Taxing the Rich is Really Taxing All of U.S. (Part II)

In the Wall Street Journal’s “Review and Outlook” section (The 2% Illusion, February 26, 2009), the WSJ editors estimate that, based on 2006 tax data (the most recent available), that raising the tax rate to 100% on all income over $500,000 on the wealthiest 2% of all Americans would generate an estimated $1.3T in “revenue” to the government. Further, the WSJ estimates that if all the income generated by Americans earning over $75,000 were taxed at 100%, it would generate about $4T, which is what the Congress proposes to spend in fiscal 2010. While this is an interesting analysis, it is immaterial because it wrongly assumes that Americans will continue to work simply to pay money to the federal government.

In 1989, then Senator Bob Packwood requested that the Joint Committee on Taxation estimate the revenues that would be generated on all Americans earning more than $200,000. The JTC estimated the “revenue” to be $440B over a three year period. This was enough to balance the budget. Sen. Packwood was shocked at this analysis: “Our models assume that people will work forever to pay all of their money to the government. Clearly anyone in their right mind will not.” Sen. Packwood had discovered the principle of the Laffer curve: there is a point beyond which an increase in tax rates causes tax payers to evade taxes, stop working, and stop investing. Reagan understood this principle. By reducing personal, corporate, dividend, and capital gains taxes, he created the longest sustained period of prosperity in the history of the United States. After Reagan reduced taxes in the 1982 – 1986 timeframe, the tax rates have remained relatively unchanged, except for hikes by George H.W. Bush and Bill Clinton. The effect of this long term tax rate reduction, over the period 1982 to 2005, includes:

· Over Reagan’s term, the stock market more than tripled to 3,000. At the height of the George W. Bush term, the market reached 12,500.
· Between 1982 and 2000, stock values soared by 12% per year.
· The net worth of American households increased by $30T.
· The number of Americans owning stock increased from 16% to 50%, investing the average American in the ownership of American business.
· Tax revenues to the Federal government doubled from $1.2T to $2.5T.
· The percentage of tax revenues paid: (1) by the richest 5% has increased from 38% to 60% and (2) by the richest 10% from 48% to 71%.
· The percentage of tax revenues paid by the bottom 50% have dropped from 8% to 3%.
· From 1981 through 2007, the United States was a net importer of $5.2T in capital.

Liberals need to disabuse themselves of the idea that tax rate reductions result in deficits. In fact, tax rate reductions result in increased revenue to the Treasury, capital formation, and increased personal wealth of the average American. Deficits are created by SPENDING MORE THAN THE REVENUE YOU RECEIVE.

From a financial perspective, spending not tax rates is the problem. But this is not the problem the social democrats are trying to solve. They want to buy votes and that takes more money than the American taxpayer can generate.

The "After Math" of The Stimulus Bill

The following is a quote sent to me by my cousin, Mark George. Short, sweet, and to the point.

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it." Dr. Adrian Rodgers

Just like physical laws, certain behaviorial and economic laws may be defied temporarily. At some point, what goes up must go down.

How Much Debt Do We Carry?

Fox News reported today that America's debt is comprised of three basic components: (1) entitlement program future obligations ($55T); (2) debt from government operations ($16T); and (3) debt associated with insurance and other guarantees ($7T). For those who are math challenged, this $78T. How much money is this? Well, it is equal to the World's annual Gross Domestic Product (GDP). That's right: it would take the world (6-billion people) working for one year to pay off the United States current debt.

I hope Obama's stimulus plan works. But, I doubt it. He simply is doing what he has criticized the average American citizen of doing and what he claims got us into this mess: spending money we do not have, putting it on the credit card, and not saving. The difference between his plan and the average American's plan is that he can print money.

Stimulus Package – An Open Letter to Congress

I am extremely disappointed in the stimulus package that the congress has chosen to enact.

While our country’s future success does require "investment," the investment should be in business not government and in capital not social spending programs. In capitalist (not socialist) America, this typically means investment in a business’s human capital (equipping people to contribute to the success of the business), financial capacity, technology, and infrastructure that will increase FUTURE competitiveness and performance, not simply placate the “crowd.” Because placating the crowd is a politician's raison d'etre, a politician's objectivity in business decision making is highly suspect to begin with. Based upon congress’s historical performance on welfare, social security, energy, health, government’s actual track record isn't great either.

The country would be better off if government did nothing (I think the Congressional Budget Office agrees with me on this one). However, if you really have to do something, cut corporate taxes, provide ALL American workers with a payroll tax holiday, eliminate the mark to market rule, and if you are going to put us into debt, FOCUS spending money on building PROVEN energy supplies including off shore drilling, investment in refineries, building nuclear plants, and completing the Alaska natural gas pipeline.

I think that 300 million American’s are better able to direct the resources of this country than 535 elected representatives, 9 supreme court justices, and 1 president. Case in point: Where is the $78 billion dollars Congress overpaid in the first round of TARP? This is equivalent to $260 per person, or over $1,000 for a family of four. I suspect they would know where they had lost their money.

The American’s Creed

As a child, my wife was a member of the Children of the American Revolution. Each month, when they met, they participated in a Flag ceremony, in which they recited the American’s Creed, written by William Tyler Page (Clerk of the House of Representatives). The Creed was originally adopted by the House of Representatives in 1918, and reads as follows:

“I believe in the United States of America as a Government of the people, by the people, for the people; whose just powers are derived from the consent of the governed; a democracy in a republic; a sovereign nation of many sovereign states; a perfect union and one and inseparable, established upon those principles of freedom, equality, justice and humanity for which American patriots sacrificed their lives and fortunes.

“I therefore believe it is my duty to my country to love it; to support its Constitution; to obey its laws; to respect its Flag; and to defend it against all enemies.” William Tyler Page

I wonder if the House of Representatives has recited this creed recently? If they have, they either do not understand it or choose not to follow many of these principles.

While America Bleats

As Obama travels the country framing the current recession as the worst economic crisis since the depression – even though to date it is not – so that he can politically position himself as the economic savior of the free world, most Americans are standing by like sheep while his foot soldiers deftly position themselves to attack the country’s “right flank.” Two measures are moving along in congress, with little or no attention. The first would grant through legislation the District of Columbia the status of statehood so that it could seat one representative (The D.C. House Voting Rights Act, HR 238). The second is to move the responsibility for the 2010 census from the Department of Commerce and place the responsibility for it under the White House Chief of Staff, Rahm Emanuel. These moves will allow the socialist Democrats to consolidate political power and over time shift the balance of power more to the left.

George Will points out in his excellent article “With Utah’s help, pretender is closer to statehood,” the problem with D.C. statehood is that Article I, Section 8 identifies D.C. as the “seat of the government of the United States” and is not a state. Article I Section 2 states “The House of Representatives shall be composed of Members chosen every second Year by the People of the several States.” That is why, in 1978, the District’s advocates sent to the states a constitutional amendment requiring that “for the purposes of representation” the district would be “treated a though it were a state.” Only 16 states ratified it, 22 short of the required number. As Will points out “So the District’s advocates decided that an amendment is unnecessary – a statute will suffice because the Constitution empowers congress “to exercise exclusive legislation” over the District. They argue that this power can be used to, in effect, amend the Constitution by nullifying Article I, Section 2’s requirement.” As Will concludes, “This argument, that Congress’ legislative power trumps the Constitution, means that congress could establish religion, abridge freedom of speech and of the press and abolish the right of peaceful assembly in the District.” As we have seen in the recent past, if this occurs, it is a short step to extending this thinking to granting the District the right to two senators and creating all sorts of rights for other special interests. In the last twelve elections, D.C. has voted 74.8% democratic. This will strengthen the socialist democratic stranglehold on the congress, extending its absolute control over socially progressive legislation and spending.

A second wave of attack on the “right flank” is Obama’s decision to place the 2010 census under Rahm Emanuel, the White House Chief of Staff. The argument for making this move is that Obama has nominated Senator Judd Gregg, a republican, to lead the Commerce Department, which has been historically responsible for the census and that he cannot be fair. Democrats rightly understand that a fair census is important and a lot is at stake: the census is the basis for re-districting, apportionment of federal funds to the state, and allocation of electoral votes in presidential elections. So they want to protect the census process and outcome to their advantage. How does moving the census to the White House do this? Because the White House is not bound by the same regulations as the Commerce Department, Emanuel need not be as transparent as the Commerce Department in publishing its rules for comment, explaining its process, or defending the results. In fact, conservatives are concerned that even though Article 1, Section 2 and Amendment 14 of the Constitution require that apportionment of representation be based on an actual count of population, a census directed by a democratically controlled White House, which may not be subject to open and full review provided by regulation, will opt to use statistical extrapolation to determine population in areas where it is difficult to “count,” such as traditionally democratic voting areas like the inner cities of America. Republicans should be reasonably concerned, given that the Speaker of the House, Nancy Pelosi, recently demonstrated her inability to count when she commented that the economy is so dire that we should expect to lose 500 million jobs unless we pass the $1 trillion bailout bill. I guess she did not look at recent census data: America as of this writing consists of only of 305,788,014 persons.

At some point Americans need to realize that democracy is about equality of opportunity not equality of outcome. Democracy does not guarantee us happiness; it guarantees individuals – not collective groups – the right to pursue happiness. These rights are inalienable, endowed by our Creator, and expressed in the form of laws, to which we collectively agree to abide. When these laws are directly circumvented by those whom we have elected to represent us, then we no longer have an obligation to follow them.

Alice in Wander Land – An Alternative View of Economic Reality

I generally try to back my arguments up with facts; however, I think facts are no longer necessary, as those on the left have proven. Facts simply confuse the issue. So, like a good conspiracy theorist, I will mix some truth with speculation to arrive at a conclusion that is really a premise: Obama is not our economic savior, he is our economic problem. So here goes! I encourage you to have some fun with this: it could be the last fun we have for a while.


If you listen to a business news channel, the talking heads assert that today’s market performance discounts the future. That is, today’s market results are driven by what investors perceive the future to hold. A brief scan of the attached Dow Jones Industrial Average chart shows that the market reached its peak in May 2008, just as the Democrats stumbled (perhaps the word should be “bumbled”) to the finish line endorsing Obama as their candidate for president. Shortly preceding this historic event, Obama had submitted the only piece of legislation that I know of that is in his name: The Global Poverty Act (S.2433). This bill proposes that the United States send 0.7% of GDP to the UN to fight global poverty. This was in addition to his campaign spending proposals amounting to an estimated $1.4 trillion dollars (which ironically is just about the cost of his stimulus “package” including interest).

Anticipating a competitive race, the markets started to “discount” the risk of an Obama future, starting in the June through September timeframe. Alas, when McCain dropped behind in September - October, the markets dropped precipitously and have remained at low levels. Ironically, on the day of his historic inauguration, the markets dropped 332 points, the worst inauguration day sell off in 113 years.


So what does this mean for our economy? According to my alternative view of economic reality, the market will only go down. For an administration that believes that you can only spend money and conserve energy to generate prosperity – economic principles that only Lewis Carroll could appreciate – but has NO experience to prove these theories, I think this will be the most expensive education Obama has every received – including his time at Harvard and Columbia. Unfortunately, you, your children, and their progeny will be paying for it, perhaps forever.