49 cents per gallon. That is a combination of federal and state tax, and is only the tax at the pump. Any time the price of gas goes up, doesn't the U.S. Government (and most states) get a "windfall profit"? The U.S. government hasn't done anything to earn it. When the price per gallon goes up, should we demand a tax on the federal government be sent back to tax payers?

Personally, I find the thought of a WPT morally repugnant. If we are taxing oil companies in order to subsidize their competitors, how are we treating the oil companies fairly? Would we even consider passing a tax on McDonalds in order to get a smaller veggie burger chain up and running? How is it fair to take money from one company and give it to its competitor? Also, isn't a WPT counter to the very nature of our free market system? The American Dream is to build a company up and make huge sums of money. Why should the government come in and tax that money just because someone in Washington thinks you have made too much money?

In the end, a windfall profit tax is wrong and just a bad idea. It won't help out our government, but it will cause the price of gas and energy to go up. We need a real discussion with real ideas, not pandering without a real solution.

No More Funding for Planned Parenthood

Michelle Malkin has an article today about Planned Parenthood. Planned Parenthood Federation of America, Inc. (commonly referred to as simply Planned Parenthood) has a number of roles in today's world. They are most widely known for their defense of abortion rights. In Michelle's article today, she, "…turns the spotlight on the nefarious business practices of the government-funded, billion-dollar Planned Parenthood empire." Michelle argues that if Congress is going to interrogate the practices of other industries like oil, tobacco, banking, (and I would add baseball), when are they going to look at Planned Parenthood?

Before reading the article, I had no idea that Planned Parenthood received taxpayer funding. Michelle has looked at the annual report for Planned Parenthood Federation of America and found they, "… had a total income of $1.02 billion – with reported profits of nearly $115 million,"{emphasis mine}. One third of the entire budget for Planned Parenthood is provided in the form of State and Federal grants and contracts. That is $336 million of taxpayer funds going to a group that encourages and helps provide abortions.

Michelle's article is very disturbing in its implications. Why are taxpayer funds being used to fund abortions? Why at this level? After reading Michelle's article, I wondered why Planned Parenthood was getting one red cent of tax payer money? According to the Planned Parenthood website, the group pursues a number of activities. Those activities include: providing reproductive healthcare for men, women, and teens (with affordable products according to the website); providing "honest sexuality and relationship information in the classroom" for "young people"; and "leading the reproductive health and rights movement". The last activity is a very nice way of saying "fighting for abortions".

Many Americans disagree with Planned Parenthoods take on these issues, and disagree with their means. Should those Americans be forced to help fund Planned Parenthood? Shouldn't Planned Parenthood justify their need for hundreds of millions of dollars of tax money when they have a total income of over one billion dollars with over a million dollars in profits? They claim on their site that more than 400 celebrities volunteer with different Planned Parenthood boards. Perhaps that is a better source of funding than tax money.

Michelle Malkins article today covers some of the horror stories associated with Planned Parenthood. Some of them are very tragic. If Planned Parenthood believes in abortion rights and wishes to defend them, more power to them. I don't think the tax payers should be providing them with $300 + million to do it with.