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The Good and the Bad Of the Deficit Commission
By John Tamny
"If I am of the opinion that it is inexpedient to assign to the government the task of operating railroads, hotels, or mines, I am not an ‘enemy of the state' any more than I can be called an enemy of sulphuric acid because I am of the opinion that, useful though it may be for many purposes, it is not suitable either for drinking or for washing one's hands." - Ludwig von Mises, Liberalism, p. 18
The Obama deficit commission voted on its proposals last week, and while it could not achieve a 14-vote majority that Congress would have to vote on, progress was made. In particular, abolishment of various tax subsidies at least puts the notion of tax simplification over tax handouts on the table.
But first, the bad.
What's bad is that government revenues, or a lack thereof, are even being mentioned as a reason for our nosebleed budget deficits. Nothing could be further from the truth.
At least in modern times we've never had deficits thanks to insufficient revenue; rather we suffer deficits because our federal government is doing way too much. Fixing the deficit doesn't require more revenues; instead it calls for the federal government to operate within its strictly set constitutional limits.
Specifically, the 10th Amendment makes plain that any powers not enumerated to the federal government within the Constitution do not exist, and as such, automatically revert to the states and to the people. In that case, everything from the Department of Energy, to Fannie Mae and Freddie Mac, to Social Security and other entitlement programs fail basic constitutional tests, and should be privatized or abolished.
The natural response from commentators who should know better is that the Constitution's "General Welfare" clause allows for extra-constitutional activity that might include Social Security benefits, universal healthcare, and anything else that might improve our wellbeing. The problem there is that the latter assumptions are a complete perversion of the aforementioned clause.
More realistically, the General Welfare clause was written to limit government; as in Washington would have to consider our general welfare before pursuing goals that fell within powers specifically enumerated to the federal government. That being the case, it's hard to imagine that the creation of a federal Ponzi scheme in the form of Social Security would accrue to our general wellness, not to mention that a federal retirement program is nowhere mentioned in the Constitution.
Considering taxes more generally, the very good in the deficit commission's plan is that it seeks abolishment of tax subsidies such as the mortgage interest deduction, child tax credits, and health insurance deductions. That housing is subsidized through the tax code is a particular negative, because rather than an economic input, housing is merely a cost.
Government tax supports of housing mean that on the margin, individuals have incentives to consume capital on property, rather than save the latter on the way to supplying it to entrepreneurs. If this is doubted, readers need only ask themselves how government supported investment in the housing space will cure cancer or heart disease, or whether a kitchen remodel paid for by a second mortgage will fund tomorrow's Microsoft.
Better yet, the abolishment of these tax subsidies will, if the deficit commission has its way, lead to lower overall federal tax rates. So while some Americans will get less of a tax break for doing what Washington deems politically correct, they'll enjoy reduced tax penalties on their actual work output. There's no economic growth without production first, and lower overall tax rates will encourage production.
More broadly, we have a problem in this country right now of too many Americans not paying federal taxes at all. Tax deductions that make the latter possible shouldn't be abolished so that Washington can raise more revenues, but instead the tax code should be scrubbed of them so that everyone - rich, middle class and poor alike - clearly understands the cost of government.
The great Nigel Lawson, Margaret Thatcher's Chancellor of the Exchequer, once quipped that if we want the government out of our pockets, we should remove our hands from the government's pockets. At least the recommendations acknowledge that too many Americans have their hands in the pockets of Washington, and more truthfully, in the hands of their fellow citizens who don't behave in ways pleasing to the tax man.
And while the lower tax rates advocated are a good thing, it's a shame that the commission leaves the cost of achieving wealth at a higher tax rate. In a rational world tax rates would fall for the most economically productive (Steve Jobs, Bill Gates and Jeff Bezos make our lives better, not worse), but absent that, the rate reductions are better than nothing.
Back to deficits, much as private businesses struggle when they expand beyond their core competencies, we presently suffer a bloated federal government that is failing at most everything thanks to it trying to do everything; a great deal of it what the Constitution explicitly says it cannot. In that sense the deficit commission fails us for mistaking a revenue problem for one of Washington hubris. Deficits aren't now, and won't be a problem in the future if our government operates within constitutional limits.
So while the commission's recommendations aren't perfect, they do at least implicitly acknowledge a problem of too few people floating the federal boat for too many others. The answer here is to follow the Bowles-Simpson proposals on tax rates and tax subsidies, while ignoring the call for more federal revenues that history shows won't fix the deficit anyway.
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John Tamny is editor of RealClearMarkets and Forbes Opinions, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.
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"In a rational world tax rates would fall for the most economically productive"
Oh yea, like WS and their 15% tax on carried interest and capital gains from flipping paper! There's real production for ya!
What does this guy have against the middle class taking a few tax breaks? Less money to siphon to the top?
Oh, and here's a little present for those who love that people like Steinbrenner who died this year paid no estate tax. The "step-up" in basis is an IRS reg, not law. It only applies if there is an estate tax. So for all of you who had a relative die this year with an estate below $3 million, you just got ass fucked. Under prior law, the estate's basis would have been "stepped up" on all assets, thereby avoiding capital gains taxes. And under the prior exemption of $3 million, you would have paid not estate tax. What the Repubs did and Congress through inaction allowed, was to tax lower and middle class heirs (i.e., estates under $3 million) a captial gains tax that otherwise would not have been assessed.
But for those of you who think that when Congress cut estate taxes on the "rich" that meant you, you may now go back to listening to the millionaires Hannity, Beck and O'Reilly give you tax advice over at Fox.
"More broadly, we have a problem in this country right now of too many Americans not paying federal taxes at all."
Somehow I don't think you are referring to the 28% of corporations who paid no taxes at all last year, even though the Supreme Court does consider them American "people". As one of those small businessmen you hear so much about, I pay almost 15% on my first dollar of gross income, regardless of my costs. That's the payroll tax and last time I checked it supported general government services. So let's stop with the lie that half of all Americans don't pay federal taxes. Or that half of Americans don't pay for the cost of their government. When you add up a 9% sales tax on the 50% of my income that I spend on taxable goods and services, the 15% payroll taxes for which there are no deductions at all, I am paying a minimum of about 20% of gross and, in some lean years, over 50% of net income in taxes. In good years, when I've made over $200k, I've paid less than 40% of gross income in taxes. So when it comes to tax rates, I'm not buying what the 15% bracket hedge fund managers are selling.
There is no good. It's a fascist commission, with no answers.
It doesn't solve any problem, it just cuts to alleviate the symptoms of a much larger problem.
Monetarism, and hyperinflating federal reserve balance sheet is destroying EVERYONE'S blance sheet.
This is a fascist, anti-american, unhuman commission. Why? Because it's totally unnecessary. If you're worried about debt, cancel the fraudulent debt that's in the MANY TRILLIONS.
Worried about hyperinflation, well stop printing for bad bank loans/bonds/etc.
It's not hard. No way can the federal gov't balance its budget under these circumstances, to try is not only foolhardy, it's also killing REAL people, and making REAL PEOPLE SUFFER.
Then the kicker is this. Why do we need a debt commission, when we have Glass-Steagall to wipe out fraudulent debts? Beuller? Beuller? Beuller? Beuller? Beuller?
Plus we all know that whatever the debt commission makes people suffer for, is that much more than can AND WILL be given away in bailouts for more fraudulent debt.
How about we realize the bizarro world we truly live in. Instead of trying to myopically, and retardedly finding the good about the deficit commission, we just stick to the facts. It's unneeded, it's unethical, and it's a power grab. Why make people suffer for no reason? I don't know, I guess because you stupidly believe that you reside inside the exact box the monetarists put you in and describe to you. No. You don't. This is commission and all others like it are a farce. A royal farce.
Let them eat cake. That's what this is about. Here's this author telling you to eat cake, when there is no flour. What a fucktard.
Wow, no social security? What a fucktard.
Look at all these cuts in gov't, as if THEY were the problem. They aren't, fucktard. But you're too stupid to see it.
Brought to you by your friendly neigborhood fascist.
Wow this guy actually said, with a straight face, the following...I'm going to quote it, because all you need to do is see the quote.
"it's hard to imagine that the creation of a federal Ponzi scheme in the form of Social Security would accrue to our general wellness,"
It's hard to imagine....social security would accrue to our general welness' should be welfare. Oh yes, he did just say that social security doesn't help. What a retard.
Are you really that unamerican? Or do you still believe in reganomics as the true religion? It's just keynesian infidels you do not like.
Yes let's lift all the tax credits to people who make under 250k a year, and specifically the lowest tax brackets.
A more realistic 'general welfare' clause? You're a fucking retard. Who has had too many Reaganomics professor's lament out loud about the pesky little clause. So much so, that NOW, you say, naw..it wasn't supposed to mean THAT..it was meant like THIS FASCIST WAY, this monetarist way...where it's MORE REALISTIC, and less giving.
You sir, a complete tool, unaware of the propaganda you speak because you've been indocrinated by it, on all levels, down to your bone. You can't see what is right in front of your face, because you mind has been twisted.
General welfare, means exactly that, general welfare. Only fascist fucktards like you try to change the definition in order to cut expenditures, illegally, and immorally.
NOthing could be further that our reveneus are low? Idiot. Yes you are.
Let's see, rather than have higher wages, manufacturing shit, instead we have a service economy, where wages have dipped for the last 15-25 years for most people. That doesn't impact revenues.
Of course, bush tax cuts, and now their extension doesn't impact revenues either.
Especially when they are oh so high at 36 percent compared to 90+ percent in past times. Oh yeah, so we've literally cut off our revenue arm over the past 40 years, and this dumbass says it's not a revenue problem.
Of course it's a revenue problem. It's just not limited to revenue.
It's also a spending problem. But not on 'entitlements'. On bailouts, On insurance giveaways, on bogus wars and defense spending, on fucking piece of shit needless body scanners in Airports.
You see, if you just didn't let deregulation and republicans, and reagaomics to run roughshot around all these things, revolving around your still prevelant bullshit failed ideologies, we might not be in this mess.
But we are. So how do we get out? Tax the middle class while cutting entitlements? NO
Glass-Steagall
NAWAPA
Nuclear power
Fusion/Fusion Arc
Space program
Those are how to get out. There is none of this in the commission. There are NO good or even feasible ideas from this commission or any other like it now or in the future.
This guy is selling destruction, death, and all of it is needless.
You have got to stop thinking like a monetarist. That's the #1 lesson of the constitution.
For all that say they love the constitution, they forget the most basic reason for it's existance. MONETARISM. We are facing EXACTLY what this country was founded to protect us from. We're so blinded, we have revisionists like the above, trying to change 'general welfare', rather than throwing the monetarists out on their butts.
Why change 'general welfare' when you just need Glass-Steagall.
Man people are idiots. The guy above, talks about the constitution, but I GUARANTEE HE DOESN'T KNOW IT. Maybe the words, but definitely not the SPIRIT. Because if he had, he'd know EXACTLY HOW TERRIFINGLY WRONG HE IS. He's a fascist, who THINKS he's a patriot. Nope, you're an unamerican fascist, who doesn't know his heritage and birthright, so he prostitutes himself out to the monetarists. Good luck with that. Keeping believing the bs, the pure sophistry of your arguments surely don't portend to the lack of validity in them.
Whenever you see a guy like this, point at them, laugh, and call them out for what they are, FASCISTS.
Cliff Notes?
There are no rational expectations that criminals have the desire let alone the ability to provide goods and services, when they can instead pretend to do so and pocket the difference.
Well, that's what it should say, once the irrationality is removed from above by executing the algorithm Government = Organized Crime.
An interesting twist. He's advocating abolishing the mortgage interest expense deduction claiming that it diverts fund from entrepenurial investment? "Government tax supports of housing mean that on the margin, individuals have incentives to consume capital on property, rather than save the latter on the way to supplying it to entrepreneurs. If this is doubted, readers need only ask themselves how government supported investment in the housing space will cure cancer or heart disease, or whether a kitchen remodel paid for by a second mortgage will fund tomorrow's Microsoft."
How many middle class families, denied of the tax break would, while living in their crummy apartments, save up money and invest it in Microsoft? Not many; but then again......how much money is spent by homeowners at Lowes and Home Depot each year? A series of huge boatloads! Which is why people have jobs at Lowes and Home Depot. So we do away with the incentive for people to buy mortgages on semi-permanent housing which means no new homes need be built, unemploying home construction crews across the land and watch as Home Depot's and Lowes stores close up across the land, forcing more thousands into the unemployment line. And of course, few would be interested in buying existing housing stock, so housing prices would then be further depressed, depressing property values and the tax revenues therefrom, forcing Municipalities and County gov't's to lay off more workers.
Great idea; kinda like Russian roulette with only one chamber empty.
Obama to Deficit Commission: Drop Dead!
Any post that opens with Mises rocks!! (Party on, Garth.)
Tu Ne Cede Malis!
Another rich, greedy, right wingnut asshole who works for that idiot Steve Forbes, another charter member of the lucky sperm club. What bullshit! They are just afraid to pay another 3.9%, I mean it will bankrupt them!
I am sorry youre from the poor & dumb sperm club, and that you can't succed in life unless every1 else lowers themselves to your level
a Tourette de force!
And these rich, greedy, right wingnut assholes owe you this money? And will 3.9% be enough for you? The Bush tax cuts made the tax rates more progressive than they were before. Just how progressive do you greedy left wing assholes want them to be?
You could set the top rate at 100% and still not cover the deficit. You will never tax enough to satisfy left wing craving for yet bigger government.
December 7th would have been a good day for our Commander-in-Chief to give the following speech to you and other Americans who whine about a 4.6% rise in the marginal rate:
"My fellow Americans, the smart people I rely upon for economic advice tell me that it is not wise to raise taxes at a time of economic uncertainty. Well, I appreciate their advice, but it doesn't square with our recent experience and I don't think that sentiment is the best that we can do. Let me explain.
In 1945, American's returned victorious from the world's largest and most devastating war. Fear spread that the returning soldiers would come home to the high unemployment the nation suffered throughout the prior decade. If ever there was a time to cut taxes even if it meant passing a massive deficit to the next generation, that was the time. After all, didn't the Greatest Generation just save the world from tyranny? Didn't they just leave the next generation an opportunity to prosper? Wouldn't it have been entirely moral for our fathers and mothers to have cut their tax burden for a well-deserved break?
Of course it would have. But they didn't. For our fathers and mothers who had just sacrificed so much to defeat forces of tyranny, never even considered passing on the nation's war debt to the next generation. Instead, under Democrat and Republican administrations alike, they raised the marginal tax rate to 91%. Yes, you heard that correctly: 91%. And, by the way, that was the marginal tax rate under a Republican, President Eisenhower. Oh, and they also sent men to the moon, built a national highway system, and lent millions of dollars --- a lot of money in those days --- to rebuild Europe and help create stable democratic socities there that survive to this day.
Today, we find ourselves, as we did 70 years ago, fighting on two fronts. As in WWII, we have been paying for this war with debt, not taxes. But unlike WWII, we have not asked for any sacrifice from Americans other than the ultimate sacrifice we have demanded of our volunteer miltary. These are the circumstances we find ourselves in at the end of 2010, the time that a Republican President and a Republican Congress elected to raise taxes.
The simple question before us is whether we should let those tax cuts expire, as the law requires, or pass a new law to extend some or all of them for some additional period of time. If we let the cuts expire, tax rates will return to the rates in effect under President Clinton. The highest rate will be 39.6% instead of 35%, and the capital gains rate will be 28% instead of 20%.
Let's review a little history. As I said, the top rate under Eisenhower was 91%. Under Kennedy it was 50%. Under Reagan is was 50% in his first term, 28% in his second. Under Clinton it went up to 35%, then 39.6% to balance the budget, which occurred in his last year in office. The Bush tax cuts lowered the rate again to 35%. So the issue that is causing so much consternation and debate is this: shoud the wealthiest among us --- the top 2% of our country's citizens --- pay an extra 4.6% of their income to help pay for the last eight years of war and the costs of digging ourselves out of the largest economic crisis since the Great Depression?
I've made my position clear. During my campaign and since my election, I have repeatedly called on Americans to help me change the way things work in Washington. I am asking for your help again tonight. Powerful, self-interested Americans are trying to claim that paying an extra 4.6% of their income will have terrible economic consequences. Many of these people have the good fortune of spreading this message through their own radio programs. People such as Rush Limbaugh, Glenn Beck, Sarah Palin --- they are all millionaires who stand to gain hundreds of thousands of dollars each if they can convince the other 98% of Americans --- most of the people listening to me at this moment --- to extend to them just about the lowest marginal tax rates in our history. Nowhere do I hear any of them explain why they can't pay 39.% when almost every wealthy person in the last 70 years paid much more than that and both they and the nation prospered.
If any of these millionaires want to explain to me why they are so special that they should only need to pay less than half of the marginal rate that people with their wealth paid in the 1950's to retire our war debts, I'm all ears. But I suspect they cannot. And, more importantly, they were not elected to lead this country. I was, and I take that responsibility very seriously.
So I say to my economic advisors, to the Wall Street Journal, to Fox News and to every other member of our generation demanding a tax cut: grow up. We're adults and we need to pay for our wars and our mistakes. The future of this country is in the next generation, and I will not burden it with the mistakes of our generation. Not on my watch. I will veto any bill that extends the Bush tax cuts for the top 2% of the country."
Sadly, I heard no such speech today. Even worse, I heard a man who believed he was being held hostage complain that he had to pay a necessary ransome. Not only did President Obama miss the opportunity to lead, he did it in such a cowardly way.
the only good debt is none at all.
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The BS Commission!
You ever notice that tax breaks for the middle class always entail huge amounts of paperwork and endless qualifications rendering them nearly useless? The Medical Savings Account is my favorite. It is almost impossible to get your money back from outfits like Connexis once they have it.
It's like deregulating utilities - you still have to pay half your bill to the transmission/delivery company, and usually there is little/no competition for the supplier.
tax breaks are a fallacy except for those outside the system. the govt takes all it can get away with.
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