Another Mickey Mouse Idea: A Call to Preserve the Estate Tax

In an August 31, 2010 article in the USA Today (“Mickey Mouse, the estate tax and me”), Abigail Disney makes the case that the estate tax “is not the bogeyman you might think it is.” In the last paragraph of her article, she states her real premise: "the estate tax is the cornerstone of a progressive system that leaves wealthy heirs with ample funds while providing the government with the resources it needs to build an environment for the common good. By preserving it, we not only restore billions in revenue to the national treasury – we also restore our most cherished collective ideals as a nation." [emphasis mine] Restated: government is the source of the common good and must be amply funded by the “wealthy.” I think not. The source of the common good is individual, unalienable rights endowed by our Creator. Through exercise of each individual’s personal rights – among these, life, liberty, and the pursuit of happiness – comes the creation of individual wealth, which in turn benefits society, not vice versa, as Ms. Disney would lead one to believe. It is government’s role to protect those rights not redistribute wealth these rights produce, in the pursuit of the greater good.


Ms. Disney supports her argument with what she calls three “truths:”

• First, the estate tax is not a double tax. “People like me and, who inherit assets, such as Disney stock, can spend our lives watching [emphasis mine] those assets grow, and when we pass them along to our children, they have not been touched or diminished at all by the tax system. The only thing I have paid taxes on is the interest from these assets, not their increased value.”

• Second, “opponents of the estate tax claim family farms will have to be broken up to pay the tax, but good luck finding an example of this."

• Third, “the estate tax incentivizes people like me to do good [emphasis mine] with our wealth because there is no estate tax on donations to charity. My filmmaking and foundations rely [emphasis mine] on a tax code that supports a vigorous non-profit sector, a vital part of our society..."

Ms. Disney, like most progressives starts her argument in the middle. She does not discuss the creation of wealth. Unlike most of America, she inherited her wealth: more than 80% of all Americans who have a net worth of more than $1 million, earned it in their lifetime. When I sold my first business, because I had no access to financial capacity, I had to liquidate 51% of the stock value I had created to pay the capital gains tax. I had worked for 12 years to build a very profitable business, and over a period of two years, wrote checks to the IRS that represented 51% of the value of the portion of the company I had built. It took 12 years to earn back this money through Ms. Disney’s “investment in the stock market” approach, while paying taxes on the interest, dividends, and capital gains earned (notice she conveniently left capital gains out as a tax). This is a triple tax: first on the wealth that is created, second on the earnings that flow from future investment, and last at death through the estate tax. So much for her argument on double taxation.

As for her second point, most small business persons have their fortunes inextricably tied up in their business. While I know little about farming, I know a lot about service-oriented small businesses. Most of them are “S” corporations, which are taxed at the personal income tax rate. So, each year, after deducting employee salaries, benefits, corporate payroll taxes, and legitimate operating expenses, the remaining income is taxed at the individual income rate. Retained cash – that which is left after paying taxes at the individual rate – is then used in the business to buy equipment and grow the business. If the small business person dies, his or her ownership in the business is included in his or her net worth and is subject to estate tax. If that tax cannot be paid with cash – not equipment or investment – then the business’s assets will be sold and the business closed. So much for her argument about losing the farm.

Last, I find it amusing that Ms. Disney believes a progressive tax code is both a necessary and sufficient condition for individuals, wealthy or otherwise, to “do good” in the world. In fact, she states her own “filmmaking and foundations rely on the tax code.” Implicit in her statement is that government must be funded because it is the principal agency through which “good” – as she defines it – is effected. Not necessarily: moral people do moral things, independent of the government and its tax code. Personally, I tithe because God, not government, has placed this burden on my heart. I only hope that the government allows me to keep enough of the wealth I created to meet the needs I find around me. So much for her argument about taxes as moral force for good.

Come Nye and Hear the Truth

On August 19th, Glenn Nye faced off in a debate against his 2nd Congressional District rivals for the first time. According to him, he has been: (1) fiscally conservative, (2) a leader in standing against issues that were not in the 2nd District’s best interest, and (3) a faithful provider who has brought home the bacon for his constituents. As is true of any good lie, there is an element of truth in each claim.

First, Nye did vote against the Health Care bill. Unfortunately, he then voted to fund the 10,000 IRS agents that must be hired and trained to ensure small business compliance with this monstrosity. According to the National Federation of Independent Businesses, the health care legislation will create 68 grant programs, 47 new bureaucracies, 29 pilot programs, six regulatory systems, six compliance standards, and two new entitlements. So, I guess he was against it, until he was for it.

Second, my experience with Nye’s voting record is that he never decides until the last minute. When I call his office, the night before a key vote, his position is reported by his staff to be “undecided.” I can only surmise that either he (a) is still diligently reading all 2,000 plus pages in order to form a conclusion OR (b) is waiting to be told by Nancy Pelosi if his yea vote will be required to push the bill forward. She certainly does not want to unnecessarily require a junior legislator on the House Armed Services Committee, facing a hotly contested re-election campaign, to explain his yea vote to his constituents if she does not have to. A real leader forms a reasoned opinion, communicates it to his constituency, and defends it in public forums.

Last, Nye has been supportive of his active duty and retired military constituents (he is on the Veterans Affairs Committee). Unfortunately, he has been ineffective in addressing the concerns of his small business constituents (he is on the Small Business Committee). According to the federal Bureau of Economic Analysis, as reported in the USA Today, August 17, 2010, “Military towns enjoy big booms,” military compensation (after adjusting for inflation) rose 84% from 2000 through 2009. Compensation grew 37% for federal civilian workers while only growing 9% for private sector employees. While I do not begrudge our average soldier, sailor, and marine the $122,263 in total individual compensation received in 2009, Nye and his fellow progressives need to figure out how stimulate the private sector economy to create jobs so that he can afford the public sector bill.

You cannot de-Nye it: if you want a closet progressive – who takes direction well from above, keeps all options open, and is only concerned about creating, growing, and protecting well paying government jobs – Glenn is your guy.

Alinsky, you Magnificent B******, I Read Your Book

The next government salvo has been fired by the Obama administration for the hearts and minds of voters in Hampton Roads: elimination of JFCOM’s 5,000 jobs. While this decision does represent a potentially grave personal and regional economic threat, there is a bigger lesson to be learned: what the government gives, the government can take away.

The larger story is that our elected representatives apparently did not know this was coming. The timing, speed, and targeting of this decision is circumspect. Its real objective is to cripple a state and region, whose voters have decidedly chosen to repudiate the Obama administration’s policies by overwhelming electing a republican governor, who has taken action to balance the state's budget, placed the state on a growth path, and legally confronted his health care and immigration policies.

The Obama administration's strategy is taken straight out of Obama's mentor's (Saul Alinsky’s) book  Rules for Radicals: the particular ends justify the particular means. The ends are to divide and defeat voters of the Commonwealth, in detail, by diverting our dialog and energies from opposing the abysmal failure of the Obama administration’s policies. Instead, they prefer we bicker among ourselves during campaign season and dedicate a larger portion of the news cycle to divining how to remain on the statist government’s form of crack cocaine: federal money. If we don’t play, they will give the crack to someone else.

Instead, we should come together and turn lemons into lemonade by: (1) publizing that we acknowlege and understand the tactic; (2) taking reasonable, coordinated action to delay JFCOM’s demise without diverting resources from our prinicipal mission -- defeating Obama's / Pelosi's / Reid's progressive policies; (3) re-deploying JFCOM's human resources, technology, and facilities to create private sector jobs in the high-tech global marketplace, and (4) firing every progressive representative in Washington in November.

If we think and act strategically, we will be able to say -- as George C. Scott said in the film "Patton," portraying Patton's defeat of forces under the command of Erwin Rommel -- "... you magnificent b******, I read your book!"








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So this is progress[ivisim]?

Two articles in the Pilot on August 9, 2010 illustrate how out of touch and out of control our current government is. "Optometrists say state’s Medicaid cuts lack vision” and asserts a new budget measure “barring them from Medicaid reimbursements limits eye-care access for the poor, harms their practices, and generally is an affront to the profession.” This dire state of affairs is attributable by this interest group to Governor McDonnell’s actions to balance the state budget. This page 1 story is followed by a page 5 story "Lackluster effort to combat Medicare fraud examined,” which discloses that out of $835 million in questionable Medicare payments, the government has only been able to recover $55 million. These two stories make the point: we have created a statist mentality that communicates everyone is entitled, enabled it with an incompetent government, and raised a generation of reporters who cannot draw a direct connection between the two.


Personally, I'm tired of funding out of control,inefficient, ineffective government that has lost any congruence with the intent of our founding documents. It's not government's job to meet our individual moral obligation to provide goods and services to the poor -  we should meet that directly, through our churches, our communities, and not-for-profit organizations.   The government's job is to protect our individual liberty not redistribute our wealth.  It is our responsibility to use our secured liberty in a morally responsible way to create wealth  and use that wealth to advance our personal and collective interests as a society. 

Nancy Pelosi Was Right

Nancy Pelosi was right about one thing: it is time to “drain the swamp.” This week we learned that Maxine Waters is under ethics investigation for abusing her position by asking regulators to help a bank in which her husband had a financial interest. This follows allegations that Charlie Rangle, the Chair of the House Ways and Means Committee, allegedly broke the laws his committee imposes on the rest of us.


While I can do nothing about Pelosi, Waters, and Rangle, I can help fire one person who was responsible for these alligators: Congressman Glenn Nye (D-VA2). Nye voted for Nancy Pelosi to serve as Speaker of the House. He voted for Charlie Rangle ( twice) to serve as chairman of the House Ways and Means Committee. Nye did oppose the health-care bill in the 11th hour (after making sure Pelosi had sufficient votes for passage), but later voted to fund the 10,000 IRS agents required to implement it. So, I am voting for Scott Rigell. A successful businessman and former Marine, he knows what it means to make commitments and to keep them. He has committed to let America’s founding documents guide his decisions, cut federal spending, impose fiscal restraint, and bring accountability back to Washington. This is what we used to call leading by example.

LOOKING FOR LOVE IN ALL THE WRONG PLACES

It’s an old, but familiar tune: big government in bed with big business giving birth to big problems.


In a USA Today article, dated July 21, 2010, inspection of oil wells has not been a priority. The number of federal inspectors at Deepwater oil facilities has not kept pace with the industry's growth. According to a House hearing on the BP oil spill, the federal agency regulating offshore drilling has just 60 inspectors in the Gulf of Mexico for nearly 4,000 facilities, just five more inspectors than it had in 1985, according to a memo prepared by the Democratic majority staff of a subcommittee to the Committee on Energy and Commerce. The number of producing Deepwater Wells has increased from 65 in1985 to 602 in 2009.

The memorandum, prepared for Henry Waxman, Democrat California, and other lawmakers alleges that the minerals service:

• approved changes to the BP wells design that may have increased the risk of a blowout.

• failed to act upon a series of reports prepared for the minerals service in 2001, 2002 and 2003 that recommended two blind shear rams on blowout preventers, the safety devices that are supposed to seal a well should a blowout occur.

• failed to require more stringent standards and the cementing of wells. In 2000 the MMS decided not to impose any cementing requirements.

This report is eerily reminiscent of the lack of oversight by the Security and Exchange Commission (SEC), during the decade 1990 to 2000. During this period, the fee on stock transactions was increased ostensibly to fund better oversight, and approximately $10 billion in revenue was generated by this fee. However, the SEC only retained $2 billion of this money. During the height of the Enron and WorldCom scandals, the SEC employed approximately 100 accounting and legal staff to regulate well over 15,000 publicly held firms. Of these 100 staff, only four were qualified to audit firms of WorldCom's size and complexity.

Now we have an understaffed, out of control MMS. This is one of the largest fee generating agencies in the US Government. Inspite of their large revenue base, MMS appears to be understaffed, and yet has enough time on its hands to fraternize with the industry they are supposed to be regulating. According to the New York Times (Interior Probe Finds Fraternizing, Porn and Drugs at MMS Office in La., by Noelle Straub, May 25, 2010), the MMS Inspector General report on the New Orleans MMS discloses:

• "E-mails for MMS inspectors from the Lake Charles [MMS] office revealed that in 2005, 2006, and 2007, various offshore companies invited MMS personnel to events such as skeet-shooting contests, hunting and fishing trips, golf tournaments, crawfish boils, and Christmas parties," the report says.

• One former MMS official wrote an e-mail saying he had "good friends" in the industry that he "wouldn't write up."

• "Prior to our investigation of [Don] Howard [,the former regional supervisor at the MMS office in New Orleans, who was fired in 2007 for accepting a gift], receiving gifts such as hunting trips, fishing trips, and meals from oil companies appears to have been a generally accepted practice by MMS inspectors and supervisors in the Gulf of Mexico region."

• The IG found numerous instances of pornography and other inappropriate material on the e-mail accounts of 13 employees, six of whom have resigned. There were 314 instances in which the seven remaining employees received or forwarded pornographic images and links from their government e-mail.

So much for regulation. One of these days we will learn that regulation does nothing more than inefficiently and ineffectively spend money that could be deployed in a free market to generate more wealth. Instead, we create rules and regulations that provide a burden on small business, while creating barriers to entry for them against much larger firms. Large business, on the other hand, has the economy of scale to comply with the regulation and build that cost into their pricing structure. So what we get is big government in bed with big business – literally.

Brother, Can You Spare a Fish?

Obama criticized Senate Republicans on Monday for blocking a $33.9 billion extension of jobless benefits and leaving more than 2.5 million Americans without jobs and no unemployment checks. Obama's position: "they finally decided to make their stand on the backs of the unemployed. They've got no problem spending money on tax breaks for folks at the top, but they object to helping folks laid off in this recession.”

Republicans are not against helping the jobless but they do want spending to be offset by budget cuts so that it does not increase the deficit. “The Democrat way is to insist we add to the national debt at the same time, while blocking Republican efforts to pass the same extension without the debt,” said Don Stewart, spokesman for Senate minority leader Mitch McConnell.

It is about time that this administration wake up and understand that the best path to economic growth is to teach people how to fish, not continue to fish for them. While fishing for others does assuage our personal inner need to believe we are helping others, it actually is inefficient, produces continued dependency, and prolongs the day of reckoning.

For people who need a history lesson, I refer you to a book by William Easterly, The White Man’s Burden. Easterly is a former senior research economist at the World Bank. His book quantitatively and qualitatively examines the efficacy of 50 years of the United States war on global poverty only to find that: (1) many people are fated to live horribly stunted miserable lives and die early deaths and (2) after 50 years and more than $2.3 trillion in aid from the West addressing the first tragedy there is shockingly little to show for it. Easterly’s conclusion: we will never start to solve the first tragedy, unless we figure out how to solve the second.

Throwing large amounts of money at the problem – especially from the top down – does nothing to solve the poverty problem. It only makes it worse. Why? Because when rules are imposed from the top and large amounts of money are involved, those at the top benefit first due to graft, corruption, and inefficiency, and the bureaucratic rules that come with the largesse destroy small business, who are unable to comply with all the red tape. Only businesses “too big to fail” have the economies of scale and capital structure to take advantage of this approach. So what you get is more of the same: failing societies.

For those of us who own small businesses, we understand this to be true, even in America. The Obama administration needs a lesson in creating wealth, not redistributing it. Until then, brother can you spare a fish?