They say a picture is worth a thousand words. Sometimes a word can be worth a thousand pictures. In this case the word is California. Regardless of who you are or what state you grew up in or where you live today, the name California likely brings about a thousand pictures in your head. The Beach Boys. Gold Rush. Alcatraz. Cary Grant. Earthquakes. Apple Computer. Traffic. Charlie Chaplin. Haight Ashbury. Dragnet. Silicon Valley. Napa Valley. The list no doubt could go on for pages.
For decades California seemed synonymous with the idea of success and the American Dream. From the Hollywood blockbuster that chronicles the unlikely hero who triumphs over the odds to the seemingly endless ingenuity coming out of Silicon Valley to palm trees lining the boulevards to the vineyards covering the rolling hills of the Napa Valley, California seemed to embody the glamour that is success. It seemed to have everything that a state (or a country for that matter) could ever want. Beautiful people, bountiful natural resources, enough food to feed itself with a lot left over to share and a quality of life that seemed to draw people from around the globe.
As we get ready to flip the page to the new year and our national government is about to take an enormous step in a leftward direction, it may be instructive to remove the rose colored glasses of nostalgia and see what the left coast is, what California has become.
Like a glamorous movie house with searchlights crisscrossing the sky as it beckons you into the theater only to disappoint you with a poorly written script, cardboard actors and Ed Wood direction, California is a B movie that is only getting worse with time. The state has for years believed its own movies, that everything always turns out all right in the end, that it’s OK to live every day like there’s no tomorrow, that for some Golden few the pedestrian laws of supply and demand, competition or fiscal responsibility didn’t apply or needn’t be heeded.
California at the end of 2009 is a patient in the hospital after an attempted suicide. While much of the universe recognizes that there are certain rules about how things work, Californians have spent the last three decades acting as if the natural rules of life do not apply to them. The list of self inflicted wounds seem almost endless. Sky high taxes. Environmental regulations. Business regulations. Rent control. Fiscal indiscipline. Welfare Nirvana.
What was once the goose that laid the Golden eggs, California has become an effete shadow of itself that not only cannot attract new citizens, but actually is actively chasing away the most productive amongst them. From poor schools to a suffocating business environment to criminally high taxes, California has done everything right as if it were studying some mythical book called “How to pull defeat out of the jaws of victory in the national and increasingly global competition for residents and resources”.
California seems to think that because it has wonderful weather, beautiful beaches and tremendous natural resources (which you are rarely allowed to touch) that it can put upon its citizens an ever increasing burden of taxes, regulation and inefficient government and that somehow everything will work out in the end. Unfortunately this is not a Hollywood blockbuster but a product of the French cinema where the story is often dark and brutal and happy endings are rare. Below are just a few of the measures which demonstrate the wounds California has inflicted on itself.
Jobs – This may seem obvious, but jobs can not be created out of thin air. Job creation comes mainly when entrepreneurs or small businesses are willing to risk incurring the potential consequences of failure in exchange for the possible rewards of success. Unfortunately for California, at an increasing rate businesses are choosing not to take such risks in the Golden State because the costs and red tape associated with starting, expanding or even maintaining a business have tilted the scales increasingly towards a negative outcome.
Chief Executive Magazine, a national publication that focuses on issues important to senior executives of large corporations listed California as number 50 in its annual listing Best and Worst States for Business. For the fourth year in a row California has won the designation as the least friendly state for business. What’s more, the magazine’s readers are from the largest companies in the country, those who are best able to absorb a state’s crushing regulatory costs. For small businesses, who make up 99% of employers in the state, those regulations are even more crushing because they have fewer resources with which to absorb the costs.
In an October 2009 study commissioned by the Governor’s Office of Planning and Research to look at the impact of regulation on small businesses, the state did not come across with an Oscar winning performance. Some of the findings:
• California regulations cost small businesses $134,122 per year.
• The total loss of gross state output due to regulation is $492.994 billion per year, or 28% of the state’s $1.7 trillion economy.
• Regulatory induced lost output costs the state 3.8 million jobs each year.
• The total regulatory burden translates into a cost of $13,052 per California resident.
These numbers are staggering, but they might be acceptable if everything else was working perfectly. As you might have guessed…not so much.
Welfare – California has amongst the most generous welfare benefits and lax eligibility criteria of any state in the union. As a result, California, with 12% of the population, has fully 30% of the country’s welfare recipients. As of October 2009 there were a total of 1.7 million families receiving welfare in the United States, or approximately 1.7% of all households. Of that total, 525,000 of those families live in California, which translates into a rate of 4.3% of all households, or two and a half times the rate of the rest of the country. Paying for those recipients’ benefits falls directly on the shoulders of the state’s increasingly beleaguered taxpayers.
Taxes – California has the most progressive, stifling tax code in the country. In it’s 2009 report “Rich States, Poor States” the American Legislative Exchange Council evaluates and compares fiscal and economic policies amongst the states. The report ranks California number 43 out of 50 in terms of its economic outlook. Here are some highlights:
Out of 50 states California:
Ranked 50: Personal Income Tax rate.
Ranked 50: Capitol Gains Tax rate.
Ranked 42: Corporate Income Tax rate.
Ranked 43: Corporate Capital Gains Tax rate.
Ranked 43: Most health insurance mandates.
Ranked 45: Electric utility costs.
Ranked 50: Gas taxes.
Ranked 49: Survival rate for small businesses.
Education – That same report notes that California teachers are the highest paid in the entire country with an average salary of $59,825 vs. the national average of $49,026. In return for these record high teacher salaries one might expect that the state’s students would at least perform at the national average. Not quite… According to National Assessment of Education Progress (NAEP) testing, which measures reading, writing and science skills at the 4th and 8th grade levels, California ranks 49th out of 50 states in student performance, following only Mississippi.
Unemployment – Businesses create jobs and hire people when they believe the benefits of doing so outweigh the associated costs. California employers often decide that equation is not coming out in their favor. In October 2009 the US Unemployment Rate was 10.2%. At 12.5% California’s rate was worst than every state except Nevada, a state that has seen its gambling backbone devastated, Michigan, where unions ran employers out of the state, and Rhode Island… the state where I was born, although I don’t mean to suggest there is a cause and effect relationship there.
Fiscal responsibility - As if all of that were not enough, California is on the verge of bankruptcy and can’t even pay its bills. This year it issued IOUs to contractors who provide the state with services, its debt has been downgraded to almost junk levels and earlier this year it foisted $12.5 billion in new taxes on the shoulders of its already beleaguered citizenry. Now it’s facing a $21 billion deficit for the coming year.
And I didn’t even mention the problems of unions, crime or employers and taxpayers fleeing the state…
As President Obama and his fellow statists contemplate burdening American citizens with ObamaCare, Cap & Trade, expanded powers for unions and crushingly high taxes amongst other things, it might be helpful to look at exactly how well those progressive policies have played themselves out in what used to be the symbol of the American Dream. If those policies can strangle a state with California’s advantages, what chance do residents of remaining mere mortal states have?
Monday, December 28, 2009
Monday, December 21, 2009
No milk and honey here...
The number of things with which I agree with President Obama is fairly small. One thing I do agree with him on however is his characterization of the Constitution. Back in 2001 as he was lamenting the failure of the Warren Court to bring about “redistributive change”, he stated “…the Constitution is a charter of negative liberties. Says what the states can’t do to you. Says what the Federal government can’t do to you, but doesn’t say what the Federal government or State government must do on your behalf…” While the negative liberties characterization doesn’t make any sense, at the core about what the Constitution does, he is right.
As the President and Congress prepare to enact what is possibly the most unconstitutional law ever passed, it may be of some value to look at why exactly President Obama is right on the Constitution and wrong on ObamaCare.
Much to President Obama’s chagrin, the Constitution was never intended as a contract laying out what the government could, should or would do for the citizens. It is not a contract amongst the rich against the poor, the native born against the immigrant, the educated against the illiterate. On the contrary, it is a contract amongst citizens whereby everyone has equal rights and it is specifically intended to guard against the tyranny of the majority. While the definition of citizenship has evolved over time, the equality amongst citizens has not.
The Constitution was written the way it was by design. Indeed, it was the product of great effort and much research, both historical and contemporary. Although many statesmen had a hand in the development of the Constitution, foremost amongst them was James Madison, who is sometimes called the Father of the Constitution. In preparation for the Constitutional Convention in Philadelphia, Madison spent a great deal of the spring and summer of 1786 at his home in Montpelier studying governments throughout history, everything from the Amphictyonic confederacy of ancient Greece to the European confederacies of the 15th century, all while reflecting on the infirmaries of the American Articles of Confederation. Those infirmaries were legion: The central government could not levy sufficient taxes to pay its creditors, states fought amongst one another and majorities tyrannized minorities. Fundamentally the United States at that point was far more a collection of strong independent states than a true nation. Allowed to continue the country would likely have splintered into a chaos reminiscent of Europe.
Fundamental to Madison’s idea of government was the recognition that men are human, and as such are prone to many vices. He even put his notes on the subject on paper in the "Vices of the Political System of the United States”. Basically he recognized that left to their own devices, men would split into factions, and, unless insulated from such, eventually a government would devolve into a tyranny of the majority.
The resulting Constitution provides the government with limited and specific powers. The 10th Amendment states explicitly that those powers not delegated to the federal government reside with the states or the people. Power is separated not only between three branches, but the terms and manner of election of the various officeholders are as well. Fundamentally it was written to provide a foundation for organizing society where citizens could maximize their pursuit of happiness and the exercise of their liberties while limiting government action to only those areas the citizens specifically allowed. Their deliberate, clear language has been increasingly twisted over the last century, but we may now be at a tipping point beyond which there can be no turning back. The progressive movement has been seeking to turn the United States into a socialist Nirvana for most of the last 100 years. From Teddy Roosevelt to Woodrow Wilson to FDR to LBJ, the drums have beaten steadily towards this cliff. Although once they utilized the Constitution for their purposes, (the 18th Amendment – Prohibition) typically their successes (sic) have been the result of court rulings (Miranda) or federal legislation (The New Deal or Great Society programs). Slowly, inch by inch, the progressives have moved the federal government into areas where it was never intended to go. The Founding Fathers would never recognize as America a country where the federal government dictated the fundamentals of elementary education, limited the kinds of transportation citizens could have, restricted a citizen’s ability to finance political speech, provided welfare to 10% of the citizenry or imposed draconian and confiscatory taxes at will.
The tipping point we find ourselves at has to do with the fundamental nature of the Constitution and the relationship between the government and the people. With government, once a program has been put into place, it almost immediately creates a cadre of vested interests and is almost impossible to kill.
The point beyond which there may be no return is a simple one. With ObamaCare, for the first time ever, citizens will be forced under the threat of prison to purchase a good, whether they want it or not. Throughout 212 years of our history, a citizen could wake up every morning and for the most part go about their day without being forced to do anything they did not want to do. There are obvious situational exceptions such as the Draft or eminent domain, but for the most part, the citizenry could choose where and when they would interact with the government. ObamaCare’s requirement that citizens purchase healthcare is the straw that will break the proverbial camel’s back. Once this travesty is in place, there are simply no more limits.
One can make the argument that the world of 2009 is different than the world of 1787 and that is indeed true. We have communications, transportation, entertainment and food options that were not even conceived of 200 years ago. What was conceived of then, and what has survived (somewhat intact) thus far, has been the fundamental framework governing the relationship between the citizens and the government. That framework has survived longer than any other written constitution in the world; it has survived a wrenching war between signatories; it has survived assassinations of presidents, the corruption of legislators and the voting of a largely uninformed public. To put this in perspective, in the 212 years of the American Constitution, the enlightened French have blazed through eight different constitutions.
With the passage of ObamaCare, the United States may be passing the point of no return on its downward journey to becoming a middling country, shorn of the sheen and substance of Exceptionalism. It will become but another average player in a United Nations of the World where the rhetorical goal of government is to ensure that everyone has their equal share, where no one ever wants for anything, where everyone lives in perfect harmony. This is not just because the basic elements of the legislation are sufficiently onerous as to cause America to spiral into a third world country, which it is, but rather by unconstitutionally forcing citizens to purchase a “good” in order to retain their liberty, it explicitly elevates the whims of the federal government above the rights of the citizens. Now that police power of the state can be used to force citizens to pay for health care, how long will it be before those same powers are used to force citizens to pay for food that is provided at the direction of the government, to pay for clothing provided at the design of the government, to pay for transportation or leisure activities provided or approved by the government?
Madison and the Founding Fathers understood that man is prone to anger, passion, faction and hubris and that neither the Constitution nor any government could change that. What the Constitution and its resulting government could do however was provide a framework where free men could live together as equals as they pursued their individual notions of happiness and basked in the exercise of their liberties. Once again I agree with President Obama, this time when he suggested we are standing “at the precipice of achievement that's eluded Congresses, presidents for generations”. Indeed we are, although I would replace the word achievement with travesty. He believes that with ObamaCare America will parachute into a land of milk and honey. He’s wrong. There is no parachute, there is no milk and honey and there will be no soft landing. A mirage of rhetoric, fables and lies hide the gritty reality of the soon to be rusted hulk of American enterprise that for two centuries was an engine that drove the advancement of the human condition. That train spent 212 years charging over the horizon, into the great unknown, into a universe of possibilities on the rails of a U.S. Constitution that let free men create and innovate and build a better world. With ObamaCare we will see the removal of those rails and with them the essence of American Exceptionalism. As the engine that has provided so much to so many careens, buckles and lurches forward without the constraints of Madison’s Constitution, we can no doubt expect that the vices for which it was constructed to contain will begin to rear their ugly heads. Alas, it is said that the road to Hell is paved with good intentions. That may be where we are headed, but despite the rhetoric, there are no good intentions involved here.
As the President and Congress prepare to enact what is possibly the most unconstitutional law ever passed, it may be of some value to look at why exactly President Obama is right on the Constitution and wrong on ObamaCare.
Much to President Obama’s chagrin, the Constitution was never intended as a contract laying out what the government could, should or would do for the citizens. It is not a contract amongst the rich against the poor, the native born against the immigrant, the educated against the illiterate. On the contrary, it is a contract amongst citizens whereby everyone has equal rights and it is specifically intended to guard against the tyranny of the majority. While the definition of citizenship has evolved over time, the equality amongst citizens has not.
The Constitution was written the way it was by design. Indeed, it was the product of great effort and much research, both historical and contemporary. Although many statesmen had a hand in the development of the Constitution, foremost amongst them was James Madison, who is sometimes called the Father of the Constitution. In preparation for the Constitutional Convention in Philadelphia, Madison spent a great deal of the spring and summer of 1786 at his home in Montpelier studying governments throughout history, everything from the Amphictyonic confederacy of ancient Greece to the European confederacies of the 15th century, all while reflecting on the infirmaries of the American Articles of Confederation. Those infirmaries were legion: The central government could not levy sufficient taxes to pay its creditors, states fought amongst one another and majorities tyrannized minorities. Fundamentally the United States at that point was far more a collection of strong independent states than a true nation. Allowed to continue the country would likely have splintered into a chaos reminiscent of Europe.
Fundamental to Madison’s idea of government was the recognition that men are human, and as such are prone to many vices. He even put his notes on the subject on paper in the "Vices of the Political System of the United States”. Basically he recognized that left to their own devices, men would split into factions, and, unless insulated from such, eventually a government would devolve into a tyranny of the majority.
The resulting Constitution provides the government with limited and specific powers. The 10th Amendment states explicitly that those powers not delegated to the federal government reside with the states or the people. Power is separated not only between three branches, but the terms and manner of election of the various officeholders are as well. Fundamentally it was written to provide a foundation for organizing society where citizens could maximize their pursuit of happiness and the exercise of their liberties while limiting government action to only those areas the citizens specifically allowed. Their deliberate, clear language has been increasingly twisted over the last century, but we may now be at a tipping point beyond which there can be no turning back. The progressive movement has been seeking to turn the United States into a socialist Nirvana for most of the last 100 years. From Teddy Roosevelt to Woodrow Wilson to FDR to LBJ, the drums have beaten steadily towards this cliff. Although once they utilized the Constitution for their purposes, (the 18th Amendment – Prohibition) typically their successes (sic) have been the result of court rulings (Miranda) or federal legislation (The New Deal or Great Society programs). Slowly, inch by inch, the progressives have moved the federal government into areas where it was never intended to go. The Founding Fathers would never recognize as America a country where the federal government dictated the fundamentals of elementary education, limited the kinds of transportation citizens could have, restricted a citizen’s ability to finance political speech, provided welfare to 10% of the citizenry or imposed draconian and confiscatory taxes at will.
The tipping point we find ourselves at has to do with the fundamental nature of the Constitution and the relationship between the government and the people. With government, once a program has been put into place, it almost immediately creates a cadre of vested interests and is almost impossible to kill.
The point beyond which there may be no return is a simple one. With ObamaCare, for the first time ever, citizens will be forced under the threat of prison to purchase a good, whether they want it or not. Throughout 212 years of our history, a citizen could wake up every morning and for the most part go about their day without being forced to do anything they did not want to do. There are obvious situational exceptions such as the Draft or eminent domain, but for the most part, the citizenry could choose where and when they would interact with the government. ObamaCare’s requirement that citizens purchase healthcare is the straw that will break the proverbial camel’s back. Once this travesty is in place, there are simply no more limits.
One can make the argument that the world of 2009 is different than the world of 1787 and that is indeed true. We have communications, transportation, entertainment and food options that were not even conceived of 200 years ago. What was conceived of then, and what has survived (somewhat intact) thus far, has been the fundamental framework governing the relationship between the citizens and the government. That framework has survived longer than any other written constitution in the world; it has survived a wrenching war between signatories; it has survived assassinations of presidents, the corruption of legislators and the voting of a largely uninformed public. To put this in perspective, in the 212 years of the American Constitution, the enlightened French have blazed through eight different constitutions.
With the passage of ObamaCare, the United States may be passing the point of no return on its downward journey to becoming a middling country, shorn of the sheen and substance of Exceptionalism. It will become but another average player in a United Nations of the World where the rhetorical goal of government is to ensure that everyone has their equal share, where no one ever wants for anything, where everyone lives in perfect harmony. This is not just because the basic elements of the legislation are sufficiently onerous as to cause America to spiral into a third world country, which it is, but rather by unconstitutionally forcing citizens to purchase a “good” in order to retain their liberty, it explicitly elevates the whims of the federal government above the rights of the citizens. Now that police power of the state can be used to force citizens to pay for health care, how long will it be before those same powers are used to force citizens to pay for food that is provided at the direction of the government, to pay for clothing provided at the design of the government, to pay for transportation or leisure activities provided or approved by the government?
Madison and the Founding Fathers understood that man is prone to anger, passion, faction and hubris and that neither the Constitution nor any government could change that. What the Constitution and its resulting government could do however was provide a framework where free men could live together as equals as they pursued their individual notions of happiness and basked in the exercise of their liberties. Once again I agree with President Obama, this time when he suggested we are standing “at the precipice of achievement that's eluded Congresses, presidents for generations”. Indeed we are, although I would replace the word achievement with travesty. He believes that with ObamaCare America will parachute into a land of milk and honey. He’s wrong. There is no parachute, there is no milk and honey and there will be no soft landing. A mirage of rhetoric, fables and lies hide the gritty reality of the soon to be rusted hulk of American enterprise that for two centuries was an engine that drove the advancement of the human condition. That train spent 212 years charging over the horizon, into the great unknown, into a universe of possibilities on the rails of a U.S. Constitution that let free men create and innovate and build a better world. With ObamaCare we will see the removal of those rails and with them the essence of American Exceptionalism. As the engine that has provided so much to so many careens, buckles and lurches forward without the constraints of Madison’s Constitution, we can no doubt expect that the vices for which it was constructed to contain will begin to rear their ugly heads. Alas, it is said that the road to Hell is paved with good intentions. That may be where we are headed, but despite the rhetoric, there are no good intentions involved here.
Monday, December 14, 2009
The Fair Tax: The best idea you've probably never heard of...
Have you ever seen one of those movies where some guy lights a cigar with a $100 bill? Most of the time the character is some arrogant scoundrel who looks down with disdain upon those little people to whom $100 is a lot of money. Such a character does exist in real life, and unfortunately for you and me it’s not his money burning… it’s ours. Every year American citizens are forced under the threat of prison to essentially set fire to $300 Billion. And it’s not some rotund character with a top hat who’s directing the fire, it’s Congress and the 60,000 page IRS Tax Code.
According to the Tax Foundation, (here and here) Americans spend approximately $300 Billion a year complying with the federal Tax Code. That does not include the taxes themselves, nor the costs borne in adjusting their business operations to reduce the negative impact of the Code in the first place. Another part of the Tax Code is the opaque nature of the individual taxes that eventually make it into the price of goods. Harvard economist Dale Jorgenson suggests that 22% of what Americans spend at retail is the cost of aggregated taxes. Now imagine, every one of those taxpayers or retailers has to try and comprehend their piece of that 60,000 page IRS Tax Code… a code that neither our Treasury Secretary, Timothy Geithner, (The guy the IRS works for!) nor Congressman Charlie Rangel (The guy who runs the committee that writes the Tax Code!) are smart enough to figure out... or that's what they claim.
Which brings me to the world’s best idea you may never have heard of… The Fair Tax. What is the Fair Tax? Basically it is a proposal where all current federal taxes: income, Social Security, Medicare, capital gains, etc… would be eliminated and replaced with a 23% tax that is added at the retail level. Below is a very simple demonstration of how the Fair Tax works.
Let’s assume it costs $1.00 for a loaf of bread. According to Jorgenson, $.22 of that $1.00 represents the aggregated federal taxes paid by the baker, the distributor, the retailer and every other person who had a hand in putting that bread on the store shelf. That includes not only their taxes, but also those they withheld from the checks of employees. The bottom line for you as a consumer however is that you pay $1.00 for a loaf of bread. (For ease of discussion, i.e. eliminating taking numbers to six decimal points, throughout this piece I use the Jorgenson’s 22% and the Fair Tax’s 23% interchangeably.) Under the Fair Tax, all of those aggregated taxes would be eliminated. As a result, the cost of the loaf would be 77 cents, a number which includes all of the inputs and profits from the Farmer, Distributor, Retailer etc. When 23 cents of taxes are added to that $.77, the price of the loaf of bread for you is the same, $1.00.
Given the fact that the price of the bread stays the same and all of the players who are involved in putting the bread on the shelves are making the same amount of money, one might ask “What’s the point?” Well, there are actually quite a number of them, not the least of which is the fact that you get to keep 100% of your paycheck. Under the current system, when you earn $100, you get a check for $75. Under the Fair Tax, when you earn $100, you get a check for $100. Below is a list of ten great reasons to implement the Fair Tax:
The Fair Tax is not a panacea. It will not solve all of America’s problems; it won’t cure cancer or eliminate war or the vagaries of the business cycle. Nor is it without debate, as can be seen by the fact that it has been attacked by players as different as the The Wall Street Journaland the not always so factual FactCheck.org.
Nonetheless, the FairTax does some important things. First, it put’s the United States on the strongest footing possible to compete on the global stage by spurring productivity across the spectrum of business and society. Second, it frees up individuals and businesses to focus 100% of their attention to starting and expanding their businesses in the most effective and efficient ways possible. In doing so they will drive employment and spur our economy. Thirdly, and perhaps most importantly, it would be the first step in reigning in the imperial federal government. By removing the exigencies forced upon them by the leviathanian Tax Code they created, and eliminating Congresses’ ability to manipulate that code, we would be taking the first step in returning America to its true foundation. That foundation is an understanding that the primary function of government is to guarantee its citizens’ freedoms and give them an opportunity to pursue success and happiness unfettered by the tyranny of an oppressive state. That alone would be make the Fair Tax a worthwhile endeavor.
According to the Tax Foundation, (here and here) Americans spend approximately $300 Billion a year complying with the federal Tax Code. That does not include the taxes themselves, nor the costs borne in adjusting their business operations to reduce the negative impact of the Code in the first place. Another part of the Tax Code is the opaque nature of the individual taxes that eventually make it into the price of goods. Harvard economist Dale Jorgenson suggests that 22% of what Americans spend at retail is the cost of aggregated taxes. Now imagine, every one of those taxpayers or retailers has to try and comprehend their piece of that 60,000 page IRS Tax Code… a code that neither our Treasury Secretary, Timothy Geithner, (The guy the IRS works for!) nor Congressman Charlie Rangel (The guy who runs the committee that writes the Tax Code!) are smart enough to figure out... or that's what they claim.
Which brings me to the world’s best idea you may never have heard of… The Fair Tax. What is the Fair Tax? Basically it is a proposal where all current federal taxes: income, Social Security, Medicare, capital gains, etc… would be eliminated and replaced with a 23% tax that is added at the retail level. Below is a very simple demonstration of how the Fair Tax works.
Let’s assume it costs $1.00 for a loaf of bread. According to Jorgenson, $.22 of that $1.00 represents the aggregated federal taxes paid by the baker, the distributor, the retailer and every other person who had a hand in putting that bread on the store shelf. That includes not only their taxes, but also those they withheld from the checks of employees. The bottom line for you as a consumer however is that you pay $1.00 for a loaf of bread. (For ease of discussion, i.e. eliminating taking numbers to six decimal points, throughout this piece I use the Jorgenson’s 22% and the Fair Tax’s 23% interchangeably.) Under the Fair Tax, all of those aggregated taxes would be eliminated. As a result, the cost of the loaf would be 77 cents, a number which includes all of the inputs and profits from the Farmer, Distributor, Retailer etc. When 23 cents of taxes are added to that $.77, the price of the loaf of bread for you is the same, $1.00.
Given the fact that the price of the bread stays the same and all of the players who are involved in putting the bread on the shelves are making the same amount of money, one might ask “What’s the point?” Well, there are actually quite a number of them, not the least of which is the fact that you get to keep 100% of your paycheck. Under the current system, when you earn $100, you get a check for $75. Under the Fair Tax, when you earn $100, you get a check for $100. Below is a list of ten great reasons to implement the Fair Tax:
- 1. Keep your Paycheck:
- 2. Spur Investment in America:
- 3. Spur Entrepreneurship:
- 4. Limit Congresses’ Power:
- 5. Save Half a Trillion Dollars Per Year:
- 6. Focus Financial Decisions:
- 7. Increased Competition and Innovation:
- 8. Collect Taxes from Underground Economy:
- 9. Eliminate the IRS:
- 10. Boost for the Poor:
The Fair Tax is not a panacea. It will not solve all of America’s problems; it won’t cure cancer or eliminate war or the vagaries of the business cycle. Nor is it without debate, as can be seen by the fact that it has been attacked by players as different as the The Wall Street Journaland the not always so factual FactCheck.org.
Nonetheless, the FairTax does some important things. First, it put’s the United States on the strongest footing possible to compete on the global stage by spurring productivity across the spectrum of business and society. Second, it frees up individuals and businesses to focus 100% of their attention to starting and expanding their businesses in the most effective and efficient ways possible. In doing so they will drive employment and spur our economy. Thirdly, and perhaps most importantly, it would be the first step in reigning in the imperial federal government. By removing the exigencies forced upon them by the leviathanian Tax Code they created, and eliminating Congresses’ ability to manipulate that code, we would be taking the first step in returning America to its true foundation. That foundation is an understanding that the primary function of government is to guarantee its citizens’ freedoms and give them an opportunity to pursue success and happiness unfettered by the tyranny of an oppressive state. That alone would be make the Fair Tax a worthwhile endeavor.
Monday, December 7, 2009
Disfunction Incarnate - Immigration policy
American immigration policy is nothing short of dysfunctional, and it has been for a very long time. As Congress, the President seek to embark on a path to putting as much of the country as is possible under direct or indirect control of the imperial federal government, a closer look at immigration might cause a few people along the way to stop and reconsider.
Over the last two decades we have essentially opened up our southern border and let 20 million people simply walk into the country. While many of those people obey our laws once they’ve arrived, a significant portion of them do not. One measure of this can be seen by the fact that according to the Government Accounting Office, Arizona, California, Nevada & New York together spend well over $10 billion a year housing criminal aliens in their prisons. Another billion dollars a year is spent by just five local governments housing criminal aliens in their jails: Maricopa County in Arizona, Los Angeles and Orange Counties in California; New York City and Harris County, Texas. Beyond simple crime issues, illegal immigrants cost cities and states billions of dollars a year in various areas such as education, hospitals and social services.
Given the above, it might sound strange that I am an enormous supporter of immigration. Not only that, I believe that many of the 20 million, mostly poor Hispanic, immigrants should be allowed to stay. At the same time, I feel we should build a rock solid brick wall across every inch of our 1700 mile southern border. And I think we should do it tomorrow.
Other things we should do include expelling all of the criminal illegal aliens and requiring those illegal aliens who wish to stay to pay a significant fine in order to be able to do so.
While the influx unskilled laborers from Mexico and Central America is the most talked about aspect of the dysfunctional American immigration policy, it is only half of the story. The other half involves a much different set of immigrants with different skills and from different parts of the world: Scientists, Doctors & High Tech Entrepreneurs.
In what is possibly the most ludicrous element of any immigration policy ever, not only do we allow, but even more, we invite the best and the brightest students from around the world to come to the United States to get their education at some of the finest universities on the planet. That’s not really the problem. The problem is… that as soon as our universities have equipped these students with the best training that money can buy, we force most of them to go home so that they can work for companies or start businesses that compete with us. Not that I’m against competition, because I’m not… quite the contrary actually. I think having competitors around results in a stronger America. My problem is that the vast majority of those students would rather put their new education and skills to work here in the United States, would rather live the American dream. And that’s the point. While I’m confident that having competition from a chip making plant in China or a software developer in India would indirectly make America a better competitor, the truth is, I’d rather America benefit directly by having those newly minted graduates start companies or develop revolutionary technologies here in the United States.
To put this in martial terms, this situation is like West Point and Annapolis training the best and the brightest servicemen from around the world – in the middle of a war – and then after graduation, rather than allowing them to join our Army or the Navy (or Marines) to help protect America, we force them to go home and lead the armies of our foes.
Another ridiculous aspect of our system is the H-1B program, which limits to 65,000 the number of high tech workers that can receive visas to come and work in the United States every year. In addition, because of the program’s draconian characteristics, those employees are virtually indentured servants to the company for which they work, which means that in order to stay in the US they must remain with the employer who brought them into the country in the first place in order to remain here. That 65,000 number is just a fraction of the millions of applications that are received each year. The argument that is always raised against these visas is that they are taking away jobs from Americans. That argument is spurious. Most H-1B visas are issued to high tech companies seeking employees with high tech degrees and skills. A significant reason why those companies seek employees from outside the US is because relatively few American students are equipped with knowledge, skills or education they are looking for in areas such as science, math or technology. The choice is not between hiring more American physicists or electrical engineers vs. hiring employees with H-1B visas. No, the choice companies often face is often between bringing in qualified H1-B employees who would work here in the United States, or simply building their facilities in the places where those qualified employees live, such as India, China or increasingly Eastern Europe.
Why does this even matter? Simple: Google, e-Bay, PayPal, Sun Microsystems and Yahoo! These and thousands of other American companies that were started by immigrants generate billions of dollars a year in revenue and employ hundreds of thousands of Americans.
To see just how strong the correlation is between immigration and economic success all we need to do is look at some numbers. According to a survey by the National Venture Capital Association, although less than 10% of US population is foreign born, 40% of publicly traded U.S. high tech venture-backed companies were started by immigrants. So basically, in one of the strongest growth industries of the world economy over the last three decades, approximately 40% of the companies were founded by immigrants at a time when we have been severely restricting their entrance into the United States. Imagine what the opportunities would be if we actually welcomed them rather than making them feel like the great unwashed who should beg us to deign to allow them to talk to us. Interestingly, most of the immigrants who started those companies did so after starting out working under the H-1B visa program or as students.
To tie this all together, our immigration situation is a mess. We have a virtual open door policy to immigrants who cost taxpayers billions of dollars a year yet for well educated professionals who seek to start businesses that hire Americans and contribute to making the US a success, we slam the door shut. Both are wrong and should be addressed. The ludicrous nature of this system has become increasingly clear at a time when unemployment is in double digits and taxpayer burdens are increasing at every level.
Immigrants of all sorts have historically been good for America, and now is no exception. By stopping the inflow across our southern border and forcing the illegal aliens who are here into some form of legal status, we will benefit from their hard work as they assimilate into the larger community rather than segregate themselves in a shadowy Spanish-only world where they feel comfortable and safe. At the same time, by opening our doors to those highly educated and trained entrepreneurs, doctors and scientists who seek to come here - or stay here, we may find that they have in their minds a seed that will grow into the next Google or the cure for cancer, but are simply waiting for the right soil into which to plant it. America is that soil and capitalism is the fertilizer. By allowing those seeds to be planted here and their fortunes to blossom, we will all benefit from a stronger and more vibrant economy and country. Now if we could only get President Obama and his minions to stop trying to take over our entire lives and focus on fixing the stuff they are responsible for, like… say, immigration, we'd probably all be a lot better off.
Over the last two decades we have essentially opened up our southern border and let 20 million people simply walk into the country. While many of those people obey our laws once they’ve arrived, a significant portion of them do not. One measure of this can be seen by the fact that according to the Government Accounting Office, Arizona, California, Nevada & New York together spend well over $10 billion a year housing criminal aliens in their prisons. Another billion dollars a year is spent by just five local governments housing criminal aliens in their jails: Maricopa County in Arizona, Los Angeles and Orange Counties in California; New York City and Harris County, Texas. Beyond simple crime issues, illegal immigrants cost cities and states billions of dollars a year in various areas such as education, hospitals and social services.
Given the above, it might sound strange that I am an enormous supporter of immigration. Not only that, I believe that many of the 20 million, mostly poor Hispanic, immigrants should be allowed to stay. At the same time, I feel we should build a rock solid brick wall across every inch of our 1700 mile southern border. And I think we should do it tomorrow.
Other things we should do include expelling all of the criminal illegal aliens and requiring those illegal aliens who wish to stay to pay a significant fine in order to be able to do so.
While the influx unskilled laborers from Mexico and Central America is the most talked about aspect of the dysfunctional American immigration policy, it is only half of the story. The other half involves a much different set of immigrants with different skills and from different parts of the world: Scientists, Doctors & High Tech Entrepreneurs.
In what is possibly the most ludicrous element of any immigration policy ever, not only do we allow, but even more, we invite the best and the brightest students from around the world to come to the United States to get their education at some of the finest universities on the planet. That’s not really the problem. The problem is… that as soon as our universities have equipped these students with the best training that money can buy, we force most of them to go home so that they can work for companies or start businesses that compete with us. Not that I’m against competition, because I’m not… quite the contrary actually. I think having competitors around results in a stronger America. My problem is that the vast majority of those students would rather put their new education and skills to work here in the United States, would rather live the American dream. And that’s the point. While I’m confident that having competition from a chip making plant in China or a software developer in India would indirectly make America a better competitor, the truth is, I’d rather America benefit directly by having those newly minted graduates start companies or develop revolutionary technologies here in the United States.
To put this in martial terms, this situation is like West Point and Annapolis training the best and the brightest servicemen from around the world – in the middle of a war – and then after graduation, rather than allowing them to join our Army or the Navy (or Marines) to help protect America, we force them to go home and lead the armies of our foes.
Another ridiculous aspect of our system is the H-1B program, which limits to 65,000 the number of high tech workers that can receive visas to come and work in the United States every year. In addition, because of the program’s draconian characteristics, those employees are virtually indentured servants to the company for which they work, which means that in order to stay in the US they must remain with the employer who brought them into the country in the first place in order to remain here. That 65,000 number is just a fraction of the millions of applications that are received each year. The argument that is always raised against these visas is that they are taking away jobs from Americans. That argument is spurious. Most H-1B visas are issued to high tech companies seeking employees with high tech degrees and skills. A significant reason why those companies seek employees from outside the US is because relatively few American students are equipped with knowledge, skills or education they are looking for in areas such as science, math or technology. The choice is not between hiring more American physicists or electrical engineers vs. hiring employees with H-1B visas. No, the choice companies often face is often between bringing in qualified H1-B employees who would work here in the United States, or simply building their facilities in the places where those qualified employees live, such as India, China or increasingly Eastern Europe.
Why does this even matter? Simple: Google, e-Bay, PayPal, Sun Microsystems and Yahoo! These and thousands of other American companies that were started by immigrants generate billions of dollars a year in revenue and employ hundreds of thousands of Americans.
To see just how strong the correlation is between immigration and economic success all we need to do is look at some numbers. According to a survey by the National Venture Capital Association, although less than 10% of US population is foreign born, 40% of publicly traded U.S. high tech venture-backed companies were started by immigrants. So basically, in one of the strongest growth industries of the world economy over the last three decades, approximately 40% of the companies were founded by immigrants at a time when we have been severely restricting their entrance into the United States. Imagine what the opportunities would be if we actually welcomed them rather than making them feel like the great unwashed who should beg us to deign to allow them to talk to us. Interestingly, most of the immigrants who started those companies did so after starting out working under the H-1B visa program or as students.
To tie this all together, our immigration situation is a mess. We have a virtual open door policy to immigrants who cost taxpayers billions of dollars a year yet for well educated professionals who seek to start businesses that hire Americans and contribute to making the US a success, we slam the door shut. Both are wrong and should be addressed. The ludicrous nature of this system has become increasingly clear at a time when unemployment is in double digits and taxpayer burdens are increasing at every level.
Immigrants of all sorts have historically been good for America, and now is no exception. By stopping the inflow across our southern border and forcing the illegal aliens who are here into some form of legal status, we will benefit from their hard work as they assimilate into the larger community rather than segregate themselves in a shadowy Spanish-only world where they feel comfortable and safe. At the same time, by opening our doors to those highly educated and trained entrepreneurs, doctors and scientists who seek to come here - or stay here, we may find that they have in their minds a seed that will grow into the next Google or the cure for cancer, but are simply waiting for the right soil into which to plant it. America is that soil and capitalism is the fertilizer. By allowing those seeds to be planted here and their fortunes to blossom, we will all benefit from a stronger and more vibrant economy and country. Now if we could only get President Obama and his minions to stop trying to take over our entire lives and focus on fixing the stuff they are responsible for, like… say, immigration, we'd probably all be a lot better off.
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