Category: Spending

“Neutrality” is an interesting concept for government.

This article raises interesting issues on the need for investment in Internet infrastructure. I can’t quite decipher whether the AT&T executive is looking for government funding of this needed infrastructure. I think so, although I’m just guessing. Also, while a projected increase in network traffic as video options expand online is inevitable, I’m skeptical of this claim:

[Jim Cicconi, vice president of legislative affairs for AT&T] said: “The surge in online content is at the centre of the most dramatic changes affecting the internet today. In three years’ time, 20 typical households will generate more traffic than the entire internet today.”

In three years? I’d like to see those projections.

But that’s not my point here. Generalize this from the specifics about net neutrality and wonder why we can’t get more of this from the government.

The US Department of Justice said in a statement last year: “However well-intentioned, regulatory restraints can inefficiently skew investment, delay innovation and diminish consumer welfare, and there is reason to believe that the kinds of broad marketplace restrictions proposed in the name of ‘neutrality’ would do just that with respect to the internet.”

Regulatory restraints can inefficiently skew investment, delay innovation and diminish consumer welfare? Even when well-intentioned? Who knew?

Will they reduce rates or add more services when the economy improves?

The current, apparent economic journey into recession demonstrates why limited government is wise. Unlike individuals, who tend tighten their financial dealings through closer observance and more critical judgment, government chooses only one path during tough economic conditions.

Fairfax County yesterday joined a growing list of communities across the region that have raised property taxes this year to protect government services and public schools in the face of declining real estate values and a generally sluggish economy.

Perhaps an analysis of the Fairfax County government would reveal a limited array of indefensible services. I doubt it, but I’m rather more interested in the theoretical here. Individuals can’t simply require a higher salary when their salary falls below break-even. They must understand their need to reduce expenses, however temporarily. When services are essentially guaranteed¹ by the government, flexibility causes problems, as these counties are now discovering. No one should be surprised.

No reasonable person is going to suggest cutting out schools, for example, to save money. But if you send your children to a school that you pay for directly, will you likely be more or less inclined to scrutinize how the school spends its (i.e. your) money? Will administrators likely be more or less accountable for each penny? If there’s an important message that needs to go out, and the school usually prints for distribution, might direct concern regarding costs lead to e-mail distribution instead?

Unfortunately, we have layers of extraneous bureaucracy instead. We have distance between consumer and cost. We don’t know how to say “no” when funds are unavailable or the request is ludicrous. We concede more services as public goods, then relinquish more of our money when tax receipts fall below spending. We cease to question any previous transfer of services to government provision. And when the economy picks up, government takes the credit.

¹ Services are guaranteed. Quality, maybe not as much.

Housing cents in Congress is not housing sense.

Any punditry on government tinkering on the path to a mortgagee bailout that includes this sentence in the opening paragraph probably shouldn’t be taken seriously:

First Congress produced a timely and well-crafted stimulus.

Sebastian Mallaby wrote that in today’s Washington Post. It’s wrong, even if it miraculously results in actual spending on the part of recipients who understand that it’s a loan against future tax increases. Welfare is hardly a stimulus. However, that’s not the most egregious statement. Instead, this:

Of course, some fall in house prices is necessary. But absent federal action, market failure will cause real estate to fall further than the basics of supply and demand would justify. …

Naturally the market failed, because if supply and demand don’t match, the market clearly failed. Buyers aren’t able to prefer a lower price than sellers will accept. Sellers aren’t able to prefer a higher price than buyers will pay. The value each places on her preferred price can’t possibly rule out a short-term willingness to agree. Can’t we all just get along?

It doesn’t get better.

… In a healthy market, foreclosure would be rare, because it pays for a lender to forgive, say, 20 percent of a loan rather than booting the homeowner out and seeing 30 percent of the property value evaporate in the process of eviction. But because mortgages have been sliced up and distributed among far-flung investors, it’s difficult to get their consent for partial forgiveness. Homeowners get dumped on the street, and more value than necessary is destroyed.

Perhaps this is true. I’d like to read a source for this. But how does Mallaby know what specific resolution would be appropriate? Is a 20 percent forgiveness wise for the lender? Do they get the chance to work out these details with the borrower? Would the borrower be able to pay the remaining 80% of the loan? And how much financial gain resulted from the slicing and distribution of mortgages? Does that gain offset the value destroyed by the current crisis? These questions matter. We should have answers before we jump to a federal bailout of anyone.

So, although Congress would be wrong to launch a broad attempt to prop up home prices, it would be right to address the market failure that produces excessive foreclosures. The Senate is working on a smart reform that would begin to do this: It would give service companies that collect mortgage payments on behalf of creditors a legal safe harbor, allowing them to forgive part of a loan without having to fear that a few opportunistic creditors will sue them for being soft. Lenders as a whole would benefit, because the measure would reduce wasteful foreclosures. The flow of capital to future home buyers would not be compromised.

Again with the “market failure”, but more useful is Mallaby’s endorsement of Congress rewriting contracts it no longer deems acceptable under its subjective, uninformed economic analysis. How might that affect the loan market – housing and beyond – in the future if borrowers and lenders know that the key to limiting their own risk is to fail big? The last sentence demands proof more compelling than Mallaby’s wishful thinking.

“Do as I command, not as I say or do.”

As usual, Kip has the correct take on a news item. In this case, the House Oversight and Government Reform Committee is interrogating three CEOs without any clear reason why a committee created to investigate the government is investigating private market individuals. But politicians are involved, so there you go. I recommend Kip’s entry in its entirety.

I’m frustrated by something within the hearings:

Lawmakers confronted corporate executives Friday about how they managed to take home hundreds of millions of dollars in compensation while their companies were taking a financial nosedive from the subprime mortgage crisis.

“It seems that CEOs hit the lottery when their companies collapse,” House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., said at the opening of the hearing. “Any reasonable relation between their compensation and the interests of their shareholders appears to have broken down.”
…

Waxman noted that [Countrywide Financial Corp. CEO Angelo] Mozilo received more than $120 million in compensation and sales of Countrywide stock last year while that company recorded losses of $1.6 billion. Merrill Lynch lost $10 billion in 2007, but [CEO Stanley] O’Neal got a $161 million retirement package.

I’m sure there’s an explanation for this. Not being a shareholder of any of the companies involved, I do not care what they are. And neither should Congress. Perhaps this matters?

CBO estimates that the government recorded a deficit of $262 billion during the first five months of fiscal year 2008, compared with a shortfall of $162 billion recorded in the same period last year.

Why isn’t our CEO, President Bush, hauled before Congress to explain his failure to veto excess (and illegitimate) spending? It couldn’t have anything to do with Congress being the body that sends those spending bills to his desk, could it? I’m sure it’s also defensible to send free money to Americans, as long as Congress prints borrows sends a large chunk but divides it among many Americans rather than concentrating it in a few hands. It’s also defensible to pay it to people who didn’t “earn” a refund by actually paying any taxes. At least the CEOs performed a task, however (incorrectly) one wishes to judge the results.

This is another reason why I am not a political partisan. None of them are competent at anything other than struggling for power. I don’t admire that, and I’ll never follow it blindly.

Four commas times three is madness.

Check in on any political blog today and you’ll see mention of President Bush’s proposed budget for FY2009 (which starts Oct. 1st). Much of the attack has already been made in better detail, so, other than pointing out that 3 trillion dollars is $3,000,000,000,000, the only budgetary point I’m going to mention is this:

The document also assumes $70 billion in costs for the Iraq and Afghanistan wars next year, a fraction of the true costs, which could reach $200 billion in 2008. Beyond 2009, the budget includes no war costs at all.

Lying, in addition to not being very Christian, is an interesting way of “supporting the troops”. I wonder if he’s trying to be snarky to indicate what he expects will happen if Obama or Clinton wins in November. That would require more foresight and less middle-finger-waving than the Bush administration has shown in the last seven years, so I doubt it. Regardless, it’s a significant political abuse of our money to ignore what will eventually be taken from us.

However, as awful as that is, this poor reporting from the article is embarrassing (emphasis mine).

Budget analysts and Democrats say the good news in later year is likely illusory. The Bush budget plan makes room for $61 billion in 2009 to stop the growth of the alternative minimum tax, a parallel tax system enacted in 1969 to make sure the rich pay income tax that is increasingly squeezing the middle class. The cost of an AMT fix will continue to grow each year, but the budget makes no more allowances for the cost of that fix.

This is simply devoid of any historical accuracy.

Why Was the AMT Enacted?
Congress enacted the AMT in 1969 following testimony by the Secretary of the Treasury that 155 people with adjusted gross income above $200,000 had paid zero federal income tax on their 1967 tax returns. … In inflation-adjusted terms, those 1967 incomes would be roughly $1.17 million in today’s [ed. note: the article is from May 2005] dollars.

The Washington Post article can’t believe that 155 people in 1969 constituted “the rich”. Details matter with the AMT because its egregiousness becomes more apparent to the typical voter who doesn’t dwell on such details. The goal in reporting is not to convince him that it is egregious, but omitting specifics deprives him of a relevant fact necessary for him to reach an informed conclusion. Omitting specifics becomes a method for endorsing the policy. Maybe we can’t expect the average voter to seek out The Tax Foundation, but presumably he does read a mass-market source of information.

Also, while I agree with concern that the AMT is “squeezing” the middle class, it’s irrational to believe that we should fix “middle class” rather than “squeezing”. See here.

We’d better spend it well the first time.

What’s the definition of insanity?

“I can’t say that I’m totally pleased with the package, but I do know that it will help stimulate the economy. But if it does not, then there will be more to come,” Pelosi said.

I love that she knows it will help. Oh, but if it doesn’t, which it will, because she knows it will work, she’s going to do the exact same thing again. Because, in the evidence of failure, it will clearly work on the second try.

These are our “leaders”. How does anyone identify as anything other than a libertarian?

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.

I move closer to hoarding my savings in cash.

Hillary Clinton is unfit to be president:

“I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home,” she said.

I recently purchased a new car. I like the idea of getting that car for free. I suspect the dealership will even hand over the keys to me and call it free, as long as I set up a separate transaction where I relinquish a specific number of dollars – strangely matching the value of the car – to the dealership’s possession.

Interestingly, that sounds much like the tax charade that would occur for every child “given” $5,000 from their own future earnings.

It’s possible that funding could come from the earnings of another person currently working (parents?) or who will work in the future. Regardless, I’m sure the “trust fund” aspect will remain an IOU rather than asset-based, with the present tax dollars used for some other socialist adventure. And I discount the possibility that funding would come from the child’s parents, since that would imply a measure of fiscal responsibility wrapped inside this socialism. Since that would also discourage poor people from having children if they have to fund an extra $5,000 up front, there’s no way Sen. Clinton would suggest such a thing. She’ll cave once that possibility arises and claim it’s society’s job to support all children, especially those of the poor, with the poor to be defined loosely later.

More thoughts at A Stitch in Haste, no third solution, and Catallarchy.

The process of getting it shows why it will fail to deliver utopia.

Medpundit offers a concise summary of the fallacy that U.S. universal health care/coverage will mimic other established universal systems. It also explains why I don’t believe that universal health care/insurance will lead to the end of routine infant circumcision in America. (I removed the links from this excerpt because they make it appear too busy, but they’re worth reviewing at the original entry. Emphasis here is in original text.)

The British are often held up as the standard to which we should aspire. But we don’t live under a British style of government. We live under a government that’s truly government of the people, by the people, for the people. And what the people want, the people get. Witness the influence of disease activism even now on disease specific government funding and treatment mandates. In England, the government only pays for colonoscopies to check for colon cancer if there are symptoms suggestive of cancer or a family history of colon cancer. In the United States, the Medicare pays for a colonoscopy every ten years for everyone over 50, regardless of symptoms or risk. So do many insurance companies., sometimes if not by choice, by mandate. In England, mammograms are only covered for women between the ages of 50 and 70, and then only every three years. In the United States, we pay for mammograms beginning at age 40, yearly, and with no upper age limit. We just don’t have the heart for rationing that they have in other countries.

It’s possible, probable even, that universal coverage would reduce the number of unnecessary circumcisions performed as compared to our quasi-private system now. However, I suspect the decrease will be neither significant nor long-lasting. The fundamental flaw in populism is that it can’t say “no” if a majority demand a “yes”. Principles and rules do not matter. The rights of the minority do not matter.

In this particular procedure, the opinion of the patient will continue to not matter. He is treated as a statistic, at best. If the procedure has the potential to prevent a problem later on, regardless of the actual risk faced, the foreskin’s contribution to that risk, or the consequences of that risk, the illogical defense allowing parents to continue cutting the healthy genitals of their sons will continue.

Remember that populism doesn’t care about proper context in cost-benefit, or even the existence of such analysis. As long as the case could be made, every parent is assumed to be making it. And every infant is assumed to be pleased at that assumption, depsite the undeniable evidence that intact adult males almost never choose or need circumcision.

The out-of-context nonsense we use today is illogical to anyone seriously considering all the evidence. The risks are small. There are less-invasive treatments and preventions available. Comparable countries that do not circumcise manage to achieve the same low levels of disease. These facts are ignored because they contradict our mental conditioning. We believe of circumcision what we want to believe, not what is true. That is why we hear that male circumcision reduces the risk of HIV infection by 60% rather than the more honest explanation of how much it reduces the absolute risk. Sixty percent is far more persuasive than two percent.

For the United States we must be honest and ask if a central planner wannabe who is immune to the rights of individuals enough to issue mandates wouldn’t also be immune to fiscal rationing for non-medically-indicated circumcision, as long as it pleases “the people”.

Via Kevin, MD

$8,965,000,000,000

Who needs to act responsibly when that can be pushed off to another generation day?

Treasury Secretary Henry Paulson told Congress on Wednesday that the federal government will hit the current debt ceiling on Oct. 1.

He urged quick action to increase the limit, saying it was essential to protect the “full faith and credit” of the country, especially at a time of financial market turmoil.

Wouldn’t the “full faith and credit” of the country be better protected by not spending more money than we have?

This request isn’t unusual, since it happens every year or so when the Treasury has to follow the law at the same time our elected representatives are spending recklessly the fruits of redistribution. Remember this from March 2006:

“I know that you share the president’s and my commitment to maintaining the full faith and credit of the U.S. government,” [then-Treasury Secretary John] Snow said in his letter to leaders in the House and Senate.

Our script is stuck on stupid, apparently.

To put this in perspective, the debt ceiling was $5.95 trillion when President Bush took office. The Senate Finance Committee recently approved a new debt ceiling of $9.82 trillion. Just shy of $6 trillion in debt in more than 200 years. Just over $3 trillion more in under 7 years, with a new request for the ability to accrue another $900 billion. Heckuva job.