Economics
The Most Hated Tax
The Founding Fathers of the United States were skeptical of government’s ability to tax. They understood that “the power to tax is the power to destroy” (Chief Justice John Marshall).
They themselves had been overtaxed by their British sovereigns and resisted strongly through the first “Tea Party” which dumped crates full of English tea into Boston Harbor.
There was one tax they hated the most.
The income tax.
Before we go there, let’s discuss the brief history of American taxation.
For the first fifty years of America’s history, the government operated through excise taxes, tariffs, and customs duties. Our wise leaders were loathe to add taxes to the backs of those working hard to make a living. They certainly didn’t believe in re-distribution–taking from the productive to give to others.
Thomas Jefferson spoke for a generation:
“To take from one, because it is thought his own industry and that of his father has acquired too much, in order to spare to others who (or whose fathers) have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “to guarantee to everyone a free exercise of his industry and the fruits acquired by it.”
Our Founding Fathers believed in freedom, not socialism.
The increased costs of the Revolutionary War (remember- fought against unfair and high taxes) brought a spate of sin taxes on tobacco, liquor, etc. In the 1790s some direct taxes on homes, land, slaves and estates were added–but were later repealed by Jefferson.
The Civil War brought the first income tax–3% on those making more than $800 per year. In 1894 Congress made the first attempt at a graduated income tax, but it was ruled unconstituational in 1895. It was not until 1913 that 36 States ratified the 16th Amendment giving the Federal Government the ability to fully tax income.
There has been a dizzying ascent of American taxation since that time. In 1900, the Federal Government received only 1.3 percent of national GDP. Today the tax take is nearing 20 percent of GDP–and Americans work nearly four months of the years to satisfy the voracious appetites of all levels of government.
The Founding Fathers would have hated the income tax the most because it discourages the productive, stifles entrepreneurship, and wastes resources on bloated bureaucracies. It has also become a primary tool of class warfare in our society.
And now, some individuals want to bring a state income tax to the Evergreen State. Maybe our rulers want an “ever green supply of money” for state coffers.
The Wall Street Journal recently did a fantastic article on the foolishness of the income tax. We share it below, and encourage all Washingtonians to say an emphatic NO to Initiative 1098 on November 2.
August 14, 2010 – Wall Street Journal
The Gates of Confiscation
The battle between taxpayers and government unions will define the fiscal future of the 50 states, and the newest battlefield is Washington state. That’s where a few rich taxpayers led by Bill Gates Sr. and the Service Employees International Union (SEIU) are bankrolling a November ballot measure to create the state’s first income tax.
And not just a toe-in-the-water tax. They’re diving into the deep end with a proposal that would immediately impose a 5% tax rate on income above $200,000, or $400,000 for married couples. The rate would climb to 9% on single filers making $500,000, or $1 million for couples.
No state has introduced an income tax since Connecticut nearly 20 years ago, and that state’s experience has not been happy. The top rate in Hartford began at 4.5% but has since climbed to 6.5%. Washington wants to leap over that and achieve California and New Jersey heights in one giant step. Washington would move overnight from one of the nine states with no income tax to having the eighth highest rate in the country.
Mr. Gates, a wealthy lawyer whose son is among the richest men on the planet, is pitching the proposal as a chance for 97% of the voters to pay the state’s bills by socking it to the richest 3%. What he doesn’t say is that Washington’s lack of an income tax is among its main comparative advantages in luring those top 3%, along with their businesses and jobs, into the state.
In addition to Washington, the states without an income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming. Combined they had an average 18.2% growth rate in jobs over the past decade, more than twice the 8.4% job growth of the nine states with the highest income tax rates, according to a new report based on Commerce Department data by the American Legislative Exchange Council.
The liberal Seattle Times accurately describes the state’s zero income tax as “a selling point. An asset. And more than that: It’s a bonus for living here.” Even liberal Democratic Governor Christine Gregoire begins her sales pitch to prospective business investors with the reminder: “No income tax.”
That’s an especially powerful attraction on the West Coast, where California and Oregon impose a top tax rate of 10.55% and 11%, respectively. Proponents say Oregon raised its income tax last year, so Washington should get in the game. But Oregon at least has no state sales tax. Washington has close to the highest sales tax burden in the nation, varying by area but reaching as high as 10% in Seattle depending on what you buy.
To win votes, the ballot measure resorts to all sorts of trickery. Unions describe the initiative as tax “relief” because it includes a mandatory cut in the hated property tax (only by 4%) and it eliminates various unpopular fees and taxes on business. Still, the overall impact of the measure is a $1.5 billion tax increase in 2012 and $2.5 billion a year by 2016. Small business taxes are cut, but they are also hit with a whopper of a new tax: a personal income tax paid out of their profits. Over half of the tax will be paid by Washington businesses.
The biggest deception is the description of the new income tax as “an excise tax on income.” This language is cleverly designed to dodge the state’s constitutional prohibition against an income tax and the requirement that any tax be “uniform upon the same property.” Obviously a tax that hits only 3% of taxpayers and applies graduated rates is anything but uniform. Proponents claim that because the tax is withheld from worker paychecks, the money was never the property of the person who earned it. That’s like saying if someone steals your paycheck, it’s not your property.
We hope Washington voters aren’t duped by the claim that only the rich will pay this tax. After two years, the law allows the legislature by simple majority to extend the tax to nearly everyone. The revenue from the tax will finance new spending, which will soar and lead to even higher deficits in the next downturn, which will create political pressure to expand the tax to the middle class.
Income taxes are always sold as a one-time way to reduce deficits, but they always become engines of greater spending, and eventually deficits. Just ask Californians. If Mr. Gates wants the rich to finance more Washington spending to create more SEIU dues-paying jobs, he and his son can do so by donating their own fortunes.
The Meaning of Uncertainty
Def: uncertainty – n. 1. The quality or state of being uncertain, 2. Doubt, 3. Stresses lack of faith in the truth, reality, fairness, or reliability of something or someone.
Many have been saying it, including Democratic party leader and fund-raiser Terry McAuliffe, who recently announced on Hannity that “U.S. corporations are sitting on three trillion dollars that could be used to rev up the American economy, but they are holding it back because of uncertainty in the nation.”
Uncertainty.
I’ve heard that word dozens of times in the past few months. Banks are uncertain. Lending institutions are uncertain. Businesses are uncertain.
Uncertain of what?
Even the people that control the money supply, the Federal Reserve, are concerned about uncertainty. The following article is from Marketwatch on September 1, 2010: (I will bold the dreaded word for impact.)
“Political uncertainty about taxes and the costs of hiring workers is holding back the U.S. economy, a Federal Reserve official said Wednesday.”
“‘What is restraining the economy is not a shortage of current liquidity; rather, it is uncertainty, high household debt burdens and a lack of confidence in future income growth,’ said Richard Fisher, president of the Federal Reserve Bank of Dallas, during speech in Houston. A copy of his remarks was made available in Washington.”
“Fisher repeated a theme he’s hit before: Businesses are reluctant to hire and to expand because they aren’t sure about tax and regulatory rules. Politicians are acting ‘in a capricious manner that makes long-term planning, including expanding payrolls, difficult, if not impossible,’ Fisher said.”
“Some business owners have said that they aren’t hiring because of uncertainty about what will happen with taxes as well as about health insurance, credit availability and the cost of energy.”
“As long as political uncertainty is the main obstacle to growth, Fisher said the Fed shouldn’t create more money to stimulate the economy. ‘Further accommodation might be pushing on a string,’ he said — and in the worst case, it could ignite inflation,’ he added.”
Obviously “uncertainty” is a big problem.
When I think of the word “uncertainty” I usually think of things that are completely out of my control–like the weather. I’m uncertain whether we’re going to have rain or sunshine today. Or I’m uncertain about who will win the football game on Sunday. Used this way, it’s normal to talk about “uncertainty” because nobody is ultimately responsible.
Uncertainty usually mans we don’t have any control over what is about to happen.
But is that what we’re talking about when we use the word “uncertainty” to describe the American current economic climate? I don’t think so.
Here’s the meaning of uncertainty in 2010:
Will socialism succeed in America?
Or worded another way, will the Obama Administration succeed in fundamentally changing the American nation from a free, self-governing people into a bloated and bankrupt European style social democracy? The entire world is waiting for an answer to that question. It may just determine the direction of history in the coming years.
All of the uncertainty relates to changing America’s freedom-oriented economy to a controlled one. Vast amounts of government spending and stimulus, the threat of increasing taxes to fund the welfare state, and the increased costs of health care via a government managed system will fundamentally alter the United States of America.
Entrepreneurs and businesses are looking at these changes and holding their breath–and money. If these trends are not reversed, they may not survive and cannot expand. They also can’t create jobs because they will not be affordable. If socialism succeeds in America, then the entire game changes.
Let’s state an obvious truth after twenty months of observation. Barack Obama is a socialist–plain and simple. He believes the Federal Government should “manage” the economy of the United States and “redistribute” vast amounts of money from the wealthier parts of society to various interest groups.
Twenty months of taking over banks, financial institutions, car companies, and the health system of America (Obamacare) , plus appointing “czars” over every area of America life clearly reveal the goal of the present administration.
They don’t like “America”– the land of the free. They want to radically change it from a faith-and-freedom based nation to a secular-based socialistic state.
“Yes We Can” means the triumph of social democracy. Barack Obama and his appointees do not believe in freedom. They believe in controlling your life.
Yes, there have been other presidents with controlling, socialistic tendencies. Woodrow Wilson was cut from the same cloth and desired a “League of Nations” that would control the world. Franklin Delano Roosevelt’s New Deal policies created the devouring federal monster we face today.
But President Obama is different from Wilson and Roosevelt in a number of ways.
First, he does not love and respect the heritage and exceptional principles that created the United States of America. As Dinesh D’Souza points out in his hard hitting new book The Roots of Obama’s Rage, Barack Obama’s roots (via his father) in Islam and Marxism give him a very jaded, colonial view of the nation that he leads. He does not believe in our past and wants to change our future.
D’Souza summarizes the Obama worldview this way:
“We are today living out the script for America and the world that was dreamt up not by Obama but by Obama’s father. How do I know this? Because Obama says so himself. Reflect for a moment on the title of his book: it’s not Dream of My Father, but rather, Dreams from My Father. In other words, Obama is not writing a book about his father’s dreams; he is writing a book about the dreams that he got from his father.”
“Think about what this means. The most powerful country in the world is being governed according to the dreams of a Luo tribesman of the 1950’s—a polygamist who abandoned his wives, drank himself into stupors, and bounced around on two iron legs (after his real legs had to be amputated because of a car crash caused by his drunk driving). This philandering, inebriated African socialist, who raged against the world for denying him the realization of his anti-colonial ambitions, is now setting the nation’s agenda through the reincarnation of his dreams into his son. The son is the one who is making it happen, but the son is, as he candidly admits, only living out his father’s dream. The invisible father provides the inspiration, and the son dutifully gets the job done. America today is being governed by a ghost.”
Secondly, our current president does not appear to understand nor appreciate our unique Christian foundations which made America a light to the world for over two centuries. Barack Obama says he is a Christian, but his “conversion” came through an Afro-centric, America-bashing pastor–Rev. Jeremiah Wright–who was the founder of a quasi-Christian cult. Obama’s “faith” seems to be more of a political calculation than a heart-felt conviction.
Exhibit A is that Barack Obama is far more comfortable with secularism and Islam than he is with the claims of Christ. That’s why the vast majority of his policies on abortion, sexuality, marriage, economics, and foreign policy are largely pro-secular, pro-Muslim, and anti-Christian. He even canceled the National Day of Prayer activities at the White House and while welcoming Muslim gatherings and prayer sessions.
And finally, Barack Obama does not share a deep and abiding faith in human liberty and freedom. He believes that political elites know best how to control and guide the economies and social structures of nations. This can only be accomplished through massive government spending, redistribution of wealth, higher taxes and increased regulations.
He is doing everything is his power to establish socialism in America as he sees it practiced in Europe.
That political fact has created uncertainty in 2010.
Will socialism succeed in America?
Good question.
The Heritage Foundation looks at it this way:
“The stakes couldn’t be higher for our nation at this moment. In the coming months, Americans will help choose which direction our nation’s future will take. Will the federal government continue to spend more, tax more, control more, and defend our liberties less? Or will we choose a new and bolder direction that returns power to the people? All indications are that we are approaching one of those pivotal moments in our political history, a tipping point. It will be a test of our national character. “
I agree.
Maybe the November 2 elections–and much prayer beforehand–will help us answer that vexing question of uncertainty.
Why Liberalism Cannot Cure the American Economy
Liberal politicians in Washington, D.C. are very nervous about the upcoming elections. The American economy is stuck in the doldrums–if not headed for a double dip recession–and the people just might vent their wrath against those holding the reins of power.
In fact, President Obama’s team is so concerned that they’ve been meeting around the clock to try to come up with a solution. Should they enact another stimulus? Should they unleash a new set of tax credits or incentives? How should the government intervene to get the economy going?
We are told that the president will make a major speech this week about what they plan to do.
There’s just one problem. Liberal solutions to economic problems don’t work. They do not “reckon with reality,” so they are doomed to fail. Liberal politicians and their media cronies just don’t get it.
It’s freedom that we need. Not more government.
As Ronald Reagan once wisely stated: “Government is not the answer to our problems. Government is the problem.”
I recently read a book that opened my eyes to the blindness and bias that exists in both liberal political and media circles. Peter Goodman’s Past Due: The End of Easy Money and the Renewal of the American Economy, was given to me by a friend who wanted my opinion on it. Mr. Goodman is an economics writer for the New York Times who previously served for ten years as a Washington Post correspondent.
Reading books like Goodman’s is a healthy thing to do. It helps me understand what the other side is thinking and keeps me honest in my own beliefs. If you don’t read your philosophical opponents, then you must be unsure of your own principles or afraid to have them challenged. I am neither. As a pursuer of truth, I am open to find it wherever it may be found—sometimes in unusual places.
My friend thought I might be helped by a book from the bastion of liberal thought—the New York Times. I was sadly disappointed. Though Mr. Goodman is an engaging and thorough writer, I was amazed at the conclusions he drew from his analysis of where the American economy went wrong and what we must do to right it.
To be fair, Mr. Goodman rightly points out that many American institutions and individuals got hooked on easy money and credit over the past couple of decades. We spent beyond our means because we used the increasing equity in our homes as a cash cow to fund a debt-ridden lifestyle. He is right in this analysis. Americans got careless with debt during the Reagan-led boom that lasted from 1982 to 2007.
So far, so good.
Goodman weaves many personal stories into his narrative to prove his point. All of these people, from many walks of life, over spent, over borrowed and got shellacked when the mountain of debt became due. He discusses how the big banks and financial institutions did the same—apparently motivated by capitalism and greed. There are some elements of truth here as well.
But then the analysis reverts to the liberal bias. George Bush is consistently mocked throughout the book because he was a believer in unrestrained free enterprise. He also takes to task Bill Clinton’s reform of welfare, Robert Rubin’s and Larry Summer’s leadership during the Clinton years, de-regulation policies, and especially Alan Greenspan’s guidance of the Federal Reserve which was too laissez-faire.
The biggest culprit is what Goodman calls “faith based markets.” He says, “The intensity of the recession… was the direct result of a massive abdication of regulatory authority, one that enabled Wall Street and Madison Avenue to get rich by selling the dream of immediate wealth.” In other words—the government wasn’t involved enough. He calls this neglect “living in a fantasy world or Neverland.” He labels the free enterprise proponents as modern day Peter Pans.
Thus Mr. Goodman shares a fond affection for the Keynesian view of economics—that government must assume control of the economy and take the lead. He says, “The government must once again regulate the financial system to protect the economy from investment binges.” His desired direction is the government establishing “seed investments,” especially in bio-tech and renewable energy (he’s really big on wind and solar), and should finance health care through expanding Medicare and Medicaid and promote a “collective enterprise” between government and industry.
Let’s just say it as it is. Goodman is a socialist—or a fascist. They’re the same thing in his Liberal Neverland. He decries Wall Street and Main Street—but he a cheerleader for “State Street.” Goodman wants the government to control it all.
That’s why he is admiringly pro-Obama and his liberal economic ideas in the book. There is not one negative or cautionary word about the president’s policies. He lauds the fact that the president declared on inauguration day, “We must pick ourselves up, dust ourselves off, and begin the re-making America.”
This re-making included the massive federal stimulus bill which Goodman applauded because it “took the edge off the worst economic fears and raised hopes that the suffering would diminish. It would generate needed paychecks. It would provide relief to those laid off. It would spare jobs that otherwise would have been lost by sending aid to cash-strapped states.”
Talk about Fantasyland. The so-called stimulus was a trillion dollar failure. And normal Americans don’t agree with Goodman’s enthusiasm over the government takeover of health care. They reject it by nearly a sixty to forty margin.
Goodman–and the Obama administration–believe that Big Goverment with its massive income re-distribution priorities are the best masters of the free enterprise system. What they fail to realize is this: It is government intervention that is the problem. Centralized governments always grossly misallocate currency and capital resources that are better guided by individual market decisions. The choices of millions of consumers provide much better checks and balances than a few bureaucrats do.
Here’s what Goodman amazingly missed in his research. He says that banks and other greedy financial institutions lent money they shouldn’t have. They were careless, reckless, and this is why the housing bubble inflated. There was too much money floating around with people abusing it via their home equity loans and re-financing schemes to get rich. He says there wasn’t enough regulation (government control) of the money supply.
But where did they get the money? Private companies cannot print money. Only governments can. It was short-sighted government regulation, through Richard Nixon, in 1971, that removed American finance from the gold standard, allowing trillions of dollars to be printed in the last thirty years that are backed by nothing. In 1971, gold was at $35 an ounce and the dollar was “pegged” to it for stability and strength.
In 2010, gold is over $1200 an ounce and the dollar remains incredibly weak. Bad government regulation has “inflated” our financial institutions with too many dollars. They simply used what they were unwisely given.
You can’t blame the Monopoly players when bank (the Government) is at fault for circulating all the funny money. If the government had left the money supply pegged to gold, there would have been no inflated home prices and no crash. The central planners messed up the system.
Goodman and his liberal friends are also disingenuous about other government agencies that heavily contributed to the financial meltdown. In Past Due, Goodman discussed the giant mortage companies Fannie Mae and Freddie Mac. He calls them “private companies” and places no blame at their feet for the collapse of the housing market.
But they are not private entities. They are government subsidiaries that tried to regulate people into homes they couldn’t afford, breaking all the normal laws of wise lending practices. Freddie and Fannie are in bed with the liberals and contribute heavily to their campaigns.
Here’s the bottom line: The US government bears the major responsibility for screwing up the American economy by grossly inflating the money supply and then lending it to unqualified buyers. If the government had stayed out of the markets, they would have been far more stable and self-correcting.
They didn’t–and set us on a course that looks an awful lot like sinking Europe, depressed Japan, and the disgraced and fallen Soviet Union.
Peter Goodman and his ilk now want the Federal Government to lead the American renewal with what? More controls! This is not only dumb–it is suicidal.
Past Due: The End of Easy Money and the Renewal of the American Economy is a propaganda book with a ludicrous conclusion. I think it should be re-titled: Past Due: The End of Liberal Dis-Information About the Virtues of Big Government.
America’s economic engine runs on the fuel of faith and freedom–characteristics that liberal thinkers neither understand nor promote.
Fortunately, the American people are seeing the light and will be voting for freedom in November, not for more government regulations. They know that liberalism cannot cure the economy because it puts its faith in the wrong thing–the Almighty State–instead of Almighty God who dwells in the hearts and minds of a self-governing people.