Tag Archives: Leftists

Restoring America’s Assimilation Apparatus

No one can give you what is already yours

This is the first of “How Big a Life Do You Want” articles.

No One Can Give You What is Already Yours.

Rights. A lot is said about rights. Not all everything called rights have anything to do with what essential rights are. If one were to get down to the root of the matter – rights are first and foremost unalienable, inherent, part and parcel of your very being. If at any moment the idea is accepted that rights are anything but unalienable, part of your very existence, then what you think you have is no longer a right but a decree, edict, endowment or some specific benefit bestowed by some higher authority, usually some form of government or ruler.

In the first case, your rights are the basis of law; in the latter, laws define your rights. Further, if rights are inherent, unalienable then no person, entity or governing body can be said to have jurisdiction over your rights. This is because the rights of every individual emanate from each and every individual’s very existence; this bundle of rights exist a priori, proceeding any law or government.

This is precisely what was meant by that portion of the Declaration of Independence which reads:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed, by their Creator, with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.”

Frédéric Bastiat in “The Law” says it this way:

We hold from God the gift which includes all others. This gift is life—physical, intellectual, and moral life.

But life cannot maintain itself alone. The Creator of life has entrusted us with the responsibility of preserving, developing, and perfecting it. In order that we may accomplish this, He has provided us with a collection of marvelous faculties. And He has put us in the midst of a variety of natural resources. By the application of our faculties to these natural resources we convert them into products, and use them. This process is necessary in order that life may run its appointed course.

Life, faculties, production–in other words, individuality, liberty, property—this is man. And in spite of the cunning of artful political leaders, these three gifts from God precede all human legislation, and are superior to it.

Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.¹

This cannot be understated: whether you believe in a God or not, if your rights begin and end with a governing entity, then you do not possess unalterable, unalienable, inherent rights. What you would have were little more than someone giving you at their discretion what they deem you should have. Their presumption is that they have the right and therefore the authority to decree as they see fit. How do they have such authority? Did you give it to them? By what right do they claim such power? Birth? Privilege? A superior intellect? Some high moral character that sets them apart and above the rest of humanity? Or is it mere political power?

Surely the ridiculousness of this notion can be see for what it is. If what you cling to as “rights” under this scenario can be dismissed at the whim and leisure of a ruling individual or group, then rights do not exist; only authority and political power. If rights are believed to be endowed by authority, and not inherent, unalienable, political structure doesn’t matter – it can be a true dictatorship, an oligarchy or a democracy (which is little more than soft tyranny of the majority).

Are you comfortable with the idea that what you believe you have as a right is nothing more than what another deems it to be? Or does it make more sense that rights are truly part and parcel of your being and the being of every individual? If these essential rights are inherently yours, then they are not and cannot be given to you.

No one can give you what is already yours: Life, Liberty, Property. Everything else grows out of this basic concept. Rights either are inherent and unalienable or law is based upon who rules at the time. The choice should be obvious.
Life, Liberty, Property – these are the essential rights each of us possess. You cannot have one without the other two. The existence of these carries with it your right to hold and enjoy these and to defend them, to keep them from being take from you.

This right of defense (to hold and enjoy one’s basic rights freely) is the foundation of all law. So, the purpose of Law is to protect the inherent and unalienable rights of every individual. Laws or legislation that violate anyone’s essential rights would then be contrary to the purpose of Law Theft and fraud are the taking of your property by force or coercion. Murder is the taking of another’s life. Slavery is the taking of one’s freedom and property. It is lawful to prevent theft, fraud, murder and slavery precisely because they take or attempt to destroy the essential rights of an individual or another group of individuals by another individual or group of individuals.

A characteristic of rights is that one’s possession and exercise of that right does not take from another. Your thinking, your speaking, your breathing, your own efforts do not directly cause the loss of the things in anyone else. Your Property, which begins initially with your own body, is not another person’s, nor does your mere existence, put an end to another individual’s having a body. Your right to maintain and improve your own existence does not preclude another person’s right to do so.

This may seem ridiculous to cover, but over the years so many assumptions have glossed over the basic concepts and observations of our own humanity and our relationships, they have to be mentioned. These are what make a truly free society possible,. Precisely because these are presumptive they are often overlooked and forgotten.

So what happens when the co-equal and inalienable rights of two individuals cross paths? Shall one merely use force to take what they want or need from the other? Or shall a mutually agreeable exchange be made to the basic satisfaction of both parties? Which of these choices would be the more civil and respectful? Which action represents freedom and tolerance?

I ask then, just how big a life do you want?

“The Law” by Frédéric Bastiat can be found in several places (it’s a mere 75 pages):

https://mises.org/library/law

http://bastiat.org/en/the_law.html

http://www.constitution.org/cmt/bastiat/the_law.html

http://www.econlib.org/library/Bastiat/basEss2.html

Senator Rand Paul’s Very Good Tax Plan Needs One Important Tweak

Senator Rand Paul’s Very Good Tax Plan Needs One Important Tweak

Our nation very much needs fundamental tax reform, so it’s welcome news that major public figures – including presidential candidates – are proposing to gut the internal revenue code and replace it with plans that collect revenue in less-destructive ways.

A few months ago, I wrote about a sweeping proposal by Senator Marco Rubio of Florida.

Today, let’s look at the plan that Senator Rand Paul has put forward in a Wall Street Journal column.

He has some great info on why the current tax system is a corrupt mess.

From 2001 until 2010, there were at least 4,430 changes to tax laws—an average of one “fix” a day—always promising more fairness, more simplicity or more growth stimulants. And every year the Internal Revenue Code grows absurdly more incomprehensible, as if it were designed as a jobs program for accountants, IRS agents and tax attorneys.

And he explains that punitive tax policy helps explain why our economy has been under-performing.

…redistribution policies have led to rising income inequality and negative income gains for families. …We are already at least $2 trillion behind where we should be with a normal recovery; the growth gap widens every month.

So what’s his proposal?

…repeal the entire IRS tax code—more than 70,000 pages—and replace it with a low, broad-based tax of 14.5% on individuals and businesses. I would eliminate nearly every special-interest loophole. The plan also eliminates the payroll tax on workers and several federal taxes outright, including gift and estate taxes, telephone taxes, and all duties and tariffs. I call this “The Fair and Flat Tax.” …establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed. For low-income working families, the plan would retain the earned-income tax credit.

Kudos to Senator Paul. This type of tax system would be far less destructive than the current system.

That being said, it’s not perfect. Here are three things I don’t like.

  1. The Social Security payroll tax already is a flat tax, so it’s unclear why it should be wrapped into reform of the income tax, particularly if that change complicates the possibility of shifting to a system of personal retirement accounts.
  2. There would still be some double taxation of dividends, capital gains, and interest, though the destructive impact of that policy would be mitigated because of the low 14.5 percent rate.
  3. The earned-income credit (a spending program embedded in the tax code) should be eliminated as part of a plan to shift all means-tested programs back to the states.

But it’s important not to make the perfect the enemy of the good, particularly since the debate in Washington so often is about bad ideas and worse ideas.

So the aforementioned three complaints don’t cause me much heartburn.

But there’s another part of the Paul plan that does give me gastro-intestinal discomfort. Here’s a final excerpt from his column.

I would also apply this uniform 14.5% business-activity tax on all companies…. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed, ending complicated depreciation schedules.

You may be wondering why this passage is worrisome. After all, it’s great news that the very high corporate tax rate is being replaced by a low-rate system. Replacing depreciation with expensing also is a huge step in the right direction.

So what’s not to like?

The answer is that Senator Paul’s “business-activity tax” doesn’t allow a deduction for wages and salaries. This means, for all intents and purposes, that he is turning the corporate income tax into a value-added tax (VAT).

In theory, this is a good step. After all, the VAT is a consumption-based tax which does far less damage to the economy, on a per-dollar-collected basis, than the corporate income tax.

But theoretical appeal isn’t the same as real-world impact.

Simply stated, the VAT is a money machine for big government.

All of which helps to explain why it would be a big mistake to give politicians this new source of revenue.

Indeed, this is why I was critical of Herman Cain’s 9-9-9 plan four years ago.

It’s why I’ve been leery of Congressman Paul Ryan’s otherwise very admirable Roadmap plan.

And it’s one of the reasons why I feared Mitt Romney’s policies would have facilitated a larger burden of government.

These politicians may have had their hearts in the right place and wanted to use the VAT to finance pro-growth tax reforms. But I can’t stop worrying about what happens when politicians with bad motives get control.

Particularly when there are safer ways of achieving the same objectives.

Here’s some of what I wrote last year on this exact topic.

…the corporate income tax is a self-inflicted wound to American prosperity, but allow me to point out that incremental reform is a far simpler – and far safer – way of dealing with the biggest warts plaguing the current system.

Lower the corporate tax rate.

Replace depreciation with expensing.

Replace worldwide taxation with territorial taxation.

So here’s the bottom line. If there’s enough support in Congress to get rid of the corporate income tax and impose a VAT, that means there’s also enough support to implement these incremental reforms.

There’s a risk, to be sure, that future politicians will undo these reforms. But the adverse consequences of that outcome are far lower than the catastrophic consequences of future politicians using a VAT to turn America into France.

To wrap things up, there’s no doubt that Senator Paul has a very good proposal. And I know his heart is in the right place.

But watch this video to understand why his proposal has a very big wart that needs to be excised.

 

 

For what it’s worth, I’m mystified why pro-growth policy makers don’t simply latch onto an unadulterated flat tax.

That plan has all the good features needed for tax reform without any of the dangers associated with a VAT.

P.S. You can enjoy some good VAT cartoons by clicking here, here, and here.

Reposted from International Liberty.

Why it Matters that the United States Is (Supposed to Be) a Republic, not a Democracy

Why it Matters that the United States Is (Supposed to Be) a Republic, not a Democracy

If you want to go to a Presbyterian church instead of a Baptist church, should the government be able to interfere with that choice? Even if, for some bizarre reason, 95 percent of the population doesn’t like Presbyterians?

If you want to march up and down the sidewalk in front of City Hall with a sign that says the Mayor is an idiot, should the government be able to throw you in jail? Even if 95 percent of the population somehow has decided the Mayor is a genius?

Most Americans instinctively understand that the answer to all these question is no. Not just no, a big emphatic NO!

That’s because certain rights are guaranteed by our Constitution, regardless of whether an overwhelming majority of our fellow citizens feel otherwise.

And that’s what makes us a republic rather than a democracy.

But the bad news is that many of our rights in the Constitution no longer are protected.

For instance, Article I, Section 8, specifically enumerates (what are supposed to be) the very limited powers of Congress.

Our Founding Fathers thought it was okay for Congress to have the power to create courts, to coin money, to fund an army, and to have the authority to do a few other things.

But here are some things that are not on that list of enumerated powers (and certainly not included in the list of presidential powers either):

And the list could go on for several pages. The point is that the entire modern Washington-based welfare state, with all its redistribution and so-called social insurance, is inconsistent with the limited-government republic created by America’s Founders.

These programs exist today because the Supreme Court put ideology above the Constitution during the New Deal and, at least in the economic sphere, turned the nation from a constitutional republic into a democracy based on unconstrained majoritarianism.

Here’s some of Walter Williams wrote on the topic.

Like the founders of our nation, I find democracy and majority rule a contemptible form of government. …James Madison, in Federalist Paper No. 10, said that in a pure democracy, “there is nothing to check the inducement to sacrifice the weaker party or the obnoxious individual.” …John Adams said, “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There was never a democracy yet that did not commit suicide.” …The word “democracy” appears nowhere in the two most fundamental documents of our nation — the Declaration of Independence and the U.S. Constitution. …the Constitution’s First Amendment doesn’t say Congress shall grant us freedom of speech, the press and religion. It says, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press…” …In a democracy, the majority rules either directly or through its elected representatives. …Laws do not represent reason. They represent force. The restraint is upon the individual instead of government. Unlike that envisioned under a republican form of government, rights are seen as privileges and permissions that are granted by government and can be rescinded by government. …ask yourself how many decisions in your life would you like to be made democratically. How about what car you drive, where you live, whom you marry, whether you have turkey or ham for Thanksgiving dinner?

And click here for a video that explains in greater detail why majoritarianism is a bad idea.

But perhaps these cartoons will make it even easier to understand why 51 percent of the population shouldn’t be allowed to rape and pillage 49 percent of the population.

We’ll start with this depiction of modern elections, which was featured on a friend’s Facebook page.

And here’s one that I’ve shared before.

It highlights the dangers of majoritarianism, particularly if you happen to be a minority.

P.S. George Will has explained that the Supreme Court’s job is to protect Americans from democracy.

P.P.S. Here’s more analysis of the issue from Walter Williams.

P.P.P.S. Some leftists are totally oblivious about America’s system of government.

P.P.P.P.S. Though Republicans also don’t really understand what the Constitution requires.

P.P.P.P.P.S. Looking at the mess in the Middle East, I’ve argued we would be in much better shape if we promoted liberty instead of democracy.

Reposted from International Liberty.

Does “Freedom” Mean an Entitlement to Other People’s Money?

Does “Freedom” Mean an Entitlement to Other People’s Money?

Maybe the warm weather is affecting my judgement, but I’m finding myself in the odd position of admiring some folks on the left for their honesty.

A few days ago, for instance, I (sort of) applauded Matthew Yglesias for openly admitting that punitive tax rates would put us on the downward-sloping portion of the Laffer Curve.

He still favors such a policy, which is very bizarre, but at least his approach is much more honest than other statists who want us to believe that very high tax rates generate more revenue.

Today, I’m going to indirectly give kudos to another leftist.

Writing for the Washington Post, Katrina vanden Heuvel openly argues that the meaning of freedom should be changed. Here’s some of her argument, and we’ll start with her reasonably fair description of how freedom currently is interpreted.

For conservatives, freedom is centered in markets, free from government interference. …Government is the threat; the best thing it can do is to get out of the way. …freedom entails privatization, deregulation, limiting government’s reach and capacity.

Needless to say, I agree with this definition. After all, isn’t freedom just another way of saying “the absence of coercive constraint on the individual?

Heck, this is why I’m a libertarian. Sure, I like the fact that liberty produces more prosperity, but my main goal it to eliminate needless government coercion.

But I’m digressing. Let’s get back to her column. She complains that folks on the left have acquiesced to this traditional conception of freedom.

Democrats chose to tack to these conservative winds. Bill Clinton’s New Democrats echoed the themes rather than challenge them. “The era of big government is over,” he told Americans, while celebrating “ending welfare as we know it,” deregulation of Wall Street… Obama chose consciously not to challenge the conservative limits on what freedom means.

Then she gets to her main argument. She wants Hillary Clinton to lead an effort to redefine the meaning of freedom.

This is Hillary Clinton’s historic opportunity. …She would do a great service for the country — and for her own political prospects — by offering a far more expansive American view of what freedom requires, and what threatens it. …expanding freedom from want by lifting the floor under workers, insuring every child a healthy start, providing free public education from pre-k to college, rebuilding the United States and putting people to work… Will she favor fair taxes on the rich and corporations to rebuild the United States and put people to work? Will she make the case for vital public investments — in new energy, in infrastructure, in education and training — that have been starved for too long? Will she call for breaking up banks…? Will she favor expanding social security…? …to offer Americans a bolder conception of freedom…and set up the debate that America must decide.

Needless to say, I strongly disagree with such policies. How can “freedom” be based on having entitlements to other people’s money?!?

Heck, it’s almost like slavery since it presupposes that a “right” to live off the labor of others. But that’s not technically true since presumably there wouldn’t be any requirement to work. So what would really happen in such a society is that people would conclude it’s better to ride in the wagon of government dependency, as illustrated by these cartoons.

Which means, sooner or later, a Greek-style collapse because a shrinking population of producers can’t keep pace with an ever-expanding population of moochers and looters.

Nonetheless, I give Ms. vanden Heuvel credit for acknowledging that her preferred policies are contrary to the traditional definition of freedom.

To be sure, I’d admire her even more if she simply admitted that she favors government coercion over freedom. That would be true honesty, but I can understand that folks on the left would prefer to change the meaning of words rather than admit what their agenda really implies.

P.S. Some of you may recognize that the issues discussed above are basically a rehash of the debate between advocates of “negative liberty” and supporters of “positive liberty.” The former is focused on protecting people from the predations of government while the latter is about somehow guaranteeing goodies from the government.

P.P.S. As mentioned in Ms. vanden Heuvel’s column, today’s effort to redefine freedom is similar to the so-called economic bill of rights peddled in the 1940s by FDR.

Reposted from International Liberty.

Hillary opines on voter fraud, voter ID.

Interesting that with all of the turmoil surrounding Mrs. Clinton that she is now all concerned about voters ability to vote (NYT: Clinton on Voting Rights). Then again, when was distraction not the favorite tool of politicians (“Look over here! Nothing to see over there.”)?

I was listening this morning to a radio discussing voter fraud. Found it ironic one person called made a statement about how little voter fraud actually happens and bolted without any discussion.

I’ve had several conversations with several over the last couple of years. In my research here’s what I found –

1) the actual number of incidents versus the voting population is as it is oft cited by Liberals: minimal or negligible.

You’ll find similar sources in Mother Jones, Salon, and The Huffington Post

This, however, is where they stop. However, it is a half truth.

2) It is not the number of incidences; it’s not even the even fewer number of convictions. As with the fulcrum and lever (a very large weight can be moved with minimal effort), it’s not the number of incidents, but the impact of those incidents.

Case in point:

During the 2008 Democratic Primary four individuals within Indiana’s Democratic political/election machine were convicted of voter fraud. They forged enough signatures that had it been caught at the time, then candidate Obama might not have been lawfully placed upon the Indiana ballot. Let that sink in. In one place, four individuals (not a large number in contrast to the entire voting population), effectively influenced the outcome of an entire election through fraud. One incident.

http://www.foxnews.com/politics/2013/06/17/indiana-dem-official-sentenced-to-prison-for-08-ballot-fraud-in-obama-clinton/

This is only one instance. There are many others. Again, number of instances versus number of voters – insignificant. But like the ratio of the rudder on a aircraft carrier, a small thing (relative to the size of the object it influences) can and does modify the outcome (in the case of a ship, its direction) considerably. It doesn’t matter which candidate such may effect – voter fraud literal steals from the masses their legitimate vote, the most significant influence we as citizens have upon the direction of our government. The case above shows just how damaging such fraud can have, regardless of what political party is involved or which candidate it helps or harms.

What is glaring about the voter fraud that occurs is (1) not all are convicted (some are dismissed for appropriate reasons; some plea bargain) and (2) it appears from what I have found thus far that the vast majority of these are committed by Democrats (I’ve yet to find a Republican that has been indicted for voter fraud).  Interesting, wouldn’t you say?

Don’t know about you, but I’d like to know my vote counts. Otherwise, we are no longer a truly free society.

Even the IRS Admits that the Tax Code Is Very Biased against Successful Taxpayers

Even the IRS Admits that the Tax Code Is Very Biased against Successful Taxpayers

When I debate class warfare issues, here’s something that happens with depressing regularity.

I’ll cite research from a group like the Tax Foundation on how an overwhelming share of the income tax is borne by upper-income taxpayers.

The statist I’m arguing with will then scoff and say the Tax Foundation is biased, thus implying that I’m sharing bogus data.

I’ll then respond that the group has a very good reputation and that their analysis is directly based on IRS data, but I may as well be talking to a brick wall. It seems leftists immediately close their minds if information doesn’t come directly from a group that they like.

So I was rather happy to see that the Internal Revenue Service, in the Spring 2015 Statistics of Income Bulletin, published a bunch of data on how much of the income tax is paid by different types of taxpayers.

I’ll be very curious to see how they respond when I point out that their favorite government agency admits that the bottom 50 percent of earners only pay 2.8 percent of all income tax. And I’ll be every more curious to see how they react when I point out that more than half of all income taxes are paid by the top 3 percent of taxpayers.

There’s a famous saying, generally attributed to Daniel Patrick Moynihan, that “Everyone is entitled to his own opinion, but not his own facts.”

With this in mind, I’m hoping that this data from the IRS will finally put to rest the silly leftist talking point that the “rich” don’t pay their “fair share.”

This doesn’t mean, by the way, that the debate about policy will be settled.

Getting statists to accept certain facts is just the first step.

But once that happens, we can at least hope that their minds will be opened to subsequent steps, such as understanding the economic impact of punitive tax rates, recognizing that high tax rates won’t necessarily collect more revenue, or realizing that ordinary workers suffer when harsh tax policies reduce economic vitality.

Though I’m not holding my breath and expecting miracles. After all, some leftists openly state that they don’t care if the economic damage of high tax rates is so significant that government doesn’t collect any tax revenue.

You can see an example of one of these spite-motivated people at the 4:20 mark of the video I narrated on class-warfare taxation.

P.S. Shifting to another tax topic, some of you may have heard about the massive data breach at the IRS. Here’s some of what CNN is reporting.

The Internal Revenue Service believes that a major cyber breach that allowed criminals to steal the tax returns of more than 100,000 people originated in Russia, Rep. Peter Roskam confirmed to CNN on Thursday. …The IRS announced Tuesday that organized crime syndicates used personal data obtained elsewhere to access tax information, which they then used to file $50 million in fraudulent tax refunds.

I suppose I could use this opportunity to take a few potshots at the IRS, but there’s a far more important issue to raise.

I’m guessing the IRS probably has the best computer security of any tax bureaucracy in the world. Yet even all the IRS’s expertise couldn’t stop hackers from obtaining sensitive information.

Now let’s contemplate something truly frightening. The Obama Administration wants the United States to be part of an OECD pact that obligates participating nations to promiscuously share information with dozens of other governments, including untrustworthy, hostile, and/or corrupt regimes such as Russia and China, not to mention make information available to jurisdictions that presumably will have very little technical capacity to guard data from hackers and identity thieves. Here’s the list of participating nations on the OECD website, and it includes Azerbaijan, Cameroon, Greece, Indonesia, Mexico, Nigeria, Romania, Saudi Arabia, and Ukraine.

Yet none of this reckless endangerment would be an issue if we had a simple territorial tax system like the flat tax. Under such a simple and fair system, only income inside America’s borders would be taxed (unlike the wretched system of worldwide taxation we have now), so there would be no need to have risky information-swapping deals with dodgy foreign governments.

P.P.S. Senator Rand Paul is one of the few lawmakers fighting to protect Americans from having their information shared with foreign governments.

P.P.P.S. Shifting back to the original topic of class-warfare taxation, here’s a lesson on the Laffer Curve I offered to President Obama.

Reposted from International Liberty.

The Ticking Fiscal Time Bomb of Social Security

The Ticking Fiscal Time Bomb of Social Security

America has a giant long-run problem largely caused by poorly designed entitlement programs such as Social Security, Medicare, and Medicaid.

So when I wrote last month about proposals by some Democrats to expand Social Security, I was less than enthusiastic.

…demographic changes and ill-designed programs will combine to dramatically expand the size of the public sector over the next few decades. So it’s really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper. …I’m surprised demagogues such as Elizabeth Warren haven’t rallied behind a plan to simply add a bunch of zeroes to the IOUs already sitting in the so-called Social Security Trust Fund. …If Hillary winds up endorsing Warren’s reckless plan, it will give us another data point for our I-can’t-believe-she-said-that collection.

But it turns out I may have been too nice in my analysis.

As reported by USA Today, independent researchers have discovered that Social Security is even more bankrupt than suggested by official estimates.

New studies from Harvard and Dartmouth researchers find that the SSA’s actuarial forecasts have been consistently overstating the financial health of the program’s trust funds since 2000. “These biases are getting bigger and they are substantial,” said Gary King, co-author of the studies and director of Harvard’s Institute for Quantitative Social Science. “[Social Security] is going to be insolvent before everyone thinks.” …Once the trust funds are drained, annual revenues from payroll tax would be projected to cover only three-quarters of scheduled Social Security benefits through 2088.

By the way, I’m not overly enamored with this analysis since it is based on the assumption that the Social Security Trust Fund is real when it’s really nothing but a collection of IOUs.

But if you don’t believe me, perhaps you’ll believe the Clinton Administration, which admitted back in 1999 (see page 337) that the Trust Fund is just a bookkeeping gimmick.

These balances are available to finance future benefit payments and other trust fund expenditures–but only in a bookkeeping sense. …They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury, that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.

In other words, what really matters is that Social Security spending is climbing too fast and consuming an ever-larger share of economic output.

That means – in the absence of reform – that more and more money will be diverted from the economy’s productive sector, in the form of taxes or borrowing, to finance benefits.

And when I write “more and more money,” that’s not a throwaway statement.

Returning to the USA Today report, academic experts warn that the long-term shortfall in the program is understated because it is based on 75-year estimates even though the program doesn’t have an expiration date.

The bigger problem with the Social Security Administration is not disclosure, it’s accounting, said Laurence Kotlikoff, a Boston University professor of economics… Kotlikoff…wants the agency to calculate its liabilities using fiscal gap accounting, which considers the difference between the government’s projected financial obligations and the present value of all projected future tax and other revenue. …Under this accounting system, SSA’s projected unfunded liabilities would be $24.9 trillion (instead of the $10.6 trillion projected in 2088). …17 Nobel Prize-winning economists have endorsed Kotlikoff’s push for the SSA and other government agencies to use the fiscal gap accounting method more broadly. “We have a situation that is like Enron accounting,” Kotlikoff said. “And the public doesn’t want to hear about it.”

At the risk of being pedantic, I’m also not enamored with either approach mentioned in the above passage.

Sure, we should acknowledge all expenses and not arbitrarily assume the program disappears after 75 years, but the approach used to calculate “unfunded liabilities” is artificial since it is based on how much money would need to be invested today to finance future promised benefits (whether for 75 years or forever).

Needless to say, governments don’t budget by setting aside trillions of dollars to meet future expenses. Social Security, like other programs, is funded on a pay-as-you-go basis.

That’s why the most appropriate way to measure the shortfall is to take all projected future deficits, adjust them for inflation, and calculate the total. When you do that, the Social Security shortfall is a staggering $40 trillion.

And that’s based on just a 75-year estimate, so the real number is much higher.

Though keep in mind that this is just an estimate of the fiscal shortfall. What really matters is the total level of spending, not how much is financed with red ink.

Which is why the only real answer is genuine reform.

For further information, here’s the video I narrated for the Center for Freedom and Prosperity on the need to modernize the system with personal retirement accounts.

But if you prefer to trust politicians, you can always support the left’s favored solution.

P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

P.P.S. The “Trust Fund” is real only in the sense that the government’s legal authority to pay benefits will be constrained when the IOUs are used up. That’s why the USA Today article says that the government at that point would be able to pay only about 3/4ths of promised benefits (though one imagines that future politicians will simply override that technical provision and require full payments).

P.P.P.S. Many nations have adopted genuine reform based on private retirement savings, including Australia, Sweden, the Faroe Islands, Chile, and The Netherlands.

P.P.P.P.S. Because of lower life expectancies, African-Americans are very disadvantaged by the Social Security system. A system of personal accounts presumably wouldn’t help them live longer, but at least they would have a nest egg to pass on to their kids.

P.P.P.P.P.S. And don’t fall for the false argument that financial markets are too unstable for personal retirement accounts

Reposted from International Liberty.

For additional information regarding Social Security: http://www.justfacts.com/socialsecurity.asp
Definition of a Ponzi scheme

In the Left’s Orwellian World, Taxpayers Who Get to Keep their Income Are Getting “Handouts”

In the Left’s Orwellian World, Taxpayers Who Get to Keep their Income Are Getting “Handouts”

I’ve sometimes asserted, only half-jokingly, that statists believe all of our income belongs to the government and that we should be grateful if we’re allowed to keep any slice of what we earn.

This is, at least in part, the mentality behind the “tax expenditure” concept, which creates a false equivalence between spending programs and provisions of the tax code that allow people to keep greater amounts of their own income.

Here’s how I characterized this moral blindness when criticizing a Washington Post columnist back in 2013.

Hiatt presumably thinks that the government’s decision not to impose double taxation is somehow akin to a giveaway. But that only makes sense if you assume that government has a preemptive claim to all private income. …Hiatt wants us the think that there’s no moral, ethical, or economic difference between giving person A $5,000 of other people’s money and person B being allowed to keep $5,000 of his or her own money.

Today, I have a particularly absurd real-world illustration of this statist mindset.

Two writers for the Wonkblog section of the Washington Post recently wrote an article entitled, “The rich get government handouts just like the poor. Here are 10 of them.”

Did their list of 10 “handouts” include the Export-Import Bank, which lines the pockets of big corporations? Nope.

Did it include agriculture subsidies, which provide unearned goodies for big agribusiness firms? Nope.

Did it the TARP bailout, which shielded Wall Street fatcats from capitalism? Nope.

And how about subsidized terrorism insurance, ethanol goodies, and green energy subsidies? Nope, nope, and nope.

Or the handouts in Obamacare for major pharmaceutical companies and big insurance companies? Nope and nope.

Instead, every single “handout” that the rich “get” from government is nothing more than a provision of the tax code that lets people keep more of their own money.

I’m not joking. Here’s the list, followed by my two cents.

1. The mortgage interest deduction for big houses and second homes.

As I’ve previously explained, I don’t think the tax code should be tilted in favor of residential real estate. But a handout is when the government takes money from Person A and gives it to Person B.

2. The yacht tax deduction.

There actually isn’t a yacht tax deduction, but if you can live in something, it can be eligible for a mortgage interest deduction. I don’t think that’s wise tax policy, but it’s not an example of government taking from Person A and giving to Person B.

3. Rental property.

The authors appear to be upset that people running a business get to subtract costs from gross income when calculating net income. But that’s exactly how businesses are supposed to be taxed. And even if one thought, for some odd reason, that gross income was the right tax base, this still isn’t an example of government taking from Person A to give to Person B.

4. Fancy business meals.

As just noted, businesses should be taxed on profits rather than gross receipts. Well, profits are the difference between total income and total costs, including the cost of business-related meals. And even if one thinks that folks in business are lying and mischaracterizing personal meals, they’re not spending other people’s money. No funds are being taken from Person A and being given to Person B.

5. The capital gains tax rate.

In a good tax system, there’s no double taxation of income that is saved and invested, so the capital gains tax should be abolished. As such, the “preferential” rate in the current system is more accurately characterized as a mitigation of a penalty. But even if one believes that saving and investment should be double taxed, a lower capital gains tax rate doesn’t take money from Person A to give to Person B.

6. The estate tax.

The death tax is triple taxation, so it also should be abolished. Regardless, letting a family hold onto its own money is not the same as taking from Person A to give to Person B.

7. Gambling loss deductions.

The government taxes gamblers on their net winnings (if any), which is the proper approach. And even if the government gave a deduction for net losses (which isn’t the case), this wouldn’t be an example of taking from Person A and giving to Person B.

8. The Social Security earnings limit.

The Social Security system is supposed to be social insurance, and one of the implications of this approach is that there’s a limit on the benefits one can receive and the payments one has to make. As such, it’s silly to assert that the “wage base cap” is somehow improper. But even if one believed in turning Social Security into a pure redistribution scheme, the existing earnings limit simply means a cap on what the government takes. There’s no coerced handout from Person A to Person B.

9. Retirement plans.

The bad news is that we have pervasive double taxation in the internal revenue code. The good news is that some forms of retirement savings, such as IRAs and 401(k)s, are protected from double taxation. That protection does not require any money being taken from Person A and given to Person B.

10. Tax prep.

I’m not a fan of companies like H&R Block that benefit from an unfair and convoluted tax code. Under a simple and fair system like the flat tax, they would go out of business. But a deduction for tax preparation costs simply allows a taxpayer to keep more of his or her income. There’s no handout from Person A to Person B.

In case you didn’t notice, there’s a strong moral component to my argument. The leftists think you’re getting a handout if you get to keep more of your own money.

I think that’s absurd.

And it’s also economically illiterate when applied to provisions of the tax code that make sense, such as companies getting to subtract expenses when calculating taxable income.

Or individuals not being subjected to double taxation.

P.S. Here’s some pro-Second Amendment humor, which cleverly uses the left’s “undocumented” terminology for illegal aliens and applies it in a much better fashion.

And if you like pro-gun humor, you can find lots of good links by clicking here.

P.P.S. Since I mentioned immigration, here’s a fascinating graphic that shows immigration trends over the past two centuries.

There’s no policy lesson of philosophical point. I just think this graphic is very informative and well designed.

But if you want my two cents, I like immigration but want to make sure we attract people who want to work and assimilate rather than scroungers (and worse) who want welfare and handouts.

Reposted from International Liberty.

Grading the Rubio-Lee Tax Reform Plan

Grading the Rubio-Lee Tax Reform Plan

In my 2012 primer on fundamental tax reform, I explained that the three biggest warts in the current system.

1. High tax rates that penalize productive behavior.

2. Pervasive double taxation that discourages saving and investment.

3. Corrupt loopholes and cronyism that bribe people to make less productive choices.

These problems all need to be addressed, but I also acknowledged additional concerns with the internal revenue code, such as worldwide taxation and erosion of constitutional freedoms an civil liberties.

In a perfect world, we would shrink government to such a small size that there was no need for any sort of broad-based tax (remember, the United States prospered greatly for most of our history when there was no income tax).

In a good world, we could at least replace the corrupt internal revenue code with a simple and fair flat tax.

In today’s Washington, the best we can hope for is incremental reform.

But some incremental reforms can be very positive, and that’s the best way of describing the “Economic Growth and Family Fairness Tax Reform Plan” unveiled today by Senator Marco Rubio of Florida and Senator Mike Lee of Utah.

The two GOP senators have a column in today’s Wall Street Journal, and you can read a more detailed description of their plan by clicking here.

But here are the relevant details.

What’s wrong with Rubio-Lee

In the interest of fairness, I’ll start with the most disappointing feature of the plan. The top tax rate will be 35 percent, only a few percentage points lower than the 39.6 percent top rate that Obama imposed as a result of the fiscal cliff.

Even more troubling, that 35 percent top tax rate will be imposed on any taxable income above $75,000 for single taxpayers and $150,000 for married taxpayers.

Since the 35 percent and 39.6 percent tax rates currently apply only when income climbs above $400,000, that means a significant number of taxpayers will face higher marginal tax rates.

That’s a very disappointing feature in any tax plan, but it’s especially unfortunate in a proposal put forth my lawmakers who wrote in their WSJ column that they want to “lower rates for families and individuals.”

What’s right with Rubio-Lee

This will be a much longer section because there are several very attractive features of the Rubio-Lee plan.

Some households, for instance, will enjoy lower marginal tax rates under the new bracket structure, particularly if those households have lots of children (there’s a very big child tax credit).

But the really attractive features of the Rubio-Lee plan are those that deal with business taxation, double taxation, and international competitiveness.

Here’s a list of the most pro-growth elements of the plan.

A 25 percent tax rate on all business income – This means that the corporate tax rate is being reduced from 35 percent (the highest in the world), but also that there will be a 25 percent maximum rate on all small businesses that file using Schedule C as part of a 1040 tax return.

Sweeping reductions in double taxation – The Rubio-Lee plans eliminates the capital gains tax, the double tax on dividends, and the second layer of tax on interest.

Full expensing of business investment – The proposal gets rid of punitive “depreciation” rules that force businesses to overstate their income in ways that discourage new business investment.

Territorial taxation – Businesses no longer will have to pay a second layer of tax on income that is earned – and already subject to tax – in other nations.

No death tax – Income should not be subject to yet another layer of tax simply because someone dies. The Rubio-Lee plan eliminates this morally offensive form of double taxation.

In addition, it’s worth noting that the Rubio-Lee plan eliminate the state and local tax deduction, which is a perverse part of the tax code that enables higher taxes in states like New York and California.

Many years ago, while working at the Heritage Foundation, I created a matrix to grade competing tax reform plans. I updated that matrix last year to assess the proposal put forth by Congressman Dave Camp, the former Chairman of the House Ways & Means Committee.

Here’s another version of that matrix, this time including the Rubio-Lee plan.

As you can see, the Rubio-Lee plan gets top scores for “saving and investment” and “international competitiveness.”

And since these components have big implications for growth, the proposal would – if enacted – generate big benefits. The economy would grow faster, more jobs would be created, workers would enjoy higher wages, and American companies would be far more competitive.

By the way, if there was (and there probably should be) a “tax burden” grade in my matrix, the Rubio-Lee plan almost surely would get an “A+” score because the overall proposal is a substantial tax cut based on static scoring.

And even with dynamic scoring, this plan will reduce the amount of money going to Washington in the near future.

Of course, faster future growth will lead to more taxable income, so there will be revenue feedback. So the size of the tax cut will shrink over time, but even a curmudgeon like me doesn’t get that upset if politicians get more revenue because more Americans are working and earning higher wages.

That simply means another opportunity to push for more tax relief!

What’s missing in Rubio-Lee

There are a few features of the tax code that aren’t addressed in the plan.

The health care exclusion is left untouched, largely because the two lawmakers understand that phasing out that preference is best handled as part of a combined tax reform/health reform proposal.

Some itemized deductions are left untouched, or simply tweaked.

And I’m not aware of any changes that would strengthen the legal rights of taxpayers when dealing with the IRS.

Let’s close with a reminder of what very good tax policy looks like.

To their credit, Rubio and Lee would move the tax code in the direction of a flat tax, though sometimes in a haphazard fashion.

P.S. There is a big debate on the degree to which the tax code should provide large child credits. As I wrote in the Wall Street Journal last year, I much prefer lower tax rates since faster growth is the most effective long-run way to bolster the economic status of families.

But even the flat tax has a generous family-based allowance, so it’s largely a political judgement on how much tax relief should be dedicated to kids and how much should be used to lower tax rates.

That being said, I think the so-called reform conservatives undermine their case when they argue child-oriented tax relief is good because it might subsidize the creation of future taxpayers to prop up entitlement programs. We need to reform those programs, not give them more money.

Reposted from International Liberty.