Random Readings

First Item:

Not believing in the greenhouse effect, I mean global warming, I mean "climate change" is not a kook-fringe position. Even some of the authors of the UN's climate reports don't believe it.

See this story.

By the way, have you noticed how the problem has morphed over the years?

I remember reading all about "The Greenhouse Effect" in elementary school and junior high. A specific, verifiable problem with a specific, verifiable mechanism driving it, which turned out to specifically not be happening.

Next, we heard about global warming. A specific, verifiable problem with a vague mechanism driving it, that turns out to have happened for about 30 years, but now . . . not so much.

Enter "climate change." This may be a winner. This is the real "change we can believe in" Both the problem and the mechanism are vague enough that no one can disprove them. Earth gets warmer = climate change! Earth gets colder = climate change! Every honest person, when asked "is the climate changing?" must answer "yes." Then the yelling about the horrors of capitalism, the evils of SUVs and the poor polar bears starts, and no one listens to the rest of the answer (from the article):

what do I believe about climate change? Firstly climate change is real, and has occurred on Earth for at least 4 billion years as long as an atmosphere and oceans have existed. Climate change occurs in cycles at various time scales, with the shorter time scales known as weather (by convention the distinction is 35 years). Trying to stop or control climate change is akin to stopping ocean tides. Secondly, I believe human activities affect climate, otherwise why would I bother with a mortgage. The climate inside my house is different to the climate that would exist if my house were gone.

Second Item:

Maryland has done us a service by demonstrating the effects of a huge tax increase on "the wealthy." The Wall street Journal has the story here.

Basically they raised the tax rate on those making over $1 million dollars a year. Here's what happened:

The Baltimore Sun predicted the rich would "grin and bear it." One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

Huh, who'd have thought? As the article explains "this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions."

Change You Can Believe In - Part I: Economics.

(Sorry, this is a little long).

I was glancing through Senator Obama's "Blueprint For Change" which outlines his policies and priorities, when I began to wonder how much spending has been promised. I decided to search to whole document and find out. All quotes are directly from Obama's Blueprint. Keep in mind that these are only the items that Obama has promised that include a specific dollar amount. I've done my best to weed out duplicate spending and to be generally fair. Let's start with a piece of Obama's plan I agree with:

Obama will reinstate pay-as-you-go (PAYGO) budget rules, so that new spending or tax cuts are paid for by spending cuts or new revenue (ie tax increases) elsewhere.

Well, it's about time! Keep this in mind. I'll come back to it later. Let's take a look at how much spending Senator Obama will need to offset.

---

First direct spending promises:

reduce a typical family’s premiums by as much as $2,500 per year (through government-funded health care)

Cost: 100 billion dollars/year (400 billion for his first term)

(Guessing conservatively, at an average of $1000 times 100 million families; this jives with Obama's own estimated cost for his health insurance plan).

$10 billion a year over the next five years to move the U.S. health care system to broad adoption of standards-based electronic health information systems.

Cost: 10 billion/year (50 billion total)

Obama will provide a $1.5 billion fund to assist states with start-up costs (of FMLA reform)

Total cost: 1.5 billion total

Create Automatic Workplace Pensions -employers who do not currently offer a retirement plan, will be required to enroll their employees in a direct-deposit IRA account that is compatible to existing direct-deposit payroll systems...His plan will match 50 percent of the first $1,000 of savings for families that earn less than $75,000.

This one is hard to price. Considering the number of families earning less than 75,000 (a large majority) the cost could be enormous. Besides, I thought social security was the answer:

“We … have an obligation to protect Social Security and ensure that it’s a safety net the American people can count on today, tomorrow and forever.
–Barack Obama, Speech in Des Moines, IA, October 27, 2007

So, we won't count that one.

Obama will invest $150 billion over ten years to deploy clean technologies

Cost: 15 billion/year (150 billion total)

Obama will create a Clean Technologies Venture Capital Fund to fill a critical gap in U.S. technology development. Obama will invest $10 billion per year into this fund for five years

Cost: 10 billion/year (50 billion total)

Obama will invest $1 billion over five years in transitional jobs and career pathway programs

Cost: .2 billion/year (1 billion total)

He will provide at least $2 billion to expand services to Iraqi refugees

cost: 2 billion total

he will double our foreign assistance to $50 billion to achieve that goal (cutting world poverty)

Total cost: 25 billion/year

Total Spending: 679.5 billion dollars.

Total ongoing yearly spending: 160.2 billion dollars.

---

Now let's look at new tax cuts:

Obama will cut income taxes by $1,000 for working families to offset the payroll tax they pay

Cost: 20 billion/year (if 20% of families are "working").

Obama will create a new “Making Work Pay” tax credit of up to $500 per person, or $1,000 per working family.

Cost: 20 billion/year (see above assumptions)

Obama will create a 10 percent universal mortgage credit to provide tax relief to homeowners who do not itemize. This credit will provide an average of $500 to 10 million homeowners

Cost: 5 billion dollars

an immediate tax cut averaging $1,400 to 7 million seniors

Cost: 9.8 billion dollars

Obama will create a new  American Opportunity Tax Credit...This $4,000 tax credit will be fully refundable...

Also very hard to value. Potentially huge. We'll ignore this one too.

Total tax cuts per year: 54.8 billion dollars.

---

So, by Obama's own reckoning, every year (for at least 5 years)the federal government will need to come up with a minimum of 215 billion dollars additional tax revenue (54.8 billion + 160.2) if Obama is really going to offset these expenses. Of course this also assumes zero spending growth for every other government agency and program: Medicare, Medicaid, Social Security, Military spending, interest on the debt, Education, etc . . . . or Obama could cut spending . . . (yeah, that's going to happen).

Total federal tax revenue for 2007 was 2568 billion dollars. The needed tax increase will, therefore, be 8.4% on average for every taxpaying entity in America. The reality will be much greater for some taxpayers and corporations than others given the fact that nearly 50% of taxpayers pay no income taxes, and Obama's stated preference for raising taxes only on corporations and "the rich."

This minimum increase excludes onetime spending and several ongoing programs I listed above. It also excludes many other programs, funds, grants, commissions and panels which are promised but not given a dollar value.

It also does not include the "cap and trade" carbon reduction program which amounts to an enormous tax on energy production. It also excludes the "windfall profits tax" on the oil companies. It does not include the cost to business of increasing the minimum wage or of compliance with any of the additional regulations Obama proposes.

Finally, this assumes that nothing goes over-budget - this is the government we're talking about here.

This is the minimum cost of "change you can believe in."

The Top 1%

We've heard a lot this election cycle about "the top 1%" of income earners. Usually in a context like this:

Mr./Ms. Candidate (D): ". . . and I'll give every American healthcare by making sure the top 1% pay their fair share!"
Audience: (applause)
Newscaster: "A bold new proposal, from a bold new . . . (blah, blah, blah)"

But who are the mysterious "top 1%?" and what is "their fair share" anyway?

One gets the impression that they are watching CNN, poolside at the summer home, champagne in hand, laughing at the audacity of the politicians and vowing: "I will never, NEVER! pay my fair share!"

Or perhaps they are meeting old friends at the upscale "Club Un Percenteaux" in Manhattan (a very exclusive club -- it only admits 1% of those who apply) and plotting to buy off Congress to keep their low tax rates.

Thomas Sowell has a great article on who they are on National Review Online. Turns out the club isn't so exclusive after all:

Who are those top one percent? For those who would like to join them, the question is: How can you do that?

The second question is easy to answer. Virtually anyone who owns a home in San Francisco, no matter how modest that person’s income may be, can join the top one percent instantly just by selling their house.

But that’s only good for one year, you may say. What if they don’t have another house to sell next year?

Well, they won’t be in the top one percent again next year, will they? But that’s not unusual.

Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring “class” — especially by those who have overdosed on the magic formula of “race, class and gender,” which has replaced thought in many intellectual circles.

At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005. . .

These are not permanent classes but mostly people at current income levels reached by spikes in income that don’t last.

More ways to get in the club:

These income spikes can occur for all sorts of reasons. In addition to selling homes in inflated housing markets like San Francisco, people can get sudden increases in income from inheritances, or from a gamble that pays off, whether in the stock market, the real estate market, or Las Vegas. . . corporate CEOs, those who cash in stock options that they have accumulated over the years get a big spike in income the year that they cash them in. . . Some of these incomes are almost as large as those of big-time entertainers — who are never accused of “greed,” by the way.

I might add own a small business to the list. The tax code makes it easy to live very well off your business, and report almost no income (it's been reinvested in the business).

It's not the same people who are rich at any given time. That's the beauty of the American economy. Anyone really can get rich (at least for a while), and no one has to stay poor. The free flow of goods and labor, the flexibility of business to hire (and fire) as necessary, and nearly universal access to education means that:

Most Americans in the top fifth, the bottom fifth, or any of the fifths in between, do not stay there for a whole decade, much less for life. And most certainly do not remain permanently in the top one percent or the top one-hundredth of one percent.

As to what "their fair share" may be, who knows. One might think it would be roughly the same as their percentage of the total income in the country. I do know that (according to the IRS) in 2004 they paid

• 36.89% of all income taxes, and made
  
• 19% of the total income.

Meanwhile, the bottom 50% paid

• 3.3% of all income taxes, and made
• 13.4% of the total income

There's at least an argument that they pay their share already.

The Democrats' View of Taxes

In speaking of a tax cut, Gene Sperling, Hillary Clinton's chief economic advisor, said the following at a recent National Press Club panel discussion:

The question is, should we be giving an extra $120 billion to people in the top 1 percent?

Democrats see tax cuts as the government giving people money. This is insane! Welfare is giving people money, tax cut are no such thing. One gets the impression from the Democrats that wealthy Americans are a natural resource, to be pumped for as much cash as we need. Jonah Goldberg explains very eloquently in National Review:

You can see where Democrats get this idea, after all. The top 1 percent of wage earners already provide nearly 40 percent of federal income tax revenues. The bottom 50 percent of taxpayers contribute only about 3 percent.

This is dangerous to our form of government.

According to Democrats, it's greedy to want to keep your own money, but it's "justice" to demand someone else's.

Taxes are a necessary evil. But their silver lining is that they foster a sense of accountability and reciprocity between the taxpayer and the tax collector. Indeed, democracy is usually born from this relationship. Widening prosperity brings a rising middle class, which in turn demands the rule of law, incorrupt bureaucracies and political representation in exchange for its hard-earned money.

As the tax burden shifts to the rich, and as fewer people overall pay taxes:

the people are less inclined to see government as their expensive servant and more as their goody-dispensing master.

Democrats keep telling the bottom 95 percent of taxpayers that America's problems would be solved if only the rich people would pay "their fair share" of income taxes. Not only is this patently untrue and a siren song toward a welfare state, it amounts to covetousness as fiscal policy.

. . .it's unhealthy for a democracy when the majority of citizens don't see government as a service they're reluctantly paying for but as an extortionist that cuts them in for a share of the loot.

Beware any candidate who equates tax cuts with government spending. They may cut "spending" so much that we may end up with no money at all.