Minor Thoughts from me to you

Archives for Fiscal Policy (page 2 / 4)

Are Income Tax Rates the Problem?

Everyone is discussing tax cuts -- and tax hikes -- right now. The prevailing opinion seems to be that the tax cuts for "the rich" (defined as anyone making more than $500,000 a year) have to go.

The problem, as I see it, is that the income tax rate essentially doesn't matter. Income tax revenues (the actual amount of money collected) have stayed flat over the last 50 years even as income tax rates have fluctuated wildly.

Income Tax Receipts Stay Constant Even as Tax Rates Decline

Cutting taxes for the rich hasn't led to a massive drop in tax revenues. When Bill Clinton left office, in 2000, income taxes made up 12% of GDP. In 2008, income taxes made up 10% of GDP. As a percentage of GDP, the Bush tax cuts led to a very small drop in tax revenue. In actual dollar terms, the Bush tax cuts didn't create any drop in tax revenues. In 2000, the government collected $1.5 trillion of incomes taxes. In 2008, the government collected $1.8 trillion of income taxes.

In fact, federal government revenues have more than tripled since 1965.

Federal Government Revenues Have More Than Tripled Since 1965

Note the uptick in federal revenue starting in 2004, after the Bush tax cuts were passed. Taxes as a percentage of GDP stayed relatively constant (or fell slightly) even as tax revenues were increasing dramatically. That's because the economy started growing as soon as the tax rates were cut. People paid more in taxes even as their tax rates fell. From a government's perspective, that looks pretty good to me. You could argue that the growth is coincidental to the tax rates. (I don't believe that but you could choose to argue that.) But I don't see how you can argue that the tax cuts actually cut federal revenues or hurt the economy.

The real problem with the federal budget isn't tax cuts it's spending. We don't have a revenue problem, we have a spending problem. In 2000, the federal government spent $3.2 trillion. In 2008, the federal government spent $5.3 trillion. In eight years, federal spending increased by an incredible 65%. Why do we even have anyone arguing that the government needs even more money? Does the government do everything so efficiently that there is no fat anywhere in the federal budget? When was the last time you saw legislators seriously looking for money to cut out of the budget instead of looking for more ways to tax citizens? When was the last time you saw a government agency get its budget truly cut instead of just getting a cut in the rate of increase?

Income tax rates aren't the problem. Government spending is the problem. Until we start talking seriously about cutting spending, we won't make any progress on cutting the federal deficit and the federal debt.

If you want some ideas about what spending to cut, I'd start with Downsizing the Federal Government.

(Numbers from US Government Revenue and the Heritage Foundation.)

Don't Be Fooled. Our Economy is Still Stuck in Neutral

The Myth of the Recovery

The gains on Wall Street have been goosed largely by government spending and guarantees, not the usual private sector–funded growth. And federal spending cannot continue indefinitely without deficits and debt service spiraling out of control. John Silvia, chief economist for Wells Fargo, says, “We have seen a recovery, but it’s driven primarily by federal spending and special federal projects. The character of this recovery is very different than we’re used to.”

Consider that 37 percent of the third-quarter GDP growth was due to motor vehicle purchases, which were stimulated almost entirely by the Cash for Clunkers program. “The third quarter was really just a lot of Cash for Clunkers spending that won’t be sustained in the foreseeable future,” Silvia says. (Final statistics for fourth quarter spending were not available at press time.)

Graph of change in U.S. auto sales

The car scheme, an attempt to jump-start the bankrupt auto industry, offered consumers a government-funded credit of up to $4,500 if they traded in their gas guzzlers for more eco-friendly vehicles. But since most participants probably were already planning to buy a new car, the program essentially shifted future demand for automobiles to the third quarter of 2009. Instead of continuing to grow, car sales dropped 34 percent immediately after the program ended. Figure 1 shows U.S. auto sales in 2009 largely following the 10-year average month-to-month change until the Cash for Clunkers credit jolted demand, followed by a subnormal drop.

This is not real growth. It’s the national equivalent of a credit-card buying spree, with the bills—in the form of debt service and unfunded liabilities—to be paid off later. It is a faux recovery.

The "bank tax" is unconstitutional and illegal

I listen to the President's Weekly Radio Address every week. It's usually a painful process, since I almost always disagree with the President. (That's been true for both President Bush and President Obama, in case you're wondering.)

Last week's address was particularly painful. It was almost scary to listen to. The President spoke quite passionately about his desire to tax big banks to pay for the assistance they've received over the past 2 years. This is part of what he had to say (emphasis added by me).

Much of the turmoil of this recession was caused by the irresponsibility of banks and financial institutions on Wall Street. These financial firms took huge, reckless risks in pursuit of short-term profits and soaring bonuses. They gambled with borrowed money, without enough oversight or regard for the consequences. And when they lost, they lost big. Little more than a year ago, many of the largest and oldest financial firms in the world teetered on the brink of collapse, overwhelmed by the consequences of their irresponsible decisions. This financial crisis nearly pulled the entire economy into a second Great Depression.

As a result, the American people - struggling in their own right - were placed in a deeply unfair and unsatisfying position. Even though these financial firms were largely facing a crisis of their own creation, their failure could have led to an even greater calamity for the country. That is why the previous administration started a program - the Troubled Asset Relief Program, or TARP - to provide these financial institutions with funds to survive the turmoil they helped unleash. It was a distasteful but necessary thing to do.

Many originally feared that most of the $700 billion in TARP money would be lost. But when my administration came into office, we put in place rigorous rules for accountability and transparency, which cut the cost of the bailout dramatically. We have now recovered most of the money we provided to the banks. That's good news, but as far as I'm concerned, it's not good enough. We want the taxpayers' money back, and we're going to collect every dime.

That is why, this week, I proposed a new fee on major financial firms to compensate the American people for the extraordinary assistance they provided to the financial industry. And the fee would be in place until the American taxpayer is made whole.

Reading the President's address now, it sounds bland and reasonable. But listening to it was a different experience. The President sounded angry and distinctly sounded like he wanted to punish the banks for ever daring to make trouble. He sounded like what he really wanted was to make the banks pay for the entire cost of the stimulus bill. I was deeply disturbed, as I listened to the speech, to the hear the President so angrily attacking and villianizing a specific industry.

Here's the thing. Not all of the banks that received government help wanted government help. Some of them were strong-armed into accepting the help. The President's new "fee" doesn't account for that. Nor does it account for the fact that not all large banks even received help. Nor does it account for the fact that some banks were healthy throughout the crisis and had no rule in causing the crisis. No, the President's "fee" taxes all banks equally, just for the sin of being big.

As I listened to the speech, I wondered if the plan was even Constitutional. As I said, it sounded like he really wanted to lay into the banking industry, to punish it. And the Constitution specifically forbids a "bill of attainder". What's that? It's when Congress passes a bill declaring someone guilty of a crime -- and punishing them -- without giving that person the benefit of a trial. And the President's language and tone sounded dangerously close to someone who wants to declare the entire banking industry guilty of "crimes against America" and then punish them.

It turns out, that I'm not the only person to think this is un-Constitutional. John Carney writes in The Business Insider Law Review that he's recently concluded that the proposed bank tax is an illegal bill of attainder.

Read his full piece for a much better explanation of the concept of a "bill of attainder", as well as some great examples. Here is his conclusion.

The Financial Crisis Responsibility Fee is unconstitutional on its face. It is as if the Obama administration had urged a tax called "The Fee That Violates Nonattainder Principles." Assigning responsibility after the matter and levying penalties is reserved for the judicial branch that is restricted to using already existing laws and treating similarly situated people equally. The Obama administration wants to assign responsibility for the financial crisis and levy a fee, while exempting its favored automakers. This is exactly the sort of thing the Attainder Clause was put in place to prevent.

Why are voters angry about President Obama's spending?

President George W. Bush was the biggest spending U.S. President since President Lyndon Baines Johnson. He "he presided over an 83-percent increase in overall federal spending, which includes defense, domestic, entitlements, and interest. Even without TARP and Fannie/Freddie, spending was up a huge 70 percent under Bush over eight years. By contrast, total spending under eight years of President Clinton increased just 32 percent."

Voters were justifiably angry about this massive increase in government largesse. In reaction, they threw out the sitting political party and vote en-masse for the candidate who promised a return to responsibility, a turn away from reckless credit card fiscal policies and a return to fiscal discipline. Voters wanted government spending reined in and they were determined to get it. Both the 2006 Congressional elections and the 2008 Presidential election were about spending, to some degree.

So why are voters now so angry at President Barack Obama? Surely they don't blame him for the high levels of government spending? Well, why shouldn't they? Since taking office in January, 2009, he's proposed massive amounts of new spending: a stimulus bill, a cap and trade energy bill, a massive expansion of healthcare, a "cash for clunkers" stimulus, a housing stimulus, and more. For voters weary of out of control spending, the Obama administration's first year has looked remarkably like a left turn into an all-you-can-eat spending buffet.

But don't believe me. Believe the Congressional Budget Office and the Washington Post, who put together this informative little graphic.

The Bush Deficits vs the Obama Deficits

Note the $400 billion line, that President Bush's deficits barely managed to creep over. Note that President Obama's deficits aren't projected to get anywhere near this low a level over the next 10 years.

With all of the voter anger about President Bush's deficit spending, why shouldn't the voters be angry about President Obama's much higher levels of spending? Voters don't need to have a short-term memory to be first angry about President Bush's spending and then angry about President Obama's spending. They just need wide open eyes. Apparently, it's President Obama and Congressional Democrats that have the short memory.

Obama's Falling Popularity Still Higher Than Republican's

Scott Rassmussen wrote about Obama's polling numbers in today's Wall Street Journal.

Polling data show that Mr. Obama's approval rating is dropping and is below where George W. Bush was in an analogous period in 2001. Rasmussen Reports data shows that Mr. Obama's net presidential approval rating -- which is calculated by subtracting the number who strongly disapprove from the number who strongly approve -- is just six, his lowest rating to date.

Overall, Rasmussen Reports shows a 56%-43% approval, with a third strongly disapproving of the president's performance. This is a substantial degree of polarization so early in the administration. Mr. Obama has lost virtually all of his Republican support and a good part of his Independent support, and the trend is decidedly negative.

A detailed examination of presidential popularity after 50 days on the job similarly demonstrates a substantial drop in presidential approval relative to other elected presidents in the 20th and 21st centuries. The reason for this decline most likely has to do with doubts about the administration's policies and their impact on peoples' lives.

People are realizing that the Obama they voted for may not have been the real Obama. The Presidential candidate who promised to fight earmarks and out of control spending just as hard as Senator McCain isn't the same person as the President who's proposing massive increases in spending.

But Republicans shouldn't be too encouraged by this news. They're still the most hated political party in America.

Finally, what probably accounts for a good measure of the confidence and support the Obama administration has enjoyed is the fact that they are not Republicans. Virtually all Americans, more than eight in 10, blame Republicans for the current economic woes, and the only two leaders with lower approval ratings than Harry Reid and Nancy Pelosi are Republican leaders Mitch McConnell and John Boehner.

Fix the Mortgage Crisis By Subsidizing More Mortgages

Sometimes the federal government is unusually annoying. This is one of those times.

Efforts to create new tax breaks to encourage home purchases are gaining attention on Capitol Hill, as lawmakers gird for a major debate this spring on how best to shore up the nation's troubled mortgage markets.

Some Democrats, among them Michigan Sen. Debbie Stabenow, have signaled support for expanded tax benefits. And the idea is proving especially popular among Senate Republicans, who are hoping to carve a distinct role as Congress takes up housing issues and often find tax cuts an appealing option. The discussions reflect a growing sense that the housing, mortgage and credit mess may require more expansive federal government action.

"The momentum on this thing has been good," said Sen. Johnny Isakson, a Georgia Republican. Sen. Isakson, a former realtor, is pushing a proposal that would provide a temporary tax credit to any individual purchasing a newly constructed house or a foreclosed home.

First, it's little surprise that a "former realtor" would want to help his friends in the biz by giving people more incentive to buy and sell houses. After all, realtors get a 6% cut nearly every time a house moves. Way to look out for #1 there, Senator. (This blog supported his primary opponent, Herman Cain, for the Senate. It's gratifying to see how right we were.)

Second, when have the feds ever seen a crisis that didn't "require more expansive federal government action"?

Thirdly, this proposal is flat out discriminatory. It prefers new homes to existing homes. It benefits banks stunk with foreclosed homes over homeowners who simply want to sell their house. It's a giveaway to home builders and banks. It's a slap in the face to responsible home owners. It stinks to the high heavens.

Chicago: "Don't Come Here!"

I was planning on visiting Chicago and doing some exploring with my wife and daughter this summer. Then I read about the cost of visiting Chicago.

Starting July 1, a shopping trip to Chicago's Magnificent Mile will cost more. That's when the sales tax in the city hits an astronomical 10.25%, which may be the highest in the U.S.

We may still visit. But with taxes that high, I don't think we'll be doing much shopping or eating while we're there. Mainly looking. And we'll fill make sure our gas tax is full before we leave home.

Does the Math Add Up on Allied Drive?

I must be missing something, because I don't understand how this makes any kind of sense:

Eventually, Olson said he put up $2 million and got financing from Anchor Bank and First Business Bank, spending an average $250,000 per property and about $130,000 in each to convert them. The project, he said, was a good use of his compensation money while making a profit.

The condo units got new carpets, doors, Italian tile floors, stainless steel appliances, bathroom fixtures, new or refurbished cabinets and more. The building mechanicals and plumbing got updated. Those on Carling Drive also received new windows, siding, gutters and decks.

"We didn 't just paint the walls and clean them up and call them condos," Malin said.

"It's something anybody would be proud to live in," Olson said.

Condos sell at $59,900 for a one bedroom, $69,900 to 74,900 for two bedrooms, and $89,000 to $99,900 for three bedrooms.

Olson spent an average of $380,000 per condo, to put them on the market. The most expensive one sells for $99,900. Where's the other $281,100? Is Olson taking a loss on these or is the city of Madison?

Are We Slaves?

Are we slaves to the state or are we entitled to the fruits of our own labor? Wisconsin state Senator Jon Erpenbach thinks that we're slaves to the state:

Sen. Jon Erpenbach has proposed a bill that at first glance appears to have nothing to do with video games: It would raise the age at which a person in Wisconsin is considered an adult in criminal court from 17 to 18.

Erpenbach's measure would pay for the added expense by creating a power pill for the counties: a 1 percent surcharge on video games and video game consoles such as Wii systems, Xboxes and PlayStations.

The fee would translate to about 60 cents more on the $60 "Halo 3 " or $2.50 more on a $250 Wii.

Erpenbach, a Middleton Democrat, said he doesn't believe video games cause crime. He was simply searching for a revenue stream to cover his bill, he said.

"Here 's one idea to pay for it," he said. "If you have another one, fine. "

Apparently, my purchases and my income are simply a "revenue stream" for Senator Erpenbach's bright ideas. If his bill is such a great idea, maybe the state could find a less worthwhile idea and shift some money from one to the other.

Wendy Henderson, a policy analyst for the Wisconsin Council on Children and Families, thinks that the state should tax video games, for the good of the children:

"Video games are perhaps not the best use of the kids' time, so if we can use some of the money from the video games and turn it into something positive, that's a really good use of that money."

What a vacuous argument. A lot of gamers are adults, not children. Given that the gaming industry makes more money than Hollywood right now, it's possible that far more adults than children play video games. Is Ms. Henderson going to dictate how my wife and I spend are time? Will she tax us if she disapproves?

Finally, 20-year old Nathan Bakken,

said the surcharge wouldn't change his game-buying habits.

"I 'm not going to boycott it or anything, " he said. "It's not that much money. And it's helping people."

Nathan, I support your right to spend your money on anything you want. If you want to give your money to help people, I suggest you buy the gift cards in the checkout lane of the grocery store. You could make a lot of friends by handing them out at local food shelters. But, please, don't pick my pocket when you want to be generous.

Heating Aid, The Right Way

Last year I was extremely critical of Governor Doyle's plan to increase heating aid for poor Wisconsin residents. This year, I'm still critical of the state's heating aid program.

I'm certainly not opposed to helping my poor neighbors. In fact, I don't really think I have much of a choice in the matter.

[esvbible reference="Matthew 25:34-40" header="on" format="block"]Matthew 25:34-40[/esvbible]

But I want my assistance to be precisely targeted, I want it to help those who need the most help, and I want to give it myself -- not have it taken from me by an overbearing government. That's why I was glad to find Alliant Energy's Hometown Care Energy Fund.

Through the Hometown Care Energy Fund, Alliant Energy offers free, confidential financial help for the elderly, disabled and families trying to make ends meet.

Hometown Care Energy Fund is supported by Alliant Energy and its many caring customers, employees and shareowners.

When you give to Hometown Care, your donation goes directly to neighbors in need in your area, with funds administered by local community action programs.

In 2006, more than 1,699 families received an average grant of nearly $248. Your generous contributions of $244,000 helped share the warmth with those who needed it the most.

Their description of the program didn't offer the kind of information I was really interested in, so I asked some questions.

  1. How much of the funds collected funds are paid to community groups? 100%? Or does Alliant Energy keep some of the funds as administrative fees? Alliant Energy distributes 100% of the donations to agencies, but allows the agencies in WI to use up to 6% of the funds for administrative purposes.

  2. Does Alliant keep track on exactly how the community groups use the money? Do they use 100% of the money for heating aid or do they keep some of it as administrative fees? Besides the up to 6% used for administrative purposes, the rest is distributed as agencies see fit for heating aid.

  3. The website says "your donation goes directly to neighbors in need in your area". How big is the local "area"? I live in the Village of Oregon, in Dane County, Wisconsin. Is the money I donate disbursed to community groups in Oregon, in Dane County, in Southern Wisconsin, or in the entire state of Wisconsin? The area is by county. A donation from Oregon would go to Energy Services Inc of Dane County.

  4. The site says that "A customer's payment history may also play an important part in selection for a Hometown Care Energy Fund grant." Does this mean that customers with a solid record of payment -- who suddenly fall behind -- are preferred over customers who habitually don't pay their bills. Yes, agencies take this into account in awarding their grants.

  5. Finally, does the program encourage customers to economize on other areas of finance before receiving grants? For instance, if a customer was paying for cable television but unable to pay their energy bill, would they first be encouraged to cancel cable before receiving grants? Yes, the reason we use the agencies we do to distribute the funds is the often first take an Energy Assistance application from the customer which may provide them some state aid. Second they may discuss with them their income and expenses. Last these funds are there to help them if needed.

I hate cold weather with a passion and am very grateful for on-demand heat. I can't stand the thought that some of my neighbors might be cold because I was too stingy to help them out. Now that weather is getting frigid, we're donating money to the Fund each month.

As we approach Thanksgiving and you think about your blessings, this is a great way to share your wealth with those less fortunate.

Disaster Relief in Bangladesh

In case you haven't been paying attention to the news, a huge cyclone ripped through Bangladesh a few days ago.

Soldiers and relief workers raced Monday to get aid to millions left homeless by the cyclone, as officials said the death toll had topped 3,100 and was certain to keep rising.

According to the Red Cross, the final toll could be anywhere between 5,000 and 10,000.

"The immediate and critical needs are for food, clean drinking water, shelter materials, clothes, blankets and cooking utensils," said EU Humanitarian Aid Commissioner Louis Michel.

"The enormous damage to infrastructure, coupled with losses of both crops and livestock, mean that urgent action is also needed on basic rehabilitation. Otherwise, disease and malnutrition could claim many more victims."

Most of the deaths following Thursday's cyclone were caused by a six-metre (20-foot) high tidal wave which engulfed coastal villages, or by flying debris and falling trees that crushed flimsy bamboo and tin homes.

Food stocks, crops, livestock and drinking water sources -- as well as entire stretches of road -- were washed away by the wave that smashed into the coast along with Cyclone Sidr, and in many places the situation was desperate.

Red Cross and Red Crescent workers said they were using their network of volunteers to distribute dried food and plastic sheeting for temporary shelters, but that many helpers were themselves victims.

"Our estimate is that 900,000 families are affected," said Red Cross official Shafiquzzaman Rabbani -- a figure that accounts for around seven million people.

My wife and I have "adopted" a child through World Vision's Sponsorship program. As a result, we're on the regular mailing list. Today, we received a message about their efforts in Bangladesh.

Dear Sponsor,

Last week, we alerted you to the devastating category 4 Cyclone Sidr that struck Bangladesh. We want to update you on World Vision's relief response to the survivors and to ask you to continue to pray for cyclone and flooding survivors and relief workers providing urgent assistance.

World Vision continues to rush emergency aid into Bangladesh following one of the worst cyclones in a decade, which left over 3,000 dead and millions in desperate need of food, water, and shelter.

Seven of World Vision's projects were hit, three of them severely, and we are now sheltering over 20,000 people who lost their homes. Please know if a sponsored child is directly affected by a disaster, that it is our policy to notify sponsors as soon as possible.

Supporting 20,000 people isn't cheap, even in a third-world nation. We donated money tonight and we'll probably send more next month. Have you donated? Even $10 or $20 will go a long way towards helping those devastated by the cyclone. It will take you less than 5 minutes to donate.

As a Christian, what better way is there to reflect the love of God? You could fly over there and share the Gospel directly. But Gospel presentations without material help are worse than useless. Saudi Arabia is donating more than $100 million. Does the world's largest "Christian" nation want to be missing in action? When Bangladesh's Muslims remember who helped them after a disaster, what will they remember about the world's Christians?

Frugal Christian is a term that should never apply to charity. It's not up to our government and it's not up our church boards. Joyful loving giving is up to us.

This entry was tagged. Charity Fiscal Policy

A Borrowers Responsibility

Two months ago, I wrote about the sub-prime mortgage "crisis". Specifically, I wrote about Mrs. Audrey Sweet and her troubles repaying a loan from Countrywide. Two days ago, Mrs. Sweet stopped by our humble blog to plead her case.

Countrywide forged my loan documents, they lied about the tax amount and my income to get the loan approved then gave me a different set to sign, they broke the law. That is why I was invited to testify before congress regarding my situation. The proof of what they did is in black and white. Because of my interest rate I had already paid back 27% of the amount I was loaned in a mere 30 months.

Mrs. Sweet, I looked up your Senate testimony. It was very enlightening. Let me begin by saying that Countrywide is not a bank I would ever want to do business with. Like you, I find them completely untrustworthy. Like you, I find their lack of accountability and their lack of accessibility to be completely appalling. Unlike you, I'm not sure that I find their conduct illegal, although certainly distasteful.

This is what I learned about your home buying experience.

  1. You knew you couldn't afford a large monthly payment
  2. You knew you had been turned down by multiple lenders in the past
  3. You desparately wanted your piece of the "American Dream".
  4. You were shocked at the total amount of the monthly mortgage payment
  5. You took the verbal assurance of a loan officer that your high interest rate could be renegotiated, but didn't ensure that that promise was in writing with specific terms.
  6. You failed to notice that your loan agreement specified that the interest rate "can only go up never down!".
  7. You testified that "In the excitement of the moment, I did not focus" on the amount of your total monthly payments.
  8. You continually fell behind on the mortgage and seriously neglected your property taxes. You left it up to Countrywide to step up and pay the back taxes out of their own funds.
  9. You admit to signing loan papers that were different from the loan papers that you were given 10 days before closing.

Mrs. Sweet, from what I can see you did not pay enough attention to what was going, what you were signing, or what you could ultimately afford. It was your responsibility to reread the loan papers before signing them. It was your responsibiliy to total up the monthly mortgage and tax payments and realize that it was more than you could afford. Ultimately, it was your responsibility to look out for your own investment rather than assuming that the mortgage company would place your interests above their own.

Growing up, my dad taught me to always assume that I was the only one looking out for myself. When I bought my own house a year ago, I approached both the lender and the real estate agent with that lesson in mind. I knew that they had their own agendas, just as I had my own agenda. I triple-checked every piece of paper I signed and didn't sign the loan documents until I had a clear understanding of exactly what I was committing myself to. I did my own research on the type of loan I was taking out. I did my own research on current interest rates. I asked other people about whether or not the loan made sense. I thought that was the only prudent thing to do.

Countrywide is not responsible for your misjudgments and inattentiveness. They are only responsible for their own sleazy behavior. That sleazy behavior wouldn't have mattered if you had taken more time to research the loan and double check your responsibilities. I'm sorry you had to learn these lessons the hard way, but I sincerely hope that this is the last time you have to go through an experience like this.

A War Tax

Wisconsin Congressman David Obey wants to pass a war tax. I realize it's more of a political stunt, but I discovered that I'm not entirely opposed to the idea.

Noting that "we need to stop pretending that this war doesn't cost anything," Obey also announced that Murtha, McGovern and he will be introducing a bill to create a war surtax to pay for operations in Iraq instead of passing those costs on to future generations as the President has requested.

"I'm tired of seeing that only military families are asked to sacrifice in this war; and they are asked to sacrifice again, and again, and again, so we are putting together this bill in the hope that people will stop ignoring what this war is costing American taxpayers and call the President's bluff on fiscal responsibility," Obey said. "The President is threatening to veto our efforts to provide one-tenth the amount of money that he is spending in Iraq for investments in education, health, medical research, science, law enforcement, and other areas that are crucial to creating a stronger country and more prosperous families. If the President is really serious about combating deficit spending then we'd be happy to help him avoid shoving the costs of the war in Iraq on to our kids by providing for a war surtax."

I want the bill to guarantee that the tax would be gradually phased out as the war is phased out, but I do support paying for the war instead of continually increasing the deficit.

No Budget? Shut 'Er Down

Governor Jim Doyle is once again threatening to shut down the Wisconsin government. He's so desperate to pass a budget, he's trying to scare us with stories of shut down prisons and canceled university classes.

"In order to fund essential services that are needed to protect the health and safety of Wisconsin residents, a partial shutdown may well be necessary. The Legislature's failure has left the state with no other option but to plan for the disaster they have caused."

For instance, the Department of Corrections and the UW System are expected to run out of money in April, he said.

Doyle said he needs to find significant cost savings in Corrections by then to keep running the prisons. That might mean canceling contracts with county jails that house some prisoners and furloughing workers, he said.

For the System's 13 four-year universities and 13 two-year colleges, the governor said it would be irresponsible to open the campuses for the second semester in January if they would have to close their doors in April.

Doyle said he doesn't have a date to put the plans in place and he would like "to put that off as long as possible."

Owen Robinson points out that the State has plenty of money to keep things running.

The state of Wisconsin is currently operating under the previous budget. Because of the natural increase in tax revenues from a growing economy, Wisconsin's government will actually take in about a billion MORE dollars even without any tax increases. Also, the budget included COL and other built in increases. So if a budget is not passed, Wisconsin can and will spend more money than it did last year.

If Doyle chooses to shut down government services even though they are getting as much or more tax dollars than last year, then he can have at it. It would show his utter weakness as an executive to manage the state. A manager from Best Buy could keep the store open without a budget increase. I would think that the governor could do at least that.

Once again, our governor is looking increasingly inept, incompetent, and powerless. Good. That's exactly how I like the executive branch to look. We don't NEED to pass a budget in order to keep the state safe and secure. Therefore, I don't think we should pass a budget until we get the right one. Right?

A Horrible Consumption Tax

I've written before that I'm a fan of the FairTax -- it's a flat consumption tax would do a lot to boost tax compliance, boost U.S. exports, and reduce complexity. So, it was with some interest that I read a New York Times article on a new proposal for a consumption tax. It only took me a few seconds to be horrified by what I read.

By replacing federal income taxes with a steeply progressive consumption tax, the United States could erase the federal deficit, stimulate additional savings, pay for valuable public services and reduce overseas borrowing -- all without requiring difficult sacrifices from taxpayers.

First of all, the words "steeply progressive" send chills up and down my spine -- and not chills of excitement. But let's ignore that for a moment. How is it possible to simultaneously erase the deficit, provide brand new services, and eliminate borrowing -- all without requiring difficult sacrifices from taxpayers?

As far as I call, it's not possible.

Under such a tax, people would report not only their income but also their annual savings, as many already do under 401(k) plans and other retirement accounts. A family's annual consumption is simply the difference between its income and its annual savings. That amount, minus a standard deduction -- say, $30,000 for a family of four -- would be the family's taxable consumption. Rates would start low, like 10 percent. A family that earned $50,000 and saved $5,000 would thus have taxable consumption of $15,000. It would pay only $1,500 in tax. Under the current system of federal income taxes, this family would pay about $3,000 a year.

That's great for low-income families. What about high income families?

Consider a family that spends $10 million a year and is deciding whether to add a $2 million wing to its mansion. If the top marginal tax rate on consumption were 100 percent, the project would cost $4 million. The additional tax payment would reduce the federal deficit by $2 million. Alternatively, the family could scale back, building only a $1 million addition. Then it would pay $1 million in additional tax and could deposit $2 million in savings. The federal deficit would fall by $1 million, and the additional savings would stimulate investment, promoting growth. Either way, the nation would come out ahead with no real sacrifice required of the wealthy family, because when all build larger houses, the result is merely to redefine what constitutes acceptable housing. With a consumption tax in place, most neighbors would also scale back the new wings on their mansions.

Uh-huh. That's a mind-blowing definition of "no real sacrifice". Give the rich an "inventive" to build smaller houses and they'll be better off because they won't have to compete with other rich people to build ever bigger houses. Wow.

Let's also look at the idea that expanding a house isn't investment. Expanding a house results in jobs for construction workers, foremen, and architects. It results in orders for more bricks, lumber, plaster, flooring, roofing, insulation, etc. Isn't that beneficial to the economy?

The alternative to spending money how they want is that people save more, whether in banks or investment accounts. That would make credit cheaper for all kinds of borrowers -- mortgage borrowers, automotive borrowers, education borrowers, home improvement borrowers, and businesses of all kinds.

What are people going to do with these cheap new loans? Buy things, I suppose. In the end, isn't consumption just another form of investment?

Let me clear: I think this particular consumption tax is a horrid idea. Wealth isn't the measure of how much money someone has in their bank account, it's the measure of much useful things they have. What good does $20,000 in the bank do me, if I can't use it to buy a bigger house, a bigger car, a better education, or a holiday in the Wisconsin Dells? It seems that this tax would encourage me to save, then penalize me for enjoying my savings.

Sounds like social engineering dressed up as tax policy -- exactly what I dislike about current state of income taxes.

I vote "No".

I think you're missing the point, Guys (The IMF)

A new article posted on the website of my favorite news magazine, The Economist, wonders whether the International Monetary Fund's new managing director, Mr. Strauss-Kahn, can save the organization from its slide into irrelevancy.

"The organisation’s legitimacy is under increasing attack. Fast-growing emerging economies feel under-represented in an institution where Europe and America still hold sway. Even more worrying, there is a big question-mark over the Fund’s relevance. Its role in rich countries has long been modest. But ten years ago it was at the centre of emerging-market financial crises, acting as the world’s financial fireman. Now that many emerging economies have built up vast stashes of foreign-exchange reserves that role is dramatically diminished. And since the Fund’s income depends on its lending, growing financial irrelevance has also spawned a budget crunch."

What the magazine never bothers to do, however, is ask the more obvious question: If we are coming to live in a world in which there are no fires for the fireman to put out, is it actually a bad thing that the fireman's becoming irrelevant?

It's a little surprising that a news magazine willing to make the brave yet sensical suggestion that Belgium really needs to just go ahead and split into two separate countries lacks the proper perspective on such an issue as this. The main points of the article, to a sane reader, all combine to form a cause for celebration, not a call to action. The IMF was established as a lender to countries in need of money. Fewer countries now need money. The IMF is shrinking as a result. Good.

A better question than "How will the IMF save itself?" would be: should the day come when the IMF is simply not needed, will its administration have the character to kill itself?

Such a day is unfortunately far into the future, but it's a question The Economist, Mr. Strauss-Kahn, and others of their ilk probably should start rolling around their heads now. It would give them a better sense of place, and remind them that organizations are not values in and of themselves.

SCHIP: Now for the Rich

State Children's Health Insurance Program. It's a program created by Congress to provide health insurance for children whose parents are too poor for private insurance, but too rich for Medicaid. It's set to expire at the end of this month and Congress is fighting with President Bush over the terms of its renewal.

The House wants to double funding from $5 billion a year to $10 billion a year and cover about 3.4 million more children. The President wants to increase funding by only 20%, to $6 billion a year, and only cover children whose parents earn less than $34,340 -- twice the poverty line.

Bloomberg reported a heartwarming story from New Jersey about a family that uses SCHIP to pay for private school and basic cable.

If SCHIP weren't available, Carlie's parents could cover only the teenager through a $230-a-month policy with Horizon Blue Cross Blue Shield of New Jersey, according to the Web site ehealthinsurance.com.

What are the Siravo's spending their money on instead?

There's also $352 a month on a home-equity loan the Siravos took out to send Carlie to a private Catholic high school. Tuition is $9,000 a year.

The family's monthly bills consume most of their take-home income. Pulling out her checkbook, Lori said there's the mortgage ($1,500), utilities ($743), phones and Internet service ($200), car insurance and gasoline ($205), property taxes ($230), basic cable television ($48), food ($600) and credit- card payments ($325) on an outstanding $11,000 balance. That's $46,212 a year, not including clothes, school books and extra- curricular activities for Carlie.

New Jersery better be expensive. Between Vonage, DSL, and a two-line family plan, we only pay a little over $100 for phones and Internet service. We also don't spend anywhere near $600 a month for groceries. I'll grant that our daughter is only 7 months and Carlie is 16, but I'd be shocked if our grocery spending really quadruples over the next 15 years.

The Siravo's have every right to spend their money as they wish. But they don't have every right to take tax-payer subsidies for healthcare, then turn around and spend their savings on luxury goods. Private school, cable, and gourmet food? Give me a break.