Taxes, Taxes, and More Taxes: November 2009 Archives

Pelosi Needs New Material

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I have to agree with Eric the Viking on this one: Who's writing Nancy Pelosi's material these days?

"The American people have an anger about the growth of the deficit because they're not getting anything for it. ... If somebody has the idea that the percentage of GDP of what our national debt is will go up a bit, but they will now -- and their neighbors and their children -- will have jobs, I think they could absorb that, and then we ride it out and bring money in," she said.

She's kidding, right? (Unfortunately, she's not.)

This statement and the others in Eric's post and link shows me three things about our Speaker of the House:

a) She really has little understanding of economics.

b) She really has no idea what motivates average Americans, particularly when it comes to matters economic.

c) She really doesn't care because she knows better than everyone else in the nation, including the very folks she claims she wants to 'help'.

The angry American taxpayers don't want Congress to spend even more money we don't have on more stimulus, health care reform that will reform nothing, or any other dubious and expensive government programs.

Sucking over $1.4 trillion out of the economy (the present budget deficit figure) is not helping the economy in any way, shape, or form. Pulling even more out of the economy with higher deficits and higher taxes in a second effort to 'stimulate' the economy will only make the recession worse. This is something Pelosi, as well as Reid and Obama, do not understand. I find that difficult to believe considering there's plenty of history to show previous attempts to do just that have failed miserably and, in fact, made things worse.

History Repeats Itself

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Watching what's happening to our economy today it's easy to forget that this isn't the first time we've been through this, with government trying to spend its way out of a recession. The effort back in the 1930's failed miserably, extending the Great Depression for years, as did the 'stimulus' of 1962, which prompted Ayn Rand to comment on the error on the part of government in thinking such spending would do anything but have negative effect, that our economic IQ was sadly deficient. From her column in the L.A Times back in 1962:

Since "economic growth" is today's great problem, and our present Administration is promising to "stimulate" it--to achieve general prosperity by ever wider government controls, while spending an unproduced wealth--I wonder how many people know the origin of the term laissez-faire?

France, in the seventeenth century, was an absolute monarchy. Her system has been described as "absolutism limited by chaos." The king held total power over everyone's life, work, and property--and only the corruption of government officials gave people an unofficial margin of freedom.

Louis XIV was an archetypical despot: a pretentious mediocrity with grandiose ambitions. His reign is regarded as one of the brilliant periods of French history: he provided the country with a "national goal," in the form of long and successful wars; he established France as the leading power and the cultural center of Europe. But "national goals" cost money. The fiscal policies of his government led to a chronic state of crisis, solved by the immemorial expedient of draining the country through ever-increasing taxation.

Colbert, chief adviser of Louis XIV, was one of the early modern statists. He believed that government regulations can create national prosperity and that higher tax revenues can be obtained only from the country's "economic growth"; so he devoted himself to seeking "a general increase in wealth by the encouragement of industry." The encouragement consisted of imposing countless government controls and minute regulations that choked business activity; the result was dismal failure.

Colbert was not an enemy of business; no more than is our present Administration. Colbert was eager to help fatten the sacrificial victims--and on one historic occasion, he asked a group of manufacturers what he could do for industry. A manufacturer named Legendre answered: "Laissez-nous faire!" ("Let us alone!")

Apparently, the French businessmen of the seventeenth century had more courage than their American counterparts of the twentieth, and a better understanding of economics. They knew that government "help" to business is just as disastrous as government persecution, and that the only way a government can be of service to national prosperity is by keeping its hands off.

Regardless of the purpose for which one intends to use it, wealth must first be produced. As far as economics is concerned, there is no difference between the motives of Colbert and of President Johnson. Both wanted to achieve national prosperity. Whether the wealth extorted by taxation is drained for the unearned benefit of Louis XIV or for the unearned benefit of the "underprivileged" makes no difference to the economic productivity of a nation. Whether one is chained for a "noble" purpose or an ignoble one, for the benefit of the poor or the rich, for the sake of somebody's "need" or somebody's "greed"--when one is chained, one cannot produce.

There is no difference in the ultimate fate of all chained economies, regardless of any alleged justifications for the chains.

It seems that we still haven't learned that lesson four decades or four centuries later. As the late Ronald Reagan said more than once, "Government isn't the answer. Government is the problem." It was true back during Louis XIV's reign and it's true today. Our government is bent on controlling more businesses, either through direct take over like GM, Chrysler, the banks, and health care, or through onerous regulation and taxation, all in the name of 'stimulus' and 'fairness'.

Apparently our leaders have learned nothing from past attempts to tighten control over economies and businesses that their attempts won't work, won't create the results they want, and won't lead to anything but more poverty, less business, and a weaker economy than if they'd just left everything alone. But government is incapable of not fiddling about with things they really don't understand. And that's our biggest problem today.
As John Stossel writes, it's not the taxes that are the problem, it's the spending.

Last week on "The O'Reilly Factor", we talked about California's and New York's enormous budget deficits and planned tax increases. Those states would have big surpluses had they just grown their governments in pace with inflation. But of course they didn't. Now the politicians act like their current deficits are something imposed on them by the recession.

But that's nonsense. They created the problem with their reckless spending.

--snip--

O'Reilly told me that America is ready for a tax revolt. I hope he's right. But I don't think it will happen until more people see the ruling elite for what it is: a gang of arrogant bullies that has the audacity to believe that they know how to direct our lives better than we do.

That's why, bad as the taxes are, I'm more upset about ObamaCare, Medicare, the "stimulus," the auto bailout, the bank bailouts, the Fannie/Freddie bailouts, the trillions in guarantees, and on and on.

The need for all those extra taxes would be reduced if government at state and federal level could get their spending under control. For the most part that's not going to happen because far too many of those in power like to "bring home the bacon" regardless of the actual costs to their constituents. Only those states forced to address their spending issues, like California, New York, New Jersey, and Michigan, to name a few, will actually have the opportunity to trim spending by billions of dollars. They won't have a choice because if they don't cut spending higher taxes won't fill the empty coffers and the states will face bankruptcy. They simply don't have the money to pay for all those really 'neat things' everyone thought they could afford during the good times. But the good times are gone and with them, the revenues the states had gotten used to having.

To paraphrase James Carville, "It's the spending, stupid!"
It appears the budget deficit is going to be bigger than either the White House or the Congressional Budget Office had predicted.

That's not surprising considering federal revenues were 18% below projections. At least it didn't surprise me considering Congress and the White House ignored the Law of Diminishing Returns: Once you raise taxes and fees above a certain point the amount of revenue you collect will fall. It's a perfect example of the Laffer Curve in action.

On the other hand government spending hasn't dropped off nearly enough (only about 3%) to make up for the revenue shortfall. I have no doubt Congress will act to correct the problem...by raising more taxes and fees. This will have the effect of causing an even greater falloff in revenue. Congress shouldn't be raising taxes during a deep recession. They also shouldn't be spending money we don't have, either. But I don't expect Congress or the White House to do the necessary things to stem this flood of red ink.

Here in New Hampshire the state is seeing a similar falloff in revenues, being short about $38 million so far. A number of people within the New Hampshire legislature warned that revenue projections were unrealistic, particularly in light of the hefty increase in taxes and fees. This is the second budget cycle where the Democrat dominated legislature overestimated revenues and used those projected revenue figures to increase state spending by amounts that far exceeded the inflation rate. Over four years state spending has increased by 30%, but revenues haven't come anywhere near to covering the larger expenditures.

The state ended it's last budget cycle (New Hampshire has a two-year budget) over $100 million in the red. The legislature still has that budget gap to fill and has been trying to do so by raiding $110 million in surplus insurance premiums being held by the state chartered Joint Underwriting Association, a private organization created by the state to ensure doctors, medical practices, hospitals, and other medical facilities and personnel could get malpractice insurance. So far the state has failed in its attempts to confiscate those funds. A Belknap County judge ruled in a suit filed by the JUA that the state had no rights to those funds because the law that set up the Association states surplus funds must be returned to the policy holders, past and present. The judge also ruled the state had no other claims to the funds because the JUA is a private entity, particularly in light of the fact that no state funds or state personnel are used to administer the Association. The state disagreed and has taken the case to the New Hampshire Supreme Court.

You know it's getting bad when the state legislature figures it can raid private funds to plug a budget gap. I believe that's called theft. Of course the Democrats in the legislature see it as monies being withheld from them by greedy doctors when the state can make far better use of that money. Never mind that state law says otherwise. Never mind that the money isn't theirs to begin with.

It's going to be interesting (in the old Chinese curse definition) to see how the financial situation at the federal and state level will play out.

Update: A number of states are looking at growing revenue shortfalls, with some heading towards bankruptcy because of pension funding obligations and state union contracts that leave them with little wiggle room.

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