The Prosperity Ratio: Why we should encourage tax cuts for the rich

One of the easiest ways to recognize a liberal is their refusal to accept that the universe is dynamic rather than static. The most obvious example of this is their perpetual inability (or unwillingness) to grasp the notion that increasing taxes and growing regulations impact taxpayer behavior. This can be seen in on a number of levels. On the state level it can be seen by companies and wage earners fleeing high tax locales for those with low taxes or no income taxes. Rush Limbaugh famously left New York two years ago for the zero income tax comfort of sunny Florida. Then Governor Paterson responded by demonstrating his state’s disdain for the people who actually fund New York’s nanny state spending: "If I knew that would be the result, I would’ve thought about (raising) the taxes earlier." And New York is not alone… New Jersey, Maryland and many others have also seen taxpayers flee their states in recent years.

California too is befuddled by the exodus of taxpayers from the progressive Nirvana Democrats have been creating there over the last 40 years. In 2010 an average of 3.9 companies a week moved their operations out of California due to high taxes and burdensome regulations. During the first four months of 2011 that number increased 25% to 4.7 companies leaving per week… and taking their jobs with them! What is the destination of choice for those companies? Not surprisingly, Texas, with its minimalist regulation mentality and no income or capital gains taxes. California officials were so flummoxed by the exodus that a delegation of (mostly Republican) legislators and Democrat Lt. Gov. Gavin Newsom went to Texas to talk with erstwhile California companies about why they had left the not so Golden State.

Again, not surprisingly, the answer was obvious… High taxes and burdensome regulation. For decades California socialists in Democrat clothing assumed Golden State economics were static and that they could simply raise taxes or increase regulation and employers would simply suck it up. Of course they were wrong, but they (and California’s voters) have yet to figure that out.

At the federal level, Barack Obama is the lead siren singing the “Tax the rich” song, ostensibly to try and shore up Uncle Sam’s finances. Last week the President said: “I believe that we can't ask everybody to sacrifice and then tell the wealthiest among us, well, you can just relax and go count your money…”

In an environment where fully 47% of the people in the country pay either zero income taxes or actually get “rebates” for taxes they didn’t pay, Obama and the Democrats want to hike taxes on the people who actually choose to put their capital at risk and produce the jobs that fuel the economy. And like all good Democrats, they feel like they can simply raise taxes and the rich will automatically fall in line and fork over more money without making any adjustments in their behavior.

Strangely enough, that’s not quite how things work as human nature on the federal level is no different than on the state level… when taxes go up, people change their behavior. While most people are not going to move to another country if their federal taxes are raised, they will do what they can to reduce their tax burden, from investing in foreign markets, to parking their money to hiring high powered accounting firms to help them shelter their income.

Nearby is a table whose data is drawn from IRS numbers showing tax rates from 1986 to 2005. The table focuses in on the top 1% of tax filers and isolates the tax rate and the share of overall taxes paid. The third column is a ratio I created that I call the Prosperity Ratio. (My apologies if someone has used the ratio earlier, I’ve just not seen it.) Essentially it is the average income tax rate paid by the top 1% divided by the percent of the overall income tax burden paid by the persons in that same 1%. I’ve dubbed it Prosperity Ratio because the higher the ratio, the more people who are prosperous and happy… When taxes on the “rich” are lower they get to keep more of their money, which of course makes them happy. Simultaneously those same taxpayers pay a larger percentage of the overall income tax burden, which means that the remaining tax payers are happier as well because they are paying a smaller portion of the overall income taxes. Everybody wins.

To demonstrate how this Prosperity Ratio works, in 1986 when the average tax rate paid by the top 1% of taxpayers was 33.13%, they paid 25.75% of all federal income taxes resulting in a Prosperity Ratio of .78. By 2005 when the average rate paid by the top 1% had dropped to 23.13%, they were paying 39.38% of all federal income taxes, generating a Prosperity Ratio of 1.70. Everyone won as the rich, able to keep more of their money were motivated to create more wealth, generating more revenue for the tax collector. The other 99% of taxpayers were happier as well as they were able to keep more of their income too. It should be the goal of the government to generate the highest Prosperity Ratio by cutting taxes as until the ratio starts declining.

Don’t hold your breath of course. Liberals live in a fantasy world where they can raise taxes or increase red tape and the world magically bends to their will and everyone lives happily ever after. Unfortunately for the rest of us we have to live with the real world consequences of their static delusions. Maybe now is a good time to have a discussion about the difference between static and dynamic, or in the lexicon of a liberal, fantasy and reality. And maybe this time we should include the people who keep voting for them...

Obama shreds the Constitution... again

Last week President Obama was overheard telling a room full of Democrats that during the most recent budget negotiations the GOP had sought to defund some of his priorities. He checked them into the boards with “Do you think we’re stupid”?

While the GOP members certainly don’t think the President is stupid, he definitely thinks the voters are. (Perhaps with good reason… If you haven’t seen the video “How Obama Got Elected” now as we roll towards 2012 it might be a good time to watch it. If you have, now is a good time to revisit it. The level of ignorance of some of people who exercise their right to vote is nothing short of extraordinary. Rather than giving out voter cards at the DMV like lollypops at a pediatrician’s office we might want to require prospective voters to pass the same citizenship test wannabe citizens must pass…)

Not that it should be a surprise to anyone that the President thinks Americans are stupid. It’s one thing to hoodwink people during the campaign as everyone expects politicians to stretch the bounds of credulity. This was perfectly demonstrated when candidate Obama suggested that he sat in Jeremiah Wright’s church for 20 years yet somehow never heard a single one of his racist anti-American diatribes. It’s another thing all together to expect citizens to believe their President is openly seeking to mislead them. Such was the case early on in the Obama presidency and that arrogance was never as clear when the administration introduced what is possibly the most absurd policy gauge ever uttered by any politician, the infamous: “Jobs created or saved.” How is it even remotely possible that the president thought that anyone with a functioning brain would consider “Jobs created or saved” as a legitimate measure for any policy anywhere? No idea, but they did… and did so with a straight face.

Now we jump ahead two years and we finding the President once again demonstrating low opinion he has of average American’s intelligence. Not only does he think that Americans will somehow forget his plethora of flip-flops, (which Victor Davis Hanson lays out brilliantly here) what’s worse, he thinks that no one else in the country is bright enough to understand the Constitution.

One example - In December, despite a federal court ruling that the FCC lacked authority to regulate Internet service providers, Chairman Julius Genachowski and two fellow Democrats on the five-member decided to do just that and rammed through Net Neutrality regulations – which limit how ISPs can use and charge for their networks. Earlier this year the House passed a bill explicitly stripping the Commission of that power and the Senate is likely to kill it. This usurpation of power by Obama portends very bad things… If the default now becomes that the Executive branch gets to decide what it can and can’t regulate, with explicit exclusionary language from Congress being the only yoke on its power, the nation cannot survive as rapacious nanny state government bureaucrats seeking to feed their insatiable appetite for power will always be able to act more swiftly than a legislature of 535 representatives with tens of thousands of different priorities.

In another example, just last week, in signing the budget compromise, President Obama added a signing statement which essentially says he's going to ignore part of the legislation. The bill included Section 2262, which essentially defunds the President’s czars overseeing the auto industry, health care, climate change and urban affairs. Strangely, rather than simply abiding by the legislation’s covenants, which actually applied to positions that were already vacant, the President felt the need to explicitly say that Congress did not have the constitutional authority to limit his spending. Back in 2008, then candidate Obama said that unlike George Bush, he “would not use signing statements as a way to do an end run around Congress.” Essentially what the President is doing is practicing a line item veto; something I and many others support, but thanks to Rudy Giuliani, the Supreme Court has ruled unconstitutional. Barack Obama doesn’t care about that and thinks American voters are too stupid to notice. As if to prove the point, now he’s not even using a proxy like the FCC to shred the Constitution, he’s going out of his way to do it himself.

These are but two examples where President Obama, the self described Constitutional expert “I taught the Constitution for 10 years” is demonstrating his disdain for said Constitution. At the same time however the issues are relatively esoteric. It is up to the Tea Parties and the GOP (if the leadership can remember that the word leadership actually suggests leading) to clearly articulate to American voters that while Barack Obama may be a Constitutional scholar, he does not feel the document applies to him or his administration. If they can do so in a coherent and compelling way, even the voters in John Ziegler’s video might be bright enough to vote against another four years of “Change we can believe in”.

Wisconsin proves it's possible to save America...

After spending two years touring the United States in the 1830’s Alexis de Tocqueville wrote: “The greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.” One wonders what he might have thought had he spent the last six months in Wisconsin.

The road Wisconsinites have traveled since November of last year may well indeed foretell the future of America.

Everything began in November when, fed up with fiscal irresponsibility on the part of Democrats, Wisconsin voters handed to the GOP not only the Governor’s mansion, but both the House and the Senate as well. The mandate was clear: Get government spending under control.

The state’s new Governor and legislature hit the ground running with the Senate working on the Governor’s bill that would strip government employee unions of the ability to negotiate for benefits and forced those state employees to contribute more to their health and pension funds. More consequentially it made the paying of union dues voluntary rather than mandatory.

Governor Walker was vilified and became the center of a firestorm of protest. On February 17th the 14 Democrats in the Senate decided to run away to Illinois, depriving the body the required 20 member quorum necessary to pass any fiscal bills.

Almost immediately the Capitol came under siege by a marauding horde of leftists bent supporting the Democrats and stifling the will of the people.

By March 9th, having had enough of the obfuscation by the Democrats, the GOP senators stripped the bill of all fiscal elements and proceeded to pass the bill after providing two hours notice online. (Only fiscal legislation requires a quorum.) The Assembly passed the bill the next day and Governor Walker immediately signed it into law…

Democrats immediately claimed the law was invalid and quickly found a state judge who would support their claim despite the fact that the Senate clearly did not violate the state’s Open Meeting’s law nor internal Senate rules. Dane County Judge Maryann Sumi at first attempted to stop the law from being published and then issued an order stopping any further implementation of the law.

The real question with Judge Sumi’s ruling is: Are there any limits on the power of the courts? Apparently the judiciary has the right to insert itself in the inner workings of a co-equal branch of government, in this case the legislature. If the Judge’s order is allowed to stand, if it is above even its co-equal branches of government then there is truly no place a judge's gavel cannot reach, not within the legislature, the executive branch nor one would expect, into absolutely every aspect of the lives of citizens. Who could stop them?

At this point democracy in Wisconsin had become a farce. The people vote; the elected officials attempt to do what they were elected to do, all the while being pilloried and attacked by opponents. They succeed in passing the law according to the constitution and suddenly a member of the judiciary rips the reins of power from the people. Soon the case finds its way in front of the state Supreme Court.

The witching hour came last Tuesday when Justice David Prosser was up for reelection to the Supreme Court, which is currently composed of four generally conservative justices and three progressives. Union and other leftist organizations from around the country poured tens of millions of dollars into Wisconsin to support Assistant Attorney General JoAnne Kloppenburg, a progressive who could be considered a sure fire vote to sustain Judge Sumi’s ill advised ruling.

The question on everyone’s mind leading up to the election was, would the citizens of Wisconsin vote to support their elected officials or would they cave into the intimidation and lies of the unions? While a recount seems likely, in what was by far the most highly participated in judicial election in Wisconsin history, it appears that the citizens of Wisconsin have decided that they have had enough of the thuggish behavior of its public employee unions and Justice Prosser will be retuning to the Supreme Court.

If this resurgence of fiscal responsibility and internal fortitude was not enough to solidify Wisconsin’s position as the leading light in the very winnable battle to save the Republic, there are a few more things that should make the state’s position crystal clear:

1. Wisconsin voters gave 3 term incumbent Russ Feingold the boot in November.
2. Paul Ryan’s district is in Wisconsin, and Ryan is the leading voice in the GOP on fiscal responsibility.
And perhaps most tellingly:
3. Wisconsin citizens are not only withstanding the union thug tactics, they are actually pushing back…

Many of us feel like America is approaching a precipice on the edge of an abyss from which there would be no return. We could do much worse than look to the example set by Wisconsin’s citizens and politicians (or at least some of them…) to remind us that it is possible to pull back from the edge regardless of the foes lined up against you. I think Tocqueville would not have been surprised.

Arrogance Incarnate - Obama and his union friends...

Life not fair. Nor for that matter is it unfair. It simply is. It’s not fair or unfair that the lion feasts on the slowest zebra or that the penguin who leaps into the ocean at just the wrong moment becomes dinner for an Orca. Life is life… fair doesn’t come into play.

Fair is a fundamentally human concept that is defined by a lack of preference or favoritism and or injustice.

Despite its subjective nature, fairness is a word that the left loves to bring to what should be an objective realm, politics. It’s not fair that CEOs earn millions of dollars when their employees are earning minimum wage. It’s not fair that the acceptance rates into Stanford or Ivy League universities differ between blacks, whites and Asians. It’s not fair that the United States has less than 5% of the world’s population yet uses almost a quarter of the world’s energy. It’s not fair that someone was born on the wrong side of the Rio and someone is trying to send them back home.

Unfortunately, life is not fair and neither wishing nor government can make it so. That of course does not mean that liberals do not try to use the government for exactly that purpose. From affirmative action to welfare to social security to government set-asides to progressive tax rates to suits against voter ID laws, liberals seek to use the coercive nature of government to create a world where everyone (read every outcome) is the same.

One of the many problems with the left’s pursuit of fairness through government is the idea of who gets to decide what is fair, and on what basis. Back in the early 1990’s much was made of the fact that blacks were getting rejected for mortgages more often than whites. Not only did the story become front page news, but it led regulators to make changes in banking rules which in turn produced the economic collapse of 2007/08. Not surprisingly, not only did it turn out that the story in itself was false, but the ensuing legislation had the effect of actually harming the black homeowners it was seeking to give a “fair chance”. (Thomas Sowell does a tremendous job of rebuffing the idea that blacks were receiving unfair treatment in the first place.)

Another example of the left seeking to use government to impose fairness is welfare. In an effort to provide a basic level of income for the poor and downtrodden, the federal government has spent trillions of dollars over the last 40 years. True to form, rather than obviating poverty those fairness based programs have instead created a perpetual underclass and alienated tens of millions of Americans from the fundamental notion of working to support themselves and their families and becoming contributing members of society.

As bad as these examples are, one could argue that they are merely the wrongheaded actions of useful idiots who have no understanding of basic economics. It’s another thing all together for politicians to conspire with groups in the name of “fairness” to impose regulations on the entire country and then to turn around and exempt the groups with whom they were conspiring from the very regulations they’d just passed.

Such is the situation with the single most controversial and intrusive piece of legislation of our lifetimes: ObamaCare. In January HHS released the list of the latest 729 organizations to receive waivers from the onerous requirements of ObamaCare. Those 729 organizations represented a total of 2,189,636 employees. A quick look at the largest of those organizations exposes the hypocrisy and arrogance of the Obama administration. Of the 100 largest organizations – by covered employees – being granted a waiver, 57 of them are unions, representing 836,278 employees, or fully 40% of the total. What makes this hypocrisy so pernicious is that unions were the single biggest supporters of ObamaCare in the first place.

Citizens expect their politicians will pass laws every now and then that benefit this or that constituent or funnel funding to their home district for a bridge or a community center. While offensive, such pork barrel efforts are largely innocuous to the general public as they typically impact only a small number of people and do so in a positive light – if of course you don’t count all of the taxpayers who had to actually pay for that pork.

ObamaCare and the unions are doing something all together different. Not only is it what most people would call unfair – although few on the left are suggesting that of course – but more consequentially, it is blatant deception of the American people. Essentially what we had was an administration conspiring with some of its favored groups to vociferously advance the notion that ObamaCare was an absolute necessity for the country and that it would benefit everyone. Then, as soon as the law is passed, it begins exempting the very groups that helped force the legislation down our throats in the first place… or giving them money to defray its costs. (The administration just announced that it has spent $1.7 billion on helping 1,500 organizations deal with ObamaCare’s consequences… Once again the same story: A quick look at the top 40 organizations given money reveals that 15 of them are unions who cashed checks for $573 million, or about one third of the total.)

However one defines good government, and whatever one’s expectations as to the proper role of government, by any objective standard, this is not it. When an administration becomes sufficiently arrogant that it feels it can blatantly lie with impunity about its signature legislation knowing that its detractors are watching it like a hawk, one has to wonder what it’s doing behind the scenes with the tens of thousands of other regulations and Executive Orders that neither the citizens nor the press have the time or bandwidth to scrutinize. Now that doesn't seem fair to anyone...