Archive for November, 2010
Arab Nations Not Opposed to Military Action Against Iran
Posted by Tom in Defense, Foreign Policy, Military Policy on November 29, 2010
The WikiLeaks purloined documents reveal an Arab acceptance of the difficult take down of Iran and its nuclear capability. Here’s the very interesting report from Stratfor (www.stratfor .com) which I highly commend.
Here’s the link: http://www.stratfor.com/analysis/20101129_dispatch_wikileaks_and_irans_nuclear_program
Comrade Obama Opts for No Growth No Jobs Just to Punish the Wealthy
No surprise that the candidate who thought the Warren Court should have favored more redistribution, and who argued to Joe the Plumber that “spreading the wealth around is good for everybody,” as president would favor taxing the wealthy over growing the economy to create jobs. So Obama who is reasonably astute at least in an academic sense refuses to recognize the validity of Hauser’s Law.
Yesterday’s WSJ featured an op-ed by Kurt Hauser, who first enunciated it, There’s No Escaping Hauser’s Law. Hauser observed the effects of tax increases and reductions over the last sixty years. He measured the effects of these moves in marginal rates on tax revenue as a percent of GDP. The discovery is that the tax revenue as a percentage of GDP is constant, regardless of tax increases or decreases, constant at just under 19% of GDP. The only variable it turns out is whether GDP increases and by how much.
High bracket taxpayers are typically investors, entrepreneurs and business people who take risks with capital to produce growth in revenue, profits, and yes, jobs. As marginal tax rates increase there ia less incentive to take the risks necessary to produce those profits and jobs simply because there is less net return on incremental profits earned. With less risk taking, there is less GDP against which Hauser’s 19% constant is applied.
Hauser’s post war research is impressive: “Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.”
“Why? Higher taxes discourage the “animal spirits” of entrepreneurship. When tax rates are raised, taxpayers are encouraged to shift, hide and underreport income. Taxpayers divert their effort from pro-growth productive investments to seeking tax shelters, tax havens and tax exempt investments. This behavior tends to dampen economic growth and job creation. Lower taxes increase the incentives to work, produce, save and invest, thereby encouraging capital formation and jobs. Taxpayers have less incentive to shelter and shift income.”
So, in truth it would benefit all citizens more if the GDP were higher rather than lower. Likewise the higher it is, the better it will be for the common man. Instead Obama desires a redistributive socialism. The predictable result: lower growth, less federal revenue, greater deficits, more debt.
2012 can’t come too soon!
JFK-BHO, What a Contrast!
Posted by Tom in Democrats, National Character, Presidency on November 22, 2010
As a kid raised in a Roosevelt Democratic household, I learned politics from a pro, my Dad. This was tough St. Louis, ward politics from a working-class, Irish-Catholic perspective. So I was rooting for, campaigning for and praying for Kennedy’s election when in the Army Reserves in Chicago I watched the election returns, even though at 18 I couldn’t vote.
Reading Warren Kozak’s op-ed in today’s WSJ, Remembering JFK in an Age of Terror, reminded me why I was so star struck. He tells of a speech by Kennedy on the steps of the UN on September 25, 1961:
“Terror is not a new weapon,” the young president tells the world body. “Throughout history, it has been used by those who could not prevail either by persuasion or example. But inevitably, they fail either because men are not afraid to die for a life worth living, or because the terrorists themselves came to realize that free men cannot be frightened by threats and that aggression would meet its own response. And it is in the light of that history that every nation today should know; be he friend or foe, that the United States has both the will and the weapons to join free men in standing up to their responsibilities.”
“Free men standing up to their responsibilities”—there is a lasting quality in those seven words that harks back to who we are as a people, to our War of Independence and our frontier days. It describes 18-year-old Marines on Pacific islands and in Afghanistan today. And it carries even more weight because this president, 18 years earlier, had almost lost his own life as a Navy officer on a patrol torpedo boat, PT-109, during World War II. He served his country in war despite his privileged background because, like most men of his generation, he believed in freedom and standing up to aggression. In other words, he took responsibility.
“The United States has both the will and the weapons.” No apology for our strength. No apology for our past. No apology for who we are, and yet the world still admires him.”
What a refreshing contrast to the weak, apologizing, groveling, America-bashing president we now have in office! And what a happy time to have been proud to be a Democrat!
Obama: Bailout King or Head Pusher?
Posted by Tom in California, Constitution, Democrats, Federalism, State Finances, Stimulus/Bailout on November 22, 2010
We read in today’s WSJ that 30 of the 50 states face deficits totaling more that $127 Billion. We also read that the Obama administration wants to permanently extend the federal subsidy for Build America Bonds, the program that uses your hard-earned dollars to reduce interest on state bond issues.
Steven Malanga in his op-ed, The ‘Build America’ Debt Bomb, points out the enabling nature of this addictive federal program for the spendthrift states. The BAB was initiated to help prop up the muni bond market at a time when private bond insurers were thought to be in trouble. It would subsidize higher rates so that new non-taxable investors would come into the muni market. It was designed as temporary and perhaps temporarily justifiable. But like all temporary taxes, like all temporary handouts, like all temporary unemployment insurance, and like all temporary bailouts, in the hands of the Democrats, it tends to become permanent.
The greatest user of the program is the bankrupt state of California which has issued $21 Billion of BABs. Note that CA’s credit is in the tank. Its taxes are among the highest. Its regulatory climate among the harshest. And its green regulatory costs astronomical. As you may have heard CA has an ongoing budget problem to the tune of $20 Billion. It’s ongoing in the sense that the $20 Billion is expected to repeat itself. With a Democratic governor and legislature, there is little hope. If CA can’t tax more for fear of driving out more businesses and CA can’t borrow more from traditional muni investors because its credit is in the tank, then it must look to new markets for lenders. Obama’s BAB drug will continue to serve up sucker new investors but at a costs to the U.S. taxpayers. Why should we pay this?
Malanga points out: “The Obama administration believes the BABs’ direct federal subsidy is a more efficient way to raise money than traditional tax-free municipals. But when money that would otherwise go to private business flows into subsidized government activities, resources are misallocated.
“This is no idle speculation: The financial press is full of stories of investment managers recommending BABs over corporate bonds with similar ratings, thanks to the advantage of federal subsidy. There is also a future bailout risk, given that the federal government might not allow a state or local government to default on a Build America Bond. None of this is what voters signed up for on Nov. 2.”
As I pointed out in a recent post, as long as someone else will pay for the free lunch, there is no reason for the states to stop stuffing themselves. States will only face reality when they are forced to face reality. Congress should reject the BAB extension, provide for state bankruptcy, and promote a constitutional amendment precluding the federal bailout of sovereign states. Oh, and repeal the 17th Amendment; we need a return to federalism.
Another Basic Economic Lesson
Ya gotta love it……
Repeal Humphrey-Hawkins. It’s a recipe for failure!
Posted by Tom in Economics, Fed, Monetary Policy on November 22, 2010
The Fed has an impossible mandate: keep price stability and promote full employment. Emphasizing one detracts from the other and visa versa. This weekend’s WSJ editorial, The Fed’s Bipolar Mandate, quotes the 1978 Full Employment and Balanced Growth Act (Humphrey-Hawkins) mandate: “promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”
A product of the Carter years of high inflation, high unemployment, price controls and gas lines, the Humphrey-Hawkins act is a stupendous testimonial to big government meddling, a shrine to John Maynard Keymes. It lists various duties of the government, briefly according to Wikipedia, it:
- Explicitly states that the federal government will rely primarily on private enterprise to achieve the four goals.
- Instructs the government to take reasonable means to balance the budget.
- Instructs the government to establish a balance of trade, i.e. to avoid trade surpluses or deficits.
- Mandates the Board of Governors of the Federal Reserve to establish a monetary policy that maintains long-run growth, minimizes inflation, and promotes price stability.
- Instructs the Board of Governors of the Federal Reserve to transmit an Monetary Policy Report to the Congress twice a year outlining its monetary policy.
- Requires the President to set numerical goals for the economy of the next fiscal year in the Economic Report of the President and to suggest policies that will achieve these goals.
- Requires the Chairman of the Federal Reserve to connect the monetary policy with the Presidential economic policy.
The Act set specific numerical goals for the President to attain. By 1983, unemployment rates should be not more than 3% for persons aged 20 or over and not more than 4% for persons aged 16 or over, and inflation rates should not be over 4%. By 1988, inflation rates should be 0%. The Act allows Congress to revise these goals over time.
Think of that power of the ruling class! The Act is a statement of progressive, Keynesian, Democratic, liberal, leftist hubris. The only thing it did not attempt to do is repeal the law of gravity!
Forbes publisher Rich Karlguaard said it well last year: “The Humphrey-Hawkins bill was an act of stupendous government meddling in markets and monetary policy. By the Fed’s own language, it had to serve two masters: “The Fed then has two main legislated goals for monetary policy: promoting full employment and promoting stable prices.”
As the WSJ editorial points out, the bipolar mandate inevitably makes the Fed a political actor instead of an independent agency charged with monetary stability. The current brouhaha over QE2 is a perfect example of Bernanke trying to save Obama’s failed fiscal policies over the international outcries of our trading partners.
Friedrich Hayek had a simple theory that the massess of economic actors acting independently will produce better results than the elitist planners can ever hope to achieve. Adam Smith had much the same thinking with his invisible hand producing the best outcomes.
Let’s dump the Keynesian albatross called Humphrey-Hawkins and give the Fed one independent job, price stability.
There is No Spoonful of Sugar – The Case for Higher Taxes
Posted by Tom in Deficit, Financial Crisis, Monetary Policy, Taxation on November 18, 2010
This post is abbreviated from a more extensive essay by Stephen Benavides, a CPA and tax attorney.
If I were asked to give a professional opinion on the income statement of the United States I would be forced to qualify it or include a statement that without drastic and material changes of fortune the United States would cease to exist as a going concern. The three largest items in the budget for 2009 (the last year for which we have complete records) are Social Security, Medicare, and interest on the national debt. None of these three are discretionary. In addition, the defense budget for that year is about the same as the interest on the national debt, but can defense spending be thought of as discretionary? ……
That same $2.4 trillion in tax revenue, representing the sum total of all taxes collected in the United States by the federal government, is sufficient only to pay for three of these four items. Unfortunately, we are now spending $4 trillion a year and one way of looking at our situation is that everything other than Medicare, Social Security, and interest on the national debt is being paid for with borrowed money. That is a 40% structural revenue shortfall!….
The United States is insolvent. From an accounting standpoint, from a business standpoint, for the sake of our sanity and the welfare of our children, this is unsustainable and borders on madness. A day of reckoning is here for our nation and its people. The longer we wait, the worse it will be, not only for ourselves but for the rest of the world since it is pretty obvious that when the United States start sneezing the rest of the world will soon have our cold.
Like all good tax guys I hate income taxes as much or more as any of you but I’m also a businessman. There is no magical way to get us out of this mess. The medicine is going to be bitter and there is no spoonful of sugar to help the medicine go down. The medicine that no one wishes to talk about is a material tax increase. By material, I don’t just mean an increase in tax on the wealthiest 1% of the country. I happen to believe that all citizens should be paying taxes yet our progressive system allows almost 50% of our citizenry to pay no federal income tax at all. I happen to feel strongly that everybody should be paying taxes and find arguments to the contrary revolting……
I hope this rant raises your attention level all the way to outrage! If you are not there yet, consider this: The Federal Reserve just raised your “taxes” again and took as much as 7-10% of your net worth by printing up billions and debasing the currency. This was a planned, considered move to monetize the debt and pay off our obligations with cheaper dollars. They have almost certainly set an inflationary spiral into motion as holders of our debt will want to be paid off or get substantially more interest to continue to finance our madness. Inflation is the most insidious of all taxes. An increase in marginal income tax rates only affects new and future income. Inflation taxes not only our future income but taxes our previously taxed income and all the wealth we have previously amassed in after-tax dollars. It is already too late to stop this from hurting you and your families.
My thanks to Steve Benavides for this post.
Obama & Holder Get Their Wish: Terrorist Goes Free
Posted by Tom in Constitution, Defense, Justice, Terrorism on November 18, 2010
As suggested in my October post, Obama and Holder do not want Gitmo terrorists to suffer justice. They want them to go free. They try them in civilian courts so that the civilian rules of evidence and the constitutional protections accorded citizens will apply to these killer.
Yesterday, they got the desired result with one Ahmed Ghallani the first Guantanamo Bay detainee to be tried in a civilian court. Recall this is the follow that helped with the 1998 US embassy bombing. He was acquitted on all but one of the 285 charges against him.
The New York Post article, Terror-trial travesty, tells the story:
“After all, on the merits, the evidence against Ghailani was overwhelming:
* He helped buy the truck that carried the bomb in the attack on the embassy in Tanzania.
* A detonator was linked to him.
* A key witness had told authorities that he sold Ghailani the explosives.
Indeed, Ghailani practically confessed to his role in the affair himself. But his statements weren’t introduced at trial.
Defense lawyers had argued that Ghailani’s disclosures were inadmissible because they were coerced — and prosecutors were loath to risk having their entire case tossed by the judge.
Under normal circumstances, that’s fine. But this case involved a foreigner making war on America.”
In other words this is an enemy combatant, a foreigner who is not entitled to US constitutional rights including a civilian trial; he is entitled to a military tribunal.
The Post article also included a wonderful picture of Eric Holder, the Attorney General of the United States.
Would you buy a used car from this man?
Congress Needs Some Time Off
This from Paul Burkett is kid safe, and a good lesson for adults!