Category: Government

The FairTax is a bad idea.

Remaining from a September debate, I owe regular commenter Scott my analysis and opinion of a national sales tax. To be upfront, I began my search against the idea. Not because I wanted to hate it, although I do hate it. Yet, as I’ve thought about my 15-year support for a flat tax plan – and I acknowledge that it has its problems – I’ve considered some of the basics of a national sales/consumption tax. The economics and politics of a national sales tax fail miserably.

From Americans for Fair Taxation, I roamed through some of the finer points of what is now under consideration. I used this recent editorial to focus mostly on the ideas. For example:

What emerged from this research is that a national retail sales tax is a preferred method of taxation among most Americans surveyed.

A majority of Americans supported slavery at our nation’s beginning. Segregation was hunky-dory for most well into the 20th century. Even today, a majority of Americans believe that surgically altering the healthy genitals of their male children is reasonable. Of course income versus sales tax is not comparable to those sorts of oppression, but forgive me if I fail to be swayed by such arguments in favor of any position. Mob desire is irrelevant because good intentions do not guarantee good outcomes. The details matter.

Research on the price of consumer goods reveals that up to 20% of all prices today represent hidden income taxes and payroll taxes. Once these taxes are repealed and replaced with the FairTax, it is likely that market pressure would force retail prices to fall.

This is either ignorant or dishonest. The FairTax will not eliminate embedded taxes; it will merely change the source of which businesses collect taxes from individuals. Even something as simple as an apple will have embedded taxes.

The apple will require a seed to create an apple tree. That seed will have a sales tax. The tree will require fertilizer to make grow. That fertilizer will face a sales tax. The fertilizer will need to be transported from producer to apple grower. That fuel will face a sales tax. The distributor needs a truck to haul the fertilizer. That truck will face a sales tax. The truck will require gas to operate from A to B. That fuel will face a sales tax. And so on, all the way to my cupboard.

Now, imagine something more complicated, with multiple ingredient raw materials. Think that iPod that Americans love doesn’t consist of parts purchased from vendors with an “s” for plural who all require inputs to make their products? The disappearance of embedded taxes is a myth, unless we assume that someone who currently fails to absorb hidden costs will suddenly absorb non-hidden costs. I will not assume something quite that silly.

Which leads to this, perhaps the boldest claim:

The FairTax would collect revenue from the underground economy.

How, exactly, when basic logic suggests the FairTax would push more of the U.S. economy underground, not less? There would be evasion everywhere. Need to get your hair cut? Here’s $20 cash. Need your lawn mowed? Here’s $40 cash. Never doubt the human capacity to subvert rules. Simplicity is important, but reducing the burden of complying is much more effective. Absent that, reducing the ability to bypass the system is important. I don’t have to believe that taxes are good to push the idea that collecting as close to the assumed amount is wise. Otherwise, reality will be destroyed by the theoretical estimate and actual receipts. The rate would increase more the greater those two figures differ.

As the FairTax advocates own figures indicate, the sales tax is not 23 percent. That’s only the tax-inclusive rate offered because it looks better² than the tax-exclusive – the common metric – rate of 30%. Dividing 30¢ sales tax by the final price of $1 and 30¢ gives a 23% tax-inclusive rate. But in Virginia, if I go into the store and buy a bottle of water, I see the price of the water as 99¢ and the final price as $1.01 after the 2% sales tax is added. No one pretends that the rate is 1.98%.

In the end of the editorial, this:

Significantly, the FairTax eliminates all loopholes, gimmicks, exemptions and deductions from the federal tax system.

The “prebate” is certainly an exemption, and given the details, I’d call it a gimmick. The details:

Another benefit of the FairTax is that, unlike other sales taxes, it would not hit the poorest Americans the hardest. The FairTax proposal calls for sending every American a “prebate” check to offset the cost of the national sales taxes paid by those living in poverty. This feature would effectively exempt those living below the poverty line from paying taxes to the federal government, and provide all taxpayers with a reimbursement of a portion of taxes paid.

Who’s administering this “prebate”? How are differences in regional cost of living factored into the “prebate”? Are the differences factored in? According to the following document, “The Prebate Explained” (pdf):

Poverty level spending represents what it costs families of varying household size and composition to buy their necessities.

All consumers are alike. Every central planner believes that and the “prebate” requires the adoption of central planning. You need four chickens, two gallons of milk, one dozen eggs, and eight ounces of cheese. That’s normal. Except it’s not, because the government can’t know everyone. It can only assume and expect you to fit that mold. Some people will receive a larger “prebate” than they should and some will not receive enough. It’s inevitable.

And what about those people who spend their “prebate” on lottery tickets, for example? I’m not offering that as an expectation of what “the poor” will spend their “prebate” on or as a judgment on lottery tickets. I think people should be able to spend their money on whatever they want. But this plan specifically relies on government-managed handouts, in advance and tied to no actual spending, to make the plan plausible and not regressive. How do we prevent such wastefulness among citizens when it leads to further reliance on the government to pay for necessities? There will be people who waste their “prebate”, just as there are now millions of Americans who believe that their tax refund is found money rather than an interest-free repayment of excess taxes paid as many as 16 months prior. There will be a call to further assist these people through government resources. The loopholes, gimmicks, exemptions, and deductions aren’t going anywhere.

Neither is the intrusion of government into each person’s privacy. To get the “prebate”, Americans must do the following (according to the pdf above):

The registration form requires only the following information:

  1. The name of each family member who shares the residence;
  2. the Social Security number of each family member;
  3. the family member to whom the monthly prebate check should be paid;
  4. a sworn statement that all listed family members are lawful residents, that all family members sharing the common residence are listed, and that no listed family members are incarcerated;
  5. the address of the shared residence; and
  6. the signature of all family members 21 years of age and older.

Failure (unwillingness) to adhere to those instructions results in no “prebate”. And again, who will be managing this information and
distributing monthly checks to millions of households? Maybe the IRS goes away, but why should I believe its replacement will be any better? (Who validates that my claim of 6 children is correct? Fraud and waste, anyone?)

The effect of eliminating regressive payroll taxes is commonly overlooked when analyzing the FairTax, but it would have a very significant impact, as these taxes represent the single largest tax burden on these income earners.

I agree with fixing the burden of payroll taxes. It is inherently regressive. Making it “fair” would be a huge tax increase on higher earners, but it wouldn’t help our economy. So what to do?

Eliminating the tax is a great idea, but the FairTax only seeks to fund the underlying flawed entitlement through a sales tax without addressing the fundamental flaw in seeking to be revenue neutral to maintain ineffective programs. And since when has Congress been expenditure-neutral? Why should I believe it will suddenly find fiscal responsibility? Taxes are bad¹ and should be lowered as much and as soon as possible, but we need to cut expenditures first. Without that measure, we’re engaging in diversionary games³.

Finally, and most damning from a practical path, how do we transition from an income tax to a sales tax? The Y2K nonsense was overblown. Flipping the switch from Income Tax on December 31, 20xx to Sales Tax on January 1, 20xx would be a realized nightmare, but I’ve seen nothing other than that simplistic transition implied. That’s foolish.

I also used this chain of entries from Kip at A Stitch in Haste as research.

¹ We have a $9,124,016,501,555.91 national debt, as of today. That has to be repaid.

² For another example of this sleight-of-hand marketing, read this.

³ There is one final caveat looming large. We’d have to repeal the 16th Amendment.

Whither common sense?

The article I cite here is from the 19th. I wrote this entry last week, but left it to marinate in my brain because I wasn’t sure I said anything worth publishing. This needs to be fleshed out more, and I’m not sure I’ve convinced even myself. I’m posting it raw for future possibilities to build on the idea.

Megan McArdle asks a question:

Assume, for the nonce, that come January 2009, there will be a Democrat taking the oath of office. What will the blogosphere look like?

Compared to the netroots, right now, the rest of the political blogosphere is a demoralized and listless place. Libertarians are abandoning their mild preference in favor of Republicans, not for the Democrats, but for despair. On the conservative side, even ardent supporters of the president have tired of him. Everyone is out of plausible policy proposals. What is there to be in favor of? More tax cuts? An even more aggressive foreign policy?

Her answer is good and worth reading. Blogging is mostly a response, so it’ll morph into something new and interesting as the world changes. I think mostly is the key, though. What will blogging do to politics.

If nothing else, blogging has better shown how ridiculous political debates are, how unprincipled the arguments and, particularly, how despicable the players are as leaders. There is no audience that won’t be sold to a higher bidder. Only the most rabidly blind partisan doesn’t know that. (Admittedly, that’s a large-ish group, but the point is basic.)

What is there to be in favor of? This concerns me. I think we’re already seeing the future of this problem, represented by Mike Huckabee, Ron Paul, and Barack Obama. Not all of this is bad, probably, but the potential is dangerous.

Candidate Huckabee is a creation of the blogosphere. Without a swell from whatever corner his support crawled¹ out of, his candidacy wouldn’t be news. He’d still be a no-name governor from a bottom-ranked state who pedals too much Jesus and too much nanny-state socialism. In the end this will probably be his undoing, as the blogoshpere invokes some of the corrective potential inherent in the American readiness to knock down those it builds up. A little extra light shows him to be the calculating politician he clearly is. And there’s a large segment of the population that hasn’t seen his shtick up close yet. (The blogosphere giveth, the nation taketh away?)

Ron Paul is a more compelling example. He is selling a set of solutions, which too much of the blogosphere is buying without sufficient skepticism and investigation. Too many of his ideas are simply wrong (gold standard) or worse, morally indefensible (immigration). The blogosphere is not as good at delayed, thought-out responses as it is at offering immediate, emotional defensiveness. The latter builds short-term momentum.

Carried on for too long, this becomes a phenomenon. I don’t think we’re there yet in the blogosphere’s influence, but it could happen. Support for the candidate centers on what his supporters claim he represents, not what he offers. With Ron Paul, he is the libertarian candidate while holding very few libertarian positions. His appeal rests on a dream of what might result that is neither claimed nor implied by what he’s saying. Unintended consequences fall on non-sober, well-intentioned dreams as easily as they fall on sober pandering.

Barack Obama is the most compelling example of what might happen, although compelling does not necessarily mean good. He’s changing the rhetoric of our current political climate by focusing more on optimism and change. That’s a winning formula, as the blogosphere’s reaction seems to embrace his effectiveness at speech-making with little-to-no concern for the sense of what he’s actually saying. His policies are little different from any of the other Democratic candidates, yet he gets a free pass on dumb. The search for the appearance of leadership explains this, I fear.

What is there to be in favor of? Huckabee’s supporters look to his faith in Jesus. They do not worry that saving people from themselves and for Jesus isn’t the job coming open next November. Paul’s supporters look to his lack of faith in the federal government. They do not worrying that he’s not against the states violating the rights the federal government violates. Obama’s supporters look to his faith that government can help people if it has the right leaders willing to solve the problems. They do not worry about how much this will cost or that it be the most efficient solution as long as the leader makes the government appear to care more. None of these approaches is good for us.

I admit I’m cynical about politicians and what they promise. But I can still react to what they say with a fair analysis of each proposal. On solving the issues, every candidate is awful. Of course I’m biased in thinking that the government shouldn’t be involved, but supporters of the government intervention every candidate promotes² should explain why each solution is the best solution, with details that do not rely on moral platitudes involving the poor, the rich, public health, family values, or our children. How will each solution help individuals without doing so at the expense of another?

Instead, each part of the blogosphere is promoting an atmosphere of unquestioning built on receiving from the Dear Leader it chooses. As I mentioned, I think there’s a corrective built into the American psyche. But I’d be happier if we engaged pro-actively in solutions rather than reactive adaptations to flawed ideas after they’ve come into ugly, morphed reality.

¹ Maybe I shouldn’t use a term that implies evolution. Without a wave of His finger from the entirety of Heaven that God created Huckabee’s support in His universe, to enable the Huckabee/Christ ticket…

² Spare me the rhetoric about how Rep. Paul is not promoting government intervention.

The ability to vote does not qualify the voter as an entrepreneur.

Consider this another reason I neither live in the District of Columbia nor have my business registered there.

The District could become the second U.S. city to require employers to provide paid sick leave to all workers, a move advocates say could protect employees from having to choose between keeping themselves healthy and keeping their job. Opponents say such a law could prompt businesses to reduce benefits and lay off workers.

The D.C. Council is scheduled to vote on the measure Jan. 8 after several months of negotiations.

Under the bill, large businesses, defined as having 51 employees or more, would have to provide up to seven days of paid leave. Small businesses — those with 10 or fewer workers — would have to offer up to three days. Two other categories of employers would fall in between, and part-time workers would get half the number of days.

What makes the D.C. city council so confident that it knows better how to run the businesses in its borders than the owners of those businesses? More importantly, what makes it believe that it has the right to dictate its opinions on proper compensation packages?

Employers would pay an average of $10.35 more a week per employee to be in compliance, said Ed Lazere, executive director of the D.C. Fiscal Policy Institute, which studies the District’s finances. “It’s not nothing, but it’s not huge,” he said. “It’s not as big and scary as they think.”

Does the business owner think $10.35 more per week per employee, with no increase in productivity or revenue, is not huge? She bears the cost. Her opinion should matter exclusively, in anticipation and response to what her employees demand.

To put this in perspective, we must consider what that $10.35 means in practice, not in subjectively judged theory. Assume the minimum business required for full compliance, 51 employees. The cost is expressed as $10.35 because it appears insignificant. But the first thing the business owner will do is multiply $10.35 times 51 employees times 52 weeks. The result is a $27,448.20 increase in expenses for the employer. What could $27,448.20 buy instead? I’ll guess employee number 51 in my scenario, although the logic holds whether we’re talking about employee number 51 or employee number 63.

The first city to engage in this:

The D.C. measure falls short of a law on sick leave in San Francisco, which became a pioneer when 61 percent of voters approved a 2006 ballot initiative to require that employers of 10 or fewer workers provide five days of paid leave and that larger employers give nine days. The law went into effect in February.

How many of those 61 percent of voters malcontents run a business? Mob rule (allegedly) seeks to raise everyone up to a higher standard, but serves little purpose other than to bring everyone down to a base level. Aside from its illegitimacy, it is cruel. I doubt seriously that the employee who might’ve earned $27,448.20, or the customers who will now be asked to pay the expense, would prefer the sympathy over the money.

The clowns are piling into their car in preparation.

Who said this?

“If players believe they are wrongfully accused in the report,” [he] told the paper, “they are welcome to volunteer and we’ll take it under consideration. But as I understand it, all these players had a chance to cooperate [with Mitchell], and everyone declined to cooperate.

“So, to an extent, that’s what they get.”

That would be Congressman Tom Davis, who I believe was sworn to uphold the Constitution when he entered office. Allow me to unpack his assumption of what is acceptable:

  • Absence of a trial by jury.
  • Absence of a trial.
  • Absence of an indictment.
  • Absence of criminal charges.
  • Absence of Fifth Amendment rights.

I’m reminded today of all the reasons I despise being represented by a moronic, meddling malcontent.

“Your home” requires ownership or contractual permission.

Government bans on smoking in public [sic] private places are antithetical to liberty and basic property rights. I will not change my view against them, but I find it impossible to get worked up about this story out of Seattle.

… The King County Housing Authority is banning smoking in all units at Plaza 17, the 70-unit apartment complex where [Jackie] Brooks has lived for 14 years.
…

In addition to the Plaza 17 in Auburn, the authority banned smoking at its 70-unit Northridge 1 in Shoreline and its 82-unit Nia Apartments at Greenbridge project under construction in White Center. The ban starts next month.

Some residents are upset, some are happy. The article also talks about the “strong national movement” to ban smoking, as if such populist demands matter. And the only mention of rights completely ignores property rights, the primary factor involved and so readily violated. None of this surprises.

Still, as a libertarian, I can’t get upset about a smoking ban in public housing. Whether or not government should be providing housing, sure. But it does. That’s the playing field we’re on. So the rules the government sets for our its property is its decision. Don’t like the smoking ban? Buy your own property or rent from an owner who does not mind smoking on her premises. Get it in the lease.

The article doesn’t mention any specifics of the current rental agreement between the tenants and the housing authority. If such a prohibition is an illegal alteration of the existing contract, argue that. I’ll support such an argument against this ban. But this issue is about property rights. Always has been, always will be, even when it leads to an outcome we wouldn’t choose for our property.

Via Radley Balko.

What’s good for us is not good for them.

So many nuggets in this story.

The federal budget deficit would have been 69 percent higher than the $162.8 billion reported two months ago if the government had used the same accounting methods as private companies, the Bush administration reported Monday.
…

The report was released by the Treasury Department and the president’s Office of Management and Budget. Under the accrual method of accounting, expenses are recorded when they are incurred rather than when they are paid. That raises the costs for liabilities such as pensions and health insurance.

Imagine that. Look at the picture as a whole and it looks worse. Now, why would Congress reject such accuracy?

The new report indicates that funding for Social Security and Medicare will come up $45 trillion short in the next 75 years in paying for projected benefits over that time frame.

Oh, right. But what’s a mere $45,000,000,000,000 in the grand scope of caring about people through government?

As it has for every report, the Government Accountability Office, Congress’ auditing arm, said it could not sign off on the books because of problems at various agencies, most notably the Defense Department.

In a letter, GAO Comptroller General David M. Walker did note that his agency was able to sign off on the financial statement for the Social Security and Medicare programs.

“The federal government did not maintain effective internal control over financial reporting, including safeguarding assets, and compliance with significant laws and regulations,” Walker said in his letter.

If you or I did that in our record-keeping, the government would assume our guilt, take everything we own and throw us in jail.

**********
Then there’s this:

“The 2.6 trillion in record-breaking revenues that flowed into the Treasury this year reflect a healthy economy,” Treasury Secretary Henry Paulson said in a statement accompanying the new report.

It could just as easily reflect that Congress is taxing the American people heavily. Granted, I’d go along the lines of arguing that the $275,500,000,000 deficit reflects that the Congress and President are willing to spend beyond all rational bounds of fiscal responsibility. But that wouldn’t make anyone look favorable, so it must not be true. Right?

Use the word “torture” in the headline.

Speaking of “evolving standards of decency”, we’re not always moving in the correct direction:

The House approved legislation yesterday that would bar the CIA from using waterboarding and other harsh interrogation tactics, drawing an immediate veto threat from the White House and setting up another political showdown over what constitutes torture.

The measure, approved by a largely party-line vote of 222 to 199, would require U.S. intelligence agencies to follow Army rules adopted last year that explicitly forbid waterboarding. It also would require interrogators to adhere to a strict interpretation of the Geneva Conventions on the treatment of prisoners of war. The rules, required by Congress for all Defense Department personnel, also ban sexual humiliation, “mock” executions and the use of attack dogs, and prohibit the withholding of food and medical care.
…

The White House vowed to veto the measure. Limiting the CIA to interrogation techniques authorized by the Army Field Manual “would prevent the United States from conducting lawful interrogations of senior al Qaeda terrorists to obtain intelligence needed to protect Americans from attack,” the Office of Management and Budget said in a statement.

The passage of this bill in the House is correct, although it’s years overdue. The Senate should do the same.

The Bush administration’s immediate rejection of adhering to our existing laws and treaty commitments is shameful. It wants only vague restrictions on itself, with the option to define the interpretation of those vague rules. That is contrary to everything our republic is supposed to represent. Few are still shocked by this, but that does not validate its approach.

Other provisions of the intelligence bill also drew criticism from the White House, including a measure that would require regular reports to Congress on the CIA’s detention and interrogation methods, and on any Justice Department legal justifications for those methods.

This provision, the OMB said, would require from the president “information that may be constitutionally protected from disclosure,” which, if made public, “could impair foreign relations [and] national security.”

If you haven’t done anything wrong, you don’t have anything to be afraid of. Right? Isn’t that what we’re told when the administration wants the option to spy at will? Of course the truth is more complicated, but the Bush administration needs to be accountable to the American people, not the other way around. This is not a dictatorship, despite its apparent aspirations.

John Cole is right when he states:

Bush is a petulant child surrounded by a coterie of scared men who seem to think the world is so dangerous they need not act in accordance to established law, and they really don’t give a shit what anyone else thinks. They want all the benefits of pretending to be the world’s moral authority, all the while behaving like despots. January 2009 can not come fast enough.

I’ll echo the last sentence, but only because Congress is guilty of dereliction carrying out its duties. There is no valid reason that President Bush should still be in office.

Good Riddance

I commend this news, even if it doesn’t become a trend:

New Jersey lawmakers on Thursday became the first in the nation to abolish the death penalty since the Supreme Court restored it in 1976. Opponents of capital punishment hope the state’s action may prompt a rethinking of the moral and practical implications of the practice in other states.

New Jersey’s Democratic-controlled General Assembly voted 44 to 36 on Thursday to repeal the death penalty and replace it with life in prison without parole. The action followed a similar vote by the state Senate on Monday. Gov. Jon S. Corzine, a Democrat and a death penalty opponent, has said he will sign the legislation.

The repeal bill follows the recommendation of a state commission that reported in January that the death penalty “is inconsistent with evolving standards of decency.” …

Indeed. But how this happens is a useful lesson, whatever the topic.

… But equally persuasive to lawmakers was not saving lives but money — it costs more to keep a prisoner indefinitely on death row than incarcerated for life.

There can be a hierarchy of valid reasons to undertake (or prohibit) an action. But what the advocate deems most important is irrelevant in a debate. Convincing others is a better achievement than demonstrating one’s own brilliance.

But mostly, ending the death penalty is great.

Oops. Do over?

I like Megan McArdle’s analysis of the sub-prime bailout:

On a moral level, I’m with the latter group: people who qualify for the bailout are mostly people who really should have known better; they will now be bailed out mostly by people who did know better.

On a macroeconomic level, placing blame is somewhat counterproductive. Those who have sensible, fixed mortgages will not really be made happier if the credit crunch turns into a liquidity crisis, the economy plunges into a deep recession, and they lose their jobs, forcing them to default on their sensible, fixed mortgages.

I largely agree with this, and I say that as someone who has a fixed-rate mortgage taken out during the period included in the plan. Unfortunately, too much rests on the if in that last sentence. I don’t think this deal prevents the negatives as much as it delays them. And I worry about how much worse parts of the impending problem will be because we pretended as though we could make them go away by wishing hard enough.

In my opinion, a willingness to tolerate high levels of moral hazard–to give people second, and third, and eighth chances without inquiring too closely about how they got into so much trouble–is one of the great strengths of the American system. It makes us happier as people, and it lets our society make use of human capital that is too often left moldering in (metaphorical) debtor’s prison under the more punitive and moralistic regimes that prevail in the rest of the world.

Again, I agree with the larger view, as it pertains to our wisdom in permitting failure. It creates a dynamic ability to rebound. But rewarding the failed without demanding the necessary consequences of the failure only encourages the first, second, and seventh failures in the next foreseeable disaster.

Random Bits

First, courtesy of John Cole, Virginia Republicans have a novel idea:

The State Board of Elections on Monday approved a state Republican Party request to require all who apply for a GOP primary ballot first vow in writing that they’ll vote for the party’s presidential nominee next fall.

There’s no practical way to enforce the oath. Virginia doesn’t require voters to register by party, and for years the state’s Republicans have fretted that Democrats might meddle in their open primaries.

I’ve voted in both Democratic and Republican primaries in the past. I planned to vote in one or the other next year to vote for the least objectionable candidate, a stance I don’t expect to carry out next November. Now I’m certain I’ll vote in the Republican primary. If they’re not compelled to keep their promises or act ethically, why should I grant them as much in my vote?

Next, grow up:

The Democratic National Committee, finding itself in the middle of labor disputes between television writers and CBS, announced this evening that it was canceling the debate among Democratic presidential candidates that had been scheduled to be broadcast on some of the network’s stations on Dec. 10.

The last thing we need is another of these press conferences, but seriously, grow up. This is why Democrats are no better than Republicans and why, in the face of colossal mistakes by Republicans, Democrats haven’t dominated. Stop worrying about meaningless appearances and act like a leader. It’s tough and ugly to do so, but it’s all that’s effective in the end. And it’s the only thing that will ever earn my vote again.

Last, Quote of the Day:

There’s a disturbing tendency to think that every problem is the result of inadequate regulation.

The quote is from Megan McArdle regarding sub-prime lending and what some think Alan Greenspan should have done to prevent it, but that line is more than serviceable in so many areas.