I wouldn’t consider myself an expert on history, but I have been reading quite a bit to try to better understand how things in the economy, politics and our government work so I can make better decisions in the voting booth. I also want to start being more involved in the process so that I feel that my little voice somehow makes a small difference in making things better. This summer has been a learning experience. I have come to realize one of the biggest biases in politics, the economy and government is our own personal selfishness. Being selfish does not make one a bad person, but not being aware of it is where problems can arise.
David Frum posted a great blog yesterday about how the ideological stance of the Republican party is harmful to the American economy and political process. Mr. Frum worked for President Bush (43), has written books on the conservatism and believes in smaller government. He also understands that the political process is about balance and getting there is sometimes about compromise and leadership, and not always about getting through all of your ideals. It is a great read and not very long – I recommend checking out the link.
The other thing I’ve come to realize is I am thinking that for all of his flaws that President Clinton really was a great President because he understood our selfishness, and somehow was able to find bits of leadership and find ways to make it work for everyone. We had a balanced budget, yet for the rich and conservatives he signed welfare reform and a massive cut in capital gains taxes. For the middle class he raised income taxes on higher incomes. For the military protectionist types, we went to war in the Balkans. There was some level of gun control with the Brady Bill. There was something for everyone in President Clinton’s policies, and he knew it. Everyone got a little of what they wanted, and it fed their selfish desires.
Certainly there were things that people didn’t like about the policies. Not everything was perfect. I don’t think the policies of Clinton would have prevented a tech stock bubble or the housing bubble. In fact, a case could be made that the capital gains cut made that problem worse. The overall point is that leadership and political discussion requires understanding we are all selfish. If we start with that premise, then we know to be careful anytime we want to start or change a government program or give the government more money.
I wanted to cover that after a Twitter discussion I had with State Representative Ryan Winkler this morning. I thank the Representative for taking the time to discuss some issues with me. He seems to be reasonable in his views. But the initial post that brought on the discussion was his tweet this morning that said:
Moody’s downgrade of MN finances due to ‘political intractability’. In other words, GOP obstructionism lowers our credit score.
I stated that intractability simply means “complex.” His response is the government needs to spend more money on education and taxes should be raised based on the ability to pay (later stating the rich should pay more). Now there is no doubt that education is important. But there is a selfish bias to assume that the rich who already foot over half the bill for education should pay even more for it.
The other point is that if taxing more and spending more were the solution to our economic problems, then why not do it ad infinitum? There must be a point in taxation and government spending (and government hiring for that matter) where the benefit stops or we would just have the government tax us 100% and hire all of us so unemployment would be 0%. Obviously that doesn’t work. So we have to realize that it is our very selfish nature, the desire to make more money, that drives our economy. The government must exist to protect us, so it will always be a cog in the machine that is our economy. It is not easy to find that point where it isn’t doing enough, and when it is doing too much. In either case, it is hurting our economy. The danger on the “too much” side is that can also affect our freedom.
Look at it another way. If unemployment benefits were a great driver of our economy, then why not just start sending checks to everyone so that they could go buy more stuff? If government work was a big driver of the economy, then why not double the government work force? Now don’t take this as me saying to stop those benefits or saying we don’t need government workers. What I am saying is that there is a point where government money becomes ineffective in the economy. We have to be aware of that. Based on the last 20 years and my humble opinion, government is probably spending about enough. What we need to do is get the size of the federal government reduced and get more spending brought back to the state and local level. We are going to need to raise taxes to get the budgets balanced. That would do much more for the economy than what is happening now.
So you can see, I will freely admit we are going to have to raise taxes in order to ensure that our standard of living doesn’t suffer during this economic malaise we are in. Likely, that is going to fall on those with higher incomes more. We can debate on how we should accomplish that, which I think can be done by fixing the tax code more than by raising the rates. But we are going to have to go back to the rates of 10-15 years ago to make sure we don’t lose all we have gained. But we have to be careful that we don’t allow those taxes to be spent on other things due to selfish motivations.
Do You Really Think We Are That Selfish?
I’d like to ask all of you how many televisions you own? How many iPods? How many PCs? How many pairs of designer jeans? How many times did you eat out this year so far? How many magazines do you subscribe to? Do you have cable? Premium cable? How many major sporting events have you attended? How many of the things in your house are made in the US? How many of you have mutual funds in your retirement accounts that benefit from the very corporate profits you are now claiming to despise.
My point is we are all selfish – rich, middle-class, and poor alike. We must first admit that we are selfish and step outside of that selfishness before we start shouting about the problems we face in our country. We must also realize that part of being free is the right to be selfish and the only way to maintain that freedom is to make sure that whatever we do, it is applied equally.
We need to do things to support and encourage freedom and success, but we cannot buy success through wealth transfer. We cannot spread out way of life throughout the world to people who do not want it.
Name calling and demonizing a group of people or one certain party is not going to solve the problem. that is what these politicians want, and you are playing right into their hands – they want this polarization, as it solidifies their base for the next election. Realize we all have our own self-motivating factors, and lets all work to try to bring out the better in people instead of continuing to grow the self-interest.
I will warn you up front. This post will probably twist your brain. You may want to grab a beer before you read this one. In fact, this post is more out there to try to see if I can better express it in writing than I can in thinking. I’d really like your feedback. I’d really like you to think about it. Let’s see if this changes anyone’s mind.
I have posted a few blogs now about why the government needs to be careful about taxing more (even the rich), about how we have the power to tax the rich with our consumer power and how even the arguments for taxing the rich are riddled with logical fallacies. Before I show another interesting thought on taxation, let me throw out this one fact that came to light recently. This Tax Foundation data which comes right from the IRS but is presented neatly is amazing. It shows that in 2008, almost 140 million tax returns were filed. If you just divide the number of returns up evenly and look at the top 1% or the top 1.4 million returns, the bottom return of the 1% had an AGI of $380,354. Certainly a nice amount of money. What is interesting to me is if we took every dollar (AGI) that the top 1% made in 2008), it still wouldn’t be enough to balance the federal budget this year. Every. Single. Dollar. Yikes.
What I want to look at today is the application of morals in our laws. I have had a few discussions on this where the argument is made that morals are the basis of our laws. I would argue that in reality, it is our laws that protect our personal freedoms and personal property that happen to coincide with our morals. Perhaps the lines are simply more blurry. A simple example might be a law against physical harm. Someone who assaults you or someone who kills another is charged with a crime for inflicting personal harm against your or the deceased’s body (property). Most would agree it is morally wrong to inflict that kind of harm against another, but the basis for the law is a property harm. Same with theft. It might be morally wrong, but it is a law because it is a violation of the rights to my property.
Let’s take a clear example of a moral law applied as governmental law that I feel is wrong. I have blogged in the past about gay marriage and how there are many reasons, one of which is protection of contract law, as to why gay marriage should be legal. I think most readers of my blog are going to be in agreement with me that gay people should be able to get married, or at the very least don’t really care. The bottom line is it is two adult people who are consenting to a specific arrangement that by law has special benefits only allowed with one person at a time (right now in MN statute as one man and one woman). The argument from the Republican side is that government has an interest in heterosexual marriage for the health of the state (nation) through procreation. The law doesn’t and I don’t think would be Constitutional if it required procreation, so even if that were true the law couldn’t require that as part of the contract.
Some would argue that being gay is a choice. I don’t really care. Even if it is a choice, the science says it is not a disease (the APA removed it in 1973) so it is a choice a person is free to make. Note: I am not offering my opinion that it is a choice for people to be gay. I am simply saying that choice or not, it is irrelevant in how homosexuals are treated by the law. An adult watching pornography to excess may be harmful to their own health, that is a choice that person can make. I can choose to have a 3rd or 4th beer which many experts would say is harmful, but should the government make it illegal for me to do so? Mormons abstain from all alcohol, but we do not impose their morals on the entire country (and when we did it fail miserably). My point is even the moral choice argument is not a reason to ban something because some morals simply do not violate another’s personal rights or property.
The more compelling or interesting moral argument I want to make is in government taxation and spending. Starting with taxation, the interesting arguments I often hear when making a case to raise taxes on the wealthy and on corporations is the “ability to pay,” “paying their fair share” and “keeping massive profits.” Let’s start with a very basic premise, is it wrong to make money? The question may seem like a straw man question, but it is not because there would be a few people who would probably say we should all make exactly the same amount. OK, so once we’ve eliminated that for the most of us, I ask the next question. Is it wrong to make lots of money? How much is too much money? If you answered there is no amount too much, then shouldn’t the rich pay the same rate as the rest?
However, if you answered that some people do make too much and should contribute more than the rest of us, I want you to think about what kind of judgement that is. Isn’t that a moral judgment? Isn’t the very idea of judging somebody to be too rich or so rich that they should be giving to the poor a concept of morals. That is the internal debate I have whenever the idea comes up about setting a separate rate for those making incomes much higher than me or any of my friends. Who gets to decide what is “rich?” Are we not making a moral judgement? By making that moral judgment from the left (since taxing the rich is a liberal concept), are we any better than those conservatives making a moral judgment on homosexuality?
I do realize that for most homosexual people, it is not a choice (I can’t say all simply because I don’t think the science would even say that). So certainly there are differences in the gay marriage issue and the taxation issue. We have to have some taxation in order to provide police, courts, the military, etc. We can’t have “some” gay marriage. Taxes always have to exist as a part of government and they have to adjust as the government faces national security threats, national disasters, etc. A gay person shouldn’t be denied a free consensual choice just because some find it morally objectionable.
One other thing to consider that makes me very sad about the vote on this gay marriage amendment that also applies to the “tax the rich concept.” The reason we have a democratic republic and not a direct democracy is to filter the majority. We don’t want 51% to be able to rule 49% of the people. It is sad that Minnesota’s Constitution could possibly change if 50.01% of people make it so. Hopefully next session the DFL will be able to pass another amendment proposal that would require a 3/5 vote in both chambers to have an amendment appear on the ballot. It would help to filter contentious issues. At the same time, this filter is also meant to protect those at the top from the majority. When government taxes us, they are taking our money by force (go to jail if you don’t pay). So when we tell the rich they need to pay even more than we do, we in essence are saying we paid you for your product, but now we are taking back that money by force through mob/majority rule. Is that moral? Note: See my previous posts or IRS data. Top 1% of income earners (make over $400,000/year) pay 40% of income taxes and top 5% (make over $250,000/year) pay over 60% of income taxes.
The other part of the concept of taxes hard to reconcile with the gay marriage debate is a whole host of taxation issues that comes with being a married couple. People who are married get special tax treatment (very special tax treatment). If one spouse dies, the other spouse is able to take over all of the property without having to pay the estate tax. We know there are people that find gay marriage morally objectionable. I would imagine there are a few people that find heterosexual marriage to be offensive as well. Should we go by their moral judgment and eliminate the spousal exemption of the estate tax, so the remaining spouse might have to sell the house to cover the 35% the US Treasury wants? The very concept of special tax treatment for married couples, gay or straight, could bring up moral objections from some of our citizens.
The very concept and intent of the income tax when the amendment was passed was to tax only the very top portions of income (in fact only about 4% of the population was intended to pay it at all). But since 1913, we have changed the income tax code to be such a mess of special interests that it has gone from a few percent of income over $1 million to over 20,000 pages of a mess not even the best tax attorneys can understand. Corporations like GE took huge tax credits because they built the windmills. (they still paid taxes, but no where near the 35% corporate tax rate. See #4 here). People like Governor Dayton or Warren Buffet take advantage of income tax free states and set up trusts to avoid taxes, and further avoid taxes by taking income as long-term capital gains which is taxed at a much lower 20% rate.
So yes, large corporations and the very rich often do pay a lower rate than many of us in the middle class. They also pay many more dollars than each year than we ever will in our lifetime. If we feel that they should be paying more on par as the same rate as the rest of us, then it is time to adjust the tax code and put some stability in the rates. It is not the fault of the corporations or the rich person for wanting to keep more of their money. They do it legally. It is the politicians that gave them the key to do it. A simpler tax code with lower overall rates would go much farther in fixing the “fairness” issue than changing the rates every couple of years would ever do.
On the other side of government, we can all agree that there is some waste in the spending. We can all agree to disagree where government should spend the money that it does take in. This is another reason why we need to be careful in how much money we give to government. Whenever government asks for more money by raising the tax rates, it usually means a program is going to be expanded or a new program is going to bee added. I again point you to this video of Penn Jillette I have mentioned before in this blog where he makes a great logical case as to why we need to be careful of the size of government because eventually government will spend money on something we object to. The more we allow government to clash with our own morals, the more we then allow them to impose their own morals on us as well.
So that was alot of information Eric, what are you saying?
Two people in a consensual relationship that choose to get married do so because there is a list of benefits that come with the civil contract as defined by statute. These benefits are a list of standard things you might do with a person you intended on living with for a long time anyway, and are some of the things that people have come to expect from the various religious marriages celebrated for many centuries. By state standards, that’s what marriage is: a standard contract between two people. We don’t allow gay marriage (or polygamy for that matter) based on a mostly moral objection based in a religious belief. There is also an economic objection because of the economic advantage gained by married couples, but the moral objection is by far the largest objection.
When someone gets rich (Steve Jobs, Warren Buffet, Sam Walton), they do it by creating a product or service at a price or service we feel is fair or adequate. It is a private transaction between two people where they exchange their product for our money. When we choose to tax them because of the income disparity, we are making a similar moral judgment that income inequality is unfair. We also make a further moral judgment that if we take more from the rich, they won’t notice it in their lifestyle as much as if it is taken from the middle class making it OK. The only economic argument I have heard made is that we need to equalize income or it stifles overall economic growth. Money has no value unless it is put somewhere.
I do find statistic such as in this article from salon.com showing corporations with massive amounts of cash and large profits yet we don’t see many of them hiring. We can all shake our fists at those companies, but then when we stop at a Bank of America or Wells Fargo ATM on our way to Dairy Queen (Berkshire Hathaway) and make a quick stop at Walmart for milk and bread and maybe some GE CFL light bulbs, we put more cash in those very corporations hands we claim to despise. I would argue to tax them more after voluntarily paying for their product is actually immoral because we are taking money back from them by force we gave them of our own free will.
The differences in the two issues are that in the gay marriage issue, there is no real defined benefit in keeping them from being able to be married. There are some flawed studies from group that are already biased to support the conservative position of opposition, but there is no real negative outcome in allowing a gay couple to marry. In taxing the rich more, we do get to provide more programs to help those in need, build better bridges, provide better education. If we don’t tax the rich more, we are then not passing our moral judgment through the government. As you can see it is a much trickier balance.
Please realize this post is more about getting you to think about your own morality when discussing political issues. We will never get away from morals in the law and in politics since they do intersect often with personal property and personal rights. It is immoral to most people to steal from someone else, but you are also taking their property. It might be immoral to some to drink or do drugs, but when someone drives while intoxicated they put other’s lives and property in danger. We bust some people for drugs, others we choose to ignore their personal use joint. Is that moral or even fair?
My premise is we will continue to discuss and adjust things that will be a necessary part of government such as taxes, spending and the criminal code. When we discuss and decide these issues, we need to be aware of our moral bias and try to acknowledge it and be as fair as possible in balancing morals with rights for every individual. Society has decided government has some role in helping those unable to provide for themselves, and we will continue to discuss the role of government versus the family in those situations.
I will issue an apology for this post up front. I am going to be flirting with some logical fallacies in posing my questions (somewhat rhetorical). I do so only because I have yet to come up with a better way to start the conversation. So I say the questions are somewhat rhetorical because I do feel they do need an answer at some point, but I don’t think they can be answered simply, nor could someone answer them in a short conversation. However, we should be thinking about these questions.
My first question has to do with taxing the rich because of income inequality. I thought about this when I saw this tweet and the accompanying NPR story where the federal reserve is stating income inequality hurts growth. There can be some economic truth to this. I won’t detail it, but let’s assume the truth in the fed reserve statement that income inequality can hurt growth. The immediate response to this is we should tax the rich more to redistribute that money back to the lower and middle class to make the income more equal. This is where I have a problem. Are we really a free country when we have government deciding how much stuff is too much stuff?
(I am separating this since this is somewhat a straw man argument, but meant to provoke thought) If someone has a billion dollars, should we maybe tax their new income at 98% since they don’t really need it, where as maybe we could tax someone just coming out of bankruptcy 0% to help them get ahead? What about if you own a speed boat, a fishing boat, and a pontoon boat? Maybe we should tax you more because you don’t really need 3 boats? Maybe you should pay a fee every year if you own another freezer other than the one on your fridge since you can afford extra food and electricity, you must have extra money. You see how absurd these scenarios are, but that is the point. It might not sound absurd to charge a billionaire more than you, but it is so dangerous to let government with the power of force decide that. What happens when they decide it is a million dollars? $500,000? $150,000? $90,000? What if they decide 300% of minimum wage starts requiring equalization, so at $45,000 they start taking 50, 60, 80% of your income? That is my point, no one can tell me what level is fair, why it is fair, and even if it really even sounds fair once you start putting it that way.
The other part about income equalization is our income inequality is entirely our fault. We have become so entitled to anything and everything we want that we have made the rich very rich. I have blogged on this on a couple of occasions; we have the power to tax the rich. We will have to give up some convenience, perhaps put off some purchases. We might even feel a little pinch in our pocketbook for a little while, but if we buy local, bank local, save money, grow gardens, buy union, buy USA made and avoid those large corporations as much as possible, we would quickly transform our economy and put more money back in the hands of the middle class. When we say the rich are too rich and expect the government to take away their wealth, we are asking the government to take away money from someone by force that we all gave to them voluntarily by buying their products. If you don’t want someone to be rich, don’t buy from someone who is rich.
My other question about taxes in general is how much is enough? We have an aging population, so all of us are going to have to realize that we may have to go with a little less to take care of them. It is simply a matter of fact. Since we produce less in the US, we have less. Our population is aging, and has more needs. They are going to have to spend their savings on their care. People of my generation, we are going to have to help them, save for ourselves, and likely work longer than our parents. We have to change our entitlement mentality and realize we are going to have to sacrifice more for our parents, or grandparents, and our children. But how much of that should be done by the government? And how much do they need?
This is a bit of a straw man question as well because it isn’t easy for someone to answer. But if there is anything I can’t stand is how angry the liberals get with me when I ask them this question. It is an honest question. You can’t take all of a rich person’s money. You can’t take all of my money. We shouldn’t even take most of a person’s money. We should take only what is necessary, and that should be applied judiciously. Not because the rich can’t pay, but because we voluntarily gave the money to the rich by purchasing their product, it is unfair for us to then go reclaim our money by force through the government. So how much should we tax the rich without putting the freedom of the American Dream of becoming rich in jeopardy?
And Now For Something Completely Different
I wanted to put this in because I am often told I am too hard on the liberals. However, I found one of my favorite conservative libertarians falling victim to a myriad of logical fallacies recently, and it is only right I call him out on it.
Jason Lewis does a national radio show out of the Twin Cities. He is not quite as harsh as alot of other conservative radio hosts, so I have listened to him for about 6 months now and have found him entertaining and also educational. He does have a good grasp on economics and tends not to fall into the social issue agenda much as he feels those are issues left to the states to decide as he is a big states’ rights person. However, because of his long-time relationship with the Republican Party, he has become friends with Michele Bachmann. He actually was the one who introduced her at her event formally announcing her presidential run. I have serious concerns as this has clouded his judgement.
The big issue I take with Michele Bachmann is her intellectual dishonesty. I personally do not believe in a personal god, but because the case for god is an unknown I don’t have a problem with people having a faith or believing in religion. I do however have a problem when people who claim to be intellectual cannot reconcile religion and science. Ms. Bachmann believes that intelligent design should be taught in science classes. Even the Catholics have been able to reconcile the biblical story and the theory of evolution, but many Christians still want to deny decades of science and believe their non-scientist pastor that the earth is only 6000 years old and that we just appeared instantly on earth.
Where Jason Lewis goes wrong is he tried to compare it to the teaching of climate change. He calls climate change a “faith-based” movement in which only one side is taught in schools and even though “the science” says otherwise we don’t let that science in the class. But we can’t let a little bit of “faith-based” theory into the biology classroom. This fails on a couple of levels. First, climate change is not a “faith-based” movement. It is a working theory in the scientific community. I will grant him that the role of humans can be exaggerated (i.e. a political agenda) in the classroom. Mr. Lewis admits he is not a scientist, so he doesn’t understand that the issue is still being studied and debated, and thus it should be presented that way in the classroom. Evolution is different. Although very minor details such as biological classifications are being debated and new discoveries do sometimes shift the evolutionary tree slightly, the overall theory is sound and has held up for 150 years through thousands of examples. There is no controversy in the theme. The same with the age of the earth. There are some details and questions on the scales of a few million years, but that amounts to less than 1% of the 4 billion year age of the earth.
So, Mr. Lewis – although I have normally trusted your logic, you are failing miserably in your support of Michele Bachmann. She does have fairly sound economic policy and seems like a nice person, but she also has admitted an underlying social agenda and religious agenda that undermines her intellectual integrity. It is one thing to have faith to guide you, it is another to have faith to lead you. The entire premise of her campaign is illogical, and I hope before too long you will see that to and not let your friendship with her blind you to that fact.
I heard an interesting tidbit on a podcast today and I thought I should look a bit further into this tidbit to see if there is some truth to it. It turns out Governor Dayton has spent years avoiding taxes in Minnesota by setting up trusts in South Dakota and setting up limited partnerships in the Cayman Islands. Now as Joe Soucheray rightly points out, this wasn’t necessarily solely a decision made by Governor Dayton since he is not the only family member affected by the money. It does show a couple of broader points. First, when you have guaranteed money coming, a person has a tendency to be willing to part with it. If taxes go up a little, a person in this situation might not care because more money keeps coming all the time. So for Governor Dayton, even if the money he makes that is taxed in Minnesota goes down, would he really care when he has a nice stream of tax-free income from South Dakota? Second, the very fact that the family set up these trusts and partnerships with the intent of avoiding taxes shows that taxes are an important factor for the wealthy in deciding where to invest their money.
Another interesting issue is the state employees laid off during the state shutdown. I don’t want to be misunderstood, so I want to be clear that I am sure this is a hardship for some since it is a reduction in income. However, let’s put a few things in perspective. State employees that are laid off are collecting unemployment benefits, meaning they do still have some income. State employees are also having their health benefits are still being paid. Employees are continuing to accrue vacation time at the normal rate during the shutdown. And while all of that is happening, those employees deemed essential have had to report to work and have had their vacation time cancelled. Anyone laid off for any amount of time faces a certain amount of stress, but it is always important to understand your situation and know it could be worse.
One last little tidbit about the shutdown. I really hate the little political lies that get blown up and used for media fodder. The GOP says the budget is being increased by about 6% over the last budget biennium. The democrats say their spending deal is about flat or slightly below the previous biennium. So who is right? Actually, both parties are right in this case because the truth is in the language used. The GOP uses the word “budget,” which in the previous biennium was about $32 billion dollars. However, after the budget was passed, the federal government provided some additional one-time stimulus money which we spent. That means the state spent roughly $35 billion in the last biennium. So, the GOP budget proposal is about a 6% increase over the last budget passed, but would represent a decrease in spending over the last biennium. The democratic proposal would actually increase the budget about 11%, but would keep spending about flat. I hope everyone can see that. A simple analogy would be if you set your budget for the whole year to be $20,000, but in the middle of the year your grandma gives you a gift of $2,000 that you blow on a TV and a PS3. Next year you budget $22,000. You have an increase in your budget of 10%, but your spending would be flat.
Does anyone else feel like they are watching reality TV when watching news on the shutdown?
I may edit this a few times in the next few days as I learn things about the shutdown in the State of Minnesota. One thing I do know to start – neither side is telling us the complete truth. For the GOP and the democrats, it is all posturing for the next election (this goes at the national level too). Am I being to hopeful that leaders will emerge from the politicians that are running our government now?
If you spend less than you are expecting, it is not a cut.
I hate the word cut as it is used, mostly by democrats. I cannot stress this point enough. It is dishonest and misleading. It would be more accurate to say we are cutting back on projected spending. It could even be stated as we are cutting our inflationary adjustments for this budget cycle. But to call a real-dollar increase that is smaller than projected a “cut” is wrong.
A deficit is not a deficit if the money isn’t spent.
This is another word that makes me crazy. In Minnesota, our constitution requires a balanced budget every budget cycle. In all reality, we can’t have a deficit. I’ve said it before – if I expect a $10,000 raise next year and plan on buying a boat with the extra money and I don’t get the raise, I don’t have a deficit. I can cancel the boat purchase. I can get a second job. But I didn’t buy the boat, so it isn’t a deficit. A smaller projected revenue to projected spending is not a deficit.
The GOP in Minnesota proposed a 6% increase in spending.
Since it seems most news stories only repeat the party talking points, some of these are harder to decipher. From what I gather, the GOP is making the claim of a spending increase based on state money that was spent in the last budget cycle, while excluding money that was spent from one-time stimulus money from the federal government. So the GOP isn’t being truthful here. It would be more honest to state we are keeping real dollars spent level, and we are lucky to have the extra revenue to do so.
Spending shifts are not revenue.
Both parties are to blame here. This will be one spot where I will say the Governor came out like a star in his speech regarding the shutdown. For years, the federal government has been doing this. More recently the state has been using this “strategy” as well. Both parties in the past are to blame. At the federal level, the promised payments to schools for special education is 2 to 3 years behind. They also only pay somewhere around 30-40% of the total cost of special education. At the state level, schools are owed well over $1 billion thanks to the past democratic legislature and republican governor. “Borrowing” from schools is a stupid idea, and it isn’t revenue. If you can’t afford to pay the schools, then just tell them that. They’ve already gone without the money, so let’s stop “delaying” payments, give them what we can afford, and stop lying about it to the public.
Inserting social control into small government.
I am seeing conflicting reports over whether or not the GOP inserted their social agenda into the last budget offer they sent to Governor Dayton. I’ve said many times I am for smaller government. I’m sorry GOP, but you are a big loser here. You can’t push a religious-based, social control agenda and be for smaller government. So, whether or not issues of abortion, stem cells, etc. were in the last proposal, the GOP already showed its hand by trying to pass an amendment against gay marriage. Some GOP candidates for President have already stated they don’t believe in evolution and want intelligent design taught in schools. Why don’t we ask other countries who are far ahead of us in science and math what they teach in their biology classes (hint: Charles Darwin wrote about it).
Defending spending and tax increases
Please read this section carefully. I do think when all things are weighed out we do need to ask the wealthy for more money. As circumstances change, we are going to need to adjust tax rates. It has happened in the past and will continue to happen. Even the Laffer Curve theory admits that the “sweet spot” maximizing revenue changes over time. However, I have a very hard time supporting taking money from anyone when I can’t get an honest explanation or be offered any kind of accountability. I don’t care if Reagan raised taxes 11 times. I don’t care if you “need” it. I need a new truck too, can I get a subsidy for it? <– This question is just for effect. What I mean by it is show me how the new money is going to be spent and how we are going to reduce waste and abuse before I give my support.
This is where the Democrats get it wrong. They hold up a picture of the kids or the elderly and say “this is who we are hurting.” It is a terrible strategy because people don’t believe it. I bet almost everyone reading this can give anecdotes of waste and abuse in Health and Human Services, Education, Housing…all of the big budget items have some level of waste and abuse. Governor Dayton in his shutdown speech said it can be fixed, but we have to give more money first. But we don’t. The waste and abuse continue as they always have. And people have grown tired of waiting to reduce the problem. You can’t use the talking point of “we are only going to tax 2% of the citizens of Minnesota.” They are people too, even if they are rich. Show me you are going to use the money wisely, and I will support it.
The Independence Party tweeted the night of the shutdown that no one has mentioned why HHS needs more money. Our population is getting older. This is true. It is going to get more expensive to care for the baby boom people. We are going to have to be smart in how we handle these people, our friends, neighbors, and family. But is it fair to ask a few people (the people with high incomes) to pay for all of our parents, friends, and neighbors? We are all going to have to do a little more to help out each other. We don’t need to take the money from the rich by force. There are better ways to get the wealthy to help. We also might have to take a little more out of our own pocketbooks.
A couple of thoughts on how we might ask the wealthy for help. We are so willing to give out state funds to the rich to build stadiums for their sports teams, maybe we could do something similar with buildings that would be useful to more people. Help us build a new school and you can have the property across the street and charge for parking at high school sporting events. Help us build a nursing home and you can put your pharmacy right next door. These might not be perfect ideas, but I’m just throwing them out to get us thinking differently so we can all feel like we walk away with something.
Why do I insist on protecting the rich?
I am adding this section due to some current and previous responses to my blogs about taxes and government spending. Let me just say I am not advocating my position to protect the rich, nor am I saying that we absolutely should not raise taxes on the rich. But there are a few reasons we need to think very carefully before we let this happen.
First, before we raise any taxes on anybody, we need to be asking what we are getting for the money. In any political discussion, have you ever heard an agreement on the government has enough money. Imagine if the parties came out united and said “Great news! We have more money than last year, so we don’t need any more from anyone. Thanks!” When we continue to ask the small percentage at the top for more money, it is a bit like the spoiled rich kid asking for more money for books at college, when all he is really doing with it is buying pot. At some point, the rich start asking why their friends kids Texas and South Dakota never ask for any money (TX and SD have no income tax).
Second, we have to recognize they are people too. People at all levels want to keep what they have and what they feel they earned. The very rich already avoid taxes by changing their behavior. They take income from investments, so they can pay the much lower capital gains rate. They buy municipal bonds that have tax-free interest payments. It doesn’t make what they do “right.” It is reality. We have to be judicious in asking for more money, or the rich will change their behavior. In the end, the person we hurt the most is the person who finally opened that 5th restaurant and made their first million or the family farm who have a good year but take a great risk every year in what they do.
Third is my assertion that government needs to stay small and we should generally not give them more. Once we give them more money or power, it is very hard to get it back. In MN for example, Governor Dayton may have all good intentions to spend the extra money on important things like education, the sick, the poor, etc. But what happens when the next election comes around and someone else is running the show. We have no guarantee that the next person will be as pure in intention or have the same goals as the current person. It is hard to make a complete judgment of that character simply based on a campaign. What if the next person decides to take this new money away from education and use it to develop a long-term nuclear waste storage facility in the state? What if this person uses the money to build a pipeline from Lake Superior to the desert southwest? Once government has the money, we have no way to control how they spend it. I don’t know if anyone remembers the Patriot Act, but we gave that control away to the government and despite his campaign promise, President Obama has yet to give that power back to us.
Finally, I am not saying in this instance a tax increase isn’t justified. What I am saying is we need to have the discussion of how much is enough. The rich do have a big influence on our economy through investments as well as the taxes they already pay. I have advocated in my previous posts that one of the most important things in tax policy is stability. We can’t keep threatening to change the tax code or raise tax rates every time the wind blows. So let’s take a look and have the discussion of how much does government need. Let’s be honest as to what it is going to be used for. And once we’ve decided what level of taxes is appropriate for our needs, let’s set it there with some assurance it won’t change for the next 10-15 years unless there is some disaster far beyond what we could ever anticipate. That’s tax stability, which is nearly as important as the rate. Tax fairness and keeping taxes reasonable is also important, but stability can help offset the other two aspects.
I apologize for a bit of a straw man argument here, but here’s something to consider about tax rates. If we raise the tax rate by 1% every year, where will the tax rate end up (Answer is 100%)? If we raise the rate every time we need money, we soon run out of rate to raise. Tax rates on income are set a percentage. So if the economy grows and incomes go up, the government already gets more revenue. In fact, the state of MN has had an increase in revenue, but because we shifted payments in the past and we spent one-time money from the federal government, the tax revenue projected is about even with spending because we got money from elsewhere in the last budget cycle.
Some sobering numbers
Mark Dayton’s latest proposal wanted to raise taxes on those making over $1 million per year. He said in his shutdown speech that amounted to about 7,800 people in the state we would be taxing. To make up the extra revenue the Governor is requesting of roughly $1.5 billion, each of those people would have to pay an average of over $192,000 each. Do you think $192k will change someone’s behavior?
At the national level, our debt is approaching $14.3 trillion. According to the IRS, the top 1% of income earners pay 40% of all taxes, the next 4% pay the next 20%, the next 45% pay the remainder while the bottom 50% pay no net tax. If I assume every person is a taxpayer (making the following numbers as low as possible), here is the break down of debt per each segment: The top 1% each owe about $1.9 million, the next group owes over $283,000 each, while the rest of us that pay taxes owe over $42,000 each. I think that’s also enough to change behavior.
My twitter discussions
I’ve challenged quite a few politically active tweeters to some questions they don’t like. To them I’d like to apologize if I offended you. My purpose is I really want to challenge your thinking, and I want you to challenge mine. I want to learn more, and I would hope that rather than be insulting you would grant me the same education.
The thing that irritates me more than anything is blind party loyalty. If you think your party is the solution to all of our problems in government or society, you are simply wrong. I have no problem with someone backing a party that mostly aligns with their principles, but when you call out the other party’s hypocrisy while ignoring your own, you lose credibility. We have to call out the “leaders” on both sides on their hypocrisy and by doing so be leaders ourselves. We will all be better for it.
A couple months ago, I posted a blog about how we hold the power to tax the rich. The basic premise being if we all stopped buying products and services from large corporations, those companies would quickly go out of business. Imagine what would happen to Walmart’s profit margin if for one month we all bought food from a farmer’s market, used washcloths after our bathroom visits and just washed laundry more often, skipped the coffee and soda, and found alternatives to all of the products we might normally get at Walmart or Target. Now if we continued that, that farmers and local grocery stores would have to expand and hire more workers. Your local coffee shop (and not the large chains) might open a second location. After a few months, the economy would be shifting dramatically. We would all have to put up with having less for awhile since it would be a bit more of a drain on our wallets, but the rich would no longer be rich. Note: Just remember that most of us with retirement funds are likely invested in these large corporations through our mutual funds within our 401(k) accounts and similar vehicles. If they fail or go bankrupt, it could be a hit to your retirement funds. The economy and the rich are more connected to us than you think!
This subject came back into my mind because of the debate in Minnesota over raising taxes on the top 2% of income earners. The justification from the liberal side is that the top 5% of income earners in MN pay less than the rest of Minnesota pays. See how easy it is to twist this stat? It is true in a sense, but the base truth is the top 5% of income earners in MN pay 43% of the income taxes collected. So yes, the other 95% pay 57% of all taxes, but does that really translate to that 5% not paying a fair share? The simple analogy is if 20 people have a $100 bar tab, and 1 person pays $43, the remaining 19 people pay $3 each. Not bad considering you each had a $5 drink. Also, in MN, the bottom 30% pay no net income tax. So in the bar analogy, 1 person pays $43, 13 people pay about $4.39, and 6 people pay nothing. So you can see that only one person in that group of 20 paid more than what they got in return, everyone else paid less than the cost of their drink.
You will see the question in the comments of this article is “where are the jobs?” Liberals often question the idea of trickle-down economics (the more formal economic term is supply-side economics). I’ll start by going back to the idea of the Laffer Curve. The premise of the Laffer Curve is that there is a point in taxation that starts to stifle economic growth and actually brings in lower tax revenue than a lower rate would. It is very common sense at a basic level. If the government taxes at 0%, it collects no money. If it taxes at 100%, it collects no money because no one will work for free. At 99%, the government still gets very little because no one wants to work for only 1% of their total pay. The idea is that there is a “sweet spot” where the government maximizes revenue and yet few business decisions are based on tax policy. I had a discussion on twitter with University of Minnesota professor Bill Gleason about this a few days back, and he sent me an article “debunking” the Laffer Curve. The best part is the article says it debunks it but than admits in the body of the article the Laffer Curve does work (under certain circumstances). If you read the full Laffer Theory, Art Laffer says the maximum is not easy to find, and changes over time as well as changes with circumstances. It is more important to understand the Laffer Curve so that we are more judicious in our decision to change tax policy.
One other interesting piece of information that come across Twitter this morning was a piece from thinkprogress.org. The piece was a chart showing states that had spending decreases lost jobs, while states that spent more money had a small gain in jobs (on average). But to put a skeptical eye on any statistic is important so I thought I should point out something interesting.
- Two states that caught my eye right away are Texas and South Dakota. They had some of the highest gains in employment (with their spending increases). These states also have no income tax.
- North Dakota would be considered an outlier, but interesting that we loosened some drilling regulation there and they can’t even build enough houses for all the people going out there to work the oil drills.
- Montana increased spending almost 50%, and got a less than 1% gain in employment. North Carolina had a 30% cut in spending, and only lost about 2% in employment.
- You might also notice the cluster of states at or near zero increase/decrease in spending – more states are above the line of employment gain than are below it.
- These numbers are inflation adjusted, so you could adjust the 0% line of spending to the right a bit. If you were to look at this in real dollar spending, the picture of how government spending affects jobs becomes even less clear.
- “…what I’ve done throughout this campaign is to propose a net spending cut.”
- “Every dollar that I’ve proposed, I’ve proposed an additional cut so that it matches.”
- “We need to eliminate a whole host of programs that don’t work. And I want to go through the federal budget line by line, page by page, programs that don’t work, we should cut.”
- “And we are now looking at a deficit of well over half a trillion dollars…we’ve got to take this in a new direction, that’s what I propose as president.” (Note: this year’s deficit is about $1.5 trillion)